Cnooc may have to cede control of rigs near base for Nexen deal

China’s biggest offshore oil and gas producer may have to give up control of drilling platforms 50 miles from a major US military base to win government approval for its US$15.1 billion purchase of Canada’s Nexen.

A US panel reviewing the national security implications of the deal may be seeking to curb access by Cnooc Ltd., which is controlled by the Chinese government, to those Nexen platforms in the Gulf of Mexico, said Stewart Baker, a former US Homeland Security Department official.

“Typically, the national security concern is if the target company is within close proximity of a military installation where there is training or testing conducted,” said Farhad Jalinous, a Washington lawyer who specializes in deals that are reviewed by the Committee on Foreign Investment in the US, known as CFIUS.

In the past three years, CFIUS has blocked at least three transactions that would have resulted in Chinese companies gaining control of assets near military facilities.

Cnooc and Calgary-based Nexen said November 27 they had agreed to withdraw and resubmit their application to CFIUS on the US part of what is mostly a Canadian transaction. Discussions with the interagency committee, headed by Treasury Secretary Timothy Geithner, are continuing, Nexen said. The Canadian review of the deal is scheduled to end by December 10.

The companies are probably discussing what’s known as a national security agreement that could resolve the committee’s concerns and still allow the transaction to be completed, said Jalinous, a partner with Kaye Scholer. Such an agreement might restrict access by the non-US owner or set other limitations that would curtail control of the facility, he said.