January 31, 2023

Volume XIII, Number 31


January 30, 2023

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Canadian Government Approves CNOOC’s Acquisition of Nexen

Monumental US$15.1 billion acquisition results in the largest foreign acquisition by a Chinese company to date.

On December 7, the Canadian government approved the acquisition of Calgary, Alberta–based petroleum company Nexen, Inc. by China state-owned petroleum company China National Offshore Oil Company (CNOOC) for US$15.1 billion, making it the largest foreign acquisition by a Chinese company to date. The approval comes after the Canadian government delayed the transaction, seeking to extend the time period for determining whether the acquisition would meet scrutiny under the Investment Canada Act (ICA), Canada's national security review for foreign investments. After months of deliberation, the government announced that it would allow the transaction.


On July 23, CNOOC tendered a US$15.1 billion cash offer to acquire common and preferred shares of Nexen, which valued the Canadian company at a premium of 61% over market price. This triggered the standard 45-day ICA review period due to the asset value and potential national security ramifications of the acquisition. The offer was approved by Nexen shareholders on September 20. On October 11, the Canadian government extended the original ICA review deadline by 30 days and subsequently extended the deadline an additional 30 days on November 9.

Direct investments by non-Canadian investors controlled by nationals of World Trade Organization member states require government approval when the value of the investment is CA$330 million or more. According to the ICA, approval is based on whether the acquisition will be of "net benefit" to Canada. "Net benefit" is not defined under the ICA, but several factors listed in the ICA concerning the overall effect of the transaction on the economic and national security of Canada are utilized during the analysis of the transaction. Investments by state-owned enterprises (SOEs) are evaluated under the same "net benefit" factors, as well as under additional guidelines used to analyze the potential control that a foreign country will gain through an SOE transaction.

Government Approval and Implications

In addition to the CNOOC approval, the Canadian government also announced the approval of Malaysian state-owned petroleum company Petronas's US$5.3 billion acquisition of Canadian natural gas producer Progress Energy Resources—a deal that was previously rejected by the Canadian government under the ICA. Although both acquisitions received approval, the Canadian government issued an overhaul of its foreign investment law in response to the recent increase in these types of acquisitions.

Going forward, investment by foreign SOEs will be subject to stricter standards, and a "net benefit" to Canada will be found "on an exceptional basis only." Additionally, when an SOE seeks to participate in foreign investment in Canada, the Minister of Industry may extend the deadline for the approval process and is empowered to utilize new factors when considering whether to approve the transaction. These factors include the degree of control or influence an SOE would likely exert on the Canadian business being acquired, the degree of control or influence an SOE would likely exert on the industry in which the Canadian company operates, and the extent to which a foreign state is likely to exercise control or influence over the SOE acquiring the Canadian business.

Because Nexen has assets located in the United States, the CNOOC acquisition awaits approval from the Committee on Foreign Investment in the United States (CFIUS), the U.S. national security review for foreign investments, and both transactions must receive other regulatory approvals from the Canadian government before finalization. The parties' joint notice to CFIUS was reportedly withdrawn and refiled to provide extra time for review, since CFIUS had been expected to delay its determination until after a Canadian decision was made. Both deals are expected to close before the end of the year.

Copyright © 2023 by Morgan, Lewis & Bockius LLP. All Rights Reserved.National Law Review, Volume II, Number 366

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