Many in the oil and gas financial world are watching with interest as the Canadian government reviews its requirements by which foreign investors can acquire Canadian companies, particularly when the foreign investor involves a state-owned enterprise such as Malaysia's Petronas and China's CNOOC Ltd.
On Oct. 19, Canada's government rejected the Petronas $5.5 billion (Can.) takeover offer of Progress Energy but left the door open to reconsider (see story, p. 26). At the time of this writing last week, the Canadian government continued contemplating CNOOC's $19.5 billion offer to acquire Nexen Inc. As in the Petronas deal, the Investment Canada Act gives the Canadian government the authority to decide whether CNOOC's offer is in the national interest.
This reporter cannot help but remember how concerns by US politicians foiled CNOOC's attempt to acquire Unocal Corp. in 2005. Those concerns supposedly were fueled by fears that a CNOOC takeover of Unocal could open the doors for state-owned Chinese firms to start buying US oil and natural gas assets.
Since then, unconventional oil and gas in the US and Canada has greatly changed the energy-supply scenario. Few people, if anyone, could have forecast in 2005 how shale plays and tight formations would boost US energy supplies in coming years. CNOOC is among a number of international investors holding significant stakes in shale joint ventures operated by US partners in the Bakken, Marcellus, Eagle Ford, Haynesville, Niobrara, Woodford, Fayetteville, and Utica.
International investors also are attracted to Canada's shale plays such as the Montney and its giant oil sands. Canadian Energy Minister Joe Oliver suggests Indian oil companies could start investing in the Alberta oil sands within 5 years, noting Chinese firms already heavily invested in northern Alberta.
Clarifying takeover policy
The government of Canada finds itself in a position of wanting foreign investment, particularly for its western provinces, to help diversify its potential customer base for oil and gas exports.
Prime Minister Stephen Harper said the government will release a new policy framework clarifying the rules around foreign takeovers. He also said that framework will be released when an announcement is made on the CNOOC-Nexen proposal.
"Foreign investment generally speaking is a benefit to the Canadian economy. As a general rule we obviously welcome interest in the Canadian economy," Harper said. "We will give greater clarity on our policy framework going forward."
Meanwhile, Progress Energy Chief Executive Officer Michael Culbert has suggested, "The long-term health of the natural gas industry in Canada and the development of a new LNG export industry are dependent on international investments."
Security warning
In September, the Canadian Security and Intelligence Service (CSIS) released a report containing a warning about national security risks linked to foreign investors. CSIS made its warning in its 2010-11 annual report introduced in Canada's parliament during September.
"While the vast majority of foreign investment in Canada is carried out in an open and transparent manner, certain state-owned enterprises and private firms with close ties to their home governments have pursued opaque agendas or received clandestine intelligence support for their pursuits here," CSIS said in its annual report.
Contents of that report stemmed from CSIS observations made during fiscal 2011, and the service did not specify any foreign companies by name that might be considered security risks.
"CSIS expects that national security concerns related to foreign investment in Canada will continue to materialize, owning to the increasingly prominent role that SOEs are playing in the economic strategies of some foreign governments," the annual report said in reference to state-owned enterprises. The service has a legislative mandate to investigate foreign interference.
"This refers to the phenomenon whereby foreign governments or their agents attempt to influence clandestinely Canadian policies and options," CSIS said. "It also refers to the effort by some foreign powers to engage in covert monitoring and intimidation of diaspora groups in Canada. Foreign interference is particularly nefarious because it can have the effect of disruption the multicultural harmony that is central to Canadian identity."
