Nov. 30 (Bloomberg) -- Petroliam Nasional Bhd., Malaysia’s state energy company, said its proposed $5.2 billion takeover of Progress Energy Resources Corp. will help Canada develop gas resources and find an alternative market.
“It’s quite a huge investment,” Shamsul Azhar Abbas, chief executive officer of Petroliam Nasional, also known as Petronas, told reporters yesterday in Kuala Lumpur. “We’re basically helping the country to find an alternative outlet. They are counting on one market, which is the U.S.”
Acquiring Progress Energy would give Petronas ownership of the largest holder in the Montney shale-gas area of British Columbia and full control of the three Progress Energy fields in which Petronas bought a stake last year. Canada’s Industry Minister Christian Paradis rejected the takeover last month on grounds it didn’t represent a “net benefit” to the country.
Petronas expects a response from Canada around Dec. 10, Shamsul said. The company was allowed to appeal and is awaiting a decision after providing more undertakings, according to a statement from both companies on Nov. 20. A Malaysian minister flew to Canada for talks to allay concerns, a person familiar with the matter said yesterday.
“We’ll see whether they’ll request for further submission, or tell us we are not giving them any net benefit to discuss the bid,” Shamsul said. “We’ll leave it to the government to decide because we’ve done our part.”
Idris Jala, a minister in Prime Minister Najib Razak’s office, assured Canadian officials including Deputy Industry Minister John Knubley that Malaysia doesn’t interfere in the day-to-day management of state-owned Petronas, said the person, who declined to be named as the meetings were private. The minister without portfolio, now back in Malaysia, didn’t participate in corporate negotiations, the person said.
A spokesman for Prime Minister Najib wasn’t immediately available to comment when telephoned and e-mailed yesterday.
“Malaysia needs to increase its effort to get energy assets around the world and Canada is known to have large reserves,” Azrul Azwar Ahmad Tajudin, Kuala Lumpur-based chief economist at Bank Islam Malaysia Bhd., said by phone. “Petronas needs all the help it can get from the government as it attempts to buy assets.”
Canada will decide on foreign-investment guidelines and on whether to approve “a couple” of proposals, including Cnooc Ltd.’s $15.1 billion bid for Canada’s Nexen Inc. in “the near future,” Prime Minister Stephen Harper told reporters on Nov. 28 in Ottawa.
Caught by Surprise
Progress Energy fell 2.4 percent to C$19.53 yesterday, its biggest drop since Nov. 13. Its shares have risen 48 percent this year, according to data compiled by Bloomberg.
Petronas was caught by surprise by Canada’s plan of a new regulatory framework, which came after Petronas’ offer for Progress Energy, Shamsul said.
“We wish we knew what the new framework will be,” he said. “At this point, the whole industry has no clue.”
Petronas, which reported a 22 percent drop in quarterly earnings yesterday, and Progress Energy have extended a deadline to complete the acquisition to Dec. 30 in light of the appeal, according to the joint statement.
Kuala Lumpur-based Petronas wants to convince Canadian authorities of its operational independence from the Malaysian government, the Financial Times reported Nov. 12, citing Shamsul. It has offered to appoint independent directors to Progress Energy’s board, according to the report.
‘Cross the Bridge’
Petronas has also proposed a public offering of shares in Progress Energy within five years as a concession to Canada, a person with knowledge of the deal told Bloomberg News on Nov. 21, declining to be named as the negotiations are private. A listing would address shareholder concerns over the gas producer’s future while giving the regulator oversight.
“We are just like any other company,” Shamsul told reporters yesterday. Asked whether Petronas would relist Progress Energy, he said: “We will cross the bridge when we come to it. We have a lot of other listed subsidiaries.”
The rejection has raised questions about the openness of Harper’s government to foreign investment and cast doubt on whether Beijing-based Cnooc’s offer for Nexen will be approved.
Cnooc, China’s biggest offshore oil and gas producer, has accepted management and employment conditions set by the Canadian government as it seeks approval for its Nexen takeover, two people familiar with the matter said Nov. 20, declining to be named because negotiations are confidential.
Petronas reported a drop in third-quarter earnings on lower crude oil sales and margins as the global economy slowed. Net income dropped to 12.4 billion ringgit ($4.1 billion) in the three months ended Sept. 30 from 15.9 billion ringgit a year earlier, the company said in a statement. Revenue declined 4.9 percent to 68.3 billion ringgit.
“The third quarter was challenging,” said Shamsul. “Profitability going forward isn’t looking good.”
Quarterly average prices of Dated Brent decreased 3.4 percent from the previous quarter, while average prices of the Tapis grade dropped 4 percent, Petronas said in the statement.
Petronas, which manages all of the Southeast Asian nation’s energy reserves, plans to spend a record 300 billion ringgit over five years to replenish the country’s maturing reserves. It has boosted offshore drilling with local and overseas partners, including Petrofac Ltd.
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