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Government blocks Petronas’ Progress Energy bid

by on October 22, 2012 2:49 am BST
 

Canadian Industry Minister Christian Paradis said late Friday night that Petronas’ bid for Progress — one of the largest owners of exploration lands in the gas-rich Montney shale region in northeastern British Columbia — would not provide the “net benefit” for the country required by Canada’s foreign investment laws, Reuters reported over the weekend.

Investors had expected a favorable decision on the bid by the minister, especially given Petronas’ pledge to help spur Canada’s nascent liquefied natural gas export industry by building an LNG export facility on the country’s Pacific coast.

But Paradis’ veto also raises doubts over the outcome of Chinese oil group China National Offshore Company’s (CNOOC) C$15.1 billion offer for oil producer Nexen and is expected to weigh on other Canadian companies hoping to tap the foreign investment needed to harvest their vast energy reserves and the mood among investors is somber, Reuters reported.

“We’re going to see sell-offs all around and gore on the floor for Progress and Nexen,” Chris Damas, an independent analyst with BCMI Research, told the news agency.

Still, the ruling Conservatives say the refusal is not an issue. Petronas and Progress have 30 days from last Friday to convince the Canadian government to reconsider the decision. Canadian Finance Minister Jim Flaherty confirmed on Sunday that the government was willing to negotiate.

“I’m not involved in those discussions directly. The minister of industry is,” Flaherty said in an interview on CTV’s “Question Period”.

“I’m sure they’ll continue to work on it. There’s another period of time during which they can continue to have discussions and try to satisfy the concerns that the Department of Industry has.”

Along with Progress and Nexen, some analysts think that mid-sized energy companies operating, like Progress, in the Montney shale-gas region of north-eastern British Columbia are most likely to be hit by selling pressure when the Toronto Stock Exchange opens on Monday.

“The intermediate (oil exploration and production) group is significantly impacted by the Progress/Petronas decision, reflective of a high weighting to gas-focused Montney producers,” Reuters cited Greg Pardy, an analyst with RBC Capital Markets, as saying in a research note.

“We expect the group to be under considerable pressure during Monday’s trading session and believe that as of Friday’s close, about 15 to 20 percent of a (merger and acquisition) premium is currently ‘baked in’ to tCanadian markets could face a bloody opening on Monday after the government blocked the C$5.17 billion (US$5.22 billion) acquisition of Progress Energy Resources by Malaysian state oil company Petronas , raising questions about other, bigger bids and about Canada’s willingness to let foreign investors in.

Canadian Industry Minister Christian Paradis said late Friday night that Petronas’ bid for Progress — one of the largest owners of exploration lands in the gas-rich Montney shale region in northeastern British Columbia — would not provide the “net benefit” for the country required by Canada’s foreign investment laws, Reuters reported over the weekend.

Investors had expected a favorable decision on the bid by the minister, especially given Petronas’ pledge to help spur Canada’s nascent liquefied natural gas export industry by building an LNG export facility on the country’s Pacific coast.

But Paradis’ veto also raises doubts over the outcome of Chinese oil group China National Offshore Company’s (CNOOC) C$15.1 billion offer for oil producer Nexen and is expected to weigh on other Canadian companies hoping to tap the foreign investment needed to harvest their vast energy reserves and the mood among investors is somber, Reuters reported.

“We’re going to see sell-offs all around and gore on the floor for Progress and Nexen,” Chris Damas, an independent analyst with BCMI Research, told the news agency.

Still, the ruling Conservatives say the refusal is not an issue. Petronas and Progress have 30 days from last Friday to convince the Canadian government to reconsider the decision. Canadian Finance Minister Jim Flaherty confirmed on Sunday that the government was willing to negotiate.

“I’m not involved in those discussions directly. The minister of industry is,” Flaherty said in an interview on CTV’s “Question Period”.

“I’m sure they’ll continue to work on it. There’s another period of time during which they can continue to have discussions and try to satisfy the concerns that the Department of Industry has.”

Along with Progress and Nexen, some analysts think that mid-sized energy companies operating, like Progress, in the Montney shale-gas region of north-eastern British Columbia are most likely to be hit by selling pressure when the Toronto Stock Exchange opens on Monday.

“The intermediate (oil exploration and production) group is significantly impacted by the Progress/Petronas decision, reflective of a high weighting to gas-focused Montney producers,” Reuters cited Greg Pardy, an analyst with RBC Capital Markets, as saying in a research note.

“We expect the group to be under considerable pressure during Monday’s trading session and believe that as of Friday’s close, about 15 to 20 percent of a (merger and acquisition) premium is currently ‘baked in’ to the Montney stocks.”

According to Reuters, even if Canada reconsiders its decision, the damage to the country’s reputation as politically stable place to invest may be fixed less easily.

The deal is the second major foreign takeover blocked by Prime Minister Stephen Harper’s government in as many years, following the 2010 rejection of BHP Billiton’s US$39 billion bid for Potash, the world’s largest fertilizer maker.

Now investors are trying to figure out how much political risk has to be factored into potential Canadian investments.

Canada’s tar sands are the world’s third-largest crude oil reserve, behind only Saudi Arabia and Venezuela, while the country’s vast shale oil and gas deposits are still in the early stages of development.

The government has said the oil sands alone will require C$650 billion in investment over the next decade, much of which will have to come from foreign sources.

However, the government is yet to make good on the pledge to clarify what constituted a net benefit under the Investment Canada Act made when it turned down BHP’s Potash bid. Observers are saying that after the Petronas decision, the Conservatives must offer clear guidelines on the rules for overseas investors, according to Reuters.

“The next message they have to send out is that ‘We are still open for business, but here are the terms in which we are open for business. We’d love to work with you and take on foreign capital’ and we haven’t seen that yet,” Reuters quoted Martin Pelletier, a portfolio manager with Trivest Wealth Counsel, as saying. “Hopefully we’ll get some clarity on that in the next month or so with the Nexen-CNOOC deal.”he Montney stocks.”

According to Reuters, even if Canada reconsiders its decision, the damage to the country’s reputation as politically stable place to invest may be fixed less easily.

The deal is the second major foreign takeover blocked by Prime Minister Stephen Harper’s government in as many years, following the 2010 rejection of BHP Billiton’s US$39 billion bid for Potash, the world’s largest fertilizer maker.

Now investors are trying to figure out how much political risk has to be factored into potential Canadian investments.

Canada’s tar sands are the world’s third-largest crude oil reserve, behind only Saudi Arabia and Venezuela, while the country’s vast shale oil and gas deposits are still in the early stages of development.

The government has said the oil sands alone will require C$650 billion in investment over the next decade, much of which will have to come from foreign sources.

However, the government is yet to make good on the pledge to clarify what constituted a net benefit under the Investment Canada Act made when it turned down BHP’s Potash bid. Observers are saying that after the Petronas decision, the Conservatives must offer clear guidelines on the rules for overseas investors, according to Reuters.

“The next message they have to send out is that ‘We are still open for business, but here are the terms in which we are open for business. We’d love to work with you and take on foreign capital’ and we haven’t seen that yet,” Reuters quoted Martin Pelletier, a portfolio manager with Trivest Wealth Counsel, as saying. “Hopefully we’ll get some clarity on that in the next month or so with the Nexen-CNOOC deal.”