- The Washington Times - Saturday, August 4, 2012

A top Chinese oil company is confident its proposed $15.1 billion purchase of Nexen, a Canadian firm, won’t turn into another awkward Unocal debacle, which is still ever-so fresh in their memory.

After the Chinese National Offshore Oil Corporation failed on an attempted hostile takeover of California’s Unocal in 2005, CNOOC was shamed away from doing business in America. Washington lawmakers had expressed concerns that the deal could create national security problems, forcing CNOOC to back out of the deal.

But CNOOC’s rocky relationship with the U.S. Congress hasn’t stopped the state-owned company from realizing its dream of becoming a big player in North American oil. It already owns minority stakes in Canadian firms, and if the proposed deal goes through for Nexen, it will own a majority stake in the Calgary, Alberta-based company.

“This is a friendly transaction, and that’s different from 2005,” a source close to CNOOC said in an interview. “Both companies want to see this deal happen, and both are working together to get the necessary regulatory approvals. That’s far different from the previous (Unocal) deal.”


The Canadian government still has to approve the deal, but the prospects look better north of the border than they did seven years ago in Washington.

Canada’s approval process is also expected to be much quicker than that of the U.S., which has dragged its feet on construction of the Keystone XL pipeline. The Canadian government will consider the impact the aquisition would have on areas such as job creation, taxes, and research and development.

“We’re going to take a good look at it,” Hon. Rob Merrifield, who represents Yellowhead in Alberta for the Canadian Parliament, said during a trip to Washington to speak at the U.S. Chamber of Commerce.

This may be just the beginning of a number of business deals between Canada and China. “We’re going to want more trade with China,” Mr. Merrifield added.

Selling Nexen to China presents several benefits for Canada. First, it’s hard to argue with the 60 percent premium above market value that investors will get paid at the sale price of $27.50 per share.

Canada would also like to see more drilling to take advantage of the tar sands oil, and CNOOC has more resources than Nexen to pull that off. CNOOC, with a market capitalization of $88 billion, is a much bigger company than Nexen at $13 billion — which means it can afford to produce more oil. More drilling in western Canada would likely mean more jobs and tax revenue for the country.

“They have more money to put behind it,” said the source close to CNOOC. “One of the real selling points of the deal in Canada has been that CNOOC has greater financial resources to bring to Nexen’s current Canadian assets that would in the long term result in greater production from Nexen’s current portfolio.”

Some wonder whether this sale will impact production of the stalled Keystone XL pipeline in the U.S.

When it comes to Keystone, business groups and Republican lawmakers have long warned that if the U.S. waits too long to approve the project, Canada will change its mind and ship the oil to China, where energy demand has generally been growing. That would also mean a lost opportunity for the U.S. to lower domestic energy prices and reduce its dependence on overseas oil.

China’s taking up all of the oil sands,” Rep. Lee Terry, the Nebraska Republican who has been leading the charge to approve Keystone, told “Fox and Friends” on Saturday.

Mr. Merrifield seemed to pressure Keystone blockers in the U.S., warning the oil could be shipped elsewhere through other pipelines in Canada.

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