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Winnipeg Free Press - PRINT EDITION

End the Nexen dithering

Posted: 11/21/2012 3:18 AM | Comments: 0

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Prime Minister Stephen Harper should not delay into next year a decision about the Chinese takeover of Calgary-based Nexen Energy Resources. He should not let Canada earn a reputation for procrastination or indecisiveness about foreign investment.

At the beginning of November, the government announced it was extending to Dec. 10 the period for review of the Nexen takeover. The Calgary-based company and the Chinese National Offshore Oil Corporation (CNOOC) announced on July 23 they had agreed on a takeover. Nexen shareholders approved the deal on Sept. 20.

All this time, the federal government has been wondering out loud whether to approve the takeover. Mr. Harper wants to issue clear rules that would govern such cases, but in the meantime, Malaysian national oil company Petronas has offered to buy a smaller Canadian company, Progress Energy, which explores for and produces natural gas. Mr. Harper and his government are eager to promote trade with China and other Asian countries, but giving a Chinese state agency a large role in developing the oilsands is much more than a trade issue. It is also an issue of national sovereignty. The shape and terms of Canada's dealings with China are at stake.

Nexen shareholders eagerly await government approval of the CNOOC takeover. The Alberta government is eager to welcome a new, deep-pocketed player into its oil industry. Canadians hoping for work or spinoff benefits in oilsands development would not easily forgive the government for blocking the deal. But a company that is an agency of China and its ruling Communist Party may be hard to integrate with the market-driven culture of the Alberta oil industry.

The federal Industry department has been negotiating with CNOOC on the terms of the Nexen takeover. According to leaks and echoes from those negotiations, the government is trying to make CNOOC promise stated levels of spending and employment in Canada irrespective of the state of trade and the prospects for a return on the investment. CNOOC is proposing to operate according to the market principles of the commercial world, retaining freedom to reduce spending and employment in response to commercial conditions.

A reasonable solution on this issue should not be hard to find. A company can readily commit to a certain level of spending over a short period of years where good forecasts of oil demand can be made. For the longer term, the company, like every other oilpatch operator, will have to tie its spending to market conditions that now can only be guessed at. The company and the government should have no difficulty concluding an agreement along these lines.

Concurrently, the government is writing a broader policy document that will guide future takeovers. It is far from clear, however, that the government knows its own mind clearly enough to write such rules quickly. Nor is it clear what sorts of takeover proposals will be coming along.

Nexen and CNOOC should not be kept waiting while the government solves the whole foreign direct investment question. They formed their agreement in July, when Canada required foreign purchasers of Canadian companies to show they were offering a net benefit to Canada. This was a poorly written policy, because there is enormous latitude for guesswork about the net benefit to Canada in such propositions. For good or ill, that was the Canadian policy at the time and the CNOOC takeover should be judged under that policy. Nexen and CNOOC should not be offered a fresh set of hoops the jump through.

Either verdict on Nexen -- thumbs up or thumbs down -- will be controversial. But if it cannot please everyone, the government can at least be reasonably swift and decisive. It should show the watching world that prospective investors in Canada can get a reasonably quick answer about a takeover plan. Mr. Harper should announce his decisions on CNOOC and Petronas without further delay. He should also announce a date for publication of his new rules and a procedure for public debate about them. He should impose a moratorium on takeovers until those new rules take effect.

Editorials are the consensus view of the Winnipeg Free Press’ editorial board, comprising Catherine Mitchell, David O’Brien, Shannon Sampert, and Paul Samyn.

Republished from the Winnipeg Free Press print edition November 21, 2012 A10

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