Canadian government bars Petronas bid for Progress

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Canada blocked Malaysian state oil company Petronas’ C$5.17 billion (RM15.8 billion) bid for gas producer Progress Energy Resources Co yesterday, a surprise ruling that could have implications for a much bigger offer by China’s state-owned CNOOC for oil producer Nexen Inc .

“I can confirm that I have sent a notice letter to Petronas indicating that I am not satisfied that the proposed investment is likely to be of net benefit to Canada,” Christian Paradis, Canada’s minister of industry, said in a late-night statement.

Petronas has up to 30 days to make additional representations that could make its deal more palatable. Petronas said it was not ready to make any comment. “Due to the strict confidentiality provisions of the (Investment Canada) Act, I cannot comment further on this investment at this time,” Paradis said.

The Petronas bid for Progress had not been expected to run into hurdles in a review process that asks the government to examine whether a deal is of “net benefit” to Canada. But the deal attracted a lot more attention and scrutiny after oil major CNOOC Ltd made a C$15.1 billion bid for Canada’s Nexen Inc.

Earlier this month, Canadian Prime Minister Stephen Harper said China’s “very different” political and economic systems were a concern as his government decides whether to approve the CNOOC bid. Some members of Canada’s governing Conservative Party are wary of the CNOOC offer, in part because of what they say are unfair Chinese business practices.

Some experts suggested Petronas would need to provide a stronger set of undertakings due to the additional attention on their deal following CNOOC’s proposal. It was the second time in two days that Canadian authorities had intervened to prevent one company taking over another.

The country’s broadcast regulator on Thursday blocked BCE Inc’s C$3 billion (RM9.1 billion) bid for Astral Media, declaring the deal would give too much power to BCE, already Canada’s biggest telecoms company and owner of numerous TV and radio assets. Canada last blocked a foreign takeover in 2010, when it stunned markets by rejecting BHP Billiton’s US$39 billion bid for the world’s largest fertiliser maker, Potash Corp.

At the time the government rejected that deal it also gave BHP a 30-day period to come back with additional undertakings, but BHP withdrew its offer, sensing the bid was unlikely to win approval in the face of strong political opposition from Potash Corp’s home province of Saskatchewan.
Paradis, whose statement on the Petronas-Progress deal came only minutes before the official deadline on the review, said if required, the 30-day period could be extended with the consent of the government and Petronas.

“Subsequently, I will either confirm this initial decision or approve the acquisition,” said Paradis, adding that Canada would maintain an open investment climate. 

The rejection, though, could spark a sell-off in shares of both Nexen and Progress Energy on Monday, as investors temper their expectations on the deals being approved. Canada is grappling with concerns that approval of the deals 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. The government is trying to balance concerns over the deals with a huge need for foreign investment in the energy sector. 

Ottawa says C$630 billion in investment is needed over the next decade alone, with much of it to come from overseas.

Petronas first bid for Progress in June to gain control of its holdings in the massive Montney shale-gas region of north eastern British Columbia, reserves that could feed a planned liquefied natural gas facility on the province’s Pacific coast.

The Malaysian company raised its initial offer of C$20.45 per share to C$22 in July after a rival bid from an unnamed suitor. Progress produced 44,641 barrels of oil equivalent per day in the second quarter. However its most valuable asset is 800,000 acres of exploration lands in the Montney shale-gas region of northeastern British Columbia. — Reuters

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