Winnipeg Free Press - PRINT EDITION

Flap over Nexen purchase surprising

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CALGARY -- Nexen Inc. began 2012 as a troubled oil and gas company struggling to meet its production targets and appease its shareholders.

It ends the year on the brink of being sold to China's CNOOC Ltd. for $15.1 billion -- the Asian superpower's largest-ever overseas foray.

The transaction reverberated beyond Nexen's sleek glass office tower in downtown Calgary, past the pocketbooks of its investors, all the way to Ottawa.

It forced Prime Minister Stephen Harper to weigh whether foreign state-owned enterprises ought to own Canadian resource companies and, if so, which players are welcome and what extent of control is acceptable.

He ultimately decided SOEs deserve more scrutiny than private ones, and that the oilsands -- the third-biggest reserves on the plant -- warrant greater protection than other resources.

"Harper was caught a little flat-footed in the sense that I don't think he fully understood both the political reaction to the CNOOC bid and that there might be subsequent bids from state-owned companies coming into the Canadian oilsands," said Queen's University business professor David Detomasi.

Nexen started 2012 in a rough spot. Marvin Romanow made an abrupt exit as CEO in January. The company's flagship Long Lake oilsands project had yet to come close to producing the volume of crude it was designed to, outages at a North Sea offshore platform were causing headaches and Yemen had just booted it out of a major oil project. Investors' patience was wearing thin.

It would later be revealed negotiations to sell Nexen to CNOOC began in earnest once Romanow was out the door.

CNOOC was rebuffed twice before Nexen, under the leadership of interim CEO Kevin Reinhart, accepted its offer.

But winning over Nexen's board of directors and shareholders would be the least of CNOOC's challenges.

Gordon Houlden, the head of the University of Alberta's China Institute, said the subject would not have been so prickly if it had been France or Norway bidding for Nexen, and not China.

"Certain state enterprises, certain countries, come with more baggage, and China is that because of its size, because of its internal complexities, its history, its profile," said Houlden, a former diplomat with postings in China.

On Dec. 7, the CNOOC-Nexen deal was given Ottawa's blessing.

So, too, was the $6-billion acquisition of Progress Energy Resources Corp. by Malaysia's state oil and gas company. That deal would have been relatively uncontroversial under ordinary circumstances, but it had the misfortune of being announced right before CNOOC and Nexen dropped their bombshell this summer.

The approvals came with a key caveat for future deals -- that state control in the oilsands will only be allowed in "exceptional" cases from now on.

The Harper government's handling of the Nexen-CNOOC file was "reactive in nature," said Wenran Jiang, a senior fellow at the Asia Pacific Foundation of Canada.

It's a stance Jiang found curious, given that the Conservatives had for years been actively courting Chinese investment -- not the other way around.

CNOOC, having been burned by its unsuccessful bid for U.S. energy company Unocal seven years earlier, was getting the signal that perhaps the conditions were right to try again.

Instead, Ottawa found itself having to navigate around negative public sentiment toward Chinese investment that Jiang sees as largely "misinformed."

"Somehow we're the boy scout and the Chinese are just coming to invite themselves for dinner and then they're ready to roll us over," he said.

"It's not the case at all. We invited them for dinner.

-- The Canadian Press

Republished from the Winnipeg Free Press print edition December 29, 2012 B19

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