Canada starts formal probe of CNOOC's Nexen bid

Wed Aug 29, 2012 4:25pm EDT
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By Jeffrey Jones

CALGARY, Alberta (Reuters) - Despite some dissent in Prime Minister Stephen Harper's cabinet, the odds look favorable for China's state-owned CNOOC Ltd's (0883.HK: Quote) $15.1 billion bid to take over Nexen Inc NXY.TO, the Canadian oil producer, as Ottawa starts a formal review of the deal.

Harper, himself, has cautioned against presuming he will rubber stamp the takeover. But he has made high-profile overtures to China to attract the C$500 billion ($506 billion) in investment he says the country needs over the next decade to develop its natural resources, notably Alberta's vast oil sands.

Industry Minister Christian Paradis said on Wednesday that CNOOC had submitted an application for government approval of its deal under the Investment Canada Act, kicking off a 45-day review to determine if the takeover will result in a "net benefit" to Canada. Paradis can unilaterally extend the somewhat murky process for an additional 30 days.

The bid is a crucial test of the Harper Conservative government's assertions that Canada is open to foreign investment, even by state-owned enterprises, as investors remain wary that the deal could be blocked or hit with onerous terms as was the case with BHP Billiton's (BHP.AX: Quote) failed 2010 bid for Potash Corp (POT.TO: Quote).

Some opposition to CNOOC's bid has emerged within the Harper cabinet, with concern raised about the potential for losing control of the oil sands, the world's third-largest crude source, to Chinese state-owned companies.

However, the Globe and Mail reported on Wednesday that Finance Minister Jim Flaherty, one of the most powerful cabinet members, has warned colleagues that blocking the deal for political reasons will hurt shareholder value and damage relations with China just as Canada looks to be on the cusp of a vast surge in oil exports.

A spokesman for Flaherty declined to comment on the report.

Sources close to the deal have told Reuters that Natural Resources Minister Joe Oliver, who has pushed hard to open up new markets in Asia for Canadian crude as a way to bolster economic returns, appears to be tilting toward approval.   Continued...

The man stands at the front desk of the headquarters of China National Offshore Oil Corp (CNOOC) in Beijing July 25, 2012. REUTERS/Jason Lee