Last Thursday in Beijing, Alberta Premier Alison Redford and other Canadian leaders met with senior Chinese government and business officials to discuss China’s largest foreign investment to date. The state-owned China National Offshore Oil Company (CNOOC Ltd.) made an offer of $15.1 billion to buy over 60 per cent of Nexen Inc.’s public shares at $27.50 a share. Lysle Brinker of the HIS Herald valued each share at $21.50, stating that China’s offer is, “[a] very high price.”
The choice, or lack thereof, should seem quite obvious. The reality is that Nexen, a Calgary-based oil and gas company, does not have the means to fund its growth plans. Currently shouldering a debt of $4.3 billion, Nexen’s revenues dropped 14 per cent over the past four years, with profits falling 37 per cent over the last year. In light of Nexen’s recent losses, refusing this deal is impractical to say the least. Critics of China’s North American investments are certainly justified in believing that if foreign companies are not allowed to buy and take over Chinese firms, the Chinese should not get this privilege in return. However, to refuse this deal would be a dire miscalculation of what Alberta—and the rest of Canada—could stand to gain.
First, Canada could gain bargaining power. Harper’s warnings to Washington can finally gain some credibility—if the U.S. does not agree to construct the TransCanada Corp’s Keystone XL pipeline, Canada will take its business to Asia. Second, foreign investment funds provide capital for the development of projects that otherwise would not have been funded, thereby creating jobs for many Canadians. Multiple gestures have also been made to ensure a mutually beneficial relationship, and allay concerns the public might have with a state-controlled Chinese enterprise buying an Albertan company. China has agreed to keep Nexen’s current management and employees, to establish CNOOC’s North and Central American Headquarters in Calgary, to implement and enhance an expenditure program in Canada, and to list CNOOC’s shares on the Toronto Stock Exchange. According to the CEO of CNOOC, Li Fanrong, “[CNOOC intends] to be a local company as much as a global one.”
This is not a question of China’s right to our country’s resources, but whether Canada can make the right decisions for the future of the Canadian oil patch. It puts Christian Paradis, the industry minister, in the spotlight, and tests his ability to accurately gauge, prove, and help our population to tangibly see the net benefit of this deal for the nation. It begs the question of whether or not our established institutions can find an appropriate middle ground between economic prudence and ceding sovereign control of our natural resources.
Maude Barlow, the head of Council of Canadians, worriedly said, “Canada is the most open country in the world in terms of ‘come on in and buy anything,’ and we won’t set any rules.” Here lies the chance to encourage foreign investment the right way. This is an opportunity for Canada to enforce its existing environmental, labour, regulatory , and commercial rules for foreign investors. This is also an opportunity to make smart economic decisions, perpetuate a strong self-image, and gain leverage as a force in the industry.
