Cnooc Said to Agree on Canada Demands for Nexen Takeover
Cnooc Ltd. (883), China’s biggest offshore oil and gas producer, has accepted management and employment conditions set by the Canadian government as it seeks approval for its $15.1 billion takeover of Nexen (NXY) Inc., according to two people familiar with the matter.
Negotiators for the Canadian government adopted many of the conditions requested by Alberta Premier Alison Redford last month, which include guarantees that at least 50 percent of Nexen’s board and management positions be held by Canadians, the two people said on condition they not be identified because negotiations are confidential. There are still commercial issues being negotiated such as the extent of capital spending requirements and other matters related to Cnooc’s status as a state-owned enterprise, one of the individuals said.
Nexen stock jumped almost 7 percent last week, the biggest weekly gain since state-owned Cnooc bid for the Calgary-based oil company in July, suggesting investors are growing more optimistic the deal will be approved by the Canadian government.
Recent statements from Prime Minister Stephen Harper and federal cabinet ministers provide “favorable indications” Cnooc’s takeover of Nexen will soon be approved, as well as the separate bid the government is reviewing by Malaysia’s state- owned energy company for Calgary-based Progress Energy Resources Corp. (PRQ), said Kyle Preston, an oil and gas analyst at National Bank Financial Group in Calgary.
“I think we’re close,” Preston said in a phone interview yesterday. “The government is looking at both the Cnooc-Nexen and the Progress-Petronas deals, which I think gives the appearance they’d like to make a decision on both at the same time and outline what the new framework is going to be for this net benefit test.”
The Canadian government is reviewing the sale of Nexen under the country’s foreign-takeover law, which specifies transactions need to have a “net benefit” to the country in order to win approval. Canada extended its review of the deal for a second time on Nov. 2, setting the deadline to Dec. 10.
While Prime Minister Harper has called it a national priority to sell more of his country’s energy resources to Asia, he has said the Nexen sale raises “difficult policy questions” and the government will release a new policy framework on foreign investment when it completes the review of the Nexen takeover.
Canada rejected a C$5.2 billion ($5.2 billion) bid by Petroliam Nasional Bhd. for Progress Energy on Oct. 19, giving Petronas, as the Malaysian company is known, 30 days to appeal or make concessions. Last week, Industry Minister Christian Paradis said his decision on the Progress Energy takeover could come after Nov. 18.
Peter Hunt, a spokesman for Cnooc in Canada, declined to comment on the company’s negotiations with the federal government, when reached by phone in Calgary. A phone message left for Progress Energy spokesman Greg Kist seeking comment yesterday was not immediately returned.
“The proposed transaction is undergoing a rigorous review under the Investment Canada Act and the required time will be taken to determine whether it is likely to be of net benefit to Canada,” said Margaux Stastny, a spokeswoman for Paradis, in an e-mail.
“State-owned enterprises represent a different type of player, and obviously those are some of the issues that are before us,” Harper said during a conference organized by the Canadian American Business Council in Ottawa yesterday.
Investment by Chinese state-owned companies in Canada’s energy industry has become a contentious issue over the past three months, with opposition parties calling for a public review and some lawmakers from the governing Conservative Party openly opposing it.
Other recommendations made by Redford’s government are for Cnooc to maintain workforce levels for at least five years, to strengthen commitments to keep planned capital spending and to clarify plans for research and development, a person familiar with Alberta’s demands told Bloomberg News last month on condition they not be identified because the request was confidential.
In the July 23 announcement of its $27.50 a share bid, Cnooc pledged to follow through on Calgary-based Nexen’s capital spending plans and maintain the company’s employment level and management, without giving details or a time frame.
Beijing-based Cnooc has also promised to make Calgary the head office of its North and Central American operations, as well as list its common shares on the Toronto Stock Exchange.
Nexen dropped 1.1 percent to $25.14 today in New York.
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