CNOOC-Nexen Deal Wins U.S. Approval, Its Last Hurdle

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U.S. regulators have approved the $15.1 billion takeover of Canadian oil and gas company Nexen Inc by China's state-owned CNOOC Ltd, removing the final obstacle to the Asian country's largest-ever foreign takeover.

Nexen

U.S. regulators have approved the $15.1 billion takeover of Canadian oil and gas company Nexen Inc by China's state-owned CNOOC Ltd, removing the final obstacle to the Asian country's largest-ever foreign takeover.

But a senior U.S. legislator said he planned to introduce legislation to block future deals like this, which involve U.S. properties that are free of royalties.

"Chinese government-owned oil corporations should not be allowed to drill for American oil in the Gulf of Mexico without paying a dime in royalties to U.S. taxpayers," said Representative Edward Markey, the ranking Democrat of the House Natural Resources Committee.

The deal to buy Calgary, Alberta-based Nexen had already passed regulatory muster in Canada and Europe. But the Committee on Foreign Investment in the United States (CFIUS) also needed to approve the transaction, because of Nexen's U.S. interests.

Nexen said on Tuesday that CFIUS had given the green light. It expects the deal to close the week of February 25, seven months after China's top offshore oil and gas producer made its bid of $27.50 a share.

Nexen's shares climbed 2 percent to just below the bid price, closing at $27.43. The shares are at their highest level since CNOOC made its bid for Nexen on July 23 last year.

The U.S. approval came even though widespread distrust of U.S. investments by Chinese companies has lingered since CNOOC's 2005 attempt to buy Unocal Corp for $18.5 billion, a deal that foundered on U.S. national security concerns.

Late last month, CFIUS cleared a bid by the U.S. unit of China's Wanxiang Group to buy bankrupt A123 Systems Inc, a maker of electric car batteries, although some lawmakers warned the deal would lead to the transfer of sensitive technology developed with U.S. government funding.

CNOOC's success in navigating the CFIUS approval process "is likely to be viewed as a positive development," said Joshua Zive, senior counsel at Bracewell & Guiliani, a Washington law and lobbying firm. "That, in the current climate, is a moment of significance."

Senator John Hoeven, a Republican from North Dakota, told Reuters the CFIUS approval did not surprise him. But he was disappointed the Obama administration has not moved to secure Canadian oil supplies by approving TransCanada Corp's Keystone XL pipeline.

"It shows that time doesn't stand still," he said in an interview, noting that Canadian oil resources will go to other parts of the world if the United States keeps dragging its heels on pipelines. "We've got to move on projects like Keystone."

Markey said he plans to introduce legislation giving the Interior Department the power to block the transfer of royalty free leases.

OIL SANDS RESERVES

The Nexen acquisition gives CNOOC new offshore production in the North Sea, the Gulf of Mexico and off western Africa, as well as producing properties in the Middle East and Canada.

In Canada, CNOOC gains control of Nexen's Long Lake oil sands project in the oil-rich province of Alberta, as well as billions of barrels of reserves in the world's third-largest crude storehouse.

Canada approved the takeover late last year even though some members of the governing Conservative Party had misgivings about China's human rights record.

But the federal government also insisted that CNOOC-Nexen was the last deal of its kind that it would approve, drawing a line in the sand against state-controlled companies taking majority stakes in Alberta's strategic oil sands.

U.S. approvals took longer as legislators examined whether the deal would threaten U.S. national security.

The United States has traditionally been more wary than Canada of Chinese investment, prompting some speculation that Washington might want Nexen to dispose of the U.S. assets.

Nexen did not indicate in its statement whether CFIUS had imposed conditions on the approval, and the company was not available for comment.

Nexen released the news on a day when Washington was focused on President Barack Obama's State of the Union address, a nuclear test by North Korea, and deliberations in the Senate Armed Service Committee about a vote on Obama's pick for Secretary of Defense. In China, lunar New Year celebrations were in full swing.

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