CNOOC’s compelling deal – by David A. McLellan (National Post – October 30, 2012)

The National Post is Canada’s second largest national paper.

David A. McLellan is manager of intellectual property at Petrobank Energy and Resources Ltd. in Calgary.

Don’t abandon the free market for sinophobia

There has been much vigorous debate about CNOOC’s proposed acquisition of Nexen and the lack of clarity around what the federal government defines as “net benefit” when applying the Investment Canada Act. This is unfortunate and has the potential to cost the Canadian economy many quality jobs, royalties, taxes and subsequently to adversely impact economic growth.

Examining the details of the CNOOC-Nexen deal go a long way to reassure us that Canada will ultimately benefit more from this transaction than we otherwise would without it. Similarly, a review of the facts about Nexen and our oil-sands resources should assuage concerns that we are giving away too much in this particular transaction.

Let’s start with the facts. Approximately 70% of Nexen’s current production is outside Canada, with the U.K. North Sea being the most prolific region in its property portfolio. According to Oilweek, Nexen’s 2011 actual Canadian production averaged a modest 60,000 barrels of oil equivalents per day (boepd) and this number does not rank it among the 20 largest producers in Canada.

With a 65% interest in the Long Lake project and 7.25% interest in Syncrude, Nexen accounts for perhaps 3% of current oil sands production. In terms of reserves, at 1,544 million boe of proved and probable, Nexen’s Canadian reserves represent less than 1% of Canada’s total. Further, more than half of Nexen’s shares are held outside Canada.

To be clear, Nexen is an international exploration and production company that happens to be headquartered in Calgary. It’s worth considering that, should the deal be denied, Nexen and possibly other Canadian-based international Companies could come under pressure from their shareholders to examine the option of relocating their head office to another country; in these uncertain economic times many a country would relish the opportunity to host more international head offices and to significantly improve their trade relationship with the world’s fastest-growing economy.

There have been many unflattering and critical statements written and suggested by critics of the deal with respect to CNOOC, most of them inaccurate. First, CNOOC is a publicly traded company, not a pure state-owned enterprise. Its shares are listed on both the Hong Kong and New York Stock Exchanges.

The Chinese government still owns the majority of the shares, but other high-profile investors include Vanguard Group, Blackrock Fund Advisors, Fidelity International, INVESCO Ltd., Neuberger Berman and many other leading investment management firms. These firms require transparency in order to make an investment and CNOOC provides that as it is subject to the same reporting requirements as any other publicly traded corporation listed on those exchanges.

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