Bloomberg News

Harper Was Told Nexen Would Give Cnooc Stake in Key Asset

December 06, 2012

Canadian Prime Minister Stephen Harper

Canadian Prime Minister Stephen Harper. Photographer: Stuart Davis/Bloomberg

Cnooc Ltd. (883)’s $15.1 billion takeover of Nexen Inc. (NXY:US) would give the Chinese company the largest stake of an oil field in the North Sea that “has increasingly influenced” global oil prices, according to a memo sent to Prime Minister Stephen Harper by Canada’s top government worker.

Nexen says it controls 43 percent of the Buzzard oil field in the North Sea, off the coast of Scotland. Buzzard, which began production in 2007, is the largest discovery off the U.K. in the past two decades, according to Nexen’s website.

“Oil produced in the North Sea is used to set global oil prices for approximately 60 billion barrels of crude sold every day,” says a briefing note prepared Aug. 17 for Harper by Wayne Wouters, the government’s top bureaucrat. “The Buzzard field has increasingly influenced the global oil prices in recent years due to declining production at other North Sea fields.”

Harper’s government is reviewing the bid by Cnooc -- controlled by state-owned China National Offshore Oil Corp. -- under Canada’s foreign-takeover law, which requires that acquisitions represent a “net benefit” to the country. Industry Minister Christian Paradis extended the review last month until Dec. 10.

The memo, entitled “‘investments in the energy sector,’’ was intended to brief Harper on Cnooc’s July 23 offer for Nexen, a Calgary-based oil and gas producer. It is stamped ‘‘secret’’ and was obtained by Bloomberg News under the Access to Information Act, Canada’s freedom-of-information law.

Parts of the document have been censored under portions of the law that protect information about international affairs and defense, and government operations.

Reviewing Bids

Nexen shares rose 0.6 percent to $24.66 at 11:55 in New York trading, 10 percent below Cnooc’s bid of $27.50 per share.

Canada is also reviewing a C$5.2 billion ($5.2 billion) offer by Malaysia’s Petroliam Nasional Bhd. for Progress Energy Resources Corp. (PRQ) Harper has said his government will release a new ‘‘policy framework” on foreign investment around the time of the Nexen decision.

Canada issued guidelines on takeovers by state-owned enterprises in 2007 that say the government will assess whether the business to be bought will be operated on a “commercial basis.”

The memo reiterates details of Cnooc’s bid, including the share price offered by Cnooc, which represented a premium of about 60 percent above Nexen’s share price when the bid was announced. The document says most of Nexen’s assets are based outside Canada.

It also cites the commitments Cnooc promised at the time, including establishing Calgary as its North and Central American head office, maintaining Nexen’s employment level and management, and enhancing Nexen’s capital spending.

Syncrude Stake

The memo says the bid would mean the Chinese government would own a 16 percent share of Syncrude, Canada’s biggest oil- sands project in production, with China Petroleum (386) and Chemical Corp., known as Sinopec, owning 9 percent and Cnooc acquiring Nexen’s 7 percent.

Cnooc spokesman Peter Hunt declined to comment on the memo on the Nexen takeover. Nexen spokeswoman Patti Lewis didn’t immediately reply to an e-mail seeking comment. Raymond Rivet of the Privy Council Office, a spokesman for the ministry that supports Harper in running the government, referred questions to the industry department, which didn’t respond to an e-mail and phone call seeking comment. Harper spokesman Andrew MacDougall declined to comment.

The document also briefs Harper on Sinopec’s proposed $1.5 billion acquisition 49 percent of the U.K. assets of Calgary- based Talisman Energy (TLM) Inc. Sinopec doesn’t require Canada’s approval to complete the deal.

The Buzzard field, which began production in early 2007, is expected to produce as much as 85,000 barrels of oil per day for Nexen this year, the company said.

To contact the reporter on this story: Andrew Mayeda in Ottawa at amayeda@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net


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