No Progress for Petronas, Spells Carnage in Calgary

 Canadian Federal Government late Friday announced that it has denied Calgary-based Progress Energy Resource’s (PRQ) $5-6 billion take over by Malyasian state-owned oil compnay Petronas. The decision was unexpected as market perception was that this is a relatively small deal and Malaysia is no China and should be considered a friend rather then a threat.

Obviously Progress Energy stock is likely to get decimated when it opens for trading on the Toronto Stock Exchange on Monday morning. But more importantly it will send a very negative signal to other potential buyers that may be kicking tires of other Energy and even mining companies in Canada.

The industry Minister Chrisitan Paradis defended the government’s decision:

“I can confirm that I have sent a notice letter to Petronas indicating that I am not satisfied that the proposed investment is likely to be of net benefit to Canada,” Paradis said a statement.

“Due to the strict confidentiality provisions of the [Investment Canada] Act, I cannot comment further on this investment at this time,” he said. Petronas now has 30 days to “make any additional representations and submit any further undertakings,” the minister said. “Subsequently, I will either confirm this initial decision or approve the acquisition.”

Although technically the government has given Progress Energy a 30 day life-line to change their mind it is unlikely the decision will be reversed.

Progress Energy CEO quite accurately highlighted the implications of this decision “The long-term health of the natural gas industry in Canada and the development of a new [liquified natural gas] export industry are dependent on international investments.”

Watch for double digit losses across the energy sector with built-in take over premiums in many energy companies evaporating and prices falling 20-30%. This will provide a good opportunity for investors to get better value for their money but the increased volatility and negative sentiment will keep energy companies under pressure in the immediate term.

We have a negative outlook on the energy sector and of course North American weather conditions will have an impact on Natural gas prices in the next few months.

View our most recent market analysis and sector outlook http://www.sialpha.com/wp-content/uploads/2012/10/SiAlpha-Market-Analysis-Newsletter-Oct-19th-2012.pdf

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