On Nexen

There is talk of approving, or not approving, a massive foreign investment in a company called Nexen. The price of the acquisition is several billion dollars.

What I do not understand is how this is seen as a good thing for the country.

When you buy a company, you, whoever you are (in this case the Chinese government's oil giant, CNOOC), acquire the assets of the company for a price, ie you pay some money and then you own the assets, they are yours.

The trouble is that the money you pay for it is gone, it is no longer yours.  Once spent it then belongs to whoever were the shareholders or previous owners of the asset.  The asset itself does not benefit from the investment, since its value is transferred to previous owners, who then have no interest in it; and the ownership passes to the new owner who now has less money to enable further improvements to the asset!  (Though if you are chinese, you have no shortage of greenbacks!)

A new owner can only be interested in what he (or she) can get out of the asset he (or she) has acquired.  He may think, in the case of CNOOC, that his proprietary interest in the oil properties of Nexen gives him better access to those energy reserves, better being cheaper in that he will not have to pay world prices.  Typically, a new owner will look at his purchase, and ask, what can I sell to recover my investment, or where can I save money to reduce the operational costs of my new asset.  Neither of these last two strategies produces new investment.  He may also say, where can I reallocate the resources I have acquired to generate more revenue.  Again, this is not investment, but rather new management, which some may call better management.

Whatever new investment will come from the re-investment of the monies paid by CNOOC for Nexen.  And who knows where that will be.  Some I'm sure of the shareholders in Nexen are Canadian, who may be willing to plough their proceeds back into Canadian ventures.  Many, given the fragmented nature of oil sands ownership, are not Canadian, and may be only too delighted to receive a return on their oil sands "play" for investment back home where ever in the world that may be.  If the enthusiasm shown by the Nexen shareholders for this deal says anything, it is that non-Canadians are the majority shareholders.

Anyway, what do I know.  I only ever ran a small business that went bankrupt.  Noone ever let me play with a billion dollars.  But I dont see where a net benefit exists for Canada in this deal.