Canada Blocks Petronas’ Bid for Progress Energy
Canada has blocked the Malaysian state-owned oil firm Petronas’ US$5.2 billion (CA$5.17 billion) bid for gas producer Progress Energy Resources, saying the proposed investment would not provide a net benefit to Canada.
Federal Industry Minister Christian Paradis did not explain his decision in a statement released just before midnight Friday, saying only that it was made after a careful and thorough review of the proposed transaction.
“Due to the strict confidentiality provisions of the (Investment Canada) Act, I cannot comment further on this investment at this time,” said Paradis.
“Canada has a long-standing reputation for welcoming foreign investment. The Government of Canada remains committed to maintaining an open climate for investment,” he added.
Petronas has up to 30 days to make any changes to the proposed deal and send it back to the federal government for another review under the terms of the Investment Canada Act.
Petronas’ offer for Progress is substantial at $5.2 billion, but it’s eclipsed by the US$15.2 billion (CA$15.1 billion) that China National Offshore Oil Co. is offering for oil producer Nexen Inc.
Progress did not immediately respond to calls for comment.
Observers had been looking for signals from the review of the Petronas deal for an indication of how the government might proceed with the more controversial deal to buy Nexen.
Both dears involve Asian state-owned players, are worth billions of dollars and sprang from joint-venture partnerships with Canadian firms, but the Chinese bid has stoked a great deal more political furor than the Malaysian one.
“China comes with more baggage, as befits a great power,” said Gordon Houlden, director of the University of Alberta’s China Institute.
CNOOC and other big state-owned Chinese energy companies have increased purchases of oil and gas assets in the Americas as part of a global strategy to gain access to resources needed to fuel China’s economy. The companies have moved more carefully since CNOOC tried seven years ago to buy the California energy firm Unocal Corp. only to withdraw its bid in the face of opposition from U.S. lawmakers who cited national security fears.
Nexen, a mid-tier Canadian energy company, operates in western Canada, the Gulf of Mexico, the North Sea, Africa and the Middle East, with its biggest reserves in the Canadian oil sands. It produced an average of 213,000 barrels of oil a day in the second quarter of this year.
Acquisitions must be deemed a “net benefit” under the Investment Canada Act. Concerns have been raised by lawmakers about a takeover by a state-owned Chinese firm but the deal has garnered support from the premier of Alberta where Nexen is based. Analysts say it will likely be approved because more than 70 percent of Nexen’s assets are outside Canada.
Political scientist Wenran Jiang said the challenge for Ottawa will be to show consistency in how it applies the Investment Canada Act’s key net benefit test to foreign deals.
“They will have to appear that they use the same set of rules to evaluate, rather than using different tailor-made rules,” said the senior fellow at the Asia Pacific Foundation of Canada.
Paradis has extended the review of the CNOOC-Nexen deal until mid-November. The reviews can be extended by further 30-day increments, with the buyer’s consent.