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Letter to Timothy Geithner, Secretary of the Treasury - Concern with the Pending Acquisition of Nexen Inc.

Letter

By:
Date:
Location: Washington, DC

U.S. Sen. Jim Inhofe (R-Okla.), ranking member of the Senate Foreign Relations Committee's Subcommittee on East Asia and Pacific Affairs was joined by Senators John Cornyn (R-TX), John Hoeven (R-ND), and Richard Shelby (R-Ala.) in sending a letter to Treasury Secretary Timothy Geithner expressing concern with the pending acquisition of Nexen Inc. by the Chinese National Offshore Oil Company Ltd. (CNOOC), which was submitted to the Committee on Foreign Investment in the United States earlier this week.

In the letter, Inhofe and his Senate colleagues said, "We understand that you, serving in your capacity as Chairman of the Committee on Foreign Investment in the United States (CFIUS), are primarily responsible for ensuring the preservation of our country's national security as affected by the purchase of U.S. firms by foreign acquirers. While the transaction between CNOOC and Nexen does not involve a U.S. based parent company, Nexen operates a U.S. subsidiary to support its extensive operations in the U.S. Gulf of Mexico, qualifying the transaction for review by your Committee."

The letter continues, "We are not writing to express any concerns with the current free market economy in the United States. We welcome all profit-seeking, privately owned foreign institutions to invest and do business in our country; in our view, any company, located anywhere on earth, owned by private shareholders and operating for profit is welcome to do business here. But when you add statecraft into the free market system through state-owned corporate enterprises, profit is no longer the sole motivator. As foreign national interest is mixed with profit motivation, there is the increased likelihood of dislocation between the best interest of the host country and that of the state-owned foreign business."

The letter outlines the Senators' view that "ownership and operation of U.S. business operations by foreign governments via their corporate proxies becomes particularly concerning when critical natural resources such as oil and natural gas are involved. The potential for these firms to disavow their rational profit-seeking motivations in favor of state ideological goals and foreign policy objectives must be fully considered when deciding whether to approve such transactions."

The full text of the letter follows:

The Honorable Timothy GeithnerChairman

Committee on Foreign Investment in the United StatesTreasury Department

1500 Pennsylvania Avenue

Washington, D.C. 20220

September 13, 2012

Dear Secretary Geithner,

We are writing to express our concern with the pending acquisition of Nexen Inc. by the Chinese National Offshore Oil Company Ltd. (CNOOC).

We understand that you, serving in your capacity as Chairman of the Committee on Foreign Investment in the United States (CFIUS), are primarily responsible for ensuring the preservation of our country's national security as affected by the purchase of U.S. firms by foreign acquirers. While the transaction between CNOOC and Nexen does not involve a U.S. based parent company, Nexen operates a U.S. subsidiary to support its extensive operations in the U.S. Gulf of Mexico, qualifying the transaction for review by your Committee. Nexen currently produces 20,000 barrels of oil equivalent per day in the U.S. Gulf of Mexico, and it has the potential to boost production significantly when it fully develops the 200 leases it currently holds in the Central Gulf of Mexico, which are estimated to hold proved and probable reserves of at least 115 million barrels of oil equivalent.

We are not writing to express any concerns with the current free market economy in the United States. We welcome all profit-seeking, privately owned foreign institutions to invest and do business in our country; in our view, any company, located anywhere on earth, owned by private shareholders and operating for profit is welcome to do business here. Competition breeds excellence.

But when you add statecraft into the free market system through state-owned corporate enterprises, profit is no longer the sole motivator. As foreign national interest is mixed with profit motivation, there is the increased likelihood of dislocation between the best interest of the host country and that of the state-owned foreign business. What should be the simple and free flow of goods and services among countries quickly becomes an entanglement of complicated foreign policy objectives. We must therefore be mindful of the influence of foreign countries acting through their state-owned enterprises under the guise of free market capitalism. When ownership and control of a company rests in the hands of a foreign government, that company should be viewed as an agent of the foreign government itself, even if it is operating through a U.S. based subsidiary.

The ownership and operation of U.S. business operations by foreign governments via their corporate proxies becomes particularly concerning when critical natural resources such as oil and natural gas are involved. The potential for these firms to disavow their rational profit-seeking motivations in favor of state ideological goals and foreign policy objectives must be fully considered when deciding whether to approve such transactions.

This particular case warrants your close scrutiny. Nexen's U.S. subsidiary, Nexen Petroleum USA, Inc., is currently a significant oil and gas leaseholder in the U.S. Gulf of Mexico, which gives it the potential to become a large producer in the region if its prospects deliver. Further, many of Nexen's 200 lease blocks are located in areas that are heavily laden with oil and gas related infrastructure. If CNOOC's proposed acquisition of Nexen is approved without conditions, Nexen's strategic Gulf of Mexico properties would become China's first wholly owned lease acreage in the region.

Approving the acquisition of Nexen by CNOOC would, without exaggeration, be handing over these valuable and critical areas of U.S. sovereign territory to a corporation majority owned and controlled by the Chinese government. While we are eager to see these resources developed in a way that would increase the size of our country's economy, create more jobs, and sustain the American jobs already in place at companies like Nexen, we must do this without jeopardizing our own country's foreign policy and national security objectives.

As you review this transaction in your authority as Chairman of the CFIUS, what steps are you taking to measure the potential national security risk of a Chinese state-owned enterprise owning, for the first time, strategically located oil and gas rights in the U.S. Gulf of Mexico? We hope, at the very least, you are viewing CNOOC as an agent of the Chinese government and are taking into consideration its capacity to act in a way that is inconsistent with the best interests of the United States.

We look forward to your response.

Sincerely,

U.S. Sen. James M. Inhofe

U.S. Sen. Richard Shelby

U.S. Sen. John Cornyn

U.S. Sen. John Hoeven


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