* CNOOC's C$15.1 bln bid for Nexen thrown into question
* Progress chief says disappointed, will consider remedies
* Conservative government says it is still open for business
* CNOOC spokeswoman in Beijing says she has no comment
By Euan Rocha and Stuart Grudgings
TORONTO/KUALA LUMPUR, Oct 20 Canada has blocked
Malaysian state oil firm Petronas' C$5.17 billion ($5.2 billion)
bid for gas producer Progress Energy Resources in a
surprise move that could signal problems for a much larger
Chinese deal in the country's energy sector.
Canada's announcement late on Friday, minutes before a
deadline, was a blow to Petronas, whose domestic oil
supplies are shrinking and which has been seeking to boost its
resources beyond Malaysia and volatile areas such as Sudan.
It also raises doubts over Chinese oil group CNOOC's
C$15.1 billion offer for oil producer Nexen
and could weigh on other Canadian firms hoping for foreign
investment to tap their vast energy reserves.
A rejection of the CNOOC bid would likely damage trade ties
Canada has been trying to build with China, underlining
political sensitivity to Chinese corporate expansion in North
"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," Industry Minister Christian Paradis said
in a statement.
The government, which has said C$630 billion investment is
needed in Canada's energy sector over the next decade, has been
trying to balance concerns over the deals with that requirement
The companies have 30 days to make the offer more palatable.
Progress Chief Executive Michael Culbert said he was
disappointed with the ruling and his company would take the next
month to try to determine what concerns led to the rejection and
what potential remedies might assuage them. Petronas had no
comment on Saturday.
The bid had not been expected to run into hurdles in a
review process that asks whether a deal is of "net benefit" to
Canada. But in a sign that it was attracting greater scrutiny,
Canada earlier this month lengthened its review period by two
Investment industry sources said Progress officials had
initially told them that Investment Canada wanted the unusual
two-week extension because it was experiencing staffing and
workload issues due to numerous files it was juggling, and that
no serious issues had arisen or new information requests made.
Then at the last minute, Ottawa came back to Petronas to ask
for another extension, a request the Malaysian company, already
irked by the delays, refused, forcing Paradis' hand, the
Canadian and U.S. sources said.
The sources suggested Prime Minister Stephen Harper wanted
the extra time to allow his government to draw up a set of rules
for takeovers by foreign state-owned enterprises, something he
has said he would deliver with the Nexen decision.
Some investors heaped criticism on Ottawa, saying the move
and other recent deal rejections smacked of protectionism. But
the Conservative government insisted it was still open for
"Canada has a broad framework in place to promote trade and
investment, while at the same time protecting Canadian
interests. Our government welcomes foreign investment that
benefits Canada," said Margaux Stastny, spokeswoman for Paradis.
The Petronas deal attracted scrutiny after CNOOC made its
bid for Nexen. Some Conservative Party members are wary of the
CNOOC offer, in part because of what they say are unfair Chinese
Earlier this month, Harper said China's "very different"
political and economic systems were a concern.
A CNOOC spokeswoman in Beijing said she had no comment on
the ruling against Petronas or whether it could mean the Chinese
company's bid for Nexen was in trouble.
Last month, China's ambassador to Canada said the government
should not allow domestic politics to affect its decision on
whether to approve CNOOC's bid.
However, some sources said the CNOOC deal need not
necessarily be threatened.
"I don't think that kills the CNOOC-Nexen (deal) but we do
hear there is still a lot of local opposition to overcome," one
Hong Kong-based energy sector banker said.
"It allows Canada to send a signal without upsetting a large
trading partner. Better to upset Malaysia than China in a way."
Chinese firms have more usually had difficulty doing
business south of Canada's border, and this has come to the fore
in recent weeks. The United States House of Representatives'
Intelligence Committee issued a report earlier this month saying
companies should stop doing business with Chinese groups Huawei
and ZTE over security concerns.
On Thursday, the chief executive of U.S. aircraft maker
Hawker Beechcraft, whose $1.79 billion sale to a Chinese firm
fell through, said China-bashing by U.S. presidential candidates
may have contributed to failure of the talks.
The United States has long been the largest market for
Canadian energy exports. But with growing U.S. oil output from
unconventional sources and the rejection this year of an initial
application on the controversial Keystone XL pipeline project,
Canada has been forced to try to build bridges with Asian
markets that would welcome its energy supplies.
"The long-term health of the natural gas industry in Canada
and the development of a new LNG export business are dependent
on international investments such as Petronas," Progress'
Culbert said in a statement.
CNOOC, which has won approval from Nexen shareholders, has
said it will retain all Nexen employees and make Calgary the
headquarters for its Americas operations.
Petronas had also attempted to highlight the benefit its
deal offered to Canada, saying it would combine its Canadian
business with that of Progress and retain all staff.
"Maybe Canada is using this to attach more conditions to the
Nexen deal," said Gordon Kwan, head of energy research at Mirae
Asset Securities in Hong Kong. He thinks CNOOC will get the
Progress' share price has doubled since talk of the possible
Petronas bid emerged in April, closing at C$21.65 on Friday.
Nexen stock has also surged since CNOOC announced its bid in
July, rising 48 percent to C$25.15.
Canada last blocked a foreign takeover in 2010, when it
stunned markets by rejecting BHP Billiton's $39
billion bid for Potash Corp, the world's largest
BHP also had a 30-day period to come back with additional
undertakings but withdrew its offer, sensing the bid was
unlikely to be approved in the face of political opposition.
Canada is grappling with concerns that approval of the deals
could spark a flurry of takeovers of energy companies - the
country is home to the world's third-largest proven oil
reserves, most of them in the western province of Alberta.
Petronas, Malaysia's only Fortune 500 company, made a big
push into Canada's shale gas sector last year when it bought a
$1.1 billion stake in a field from Progress.
Petronas first bid for Progress in June to gain control of
its 800,000 acres holdings in the Montney shale-gas region of
northeastern British Columbia, reserves that could feed a
planned liquefied natural gas facility on the Pacific coast.
It raised its initial offer of C$20.45 per share to C$22 in
July after a rival bid from an unnamed suitor.
Petronas had seen the Progress deal as a crucial step to
increase its presence in a more stable country after clashes on
the border between South Sudan and Sudan this year all but shut
its pipelines there.
On Thursday, Canada's broadcast regulator blocked BCE's C$3
billion bid for Astral Media, saying the deal would
give too much power to BCE, Canada's biggest telecoms company
and the owner of numerous TV and radio assets.