Aerial view of the OrCrude Unit at Nexen's Long Lake Phase I SAGD oil sands processing facility in background. Long Lake is located 40 kilometres south east of Ft. McMurray, Alberta.Dave Olecko
China is taking a historic step toward its ambition to become a global resources powerhouse with a $15.1-billion (U.S.) bid to buy Calgary-based oil producer Nexen Inc.
The bid by state-backed CNOOC Ltd. is the largest by a Chinese firm for a foreign company, and confirms that Canada has become a proving ground for China's rise in the global economic order as it deploys some of its trillions of dollars in foreign reserves to secure strategic resource properties around the world.
The deal builds on a string of previous acquisitions by Chinese firms in Canada's oil sands. It would be the second-largest deal ever in Canada's energy sector and, if approved, the sixth-largest takeover ever in Canada. Though it may test the Harper government's stance on foreign ownership, two years after it blocked a $39-billion (Canadian) takeover offer for Potash Corp. of Saskatchewan Inc., there are strong indications that the deal will be approved.
For one, CNOOC, China's third-largest oil company, has cultivated relationships with top players in Ottawa in recent years.
In March, CNOOC executive Fang Zhi met with deputy ministers from Natural Resources Canada, International Trade and Industry Canada to discuss its acquisition ambitions in Canada, in general terms. The Prime Minister's Office was advised of the deal on Sunday.
And because most of Nexen's oil output comes from outside Canada, most analysts expect CNOOC's offer to eventually win the blessing of Prime Minister Stephen Harper, who has actively courted Chinese investment in Canada during visits to China.
In a friendly takeover deal announced Monday morning, CNOOC (originally known as China National Offshore Oil Corp.) offered $27.50 (U.S.) in cash for each share of Nexen – valuing the company at more than 60 per cent above its closing price on Friday.
Nexen and CNOOC were already partners in a heavy oil development at Long Lake, southeast of Fort McMurray, that has so far fallen short of its investors' hopes.
"We are in Canada to invest," CNOOC chief executive Li Fanrong told reporters in a conference call. "We intend to be a local company as much as a global one."
In a statement, Industry Minister Christian Paradis said CNOOC has indicated it will soon file for approval from Investment Canada, and a decision depends on whether the deal would provide a "net benefit" to Canada. Among the factors to be considered are the effect on employment and economic activity, the level of participation by Canadians in the business, and the impact of productivity and technological development.
The Nexen deal was announced almost simultaneously with a $1.5-billion deal by China's top refiner, Sinopec Corp., to acquire a 49-per-cent stake in the North Sea operations of Talisman, one of Canada's top oil and gas exploration companies.
The strategy underlying Chinese firms' smaller-scale partnerships in Canadian energy and resources projects is the same as that driving more recent, more ambitious investments, observers say.
"The slogan of the Chinese government for their major companies is to go global," said Richard Herd, the chief China economist for the Organization of Economic Cooperation and Development. "They are hoping they can earn better returns in resources in direct investment abroad than they can in investing in U.S. treasuries."
China has been largely responsible for a global commodities boom that started over a decade ago when it went to international markets to acquire materials needed for massive industrialization of its economy, including oil and gas, copper, metallurgical coal and iron ore. At the same time the giant Asian economy began encouraging its large resource companies to become producers instead of just buyers of strategic materials.
Until about a year ago, prices for those commodities enjoyed record highs, before they began to fall on mounting economic turbulence in Europe, a still-struggling U.S. economy and slowing growth in China.
"They are trying to secure access to resources on a long-term basis," said Michael Amm, a China specialist at Torys law firm who thinks China is still in the early stages of its commodities buying spree.
"We're certainly in the middle of the beginning."
The deals also reflects a world where growing political risks in regions like Africa may push Chinese firms to balance their portfolios with investments in more stable jurisdictions.
"I think this is the tip of the iceberg in deals in the oil patch," said Keith Spence, president of Toronto-based Global Mining Capital, a boutique financial advisory firm that advises Chinese firms buying Canadian resources.
"I think you are going to see a lot more deals in the next while. Right now we have three or four assignments specifically looking for Chinese oil and gas deals."
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The following are China's most notable energy deals in Canada:
2005
CNOOC coughs up $150-million for a 16.7 per cent stake in MEG Energy Corp, which went public in 2010.
2009
PetroChina pays $1.9-billion to acquire 60 per cent of two undeveloped projects run by Athabasca Oil Corp., formerly Athabasca Oil Sands Corp.
Sinopec buys additional portion of Total SA's Northern Lights project, raising its stake to 50 per cent.
2010
Sinopec pays $4.65-billion (U.S.) for a 9 per cent slice of giant Syncrude Canada Ltd.
China Investment Corp. pays $817-million (Canadian) for a 45 per cent stake in an oil sands project owned by Penn West Energy Trust. CIC also buys a 5 per cent stake in Penn West itself for $435-million.
2011
CNOOC bails out OPTI Canada by purchasing it for $2.1-billion (U.S.)
Sinopec acquires Daylight Energy Ltd., for almost $3-billion (Canadian). , including debt, by offering a share premium of more than 100 per cent.
2012
PetroChina picks up remaining 40 per cent portion of MacKay River project from Athabasca Oil Corp. for $680-million.
CNOOC proposes to buy Nexen Inc. for $15.1-billion (U.S.)., including debt, making it China's biggest international energy takeover ever
Sinopec gets a acquires49 per cent stake in U.K. division of Calgary'sTalisman for $1.5-billion. (Canadian).
- Tim Kiladze
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