Chinese State-Owned Enterprises (SOEs) Acquisitions Of Oil And Gas In Canada To Slow, Checked By Government Restrictions

Chinese state-owned enterprises in the oil and gas sector will slow their pace of acquisitions in Canada, but private Chinese companies will continue to buy up Canadian oil and gas assets.

Following CNOOC’s purchase of Nexen, the value of Chinese acquisitions of oil and gas assets should flatten next year, said Gilbert Chan, president of NAI Interactive, a Canadian investor relations firm specializing in energy and mining.

"There are more restrictions on [state firms] to buy Canadian companies. So we will see uncertainty slowing acquisitions [by Chinese state firms], but more private Chinese companies [will be] buying," Chan said at last week’s Global Resource Investment Conference, according to the South China Morning Post.

Canadian Prime Minister Stephen Harper announced restrictions on state-owned firms worldwide in December 2012, which could affect Chinese investment in Canada by shrinking deal sizes. At the time, Harper said the Canadian government prefers investment from private foreign companies, and the acquisition of a Canadian oil sands business by a foreign state firm would only be approved in “an exceptional circumstance.”

The announcement came as CNOOC, a major Chinese oil and gas company, purchased the Canadian energy firm Nexen for $15 billion. Since that deal, the biggest Chinese purchase of oil and gas assets was the $232 million-Canadian ($219 million) purchase of Novus Energy by Yanchang Petroleum International, a Hong Kong-listed oil and gas firm.

The effects of the restrictions were already visible in 2013, as the value of mergers of acquisitions of Canadian oil and gas assets dropped to $80 billion-Canadian in the first half of the year, compared to the $113.2 billion in the first half of 2012, Chan said. The value of oil and gas deals on the Toronto stock exchange was just $2.65 billion-Canadian in the first half, the lowest since 2007.

But experts believe private Chinese companies will continue to rush in to purchase Canadian oil and gas assets, even as the state-owned firms, which since 2007 have bought $119 billion-Canadian worth of oil and gas assets in Canada, scale back their Canadian purchases.

"We are not sure if Chinese state-owned enterprises' acquisitions of Canadian oil and gas assets will slow as a result of restrictions by the Canadian government, but we expect there to be many private companies rushing to acquire oil and gas assets in Canada,” said Iris Duan, a partner at MNP, a Canadian accounting and business consulting firm, according to the South China Morning Post.