UPDATE 10-Canada OKs CNOOC, Petronas deals, but slams door on any more

Sat Dec 8, 2012 11:15pm IST

Stocks

   

* Canada approves CNOOC bid for Nexen, Petronas buy of
Progress
    * Ottawa to impose stricter conditions on foreign investment
    * Raises questions about future resource-sector investment
    * Canadian dollar, Nexen shares soar
    * CNOOC agrees to commitments on transparency, investment,
others

 (Adds details, edits)
    By David Ljunggren and Charlie Zhu
    OTTAWA/HONG KONG, Dec 8 (Reuters) - Canada approved China's
biggest foreign takeover, the $15.1 billion bid by CNOOC Ltd
 for energy company Nexen Inc, but drew a line
in the sand against future acquisitions by foreign state-owned
enterprises.
    In a fierce defense of a tough, new foreign investment
framework, Prime Minister Stephen Harper said Canada would not
deliver control of the country's oil sands - the world's
third-largest reserves of crude - to a foreign government.
    The ruling, anxiously awaited by investors and politicians
alike, followed months of heated debate about how much of
Canada's energy sector could and should be absorbed by companies
run by other nations.
    It also gave the go-ahead for the less controversial $5.3
billion takeover of Progress Energy Resources Corp, a
mid-size natural gas producer by another state-owned energy
company, Petronas of Malaysia.
    The CNOOC bid had triggered unusually open dissent among
Canadian legislators in the ruling right-of-center
Conservatives, many of whom were particularly nervous about the
idea of allowing China to gain control of Northern Alberta's oil
sands.
    Canada agreed to this deal, but will not do so next time.
    "To be blunt, Canadians have not spent years reducing the
ownership of sectors of the economy by our own governments, only
to see them bought and controlled by foreign governments
instead," Harper told reporters after Ottawa gave the deal the
green light.
    "Foreign state control of oil sands development has reached
the point at which further such foreign state control would not
be of net benefit to Canada," he added.
    Top executives at CNOOC welcomed Canada's go-ahead for the
deal.
    "We believe the transaction provides opportunities for Nexen
employees, partners and for CNOOC," CNOOC Chief Executive Li
Fanrong said in a statement.
    The approval came after CNOOC made commitments on
transparency as well as concessions on employment and capital
investments, which it had outlined in July when it announced its
bid for Nexen.
    CNOOC said on Saturday it will provide an annual compliance
report to the Canadian government. Other commitments include
making Calgary the headquarters of its North and Central
American operations, retaining Nexen's management team and
employees, seeking a secondary listing in Toronto and investing
in Canadian oil sands over the long term.
    The bid by CNOOC, China's third-largest oil company, had
raised huge questions for Harper's Conservatives, which sought
to appear open to investment and to diversify Canadian energy
exports toward Asia and away from the United States.
    The tougher new approach restricts state-owned enterprises
to minority stakes in Canadian enterprises except in what Harper
described as "exceptional circumstances".
    Ottawa has yet to clarify the meaning of "exceptional
circumstances", but its stance was met with some skepticism not
least because much of the C$650 billion ($657 billion) in
investment it says it needs in the natural resources sector in
the next decade alone will probably have to come from abroad,
including cash-rich China.
    "To simply say you won't sell in the future is not
reliable," said Lin Boqiang, director of the China Centre for
Energy Economics Research at Xiamen University. "They probably
said it to satisfy the views of some Canadian citizens."
 
    Still, analysts said the new rules could please market
operators who complain Ottawa is too vague about the kinds of
foreign investment it wants. Investment Canada, part of the
industry ministry, must decide if takeovers are a net benefit
for Canada, but critics say the process is opaque.
    The Conservatives shocked markets in October 2010 by
unexpectedly blocking a bid by BHP Billiton Ltd  
for Saskatchewan-based fertilizer maker Potash Corp.
    "This approval helps overcome some of the stigma that was
associated with Investment Canada after the BHP rejection. I
think it is good news for the perception of Canada as a
destination for capital," said Oliver Borgers, a partner at the
law firm McCarthy Tetrault in Toronto.
    
    STATE RUN, BUT WHICH STATE
    Harper said he was confident other firms would want to
invest in the oil sands, third only to OPEC members Saudi Arabia
and Venezuela in crude reserves.
    "What we're doing here is preventing a situation which I see
developing, I have been worried about for a while now ... where
in the name of an open, globally competitive economy, we could
see the transformation of our economy into a state-run economy,
just a state-run economy not (run) by our government," he said.
    Nexen, long viewed as a takeover target, is involved in oil
sands in Canada and offshore production operations around the
world. It was an ideal target for CNOOC, especially since no
Canadian firms had tried to buy it.
    Both CNOOC and Petronas offered hefty premiums for their
Canadian takeover targets.
    The shares of Nexen and Progress went on wild rides on
Friday, slumping late in the Canadian trading session on
speculation that an after-market announcement could be negative.
    Nexen's New York-listed shares then surged in after-hours
trading on a Reuters story that the deal had been approved. The
Canadian dollar firmed.
        
    UNOCAL LESSON
    CNOOC's all-cash offer and commitments are generous, some
China and Hong Kong-based analysts said. But CNOOC had drawn
lessons from its failed $18.5 billion bid for U.S. oil producer
Unocal in 2005.
    "CNOOC has been careful to address the net benefits to the
Canadian authorities and regulators after its Unocal
experience," said Scott Darling, head of Asia ex-Japan Oil & Gas
Equity Research with Barclays in Hong Kong.
    CNOOC has said the acquisition would make it the operator of
a major oil sands project for the first time, would boost
production by 20 percent and proven reserves by 30 percent. The
company has nine years of reserves based on current production
-- one of the lowest ratios among major oil companies worldwide.
    "For Nexen this is a fantastic deal," said Simon Powell,
head of Asian oil and gas research at CLSA in Hong Kong. "What
the big concern to me is that Nexen does not have the production
growth that people think it does."
    The takeover gives CNOOC control of Nexen's 43 percent stake
in the Buzzard field in the North Sea, the most important
contributor in the crude blend used to for Brent international
pricing benchmark. 
    CNOOC has asked the U.S. government to review its bid for
Nexen's offshore oil assets in the Gulf of Mexico. CNOOC said
last week the review was under way, and a Washington spokesman
declined further comment on Friday.
        
    PROGRESS REJECTION
    Industry Minister Christian Paradis had initially rejected
Petronas' bid for Progress but he allowed it to make new
representations.
    Petronas plans to re-list Progress in the next 3 to 5 years,
said a Petronas source with knowledge of the deal.
    It has also agreed to have Canadians on the Progress board
as independent directors and to retain the local workforce, the
source said.
    Petronas and Progress, which already have an exploration and
production joint venture in the Montney shale gas region of
British Columbia, said this week they are advancing plans for an
C$11 billion liquefied natural gas export plant on Canada's West
Coast. They held out the prospect of a bigger project if the
takeover is approved, because Petronas would have access to all
of Progress's gas reserves.
 ($1=$0.99 Canadian dollar)

 (Additional reporting by Solarina Ho, Euan Rocha, Alastair
Sharp, Louise Egan, Randall Palmer, Jeffrey Jones and Scott
Haggett in Canada, Charlie Zhu, Melanie Lee and Niluksi
Koswanage in Asia and Michael Erman in New York; Editing by
Janet Guttsman and Neil Fullick)
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