Nexen Acquisition: Don't Jump To Conclusions On Whether Ottawa Will OK Deal, Harper Warns

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NEXEN STEPHEN HARPER
Prime Minister Stephen Harper speaks at the General Motors Plant in Oshawa, Ontario on Tuesday July 24, 2012. Harper is warning Canadians not to jump to conclusions about whether the federal government supports a $15-billion Chinese bid for oil giant Nexen Inc. (THE CANADIAN PRESS/Aaron Vincent Elkaim) | CP

OSHAWA, Ont. -- Stephen Harper is warning Canadians not to jump to conclusions about whether the federal government supports a $15-billion Chinese bid for oil giant Nexen Inc.

The bid will be carefully scrutinized and assessed on the basis of whether or not it's of net benefit to Canada, as the law requires, Harper told a news conference Tuesday in Oshawa, Ont.

"Under the law, the transaction must be of net benefit to the country, (and) the government will make sure the transaction is clearly scrutinized to make sure that it is of net benefit, if it is approved,'' he said.

"Nobody should prejudge the government's decision. This investment will be thoroughly scrutinized before it is either accepted or rejected.''

If the bid by China National Offshore Oil Co. is successful, it would be China's largest-ever overseas acquisition.

The suitor, known as CNOOC, has promised to list its shares on the Toronto Stock Exchange, and to keep all current Nexen Inc. employees and management.

The Chinese state-owned company would also base its North and Central American operations -- including $8 billion in existing CNOOC assets -- out of Calgary.

Nexen has faced numerous challenges over the past few years, including the troubled launch of its Long Lake oilsands project in northern Alberta in late 2008. The project has yet to come close to its design capacity of 72,000 barrels of bitumen per day due to a number of operational glitches, though performance has been improving in recent months.

Last week, the company reported that second-quarter profits tumbled nearly 57 per cent as it took a charge on an unsuccessful well in the Gulf of Mexico. Late last year it was shouldered out of a major project in Yemen amid political strife in the Middle Eastern country.

CNOOC already had a 35 per cent stake in Long Lake after it took over Nexen's erstwhile partner Opti Canada Ltd. for $2.1 billion last year. The two companies also work together in the Gulf of Mexico.

The transaction values Nexen at $27.50 per share -- a 66 per cent premium over the 20-day weighed volume average of Nexen shares, and a 61 per cent premium on the closing price of its shares on Friday at the New York Stock Exchange.

On the Toronto Stock Exchange, shares of Nexen were at $26.48 just prior to Tuesday's close, up a modest 13 cents, after soaring more than 50 per cent in afternoon trading on Monday.

The Nexen deal will face a review by both Federal Industry Minister Christian Paradis -- who must determine whether the deal is a net benefit to Canada as a whole_ as well as by the federal Competition Bureau.

The transaction also requires two-thirds of Nexen shareholders to approve the agreement at a special meeting to be held by Sept. 21. Preferred shareholders would receive $26 in cash, plus accrued dividends.

If the deal isn't completed, CNOOC is subject to a termination fee of US$425 million.

The Chinese company has made several other investments in Canadian companies over the past seven years, including buying stakes in MEG Energy Inc. and a 60-per cent investment in Northern Cross (Yukon) Ltd.

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