Mixed benefits from Nexen takeover: DBRS

TORONTO — The net benefit of a $15.1-billion takeover of Nexen Inc. by a Chinese company is somewhat mixed because the deal offers only limited direct financial benefits but may help trade relations, says the DBRS debtrating agency.

A DBRS report released Wednesday says the deal is not financially necessary for Nexen, which is already a strong company with good access to capital markets, but an approval could bolster Canada’s relationship with China and open up new markets.

“The overall net benefit to Canada is somewhat mixed, in terms of economic and political aspects,” said James Jung, a senior vice-president at DBRS.

“The transaction would dramatically improve Canada-China relations, which could in turn provide greater economic trade between the two countries.”

Ottawa is reviewing the $15.1-billion takeover by the Chinese National Offshore Oil Company under the Investment Canada Act, which says large deals must be of net benefit to Canada.

The federal government essentially killed BHP-Billiton’s hostile takeover bid for Potash Corporation of Saskatchewan when it said the deal didn’t meet that standard.

Jung said if the Nexen transaction is approved, other multinational companies and state-owned entities could follow suit.

“The level of foreign

direct investment in Alberta’s energy resources, particularly in oilsands, is poised to rise at an ever-increasing rate,” Jung said.

Nexen shareholders voted approve the takeover last week.

Both Nexen and CNOOC have been seeking to allay concerns over the deal and trumpet its potential benefits. Nexen has said that CNOOC will keep the Nexen name and expand the role of the company’s Calgary headquarters to manage not just Nexen’s assets, but also some $8 billion of the Chinese company’s other assets in North and Central America.

Nexen interim chief executive Kevin Reinhart has also said that if the deal is approved CNOOC would seek a listing on the Toronto Stock Exchange and carry on Nexen’s social responsibility programs in Canada and around the world.

Concerns have been raised in Ottawa by both sides of the House of Commons about the deal.

Alberta Tory MP Ted Menzies has said he’s been getting a lot of negative feedback from constituents about the takeover by a state-owned Chinese firm.

Nexen and CNOOC are already partners in the Gulf of Mexico and at the Long Lake oilsands project near Fort McMurray, Alta.

While CNOOC’s deal for Nexen may be the largest deal so for in the Canadian oilpatch involving a Chinese company, other Chinese firms have been active in the sector.

Talisman Energy has signed a deal to sell a 49 per cent interest in its U.K. division to Sinopec Corp.

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