NEW YORK (MarketWatch) — Progress Energy Resources Corp. says it will try to overcome the objections that led the Canadian government to unexpectedly reject a $5.2 billion buyout deal with a Malaysian state company.
The rejection could portend trouble for an even bigger energy-sector deal, the proposed $15.1 billion sale of Nexen Inc. to an oil company owned by the Chinese government. Both Canadian and U.S. regulators must approve that deal.
Michael Culbert, president and CEO of Progress , on Saturday expressed disappointment in the 11th-hour rejection of its proposed 5.17 billion Canadian dollar (US$5.2 billion) takeover by Malaysia’s Petroliam Nasional Bhd.
“Progress will be working over the next 30 days to determine the nature of the issues and potential remedies,” Culbert said in a statement posted on the company’s website. “The long-term health of Canada’s gas industry and the future of liquefied natural-gas exports were dependent on international investments such as Petronas.”
“I am not satisfied that the proposed investment is likely to be of net benefit to Canada,” Industry Minister Christian Paradis said Saturday in a statement posted on the government’s website.
Petronas now has up to 30 days to further make its case, after which Paradis will confirm his “initial decision or approve the acquisition,” the minister said.
While the Canadian government’s move raises questions about a larger offer by China National Offshore Oil Corp. /quotes/zigman/29647 HK:883 +1.69% , or Cnooc, for oil-producer Nexen, Paradis said Canada would continue to welcome foreign investment .
“Canada remains committed to maintaining an open climate for investment,” concluded the statement issued by Paradis.
The impact of failed U.S.-China deals
The U.S. government has blocked another Chinese firm’s investment, citing security concerns.
Nexen has a substantial operating business in the Alberta oil sands, valuable drilling activity in the U.S. portion of the Gulf of Mexico and assets in the North Sea between the U.K. and mainland Europe. The U.S., Canadian and U.K. governments are reviewing the proposed transaction.
Paradis blocked the Petronas bid just before the deadline for making a decision.
The Wall Street Journal, citing one person with knowledge of the matter, said the Canadian government had asked Petronas to agree to further extend the review period, which had already been stretched 14 days beyond its preliminary 75-day period. The Malaysian state-owned company rejected the request.
Canada has rejected only two other deals involving foreign companies since its current investment laws took effect. The last was BHP Billiton Ltd’s /quotes/zigman/270355/quotes/nls/bhp BHP +0.99% proposed deal for Potash Corp. of Saskatchewan Inc. in 2010.
The Journal’s report on Saturday also suggested that other considerations may have influenced Friday’s decision.
For example, Canada allows 100% foreign ownership of oil and gas assets, while the Malaysia government, which own Petronas, allows foreigners to only buy up to 49% of its energy companies.
Canadian Prime Minister Stephen Harper has said Cnooc’s proposed $15.1 billion deal for Nexen was extraordinary due to its size and because it was controlled by another government, according to media reports.
In 2005, U.S. lawmakers railed against Cnooc’s $18.5 billion offer for U.S. refiner Unocal Corp. Cnooc abandoned the takeover attempt in light of congressional opposition and the threat of legislation to block the deal. Unocal later was acquired by Chevron Corp. /quotes/zigman/289939/quotes/nls/cvx CVX +0.54%