A number of foreign companies are flocking to Canada's oil patch in search of acquisitions and investments as Ottawa weighs the $15.1-billion takeover of energy company Nexen Inc. by China's CNOOC Ltd.
While it is not unusual for companies to circle the oil patch, interviews with a dozen industry sources and deal makers over a month have revealed a picture of an industry set for a massive influx of foreign capital while the window to foreign investment remains open.
Industry executives and advisers say offshore buyers are currently in discussions or touring the operations of a wide variety of Canadian oil sands, conventional petroleum, natural gas, oil service and refining operations.
Some of these potential acquirers include state-owned entities such as Korea National Oil Corp. (KNOC) and others from China, Malaysia and Kuwait, sources said. A handful of private-sector oil and gas giants are also on the hunt, including France-based Total SA. Joining these suitors is a new class of Asian buyers believed to include privately held Chinese companies and one of China's largest cities, Tsingtao.
The takeover interest has been sparked by a combination of recent declines in oil and gas prices and a perception in some international circles that Canada favours foreign investment to help finance production, particularly in the oil sands, where the cost of development is expected to crest $100-billion over the next decade.
"If you think Nexen is something of a big deal, you ain't seen anything yet," said Wenran Jiang, a special adviser to Alberta's Department of Energy on Asian energy markets. "The new trend is large-scale Chinese private capital that will come into the Canadian market."
A wide variety of international acquirers are looking for investments in the oil patch. France's Total has been searching for – and making – oil sands deals for a few years. According to people close to the Nexen negotiations, Total was a bidder for the Calgary company, but stepped out of the race after CNOOC tabled an offer with a rich premium of more than 60 per cent above the Calgary company's stock price. Sources said Total is still seeking a Canadian acquisition. A spokesperson for the company did not return calls.
State-owned KNOC is also on the hunt for a multibillion-dollar acquisition to expand its holdings in the oil sands, according to sources. Its search comes three years after it acquired Harvest Energy Trust in 2009 for $4.1-billion. A Calgary-based official with KNOC said he was unaware of any acquisition plans.
Kuwait confirmed earlier this month that its state-owned petroleum company has a preliminary deal to invest close to $4-billion in an oil sands joint venture with Athabasca Oil Corp. People familiar with talks said a final pact is not expected for weeks.
One of the more curious potential investors is Tsingtao, China's seventh-largest city with a population of nearly nine million, which is best known for its Tsingtao Brewery. The port city has a long history of international trade and investment and, acccording to sources, it has expressed an interest in acquiring a Canadian company with conventional petroleum assets.
Although Tsingtao and a handful of state-owned entities such as Sinochem Group are believed to be interested in Canadian investments, people familiar with their plans said it is unlikely any will make a move until Ottawa completes its review of the Nexen takeover proposal.
CNOOC's proposed takeover of Nexen, which was overwhelmingly approved by its shareholders Thursday, marks the largest foreign takeover ever attempted by a Chinese state-owned entity and the first time that the country has sought full control of a major Canadian company.
The scale of the bid has put pressure on the federal government to tighten its policies towards state-owned acquirers.
On Thursday, Canada's spy agency heightened concerns by warning that foreign investment by unnamed state-linked organizations could threaten national security. In a report tabled to Parliament, CSIS said foreign-controlled entities could use Canadian takeovers to engage in "espionage and other foreign interference activities.
Political opposition to CNOOC's planned purchase of Nexen, which holds the bulk of its assets outside Canada, has been muted. Ottawa is expected to complete a review of the deal's benefits within two months. Deal makers said the prospect of tighter foreign takeover rules has created a sense of urgency with some buyers.
"There has been a bit of a rush to get deals done. They want to get in now and get the first mover advantage in case the rules change," said one adviser.
– With a report from The Canadian Press