On July 27, 2012, Senator Charles Schumer of New York sent an open letter to Treasury Secretary Timothy Geitner, who serves as the chairman of the Committee on Foreign Investments in the United States (“CFIUS”). Schumer urged the CFIUS to block the bid by China National Offshore Oil Corporation (“CNOOC”), a Chinese state-owned enterprise, for Nexen, Inc., an oil firm based in Alberta, Canada. According to Schumer, the United States is “committed to a fair, non-discriminatory review process by CFIUS, regardless of whether the foreign investor is private or state-owned.” At the same time, the United States is entitled to reciprocity in bilateral trade relations. Thus Schumer asked Geitner “to withhold approval of this transaction until China’s government has made tangible, enforceable commitments to ensure U.S. companies reciprocal treatment.”

On July 22, Nexen’s board of directors tentatively approved a bid by CNOOC to acquire the firm for $15.1 billion. Listed in New York and Toronto, Nexen produces fossil fuels from oil sands and shale gas in western Canada and offshore oil exploration in the North Sea, off the Nigerian coast, and in the Gulf of Mexico. CNOOC is listed on the Hong Kong Stock Exchange and the New York Stock Exchange. The bid price of $27.50 per share was 61 percent greater than the price at which Nexen’s shares were traded at the time.

Because Nexen holds rights to U.S. offshore oil exploration in the Gulf of Mexico, the proposed acquisition will be subject to the approval of U.S. regulators. The CFIUS reviews foreign acquisitions of U.S. companies for national security implications. In 2005, the CFIUS blocked a similar bid by CNOOC for Unocal Corporation, an oil firm based in California, for $18.5 billion, citing national security concerns over the acquisition of a major U.S. oil company by a Chinese state firm. This time, the concern is not solely national security, but also demands for Chinese concessions on trade-related issues, such as obstacles against the entry of U.S. firms into the Chinese market.

The deal is also subject to political scrutiny in Canada. CNOOC’s latest bid follows a steady stream of Chinese investments in Canada. Some members of Canada’s parliament have expressed concerns over the increasing Chinese influence in Canada’s resource firms. Since the recent delay in the Keystone XL pipeline project, some commentators have speculated on the possibility of Canada directing its oil exports to Asia as an alternative to the U.S. market.