China National Offshore Oil Corporation (CNOOC) is the third-largest national oil company in China, after CNPC (parent of PetroChina), and China Petrochemical Corporation (parent of Sinopec). It focuses on exploration and development of crude oil and natural gas offshore of China. CNOOC Group is owned by the government, and its subsidiary, CNOOC Ltd is listed in Hong Kong. Another subsidiary, China Oilfield Services, is listed in Hong Kong and New York. In July 2012, CNOOC announced an agreement to acquire Nexen, a Canadian oil and gas company, for approximately US$15.1 billion.
CNOOC-Nexen deal opens Canadian investment door
G. Bin Zhao says both sides stand to gain from the energy partnership
After careful consideration, the Canadian government has finally approved the acquisition of Nexen by the China National Offshore Oil Corporation (CNOOC). The decision, twice delayed because of significant opposition, has cleared some important hurdles for China's largest foreign investment project and for Canada's second-largest foreign acquisition in history.
However, because Nexen has exploration and production projects in the Gulf of Mexico, the deal also requires US approval. That may be a difficult nut to crack, though, fortunately, the Gulf of Mexico assets are not a large proportion of Nexen's operations, so Washington's role may be limited. In any case, CNOOC and Nexen may well find a way to get round any US veto attempt.
This large investment will undoubtedly contribute to the diversification of China's oil imports while increasing its energy supply security. With the second-largest oil reserves in the world, not only will Canada become an important source of energy for China, but the acquisition will also enhance the Sino-Canadian strategic partnership and have a far-reaching impact on relations.
During Prime Minister Stephen Harper's visit to China in February, a consensus was reached to improve the nations' business relationship. Steps such as "improving the bilateral investment mechanism, deepening economic and trade co-operation, and expanding co-operation in oil and gas, nuclear energy, renewable energy, forest products, minerals and other fields of energy and natural resources" were all cited as important components.
The Nexen deal can be seen as the most pragmatic and effective step and should open the door to more comprehensive energy co-operation. As China continues to develop its domestic economy, overseas investment will increase. With the advent of global inflation, foreign investment in energy and resources gives Beijing a better option for converting a large amount of its foreign exchange reserves into capital investments that will retain their value. Therefore, more Chinese enterprises can be expected to seek opportunities for investment, mergers and acquisitions in the Canadian energy industry after the Nexen deal.
Mining and other natural resources will also be hot areas for future Chinese investment in Canada, which boasts a number of the world's leading mining companies. Industry production ranks highly, and features a variety of resources, high yields and a large proportion of exports.
The acquisition of Nexen is an important milestone for CNOOC; the deal should help the company become more international while giving it the strength to compete better with PetroChina and Sinopec. At the national level, this will enable China to not only import oil from all corners of the globe in the future, but also have its own worldwide crude oil domain, thus solving its basic energy security and supply problems.
During Harper's visit to China this year, Premier Wen Jiabao proposed discussing the feasibility of signing a free-trade agreement. Zhang Junsai , China's ambassador to Canada, has said that although Sino-Canadian bilateral trade and mutual investment have developed rapidly in recent years, bilateral trade volume accounts for only about 1 per cent of total foreign trade in China and 6 per cent in Canada - figures that do not match the economic position and strategic partnerships of the two countries.
There is still a lot of room to develop economic and trade co-operation. The acquisition of Nexen by CNOOC can be expected to enhance the strategic partnership and further promote development of bilateral trade and economic co-operation.
G. Bin Zhao is co-founder and executive editor at China's Economy & Policy, the flagship publication of Gateway International Group, a global China consulting firm