CNOOC/Nexen and the Future of SOE Acquisitions

Canada's Prime Minister sent a clear message today that the country remains open to foreign investment, including investment on a significant scale by state-owned enterprises (SOEs) in certain circumstances. However, continued acquisitions by SOEs of controlling interests in the oil sands industry has been largely constrained and will be found to be of net benefit to Canada only on an exceptional basis going forward. The acquisition by SOEs of non-controlling interests, including joint ventures, will continue to be welcome.

The Prime Minister's address followed the announcement by the Minister of Industry, which was communicated by way of press release, of:

  • approval of both the proposed acquisition by China National Offshore Oil Company (CNOOC) of Nexen Inc. and the proposed acquisition by PETRONAS of Progress Energy Ltd., finding the transaction likely to be of "net benefit" to Canada in light of the existing provisions of the Investment Canada Act and the former SOE Guidelines;
     
  • updated SOE Guidelines, including expansion of the definition of an SOE to include not only those entities that are owned by a foreign state, but also entities that are influenced directly or indirectly by a foreign government. The updated SOE Guidelines require all SOE investors to demonstrate their commitment to transparent and commercial operations and the extent of influence by the foreign state; and
     
  • the imminent increase in the review threshold under the Investment Canada Act for direct acquisitions of control by WTO Investors will not apply to SOE investments: once regulations are finalized (expected in 2013), the review threshold for direct investments by WTO Investors will increase to $600 million based on the enterprise value of the Canadian business, increasing over four years to $1 billion. These increases will not apply to investments by SOEs, for which the current threshold of $330 million based on the book value of assets will continue to apply.

Stikeman Elliott LLP represents CNOOC in its acquisition of Nexen Inc., which was the impetus for the reconsideration of the framework for reviewing SOE investments in Canada. For more information please see Investment Canada Act: SOE Guidelines and CNOOC/Nexen, Foreign Investment by SOEs: Green Light/Red Light - Stikeman Elliott Business Law Update.

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