This past week, we saw the market impact of Investment Canada's decision to initially reject PETRONAS' (the Malaysian State-owned Enterprise) proposed takeover of Progress Energy Resources, a Canadian oil and gas company. In order to approve a takeover of a Canadian company, Investment Canada requires sufficient evidence of a 'net benefit' to Canada.
While this net benefit test is, at the moment, quite vague, the broader issue is the takeover of Canadian companies by SOEs with an even higher profile case in that of CNOOC/Nexen. Of course, this issue is not directly relevant to the U.S., but what are your thoughts on takeovers by SOEs in general? Should they be treated like any other corporation - ExxonMobil for example? And for my fellow Canucks out there, what are your thoughts on selling our resources to SOEs?
Update: Since the initial rejection, PETRONAS has reportedly agreed to extend Investment Canada's review process. It was rumored that the initial rejection of the proposal was as a result of PETRONAS' frustration with IC's request to delay approval for an additional 30 days after having already done so.
In my opinion, Canada as a country is being short-sighted in taking profits in the stock market and promises to provide some benefit to the country. Yes, there is the unfortunate fact that the Canadian energy sector requires billions of dollars in capital to develop its resources over the next decade, which they just can't access in the local market. However, the benefits of PETRONAS developing a west coast LNG facility or of CNOOC developing its leases in Alberta's oil sands may not outweigh the downside of the continued sell-off of our resources.
Another proposed takeover in the market recently was that of ExxonMobil purchasing Celtic Exploration, another Canadian oil and gas company. Based on the market reaction, and the fact that Exxon has operated in Canada through its subsidiary, Imperial Oil, for some time, expectations are for the Exxon/Celtic deal to proceed without a hiccup. The unfortunate reality is that the Exxons and the Chevrons in the U.S. aren't all necessarily interested in providing the capital to develop the Canadian oil and gas sector. So where are these cash-strapped companies turning faced with depressed cash flows as a result of weak natural gas pricing, poor differentials relative to U.S. pricing, and limited access to capital markets funding? Asian NOCs with boat-loads of cash and increasing energy requirements.
For my neighbours to the south, what do you think about Canada selling off resources to SOEs?