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As CNOOC Ltd. unveiled its takeover bid for Nexen Inc. in Calgary last week, the Chinese government was barring overseas companies from bidding directly in an auction for a piece of China’s shale gas reserves, estimated to be one of the largest in the world. Foreign players were only allowed in via joint ventures with local companies, ensuring they play second fiddle to domestic producers. Bear in mind that China desperately needs Big Oil as its companies have little experience in drilling for shale. Still, it didn’t swing the door wide open.
While Canada puts out the welcome mat for global companies to invest in its resources and buy out its companies, it appears the rest of the world isn’t playing by the same, open rules.
It’s not a strategy peculiar to China. Across the world, major oil-producing countries beef up and are biased toward domestic producers even if they allow foreign players to enter the market. Leaving OPEC producers aside, even the Western energy-producing countries have a national champion or flagship energy company, although they often don’t have full control over their affairs: BP PLC (U.K.), Statoil (Norway), Total SA (France), Eni SpA (Italy) were all carefully nurtured by their governments for decades before they became global powerhouses.
Meanwhile, in Canada the only thing separating the likes of Suncor Energy Inc., Encana Corp. and Canadian Natural Resources Ltd. from their international buyers is the spectre of ‘net economic benefit’ that can be invoked by the federal government.
The accompanying table puts the Canadian companies’ production in perspective and shows the largest Canadian energy company is at least 2.5 times smaller than ConocoPhillips Co., the smallest of the so-called ‘oil majors’.
Given Canada’s open-for-business culture, these companies might appear to be easy takeover targets for the companies above them in the list. That raises the question whether the country with the world’s third-largest oil reserves and fifth-biggest production should perennially play the role of prey for others to pounce on?
“Yes, Canada should definitely have bigger oil companies, one or more, and what Canada needs is the kind of policies that encourage the growth of those companies,” says Dr. Roslyn Kunin, a director at Canada West Foundation.
The question on many people’s mind is: If the federal government approves CNOOC-Nexen deal, which company could be next — Suncor Energy, Encana, Canadian Natural Resources or Talisman Energy Inc.? Could we find ourselves in a situation where all Canadian companies end up in foreign hands, and is it necessarily a bad thing?
“It’s not critical to have an energy champion in Canada, but it certainly wouldn’t do any harm,” says Lance Mortlock, partner at Ernst & Young’s oil-and-gas practice based in Calgary. “You do want foreign investment. Many of these foreign companies are bringing cash into the country, which helps accelerate the development of Canadian resources much faster than it otherwise would be developed. The flip side is you have to protect the country’s interest and the resources. So you have to find the right balance.”
Proponents of free markets contend that industry dynamics should dictate deal flow rather than any overriding protectionist government strategy.
“If Suncor is to be acquired then it should be left to its board to decide. Sure, there should be reciprocity, but why should Canada wait for China to improve its business practice?” says Glen Hodgson, chief economist at The Conference Board of Canada, arguing that PetroCanada, the country’s flagship Crown corporation, ended up being privatized.
For the rest of this article, please go to the National Post website: http://business.financialpost.com/2012/08/02/does-canada-need-an-energy-champion/