CNOOC’s bid for Nexen is a key move on China’s global chess board – by Charles Burton (Toronto Star – August 23, 2012)posted in Canadian/International Media Resource Articles, Oil and Gas Sector-Politics and Image |
The Toronto Star has the largest circulation in Canada. The paper has an enormous impact on federal and Ontario politics as well as shaping public opinion.
Charles Burton is an associate professor of political science at Brock University in St. Catharines, and is a former counsellor at the Canadian embassy in Beijing.
The state-owned China Offshore Oil Corporation’s (CNOOC) $15.1-billion bid for the Calgary-based global energy company Nexen has many supporters in Canada. They see it as a forward-looking initiative that allows Canada to diversify its oil and gas sales to non-U.S. markets, and will lead to large amounts of Chinese capital funding the high costs of further developing Alberta’s oilsands.
But neither really holds true.
Nexen oil will only start flowing to China when and if there is a Northern Gateway pipeline from Alberta to the B.C. coast. The CNOOC bid has not got much to do with that. As for further exploitation of the oilsands, the bottom line is that the market price of oil must remain sufficiently high to justify the relatively high cost of extracting oilsands oil; otherwise it will stay in the ground. Again, this has nothing much to do with this Chinese takeover bid.
So why is CNOOC willing to pay so much for a company whose profitability has not been all that strong in recent years? CNOOC’s offer represents a premium of 61 per cent above the closing price of Nexen’s common shares on the New York Stock Exchange on July 20.
What we are looking at is Nexen effectively becoming a Crown corporation, except the government whose objectives it will serve is in Beijing, not Ottawa. As a function of the Chinese state, CNOOC’s primary mandate is not to maximize profits to shareholders. China’s national political objectives come first and foremost, Nexen’s bottom line profitability second.
Reflecting this reality, CNOOC’s former CEO, Wei Liucheng, was promoted by the Chinese Communist Party Central Committee to become the governor of China’s Hainan province as a reward for his outstanding work on behalf of the Chinese party-state. CNOOC’s leaders are career Communist party apparatchiks, not career oil executives. This is because CNOOC’s mission is to further the interests of the Chinese government. Acquiring Nexen is part and parcel of this mandate.
So why does CNOOC want such a big presence in Canada? The answer appears to be that this investment will enhance Beijing’s influence in Canada, especially if approval of the CNOOC bid leads to many other Chinese state firms following with the billions of foreign currency that China has accumulated over many years of trade surpluses.
For the rest of this column, please go to the Toronto Star website: http://www.thestar.com/opinion/editorialopinion/article/1245718–cnooc-s-bid-for-nexen-is-a-key-move-on-china-s-global-chess-board