* Markey: block deal unless CNOOC agrees to offshore
* U.S. government panel will review takeover of U.S. assets
By Roberta Rampton
WASHINGTON, July 30 The U.S. government should
block a bid by China's state-owned CNOOC for the U.S.
assets of Canadian oil firm Nexen unless the merged
company agrees to pay royalties on all oil drilled offshore, or
spins off the properties, Representative Edward Markey said on
Markey, a Democrat, is the second U.S. lawmaker to formally
ask for conditions on CNOOC's bid for Nexen, which has about 10
percent of its assets in the U.S. Gulf. Opposition from some
factions in Washington has added a modicum of uncertainty as
CNOOC tests Canada's tolerance for such a large transaction.
The $15.1 billion deal has raised some hackles in
Washington, but the opposition has been muted compared to 2005,
when CNOOC tried to buy U.S. oil company Unocal, withdrawing its
bid after a political uproar.
By law, the U.S. government examines foreign investment in
sensitive U.S. assets such as energy for national security
issues, and has the power to block deals or require
modifications such as divestitures.
Nexen holds at least two leases issued under the 1995 Deep
Water Royalty Relief Act, said Markey, the top Democrat on the
House of Representatives' Natural Resources Committee, who has
long criticized companies that have benefited from a royalty
loophole in the law.
In a letter to Treasury Secretary Timothy Geithner, who
leads the investment review panel, Markey said Nexen has not
paid royalties on 32 million barrels of oil and 34 million cubic
feet of natural gas drilled in the U.S. Gulf of Mexico through
"Giving valuable American resources away to wealthy
multi-national corporations is wasteful, but giving valuable
American resources away to a foreign government is far worse: it
has the potential to directly undermine American economic and
national security," Markey said in the letter.
The U.S. Interior Department offered royalty relief to oil
companies when energy prices were significantly lower as a way
to encourage more drilling in deep Gulf waters.
But in 1998 and 1999, the department forgot to include
language putting a price threshold on the relief that would have
limited the waiver to times when oil prices were low.
A spokesman for CNOOC declined comment on the issues raised
by Markey, saying only that the company was working on
regulatory filings and aims to cooperate with governments
overseeing the deal. A Nexen official was not immediately
available for comment.
Markey said letting a Chinese government-owned company take
over drilling leases that benefit from the loophole could lead
to "a massive transfer of wealth" to China from U.S. taxpayers
that should be examined by the Committee on Foreign Investment
in the United States (CFIUS).
House Democratic Leader Nancy Pelosi has also urged the
panel to thoroughly review the deal.
On Friday, Democratic Senator Charles Schumer told Geithner
the United States should use CNOOC's bid as an opportunity to
demand changes to China's foreign investment policies.
Once CFIUS receives the detailed information on the deal, it
will conduct a national security review expected to take 75
Republicans on Capitol Hill have stopped short of asking the
government to block the deal, and have used it to highlight
their arguments for expanded U.S. drilling and a quick approval
for the long-delayed Keystone XL crude oil pipeline, which would
deliver oil to Texas refineries from Canada's oil sands.
Nexen's shares on the New York Stock Exchange fell 27 cents
to $25.54 on Monday, down 3 percent from the closing price on
the day the companies announced the friendly deal one week ago.
CNOOC has offered $27.50 per share in cash.