China's bid for Nexen may get a boost if a Malaysian company successfully acquires Canada-based Progress Energy Resource Corp.

Petronas, Malaysia's state oil and gas firm, is working to get Canada's approval of a $5.2 billion takeover of Progress Energy Resources.  To increase its chances, Petronas proposed it will sell Progress Energy shares three to five years after completing the buyout as a concession to Canada's government, a source told Bloomberg.

The move, likely to grant Petronas a green light, has given China National Offshore Oil Corp (CNOOC) renewed hopes of winning Ottawa's blessing on its proposed $15.1 billion takeover of Calgary-based Nexen (TSX & NYSE:NXY).

Canada's industry minister, Christian Paradis, rejected the deal last month under the premise that it didn't represent a "net benefit" for the country's economy.

Analysts believe that a favourable resolution for Petronas would likely be followed by the sale of Nexen to China's giant offshore oil and gas producer, especially after it is said to have accepted yesterday Canada's government management and employment conditions.

Authorities have taken, requests made in October by Alberta Premier, Alison Redford, which include guarantees that Canadians hold at least 50% of Nexen's board and management positions.

Ottawa is now set to rule by December 10 on whether to approve the takeover.  Its decision will be based on the so-called net benefits the transaction may bring to Canada's economy, as required under the country's foreign-investment laws.

Public opposition

A recent Abacus Data survey shows Canadians are protectionists, that 63% oppose foreign ownership of a domestic natural resource company (compared to 53% of Americans respondents in the U.S.).

Additionally, a majority of Canadians strongly oppose Chinese, Indian or Russian control of their country's resources, but are less bothered by the idea of Norwegian or American owners.

Respondents said they would support Norway over the U.S. controlling a resource firm, followed by Germany (31%), Brazil (24%) and then China (20%).

Three months of debate

Since CNOOC made an official application to the Canadian government in late August, mixed messages about the authorities' position on the subject have generated increasing anxiety among investors. Some fear public opposition will convince the government to eventually block the deal.

Senior Conservative officials, led by Harper, have suggested the issue of market reciprocity — or guarantees that Canadian investors will get access to Chinese assets — could play a key role in the ruling.

Truth is the country's governing Conservative Party is split over the matter and Harper has been left with difficult final call to make, as  a previous analysis by Reuters explains:g)

    A green light, still viewed by many as likely, would allow China's biggest ever foreign takeover, extend China's foothold in Canada's crude-rich oil sands – an area with the biggest proven resources of energy outside Venezuela and Saudi Arabia — and help Beijing fulfill its drive for better access to energy resources to fuel the world's second-largest economy.

    A "no", or conditions on the deal that were too onerous for CNOOC, would cut the takeover premium on Canadian resource stocks, and likely stem Chinese investment in the energy patch, as well as damaging Canada's already dented reputation as a friendly jurisdiction for foreign investment.

    It would also infuriate Beijing, which might make the Chinese market a less welcoming destination for Canadian exporters. When U.S. opposition thwarted CNOOC's attempt to buy California-based Unocal Corp. in 2005 it angered Chinese officials and strained Sino-U.S. relations.

anada has to also consider the consequences of upsetting its Southern neighbour, whose pressure could come into play at the time of the final decision.

U.S. disapproval came a week ago, when Nebraska Republican Congressman Lee Terry urged President Obama in a blog to "Oppose CNOOC-Nexen merger, approve Keystone":

    Recently, Chinese state oil company, CNOOC, announced its intention to purchase Canadian oil company, Nexen, for $15.1 billion in cash. I have deep concerns about this merger and what it means for American national security and energy security in the future.

    …With the purchase of Nexen, China will control a major North American oil company. China will firmly be positioned in our front and backyard.

Should the biggest ever foreign investment in the North American country get the go-ahead, CNOOC has promised it will make Calgary the headquarters of its North and Central American operations, will join Canada's Toronto Stock Exchange and will keep current Nexen employees.