The Canadian Federal government approved the $15b takeover of
Nexen by CNOOC and the $5.9b takeover of Progress Energy by
Petronas on Friday.
The Progress-Petronas transaction was
initially rejected in October just prior to the expiry of the
federal government's statutory review period. A new application for approval was submitted in
November, and with the additional undertakings in the new
application, the Investment Canada approval has now been granted.
Prior to this reversal, the rejection was only the third
transaction ever rejected this Act.
There are still hurdles to closing the CNOOC- Nexen transaction.
While the European Union and the United Kingdom have cleared the
transaction, the United States' review before the Committee on
Foreign Investment in the United States is still ongoing. The
parties have had to re-submit their bid for approval, and reports indicate that the proximity of
Nexen's offshore platforms in the Gulf of Mexico may be seen as
a national security issue.
The most interesting facet of the approval, however, was the
simultaneous announcement by Prime Minister Harper of new rules for
foreign state owned enterprises investing in Canada.
While the "net benefit to Canada" test will still
apply, the government will look at such factors as the
governance and commercial orientation of the acquiror, the degree
of state control, the extent to which the acquiror conforms to
Canadian standards of corporate governance (such as transparency
and disclosure), adherence to free market principles, and the
likelihood that the new enterprise will operate on a commercial
What does this mean for the energy sector?
The Prime Minister has stated that, from now on, he expects
acquisitions by state owned enterprises in oil sands in particular
to be approved only on an "exceptional basis". He
also stated that "To be blunt, Canadians have not
spent years reducing the ownership of sectors of the economy by our
own governments, only to see them bought and controlled by foreign
Natural Resources Minister Joe Oliver speculated that if Nexen and CNOOC had sought
approval under the new rules, the transaction would have been
A more likely outcome is that foreign state owned enterprises
will seek to enter joint ventures with Canadian entities.
Minister Oliver has suggested
that "Non-controlling minority interest in
Canadian businesses proposed foreign SOEs, including joint
ventures, will continue to be welcome in the development of the oil
sands and Canada's economy." This view was
echoed by Talisman CEO Hal Kvisle, who
suggested that new rules could actually benefit the energy sector,
shifting the focus of foreign investment from takeovers to joint
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Canada is a constitutional monarchy, a parliamentary democracy and a federation comprised of ten provinces and three territories. Canada's judiciary is independent of the legislative and executive branches of Government.
In Bank of Montreal v Bumper Development Corporation Ltd, 2016 ABQB 363, the Alberta Court of Queen's Bench enforced the "immediate replacement" provision in the Canadian Association of Petroleum Landmen 2007 Operating Procedure...
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