The Nexen building is seen in downtown Calgary, Alberta, July 23, 2012.
Credits: REUTERS/Todd Korol
Nexen is an oil and gas company with operations in the UK North Sea and the Gulf of Mexico, too. The assets that are getting the most attention are here in Canada, their oilsands in particular.
Why? Because CNOOC, a Chinese company with the more formal title of China National Offshore Oil Corporation, is state-owned. It seems that a lot of people don't want a Communist country running any of our energy reserves.
Here's the thing: capitalism is a risk-based economic system. You take on risk and you get reward. Capitalism assumes that the means of making a profit is privately owned, but privately owned refers to the country in which it is located.
CNOOC is putting up $15 billion for a project, the Long Lake oilsands, that has struggled through the years. CNOOC got its foot in the door when it purchased Opti Canada ... and now it wants to buy out its partner, Nexen, for the rest of the project.
If the government of Canada owned this project and poured billions into it, we'd all be up in arms. We'd be justifiably asking why we'd be putting so much money on the line when there are plenty of successful private oilsands projects on the go. Let the private sector take the risk. But the private sector hasn't shown much interest in Long Lake.
So the question then becomes one of control. Who owns these oilsands if this deal goes through? The Chinese. On the other hand, who gets the jobs? Canadians. Who gets royalty checks and tax benefits? Alberta and Canada.
The federal government has to make a decision to approve the purchase of Nexen based on what is called the 'net benefit' test. If it was an American oil company doing the purchasing, this would've been approved long ago. The net benefit is clearly in Canada's favour.
Nexen's oilsands are only 5% of the oilsands leases in Alberta. They aren't economically essential, but they do represent a precedent.
The new Chinese owners should, and will, be held to the same scrutiny as any other oilsands producer. The regulations are ours, and I expect CNOOC might even be held to a higher standard.
Political forces are crying for reciprocity; the Chinese have to let Canadian firms invest in their country in exchange for letting this deal go through. It's a valid argument, but let's not forget that the Chinese have been very open to western companies expanding in their country - General Motors and Volkswagen have huge operations in China. Canadians have not taken advantage of that opportunity, yet. They will once Northern Gateway Pipeline gets approved.
The bottom line: the Chinese have the money we need. Yet we still hold the hammer. Royalties, resource development, jobs and income taxes are the 'net benefit' to Canada.
This deal needs to get approved. It just makes business sense.