Many Canadian opposed to CNOOC taking over Nexen are reluctant to say so lest they be labelled economically naive or xenophobic. I’m neither so let me tell you why my spidey senses are tingling:
#1 CNOOC is a state owned entity
The China National Offshore Oil Corporation is a state-owned oil company. Its president is appointed by the government. China’s government has an appalling reputation in human rights and environmental protection.
CNOOC says not to worry. It will create a Canadian subsidiary (let’s call it CNOOC-Canada) which will be bound by Canada’s health, safety and environmental laws. This is good because nothing focuses an executive’s attention more sharply than the prospect of jail time. But words are cheap…and in this case don’t address the fact that the executives directing CNOOC-Canada strategy reside in China, well beyond the reach of Canadian laws.
Remember Sinopec, another Chinese state-owned entity? Sinopec battled the Alberta courts right up to the Supreme Court of Canada to avoid prosecution for 53 health and safety violations arising from the deaths of two temporary Chinese workers and injuries to four others. Sinopec’s argument: it had no presence in Canada.*
Sinopec was ultimately unsuccessful but the case wasn’t a complete loss. It laid out a blueprint for a smart lawyer to do a better job of insulating a Chinese state-owned entity from its Canadian subsidiary so that Chinese state-appointed executives will have a stronger immunity argument the next time around.
Bottom line: CNOOC’s commitment to comply with Canadian health, safety and environmental laws is meaningless when CNOOC’s “directing minds” are safely tucked away in China.
#2 Why does CNOOC want to own 100% of Nexen?
China invested $18 billion in the Canadian oil and gas industry in the last 2 years by buying minority interests in Canadian companies. This time it’s going for the whole enchilada. Why? Because that’s the only way China can lock up OrCrude and Buzzard.
OrCrude is a technology that improves productivity and reduces the cost of oil sands operations. Nexen has the exclusive right to OrCrude technology in Canada and most of the world—a worthwhile prize.
Buzzard is a mid-sized oil field resting under the North Sea about 60 miles northeast of Aberdeen. It plays a decisive role in setting global oil prices.**Nexen holds a 43% stake in Buzzard and is its operator—another worthwhile prize.
Bottom line: The only way to capture the crown jewels is to buy the company that owns them.
#3 What is the “net benefit” to Canada?
CNOOC needs Investment Canada approval in order to complete the takeover. This means convincing Investment Canada and Mr Harper that the takeover is a “net benefit” to Canada.
A “net benefit” is defined as one that improves the Canadian economy, boosts productivity, creates jobs, uses services, doesn’t negatively impact competition in Canada, contributes to our ability to compete globally and is compatible with Canadian industrial, economic and cultural policies. Pretty comprehensive, eh?
Well, I’m hard pressed to see how the takeover of a Canadian company by a company owned by the Chinese government will be a net benefit to Canada.
Nexen isn’t on the brink of bankruptcy—it was one of the few energy companies to report an increase ($109 million) in year-over-year cash flow this quarter—so the CNOOC takeover won’t save Canadian jobs or add Canadian jobs. In fact if CNOOC adopts the Sinopec model it will import temporary Chinese employees to work in here. Zero benefit to Canada.
As a state-owned entity CNOOC has unlimited access to government financing. This gives CNOOC a competitive advantage over Canadian energy companies who access financing through the debt and equity markets and enhances CNOOC’s ability (not ours) to compete here and abroad. Zero benefit to Canada.
CNOOC promised to list CNOOC-Canada’s shares (now valued at $15 billion) on the Toronto Stock Exchange. So instead of investing in Nexen, a Canadian company, we can now invest in Communist China. Furthermore, CNOOC-Canada’s profits, in the form of dividends, will flow back to the Chinese government, not to Canadian shareholders. Zero benefit to Canada.
So what am I missing? To paraphrase Hal Kvisle, ex-CEO of TransCanada Pipelines, it’s the share price premium stupid. OK, I took some liberties there, what Mr Kvisle actually said was “The point is there’s this huge premium to the share price. It’s a huge infusion of capital into the Canadian financial system—we’re selling the company for a great return for the shareholders and I think the net benefit to Canada is right there. It’s obvious and it’s financial”. ***
Well, Mr Kvisle, the last time I looked the word “shareholders” was not synonymous with the word “Canada”.
So I will join Conservative MPs Rob Anders and Ted Menzies to urge Industry Minister Christian Paradis and Prime Minister Harper to turn down CNOOC’s takeover of Nexen. At first I felt I was in strange company but then I looked around and saw NDP MPs Tom Mulcair and Peter Julian right there beside me. Won’t you join us?
Oh and by the way, we’re not saying no to foreign investment in the oil sands; we’re saying no to a foreign takeover of the oil sands.
*Financial Post, July 27, 2012
**Daily Oil Bulletin, Aug 9, 2012
***Calgary Herald, Sept 21, 2012, online