Analysis: Canada's foreign limits may hit oil sands growth

Sun Dec 9, 2012 2:27am EST
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By Jeffrey Jones

CALGARY, Alberta (Reuters) - New Canadian rules limiting control of its oil sands by foreign state-owned companies may turn away some investors who now covet more than minority stakes just as the industry seeks massive amounts of capital to fuel its growth ambitions.

The oil sands in western Canada, the world's third-largest crude reserve and the source for much of the United States' oil imports, need an estimated C$120 billion ($121 billion) in investment in the next decade, according to the Alberta government.

The scale of the investment means that the industry will need to tap foreign capital.

But, in approving the contentious takeovers of Nexen Inc and Progress Energy Resources Corp by Chinese and Malaysian state-owned companies, Prime Minister Stephen Harper put a limit on potential investment.

The government said future bids for control of oil sands businesses by state-owned enterprises (SOEs) would be allowed only in exceptional circumstances.

"The government's concern and discomfort for some time has been that very quickly a series of large-scale controlling transactions by foreign state-owned companies could rapidly transform this industry from one that is essentially a free market industry to one that is effectively under the control of a foreign government," Harper told reporters.

The policy suggests SOEs of foreign nations must be content with non-controlling interests in the 170-billion-barrel oil sands resource.

"The 'for sale' sign on the Canadian oil sands has been effectively removed, at least as far as SOEs are concerned," said Richard Steinberg, the chair of Fasken Martineau's mergers and acquisitions practice group in Toronto.   Continued...