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 tocomplete its review of China's CNOOC Ltd $15.1 billionbid to take over Nexen Inc , a deal that has raisedfears about opening the Canadian energy sector to China'sstate-owned companies.

The decision on Thursday to extend the process by 30 dayscoincides with a growing furor over alleged Chinese espionage inNorth 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 statementannouncing the widely expected extension. "The required timewill be taken to conduct a thorough and careful review of thisproposed investment."

A spokesman for CNOOC Canada Ltd in Calgary was notimmediately available for comment.

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

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

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

This week a U.S. congressional report urged Americancompanies to stop dealing with two big Chinese telecomsequipment makers, Huawei Technologies Co Ltd and ZTECorp , as they could enable Beijing to spyon communications and endanger vital systems.

A Canadian official suggested strongly on Tuesday thatHuawei would not be welcome to help build a secure governmentcommunications network.

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

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

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

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

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

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

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

Under the Investment Canada Act, the government is requiredexamine all deals worth more than C$330 million. An initial45-day review can be extended by an additional 30 days. In somecases, reviews are extended further.

Last week, Canada extended its review of a C$5.2 billion bidby Malaysia's Petronas for natural gas producer Progress EnergyResources Corp . The delay took some analysts bysurprise as few expect much opposition to the Malaysianstate-owned company's proposal.

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

($1=$0.98 Canadian)

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

((david.ljunggren@thomsonreuters.com)(+1 613 235 6745)(fax +1613 235 5890)(Reuters Messaging:david.ljunggren@thomsonreuters.com))