Tuesday, July 24, 2012

After Keystone Pipeline Failure, Canada Running to China for Crude Oil Deals

After 1949 when the Communists defeated the Nationalists for control of China, the mournful refrain from Washington, D.C. was “Who Lost China?” This arrogant display of superpower Cold War finger pointing ended with a number of careers destroyed and an unfair smear on the U.S. State Department that in some ways has never been entirely eradicated.

In today’s highly charged political climate, it will come as no surprise when some U.S. politicians come down hard on the Obama Administration for what will no doubt be described as driving Canada’s energy sector into the arms of China:

Cnooc Ltd. (883)’s $15.1 billion cash takeover bid for Nexen Inc. (NXY) signals a Canadian shift toward China and away from the U.S. as the nation’s traditional oil and natural gas partner and main export market.

Canada’s oil sands reserves, the third-largest recoverable crude deposits in the world, were developed in part by U.S. money as companies such as California’s Richfield Oil Corp. brought technology to extract bitumen from boreal peat bogs half a century ago. Now, for the first time, a Chinese company will own and operate oil sands crude production as well as Nexen’s shale gas assets in British Columbia, along with leases in other parts of the world.

Chinese oil producers have turned more frequently to Canada after political opposition in the U.S. derailed Cnooc’s $18.5 billion bid for Unocal Corp. in 2005, and after TransCanada Corp. (TRP)’s Keystone XL pipeline route south to Texas was blocked by President Barack Obama’s administration last year. 

The Nexen deal is important for two reasons. First, it potentially represents some absolution for CNOOC, which is best known in foreign investment circles as the company which botched the 2005 U.S. UNOCAL takeover, not taking into account American politics and the need for a public relations strategy. As the Nexen deal will require regulatory approval in several jurisdictions, we will see what lessons CNOOC has learned from the failed UNOCAL bid.

Second, as Bloomberg points out, the deal represents a further shift by Canada away from the U.S. towards China. Another deal involving Sinopec and Talisman Energy was announced yesterday as well, and there have been other recent transactions, including CNOOC’s takeover of Nexen partner Opti Canada.

Why is this happening? Read the entire article > "After Keystone, Canada Running to China for Oil Deals"

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