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UPDATE 2-Canada extends review of CNOOC-Nexen deal by 30 days

(Adds details on process, comments)

By Randall Palmer

OTTAWA, Oct 11 (Reuters) - Canada said it needs more time to complete its review of China's CNOOC Ltd $15.1 billion bid to take over Nexen Inc , a deal that has raised fears about opening the Canadian energy sector to China's state-owned companies.

The decision on Thursday to extend the process by 30 days coincides with a growing furor over alleged Chinese espionage in North America that could intensify opposition to the CNOOC deal.

"The proposed transaction is undergoing a rigorous review," Industry Minister Christian Paradis said in a brief statement announcing the widely expected extension. "The required time will be taken to conduct a thorough and careful review of this proposed investment."

A spokesman for CNOOC Canada Ltd in Calgary was not immediately available for comment.

Canada is grappling with concerns that an approval of the deal could spark a flurry of mega takeovers of Canadian energy companies. Canada is home to the world's third-largest proven oil reserves, most of them in the western province of Alberta.

Under the Investment Canada Act, Paradis must decide whether the proposed takeover would bring a "net benefit" to Canada. Most analysts expect him to give the green light, with conditions.

Some inside the governing Conservative Party are uneasy about allowing Chinese state-owned companies to buy up Canadian energy assets, accusing them of unfair business practices.

This week a U.S. congressional report urged American companies to stop dealing with two big Chinese telecoms equipment makers, Huawei Technologies Co Ltd and ZTE Corp , as they could enable Beijing to spy on communications and endanger vital systems.

A Canadian official suggested strongly on Tuesday that Huawei would not be welcome to help build a secure government communications network.

A Toronto Star columnist, Thomas Walkom, said it was unlikely Prime Minister Stephen Harper would simply ignore the U.S. House Intelligence Committee report on Huawei and ZTE.

"In a rational world, Harper would probably dismiss the House report as pre-election political bluster. But in the world we inhabit, that is not always possible," Walkom wrote.

Even so, the proposed CNOOC deal won a vote of confidence on Wednesday night from David Dodge, a former Bank of Canada governor. He told reporters that Ottawa would retain control over its oil reserves because they will remain in Canada.

"I can't help but think this is more anti-Chinese than it is anything else because there's every reason to allow this one to go through," he said.

Alberta's oil sands are the world's third-largest proven oil reserve. Nexen's portfolio includes operations in the oil sands, shale gas in the province of British Columbia and other assets spread across the globe.

The government must weigh the takeover concerns against the energy sector's pressing need for foreign investment. Ottawa says Canada requires at least C$650 billion ($663 billion) of energy investments over the next decade, and much of it will have to come from outside the country.

CNOOC's bid, launched in July, would result in the largest ever Chinese foreign takeover if it is approved.

Under the Investment Canada Act, the government is required examine all deals worth more than C$330 million. An initial 45-day review can be extended by an additional 30 days. In some cases, reviews are extended further.

Last week, Canada extended its review of a C$5.2 billion bid by Malaysia's Petronas for natural gas producer Progress Energy Resources Corp . The delay took some analysts by surprise as few expect much opposition to the Malaysian state-owned company's proposal.

The government last blocked a foreign takeover deal in 2010 when it stunned markets by preventing Australia's BHP Billiton Ltd from acquiring fertilizer producer Potash Corp , which is based in the western province of Saskatchewan.

($1=$0.98 Canadian)

(Additional reporting by David Ljunggren, Louise Egan and Euan Rocha; Editing by Frank McGurty and Richard Chang)

((david.ljunggren@thomsonreuters.com)(+1 613 235 6745)(fax +1 613 235 5890)(Reuters Messaging: david.ljunggren@thomsonreuters.com))

Keywords: NEXEN CNOOC/CANADA