//that was an awful mistake by Canada
Canada Approves Both Cnooc-Nexen, Petronas-Progress Deals
Canadian Prime Minister Stephen Harper approved Cnooc Ltd. (883)'s $15.1 billion takeover of Nexen Inc. (NXY) and Petroliam Nasional Bhd.'s C$5.2 billion ($5.2 billion) takeover of Progress Energy Resources Corp. (PRQ)
The deal by Beijing-based Cnooc is the largest ever takeover by a Chinese company, according to data compiled by Bloomberg. It gives the state-owned company a stake in Canada's largest oil-sands project and the biggest position in the Buzzard oil field in the U.K. North Sea.
China is securing global reserves to feed demand in the the world's second-largest economy, which accounted for half of the world's oil consumption growth in 2011, according to the U.S. Energy Information Administration. Harper, who has touted Canada as an emerging "energy superpower," has called it a national priority to diversify energy exports, sending less to the U.S. and more to Asia.
"It's important to have clarity on this, not just for Canada's foreign relations with certain super-power nations but also to ensure timely development of these very important resources," said Robert G. Gill, portfolio manager at Toronto- based Aston Hill Financial, which has more than C$6 billion assets under management.
Tested Ability
The two bids tested Harper's ability to balance the need to bolster economic relations with Asian economies without letting them gain too much influence over the world's third-largest pool of oil reserves. While allowing the deals, he also said Canada won't approve state-owned companies taking controlling interests in any more oil-sands projects, except in "exceptional circumstances."
"These were difficult decisions" that reflect "the broad views of Canadians," Harper told reporters.
"From a perspective of industry this is the perfect solution," said John Stephenson, who helps manage C$2.7 billion at First Asset Management Inc. in a phone interview from Toronto. "You get the benefit of patient capital servicing value for investors and you don't give up control, which is really the issue most Canadians feel passionately about."
Shares of Calgary-based Nexen rallied 15 percent to $26.94 as of 6:19 p.m. New York time in trading after U.S. exchanges closed, 2 percent below Cnooc's $27.50 offer. The Canadian dollar strengthened, rising 0.3 percent to 98.84 cents per U.S. dollar as the announcements were made.
Biggest Transaction
The Cnooc-Nexen transaction is the biggest in Canada since Calgary-based Suncor Energy Inc. (SU) bought Petro-Canada in August 2009 for about $18 billion. Through its C$2.1 billion acquisition of Opti Canada Ltd. last year, Cnooc already owns 35 percent of the Long Lake oil-sands project operated by Nexen. It would gain Nexen's 20 percent interest in the Usan offshore Nigerian project operated by a unit of Total SA.
Progress shares, which surged 74 percent on the day the first bid by Petronas was announced June 28, closed at C$19.35 in Toronto. Petronas offered C$22 a share.
"We're obviously quite pleased with the decision," said Michael Culbert, chief executive officer of Calgary-based Progress, by phone. "We know that this has been a difficult decision to make and we don't take that lightly."
An e-mail seeking comment sent to Peter Hunt, a spokesman for Cnooc in Calgary, was not immediately returned. Patti Lewis, a Nexen spokeswoman in Calgary, did not immediately return phone and e-mail messages seeking comment. Azman Ibrahim, a spokesman for Petronas, did not immediately return an e-mail message seeking comment and could not be reached before regular business hours in Kuala Lumpur.
Petronas Acquisition
The acquisition of Progress by Petronas gives the Malaysian state-owned company gas reserves to build a liquefied natural gas export facility along the British Columbia coast that would cost C$9 billion to C$11 billion, the companies said this week.
Petronas has the world's largest LNG-producing site in Sarawak, Malaysia, according to its website, and also operates the world's largest LNG carrier fleet.
The Canadian decisions came on the same day Glencore International Plc (GLEN)'s C$6.1 billion takeover of Viterra Inc. (VT), Canada's largest grain handler, received Chinese regulatory approval.
Investment by Chinese state-owned companies in Canada's energy industry has become a contentious issue, and the deals represent the end of a trend of state-owned companies buying Canadian oil-sands firms, not the beginning, Harper said.
Further Control
Harper said further "foreign state control of oil sands development" would no longer be a net benefit to Canada, which relies on exports for one-third of economic output and counts on energy products for almost one-quarter of those shipments.
Fifty-eight percent of Canadians wanted the government to block the Nexen takeover, according to an online poll of 1,000 people taken Oct. 10 to Oct. 11 by Angus Reid Public Opinion.
The opposition New Democratic Party called the Cnooc approval "irresponsible" because most Canadians oppose the purchase. "This is a farce," Peter Julian, the NDP's spokesman on natural resources, said in a statement. "While Conservatives admit that under the new rules this transaction is not a net benefit to Canadians, they have approved it anyway."
Natural Resources Minister Joe Oliver has said the country's biggest resource projects will require nearly C$650 billion of investment to develop over the next decade.
Review Thresholds
Harper said Canada will raise the threshold for foreign- takeover reviews by private investors to C$1 billion in enterprise value as earlier planned, while the existing threshold of C$330 million in asset value will continue to apply to state-owned enterprises. Industry Minister Christian Paradis will also have the ability to extend the review period to take national security reviews into account, Harper said.
Foreign state-owned businesses will still be welcome to acquire minority stakes and enter into joint ventures with Canadian businesses, Harper said.
Cnooc, which said it received approval from the European Union today on the deal, has not said whether U.S. authorities have approved its takeover of Nexen's assets in the U.S. Gulf of Mexico, where the Calgary company gets eight percent of its production.
Natalie Earnest, a spokeswoman at the U.S. Department of the Treasury that oversees the Committee on Foreign Investment in the U.S., declined to comment in an e-mail, citing confidentiality rules.
Cnooc had already made several commitments to Canada to win support for the Nexen sale. These include listing its shares (NXY) on the Toronto Stock Exchange (SPTSX), establishing Calgary as its base for North and Central America and maintaining Nexen's employment levels and capital spending program.
Cnooc accepted management and employment conditions set by the Canadian government, two people familiar with the matter said Nov. 20.
The approval of the Petronas bid came after Paradis blocked the bid on Oct. 19 and gave the companies 30 days to make additional concessions.
To contact the reporters on this story: Andrew Mayeda in Ottawa at amayeda@bloomberg.net; Greg Quinn in Ottawa at gquinn1@bloomberg.net
To contact the editor responsible for this story: David Scanlan at dscanlan@bloomberg.net
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