CNOOC-Nexen deal opens Canadian investment door

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.