A last-minute decision by the Harper government to reject a takeover of Canadian gas producer Progress Energy by Malaysian state-owned energy giant Petronas pulled the rug out from under B.C. Energy Minister Rich Coleman, who viewed the $5.9-billion deal as one of the catalysts for B.C.?s multi-billion-dollar liquefied natural gas strategy.
?I am pretty disappointed in what has happened with the federal government,? Coleman said Monday. ?These guys were going along and we thought everything was going to be done around Thursday of next week, and then something in a 24-hour period changed, and they changed their mind. We don?t know what it is.?
Federal Industry Minister Christian Paradis announced that the government was rejecting the deal on Friday at three minutes before a midnight deadline. Ottawa said only that the buyout does not provide a ?net benefit? to Canada.
Oil and gas analysts warned Monday that the decision sends a worrisome signal to other countries, since B.C. is relying on foreign capital ? particularly from Asia ? to develop the abundant natural gas reserves in the northeast. More than $20 billion in pipeline and liquefied natural gas (LNG) plants has been proposed to open up the Asian market, with much of the investment coming from Asian companies, including state-owned firms.
In a letter to Paradis, Coleman said Petronas has begun formal discussions with the province and BC Hydro for an LNG plant ?that would add significant long-term economic benefits to British Columbia and Canada.?
Besides LNG, the Malaysian company intends to ?significantly increase? Progress Energy investments in oil and gas assets in the province?s northeast, Coleman said. One third of Calgary-based Progress?s employees are in B.C.
?We need to attract world players for investment if we are going to play in the liquefied natural gas marketplace,? Coleman said in an interview. ?Certainly for companies that are owned by countries, it might send a message to them.?
Petronas is one of several nationally owned companies investing in B.C. LNG. Coleman said Petronas has told him they still want to develop LNG in B.C.
?We want to trade with other countries. We want them to trade with us. We need to be open to capital. We ask them to be open to buying our products and services and investments. We should be open to some of theirs.?
The federal ruling hit Canadian energy stocks hard ? Progress Energy shares fell more than nine per cent and the shares of other large energy companies dropped up to four per cent.
Whether state ownership was a factor in Ottawa?s decision or not, the growing number of state-owned energy companies investing in Canada is an issue Ottawa needs to address, said Jock Finlayson, executive vice-president of the B.C. Business Council.
?The question is, if the shareholder ? the owner of a given enterprise ? is, in fact a foreign government, is that a meaningful difference versus having an Exxon or a General Electric or a British Petroleum coming into your marketplace?? he said Monday. ?Certainly companies answer to their shareholders and if the shareholder is the state, what are the implications of that??
He said it?s too early to say that the decision will scare investment away from B.C.?s resource sector.
But analysts said the decision is concerning for an industry reliant on deep-pocketed foreign companies.
?It?s going to require a ton of capital to develop our resources here, both shale gas and oilsands, and if we are signalling that participation by various other countries is not welcome, that shuts off avenues; it shuts off access to certain capital,? said Gordon Currie, senior oil and gas analyst at Salman Partners. ?I think you should be concerned on the West Coast about this.?
He said Petronas is the kind of investor the gas sector needs because it can bring to the table capital, expertise and access to Asian markets.
Petronas and Progress have 30 days to convince Ottawa that the deal is a net benefit to Canada, both companies said in a news release Monday.
Petronas wanted Progress, which has assets in B.C.?s Montney gas field, to provide it with the required reserves to develop an LNG plant near Prince Rupert. In an interview with Bloomberg last March, Petronas CEO Shamsul Azhar Abbas said the company?s push into North America is fuelled by customer demand for energy supplies that can be guaranteed for years ? something it can?t get from the Middle East or unstable developing nations.
Asian buyers would probably pay a premium for that security of supply, he said.
Petronas is not the only nationally owned energy company investing in Canadian oil and gas. Shell Canada?s proposed $12-billion-plus LNG project at Kitimat is a joint venture with Japan?s Mitsubishi and two state-owned partners, Korea?s Kogas and China?s PetroChina.
The elephant in the room, said energy analyst Peter Tertzakian, is the pending takeover of Calgary-based Nexen by Chinese national energy company CNOOC. A ruling on that investment has been extended until mid-November.
Approving routine terms for the Petronas deal would make it more difficult to impose stricter terms on China?s overseas oil-and-gas arm, Tertzakian, chief energy economist at ARC Financial Corp., said in a research report Monday.
Tertzakian said that over the last three years, foreign investment in Canada?s oil and gas industry has topped $43 billion.
?Most of the recent capital purveyors have been state-owned oil and gas companies rather than free-market western corporations.?
State-owned enterprises are more willing to pay top dollar, he said.
Besides Petronas, three other groups of companies have plans for LNG plants in B.C. They are Kitimat LNG, which is a consortium headed by American energy company Apache Energy; a consortium headed by Shell Canada; and British Gas. All four have proposed multi-billion-dollar investments.
The Apache proposal is the most developed and a company spokesman said Monday that nothing has changed as a result of the Ottawa ruling.
ghamilton@vancouversun.com
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