Cnooc’s $15-billion Nexen takeover means China’s not the resource bogeyman anymore

Cheering another win for China National Offshore Oil Corporation.
Cheering another win for China National Offshore Oil Corporation.
Image: Getty Images
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Earlier today, Canada’s Nexen announced that the US government approved its $15.1-billion takeover by a state-owned Chinese oil company, marking a new stage in China’s global conquest for resources.

The sale of the Canadian oil and gas company to China’s state-owned Chinese National Offshore Oil Corporation (Cnooc) required US government approval due to Nexen’s Gulf of Mexico operations (the company also has significant assets in Canada, whose government gave the go-ahead last month). That the US okayed the deal signals that we’ve entered an era in which China is an accepted—if still highly controversial and, potentially, threatening—competitor.

Not so in 2005. That year, the US government blocked Cnooc’s attempt to buy Unocal over (mostly irrational) fears that the California-based oil giant’s technology could go toward Chinese military activities. Since then, Cnooc and other Chinese companies have bought pieces of the US energy patch, including shale gas and shale oil assets from Chesapeake and other companies.

This growing acceptance of Chinese claims to US resources has been gradual, though. The Nexen deal is of another scale altogether: When the ink dries, it will be China’s biggest successful overseas acquisition. Moreover, it’s a coup for Cnooc, which is China’s third-largest oil company, because it widens its access to the Gulf of Mexico. Perhaps more importantly, working with Nexen will expand Cnooc’s experience in deep-water drilling.

The deal’s approval is also a result of China’s becoming a little savvier at making deals in industries that tend to rile up Western politicians’ national security worries. This time around, Cnooc recruited Nexen and various PR firms to help lobby (paywall), presenting regulators with familiar faces. Cnooc also offered assurances to US and Canadian regulators, such as that it would keep Nexen jobs in Canada and use the company as a base for its North American headquarters.

Though a sign of the US’s growing comfort with ownership of its assets, this might not be great news for other state-owned Chinese companies looking to extract Canadian resources. Prime Minister Stephen Harper has said control by foreign SOEs of Canada’s oilsands, the world’s third-biggest reserves, will only be allowed in “exceptional circumstances.” Harper has also pledged to make Canada into an “energy superpower.”

How much he means to keep Chinese companies out of the industry remains to be seen. The sector already depends, at least somewhat, on state-owned Chinese companies. In 2011, Cnooc paid $2.1 billion for OPTI Canada, an oil-sands producer. That year, state-owned Sinopec also bought oil and natural gas company Daylight Energy for $2.2 billion and in 2010 bought a stake in the Syncrude oil-sands project in Alberta.

Nexen said in a press release this morning that the Committee on Foreign Investment in the US (CFIUS) gave the go-ahead on the deal, which it expects to close next week.