SOE transactions within Canada’s petroleum and natural gas sector – acquisitions of control


Financier Worldwide Magazine

November 2014 Issue

November 2014 Issue

It has been almost two years since Prime Minister Harper approved the CNOOC/Nexen and PETRONAS/Progress mergers, and highlighted that “Canadians, generally, and investors specifically, should understand that these decisions are not the beginning of a trend, but rather the end of a trend”. He was referring to investments in Canada’s natural resources sector, in particular, in the oil sands, by state-owned enterprises or ‘SOEs’. Revised policy guidelines for approving investments by SOEs were quickly published (Revised SOE Guidelines) followed by amendments to the Investment Canada Act, which became effective on 26 June 2013 with retroactive effect to 29 April 2013 (SOE Amendments). Unfortunately, under the SOE Amendments, there is no longer any certainty as to whether an investor is an SOE (or not), and there is no certainty as to whether there is an acquisition of control by an SOE (or not). We are of the view that the amendments have had a significant ‘chilling’ effect on foreign investment in Canada’s resource sector, perhaps more than we initially anticipated.

So, where is foreign investment in the petroleum, natural gas and oil sands sectors almost two years after the Revised SOE Guidelines have come into effect?

SOE transactions reviewed under the Investment Canada Act

By our count, there have only been three SOE transactions in the petroleum, natural gas and oil sands sectors that have been subject to review under the Act since Prime Minister Harper introduced the Revised SOE Guidelines. Details include the facts that: (i) each exceeded $1bn in transaction value; (ii) the first involved the acquisition by an SOE, through a joint venture partnership, of an undivided 40 percent partnership interest in a Canadian natural gas business; (iii) the second involved the acquisition by an SOE of a 100 percent interest in natural gas (shale) assets; and (iv) the third involved the acquisition by one SOE of a 100 percent interest in oil sands assets owned by another SOE.

Centrica/QPI acquisition of Suncor Energy Inc.’s conventional natural gas assets

On 15 April 2013, Centrica plc, a publicly traded UK company, and Qatar Petroleum International (QPI), the international arm and wholly-owned subsidiary of Qatar Petroleum, a Middle East SOE, announced they had agreed to form a partnership that would be 60 percent owned by Centrica and 40 percent owned by QPI. The partnership would acquire a package of producing conventional natural gas and crude oil assets and associated infrastructure in western Canada from Suncor Energy Inc. for $1bn. Centrica would be the operator of the assets of the newly formed joint venture partnership.

The Centrica/QPI deal was the first major deal in the natural resources sector involving an SOE since the implementation of the Revised SOE Guidelines and it was Qatar’s first significant acquisition of petroleum and natural gas assets in Canada.

Although QPI only held a 40 percent partnership interest in the partnership and the partnership would be operated and managed by Centrica, the Investment Review Division (IRD), the administrative agency responsible for administering the Act, appears to have concluded that the Centrica/QPI partnership was itself an SOE. As a result, the implementation of the acquisition by the Centrica/QPI partnership was subject to the Revised SOE Guidelines.

Understandably, there was considerable uncertainty within the IRD itself as to the nature of the information, commitments and undertakings required to satisfy the Revised SOE guidelines. The IRD’s uncertainty was exacerbated by two significant events that took place during this period. First, on 29 April 2013, the government tabled the proposed SOE Amendments (which eventually became law). Second, in July 2013, the Industry Minister, the Right Honourable Christian Paradis, was replaced by the Right Honourable James Moore (the Industry Minister). The Industry Minister (who has extensive experience in broadcasting) was particularly engaged in a campaign to increase competition in the telecommunications sector.

The transaction was ultimately approved and closed on 27 September 2013.

Progress acquisition of Talisman’s shale gas assets in British Columbia

On 5 March 2014, in the only publicised statement the Industry Minister has given in respect of an approved SOE transaction in the natural resources sector, he announced that he had “approved Progress Energy Canada Ltd.’s application to acquire control of natural gas assets from Talisman Energy Inc.”. Progress Energy Canada Ltd., a wholly-owned subsidiary of PETRONAS (Malaysian’s state-owned oil company), is also a front-runner among Canada’s proposed LNG facility proponents along BC’s west coast and is currently one of Canada’s busiest drillers.

It did not hurt that the transaction coincided with Prime Minister Harper’s attendance at the Bali Summit of Asia Pacific Leaders in October 2013. In response to Malaysian Prime Minister Mohd Najib’s announcement of a planned $36bn investment in Canada, the Prime Minister was quoted in a 6 October CBC online article as saying that “we view the Petronas investments very positively and all the indications I have is that Petronas is looking at further investment” and “The government of Canada is very excited about that possibility, as are all those I’ve talked to in the energy sector”.

The proposed acquisition, which was announced on 8 November 2013, closed 118 days later, on 12 March 2014. The Industry Minister noted, “To demonstrate that the transaction is likely to be of net benefit, Progress Energy Canada Ltd. has made significant commitments in the areas of Canadian participation, commercial operations, transparency, adherence to Canadian laws and practices, including free market principles and capital investments”.

Partition of oil sands joint venture properties between PTTEP and Statoil

Statoil and PTT Exploration and Production (PTTEP) were joint venture participants as to a 60 percent and 40 percent interest, respectively, in the Kai Kos Dehseh (KKD) oil sands project in north east Alberta. On 28 May 2014, 118 days after they announced the proposed transaction, they completed an arrangement to divide their joint venture interests with Statoil owning a 100 percent working interest in the Lesimer and Corner development projects, and PTTEP owning a 100 percent working interest in Thornbury, Hangingstone and south Leismer areas.

This was the first ‘approval’ granted by the Minister of Industry for the acquisition of control by an SOE in the oil sands sector. Yet the Industry Minister chose not to issue a news release in connection with granting his approval of the transaction, even though Prime Minister Harper clearly stated that “investments by SOEs in the Canadian oil sands will be approved only in exceptional circumstances”.

Are these the type of “exceptional circumstances” Prime Minister Harper was referring to? Both Statoil and PTTEP are SOEs and so the oil sands assets were already owned as to 100 percent by SOEs. But there is a notable difference between ‘Statoil’ and ‘PTTEP’ as far as ‘SOEs’ go. Statoil is controlled by the Norwegian state but a significant portion of the shares of Statoil are publicly traded. Norway is a country that follows democratic and capital principles that are consistent with the western developed world. PTTEP, by contrast, does not fall into this camp.

While we do not know what undertakings or other commitments were required to be given by Statoil or PTTEP to obtain this approval, we anticipate, based on our experiences on other matters, that a significant amount of work with the IRD and the Minister’s office was required to complete the deal.

While a considerable amount of uncertainty about the scope of Canada’s openness to foreign investment from SOEs in the natural resources sector remains, the above noted approvals demonstrate that Canada has not shut the door to acquisitions of control of Canadian businesses by SOE investors in this sector.


Alicia K. Quesnel is a partner at Burnet, Duckworth & Palmer LLP. She can be contacted on +1 (403) 260 0233 or by email:

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