They bid $15.1 billion. Are they crazy? Ever since I heard that China’s CNOOC was willing to pay $27.50 a share for Calgary’s Nexen—a 61% premium over the oil company’s trading price at the time—I have to keep asking myself: “Why?”
It’s not like Nexen is the crown jewel of Canada’s oilpatch. Last November, Nexen lost a key contract in Yemen, which was quickly followed by the departure of its then CEO, Marvin Romanow. Then there was the Long Lake oilsands debacle. As senior writer Matthew McClearn reports in our cover story on page 24, the Alberta oilsands project was delayed six months and ran massively over budget. It was supposed to gush 72,000 barrels per day, but is hitting 34,500 at best.
The fact that any company would make a bid for Nexen right now is shocking. That it would pay double the typical premium for a Canadian takeover is beyond comprehension. As is the reaction by many of Canada’s pundits and media to the proposed deal. I’ve seen nothing but hand-wringing over the offer: Can we trust the Chinese? Are they exploiting us? But to me the question is whether we’re exploiting them. In this scenario, Canada is the sleazy used-car dealer about to unload a 20-year-old Buick with a cracked engine block on a once-in-a-lifetime customer.
Yes, we have reason to be cautious. As Jack Mintz, chair of the University of Calgary’s School of Public Policy, points out, if we allow the deal to take place, we would essentially be allowing China to “nationalize” Nexen, because CNOOC isn’t an independent company—it’s state-owned. And governments—Communist governments in particular—don’t always make the best business owners. Squaring national interests with the need to maximize return on their investments can be tricky. But I don’t think we have a choice here. We’ve sent over delegation after delegation to bat their eyelashes and invite the Chinese to come hither. Now that they’ve finally made their move, we can’t play hard to get. “What? You thought we meant that?”
Instead, we need to clear our minds of the vaguely xenophobic fears surrounding the proposal and remember why we need their money in the first place. Canada has always depended on foreign direct investment to develop its natural resources. The idea that we can do it all ourselves is nice, but completely divorced from reality. We simply don’t have the capital. Without foreign investment, much of our oil and minerals would stay in the ground, and we’d be a poorer country.
The only difference here is that the investment is coming from China, rather than America, our traditional resource development partner. (We’re also, for the first time, getting overtures from Malaysia and others.) But this is a good thing. What supplier isn’t better off with three or four customers rather than one?
China wants the deal, Nexen wants the deal, and the Harper government likely wants it too. The only possible loser here is the U.S., which will no longer have quite as much clout to set oil prices in Canada. Which would neatly explain why, of all the parties involved, the Americans are protesting the loudest.
We shouldn’t listen to them. In this case, what’s good for China is good for Canada. If our future depends a little more on China, and a little less on the U.S., all the better.