On Dec. 7th of last year, Prime Minister Harper approved the takeover of two Canadian companies operating in Canada's energy sector by firms controlled by foreign governments; so called State Owned Enterprises, (SOEs). In the larger deal, The China National Offshore Oil Corporation (CNOOC) was allowed to pay $15B to take over Nexen. On the same day, Malaysia's Petronas was given the nod to takeover Progress Energy for $6B. However, what was arguably more significant than the approval of these transactions were the new rules the government introduced at the same time that will effectively prohibit future investments in Canada's energy sector by foreign SOE's.
The government made such a drastic move because they are worried about "strategic" energy assets falling into the hands of foreign governments. Such concerns are misguided, and furthermore, preventing SOEs from investing in Canada's energy sector will cut off Canada from much needed foreign investment, especially in capital intensive industries such as, but not limited to, the oil sands.
First of all, what exactly is a State Owned Enterprise? An SOE is a company that is either owned outright or at least controlled by a government. The international energy sector is full of SOE's but we have some great examples close to home right here in BC. Although not in the energy sector, ICBC, BC Hydro, and all the local health authorities are all State Owned Enterprises of the BC government. And in the oil patch, Petro-Canada was originally a federal SOE only fully privatised in 2004. Even the province of Alberta, which is today so against any state owned oil companies has previously had its own SOE. It was created in 1975 by Peter Lougheed and called The Alberta Energy Company, (it is now part of Encana).
It is important to point out that although recent headlines have concerned Chinese investment in Canada, our energy sector has been a long time beneficiary of foreign investment from around the world, including from many foreign SOEs. For example, Norway's Statoil is one of the largest players in Canada's oil sands. Does the government have an issue with Statoil investing in Canada? What about Total, S.A., France's national oil company, which also has investments in the oil sands?
And that is just where we are today. What about the future? There are many figures floating around estimating how much investment will be needed to develop Canada's energy resources. Everyone is familiar with the Alberta oil sands but other developments such as Saskatchewan's tight oil, B.C.'s natural gas and Newfoundland's offshore oil will all require many billions of investment. Where will the money and expertise come from? When you look at trends in the worlds energy sector, its difficult to see how we can avoid investment from foreign State Owned Enterprises. In fact, outside of the UK, Canada, and the US, pretty much every major energy company is an SOE. For example, Brazil's Petrobras has grown to be one of the largest companies in the world. So has Russia's Rosneft and Gazprom. Finally, lets not forget Saudi Arabia's state oil company Saudi Aramco which is the largest company in the world. If we are to develop our energy assets to our full potential we will need investment from at least some of these foreign state owned enterprises.
Influence from the Chinese government in Beijing is of course the main concern in Ottawa. But upon closer look, are these concerns justified? China has three main oil companies: Sinopec, PetroChina, and CNOOC. All three companies are huge multinationals that are investing around the world. All three are also considered SOEs, but that doesn't necessarily mean they will act much differently than private corporations. For example, all three of these companies are listed on western public stock exchanges. This means that there are at least some protections for their minority, (i.e. western) shareholders and they must disclose financial information according to western standards. (I wonder if BC Hydro would have been able to get away with its deferral accounts if it were a publicly listed company!) Therefore, although these SOEs are controlled by the government in Beijing, it is not so simple for them to act solely for Beijing's benefit. This is probably what the Harper government was worried about when they acted to limit further investment in Canada's energy sector from foreign SOE's.
Canada needs significant amounts of foreign investment to develop our energy resources. Let's not rule out a major source of energy investment by preventing SOE's from having a Canadian presence because of some misguided concerns.
