IN THE NEWS ~ Ottawa approves Nexen and Progress takeover deals
December 8th, 2012 - 2:45pm
Ottawa approves Nexen and Progress takeover deals
Gordon Isfeld, Financial Post (Business, Energy)
Corcoran: Rocky road lies ahead for foreign investments in Canada
OTTAWA - After months of uncertainty, the Conservative government finally broke its silence Friday - approving two contentious foreign takeovers that are destined to form the basis of Canada's investment strategy for years to come.
But the prime minister indicated he would draw a line in the oil sands when dealing with future overtures from foreign companies, state-owned enterprises in particular.
When we say that Canada is open for business, we do not mean that Canada is for sale to foreign governments
"When we say that Canada is open for business, we do not mean that Canada is for sale to foreign governments," Stephen Harper told reporters in Ottawa.
"The government's concern and discomfort for some time has been that, 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 to one that is effectively under control of a foreign government."
Mr. Harper was speaking at a hastily arranged news conference just minutes after Ottawa announced it would back the $15.1-billion bid by CNOOC (China National Offshore Oil Corp.) for the Calgary-based oil and gas producer Nexen Inc. The government also approved the $5.2-billion bid by Malaysia's Petroliam Nasional Bhd (Petronas), for Calgary natural gas producer Progress Energy Resources Corp.
Shares in Nexen and Progress fell Friday after news broke that a decision was likely pending and investors placed their final bets on what the outcome would be.
Nexen stock closed down $1.58 or about 6% at $23.29 on the Toronto Stock Exchange, while Progress shares closed down 88 cents or about 4% at $19.37.
Both CNOOC and Petronas are state-owned enterprises (SOEs), sparking worries throughout Canada that such entities do not operate with the proper transparency and would use the acquired resources to fulfill some ulterior motive. The major hurdle for both deals was approval under the 1985 Investment Canada Act, which determines the so-called "net benefit" to Canada on foreign purchases. From Friday on, state-owned enterprises will face much more stringent guidelines than private companies.
The thrust of the government's changes on these SOEs, will essentially preclude them from buying oil sands companies in all but the most "exceptional circumstances."
"The government of Canada has determine that foreign state control of oil sands development has reached the point at which further such foreign state control would not be of net benefit to Canada," Mr. Harper said.
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Foreign-government owned companies, specifically, will now need to satisfy Ottawa that their investments in all sectors are commercially oriented and free from political influence. Also, SOEs will need to adhere to Canadian laws, and be required to implement standards and practices for "sound corporate governance and transparency." Finally, SOEs must agree to make "positive contributions . . . to the productivity and industrial efficiency of the Canadian business."
Importantly, state-owned foreign companies will fall under different threshold criteria that would trigger a net benefit review. While privately operated companies will, over the next four years, eventually face a review should the takeover be valued at $1-billion or more, the threshold for SOEs will be at the $330-million level that currently applies to all deals.
In a statement, Industry Minister Christian Paradis said CNOOC and Petronas have made "significant commitments to Canada" concerning corporate governance - including transparency and disclosure - as well as adherence to Canadian laws, practices and free-market principles.
Those commitments also extend to employment and capital investments, "which demonstrate a long-term commitment to the development of the Canadian economy," he said.
There is an additional requirement attached to the CNOOC decision, requiring the company to file annual compliance reports to Industry Canada.
"Trade and investment are a key part of our plan and that's why our government is opening new markets for Canadian businesses while welcoming foreign investment in the Canadian economy," Mr. Paradis said.
Peter Julian, the New Democratic Party's natural resources critic, labeled the government's announcement "a farce".
"While Conservatives admit that under the new rules this transaction is not a net benefit to Canadians, they have approved it anyway," he said. "Canadians should be very apprehensive about the long-term economic and environmental consequences."
Below is a list of China's other investments in Canadian oil and gas companies and assets:
*September - Talisman Energy Inc says Sinopec Corp , China's top refiner, agreed to buy a 49% stake in its North Sea operations for $1.5 billion.
*February - PetroChina agrees to buy a 20% stake in Royal Dutch Shell Plc's Groundbirch shale gas property in northeastern British Columbia for an undisclosed price.
*January - PetroChina becomes the first Chinese state-owned company to wholly own a Canadian oil sands development after agreeing to buy out Athabasca Oil Sands Corp's stake in a newly approved project for C$680 million ($687.81 million).
*November - Nexen and CNOOC form a joint venture to explore Nexen's Gulf of Mexico properties for an undisclosed price.
*October - Sinopec agrees to buy Canadian oil and gas explorer Daylight Energy Ltd for $2.2 billion in cash to acquire its northeastern British Columbia shale gas holdings.
*July - CNOOC agrees to buy struggling Opti Canada Inc for US$34-million and US$2-billion in debt, to gain a 35% stake in Nexen's underperforming Long Lake oil sands project in northern Alberta.
*June - Encana Corp and PetroChina walk away from a $5.4 billion deal that would have seen the two form a joint venture to exploit Encana's massive Cutbank Ridge gas field in northeastern British Columbia.
* April - Sinopec agrees to buy ConocoPhillips' 9.03% stake in Syncrude Canada Ltd for US$4.65-billion.
* April - Penn West Exploration sells a 45% stake in an oil sands project to China Investment Corp for $817-million.
* August - PetroChina agrees to buy a 60% stake in two undeveloped oil sands properties held by Athabasca Oil Sands Corp that could eventually produce as much as 500,000 barrels per day.
* April - Sinopec acquires an additional 10% stake in Total SA's undeveloped Northern Lights oil sands project for a price that has not yet been disclosed. The purchase brings Sinopec's stake in Northern Lights to 50%. Construction of Northern Lights, once expected to cost US$10.7-billion, is on hold.
* April - CNOOC pays US$122-million for 16.7% in MEG Energy Ltd, which is developing an oil sands project in northern Alberta that could eventually pump up to 210,000 bpd, while other properties in MEG's portfolio could eventually produce 500,000 bpd, according to company documents.
With files from Reuters and Canadian Press