Canadian P.M. vows to block further Chinese ownership in oil sands

Frederic J. Brown/AFP/Getty Images

TORONTO Canada's prime minister said Monday it's "extremely unlikely" his government will allow any more foreign takeovers in the oil sands sector by state-owned companies.

Prime Minister Stephen Harper's Conservative government approved China's biggest overseas energy acquisition on Friday, a $15.1 billion takeover by Chinese-state owned CNOOC of Canadian oil and gas provider Nexen. Harper also approved a smaller deal, Malaysian state-owned oil firm Petronas' $5.2 billion bid for Progress Energy.

But Harper vowed Friday to reject any further foreign takeovers in the oil sands by state-owned companies unless there are "exceptional circumstances." He didn't elaborate.

On Monday he went even further.

"I think we have been very clear that controlling interest takeovers by foreign governments in the oil sands are extremely unlikely to be approved by this government in the future," Harper said in Parliament.

Natural Resource Minister Joe Oliver also stated Monday that foreign control in the oil sands sector by state-owned companies has reached its limit. He said CNOOC's takeover likely would not have been approved under new tougher new foreign investment rules.

Concerns had been raised that the approvals could lead to a flood of foreign takeovers that put control of Canada's vast energy resources in China's hands.

Harper said the markets and Canadians are supportive of Canada's new rules.

"Canada is open for business, but that does not mean that Canada is open for sale to foreign governments," Harper said.

Canada's new foreign takeover rules may not go over well in China where they are eager for an even greater share of Canada's oil. Alberta has the world's third-largest oil reserves after Saudi Arabia and Venezuela: more than 170 billion barrels. Daily production of 1.5 million barrels from the oil sands is expected to increase to 3.7 million in 2025.

Harper said Friday the Nexen deal by itself was OK, but said the potential for more takeovers raised alarms.

The prime minister noted that 15 companies dominate production in the Alberta oil sands and said the sector represents 60 percent of all the oil production around the world that is not already in state hands. He feared a few larger purchases by foreign state-owned companies could rapidly transform the industry from one that is essentially a free market industry to one that is effectively under the control of a foreign government.

Oliver reiterated that Monday.

"The percentage of state-owned, Chinese-owned, investment in the oil sands in terms of future production will still be under 10 percent and so we didn't feel with the acquisition the number was excessive. But new rules are now in place," Oliver said.

Most analysts believed the Nexen deal would be approved because more than 70 percent of Nexen's assets are outside Canada. Analysts say a company like Suncor, Canada's largest oil company, would have been off limits.

The government is now saying mid-tier companies like Nexen will also be off limits. Oliver, however, said non-controlling minority interests proposed by foreign state-owned companies, including joint ventures, will continue to be welcome in the development of the oil sands.

David Collyer, the president of the Canadian Association of Petroleum Producers, said the Harper government struck a reasonable and pragmatic balance in making its decision on Friday.

"It's an outcome that we think will enable continued growth in the sector and continue to attract investment capital," Collyer said.

CNOOC and other big state-owned Asian energy companies have increased purchases of oil and gas assets in the Americas as part of a global strategy to gain access to resources needed to fuel their economies. Chinese companies have moved more carefully since CNOOC tried seven years ago to buy Unocal but was rejected by U.S. lawmakers who cited national security fears.

But Harper lobbied the Chinese to invest in Canada's energy sector in recent years and has said billions in foreign investment is needed to develop Canada's vast oil and gas deposits. Turning down CNOOC's bid would have harmed relations with China.

Nexen operates in western Canada, the Gulf of Mexico, North Sea, Africa and the Middle East, with its biggest reserves in the Canadian oil sands. The acquisition vastly expands CNOOC's holdings in Canada, where the company has already invested about $2.8 billion.

Nexen's board approved the takeover in July after CNOOC offered a 62 percent premium on the stock price. Shareholders voted overwhelmingly to support the deal in September.

Shares of Nexen jumped almost 14 percent, or $3.28, to $26.80 in afternoon trading on the New York Stock Exchange.

The deal still needs approval in Britain and the U.S.

Comments

CBSN Live

pop-out
Live Video

Market Data

Watch CBSN Live

Watch CBS News anytime, anywhere with the new 24/7 digital news network. Stream CBSN live or on demand for FREE on your TV, computer, tablet, or smartphone.

Market News

Stock Watchlist