OTTAWA CNOOC Ltd still needs to reach agreement on critical issues with the Canadian government related to its $15.1 billion bid for oil firm Nexen in order to win approval of the deal, a source familiar with the negotiations said on Tuesday.
Differences center on commercial aspects of the deal, notably commitments on employment and capital expenditure, said the source, who declined to be identified due to the sensitivity of the issue. "There do remain important issues outstanding," the source said, adding that talks were continuing.
The government is set to rule by December 10 on whether to approve the takeover, which is one of two pending offers for domestic companies by Asian state-owned enterprises.
The source close to the Nexen talks said negotiations were proceeding with an eye to coming to a conclusion by the notional December 10 deadline, and there was no sign of an impasse.
Separately on Tuesday, Petronas PETR.UL, the Malaysian state-owned company that is seeking approval for its bid for Progress Energy Corp PRQ.TO, said it had again extended the closing date of its offer, to December 30 from November 30. Canada had rejected Petronas's initial takeover attempt, ruling that the deal would not bring a net benefit to Canada.
A Petronas source said last week that the Malaysian state oil company had submitted a modified bid.
The Canadian government has promised to clarify its rules on foreign investment as it announces its decisions on the two takeovers.
The CNOOC takeover has been controversial in Canada, where the Conservative government is trying both to satisfy its own demand for more foreign investment and a diversified export market for Canadian energy products, as well as appeasing back-benchers wary of deal-making with China.
The source close to the Nexen talks said discussions between Canada's industry department and CNOOC have centered largely on requests from Alberta Premier Alison Redford, who sought commitments on capital expenditure, employment and increased Canadian participation in Nexen that went beyond what CNOOC had promised.
"The Alberta intervention was a constructive one and one that had a basis for discussion," the source said.
"Industry Canada will always push you on commercial undertakings, and this is no exception," the source added.
Alberta is Canada's largest oil-producing region and where Nexen is headquartered.
Sources say that Ottawa typically presses companies to improve their offer rather than setting a simple numerical formula that CNOOC must meet.
The Globe and Mail said on Tuesday that Canada wanted CNOOC to make "an unprecedented level of promises on investment and employment that would erode the commercial viability of the transaction."
Bloomberg on Monday night had reported that CNOOC had accepted management and employment conditions needed for Canada to approve the deal. Bloomberg later reported that negotiations were still pending on matters related to CNOOC's status as a state-owned enterprise and on the extent of capital spending requirements, an idea that raised eyebrows among analysts.
Morningstar analyst Robert Bellinski questioned how CNOOC could guarantee capital expenditures, as spending in the oil industry is tied to commodity prices and the availability and timing of projects.
"If oil goes down to $50 a barrel, are they stuck spending a couple of billion dollars? I would never agree to that," he said.
"Maybe they build in some kind of mechanism, like, 'If oil is this, we'll spend that.' But just off the cuff, employment guarantees and capex -- it's been speculated ever since the deal was announced and especially after the Progress Energy bid first got declined."
Earlier this month, CNOOC Chairman Wang Yilin said he was confident of winning regulatory approval from Canada this year.
A CNOOC spokeswoman in Beijing declined to comment on the original Bloomberg report, but said the company's promise still stood to retain all of Nexen's management team and employees.
Nexen shares fell on Tuesday, sliding to C$25.13 by 11:30 a.m. EST (1606 GMT), from C$25.33. New York shares NXY.N were at $25.21, below the $27.50 bid price.
In the political arena, the New Democrats, the biggest opposition party, opposes the takeover. But Justin Trudeau, the front-runner in a race to lead the third-placed Liberal Party, said on Tuesday the proposal was a "good deal" for Canada.
"It is in Canada's interest to broaden and deepen our relationship with the world's second-largest economy," Trudeau, son of former Liberal prime minister Pierre Trudeau, said in an editorial in the Postmedia group of newspapers.
"Chinese ownership of 3 percent of oil sands leases hardly constitutes a national security issue."