The $15.1 billion offer from China’s state-controlled Cnooc Ltd. (NYSE: CEO) for Canadian-based Nexen Inc. (NYSE: NXY) is currently being reviewed by the Canadian government, with a decision expected by November. Cnooc said last week that it had also submitted the proposal to the U.S. Committee on Foreign Investment in the United States (CFIUS) for approval. About 10% of Nexen’s assets are located in the U.S., mostly in the Gulf of Mexico, and U.S. approval is needed for the deal to go through.

Cnooc said last week that it had already filed its request for approval with CFIUS, but did not specify when the company had done so. The committee has 75 days to respond.

U.S. Treasury Secretary Tim Geithner chairs CFIUS, which also includes among its members the U.S. Secretary of State, and the committee is getting bipartisan advice not to approve the proposed deal. Democratic U.S. Senators Charles Schumer and Ed Markey have already let Geithner know of their concerns over the deal and yesterday they were joined by four Republican Senators: James Inhofe, Richard Shelby, John Cornyn, and John Hoeven.

In their letter to Geithner, the four Republicans said:

Nexen currently produces 20,000 barrels of oil equivalent per day in the U.S. Gulf of Mexico, and it has the potential to boost production significantly when it fully develops the 200 leases it currently holds in the Central Gulf of Mexico, which are estimated to hold proved and probable reserves of at least 115 million barrels of oil equivalent. …

The ownership and operation of U.S. business operations by foreign governments via their corporate proxies becomes particularly concerning when critical natural resources such as oil and natural gas are involved. The potential for these firms to disavow their rational profit-seeking motivations in favor of state ideological goals and foreign policy objectives must be fully considered when deciding whether to approve such transactions. …

Approving the acquisition of Nexen by CNOOC would, without exaggeration, be handing over these valuable and critical areas of U.S. sovereign territory to a corporation majority owned and controlled by the Chinese government.

Several U.S. firms have already sold stakes in energy projects based in the US. Chesapeake Energy Corp. (NYSE: CHK) has already sold about $3 billion in assets to Cnooc. Devon energy Corp. (NYSE: DVN) nabbed a $2.4 billion investment from Sinopec, officially known as China Petroleum & Chemical Corp. (NYSE: SNP). These investments, however, do not transfer ownership of the assets to the Chinese companies or the Chinese government.

When Cnooc made an offer of about $20 billion to buy Unocal in 2005, fierce public opposition forced the company to rescind the offer before CFIUS could deny approval. Cnooc would like to avoid such an embarrassment again.

The Canadian review is also causing Cnooc some headaches. At least two members of country’s cabinet oppose the deal. And Cnooc no doubt remembers that Canada blocked a $38.6 billion bid by BHP Billiton plc (NYSE: BHP) to takeover Potash Corp. of Saskatchewan Inc. (NYSE: POT) in late 2010.

CFIUS can reject Cnooc’s bid only on the grounds that it threatens national security, but that’s not a very high bar. Canada’s decision must be based on whether or not the sale would be a “net benefit” to the country, however that’s defined.

The decision by CFIUS is due at about the same time as Canada’s — mid-November. We can all expect some non-election-related fireworks between now and then over the issue.

The full text of the Republicans’ letter is available here.

Paul Ausick

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