U.S. must approve sale of Nexen to Chinese
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Now that the Canadian government has cleared the $15.1-billion Nexen deal, the focus shifts to the United States, where regulators must do the same.
While only a fraction of Calgary-based Nexen’s holdings are in the United States, if the sale to a Chinese state-owned company gets the green light from U.S. government regulators, the People’s Republic of China will have a firm stake in oilfields in the Gulf of Mexico.
The Committee on Foreign Investment has two months to examine the megadeal, searching to see if the foreign acquisition is a threat to U.S. national security.
The China National Offshore Oil Corporation’s (CNOOC) takeover of Nexen is the most aggressive and expensive move by China into Canadian and American oil interests.
Canada approved the transaction earlier this month but Prime Minister Stephen Harper surprised everyone by saying such purchases, from now on, will only be approved under “exceptional” circumstances.
A Chinese presence in the Gulf hasn’t been warmly welcomed by some U.S. senators, American energy executives and those with anti-Chinese sentiments that flared during the recent presidential election.
“This is a Chinese state-owned company, not a ‘true’ private company, and they are doing their march around the world to secure dominance,” said Chris Faulkner, CEO of Texas-based Breitling Oil and Gas.
“China is obviously a huge importer of oil and natural gas,” he said. “The reality is, 20 per cent of our oil comes from Canada. China owning (oil) assets gives them the ability to use those assets wherever they want.
“That is their option if it is their oil.”
If the U.S. rejects the takeover of Nexen, billionaire investor Stephen Jarislowsky does not believe the deal will die. His Montreal investment firm, Jarislowsky Fraser Ltd., is one of the largest shareholders in Nexen.
He believes CNOOC could buy Nexen without the U.S. assets.
“The Americans were waiting to see a decision, and to be polite about it. I don’t think they want to be intransigent because they have bigger fish to fry in the long run,” said Jarislowsky, 87.
Nexen refused to comment.
CNOOC first tangled with U.S. regulators in 2005 while trying to buy a California firm. CNOOC pulled out at the last minute after offering $18.5 billion cash for Unocal, the Union Oil Company of California. Chevron ended up purchasing Unocal instead.
The Committee on Foreign Investment must base its decision on whether the CNOOC deal is a national security threat, says Erica Downs, an energy analyst at the Washington, D.C.-based Brookings Institution.
“This would be the first time a Chinese company has an operating role in the United States,” said Downs, a former analyst at the CIA.
“There is also concern about the relationship between the Chinese government and Chinese companies . . . the idea that this is a state-owned company and the No. 1 boss is appointed by the Chinese Communist Party,” she said.
If the U.S. committee can’t agree, the decision will be U.S. President Barack Obama’s.
The merger also needs approval from the British because Nexen has holdings off the coast of Scotland.
Nexen is owned by a variety of shareholders, including American and Canadian investment firms, the Ontario Teachers’ Pension Plan and Canadian banks. It has a number of international holdings, including the Buzzard field in the North Sea, 300,000 acres of shale gas lands in the Horn River basin off the coast of British Columbia, and fields in Nigeria.
In Canada, the takeover became engulfed in protectionist rhetoric, causing Harper to make changes to the Investment Canada Act to make sure a deal like this doesn’t happen again.
However, much of the bluster was unnecessary, says Wenran Jiang, special adviser to the Alberta Department of Energy and a professor at the University of Alberta.
Nexen’s domestic energy production only accounts for 1 per cent of Canada’s total energy output, says Jiang.