Though the theater is prepared for a potential China's takeover of the Canadian oil company Nexen, the move will have its regional as well international impact, not only on the oil industry worldwide but more it will send a signal on the future of the complicated relationship between existing and emerging power houses.
Late last week, Nexen's shareholders provided almost a blank check for the $ 15.1 billion bid by China National Offshore Oil Corp. (CNOOC).
The bid was approved by 99 percent of the common shareholders and less, though there was an astounding 87 percent approval from the preferred shareholders.
That brings the friendly acquisition bid to the government's doorsteps, which is expected to make its decision sometime in November according to regulations, unless the expected deal gets into the political wrangling and a public hearing is called for.
Initially the deal seems to have the political cover in terms of support of the Alberta's provincial government. More important it falls within the general approach of Prime Minister Stephen Harper, who is moving from his previous anti-communist China into a more pragmatist hoping to do business with the emerging new superpower.
Moreover, Harper has shown eagerness to do more business with Asia and has a significant trading partner, and reduce his country's huge dependence on US economy. Given geographical proximity, both Canada and the United States is each other's biggest trading partner with an estimated bilateral trade of close to $645 billion and $1.7 billion crossing the borders on daily basis. In fact trade crossing through only five points equals to the whole of US trade with Japan.
But the worrying sign is that oil, one of the main exports of Canada's exports to the United States, is coming under serious threat. For one there are growing domestic supplies that according to recent studies may add an estimated 5 million barrels per day, or a 74 percent increase, and is expected to come on-stream next decade. That will be at the expense of foreign supplies including those coming from Canada.
There is also environmental and other problems related to the pipelines and the growing sand oil production.
However, despite this favorable political climate, the deal should not be taken for granted mainly for two reasons — one domestic and the other foreign. For the first, the Canadian Security Intelligence Service (CSIS) has raised some concerns that such deals may pose some risk for the country's national security. A CSIS report conducted during the past two years was tabled before the parliament late last week. On the foreign aspect, Nexen, the Alberta-based company whose foundation dates back to 1969, has moved to be an international player with assets in the North Sea, Colombia and more important the Gulf of Mexico. And that is where the US authorities may have a say in the deal.
After all it was the same Chinese bid to take over US firm Unocal Corp. back in 2005 and was denied amid fervent political and economic debate involving the congress as well as the administration.
These two factors will weigh in and give those opposing the deal some ammunition to raise their concerns about China being more “benevolent” or the need for reciprocity, or to open China's doors for more Canadian businesses entering China's lucrative market that has proven so far difficult to enter despite the great potential. According to official Canadian figures the volume of Chinese investments in the country amounted to $ 10.9 billion by the end of 2011, while Canadian investments in China registered little over $ 8 billion. As such if Nexen deal is approved, it will overcome the whole volume of current Chinese investment in Canada. And that in itself increases the gap and puts pressure on the need to do something to reduce that gap.
However, four years ago Ottawa issued some guidelines on how to handle such foreign bids on Canadian entities in a way that will end in a "net benefit" for Canada. High on the criteria formulated was to see whether Canadian standards as far as corporate governance are applied and that it continues to operate along commercial lines. That means commitment to transparency and the presence of an independent Canadian director on the board and that a Canadian stock-exchange listing for either the acquirer or acquired entity.
That should help take the debate into more business; less political environment though separating the two is difficult.
However, the bid in itself reaffirms the observation related to the growing Chinese need for more natural commodities and its strategy to capture existing known resources that it can tap immediately, instead of spending time and money to prospect for something new.
A Canadian approval for the Chinese bid and Beijing's approval of whatever conditions Ottawa attach to its approval will make a positive step on the way for globalization that adds more transparency and accountability.