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Published: Tuesday December 11, 2012 MYT 7:55:00 AM
Updated: Tuesday December 11, 2012 MYT 8:51:56 AM

Talisman CEO praises Canada's decision on Petronas, CNOOC investments(update)


CALGARY, Alberta: The chief executive of Talisman Energy, which had been seen as a possible takeover target for an Asian state enterprise, on Monday praised Canada's new restrictions on purchases by foreign state-owned entities.

With Canada's approval of the $15.1 billion takeover of Nexen Inc by China's CNOOC Ltd, it is important that the country keep some homegrown oil companies with global reach, such as Talisman, CEO Hal Kvisle told reporters after speaking to a business audience.

Calgary-based Talisman had drawn speculation as the next possible target of an Asian state enterprise due to a structure similar to that of Nexen and a weakened share price.

The new foreign investment guidelines issued on Friday appear to make such a transaction much more difficult. Under the new rules, future bids for control of oil sands businesses by state-owned enterprises would be allowed only in exceptional circumstances. It is widely expected that other big takeovers by foreign state-owned enterprises would also be much harder now.

"Like Nexen, Talisman's biggest asset in Canada is the organization and the people in the corporate headquarters," Kvisle said. "I think it's very much in Canada's interest to have some strong international players that continue to be headquartered and financed and managed where the innovative thinking comes out of Calgary."

Kvisle, former CEO of TransCanada Corp, was appointed Talisman's boss in September as the company struggled with weak natural gas prices and some investor discomfort with its portfolio of assets spread across many countries.

In October, Kvisle announced a new era of conservatism at the company, with plans to cut spending by 25 percent and exit unprofitable regions. Its main operating areas now are in Canada, the United States, North Sea and Southeast Asia.

"That's the company we're trying to create as we turn Talisman around -- an international company but headquartered in Calgary, and not a company that's trolling around looking for someone to buy it," Kvisle said.

Talisman shares closed down 9 Canadian cents at C$10.93 on the Toronto Stock Exchange on Monday, the first day of trading after Ottawa announced its blessings on the takeovers of Nexen as well as the acquisition of Progress Energy Resources Corp by Malaysia's Petronas.

Some investors had expected a steeper drop in stocks that had been seen as potential takeover targets.

However, Kvisle said he believes investors had largely factored in odds that Nexen and Progress could be the last major takeovers by foreign state-owned enterprises for awhile as Ottawa deliberated over the issue in the months leading up to the decisions.

"Most observers, most industry people, have concluded that it's a good idea to have the Nexen deal go through because it was submitted in good faith in accordance with all of the rules, and the Chinese have bent over backwards to accommodate the concerns of the government of Canada," he said.

"But it's time to take a breath, step back and put up a yield sign for awhile. Not a stop sign, but a yield sign."

Kvisle said he does not believe that new restrictions will mean a drop in capital available for Canadian energy, but a shift in focus to more joint ventures. - Reuters

Reuters also reported from Toronto that Joe Oliver, the minister of natural resources, said on Monday that the new rules limiting Canadian oil sands investments by foreign state-owned companies are unlikely to hinder rising oil production from the region.

Oliver, speaking to reporters following a speech to an oil and gas investment conference, said Prime Minister Stephen Harper's decision to limit investment by state-owned companies in the world's third-largest crude reserves would not restrict capital available for the investment-hungry oil sands sector.

"There is a huge amount of capital available globally and quite a bit available inside the country," he said. "In fact the oil sands have been financed overwhelmingly by the private sector.

"Foreign state-owned enterprises represented, I believe, last year about 11 percent of acquisitions globally. ... We believe there's plenty of private sector money."

Harper introduced the restrictions on Friday, as Canada approved the $15.1 billion purchase of Nexen Inc by China's CNOOC Ltd -- China's biggest-ever overseas acquisition -- and the C$5.2 billion ($5.3 billion) takeover of Progress Energy Resources Corp by Petronas, Malaysia's state oil company.

While CNOOC will gain full control of Nexen's six-billion barrel oil sands resource, state-owned investors in the future will be limited to minority stakes in oil sands projects unless there are exceptional circumstances.

Oliver said the new rules were issued to assuage concern that state-owned enterprises would operate on strategic, rather than commercial terms.

Such companies "may have broader objectives if the state decides to impose its political objectives on the operation of the state-owned enterprise," Oliver said. "Then there is an issue and that's precisely what is potentially of concern."

However, he added that even after the Nexen acquisition is complete, China's state-owned and controlled oil companies will hold less than 10 percent of production from Alberta's tar sands, the world's third-largest crude reserve and the single largest source of U.S. oil imports.

"The percentage of Chinese-owned investment in the oil sands in terms of future production will still be under 10 percent," Oliver said. "So we didn't feel with the acquisition the number was excessive, but new rules are now in place." - Reuters

From SINGAPORE/HONG KONG Reuters reported CNOOC's promise of transparency, pledged to win approval from Canada for its $15.1 billion purchase of Nexen Inc, looks like a positive step on the face of it but is unlikely to represent a sea change in Chinese business practices.

To be sure, the details of commitment are not clear. The state-controlled energy firm has promised the Canadian government an annual compliance report on all its commitments that are part of its takeover of Nexen Inc, China's biggest ever takeover. These include listing shares on Toronto stock exchange, which comes with certain disclosure requirements.

But when capital is king, cash-rich Chinese state-owned enterprises have the balance of power in any acquisition talks, leaving doubts about the real potency of transparency pledges.

"On the transparency side, I believe there will be efforts from foreign governments to get more information, but it's still a question of how far China is willing to give," said Robert Lewis, a partner at Zhong Lun law firm in Beijing.

"Twenty years ago it was all about foreign capital coming into China and that foreign capital having the leverage in negotiations. Now it's the other way round, so China will not have to give as much on the transparency side as some might suspect".

The international community has demanded greater transparency from China on a number of fronts for years, wary of its intentions as the country grew to become the second-biggest economy in the world and symbolic of a shift in global power to emerging nations.

On the latest front, U.S. securities regulators are in an intense stand-off with their Chinese counterparts over access to Chinese audit documents. Separately, a U.S. congressional advisory panel described Chinese investment in the United States as a "potential Trojan horse."

China's state-secrets laws, massive bureaucracy and cronyism make it difficult to get key, verifiable information from Chinese companies.

FINANCIAL CLOUT

But the same Chinese companies yield considerable global clout. Chinese companies launched $51.3 billion of overseas acquisitions this year, second only to Japan, Thomson Reuters data shows, making the country one of the world's most active buyers of corporate stakes and businesses abroad.

Much of that acquisition power is led by China's government-run companies, and its energy sector, which has both the cash and the need to build up oil-and-gas supplies to fuel the $5.8 trillion economy.

The government owns all large financial institutions, which lends according to state priorities and directives and which favour large state enterprises -- one reason why the Washington think tank, the Heritage Foundation, ranks China 138th out of 179 in global economic freedom.

Even Chinese companies that aren't classed as state-owned enterprises, such as telecom giants Huawei and ZTE, face accusations they could covertly gather information for Beijing.

In October, a U.S. congressional report urged American companies to stop doing business with the two companies saying the Chinese government could take advantage of their equipment for espionage purposes. Canada and Australia have also indicated they will ban Huawei from taking part in communication network projects due to cyber security concerns.

The Nexen deal, and a separate though less contentious $5.3 billion offer by Malaysia's Petronas for Canada's Progress Energy, provided capital infusions to two Canadian companies, not to mention payouts to shareholders at a time of economic uncertainty.

Such considerations may trump the fear of a state-owned bogeyman coming to town.

"No government in the world is going to say 'we don't want your money'," said Andrew Lumsden, a partner at Corrs Chambers Westgarth in Sydney. "There will be a bit of huffing and puffing but it's probably business as usual".

GROUND RULES

Last week, the U.S. Securities and Exchange Commission (SEC) charged the Chinese affiliates of five of the world's biggest audit firms with violating U.S. securities law.

The United States and China could still reach a settlement, but the action shows the U.S. securities watchdog and their Chinese counterparts could not find agreement on the exact topic under discussion with CNOOC-Nexen: transparency of information.

Canada though is following in the steps of other countries that have attracted money from state-backed Chinese companies, such as Australia and Norway, in putting place a working set of ground rules.

"There's become an almost standard set of behavioral undertakings that firms accept in Australia from these kind of companies and reading between the lines it looks like the Canadians are doing similar," said Lumsden at Corrs Chambers Westgarth.

"The companies put in place a series of undertakings such as ensuring they have local management and comply with local environmental laws", he said.

Rupert Li, a partner at King & Wood Mallesons in Hong Kong, said all Chinese companies should study Nexen's transparency clause, particularly those that plan to venture abroad.

"If you want to be part of the global business community, people should have more visibility into your management, your finance, and who actually drives your strategy," Li said, adding the extent of a board's independence was also important.

"The question is whether the Chinese companies can actually dispel the notion that they are just part of the mandate from the Chinese government as opposed to being a true profit seeking entity," he added. - Reuters

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