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Petronas, Progress to meet Canada after rejection

Rob Gillies, Associated Press

TORONTO (AP) -- Malaysian state-owned oil firm Petronas and Canadian gas producer Progress Energy Resources said Monday they'll meet with the federal government after the latter rejected Petronas' $5.2 billion takeover bid last week. The decision has raised doubts about whether Canada is open to foreign investment by state-owned companies.

Industry Minister Christian Paradis did not explain the decision to block the Petronas-Progress deal in a statement released just before midnight Friday. The surprise announcement by Prime Minister Stephen Harper's Conservative government has investors wondering if Chinese state-owned CNOOC's $15.1 billion takeover of Canadian producer Nexen will be approved. That deal would be China's biggest overseas energy acquisition.

Harper declined to comment on the reasons for blocking the Petronas bid on Monday, saying Petronas has the ability to appeal the decision over the next 30 days and he doesn't want to prejudice that.

Harper said the government will soon release a new policy framework that will clarify the rules around foreign takeovers. He said that will occur when an announcement is made on the CNOOC-Nexen proposal.

"Foreign investment generally speaking is a benefit to the Canadian economy. As a general rule we obviously welcome interest in the Canadian economy. At the same time we are committed to the Investment Canada Act which requires us to evaluate whether individual transactions are in the net benefit of Canada," Harper said. "This government has, as you know in certain cases, decided that that's not the case. We will give greater clarity on our policy framework going forward when we take a couple of decisions that are before us at the present time."

Petronas has up to 30 days to make any changes to the deal and send it back to the government for another review. Canada's foreign takeover law deems transactions worth more than $330 million must be deemed a net benefit to the country.

The companies said they want to better understand the requirements and said they will work to ensure the industry minister has the information that will allow him to approve the takeover.

Shares of Progress plunged more than 11 percent in trading on the Toronto Stock Exchange on Monday morning. Shares of Nexen also fell more than five percent as investors worried the government would also block that state-owned takeover bid.

Harper's government has blocked three foreign takeover bids, including Anglo-Australian BHP Billiton's hostile takeover bid for Saskatchewan's Potash Corp. in 2010.

Harper has said foreign investment is needed to develop Canada's vast energy deposits and Harper has courted Chinese investment recently, but concerns have been raised about an outright takeover by a state-owned Chinese firm.

CNOOC and other big state-owned Asian energy companies have increased purchases of oil and gas assets in the Americas as part of a global strategy to gain access to resources needed to fuel China's economy. Chinese companies have moved more carefully since CNOOC tried seven years ago to buy Unocal but was rejected by U.S. lawmakers citing national security fears.

In an apparent show of commitment to Canada's interests, CNOOC is pledging to set up a regional headquarters in Calgary, Alberta, where Nexen is based. It also says it will keep the Canadian company's management and projects in place and list shares on the Canadian bourse in Toronto. Petronas hasn't made the same level commitment in its proposed bid for Progress Energy.