China widens its reach with bid for Nexen
The state-owned China Offshore Oil Corporation’s (CNOOC) $15.1-billion bid for the Calgary-based global energy company Nexen has many supporters in Canada. They see it as a forwardlooking initiative that allows Canada to diversify its oil and gas sales to non-U.S. markets, and will lead to large amounts of Chinese capital funding the high costs of further developing Alberta’s oilsands. But neither really holds true. Nexen oil will only start flowing to China when and if there is a Northern Gateway pipeline from Alberta to the B.C. coast. The CNOOC bid has not got much to do with that. As for further exploitation of the oilsands, the bottom line is that the market price of oil must remain sufficiently high to justify the relatively high cost of extracting oilsands oil; otherwise it will stay in the ground. Again, this has nothing much to do with this Chinese takeover bid.
So why is CNOOC willing to pay so much for a company whose profitability has not been all that strong in recent years? CNOOC’s offer represents a premium of 61 per cent above the closing price of Nexen’s common shares on the New York Stock Exchange on July 20.
Would Nexen’s “Canadian” corporate culture be eroded after becoming a Chinese company?
What we are looking at is Nexen effectively becoming a Crown corporation, except the government whose objectives it will serve is in Beijing, not Ottawa. As a function of the Chinese state, CNOOC’s primary mandate is not to maximize profits to shareholders. China’s national political objectives come first and foremost, Nexen’s bottom line profitability second.
Reflecting this reality, CNOOC’s former CEO, Wei Liucheng, was promoted by the Chinese Communist Party Central Committee to become the governor of China’s Hainan province as a reward for his outstanding work on behalf of the Chinese party-state. CNOOC’s leaders are career Communist party apparatchiks, not career oil executives. This is because CNOOC’s mission is to further the interests of the Chinese government. Acquiring Nexen is part and parcel of this mandate. So why does CNOOC want such a big presence in Canada? The answer appears to be that this investment will enhance Beijing’s influence in Canada, especially if approval of the CNOOC bid leads to many other Chinese state firms following with the billions of foreign currency that China has accumulated over many years of trade surpluses.
If this deal goes through, China via CNOOC via Nexen will assume a major voice in government consultations on Canada’s national energy policy. It also has significant implications for China’s political influence in Canada. Would Beijing be prepared to leverage Nexen business decisions to reward or sanction the Canadian government over, say, the Dalai Lama or resolutions on China’s human rights record in the UN? For Beijing, protecting the Chinese Communist Party’s political rule from external challenges matters more than short-term oil profits.
Then there is the moral dilemma. Under this deal, profits from sales of Canadian oil would go to the Chinese state, thereby strengthening its capacity to carry out domestic and international policies that are at odds to Canada’s foreign policy agenda of promotion of human rights, democracy and rule of law, and condemnation of regimes that violate these norms.
And there are other issues. Nexen presently has an outstandingly good record on environmental issues, corporate citizenship and social responsibility, especially with regard to First Nations and local communities. CNOOC is dogged by allegations of appalling abuses in Burma and elsewhere. Would Nexen’s “Canadian” corporate culture be eroded after becoming a Chinese company?
Moreover, might some of the people who come to Canada with CNOOC to run Nexen be operatives of Chinese security agencies with mandates to engage in political and economic espionage? At present, the RCMP, CSIS and CSEC do not have the resources to effectively counter any Chinese state challenge to Canada’s security. If CNOOC moves in, Ottawa would have to rethink its priorities for domestic counter-intelligence, and make some hard budgetary decisions.
In the end, if the Harper government decides that CNOOC’s $15.1-billion investment meets the “net benefit to Canada” test, we must be prepared for the implications of enhanced Chinese state presence in our economy.