US and European oil companies have worked on the conviction for nearly 100 years that their investments in sovereign countries’ upstream sectors are a “net benefit” to the host nations, whether through royalties, production-sharing contracts, jobs produced or economies grown. Or if not a net gain to a nation as a whole, then at least profitable enough to a sufficient number of the “right” people that the companies can get access to the hydrocarbon resources they wish to exploit.
That has been balanced by the so-called “resource curse” that is supposed to fall on any developing or emerging economy unlucky enough to be blessed with vast resource wealth. The fear is that those resources will bring the clamoring of foreign investors and the squabbling of local politicians and strongmen, with both sets fighting over divvying up of the boon at the expense of farmers, the rural poor and indigenous groups that will bear the brunt of exploration and development.
Give that backdrop, it was at least as ironic as it was unexpected to see Canada’s Industry Minister Christian Paradis say last month that he wasn’t convinced the $5.2 billion proposed takeover of Alberta, Calgary-based Progress Energy Resources by Malaysia’s state-owned Petronas was a “net benefit” to the country.
It’s difficult to see what Paradis saw wrong with the buy-in by a company that is ready to invest billions more above its initial takeover price on field development, pipelines and liquefaction facilities, especially when no explanation was given for the judgement. If this were, say, Talisman Energy or Suncor Energy being blocked on an investment of a few hundred million in one of the Southeast Asian nations, then it is sure that economic commentators and pundits would be pointing to the need for transparency and clarity in the application of investment law.
Or maybe, in the absence of any official explanation, it could be speculated that the barrier thrown up to the Petronas-Progress deal has nothing to do with it involving a foreign national oil company or about sending a message on the China National Offshore Oil Corp.-Nexen deal. Instead, it may have everything to do with the domestic tiff already brewing among British Columbia, the neighboring
state province of Alberta and the federal Canadian government over a national energy strategy.
British Columbia opted out of signing onto the discussion and development of any national energy strategy earlier this year.
State Provincial premier Christy Clark said the province’s participation was dependent on getting a larger share of revenues from Enbridge’s proposed Northern Gateway pipeline project, which would carry 525,000 b/d of Alberta oil sands crude to Kitimat on Canada’s west coast for export to Asia.
As long we are speculating about messages being sent, why not conclude that British Columbia is being told with the blocking of the Petronas-Progress takeover that if it wants the benefits of North Montney shale gas development and an LNG terminal at Prince Rupert, then it needs to to play ball across the energy spectrum?
The point is not to say that there is indeed a correlation, but to point out that in the absence of any overt reason for holding up the project, talk is to be expected. In Asia, we are experienced with the conjectured and whispered conspiracy theories that can come up with international projects that appear to be win-win for everyone, and yet languish in red tape or other go-slow strategies; just as we are used to the lectures of Western oil and gas executives who complain about projects and deals inexplicably delayed and admonish governments and others on the need for investor certainty and the rule of law.
A few days after the blocking of the Petronas-Progress deal, a Raymond James’ Calgary-based energy analyst team said that the lost benefits of a final failure included the equity premium Petronas offered to Progress shareholders of about 90% or $2.5 billion, along with a top-up after a competing bid emerged; thousands of construction jobs and hundreds of permanent LNG-related jobs; a significant royalty stream from the development of the North Montney shale gas lands in British Columbia; and corporate taxes from liquefaction, pipelining and resource development activities.
“In aggregate, the gross benefits of the Petronas project are well into tens of billions of dollars, which makes it difficult to envision what costs could have been so substantial in Industry Canada’s eyes to even approach a notional offset,” the Raymond James’ analysts said.
In short, a judgment of no “net benefit” needs a lot of explaining. From here in Asia, whether that explanation is ever forthcoming or not, there’s one thing sure: Canada just isn’t looking good on this one.