Skip to main content

The Globe and Mail

Handcuffing CNOOC on deal for Nexen could backfire badly

The Canadian government's efforts to squeeze employment and investment commitments out of CNOOC in the Chinese oil giant's proposed Nexen Inc. takeover almost certainly plays well with the voters in Prime Minister Stephen Harper's Alberta support base. But binding the hands of one of the province's biggest investors could unintentionally hurt the very business and employees the government is aiming to protect – and may ultimately be unenforceable anyway.

Nexen is on pace to top $3-billion in capital spending for 2012, placing it among the half-dozen or so biggest spenders in Canada's oil and gas sector. It employs about 3,000 people, roughly half of whom are in its Calgary head office. In short, its economic contributions are substantial enough to warrant political consternation about its potential takeover by a company that's run by the Chinese government; a lot of people's livelihoods are at stake, not to mention a sizable piece of Canada's oil sands.

But let's be real. Even without any signed commitments with Ottawa to live up to, Nexen has had trouble living up to its own pledges on its flagship Long Lake oil sands development. In the nine years since the project received provincial regulatory approval, it has been plagued by delays, soaring costs and operational problems. Production is less than half of its planned capacity, and ambitious multistage expansion plans have largely been shelved.

Story continues below advertisement

At least Nexen had the freedom to make those business decisions on its own. What if CNOOC, as Nexen's new owner, runs into similar obstacles in the years to come? That's hardly inconceivable, given Nexen's track record on the star-crossed megaproject. What if oil prices were to tumble, oil sands development were to become economically unattractive, CNOOC were to shift its focus to other oil prospects with superior economics? CNOOC would be faced with a couple of unpalatable alternatives – either renege on its commitments to Ottawa, or run Nexen as an increasingly dysfunctional money pit.

It has happened before. When foreign buyers took over household names such as Inco Ltd. and Stelco Inc. in recent years, the buyers made commitments to the government to maintain employment and operations – but ultimately didn't abide by them. There was nothing the government could do.

Crippling Nexen isn't in anyone's interest, and forcing CNOOC to make promises it may not be able to keep will eventually undermine whatever political goodwill with voters might be gained today from appearing to play hardball with China.

If Ottawa really wants to act as protector of Canada's economic interests, it should focus on levelling the playing field with China on foreign investment. Rather than throw up obstacles to keep Chinese state entities at bay, the government could instead win for Canadian companies the same access to investing in China that Chinese companies seek in Canada.

This access could come with conditions that protect each country's national interests, but they could be a set of conditions that foster healthy business and encourage investment, rather than impede enterprise and discourage investment. It's a harder road to follow, but one that offers more benefits for all – and fewer awkward regrets.

Report an error Licensing Options
About the Author
Economics Reporter

David Parkinson has been covering business and financial markets since 1990, and has been with The Globe and Mail since 2000. A Calgary native, he received a Southam Fellowship from the University of Toronto in 1999-2000, studying international political economics. More


The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.

Discussion loading… ✨

Combined Shape Created with Sketch.

Combined Shape Created with Sketch.

Thank you!

You are now subscribed to the newsletter at

You can unsubscribe from this newsletter or Globe promotions at any time by clicking the link at the bottom of the newsletter, or by emailing us at