UPDATE 2-Petronas rejection may hurt Canadian stocks

Sun Oct 21, 2012 7:08pm EDT
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* Canada talks over Petronas purchase continue

* Negative stock market reaction feared

* Intermediate oil and gas producers may face hit

By Scott Haggett and Euan Rocha

CALGARY/TORONTO, Oct 21 (Reuters) - Canadian markets could face a bloody opening on Monday after the government blocked the C$5.17 billion ($5.22 billion) acquisition of Progress Energy Resources Corp by Malaysian state oil company Petronas , raising questions about other, bigger bids and about Canada's willingness to let foreign investors in.

Canadian Industry Minister Christian Paradis said late Friday night that Petronas' bid for Progress -- one of the largest owners of exploration lands in the gas-rich Montney shale region in northeastern British Columbia -- would not provide the "net benefit" for the country required by Canada's foreign investment laws.

Investors had expected a favorable decision on the bid by the minister, especially given Petronas' pledge to help spur Canada's nascent liquefied natural gas export industry by building an LNG export facility on the country's Pacific coast.

But Paradis' veto also raises doubts over the outcome of Chinese oil group CNOOC's C$15.1 billion offer for oil producer Nexen and is expected to weigh on other Canadian firms hoping to tap the foreign investment needed to harvest their vast energy reserves and the mood among investors is somber.

"We're going to see sell-offs all around and gore on the floor for Progress and Nexen," said Chris Damas, an independent analyst with BCMI Research.   Continued...