April 23, 2013
This article highlights what you can expect to see in foreign investment review in Canada this year.
Foreign Investors Will Change Their Investment Strategies To Compete For Canadian Oil And Gas Assets
As demand for commodities grows, particularly in Asia, we have witnessed an upsurge in foreign direct investment in Canada’s oil and gas sectors. The involvement of state-owned enterprises in these investments is challenging the traditional parameters of Canada’s foreign investment review regime. Recent policy updates and continued regulatory uncertainty will increasingly prompt foreign investors to modify their investment strategies. Foreign investors will adapt by varying the structures of their transactions, engaging proactively with key stakeholders and strengthening the terms and conditions of their merger agreements.
Foreign Investors Becoming More Assertive
Traditionally, investment in the Canadian oil and gas industry has been structured in the form of joint ventures or partnerships with Canadian counterparties, which have not triggered foreign investment reviews under the Investment Canada Act (ICA).
However, foreign entities have recently employed more assertive modes of investment, including outright acquisitions. In 2012, CNOOC put forward a US$15.1 billion proposal to acquire all the shares of Nexen Inc. Also in 2012, Petronas announced that it planned to acquire Progress Energy Resources Corp for approximately C$5.5 billion.
State-owned Enterprises Becoming The New Buyers
The transactions mentioned above are notable not only for the method of acquisition but also for the changing face of the acquiror. While multinational corporations continue to execute takeovers in the Canadian energy industry, investments are increasingly being made by state-owned enterprises (SOEs).
Although the Canadian government approved the closely observed acquisitions by CNOOC and Petronas, it issued new SOE guidelines which are particularly rigorous in respect of the oil sands sector. In the future, proposed SOE investments to acquire control of an oil sands business will only be approved on an exceptional basis; non-controlling investments in the oil sands (including joint ventures) will however continue to be welcomed. As a result, SOE investment in the oil sands will now likely revert to focusing on minority stakes and joint venture arrangements not subject to review. Indeed, shortly after the announcement of the new SOE policy, Encana Corp. and Petrochina Co. announced a C$1.18 billion joint venture in which PetroChina will get a 49.9 per cent stake in Encana’s Duvernay Shale acreage in a non-reviewable transaction.
Read the full article here.