Nexen deal opens doors to China

Enlarge Image

(DALE CUMMINGS/ WINNIPEG FREE PRESS) Photo Store

Shareholders of Nexen Inc., the Calgary-based oil and gas producer, scored a home run this week when China's government-owned oil company, CNOOC, offered to buy their shares at a generous premium above the recent market price.

The proposed takeover makes excellent business sense. Nexen has consistently fallen short of its own production targets in recent years. The board of directors dumped the chief executive in January and put the chief financial officer in charge. Results in the first half of this year once again disappointed market observers. CNOOC said, in announcing its takeover offer, it would keep the present managers and employees, but it did not say for how long. New leadership should be expected under the new owners.

CNOOC, however, is not only an oil and gas producer. It is also an agency of the government of China and of the Communist party that controls that government. Prime Minister Stephen Harper needs to decide whether this is the way Canada's relations with China should develop. He enjoyed telling U.S. President Barack Obama Canada could sell its oil to China if the U.S. won't allow a pipeline from Alberta to Oklahoma. But now the question is not just whether Canada should export more oil to China. The question is whether a firm controlled by the Chinese government should be a large player in Canada's oil industry.

Canada wants China to behave less like a communist dictatorship and more like a democratic state with a market economy. Specifically, Canada wants China to stop sheltering Syrian dictator Bashar al-Assad from international retaliation for his murderous cruelty to his domestic political opponents. Canada wants China to go easy on its restless national minorities, such as Tibetans and Uyghurs, and on its persecuted churches and political dissidents. Canada wants a decent chance for Canadian companies to make a buck off China's economic expansion. Canada would probably prefer Chinese intelligence agencies to do their spying in Canada without compromising public officials such as Bob Dechert, parliamentary secretary to the minister of Foreign Affairs, who in 2010 drew incautiously close to a reporter of the Chinese national news agency. While welcoming rescue of a struggling Canadian oil company, Canada should not be naïve about the dark side of China's international dealings.

In this political context, Mr. Harper should examine the proposed takeover to see how far it advances Canadian interests. He might inquire, for example, which Canadian oil companies would like a chance to operate in China and what help the Chinese government might offer them. CNOOC's 2005 attempt to buy the U.S. firm Unocal was rejected in part because U.S. companies had no corresponding opportunity to enter the Chinese market. Seven years on, China may be more open.

Canada's greatest pension funds and institutional investors had abundant opportunity to buy up struggling Nexen and give it new leadership. They can hardly complain if a Chinese buyer seizes the opportunity they spurned. But if Mr. Harper can use this moment to open the Chinese oil market to Canadian firms, the case for permitting the Nexen takeover will be much stronger.

Republished from the Winnipeg Free Press print edition July 25, 2012 A10