Resource World Magazine

EPILOGUE David D uva l Foreign investment in Canada draws close scrutiny A A lot of foreign money is coming into Canada's oil industry these days and on balance it's probably a good thing. Let's face it, Canada has a great deal to offer foreign investors including a stable political and banking system, legal recourse through the courts, a well educated work force, a competitive tax system, and proximity to the largest consumer market in the world, the United States. I suspect most Canadians support foreign investment in critical resource sectors such as oil and minerals, although the issue of foreign control and federal government involvement for that matter is another question. In actual fact, the federal government has openly championed reducing government ownership or control of its Crown Corporations. So one can easily imagine the broad-based public concern that would be associated with replacing Canadian state ownership with another sovereign state. In 2004 the federal government sold its remaining 19% interest in Petro Canada for $3.2 billion and last September it abandoned stewardship of the Canadian Wheat Board (CWB), a mandatory producer marketing system for wheat and barley in Western Canada which continues to operate as a voluntary marketing organization. Another effort to divest Crown Corporations and/or assets saw SNC-Lavalin last summer win an international bidding process for the reactor design division of Atomic Energy of Canada which, given the fact the company already had 10% of its international power workforce engaged in the production and refurbishment of nuclear reactors, undoubtedly proved to be a nice fit. In late 2010, the Harper government rejected Australia-based BHP Billiton's $US38.6-billion hostile bid for Potash Corp. of Saskatchewan following a populist backlash against the deal that likely would have cost it seats in a conservative stronghold. 78 www.resourceworld.com More recently, Investment Canada initially failed to approve the proposed takeover of Progress Energy Resources by Malaysian state-owned oil company, Petronas, and the much larger acquisition of Calgary-based Nexen Inc by China National Offshore Oil Corporation, more commonly known by the acronym, CNOOC. By year end - and after numerous delays – the government relented but said these acquisitions would likely be the last of their type. One important question that obviously didn't escape the oversight of the Federal government and Canadians' sense of fair play for that matter is the issue of reciprocity given the fact these particular acquisitors are parastatals – that is to say they are partly or wholly owned by foreign governments. CNOOC, which has a large state ownership component, is currently the third-largest national oil company in the People's Republic of China, is publicly traded and presumably ripe for takeover. It runs six business sectors ranging from exploration and development of oil and gas, technical services, logistic services, chemicals and fertilizer production, natural gas and power generation to financial services and insurance. Hardly a newcomer to Canada, CNOOC has operated here for several years in joint venture arrangements with high flying MEG Energy, Northern Cross and Nexen. As one might imagine, politics is always front and centre when it comes to foreign investment in any country and Canada is hardly alone in that regard. The US in particular seems almost paranoid about Chinese investment, albeit in a national security context. In fact, President Obama recently blocked two Chinese nationals from acquiring wind farm projects off the coast of Oregon. The farms are located a few miles from a Naval Weapons Systems Training Facility where unmanned drones and electronic-warfare planes are tested. One important concern regarding Chinese investment in Canada is reciprocity. Canadian companies want to be accorded the right to purchase Chinese companies and have their investments in China secured by treaties that provide them with the same protection that Chinese companies would get in Canada. The government's recently signed Foreign Investment Promotion and Protection Agreement with China is intended to achieve this goal. While hardly iron clad, the agreement is probably no worse that the North American Free Trade Agreement (NAFTA) which has served to increase free trade between its three main participants, Canada, the United States and Mexico. The key elements of the new trade agreement with China include a clause that seeks to deter discrimination or mistreatment of each other's investors while providing for fair compensation in the case of expropriation which is standard under most international agreements along with Canadian common and statutory law. The government's strategy to diversify markets for our oil production is certainly in our national interest given the huge discoveries of shale gas and oil in the continental United States and the US government's determination to reduce its dependence on foreign oil. There's plenty of shale gas and oil potential in Canada as well which could see the North American continent become an energy powerhouse, eclipsing even perhaps the Middle East. One major hurdle confronting Canada's federal government will be getting approval for the Northern Gateway pipeline from Edmonton to Kitimat on BC's West Coast which will allow for the export of oil and perhaps liquid natural gas (LNG). Dealing with the CNOOC and Progress Energy investment issues may in fact prove to be the easy part. n DECEMBER 2012/JANUARY 2013

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