OTTAWA â€" On Friday, the government of Canada used foreign investment laws to reject a $5.17 billion takeover of Progress Energy Resources by Petronas, the Malaysian state owned energy company.
That decision led to speculation on the outcome of a $15 billion bid for Nexen, another Canadian energy company, by China National Offshore Oil Corporation, the Chinese state-run oil producer known as Cnooc (pronounced SEE-nook).
The Progress deal was the third foreign takeover turned down by the current Conservative government using a law that previously was mainly known for rubber-stamping acquisitions. All three rejected deals - the others involved a potash mining company and an aerospace company - came as surprise given the anti-regulation bent of the government and Stephen Harper, the prime minister.
The review system was introduced by another Conservative government in 1985 to replace a much stronger law introduced during a wave of Canadian nationalism in t he 1970s. Instead of requiring specific commitments in areas like job commitments, technology and Canadian management to get approval, the law requires only that a takeover provide a “net benefit†for Canada.
But there is no clear definition of net benefit in the law. Instead, it is defined on a case-by-case basis with the prime minister as the final judge. Calls from the investment community recently led the Conservatives to start developing clearer, public guidelines. Now, that process may also have led to the rejection of the Progress deal.
Although Canada's foreign investment review process is both secretive and ultimately political, it appears that impatience by Petronas, rather than the merits of its bid, led to the rejection on Friday. And the rejection is not the last word in this case.
Both The Globe and Mail and The National Post, citing unnamed sources, said that the government initially promised Petronas a decision by last Friday. But, accor ding to the newspaper reports, the government asked Petronas last week if it could delay its decision until December so that it would follow the release of its new, broad foreign takeover guidelines.
Petronas, the reports said, was already frustrated by the process and any further delay would complicate deadlines under its agreement with Progress. So it turned down the government's extension request. The rejection followed.
Following the deal was rejected, however, the government indicated that the process was not over. And on Monday, Petronas and Progress said in a statement that they would continue to work with the government in a bid to get their deal approved.
Politics aside, the Nexen deal with Cnooc faces different hurdles than the Petronas offer.
Although Nexen's assets are mainly outside of Canada, the company is a significant investor in Alberta's oil sands. It owns 65 percent of one sands project, with Cnooc as its minority partner, and has positions in two other oil sands projects.
Some have expressed concern about a Chinese state-owned company gaining control of Nexen's Canadian assets, which also include natural gas and shale gas properties.
Although Mr. Harper, the prime minister, does not usually tolerate any criticism from members of his party, opponents of the Nexen deal include some Conservative members of Parliament. Rob Anders, a Conservative legislator who wants conditions to be placed on Cnooc, described China last month as being “a non-benevolent actor and a strategic adversary.â€
But under Mr. Harper, and several prime ministers before him, individual members of Parliament, even from his own party, hold little sway.
After American politics stalled plans to deliver more oil sands production to the United States through the Keystone XL pipeline, Mr. Harper has focused on China as Canada's next great energy market and courted Chinese investment in the sector. That, analyst s say, is likely to guide his thinking about Cnooc and Nexen more than anything that happens with Petronas.
