TORONTO -- Canada approved China’s biggest overseas energy acquisition, a $15.1 billion takeover by state-owned CNOOC of Canadian oil and gas producer Nexen, but vowed Friday to reject any future foreign takeovers in the oil sands sector by state-owned companies.
Prime Minister Stephen Harper said the government would only consider future takeover deals in the oil sands by state-owned companies in exceptional circumstances.
"To be blunt, Canadians have not spent years reducing ownership of sectors of the economy by our own governments only to see them bought and controlled by foreign governments instead," Harper said.
Harper’s Conservative government has been studying whether CNOOC’s deal and a smaller foreign takeover, Malaysian state-owned oil firm Petronas’ $5.2 billion bid for Progress Energy, represent a "net benefit" to the country. The Harper government also approved the Petronas deal on Friday.
The prime minister’s comments show that he is determined to keep foreign companies that are state-owned out of the oil sands in the future. Analysts say a company like Suncor, Canada’s largest oil company, is off limits while a mid-tier company like Nexen was deemed to be an acceptable takeover target.
Concerns had been raised that approvals could lead to a flood of deals that put control of Canada’s vast energy resources in foreign hands, but Harper said the deals should be seen as the end of a trend and not the beginning.
"I do not believe that any major industrialized country would allow a major sector of its economy to be transformed into the property of a foreign government through a couple of transactions," Harper said.
The prime minister noted that 15 companies dominate production in the Alberta oil sands and said the sector represents 60 percent of all the oil production around the world that is not already in state hands. Harper said he wants to keep it that way. Alberta has the world’s third-largest oil reserves after Saudi Arabia and Venezuela: more than 170 billion barrels. Daily production of 1.5 million barrels from the oil sands is expected to increase to 3.7 million in 2025. Harper doesn’t want China gaining too much control of Canada’s most important sector.
"Very quickly a series of large-scale controlling transactions by foreign state-owned companies could rapidly transform this industry from one that is essentially a free market industry to one that is effectively under the control of a foreign government," Harper said.
CNOOC and other big state-owned Asian energy companies have increased purchases of oil and gas assets in the Americas as part of a global strategy to gain access to resources needed to fuel their economies.
Chinese companies have moved more carefully since CNOOC tried seven years ago to buy Unocal but was rejected by U.S. lawmakers who cited national security fears.
Harper’s government originally turned down Petronas’ bid for Progress Energy in October. The government did not publicly explain the decision to block the deal but said a new policy framework for foreign takeovers would be released soon. Petronas was allowed to reapply.
The decision to turn it down in October raised doubts about whether Canada is open to foreign investment.
Harper’s Conservative government also rejected Anglo-Australian BHP Billiton’s hostile takeover bid for Potash Corp. in 2010 and the sale of Vancouver-based MacDonald, Dettwiler and Associates’ space-technology division to an American company in 2008.
But Harper has lobbied the Chinese to invest in Canada’s energy sector and has said foreign investment is needed to develop Canada’s vast oil and gas deposits. Turning down CNOOC’s bid would have harmed relations with China.
China’s growing economy is hungry for Canadian oil. Chinese state-owned companies have invested billions in Canadian energy in recent years.
Harper said the Nexen transaction did not raise fears.
Nexen, a mid-tier energy company in Canada, operates in western Canada, the Gulf of Mexico, North Sea, Africa and the Middle East, with its biggest reserves in the Canadian oil sands. It produced an average of 213,000 barrels of oil a day in the second quarter of this year. The acquisition vastly expands CNOOC’s holdings in Canada, where the company has already invested about $2.8 billion.
Nexen’s board approved the takeover in July after CNOOC offered a 62 percent premium on the stock price. Shareholders voted overwhelmingly to support the deal in September. The deal still needs approval in Britain and the U.S. where Nexen also has assets.
The stock has long traded at 10 percent discount to the offer on fears Canada would not approve the takeover.
Nexen stock traded down 6.5 percent after Industry Canada said an announcement would be made after the close. Progress also traded down 5.4 percent on fears Canada wouldn’t approve it.
In an apparent show of commitment to Canada’s interests, CNOOC is pledging to set up a regional headquarters in Calgary, Alberta, where Nexen is based. It also says it will keep the Canadian company’s management and projects in place and list shares on the Canadian bourse in Toronto.
Petronas has also made a series of promises in the proposed takeover of Progress.
John Manley, president of the Canadian Council of Chief Executives, applauded the decisions to approve the deals, noting Canada needs foreign capital.
"The decision to approve the acquisitions of Nexen Inc. and Progress Energy Resources Corp. sends a positive signal to investors in Canada and around the world," Manley said.
First Asset Investment Management Analyst John Stephenson said foreign state-owned companies will continue to grab minority stakes in Canada’s oil sector.