Will Ottawa take CNOOC at its word over Nexen deal? – by Jameson Berkow and Claudia Cattaneo (National Post – October 11, 2012)

The National Post is Canada’s second largest national paper.

CALGARY — CNOOC Ltd. executives crafted their $15.1-billion takeover bid for Nexen Inc. to pass Canada’s net benefit test for foreign acquisitions.

Yet no matter what they offered, the guidelines remain vaguely defined and open to broad interpretation. It makes the deal subject to any number of biases and political motivations.

Ottawa, which said Thursday it will extend its review by another 30 days to mid-November, will test China’s largest foreign offer to date against a short list of hurdles to determine whether it is as good for Canada as it is for China.

And CNOOC may not even have to satisfy all of them. “You don’t have to demonstrate a net benefit in each one of them,” said Doug New, Toronto-based partner with Fasken Martineau LLP who previously served with the Canadian Foreign Investment Review Agency.

“A neutral finding in four of them, and pluses in two of them could get you approval,” he said. “There are even some transactions where one of the factors would be a negative, but the benefits in the other factors could outweigh it.It is a scale, I am not quite sure how the scale works, but when it tips the right way, you get an approval.”

Here’s what Canadian law requires, and what the Chinese state-owned oil and gas company has promised to do. The question is whether Ottawa will take CNOOC at its word.

• CNOOC will have to invest in Canada, maintain Canadian jobs and contribute to the country’s economic growth. It also has to maintain a high level of Canadian participation in its Canadian subsidiary. CNOOC has committed to retain all Canadian employees, including Nexen’s senior management group. What’s uncertain is how many will stay, and how many will be replaced by its China-based staff. Canadians will have 25% of Nexen’s board under CNOOC’s ownership.

• CNOOC will have to contribute technology and research and development. While this is seen as a focal point in the review process, CNOOC, which has lots of expertise in offshore drilling, has made it clear they are here to learn Canadian technology in areas such as the oil sands and shale gas, rather than contribute to its development.

For the rest of this article, please go to the National Post website: http://business.financialpost.com/2012/10/11/cnoocs-net-benefit-hurdles-heres-what-canadian-law-requires-for-nexen-deal-approval/

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