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Vol. 12, No. 50 Week of December 16, 2007
Providing coverage of Alaska and northern Canada's oil and gas industry

Canada tightens takeover rules for state-owned foreign enterprises

Foreign state-owned enterprises out to take control of Canadian oil, natural gas and mining assets will have to satisfy the federal government they are motivated by commercial, not political objectives.

As well, they will be required to establish a “net benefit” to Canadians, that Canadians will continue to participate in operations domestically and internationally, that they will support ongoing innovation, research and development and that their capital expenditures will maintain the Canadian business in a globally competitive position.

By next year, the Canadian government will join the rest of its G8 peers by introducing legislation to screen foreign investments that might pose a risk to national security and defense.

In laying out the new ground rules, Industry Minister Jim Prentice said they contain “real teeth” to give the government power to “protect the interests of Canadians.”

“The issue isn’t where the capital comes from; the issue is how the capital conducts itself,” Prentice told reporters.

While the government’s primary concern is the loss of control over its natural resources, the initial industry response to the guidelines was low-key.

Pierre Alvarez, president of the Canadian Association of Petroleum Producers, told reporters that the level of direct, government-owned investment in the Canadian petroleum industry has been “very small” and he is not aware of a growing lineup of prospective state-owned buyers.

“I don’t see this as being a major priority on the Canadian front,” he said.

Series of foreign investments

The changes follow a series of oil and gas investments over recent years by state-owned firms from China, Japan, Korea, the Middle East and Norway, mostly involving either outright takeovers or acquisitions of minority stakes in oil sands projects and leases.

“We are not creating new obstacles or changing the government’s policy on foreign investment,” Prentice said.

“Rather, we are providing clarity on how the (act) will be applied so that we can continue to grow foreign investment that benefits Canada … the vast majority of state-owned enterprises do not raise concerns.”

Prentice cited Norway’s Government Pension Fund and StatoilHydro, which bought North American Oil Sands for C$2.2 billion in May, as examples of good corporate citizens.

“There may be rare occasions when foreign investments by state-owned enterprises with non-commercial objectives and unclear corporate governance and reporting may not benefit Canadians,” he said.

Prentice did not comment on the recent C$5 billion purchase by Abu Dhabi National Energy Co., known as TAQA, of PrimeWest Energy Trust and its US$540 million acquisition of Pioneer Natural Resource’s Canadian operations.

Those deals were cleared in November by the federal agency that oversees foreign investment as well as by Prentice.



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