China fears blamed for Petronas denial

2012-10-29

Malaysian state-owned oil company Petronas was so confident last Friday that its purchase of Progress Energy Resources Corp. would be approved by Canada that company officials had drafted a press release to announce the news.

At midnight Kuala Lumpur time, they were flabbergasted to learn that Ottawa wanted more time to make a decision.

Canada’s 11th-hour veto of the $5.2 billion deal was the result of miscalculations and miscommunications, Reuters has learned through interviews with a dozen people briefed on the Oct. 19 events.

The ruling stunned investors, driving down Canadian energy stocks and pressuring the Canadian dollar. It also cast doubt on Prime Minister Stephen Harper’s repeated assertions that the country has an open door to foreign investment.

The result was an embarrassment for the supposedly pro-business Conservative government, which needs an estimated $660 billion to develop Canada’s energy sector over the next decade.

Ottawa, sources said, wanted to approve the Petronas-Progress deal but was afraid that would tie the government’s hands when reviewing the much more controversial $15.1-billion bid by China’s CNOOC Ltd for Nexen Inc .

Officials were wary of setting a policy on investment by foreign state-owned enterprises that would make things difficult if Canada later decided to take a tougher line on CNOOC-Nexen.

Ottawa sought more time and thought a delay would be a small matter since Petronas had agreed previously to a two-week extension. But no one explained the situation to the Malaysians, who thought they had a done deal, felt blindsided and feared another agenda might be at play.

Petronas had already raised its bid after Progress received a counterproposal, thought to be from a major Western oil company. So it refused to accept an extension and played hard ball, expecting Canada to cave.

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