What’s the cost to break a deal?
The Chinese state oil company CNOOC made many promises in securing Industry Canada’s approval of its $15.1-billion takeover of Nexen.
It has pledged to make Calgary one of its international headquarters, manage Nexen’s global operations and CNOOC’s assets in North and Central America from here and retain Nexen’s management and employees.
CNOOC has also said it will maintain or enhance capital expenditures on Nexen’s assets and intends to enhance Nexen’s community and social commitments.
It will retain the Nexen name and the company’s listing on the Toronto Stock Exchange.
It’s a lengthy and impressive list.
Former Nexen chief executive Charlie Fischer this week raised the question of what happens if a company doesn’t fulfil the promises it makes.
“The issue for me is ‘if they don’t meet their commitments, what are the consequences?’ ” Fischer told The Canadian Press.
“There have to be penalties when people don’t meet commitments, whether that’s Asian companies or whether those are North American or European companies.”
Confidentiality rules for the Investment Canada Act preclude the federal government from commenting on the commitments CNOOC made in the Nexen takeover, but the company reportedly agreed to report annually on its commitments to Industry Canada.
Nexen — the company Fischer led from 2001 until 2008 — has some history with promises made in a takeover and what becomes of them.
Back in 1997, Nexen was still known as Canadian Occidental Petroleum when it emerged from a takeover battle with Talisman Energy to acquire the one-time provincial Crown corporation in Saskatchewan that became publicly traded as Wascana Energy for about $1.9 billion.
At the time, CanOxy said Wascana’s head office would remain in Regina, promised no net loss in jobs locally. Among the more notable commitments was the $1 million in funding to create the Wascana Energy Petroleum Research Chair at the University of Regina.
No empty promises, there was even legislation to ensure Wascana’s headquarters remained in the province and half of the board of directors came from Saskatchewan.
The sale proved to be a precursor to Nexen’s takeover of a company that was created by the province in energy crisis of 1973 and became known as SaskOil.
Within four years of CanOxy’s takeover, the Wascana Energy Act was repealed. Wascana was renamed Nexen Canada in 2001 and the head office and executives were absorbed into the Calgary operations.
In 2010, Nexen sold much of Wascana’s legacy heavy oil assets at Lloydminster as well as light and medium oil plays. At the end of 2011, Nexen, a company with 85 per cent of its production in crude oil, operated about 1,200 natural gas wells in Saskatchewan. The Wascana Energy Petroleum Research Chair was allowed to lapse. The head office, the Wascana name and the jobs are gone, too.
It was nothing against Saskatchewan. It’s just business.
Never forget that all corporate commitments are only a means to an end; to increase return to investors.
In fact, it was CanOxy chief executive David Hentschel who revealed the motivation for any company in decision making 15 years ago when he explained it was merging CanOxy and Wascana’s operations because “it makes economic and organizational sense.”
As soon as it doesn’t make “economic and organizational sense” get ready for a new set of commitments. It’s just business.
As Fischer, and others, question what are the consequences of not keeping commitments, Nexen’s history with Wascana suggests the answer is … not much.