Canada: Of Resource Investment and ‘Net Benefit’s
Two important pieces of news for the Canadian resource sector were announced today, both reference in some way the “net benefit” clause for investment in Canada, one at a national level (Nexen-CNOOC), the other at a provincial (National Gateway pipeline review), both important to Canadian and global resource supply chains.
First, the proposed takeover of Nexen by CNOOC, one of China’s national oil companies, which already owned a large stake in the Company’s Long Lake project – for a whopping $15 billion or about 60% over recent traded value. While Canada accounts for only a share of Nexen’s assets and projects, as a Canadian company, the deal should be subject to Canada’s foreign investment review process. Given the learning that Chinese companies have been doing (as a recent WSJ piece wrote and I mentioned on RGE’s forum), Chinese resource companies have been increasingly reaching out to Canadian stakeholders including Native Canadians to try to assure approval and to ease their way in deals. This also underscores an assertion RGE recently made on the commercial nature of Chinese foreign resource investment. Given the reputational and headline risk from a deal flopping, expect that CNOOC may already have tried to seek out some assurance from regulators to avoid a blocked deal. I wouldn’t speculate on the deal terms, but would imagine, that some of the sweeteners including maintaining Canadian jobs, an Alberta HQ, a TSX listing and providing capital (at a time when financing is still scarce) are designed to pass the “net benefit” to Canada test. Watch this space. Nexen, being only the 12th largest energy company in Canada, is much less of a dominant player than the other most recent trial case regarding Potash, which was rejected due to the likely reduction in jobs and economic contribution. In this case Chinese funds may have helped funnel capital toward some stalled projects. the deal underscores the long game (or perhaps medium game) that Chinese (and other Asian) investors have been playing in Canadian resources. Asian companies have been key sources of financing in recent years. Expect them to continue to push for more infrastructure and pipelines and look for opportunities to increase the export channel to Asia, where prices remain higher than in the North American/Midwest basin.
Which brings us to the second piece of news – the B.C. government’s intervention into the ongoing review process of the Northern Gateway, which I wrote about some months ago. The pipeline transits British Columbia on its way from Albertan oil sands to the northern port of Kitimat and is designed to export crude (or rather heavy bitumen) across the Pacific. I thought the use of the net benefit term in the B.C. statement of interest, since it seems rarely used at a provincial level. B.C. officials and some native Canadians feel the province bears all the risk of a potential spill and too little of the reward from the pipeline. Perhaps the reported stakes in transiting flows to local communities have not been extensive enough. This battle may be hard to win, since the Federal government is quite insistent on pushing through the pipeline approval which would add volume to the northern port, possibly increase exports to asia, as well as temporarily increase economic activity in the sparser but still populated areas of B.C north. This economic activity though, could be little comfort if there is a hit to output of fishing and other activity from a spill. Ultimately, I’d expect, this or some other pipeline to go through given the Federal and provincial interests, but perhaps there will be some sweeteners to follow. Maybe Enbridge didn’t follow China’s example and get enough key stakeholders on board?
One Response to “Canada: Of Resource Investment and ‘Net Benefit’s”
Maybe so yes, Enbridge certainly didn't follow China's example and now these aren't extensive enough.