Oil and Gas Sector-Politics and Image

The National Post is Canada’s second largest national paper.

Like many of you I am eagerly awaiting the new James Bond film Skyfall, especially Javier Bardem’s star turn as Raoul Silva, the classic Bond villain with his outlandish plot to pay 60% over market price for a Canadian oil company.

No, wait, that’s from the business pages, isn’t it? You’ll forgive me: the stories sound so similar — or at any rate they’ve been made to sound similar. The casual reader would be convinced the $15.2-billion bid from China’s CNOOC for Canada’s Nexen, far from enriching Nexen’s shareholders and indirectly other Canadians, posed some dire threat to the country, if not the planet: part of some fiendish Chinese plan for world domination, possibly involving lasers.

Indeed, one of the oddities of the controversy is to see opposition to foreign takeovers, traditionally a hobbyhorse of the left, being taken up with such enthusiasm by the right. The reason: not just foreign-owned, CNOOC is also government-owned, one of a growing number of such “state-owned enterprises” (SOEs) around the world, particularly in the natural resources sector. (Malaysia’s Petronas, whose bid for Calgary’s Progress Energy was recently put on hold, is another.)

Wary of the potential these imply for government meddling in the economy, free marketers have responded by demanding … government meddling in the economy.

Read more

The National Post is Canada’s second largest national paper.

CALGARY — Squeezed between public alarm over increasing ownership of Canadian resources by state-owned entities and investors demanding their payday, Prime Minister Stephen Harper has promised new rules to ensure Canadians don’t get short-changed.

While state-owned enterprises (SOEs) have been quietly building their holdings in Canada’s oil and gas industry, China’s largest attempt at a foreign acquisition to date — CNOOC Ltd.’s $15.2-billion bid for Nexen Inc. — has ignited an intense public policy debate over what Canada should do while foreign governments seek to plant their flags across the oil patch. That debate contributed to the government blocking a $5.9-billion takeover of Progress Energy Resources Corp. by Malaysia’s Petronas last Friday.

With Ottawa under pressure to complete the reviews of the two deals by year-end, the focus now is on what government is planning and how billions in planned investments could be affected.

In interviews this week, industry sources and foreign-ownership experts painted a picture of what we could see when the statement is finally released. Taxes and royalties, transfer pricing, ownership limits and corporate governance policies could all be in play to address concerns ranging from espionage to productivity.

Read more

The National Post is Canada’s second largest national paper.

Randall Morck is Jarislowsky distinguished professor of finance and University professor, School of Business, University of Alberta. Vikas Mehrotra is A. F. (Chip) Collins professor of finance and Jarislowsky fellow, School of Business, University of Alberta.

Bids must meet corporate-governance standards. SOEs fall short

China-phobia is a bad idea. China will soon be the world’s largest economy, and Canadian consumers and businesses can benefit from China’s rise. Canada needs foreign-investment policies that apply evenly to all foreign companies, and that businesses can expect to remain the same over time. A two-track policy makes sense: an open door to private-sector foreign bidders but skepticism toward foreign state-controlled bidders, unless they make a compelling case.

Research into corporate takeovers shows that some are good and others bad — for the firms involved, their employees, consumers and the economy. In general, society benefits from takeovers that transfer control of a company from top managers who are running it poorly to top managers who will run it well. Unfortunately, many Canadian firms are indeed run by people who invest in white elephants, fail to invest in productivity improvement, or neglect their firms while enjoying the perks of being a CEO.

But many other takeovers feature poor managers, temporarily flush with cash, wresting control of a target firm away from its perfectly fine managers. An ideal takeover law would encourage the first kind of takeover and forbid the second kind. Unfortunately, making such a decision requires hugely expensive information and expertise that is often highly specific to a given industry. If government officials actually could decide what constitutes running a firm well versus badly, Soviet-style communism would have worked.

Read more

The National Post is Canada’s second largest national paper.

State ownership makes mockery of markets

Recent media reports portray Ottawa as ready to horse-trade its way out of a looming foreign investment crisis over takeovers of Canadian companies by state-owned enterprises. In Bloomberg’s version, “Canada plans to ask China to allow several transactions in exchange for approval of state-owned CNOOC Ltd.’s $15.1-billion bid for Nexen Inc., said a person with knowledge of the matter.”

Finance Minister Jim Flaherty quickly announced that he personally had no knowledge of the matter. But speculation persists, particularly over attempts by the Bank of Nova Scotia and Manulife Financial to secure greater access to Chinese financial sectors. The Canadian mining industry is also keen on massaging its way into the Chinese market, and if that means using CNOOC’s $15-billion Nexen takeover as a reciprocity play, so much the better. Or so it is said.

As the Harper government wades deeper into the challenge posed by state-owned enterprises investing in Canada, whether from China or Malaysia or even the United States, some overarching issues need to be recognized. Foremost is this: The global rise of state-owned enterprises (SOEs) poses a threat to the market principles that have governed international and national investment for decades, and that dominate Canadian law and policy today.

Investor-driven corporations, aiming to maximize profits in an open competitive market, are at the heart of market capitalism.

Read more

The National Post is Canada’s second largest national paper.

Steven Globerman is the Kaiser professor of international business at Western Washington University and a senior fellow at the Fraser Institute.

Competitive markets beat regulators every time

The recent decision by the federal government to block a proposed takeover of Progress Energy Resources by Petronas, a Malaysian state-owned company, increases the likelihood of a rejection of the pending acquisition of Nexen by CNOOC, a Chinese state-owned oil company.

It also follows the federal government’s action denying the takeover of Potash Corp. by BHP Billiton, a privately owned Australian company. These developments justify reconsideration of whether the net benefit test used by the Canadian government to assess foreign takeovers of Canadian companies makes economic sense.

Since Petronas is a state-owned enterprise (SOE), as is CNOOC, the economic issues raised by their proposed acquisitions are more complicated than in cases when the foreign investor is privately owned, as is BHP. Nevertheless, the basic economic arguments against making government approval of foreign takeovers of Canadian companies conditional on a net benefit test are similar and compelling, regardless of the ownership status of the foreign investor.

Read more

The National Post is Canada’s second largest national paper.

Ted Morton, formerly a minister in the Alberta government in the portfolios of energy, finance and sustainable resource development, is an executive fellow at the School of Public Policy at the University of Calgary. This is excerpted from a presentation to the annual meeting of the Quebec Oil and Gas Association in Montreal on Oct. 22.

Natural gas might reverse Quebec’s declining influence

A made-in-Quebec natural gas industry would help to build a stronger Quebec. It would mean lower gas prices and huge savings for both households and businesses. This would make Quebec businesses more competitive, which translates into more exports, more jobs, and less out-migration.

Shale gas does not have to be at the expense of the environment. Increased natural gas production is the most immediate and cost-effective way to reduce carbon dioxide emissions in North America — including Quebec.

With respect to protecting groundwater and safe regulation of hydraulic fracturing, Quebec doesn’t have to reinvent the wheel. Alberta is able and willing to share its experience and expertise in regulating fracking. Indeed, because of its unique geology, Quebec has the opportunity to set the standard for the cleanest natural gas production in North America.

Read more

Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

The vision to export natural gas from Canada is taking a sharp turn to the east.

Alfred Sorensen, president of Pieridae Energy Canada, has a dream to build a major liquefied natural gas export facility on Canada’s East Coast, the first of its kind. The $5-billion (U.S.) project is an eastern addition to a race unfolding in Western Canada to build LNG infrastructure that would allow major exports from the coast of British Columbia to global markets.

The former Duke Energy Corp. executive says the timing and conditions are right for construction of a complex in Goldboro, N.S. that would liquefy natural gas and ship it to markets in Europe and India. The site would have on-site storage capacity of 420,000 cubic metres.

But the plan must overcome some major challenges if it is to become reality. One is whether Pieridae can successfully lock in a sufficient number of long-term contracts to justify the project’s high price tag. Another is growing pressure for cheaper prices from overseas buyers.

A planned LNG export facility on the east coast is another element in the rapidly shifting energy flows of North America.

Read more

The Toronto Star has the largest circulation in Canada. The paper has an enormous impact on federal and Ontario politics as well as shaping public opinion.

President Mitt Romney? Get used to the idea. A few weeks ago, it seemed almost inconceivable that the gaffe-prone Republican challenger could snatch America’s presidency away from smooth, cool Barack Obama.

Canadians in particular are partial to Obama. A recent BBC poll estimated that roughly 65 per cent of people in this country prefer him to Romney, making Canada the fifth-most pro-Obama nation in the world (after France, Australia, Kenya and Nigeria).

And Romney? To casual observers, he’s the guy who drove to Grand Bend with his dog strapped to the roof of his car, the plutocrat who dismissed almost half of his own country as layabouts, the crass opportunist who swung hard right to secure the Republican nomination and is now tacking hard-centre to win the general election.

Romney may be all of that. But if U.S. polling is correct, he’s also riding a high from the televised presidential debates and — failing a last-minute Obama surge — could well end up winning on Nov. 6.

Read more

The National Post is Canada’s second largest national paper.

Joseph Caron is former ambassador to China, Japan and high commissioner to India, and a distinguished fellow with the Asia Pacific Foundation of Canada. He is also Special Advisor, Asia Pacific with Heenan Blaikie LLP.

Petronas, CNOOC will have big impact on how Canada is seen

The Canadian government’s interim determination, announced last Friday, that the proposed Petronas takeover of Progress Energy does not provide an as-yet-undefined “net benefit” to the country, has elicited more interest in Canada and internationally than would normally be the case for any other mid-sized and otherwise run-of-the mill foreign-investment transaction. Petronas is not well known in Canada beyond the oil patch.

(True, it is a state-owned enterprise, but who’s afraid of Malaysia?) Its failure — so far, that is, as the determination remains subject to appeal — has ramifications beyond whatever shadow it projects on the upcoming decision regarding CNOOC’s Nexen takeover proposal. The Petronas-Progress and CNOOC-Nexen issues demonstrate the dominant role that resource and energy continue to play in the perception, more than the reality, of the Canadian economy. Statistics Canada has called this “the return of the old economy.”

Read more

The Toronto Star has the largest circulation in Canada. The paper has an enormous impact on federal and Ontario politics as well as shaping public opinion.

Prime Minister Stephen Harper says he’ll use a pending decision on a major Chinese investment in Canada’s oil patch to clarify which foreign investments meet the test of being in the Canadian interest.

Renewed urgency over foreign investment came over the weekend when Ottawa rejected a $5.9-billion bid by Malaysian state oil company Petronas for Calgary-based Progress Energy Resources Corp. The ruling left the acquisition up in the air and sent shock waves through Canada’s energy sector.

“We will give greater clarity on our policy framework going forward when we take a couple of decisions that are before us,” Harper promised at a press conference Monday.

Fallout from the rejection of the bid for Progress hit the Toronto stock market early Monday amid speculation Canada is closed to foreign investment. With that speculation comes serious concerns over Beijing-based CNOOC Ltd.’s proposed $15.1-billion takeover of Nexen Inc., which is being reviewed by the Harper government.

Read more

The National Post is Canada’s second largest national paper.

Opposition attacked Monday over rejection of bid for Progress Energy

The brusque press release issued by Industry Minister Christian Paradis late Friday night — announcing that he had turned down Malaysian state company Petronas’ $5.2-billion bid for Progress Energy because it didn’t represent a “net benefit” to Canada — inevitably led to a weekend whirlwind of speculation. Did that three-minutes-to-pumpkin statement indicate that the government was trying to bury something? Was this a prelude to nixing the $15.1-billion CNOOC-Nexen deal?

It transpires that this may have been all about government-to-government head butting. Or perhaps a better analogy would be going at each other like bull elephant seals, because, as fans of nature programs know, this tends to result in lots of collateral damage.

Sources suggest that when Ottawa told Petronas it wanted a further 30-day delay to get its policy straight on exactly what “net benefit” means, Petronas insisted on a decision. So the government said no. That meant Ottawa got its 30 days, but at the price of a potentially investment-chilling stock market debacle.

The opposition parties had a field day on Monday in the House, castigating the Conservatives for their lack of transparency.

Read more

The National Post is Canada’s second largest national paper.

CALGARY – Michael Culbert, president and CEO of Progress Energy Resources Corp., was anxiously pacing in his Calgary office Friday evening, staying in touch with his counterparts half a world away in Kuala Lumpur, when he went wide-eyed reading the news he was expecting.

It was 11:57 p.m. Ottawa time, 9:57 p.m. in Calgary, or three minutes before the expiry of the federal government’s own deadline to hand down a ruling on whether Progress’s takeover by Malaysia’s Petronas met the confusing “net benefit” test and could be finalized. The brief news release said Industry Minister Christian Paradis had just blocked the deal. Mr. Culbert and his Malaysian buyers were in shock.

Talks between Petronas and the Canadian ministry had gone well, the deal had received little public attention, and the two companies were confident that the merger would prove to be of huge benefit to the country. It fit well into Canada’s strategy of launching exports of liquefied natural gas (LNG) to Asia from the British Columbia coast.

“We [were] moving forward on a very positive step as far as all the activities go, and there really [weren’t] signals until the last hours that this wasn’t going to be approved,” Mr. Culbert said in an interview.

Read more

Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

OTTAWA, TORONTO, CALGARY — The federal government’s surprise move to block the $6-billion takeover of Progress Energy Resources Corp. is adding to growing concerns about a “Canadian discount” that weighs on share prices and frustrates companies’ ability to raise capital and do deals.

Investors reacted swiftly on Monday to the rejection of the bid for Progress by Malaysia’s Petronas . Progress shares dropped more than 9 per cent, while other energy shares sank sharply.

The government’s decision immediately reminded investors of previous high-profile deals in Canada that fell apart amid government or regulatory scrutiny, and has created uncertainty about the bid for Calgary’s Nexen Inc. by China’s CNOOC Ltd. The Conservative government created waves two years ago when it blocked BHP Billiton’s $38.6-billion (U.S.) attempt to acquire Potash Corp. of Saskatchewan. And just last week, the federal telecommunications regulator rejected BCE Inc.’s bid to acquire Astral Media Inc. in a shocking decision.

“We’re very confused,” by the Progress Energy situation, said Laura Lau, senior vice-president and portfolio manager with Brompton Group fund managers in Toronto.

Read more