Nexen wise to caution it’s not a done deal yet

After the outpouring of reactions, predictions and instant analysis to the fed- eral government’s approval of the takeover of oil and gas producer Nexen by a Chinese oil company over the weekend there were five hurriedly uttered words that offered the most food for thought.

Monday morning, as he left a conference in downtown Calgary on opportunities for the oil and gas industry in Asia, interim Nexen chief executive Kevin Reinhart was asked for his reaction to Ottawa’s approval of CNOOC’s $15.1-billion takeover.

“We are nowhere near done,” Reinhart told a reporter from Reuters.

While politicians, academics, journalists and business leaders offered their two cents on Prime Minister Stephen Harper’s approval of the Nexen deal and the sale of Prog- ress Energy to Malaysia’s Petronas — before he essentially shut the door on takeovers in the oilsands by state-owned companies — the focus at Nexen is on completing the highly contentious deal.

Since Nexen’s shareholders and governments in Canada, Britain and the European Union have approved the politically charged acquisition of the Calgary company, which has operations around the globe, only the U.S. is left to rule.

Britain’s approval was significant since Nexen holds more than 40 per cent of its largest oilfield, Buzzard, which plays a key role in setting global oil prices because it is the largest contributor to the stream of North Sea crudes which make up the bench- mark Brent oil contract.

In a statement released late Friday, Nexen and CNOOC said completing the largest foreign takeover by a Chinese government-controlled company still hinged on “receipt of other applicable government and regulatory approvals” and other customary closing conditions.

Reinhart’s terse comments suggest U.S. approval is hardly a rubber stamp.

At issue are Nexen’s 14,000 barrels a day of favourably taxed oil and gas production — about 7.7 per cent of its total, and declining — and 30 million of barrels of proved reserves in the Gulf of Mexico.

The U.S. decision will be made by Washington’s Committee on Foreign Investment in the United States, which is chaired by Treasury Secretary Timothy Geithner and includes the heads of several key departments including Commerce, Homeland Security, State and Defence.

It is the same committee that prompted CNOOC to drop its 2005 bid for California-based oil producer Unocal over security concerns. The eight-member panel can negotiate or impose conditions, including divestitures, to mitigate any potential national security threats.

Committee members are forbidden from commenting on their reviews.

In rare cases, a final decision will go to the president, although neither the committee nor the president has the capacity to block the overall CNOOC-Nexen deal.

CNOOC and Nexen originally applied to the committee in September, but the companies have confirmed they withdrew and resubmitted the application in November. The panel has 75 days to make a decision so a ruling may not come until 2013.

To be fair, Geithner and other committee members are preoccupied with keeping the U.S. government from plunging over the “fiscal cliff” in the coming weeks. The fate of a company from Canada with 80 wells offshore Louisiana and Texas may not be its priority.

The Gulf of Mexico assets aren’t even foremost in Nexen’s portfolio. It has a total of 922 million barrels of proven reserves mainly in Canada and the U.K. but also Colombia, Yemen and off the west coast of Africa. The U.S. assets are three per cent of its reserves.

Nexen also has a 20-per-cent stake in the promising Appomattox oilfield in the Gulf, recently discovered by Shell, and has called the area “an integral part of our growth strategy.” Some of Nexen’s deepwater oil production is royalty free under a 1995 law that provided incentives to drill in the Gulf.

“I believe this merger could lead to massive transfer of wealth from the American people to the Chinese government,” Democratic Representative Edward Markey of wrote to the committee in July.

“I strongly urge you to block this proposed transaction until, at a minimum, parties to the merger agree to pay royalties … it has the potential to directly undermine American economic and national security.”

Other members of Congress have expressed reservations about the deal, as oil and gas royalties are one of the largest sources of non-tax revenue for the U.S. government.

This fall, a congressional advisory panel urged tighter screening of investment by Chinese state-owned companies, saying they present unfair competition to American companies. The U.S.-China Economic and Security Review Commission urged Congress broaden the mandate of the committee to examine issues beyond security concerns.

However, the U.S. has also approved significant investments by Chinese firms — including CNOOC — in U.S. shale gas and onshore oilfields and there are U.S. companies, including Conoco, developing oilfields offshore China.

Exactly how the historic transaction will conclude is anyone’s guess but Reinhart was wise to, wittingly or not, channel legendary American sage, New York Yankees catcher Yogi Berra, and the timeless advice that in sports, business and politics “it ain’t over till it’s over.”