OTTAWA – The federal government has approved the takeovers of Calgary-based Nexen Inc. (TSX:NXY) and Progress Energy Resources Corp. (TSX:PRQ) by Asian state-controlled firms.
China’s CNOOC and Malaysia’s Petronas received the OK from the government late Friday as part of a wide-ranging update of foreign takeover rules.
However, the government said it will only consider future takeover deals in the oilsands by state-owned companies in exceptional circumstances.
And all state-owned enterprises seeking to buy large Canadian companies will face greater scrutiny about how they operate and how much control their home governments would have over how they do business.
Prime Minister Stephen Harper says foreign-state control of oilsands development has reached the point where further control would not be beneficial to Canada.
“When we say that Canada is open for business, we do not mean that Canada is for sale to foreign governments,” Harper said.
“The government’s concern and discomfort for some time has been that very quickly, a series of large-scale controlling transactions by foreign state-owned companies could rapidly transform this (oilsands) industry from one that is essentially a free market to one that is effectively under control of a foreign government.”
Harper noted that just 15 companies operate in the oilsands, exposing the industry to greater risk of foreign control with only a few transactions.
The China National Offshore Oil Co., CNOOC, launched a friendly $15.1-billion bid for Nexen in July, providing a series of guarantees to the Canadian government on job creation, head office location and corporate governance.
In a statement, Industry Minister Christian Paradis said he was satisfied that the deal would be a net benefit to Canada.
Initially, Malaysia’s Petronas $6-billion bid for Progress Energy was rejected by the federal government and the company later revised its proposal.
Paradis said the company made “significant commitments” in several areas that satisfied him the deal was in net benefit to Canada.
In revising the guidelines for state-owned enterprises, the Conservatives are answering criticisms that the rules were too vague to provide certainty for investors.
But at the same time, they responded to Canadians’ concerns about the implications of allowing foreign-owned firms to play a major role in Canada’s natural resources sector.
The government made three major changes to the guidelines Friday.
First, they increased the threshold for review under the Investment Canada Act for takeovers by foreign private investors to $1 billion from $330 million.
But the $330 million threshold will remain in place for state-owned enterprises.
They also gave the Minister of Industry the ability to extend the time available to conduct a national security review of proposed investments.
The CNOOC deal did not trigger a security review.
But the biggest change comes for state-owned enterprises, with the government elaborating extensively on how proposed bids from those companies will be handled in the future.
They set out five specific elements that investors will need to demonstrate in order for the government to consider approving a proposal.
At the top of the list is that the investment is commercially oriented and that the investor is free from political influence.
Canada’s spy agency raised a red flag on foreign investment by state-owned firms in its annual report earlier this year.
Though CSIS didn’t name specific countries or companies, it said certain state-owned enterprises have pursued what it called opaque agendas or received clandestine intelligence support for their pursuits in Canada.
CNOOC and Nexen also had a pre-existing relationship. Last year, CNOOC scooped up Opti Canada, Nexen’s beleaguered minority partner in its troubled Long Lake oilsands project. The two firms also worked together in the Gulf of Mexico.