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Nexen’s Long Lake oil sands processing facility near Fort McMurray, Alta.Dave Olecko

The proposed takeover of Nexen Inc. by China's CNOOC Ltd. has folks across the country – including politicians in the federal Conservative caucus – questioning whether the deal is good for Canada. DBRS, the credit-rating firm, has weighed in, giving the deal a mixed review.

DBRS believes the $15.1-billion takeover could bring only "limited" economic benefits.

"This transaction is not necessary, as Nexen remains a strong operator with good access to capital markets," the credit agency said in a report Wednesday. "Moreover, foreign investments could add greater value if it was directed towards smaller companies, which may have (1) limited access to funds, (2) higher operating costs due to lack of economies of scale, (3) operate in riskier areas and (4) reduced access to technology and R&D."

The capital markets, the rating agency said, are enough to allow Nexen and its domestic competitors to fund their growth plans. DBRS also addressed the "poor track record" of outsiders. "Traditionally, entities that have made acquisitions in Canada have failed to live up to promises," DBRS said without providing examples.

On the flip side, DBRS said the deal would "dramatically improve China-Canada relations, which could in turn provide greater economic trade between the two countries."

DBRS flagged a concern – diluting domestic ownership in the oil sands – executives, politicians, and Canadian citizens have been fretting about for years. The CNOOC bid, however, has jacked up concern, with energy chief executives asking the government to lay down clear rules regarding foreign ownership and takeovers.

"If [the CNOOC-Nexen deal is] approved, other multinational companies and state-owned entities could follow suit and acquire a majority interest in other leading domestic energy companies," the report said.

While this pattern is already well established, the CNOOC deal would amplify the trend. The value of oil sands acquisitions between 2007 and today totals $28-billion, the report says. Deals involving national oil companies represent 51 per cent of the value, other companies outside Canada claim 19 per cent, and Canadian companies make up 30 per cent of the pie.

If CNOOC acquires Nexen, the value of takeovers will reach $47-billion, with state-owned companies responsible for 71 per cent of that. The slice attributable to Canadian firms will shrink to 18 per cent, and 11 per cent to other companies outside Canada.

Experts widely argue the reason foreign investment has jumped – particularly foreign investment from state-owned countries in Asia – is powered by the need for cash. The oil sands are expensive, and while DBRS believes Nexen's access to the capital markets is enough to fund growth, energy experts argue investors with deep-pockets and patience are needed in northern Alberta.

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