Sunday, March 3, 2013

Alaska Oil| An interesting Federal policy decision ...

CNOOC2_edit-306x177Under the Foreign Investment and National Security Act of 2007 (FINSA), the federal government is empowered to "review transactions that could result in control of a U.S. business by a foreign person, in order to determine the effect of such transactions on the national security of the United States."   FINSA reviews are conducted by the Committee on Foreign Investment in the United States (CFIUS), an interagency committee chaired and coordinated by the Department of Treasury.

While primarily focused on the Canadian assets, the recent acquisition of Nexen, Inc. by CNOOC Ltd, a subsidiary of the Chinese National Offshore Oil Company ("CNOOC"), also involves some US assets, primarily lease interests owned by Nexen in the Gulf of Mexico.  Nexen operates some of the leases, and is a non-operator in others.

The reason I have followed this case is because, according to its website, CNOOC also owns some lease interests in the Alaska OCS and because Chinese and other wholly or partially owned foreign national oil companies often have been rumored as potential successors to various Alaska North Slope oil interests.  Indeed at least one partially owned national oil company -- ENI (30% owned by the Italian government) -- already operates on the North Slope and another -- Rosneft (75% owned by the Russian government) -- recently acquired an option from Exxon for a 25% interest in the Pt. Thomson field.  Statoil (67% owned by the Norwegian government) also continues to assess exploration opportunities in the Alaska OCS.

The FINSA issue was whether CNOOC's acquisition of Nexen's GOM OCS interests adversely affected US national security.  As some may recall, several years ago CNOOC called off a proposed acquisition of Unocal Corporation in the face of such concerns.  Since that time, however, CNOOC has successfully acquired non-operating interests in various US shale plays, surviving the required FINSA reviews.

The difference between those and the Nexen acquisition is that Nexen currently operates certain leases, raising a new issue about whether the US would approve CNOOC operation of US oil production.  The US approved the CNOOC acquisition mid-February, but it was unclear at the time whether CNOOC had made any concessions in order to obtain approval.

News reports this weekend, however, indicate that CNOOC indeed made concessions, apparently agreeing to withdraw as operator of any of the leases that Nexen operates.  It is unclear whether the agreement also reaches current or future leases not yet in operation.

While no proposals related to Alaska currently on the table are affected, the decision likely does have a marginal dampening effect on at least one category of potential entrants into Alaska.  For an area reliant on outside investors for development capital, limiting the universe of potential investors seldom is a good thing.