CNOOC-Nexen deal
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CNOOC may give up control of rigs near military base for Nexen deal

Oil and gas giant may have to give up control of rigs near major military base to win approval

PUBLISHED : Saturday, 08 December, 2012, 12:00am
UPDATED : Saturday, 08 December, 2012, 3:46am

China's biggest offshore oil and gas producer may have to give up control of drilling platforms 80 kilometres from a major US military base to win government approval for its US$15.1 billion purchase of Canada's Nexen.

A US panel reviewing the national security implications of the deal might be seeking to curb access by CNOOC to those Nexen platforms in the Gulf of Mexico, said Stewart Baker, a former Department of Homeland Security official.

"Typically, the national security concern is if the target company is within close proximity of a military installation where there is training or testing conducted," said Farhad Jalinous, a lawyer specialising in deals that are reviewed by the Committee on Foreign Investment in the US (CFIUS).

In the past three years, the committee has blocked at least three transactions that would have resulted in Chinese companies gaining control of assets near military facilities.

CNOOC and Calgary-based Nexen said last month they had agreed to withdraw and resubmit their application to the committee on the US part of what is mostly a Canadian transaction.

Discussions with the interagency committee, headed by Treasury Secretary Timothy Geithner, were continuing, Nexen said.

The Canadian review of the deal is scheduled to end by Monday.

The companies were probably discussing what was known as a national security agreement that could resolve the committee's concerns and still allow the transaction to be completed, said Jalinous, a partner with Kaye Scholer. Such an agreement might restrict access by the non-US owner or set other limitations that would curtail control of the facility.

The Naval Air Station Joint Reserve Base at Belle Chasse, Louisiana, about 20km southeast of New Orleans, is used for training exercises over land and water for an array of fighter aircraft, according to public affairs officer Andrew Thomas. It is home to a Marine Corps battalion, a coastguard air station, navy training and transport units and fighter squadrons ready for immediate response to any threat. The 159th Fighter Wing of the Louisiana National Guard, which sent forces into Iraq and Afghanistan, is also there.

CNOOC may need to agree to sell the assets that are deemed most sensitive, according to Baker, a partner with legal firm Steptoe & Johnson who also specialises in CFIUS representation.

"If the defence department is worried that you're too close, that's very hard to fix," he said. "They might require a divestiture just of those platforms."

Peter Hunt, a spokesman for CNOOC in Canada, declined to comment on the CFIUS review.

Nexen's platforms in West Delta, the closest offshore region to the base, are part of shallower operations in the gulf's shelf that the company deems "mature" and for which it plans minimal investment this year as it focuses on deep-water spending, according to its 2011 annual report.

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