This July, China National Offshore Oil Corp. (CNOOC), the state-owned giant that dominates exploration and production off China's coast, announced the $15.1 billion acquisition of Nexen, a Canadian oil company with assets in the United States and around the world.
The announcement made surprisingly few waves in the United States, given that, if successful, this transaction would be the largest foreign acquisition by a Chinese company anywhere in the world. But that may be changing as American lawmakers eager to prove their nationalist bona fides get a closer look.
Chinese investments in North America often come under intense scrutiny. After a roughly 18-month investigation, the U.S. House Intelligence Committee warned in a report this week that the Chinese companies Huawei and ZTE, the world's second- and fourth-largest telecommunications-equipment suppliers, respectively, "could undermine core U.S. national-security interests" and recommended that the Committee on Foreign Investment in the United States (CFIUS) block mergers or acquisitions involving Huawei and ZTE. In late September, based on CFIUS's recommendation, President Barack Obama blocked the sale of four Oregon wind farms to Chinese-owned Ralls Corp. in only the second time a sitting U.S. president has prohibited a foreign transaction. Given that CFIUS is currently assessing the national security risks of CNOOC's proposed acquisition -- a process that should take six weeks -- company executives in Beijing are likely paying rapt attention.
Although Nexen accounts for less than 0.5 percent of oil production in the United States, its announced takeover by CNOOC has sparked some congressional opposition. New York Sen. Charles Schumer has asked CFIUS to withhold approval of the transaction until China provides better access to the Chinese market for American companies. Massachusetts Rep. Edward Markey has requested that CFIUS block the deal unless CNOOC agrees to pay royalties on production from two of Nexen's leases in the Gulf of Mexico. And Oklahoma Sen. James Inhofe said in a statement that he has "serious national security concerns with the Chinese government, acting through one of its corporations, purchasing a company that will give it control over significant U.S. oil and gas resources."
The Nexen acquisition is a friendly one; there are no rival bids, and Nexen's board of directors and the company's shareholders have already approved the deal. Mistrust of Chinese companies is prevalent in Washington, however, and the specter of CNOOC's failed 2005 hostile takeover bid for the U.S. oil firm Unocal (now part of Chevron) still haunts the company and its domestic peers. That's too bad, because a larger Chinese presence in the U.S. oil patch could actually be good for U.S. economic and geopolitical interests. Here are four reasons to welcome CNOOC's proposed takeover of Nexen.