Wednesday, October 24, 2012

Progress shares tumble after Christian Paradis nixes Petronas deal


Progress shares tumble after Christian Paradis nixes Petronas deal

Motorists fill up their vehicles at Petronas petrol station in Kuala Lumpur, Malaysia, July 1, 2010. THE CANADIAN PRESS/AP, Lai Seng Sin

CALGARY — Progress Energy Resources shares dropped 12 per cent Monday in their first trading after Ottawa blocked a proposed $6-billion takeover by Malaysian state-owned oil company Petronas.
Other Canadian energy players with deals in the works — notably, Nexen Inc. (TSX:NXY) and Celtic Exploration (TSX:CLT) — were also dragged down by the surprise news that broke just before midnight on Friday.
Around mid-morning Progress (TSX:PRQ) was down $2.60 to $19.05.
Nexen, whose $15.1-billion takeover by China National Offshore Oil Co is subject to the same key net benefit test that nixed the Petronas-Progress deal, was off about five per cent to $23.84.
A review of the CNOOC-Nexen deal by Industry Minister Christian Paradis is set to end on Nov. 11, though it can be extended by 30-day increments with the buyer's consent.
Shares in Celtic, which agreed last week to be taken over by U.S. powerhouse ExxonMobil Corp. (NYSE:XOM), were down two per cent to $25.67. Unlike the other two deals, ExxonMobil is a publicly traded independent company with a decades-long history of operating in Canada.
Paradis didn't say why he decided Petronas' take over of Progress was wasn't of net benefit to Canada — a test widely criticized for its lack of clarity and consistency.
Representatives of Progress and the Malaysian state-owned oil company Petronas said Monday they'll meet with Industry Canada officials to find out more about the government's decision.
Petronas has 30 days to amend its deal and send it back to Ottawa for review.
Analysts at CIBC World Markets give 25 per cent odds to the deal being saved and say there's a 50 per cent chance another multinational oil company comes along if the Petronas deal fails.
After Progress accepted Petronas' initial $20.45-per-share offer this summer, another unidentified bidder swooped in with a rival bid. Petronas trumped the competing offer by sweetening its bid to $22 per share.
If the Petronas deal falls through, the likes of ExxonMobil or U.K. gas giant BG Petroleum are potential buyers.
CIBC said it's not likely the government's quibbles centred around things like job promises or reciprocal market access, suggesting the decision may have had more to do with Ottawa positioning itself for the much more politically troublesome CNOOC-Nexen deal.
One theory is that the government will ultimately approve a tweaked Progress-Petronas deal, but wants to make it look like its' being tough on foreign investment so that it has more credibility when it waves through the CNOOC-Nexen one.
"Another theory is that the government does not want to be seen as anti-China and easily approving the Progress-Petronas deal would make it look like the government's issue is primarily with China as opposed to the national oil company business model and other concerns."
Either way, the analysts say it's "bad news for Canada."
"Global investors have already been struggling with why they need to own Canadian energy and this announcement clearly does not help," they said.
"After years of healing the wounds introduced by the Alberta government's disastrous royalty review and the royalty trust termination, the last thing global investors needed was a reminder that Canada is a risky political environment."

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