Nexen harping makes no sense

It might be a country that prides itself as the bastion of free enterprise, but these days the United States certainly isn’t acting that way.

The most recent example is the letter sent this week by Senator Ed Markey — the ranking member on the House Natural Resources Committee — to U.S. Treasury Secretary Timothy Geithner requesting the government refuse to approve the takeover of Nexen by the China National Offshore Oil Corporation.

The reason for Markey’s position is that if approved, the deal will be tantamount to a massive transfer of wealth from the U.S. to China. Really? And where does Markey think the majority of the goods bought in U.S. stores come from today?

Somewhere other than China?

And has he forgotten which country is the largest holder of US Treasuries?

The point is, whether Markey’s concern has any merit or not, there already is a wealth transfer happening eastward.

And it’s not just about China.

Because of all the oil the United States imports on a daily basis, the wealth transfer is going to places like Canada, Venezuela, Mexico and Saudi Arabia.

If he’s not sure about all this, perhaps checking the trade deficit numbers might help.

The most recent data shows imports exceeding exports by $48.7 billion.

Markey’s picking on the Nexen deal makes no sense.

We live in a global marketplace.

It’s very tough to cherrypick who you want to do business with, though many will argue that’s what happened when Investment Canada turned down the offer by BHP Billiton for Potash Corp.

Markey wants CNOOC to agree to a different royalty scheme for the Gulf of Mexico assets or divest the assets in question.

Clearly he doesn’t realize two important factors.

One is that Nexen did not ask for a different royalty rate in the Gulf of Mexico. The U.S. government changed the rate because it recognized how complicated it is to develop oil and gas assets in the deep waters.

Second, tinkering with royalty rates, as former Premier Ed Stelmach might tell anyone who will listen, means you introduce an element of uncertainty when it comes to future investments.

And when that happens, capital flows to where it can get the best return. In other words, to other jurisdictions.

Something else that doesn’t make sense?

The offshore assets aren’t exactly a huge piece of Nexen’s portfolio, either on a reserves or production basis.

Then there’s the wee bit of irony.

In 2005, when CNOOC tried to buy Unocal and was rebuffed, had someone like Markey suggested the U.S. assets of the company be divested as a condition of the deal, it likely would have gone through. Truth is, what CNOOC really wanted was all the stuff outside the United States.

Stepping back to look at the big picture — U.S. energy security — and it’s more than apparent Markey is way off base.

In its quest to decrease the wealth transfer to the Middle East and other countries, the United States needs to continue to develop the reserves that have been found and identify new opportunities.

All this takes money, especially when it comes to complex plays like the Gulf of Mexico.

Clearly, Markey has not been watching the oilpatch earnings parade thus far. It has not been pretty as companies have been dealing with lower prices for oil and natural gas that have dropped almost 50 per cent in the past year.

Energy bellwether ExxonMobil reported second quarter numbers last week that were bolstered by asset divestitures. Stripping out the gains from the sales, the company’s earnings per share would have been more than 45 per cent lower.

Royal Dutch Shell also reported lower numbers, despite an increase in production — a clear indication of the challenges the industry is facing.

Moreover, getting access to capital for new projects through public markets in the current investment environment is next to impossible.

That’s why so many companies are choosing to go the joint venture route and partnering up with companies like CNOOC, Sinopec and others — as a way to decrease the risk associated with the development of the identified opportunities, as well as gain access to capital through a different avenue.

The ability to access capital — and develop reserves — also means employment and tax revenue. For the U.S., whose job numbers continue to be challenged, one would think that having a deep-pocketed player who is ready to spend the necessary dollars on development activities would be more than welcome.

Sadly, once again, Markey’s letter is another indication that the United States is attributing too much importance on the wrong issues that will ultimately hinder economic growth, not help it.