Foreign state-owned enterprises are targeting Canadian oil companies. Should we welcome their advances?
Should the federal government give the green light if a similar offer was tabled for one of the province’s truly major players – say, Encana?
by Max Fawcett
Albertans are an opinionated bunch, and we thought it was time to give them a chance to weigh in on the issues of the day that affect this province and its standing in the world. With that in mind, over the next 12 months we’ll use this page to present both sides of a contentious topic or subject that’s been in the news – and let you decide which is right.
The issue: The federal government has already given the green light to two multi-billion dollar takeovers by foreign state-owned oil companies. Should it do the same if a similar offer was tabled for one of the province’s truly major players – say, Encana?
There are situations in which a proposed transaction ought to be blocked by the Canadian government.
Safeguarding national security, as in the case of the scuppered deal for MacDonald, Dettwiler and Associates in 2008, is one of them. Protecting strategic resources, as the government did by blocking a 2010 deal that would have seen international mining giant BHP Billiton scoop up Saskatchewan’s Potash Corp, is another.
But there is no such case to be made when it comes to a takeover of a Canadian oil and gas company, no matter how large it might be. The industry is both large and well-diversified, and as such the purchase of a single player would not constitute a threat either to national security or competition.
More importantly, foreign direct investment is unambiguously a good thing, bringing new management, technology and capital to our economy. It tends to help boost our productivity (always an issue) and tends to make Canadians, whether they’re shareholders or employees, wealthier in the process.
The University of Calgary’s Jack Mintz has said that the Canadian government must ensure that state-owned foreign buyers are on a level playing field when it comes to cost-of-capital and other competitive concerns and defend the interests of other companies when they’re not. But defending that playing field doesn’t mean prohibiting other companies from stepping onto it in the first place. In the words of former Industry Minister Jim Prentice, there’s a difference between being open for business and being up for sale, and it’s incumbent upon the Canadian government to make sure we’re the former.
If a stranger showed up on your doorstep one day and offered you $100,000 for your 2002 Honda Civic, you’d be faced with an interesting decision. On the one hand, you’d surely be tempted to take the money. On the other hand, you’d probably wonder why he thought your rusted-up hatchback was worth so much, and try to find out if you were missing something.
Right now, most Albertans – including Prime Minister Harper – are surrendering almost entirely to the first impulse when they ought to be listening more closely to the second. What do these foreign investors, be they Chinese, Malaysian or just plain old American, see in our oil and gas companies and the assets on their balance sheets that we don’t?
Just for argument’s sake, though, let’s assume that these foreign acquisitors are the ones who are wrong on the valuation of companies like Nexen and Progress Energy. No problem, right? Not necessarily. If a bidding war fueled by state-owned enterprises does break out in our energy sector, it puts domestic private firms at a considerable disadvantage.
By their very nature, state-run entities have access to much cheaper capital, and are not as accountable to their shareholders – if they are at all – as a private firm would be. They are free, therefore, to make decisions driven as much by strategic and political concerns as economic ones. That might be good in the short term for the companies that are being gobbled up and the shareholders that own them, but it’s a recipe for trouble for the energy sector – and, by extension, the rest of us – in the long run.