CNOOC-Nexen deal

Nexen gives CNOOC price power

The mainland company, if it takes over Nexen, will have a big share of the Buzzard oil field that has influenced North Sea crude prices

PUBLISHED : Friday, 07 December, 2012, 12:00am
UPDATED : Friday, 07 December, 2012, 3:23am

Hong Kong-listed CNOOC's US$15.1 billion takeover of Nexen would give the Chinese company the largest stake of an oil field in the North Sea that "has increasingly influenced" global oil prices, according to a memo sent to Prime Minister Stephen Harper.

Nexen says it controls 43 per cent of the Buzzard oil field in the North Sea, off the coast of Scotland. Buzzard, which began production in 2007, is the largest discovery off the United Kingdom in the past two decades, according to Nexen's annual report.

"Oil produced in the North Sea is used to set global oil prices for approximately 60 billion barrels of crude sold every day," says a note prepared on August 17 for Harper by Wayne Wouters, a top government bureaucrat.

"The Buzzard field has increasingly influenced the global oil prices in recent years due to declining production at other North Sea fields."

Harper's government is reviewing the bid by CNOOC which is controlled by state-owned China National Offshore Oil Corporation under Canada's foreign-takeover law, which requires that acquisitions represent a "net benefit" to Canada.

Industry Minister Christian Paradis extended the review last month until December 10.

The memo was intended to brief Harper on CNOOC's July 23 offer for Nexen, a Calgary-based oil and gas producer.

It is stamped Secret and was obtained by Bloomberg News under the Access to Information Act, Canada's freedom-of-information law.

Parts of the document have been censored under a law that protects information about international affairs and defence, and government operations.

Harper has said his government will release a new "policy framework" on foreign investment around the time of the Nexen decision.

Canada issued guidelines on takeovers by state-owned enterprises in 2007 that say the government will assess whether the business to be bought will be operated on a "commercial basis."

The memo reiterates details of CNOOC's bid, including the US$27.50 per share offered by CNOOC, which represented a premium of about 60 per cent above Nexen's share price when the bid was announced.

The document says most of Nexen's assets are based outside Canada. It also cites the commitments CNOOC promised at the time, including establishing Calgary as its North and Central American head office, maintaining Nexen's employment level and management, and enhancing Nexen's capital spending.

The memo says the bid would mean the Chinese government would own a 16 per cent share of Syncrude, Canada's biggest oil-sands project in production, with China Petroleum and Chemical Corporation, known as Sinopec, owning 9 per cent and CNOOC acquiring Nexen's 7 per cent.

The document also briefs Harper on Sinopec's proposed US$1.5 billion acquisition 49 per cent of the British assets of Calgary-based Talisman Energy. Sinopec doesn't require Canada's approval to complete the deal.

The Buzzard field is expected to produce as much as 85,000 barrels of oil per day for Nexen this year, the company says.

CNOOC spokesman Peter Hunt declined to comment.

Nexen spokeswoman Patti Lewis didn't immediately reply to an e-mail seeking comment. Harper's spokesman Andrew MacDougall also declined to comment.