Lawmakers want the U.S. government to halt approval of Chinese National Offshore Oil Corporation’s (CNOOC) takeover of Canada’s Nexen Inc.
In July CNOOC Limited announced an agreement to buy Canadian producer Nexen Inc in a $15.1 billion deal. However completion of the transaction is subject to customary closing conditions.
If the deal moves forward, it would be the biggest foreign acquisition ever by a Chinese company. CNOOC tried to purchase California-based Unocal in 2005 but abandoned its $18.5 billion bid amid opposition from U.S. lawmakers.
CNOOC is facing regulatory challenges by U.S. authorities since roughly 10 percent of Nexen’s assets are located in the U.S. Gulf of Mexico. This subjects the deal to necessary approval by the Committee on Foreign Investment in the United States (CFIUS), of which U.S. Treasury Secretary Timothy Geithner is chairman. CFIUS is charged with reviewing deals involving the sale of U.S. interests to foreign firms as a matter of national security.
Senator Charles Schumer of New York sent a letter to CFIUS Chairman Timothy Geithner asking him to use possible approval as a tool to pressure China to follow economic reforms. Representative Edward Markey of Massachusetts also asked Geithner to put the deal on hold. Markey’s argument referred to royalty relief offered to oil companies by the U.S. Interior Department when energy prices were remarkably lower. According to Markey, Nexen owes large sums of money for 32 million barrels of oil and 34 million cubic feet of natural gas drilled in the Gulf of Mexico through 2012. Markey, according to a Reuters report, says that unless China agrees to pay the royalties, the U.S. government should block the deal.
Should the deal be approved, The acquisition of Nexen will expand CNOOC Limited’s overseas businesses and resource base. Nexen will complement CNOOC Limited’s offshore production footprint in China and extends CNOOC Limited’s global presence in Western Canada, the U.K. North Sea, the Gulf of Mexico, and offshore Nigeria. Nexen management’s current mandate will be expanded to include all of CNOOC Limited’s North American and Caribbean assets.
CNOOC Limited is China’s largest producer of offshore crude oil and natural gas, and one of the largest independent oil and gas exploration and production companies in the world. CNOOC Limited primarily engages in exploration, development, production, and sales of oil and natural gas and has four major producing areas in offshore China as well as oil and gas assets in Asia, Africa, North America, South America, and Oceania.
Nexen is an independent, Canadian-based global energy company that is focused on growth strategies—oil sands and shale gas in Western Canada and conventional exploration and development primarily in the North Sea, offshore West Africa, and deepwater Gulf of Mexico.
The review by CFIUS is expected to take 75 days once all of the transaction details are gathered.