Canada opens a pipeline to China: The Cnooc-Nexen deal

By MarketWatch

Cnooc wins Canadian government approval to buy Nexen.

SAN FRANCISCO (MarketWatch) ? Canada?s government has ruled: Selling two key energy companies to China is good for the nation.

Facing a Monday deadline, the government announced late Friday that the $15 billion bid the China National Offshore Oil Corp., or CNOOC Ltd. /quotes/zigman/274848/quotes/nls/ceo CEO +0.73% ,?made in July for Calgary-based Nexen Inc. /quotes/zigman/22967 CA:NXY -6.35% /quotes/zigman/22952/quotes/nls/nxy NXY -6.56% provides a ?net benefit? for Canada.

It also approved a $5.2 billion takeover of Progress Energy Resources Corp. /quotes/zigman/42776 CA:PRQ -4.35% by Petronas, Malaysia?s national oil company. See: Canada OK's CNOOC-Nexen, Petronas-Progress bids.

How the government reached its decision is a bit of a mystery. Just a month ago it looked like national security concerns would scuttle the Petronas-Progress deal, which in turn cast a very dark cloud over the CNOOC-Nexen takeover.

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Now we know better.

Those betting correctly that the CNOOC-Nexen deal would go through ? and the 99% of Nexen shareholders who voted for it ? can now say with real conviction what they thought all along: Canada needs an new outlet for its surplus oil and gas.

Earlier this year the Obama administration rejected that part of the Keystone Pipeline project that would have carried oil from Canada to refineries along the Gulf of Mexico, essentially keeping output from Canada?s new oil shale fields bottled up north of the border.

The White House didn?t exactly kill the Keystone project, it just asked that it be revised to address environmental concerns.

There?s another way of looking at this cold shoulder from Uncle Sam. The U.S. has made huge production gains from its own oil shale boom, and that?s taken any urgency out of securing new imports from longtime supplier Canada.

Meanwhile, Canada has been looking for ways to beef up trade with Asia, especially China. With China?s biggest overseas oil company in hot pursuit of much-needed energy reserves anywhere they can get them, Ottawa clearly saw an opening. Bend the pipeline from the south to the west to meet growing demand in the biggest fuel market in the Far East.

This is about more than feeling rejected by the U.S., however, since much of Nexen?s reserves are in the North Sea, Africa and the Gulf of Mexico.

Because Nexen operates in the U.K., European Union regulators also needed to give their blessing to the deal, which they did earlier Friday. Once that key piece of the approval process was in place, Canada wasted no time pushing out what now can only be called a foregone conclusion: Nexen goes to Cnooc, Progress goes to Petronas, and Canada opens a gateway to Asia.

Friday?s decisions won?t end the raging debate in Canada over trade benefits versus national security. Prime Minister Stephen Harper, in making the announcement, even vowed to tighten the review process and, hopefully, make it more transparent.

But, as the old saying goes, the camel has got its nose in the tent now.

? Jim Jelter

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