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Canadian Government Doubles Down on Oil

By Daniel J. Graeber | Mon, 24 September 2012 22:35 | 0

The Chinese envoy to Canada warned against letting politics interfere with its multibillion dollar takeover bid for Calgary-based Nexen Inc. (NXY) Last week, shareholders at the 40-year-old oil and natural gas company voted in favor of the proposal in what could be a landmark for a Canadian business. Lawmakers in Ottawa, however, have expressed reservations about Beijing's dominance in a market habitually tied to the United States. Though the Canadian government is keen to break its reliance on the U.S. markets, pressure from Beijing could force Ottawa into isolation.

Nexen Inc. announced last week that the overwhelming majority of its shareholders voted in favor of the July takeover bid by China National Offshore Oil Corp. At $15 billion, CNOOC said the deal represents a 61-percent premium to Nexen's close price as of July 20. Not only would the deal give CNOOC access to Nexen's holdings in Nigeria and the U.S. Gulf of Mexico but it would also funnel significant investments into the Canadian oil and natural gas sector.

The Canadian government of Prime Minister Stephen Harper had said it was important for the country to expand its economic footprint outside of North America. The country's pipeline ambitions in the United States are already in limbo in part because of the U.S. presidential campaign season. While pipeline company TransCanada is moving slowly ahead with its planned Keystone XL pipeline, a long list of lawsuits filed by landowners suggests not much will change in 2013. With parts of the U.S. Midwest still reeling from a 2010 spill from TransCanada's counterpart Enbridge, U.S. sentiment likely won't be ripe for major Canadian crude advancements regardless of the outcomes of the November vote in the United States.

Harper in February travelled to Beijing in an effort to draw Chinese investors into his country's oil sector. Canada is among the world leaders in terms of oil and Canadian officials had said roughly $500 billion is needed to keep the momentum going into the next decade. Rob Anders, a Conservative member of the Canadian Parliament, expressed concerns about aggressive acquisitions by foreign states, however.

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"I have even greater concerns when it comes to China," he said.

Chinese Ambassador to Canada Zhang Junsai, meanwhile, warned the takeover bid for Nexen "should not be politicized." He brushed off concerns that Beijing would take advantage of a growing position in Canada.

"We are not coming to control your resources," he said

Harper's gamble, however, seems risky. Constituent thinking in the United States has turned somewhat away from big oil in the wake of the 2010 oil spill in the Gulf of Mexico. A global push toward renewables, meanwhile, suggests a general shift away from petroleum products, which is coupled with a modest economic transition to Asian dominance.

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OPEC, in its latest report, expected "healthy growth" from North American oil markets. CNOOC's deal, if it goes through, would be the first for a Chinese company in Canada. With political divisions emerging, however, Harper's bet may be double or nothing.

"If we politicize all this, then we can't do business," the Chinese ambassador said.

By. Daniel J. Graeber of Oilprice.com

About the author

Contributor
Daniel J. Graeber
Company: Oilprice.com
Position: Senior Analyst

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