Harper sends mixed message to investors with new rules
Amid the confusion created by Prime Minister Stephen Harper’s decision on blockbuster takeovers by state oil companies in Canada’s energy sector — he said both yes and no — Ottawa has essentially applied the first significant barrier to entry in developing the oilsands.
The approvals of the $15.1-billion takeover of oilsands producer Nexen by Chinese oil giant CNOOC and the $5.9-billion purchase of Progress Energy by Malaysia’s Petronas came with a warning that, in the future, similar takeovers by state-owned enterprises (SOEs) would not likely be accepted in the oilsands.
From now on, oilsands takeovers will only be permitted in exceptional circumstances. By drawing his line in the sands, Harper is breaking new ground.
Since 1985, the federal government has reviewed more than 1,650 foreign investments in Canada and has rejected only two: Alliant Techsystems’s offer for Vancouver-based MacDonald Dettwiler in 2008; and BHP Billiton’s hostile bid for Potash Corporation of Saskatchewan in 2010.
For the small-government, free-market championing prime minister, stateowned enterprises have reached their allotment.
“To be blunt, Canadians have not spent years reducing ownership of sectors of the economy by our own governments only to see them bought and controlled by foreign governments instead,” Harper said Friday.
Unfortunately, these days, the biggest oil companies in the world are not ExxonMobil, BP or Shell but state-owned and national oil companies. The oilsands is a capital-intensive, expensive business and the likes of CNOOC, Petronas, Statoil (Norway), Petrobras (Brazil), Gazprom (Russia) and the national oil companies from Iran, Saudi Arabia and Venezuela have some of the deepest pockets in the industry.
The door is essentially closed for them buying big Canadian oilsands producers, but it’s less clear if the more restrictive rules will discourage all investment.
“It is too early to say whether the new SOE guidelines will have a chilling effect on SOE investment in the oilsands sector,” said a report on Ottawa’s new rules by law firm Osler, Hoskin & Harcourt. “At a minimum, SOE investors will have to reset their expectations.”
The restrictions on oilsands takeovers come as U.S. producer Murphy Oil has said it may sell its fiveper-cent stake in Syncrude Canada while Marathon Oil may reduce its 20-per-cent stake in Shell’s Athabasca Oil Sands Project. However, Greg Stringham of the Canadian Association of Petroleum Producers told The Canadian Press over the weekend there’s no indication joint-venture deals, minority investments and small-scale acquisitions will be stifled in any way.
The industry has doubled oilsands production from one million barrels a day in 2004 to close to two million with production forecast to surpass 3.2 million in 2020. Some long-term predictions see it reaching more than five million barrels a day.
Harper and Alberta Premier Alison Redford have both led major trade missions to China in recent years to court investment and have made numerous public statements supporting foreign investment in the oil and gas sector.
The oil and gas industry will invest $61 billion in Canada this year with most spent on exploration and development outside the oilsands.
It prompts the question why Ottawa is solely focused on heavy oil investment.
If Harper is worried about state-capitalism, there are foreign SOEs involved in three of the five proposed liquefied natural gas export facilities on the B.C. coast. The Petronas deal is focused on access to all of Progress’s shale gas reserves in northeast B.C. that will provide feedstock for a proposed LNG facility at Prince Rupert.
China’s Sinopec bought Calgary’s Daylight Energy for $2.2 billion this year to acquire conventional oil and gas asset. TAQA, the Abu Dhabi national energy company, has about 80 per cent of its assets in Canada in natural gas.
“Recently, non-conventional gas projects (such as shale gas) and related infrastructure have also been the subject of significant SOE investment,” Osler noted in its report. “As such some may wonder why that sector was not afforded similar protection.”
The firm notes LNG is at a much earlier phase of development than oilsands and Canada is competing against other producers, such as Australia, for Asian markets. There appears to be significant interest from foreign SOEs in taking a position in Canada’s shale oil and gas sectors.
“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 said.
If Harper believes that is a possibility, why not also limit SOEs in the natural gas or pipeline business to merely joint ventures and partnerships?
Public anxiety about takeovers by Chinese SOEs in Canada’s oil and gas sector was a political concern for the federal government. At one point Harper conceded the CNOOC-Nexen takeover had raised “difficult policy issues” for his Conservative government but by focusing solely on the oilsands, it is not clear he’s resolved them.