Analysis: Canada's tough stance on foreign buyers won't cut oil growth

Wed Oct 24, 2012 6:38am EDT
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By Joshua Schneyer and David Sheppard

NEW YORK (Reuters) - In other energy-rich countries, a decision to knock back a major foreign investment would likely provoke cries of resource nationalism and raise questions about prospects for oil and gas production growth.

Canada's surprise move last week to block Malaysian state-run oil firm Petronas' $5.2 billion bid for Calgary-based Progress Energy has spooked some investors, and raised concerns that Chinese state firm CNOOC's $15.2 billion bid for Calgary-based Nexen may also be rejected.

Yet even if Canada sets steeper hurdles for foreign takeovers of its energy firms, few analysts expect that to stall development of new oil and gas fields that could nearly double Canada's output over the next 25 years.

For one explanation, just look south.

For CNOOC, the Petronas episode serves as a reminder of its own failed $18.5 billion bid in 2005 for California-based oil firm Unocal. U.S. lawmakers thwarted that deal on national security concerns, drawing ire from Beijing.

That deal's collapse reshaped China's investment strategy -- shifting its focus, at least in developed countries, to joint ventures for oil and gas development after 2005, rather than bold corporate takeovers. But that did little to crimp huge production gains in the U.S. oil and gas patch, where China's companies continue to invest heavily.

"There are other avenues for investment for foreign firms in Canada," says Pavel Molchanov, an energy analyst at Raymond James.

"The United States has had a de facto block on large foreign M&A deals in the energy sector since 2005, yet U.S. oil and gas production has been growing in leaps and bounds. The same would likely happen in Canada."   Continued...

A view of oil wells and operation facilities at the Cenovus Foster Creek SAGD oil sands operations near Cold Lake, Alberta, July 9, 2012. REUTERS/Todd Korol