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Key CNOOC executive in Nexen acquisition to lead subsidiary

Fang Zhi is a 30-year veteran of CNOOC Ltd.

Todd Korol/The Globe and Mail

The CNOOC executive who helped broker the deal that gave the Chinese state-owned oil giant a firm foothold in Canada's oil sands sector will become the head of the company's Calgary-based subsidiary, Nexen Energy ULC.

CNOOC Ltd. said Wednesday that Fang Zhi, a 30-year veteran of the oil and gas behemoth, is replacing Kevin Reinhart in the post of chief executive officer at Nexen.

The move comes following long-standing troubles at the company's Long Lake oil sands operation near Fort McMurray, Alta., which, after five years in production, is still falling short of operating at its full capacity of 72,000 barrels of bitumen a day. Despite this, Mr. Fang said in a news release Wednesday that "Nexen is well positioned to create significant value for CNOOC."

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Mr. Fang travelled to Ottawa two years ago to meet with federal officials, ostensibly to discuss another Canadian acquisition. However, the conversations gave Mr. Fang and CNOOC the confidence to negotiate the controversial $15.1-billion (U.S.) takeover deal for Nexen that dramatically increased the participation of Chinese state-owned companies in Canada's oil and gas industry.

News of the Nexen takeover prompted public concern about investment by foreign governments in key Canadian resource sectors. The Nexen deal was eventually approved by Ottawa in late 2012, but Prime Minister Stephen Harper said that, in future, foreign governments would only be permitted to take over Canadian oil sands assets in "exceptional" cases.

To help ease Ottawa's anxiety, CNOOC made a number of promises, including a commitment to retain Nexen's management and employees. Days after consummating the takeover in February, 2013, CNOOC chief executive officer Li Fanrong said he would leave the running of Nexen in the hands of the Calgary management team.

However in Calgary on Wednesday, Nexen spokeswoman Diane Kossman said organizational changes are a constant in any business.

"CNOOC Ltd. required a different capability for the CEO role. And [Mr. Fang] brings considerable operational and technical depth to this position. He is a professional reservoir engineer," she said. "He also has a detailed knowledge of CNOOC's organization and processes."

Wenran Jiang, a special adviser to the Alberta government on Canada-China energy issues, said the management structure at Nexen stayed relatively stable immediately following the takeover, but there has been some turnover this year. He said it's natural that Mr. Fang, who has been "hands-on" throughout the transition process at Nexen, is next in line for the job.

"I don't think there was a firm agreement that the Nexen original management team must be in place forever," Mr. Jiang said.

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Earlier this week, CNOOC posted a 15.5-per-cent rise in first-quarter output mainly owing to its purchase of Nexen, but could still miss production targets as it struggles with aging domestic oil fields.

In a statement on the appointment, Industry Canada said Mr. Fang's appointment is a private business decision.
"CNOOC agreed to a comprehensive set of undertakings including: maintaining the commercial orientation of the business and providing significant economic activity in Canada. Industry Canada monitors the implementation of these undertakings, which are legally binding commitments," department spokesman Michel Cimpaye said in an e-mail.

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