Chinese energy giant Cnooc Ltd. (883), whose efforts to buy a U.S. oil company in 2005 sparked an outcry over foreign ownership, hired two Washington lobbying firms just before announcing its plan to buy Nexen Inc. (NXY)
Cnooc, owned by the Chinese government and based in Beijing, agreed July 23 to pay $15.1 billion for Nexen, a Calgary-based company that operates in the U.S. portion of the Gulf of Mexico. It is Cnooc’s biggest North American deal since it walked away from Unocal Corp. under congressional pressure and the largest overseas acquisition by a Chinese company.
If approved, the Nexen takeover would mark the first time a Chinese company would be the operator of leases in the U.S. Gulf of Mexico, instead of a minority stakeholder. Nexen now operates 90 leases in the Gulf, where it’s the 29th-largest oil producer and 42nd-largest gas producer, according to the most recent operator ranking by the Interior Department from July 16.
The purchase of U.S. assets by foreign companies can be blocked on national security grounds.
Cnooc’s takeover of Nexen will probably be reviewed more closely than other international deals, Iain McPhie, a lawyer at Squire Sanders LLP in Washington, said in an interview. “The Chinese just raise strategic issues that an acquirer from the United Kingdom and France don’t raise,” said McPhie, who’s not involved in this transaction.
Cnooc and Nexen said in a July 24 filing with the U.S. Securities and Exchange Commission that they intend to put the deal to the Committee on Foreign Investment in the United States for review.
The committee, a division of the Treasury Department, has the power to impose conditions on foreign acquisitions, including the “extreme” step of forcing a divestiture of the U.S. assets, said McPhie, who has represented clients before the committee.
“We bought energy assets in the U.S. before and we have experience on how to get regulatory clearance,” Cnooc Chief Executive Officer Li Fanrong said on a conference call with reporters on July 23. Spokesmen for Cnooc and Nexen didn’t immediately respond to requests for comment on their efforts to get the deal approved in the U.S.
Wexler & Walker Public Policy Associates registered to lobby on behalf of Cnooc July 12. Its lobbyists include Bud Cramer, a former Democratic representative from Alabama, public records show.
In May, Cnooc hired Hill & Knowlton Strategies to lobby Congress on issues relating to the environment and natural gas, according to public records filed with the Senate.
Both firms are part of WPP Plc (WPP) in Dublin.
Allison Cohen, a spokeswoman for Hill & Knowlton, said the firm didn’t comment “on our clients or prospects.” A call to Wexler and Walker wasn’t immediately returned.
Hill & Knowlton employees have been lobbying Canadian government departments, ministers and officials for Cnooc, according to a website registry run by the Office of the Commissioner of Lobbying of Canada.
Cnooc, China’s largest offshore oil and gas explorer, hadn’t paid a firm to lobby Congress since its 2005 attempt to buy Unocal, according to public records. Unocal was eventually bought by San Ramon, California-based Chevron Corp. (CVX)
When it withdrew its Unocal bid, Cnooc said in an announcement that “unprecedented political opposition” to its proposed purchase was “regrettable and unjustified.”
Senator Charles Schumer, a New York Democrat, urged Timothy Geithner, who as Treasury secretary is the chairman of the committee on foreign investment, to withhold approval of the purchase until China agreed to provide U.S. goods with more access to Chinese markets, according to a letter sent today.
“It is rare that we have so much leverage to exert upon China,” Schumer said in a statement. “We should not let this window of opportunity pass us by.”
Schumer expressed overall support for the deal, saying it “will benefit the United States and help ensure the continued resurgence of our domestic energy sector.”
Nancy McLernon, chief executive officer of the Organization for International Investment, said the purchase by foreign companies of U.S.-based assets has become less politically charged since then.
“There is a widespread recognition of the value of foreign investment in the U.S.,” McLernon whose Washington-based group includes U.S. subsidiaries of Iberdrola SA (IBE) in Bilbao, Spain, and Tokyo-based Sony Corp. (6758), said in an interview.
Nexen’s other oil and gas assets include production in Nigeria and the North Sea, as well as oil-sands reserves at Long Lake, Alberta, where it already produces crude in a joint venture with Cnooc.