In the end, Canada had two messages for the Chinese investors and their ilk.
One: Thanks for the investment. Two: Easy does it.
Just over a week has passed since Canada approved CNOOC's purchase of Nexen Inc., a Calgary, Alberta-based firm struggling to meet expectations in the oil sands as well as abroad, for 15.1 billion Canadian dollars. The deal rates as the largest-ever takeover by a Chinese company, according to Bloomberg, and it certainly ranks among the largest moves to enter North American energy markets.
But in approving the deals Dec. 7, Prime Minister Stephen Harper also sent a tough message to state-owned oil companies: Canada will brook no more buyouts of its oil sands firms.
With the approvals, experts say Canada has drawn much-needed investment to its oil sands while holding China's -- and other nations' -- ambitions in check.
"Our problem is, we just need capital," said Gordon Houlden, who directs the China Institute at the University of Alberta. "It's not going to be easy to raise the tremendous sums ... you need patient capital to do that because the timelines on the development run into 10 and 20 years."
There is no exact figure for how much investment is needed to develop the oil sands, but estimates often start above C$200 billion and can run as high as C$600 billion. "Wherever we cut that, 35 million Canadians aren't going to raise it," Houlden said.
At the same time, many are wary of investment by state-owned companies -- China's above all.
"There's no reason to think that they would have stopped with Nexen but would [not] have gone on to larger companies eventually, perhaps Suncor [Energy Inc.] or one of the other giants," Brian Lee Crowley, managing director of the Macdonald-Laurier Institute, said on a Canadian Broadcast Corp. program.
'Net benefit' fight
China, it is thought, is in a buying mood. Its economy chugs along at rates that leave rich countries salivating, and it holds deep reserves of savings and foreign-currency reserves.
North American energy is a known target, as its companies hold the world-class technology that sparked a new fossil-fuel boom. Moreover, Chinese investments show a drive to diversify energy sources beyond unstable areas in the Middle East and Africa.
CNOOC, one of China's three major state-owned oil companies, made its bid for Nexen in July. It offered a 60 percent per-share premium for a company that had disappointed shareholders in multiple geographies, from the oil sands to the North Sea to Yemen. Nexen stockholders approved the sale, leaving it to Canadian regulators for the final green light.
The regulators' top job was to establish whether the deal was a "net benefit" for Canada, considering factors including economics and security. But they were hardly working in a vacuum.
Another of Asia's national oil companies, Malaysia's Petroliam Nasional Berhad, or Petronas, was awaiting approval for its C$5.2 billion takeover of Calgary-based Progress Energy Resources Corp. Taken with the Nexen proposal, that meant a total of C$20 billion of foreign investment was at stake.
Meanwhile, fears were brewing among a typically liberal and internationally minded Canadian public. Paul Evans, a professor of Asian international relations at the University of British Columbia, called it "a very, very nasty public discussion" in which "anti-China sentiment" spread from the general public to politicians in Ottawa.
"What looked like a fairly easy bureaucratic-driven decision became highly politicized," Evans said.
Some warned that Beijing could be pulling the strings behind CNOOC and taking a stake in a vital Canadian resource. Others brought up criticism -- some of which Harper had uttered just years before -- of China's record on the environment and human rights.
On Dec. 7, Harper approved the CNOOC and Petronas deals together. But he said it was the end of a trend, not the beginning.
Canada was open for business, he said, but that openness had limits.
"The larger purposes of state-owned enterprises may go well beyond the commercial objectives of privately owned companies," he said. "Let me be clear. When we say that Canada is open for business, we do not mean that Canada is for sale to foreign governments."
From now on, Harper said, Canada will automatically review deals by state-owned companies that exceed C$330 million. Non-state buyers will face review only beyond C$1 billion.
When Canada reviews state-owned firms, it will study certain issues, such as if the company will dominate the Canadian market, or if it is essentially an agent of its home country.
Takeovers could be allowed in "exceptional circumstances," however. Harper did not specify.
A compromise
These new parameters, experts said, effectively block state-owned companies from further takeovers in the Canadian oil sands. If there was this much scrutiny around Nexen -- which holds less than 2 percent of the oil sands reserves, according to Evans -- then the largest oil sands companies are out of the question, they said.
But in another sense, some argued, Harper has crafted a compromise, calming Canadians' fears of foreign takeover while bringing capital to a hungry market.
The oil sands are some of the most expensive fossil resources to develop in the world. According to energy data firm Rystad Energy, a new offshore oil asset is commercial at an oil price of $55 per barrel; Canadian oil sands aren't commercial until the price is at least $85.
National oil companies, bolstered by government support, enjoy some of the lowest costs of capital in the world. Even as Harper cautioned them against further takeovers in the Canadian oil patch, he encouraged them -- as well as private entities -- to take smaller positions through joint ventures and minority stakes.
So in this instance, Chinese funding may have proven too good to pass up, said Leonardo Maugeri, a research fellow at the Harvard Kennedy School's Belfer Center for Science and International Affairs.
"Several Canadian and US oil companies are slashing their 2013 spending budgets for Canadian projects," he said by email. "A significant presence of a Chinese company (and even more ...) that is not necessarily motivated in its investment decisions by short-term oil prices can help sustain the development of Canadian sand oil projects."
He said Canada is also feeling pressure from U.S. oil production. The United States is Canada's largest oil customer, but American oil is crowding pipelines and refineries.
Canada needs China as a trading partner, now and in the future, Maugeri said: "There aren't too many other options for Canada."
At least one Chinese firm was ready to oblige, if not in the oil sands. Late last week, a subsidiary of PetroChina Co. Ltd. signed a $2.2 billion joint venture with Encana Corp. to develop the Duvernay shale-gas play in Alberta. The PetroChina-owned company will hold a 49.9 percent non-controlling stake in the project.
Beginning of a test
So far, there seems to be little concern that the new policies will choke off the oil sands' investment. Canada's natural resources minister has said private capital, whether foreign or domestic, can fill the gap. And in a Dec. 9 research note, analysts at investment bank CIBC World Markets said large and small firms can still raise money the old-fashioned way: debt, equity, joint venture or takeover by a large private company.
As for China, the conventional wisdom is that it got its wish: access to oil and technology.
But Evans, of the University of British Columbia, sees something more sophisticated at work. He said Nexen is known as a pioneer in corporate social responsibility overseas. And among China's three major oil companies, CNOOC has "one of the most responsible approaches to the countries where it's dealing."
China is known for copying technology and intellectual property. But Evans suggested that the Nexen takeover may indicate a desire to copy Western business practices and standards.
"In strategic terms, encouraging China to be part of the North American energy market ... is terrific," he said. "It's also the beginning of a test of how Chinese-owned state-owned enterprises can operate in a First World, North American environment."