Harper Seeks More Gains From China in Exchange for Oil
Harper, speaking at the Bloomberg Canada-Asia Conference in Vancouver, said Canada needs to diversify trade to Asia because of sluggish growth in much of the rest of the world, adding that the relationship also needs to become reciprocal.
“The Chinese are acutely aware, in my own experience, of the fact the trade and investment flows are disproportionately in their favor,” Harper said in an interview with Bloomberg Television’s Erik Schatzker. “They recognize that has to change,” he said, adding “we will also be seeking things from them.”
Harper’s ability to bolster economic relations with China, which he calls a national priority, is being tested by concern the Asian country may gain too much influence over Canada’s oil sands, the world’s third-largest pool of oil reserves. A poll by Sun News Network last week showed a majority of Canadians surveyed want him to reject a $15.1 billion takeover of Calgary- based oil company Nexen Inc. (NXY) by China’s Cnooc Ltd. (883)
Harper today said he’s aware Canadians are wary of Chinese investment and said it’s incumbent on China to show it can play by “the same rules” as Canadians.
To provide clarity, Canada’s government is preparing a “policy framework” for foreign investment to explain the government’s decision regarding the Nexen bid and future transactions, he said.
Canada’s system for weighing takeovers is “highly subjective and unpredictable,” Toronto-based research group C.D. Howe Institute said in a study released in December. The rules may have contributed to the decline in Canada’s share of global foreign-direct investment, it said.
Harper’s government will use “broad” criteria in its review of the transaction, he said without giving details. “We’re going to be looking for ways to make sure we can promote first and foremost Canadian interests in this relationship.”
Canadian legislation allows the government to reject foreign takeovers on the basis of three criteria: The acquisition doesn’t give a “net benefit” to Canada, it’s made by a state-owned company that doesn’t act on a commercial basis or it creates national-security concerns.
Harper said Cnooc’s status as a state-owned enterprise makes it “somewhat different” and leads to range of different requirements in the review process.
Investors may have to wait until November or longer for a decision on the bid. Cnooc made a formal application for government approval on Aug. 29. The government has 45 days to review foreign takeovers once an application has been filed and can extend the deadline by 30 days if it notifies Cnooc before the initial period expires. Canadian officials can extend the review further if both Cnooc and Canadian Industry Minister Christian Paradis agree.
While Harper’s government is deciding on the Cnooc bid, Canadian financial institutions, such as Bank of Nova Scotia (BNS) and Manulife Financial Corp. (MFC), are waiting for Chinese approvals of proposed investments in the world’s second largest economy.
Nexen’s shares have lost 2.9 percent through yesterday since Beijing-based Cnooc’s offer was announced July 23, leaving them 8.5 percent below the $27.50 agreed price. The difference is the second-largest among proposed North American acquisitions valued at $1 billion or more, according to data compiled by Bloomberg. The shares closed at $25.50 in New York trading today.
Harper visited China this year to promote Canada’s energy industry and build trans-Pacific ties. Harper told Chinese business leaders in February during a dinner in Guangzhou, China, that he wants to take Canada’s economic partnership to “the next level.” They are expected to sign soon a foreign- investment protection agreement to promote capital flows between the two countries.
On that trip, Harper’s government made it clear Canada is seeking to increase Chinese investments. Natural Resource Minister Joe Oliver, in a Bloomberg interview during that trip, said Canadian officials have told the Chinese they are welcome.
Nexen’s assets include the Long Lake oil-sands operations in Alberta, offshore oil production in Nigeria and the U.K. North Sea, as well as in the Gulf of Mexico. These assets produced 207,000 barrels a day in the second quarter, which would boost Cnooc’s output by about 20 percent.
In its July 23 announcement, Cnooc promised to retain Nexen employees, keep a North American headquarters in Calgary, maintain Nexen’s planned capital spending and list its shares on the Toronto Stock Exchange.
To contact the editor responsible for this story: David Scanlan at email@example.com