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TAKEOVER BID

Nexen shrugs off demands on CNOOC from Alberta

Canadian oil and gas firm's shares rally after province's premier backs deal with conditions

PUBLISHED : Friday, 05 October, 2012, 12:00am
UPDATED : Friday, 05 October, 2012, 2:15am

Nexen staged its biggest rally since July, indicating CNOOC's US$15.1 billion takeover offer for the oil and gas producer is unaffected by demands from the province of Alberta to keep management and jobs in Canadian hands.

Alberta Premier Alison Redford requested the federal government ensure Calgary-based Nexen's management and board remain at least 50 per cent Canadian. The provincial government also wants Chinese state-owned CNOOC to maintain current employment levels for five years instead of three and keep capital spending plans intact, according to a person familiar with the matter who spoke on condition of anonymity because the discussions are confidential.

"At face value, it looks like really basic normal stuff," Alfredo Scialabba, a New York-based special situations analyst for GFI Group, said in a telephone interview. "If it's just that, this wouldn't really derail the deal."

Nexen's stock rose 1.1 per cent on Wednesday to C$25.22 in Toronto, the biggest gain since the bid was announced on July 23.

The shares listed in New York rose 0.8 per cent to US$25.51, narrowing the difference with CNOOC's US$27.50 per share offer to the least since September 17.

The request from Redford's government came in a recommendation provided to Industry Minister Christian Paradis and the government's investment review division.

Prime Minister Stephen Harper's government is reviewing the bid under Canada's foreign takeover law, which specifies transactions need to have a "net benefit" to the country in order to win approval.

Redford's government asked CNOOC to maintain workforce levels for at least five years, to strengthen commitments to keep capital spending plans intact and to clarify plans for research and development, the person said. Alberta's government has indicated it would not object to the transaction if the conditions were met.

Premier Redford has said the transaction is beneficial, said Jay O'Neill, her director of communications. He declined to comment directly on the details of Alberta's submission to the federal government.

"We were asked for our position and we did submit that position," O'Neill said. "Our premier has been pretty clear in terms of her discussions around the deal since it was first announced and that there does appear to be significant benefit not only for Alberta but also Canada."

In the July 23 announcement, CNOOC pledged to follow through on Nexen's capital spending plans and maintain the company's employment level and management, without giving details or a time frame.

CNOOC has also promised to make Calgary the head office of its North American operations and list its common shares on the Toronto Stock Exchange. China National Offshore Oil Corp indirectly owns 64.4 per cent of its shares.

"We are of the view this transaction has a high likelihood of being approved, because we think that it is on policy with the Harper administration with respect to their energy policy," Catharine Sterritt, a strategist at Bank of Nova Scotia, said.

The government said on August 29 it had received CNOOC's application. Canada has 45 days to examine the deal and may extend that deadline by 30 days.

Lawmakers in the House of Commons defeated on Wednesday a motion put forward by the opposition New Democratic Party calling on the government to hold public hearings into foreign takeovers in the country's energy sector by state-owned enterprises. The NDP said yesterday the government should reject the transaction, citing concerns about whether CNOOC will protect jobs, maintain environmental standards and keep the head office in Canada.

Harper has said selling more of Canada's natural resources to Asia is a "national priority", and his government has said Chinese investment in resources is welcome.

As part of the proposal by CNOOC, details of which have not been made public, the Chinese company pledged 25 per cent Canadian composition of its board, the person said. The company also said it would maintain Nexen's workforce at no less than 80 per cent of current levels for three years.

Nexen shareholders approved the bid on September 20, with about 99 per cent of those who voted casting ballots in favour.

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