Will OSFI step up and review CNOOC/Nexen deal?

Governments across the globe have tried to use economic sanctions to pressure Iran over its impending nuclear status. According to the Wall Street Journal, China’s National Petroleum Company is the driving force behind of one banks that undercuts the global ban on financial transactions with Iran. The Bank of Kunlun, 82% owned by China’s National Petroleum Company, has grown in large part due to the China oil trade (according to a Taiwanese online outlet):

The bank’s dramatic expansion has in large part been fueled by China National Petroleum’s lucrative oil business. The relationship with a state-run giant has also helped it reach a large number of major clients, such as oil companies and other state-run firms, as well as the upstream and downstream businesses in the petroleum industrial chain.

Although the Nexen bid is being pursued by CNOOC, and not China’s National Petroleum Company, what do we know about CNOOC’s ownership interests beyond the obvious oil plays? Is there cross-ownership between the two parties? Does CNOOC have banking interests like its cousin? Do those banking interests help perform an end run on the Iran embargo? Does CNOOC trade with Iran?

That’s where Canada’s Office of the Superintendent of Financial Institutions comes in. Since Canadian institutions are required to specifically comply with the ban against having a role in financial services transactions that ultimately assist Iran, and follow FINTRAC guidelines in general, OSFI could work through CNOOC’s Canadian advisors to ensure they’re complying with Canadian standards; the banks can’t accept their pending M&A fees, otherwise.

Tougher politically, but not to be avoided, would be for OSFI to review the operations and ownership of CNOOC itself. If CNOOC is going to spend $15 billion on a Canadian company, that cash can’t have come from any transaction that would have otherwise been banned in Canada, right? Them’s the rules.

In principal, I think the CNOOC/Nexen deal can proceed under certain circumstances (see prior post “The path to making Nexen / CNOOC deal of ‘net benefit’” July 26-12). But shouldn’t we first follow the cash, based upon the fact that China’s National Petroleum Company appears to be flaunting U.N. directives and Canadian law?

MRM
(disclosure: this blog, as always, reflects a personal view and is not meant to represent the views of the TPA, its Board/Staff or the federal government)