Arun Sudhaman 01 Aug 2012 // 11:00PM GMT
BEIJING--Seven years after its ambitious attempt to buy an American oil company failed, CNOOC is hoping that a more cohesive public relations strategy will pave the way for China’s biggest overseas acquisition.
The Chinese oil and gas giant’s $15bn deal for Canada’s Nexen is being seen as a litmus test of the country’s North American economic ambitions, and success will depend in large part on its ability to resolve the public relations issues that derailed its 2005 $18.5bn bid for Unocal.
Already, the deal is attracting considerable scrutiny, given Nexen’s considerable operations in the Gulf of Mexico. Jamie Moeller, who heads Ogilvy PR’s global public affairs practice in Washington, DC, believes that the deal is likely to become a “political football” as election season heats up.
"The single largest concern in both Canada and the US will be about a foreign company owning and controlling what is seen as a strategic energy asset,” says Moeller. “This concern is particularly acute in the US where China is seen as a growing economic competitor and where election year politics will drive the debate.”
US lawmakers have called on the Obama administration to reject the deal, mirroring the climate that greeted the 2005 Unocal bid. However, David Wolf, CEO of Beijing consultancy Wolf Group Asia, seems some critical differences this time around.
“To their credit, CNOOC has prepared the field better this time than it did in the company's failed effort to buy Unocal in 2005,” says Wolf. “Not only have they hired PR counsel to advise in the process, they have done a series of small deals in the past several years that have made them look more like a partner than a bogeyman to the US oil industry.”
CNOOC has brought in plenty of public relations support. Once again, Public Strategies is in the thick of the action, after working on the company’s Unocal bid. Now part of Hill + Knowlton Strategies, the firm is providing counsel to CNOOC in Canada and the US.
CNOOC has also hired DC lobbying shop Wexler & Walker Public Policy Associates, and is working with Pelham Bell Pottinger on UK aspects of the deal. Nexen is the second biggest oil producer in the UK North Sea.
In 2005, CNOOC appeared unprepared for the political resistance and public opinion backlash that greeted its bid for Unocal. In addition to Public Strategies, CNOOC was assisted through that process by Brunswick and Burson-Marsteller’s BKSH unit.
This time, however, CNOOC appears to have made much more effort to address likely public concerns. The company has committed to invest in Nexen, list in Toronto, preserve jobs and place its regional headquarters in Calgary. CNOOC has also courted Nexen assiduously and has a solid relationship with the Canadian company, including an interest in its Gulf of Mexico operations. The Nexen board has endorsed the takeover bid.
“Much to their credit, CNOOC has taken many positive steps to demonstrate to policymakers, employees, investors and the public that they will be a responsible corporate citizen in Canada,” said Moeller. “This could be decisive in convincing policymakers that this is a good deal for not only CNOOC and Nexen, but for Canada. It remains to be seen, however, if this can trump election-year politics in the US.”
CNOOC's Unocal fiasco came as Chinese white goods giant Haier also failed in an attempt to buy US company Maytag.
However, there is enough evidence to suggest a more relaxed climate regarding Chinese acquisitions in the West. CNOOC itself has made a few small deals in North America, including the $2bn purchase of bankrupt oil sands developer Opti Canada, and joint ventures with Chesapeake Energy.
CNOOC rival Sinopec, which now works with Brunswick, has agreed to acquire a 49 percent stake in the UK assets of Canada’s Talisman Energy. According to Dealogic, Chinese acquisitions the US reached record levels last year, illustrated by Dalian Wanda Group’s purchase of AMC Entertainment holdings for $2.6bn.
The prolonged economic recession in Western markets also means that external investment, whether Chinese or otherwise, is eagerly sought by many companies. Still, Wolf believes that CNOOC’s efforts to date are no guarantee of a successful outcome in the US.
“The question is whether that will be enough,” he explains. “China's recent behaviour in the South China Sea has portrayed Beijing as a heavy-handed belligerent in its offshore energy dealings, and CNOOC's environmental record in its own backyard is apparently not exemplary. Even if the oil patch goes to bat for the deal, the national security and environmental lobbies have the combined weight and resources to shut it down.”
The deal has also been further complicated by a US charge of insider trading at CNOOC.
To win this, adds Wolf, “CNOOC and Nexen have to be prepared to address the environmental issue and add sweeteners to the deal that will make this a huge economic win for both Canada and the US, building support on both sides of the aisle and with a recession-weary public.”