China’s Takeover of Canadian Oil Giant: Obama’s Fault?

(July 24 2012)

After Barrack Obama snubbed the Keystone Pipeline permit Canada quickly accepted the courtship of China, and now, a new partnership between China and Canada has already formed; a move that may, according to some, leave the United States out in the dark, while Canada and China work together to develop oil production in Canada, the world’s second largest holder of reserves.

Shortly after Obama rejected the Keystone permit, Prime Minister Stephen Harper said Canada needed to explore more opportunities to sell oil to China. Weeks later, he was invited to the country where he met with the country’s leaders to discuss a renewed trading partnership. Energy was at the top of this discussion.

This Monday, CNOOC, a state-owned China oil producer, announced that it will buy Canadian oil producer Nexen for $15.1 billion, a 60 percent premium on the company’s current share price.  In addition, CNOOC will assume Nexen’s $4.3 billion in debt.  Included in the deal are provisions that will appeal to the Canadian government, helping it clear regulatory approval.  They include keeping Nexen’s current management team and employees, establishing Calgary as CNOOC’s North and Central American headquarters, which will manage Nexen’s global operations, a capital expenditure program in Canada, and a proposed listing of CNOOC’s shares on the TSX.

Another element in favor of Canada’s approval of Nexen is the fact that Nexen is truly an international company. About 28 percent of Nexen’s current production is in Canada. Beyond its assets in Canada, Nexen’s oil and gas assets include production platforms in the North Sea, the Gulf of Mexico and in Nigeria.

Seems like a win-win for Canada and China.  Canada will receive hefty considerations for selling one of its smaller producers and a guarantee of more investments to develop the country’s oil sand. China gets more access to some much needed energy.  So, there is one loser, the United States.  While Canada will not likely completely snub America, they probably won’t continue to put as much effort into forging a trading deal, as they did with Keystone. This would be a strategic setback for the U.S., which has been searching for years for secure sources of oil outside of the volatile Middle East.   American politicians are already concerned about the implications this new Canada-China deal will have on the U.S’s long term energy sources. Meanwhile, the latest Keystone permit remains in Obama’s hands, waiting for approval, an approval that is unlikely while the president remains focused on campaigning.


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