Nexen rigs near U.S. base could affect deal
China’s biggest offshore oil and gas producer may have to cede control of drilling platforms 80 kilometres from a major U.S. military base to win government approval for its $15.1 billion purchase of Canada’s Nexen Inc.
A U.S. panel reviewing the national security implications of the deal may be seeking to curb access by CNOOC Ltd., which is controlled by the Chinese government, to those Nexen platforms in the Gulf of Mexico, said Stewart Baker, a former U.S. Homeland Security Department official.
“Typically, the national security concern is if the target company is within close proximity of a military installation where there is training or testing conducted,” said Farhad Jalinous, a Washington lawyer who specializes in deals that are reviewed by the Committee on Foreign Investment in the U.S., known as CFIUS.
In the past three years, CFIUS has blocked at least three transactions that would have resulted in Chinese companies gaining control of assets near military facilities.
CNOOC and Calgary-based Nexen said Nov. 27 they had agreed to withdraw and resubmit their application to CFIUS on the U.S. part of what is mostly a Canadian transaction. Discussions with the interagency committee, headed by Treasury Secretary Timothy Geithner, are continuing, Nexen said.
Canada’s review of the deal is scheduled to end by Dec. 10.
The companies are probably discussing what’s known as a national security agreement that could resolve the committee’s concerns and still allow the transaction to be completed, said Jalinous, a partner with Kaye Scholer LLP. Such an agreement might restrict access by the non-U.S. owner or set other limitations that would curtail control of the facility, he said.
The Naval Air Station Joint Reserve Base at Belle Chasse, La., about 19 km southeast of New Orleans, is used for training exercises over land and water for an array of fighter aircraft, according to public-affairs officer Andrew Thomas. The base is home to a Marine Corps battalion, a Coast Guard air station, Navy training and transport units and fighter squadrons ready for immediate response to any threat. The 159th Fighter Wing of the Louisiana National Guard, which sent forces into Iraq and Afghanistan, is also based at Belle Chasse.
CNOOC, based in Beijing, may need to agree to sell assets deemed most sensitive, said Baker, a lawyer with Steptoe & Johnson in Washington who also specializes in CFIUS representation. “If the defence department is worried that you’re too close, that’s very hard to fix,” he said. “They might require a divestiture just of those platforms.”
Peter Hunt, a spokesman for CNOOC in Canada, declined to comment on the CFIUS review in an email.
Nexen’s platforms in West Delta, the closest offshore region to the base, are part of shallower operations in the Gulf’s shelf that the company deems “mature” and for which Nexen planned minimal investment this year as it focuses on deepwater spending, according to its 2011 annual report.
Production from Nexen’s platforms on the West Delta leases is “quite small,” about 400 barrels a day, Patti Lewis, a Nexen spokeswoman, said in an email. The company operates five producing platforms on blocks 44 and 45, a sixth that enables exports to pipelines and another that serves as a communication office, Lewis said, declining to comment on the CFIUS review.
CNOOC could easily sell Nexen’s Gulf of Mexico interests without compromising the takeover, said Timothy Parker, a portfolio manager at T. Rowe Price International Inc. in Baltimore, who holds Nexen shares. “The Gulf of Mexico stuff is almost a side show,” Parker said.