* Ottawa wants Chinese investment in energy patch
* Gov't keen to restore reputation after Potash affair
* Critics fear deal would give China too much energy control
(Adds Alberta government reaction)
By David Ljunggren
OTTAWA, July 23 A friendly $15.1 billion Chinese
bid for a big Canadian energy company gels with government pleas
for foreign money to develop the costly oil sands of northern
Alberta -- a possible sign that the deal could win Ottawa's
The Canadian government said only that it would review state
oil company CNOOC's bid for Nexen Inc, based
on its laws on foreign investment. But lawyers, analysts and
insiders say there are good reasons for the deal to go ahead,
and few reasons to block it.
"It so far appears to be a mutual two-way street. Canada has
made it clear that it is looking for Chinese investment ... And
China is now in a way reciprocating that interest by investing
in a Canadian company," said Oliver Borgers of law firm McCarthy
Tétrault LLP in Toronto.
"It appears to want to do a lot for that Canadian company in
terms of increasing its size, its footprint, its presence
globally, all of the things that would be music to the ears of
the Canadian government," said Borgers, who specializes in
antitrust law and foreign investment reviews.
Approval of the deal would help restore a Canadian foreign
investment climate that the government dented in 2010 when it
rejected a $39 billion attempt by Australian miner BHP Billiton
Ltd to buy fertilizer maker Potash Corp. The
Conservative government said the Potash takeover would not bring
a net benefit to Canada and it vetoed the deal.
But Potash Corp was a huge player - and a big employer - in
the politically significant province of Saskatchewan, while
Nexen's assets are far more widely distributed around the world.
Unlike the Potash offer, in which Saskatchewan's premier
voiced strong opposition, contributing to its demise, Nexen's
home base of Alberta appeared enthused by CNOOC's play for the
company, saying its oil sands assets require major investments.
"Today's potential transaction is further evidence of the
vital importance of Alberta's oil sands to meet global energy
demand," Alberta Energy Minister Ken Hughes said in a statement.
"Foreign investment benefits Albertans, and Canadians, putting
Canadian firms in a better position to compete globally."
One Toronto-based legal expert on foreign investment laws
said CNOOC is making all the right noises by saying it is going
to keep jobs in Canada, make Calgary one of its international
headquarters and list on the Toronto Stock Exchange.
"This makes the political climate a little easier," said the
expert, who asked not to be named. "On the BHP deal, I'm not
sure there was enough forethought given to the political
Nexen is active in Colombia, Yemen, the North Sea and the
United States as well as in Canada, and the majority of its
production and cash flow come from outside Canada.
"This is a friendly deal ... there is a great deal of
forethought given to the kind of presence in Canada that the
government is seeking," a source close to the deal told Reuters.
"The (Canadian) government tends to look for generation of
economic activity in these deals... If that's the gauge --
generation of activity and development -- then this I think is a
pretty compelling proposition."
Canadian Prime Minister Stephen Harper went to Beijing in
February this year, partly in a bid to sell Canadian oil to
China, and he stressed the need to diversify markets and reduce
reliance on the United States. Without foreign money,
development of the oil sands would lag, the government says.
Even so, Chinese investment in Canadian energy firms is
The deal is subject to two separate Canadian reviews, from
the Competition Bureau and from Industry Minister Christian
Paradis, who must decide whether to permit the deal or block it,
either on national security grounds or because it is not of "net
benefit" to Canada.
"Canadians have always been worried about American influence
and American hegemony," said Peter Morici, professor at the
Robert H. Smith School of Business - University of Maryland and
a hawk on China's trade policies.
"I think they'll worry a lot more about China being dominant
than they ever did the Americans."
SETTING A PRECEDENT
A big challenge for Harper will come from critics who say
Canada has no business allowing a Chinese state-owned enterprise
to snap up a Canadian resource, and a section of Harper's own
Conservative Party itself remains suspicious of China.
Canada's opposition New Democratic Party also had concerns.
"Foreign state-owned companies are buying up Canadian
natural resources to pursue their own interests, while the
Conservative government just sits on their hands. This deal must
be subject to a thorough, transparent and public review," said
New Democrat industry spokeswoman Helene LeBlanc.
The source close to the deal dismissed the suggestion that
a Chinese state-owned enterprise might bid for a Canadian energy
company for anything other than strictly business reasons.
CNOOC "is manifestly a commercial entity, this company is
publicly listed, it trades on two of the biggest stock markets
on the world. This company has provided above-average returns to
shareholders and seeks to sell its output on the world market at
the highest possible price," the source said.
Gordon Houlden, a former Canadian diplomat with extensive
Chinese experience and head of the University of Alberta's China
Institute, said it would be inconsistent of Canada to block the
deal so soon after Harper's visit to China.
"Should there not be a massive negative reaction ... I think
this goes through," said Houlden.
But he said Ottawa would have to think carefully about the
precedent allowing the deal might set.
"If you (spent) $30 to $50 billion you could take out almost
all of the largest Canadian energy companies and I don't think
that it would be the government's plan to have a wholesale
transfer of ownership from Canada to China of those assets."
(Additional reporting by Euan Rocha and Jeffrey Jones; Editing
by Janet Guttsman, Frank McGurty and Phil Berlowitz)