* Direct state control allowed only as exceptions
* Oil sands growth plans require foreign capital
* Industry welcomes clarity, sees more joint ventures
By Jeffrey Jones
CALGARY, Alberta, Dec 8 (Reuters) - New Canadian rules limiting control of its oil sands by foreign state-owned companies may turn away some investors who now covet more than minority stakes just as the industry seeks massive amounts of capital to fuel its growth ambitions.
The oil sands in western Canada, the world's third-largest crude reserve and source of much of the United States' oil imports, need an estimated C$120 billion ($121 billion) in investment in the next decade, according to the Alberta government, and the industry must tap numerous foreign sources for much of it.
However, in approving the contentious takeovers of Nexen Inc and Progress Energy Resources Corp by Chinese and Malaysian state-owned companies on Friday, Prime Minister Stephen Harper put a limit on potential money by ruling any future bids for control of oil sands businesses would be allowed only in exceptional circumstances.
"The government's concern and discomfort for some time has been that very quickly a series of large-scale controlling transactions by foreign state-owned companies could rapidly transform this industry from one that is essentially a free market industry to one that is effectively under the control of a foreign government," Harper told reporters.
The policy suggests foreign nations' state-owned enterprises must remain content with non-controlling interests in the 170-billion-barrel oil sands resource.
During the past decade, Chinese and other Asian companies, seeking energy to help fuel their growing economies, have steadily boosted the size of acquisitions, starting with minority stakes in start-up ventures, and increasing to, in two cases now, taking full control of oil sands projects.
Before its $15.1 billion bid for Nexen, China's CNOOC Ltd first became a 35 percent owner of the Long Lake, Alberta, oil sands project, by buying Opti Canada in 2011. This year it set its sights on the majority partner, Nexen, which also has assets in the Gulf of Mexico, North Sea and Nigeria.
"Would they have gone down that path, would they have bought Opti, if they had known it would be unlikely they would get approval to buy Nexen?" FirstEnergy Capital Corp analyst Michael Dunn said. "From that perspective, it's worrisome."
With its takeover of Nexen, CNOOC Ltd will get 100 percent of Long Lake and 7.23 percent of the Syncrude Canada mining and synthetic oil processing joint venture. Sinopec, another Chinese state-owned enterprise already has 9 percent of Syncrude.
One Asia-based energy banker said the new restriction could send Asian state-owned enterprises and their checkbooks to other jurisdictions with fewer jitters about foreign control.
"If anything, this will only encourage Chinese and Indian bidders to diversify even further to places like Brazil, Kazakhstan, West Africa and others," the banker said.
Tightened investment rules for the tar sands, which require expensive and energy-intensive methods to produce and process into refinery-ready oil, come as the industry aims to double production from the resource to more than 3.2 million barrels a day by 2020. That is a cornerstone to Harper's stated goal of turning the country into a global energy superpower.
The policy will not affect all foreign companies or those with government ownership, just those deemed to be controlled by their governments. Indeed, capital from the United States, Britain, France, Norway and a host of other countries has gushed into the sector for years.
Ottawa has staked much of its trade policy on building ties with Asian countries, especially in energy. Much of the recent focus has been on constructing new pipeline access to the West Coast, where the Alberta crude could be shipped to lucrative Asian markets by tanker.
Alberta's government, which has strongly supported foreign investment in its oil sands as well as diversifying markets for the production, said it is possible that there could be a short-term negative reaction by potential buyers.
"The market capital votes with its feet and so I'm as interested as you are in terms of what the reaction to the decision is going to be in the marketplace itself," Cal Dallas, the province's international and intergovernmental affairs minister, told Reuters.
"I think that will be somewhat instructive in terms of what the direct impacts of the decision are. Longer term, the investment climate in Alberta continues, anywhere I travel to, to be seen as one of the most attractive in the world."
He said the province expects to have a say in any future oil sands deals.
From the oil industry's perspective, the rules are welcome as they clear up confusion about what Canada is looking for when it demands that foreign investments have a net benefit to the country. They had been criticized for being too vague.
"It doesn't stop the flow in my mind, and I honestly believe this, it opens the door to all those who have been watching this thing and saying, 'Just tell us how you want us to operate and we'll do that,'" said Greg Stringham, vice president of the Canadian Association of Petroleum Producers, the industry's main lobby group. "So that leads them down the path of more joint ventures, partnerships and those types of things."
$1=$0.99 Canadian Additional reporting by Denny Thomas in Hong Kong; Editing by Bill Trott