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June 27, 2017

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Canada blocks Malaysian bid for Progress Energy

TORONTO/KUALA LUMPUR -- Canada has blocked Malaysian state oil firm Petronas' CA$5.17 billion (US$5.22 billion) bid for gas producer Progress Energy Resources Corp., a surprise move that could signal problems for a much bigger offer by China's CNOOC Ltd. for oil producer Nexen Inc.

The announcement late on Friday in Canada is a blow to the expansion plans of Petronas as its domestic oil supplies shrink and it seeks to boost its resources beyond Malaysia and volatile areas such as Sudan.

Its bid for Progress had not been expected to run into hurdles in a review process that asks the government to examine whether a deal is of "net benefit" to Canada. A rejection of both the CNOOC and Petronas bids could significantly damage the trade ties that Canada has been trying to build, especially with the Chinese.

Petronas, which said it was not ready to make any comment, has up to 30 days to make additional representations that could make its offer more palatable but it was not immediately clear what else it could put on the table.

"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," Christian Paradis, Canada's minister of industry, said in a late-night statement.

"Due to the strict confidentiality provisions of the (Investment Canada) Act, I cannot comment further on this investment at this time," he said.

Paradis, whose statement on the Petronas-Progress deal came minutes before the official deadline on the review, said if required, the 30-day period could be extended with the consent of the government and Petronas.

"Subsequently, I will either confirm this initial decision or approve the acquisition," said Paradis, adding that Canada would maintain an open investment climate.

The deal attracted scrutiny after Chinese state oil firm CNOOC made a CA$15.1 billion bid for Canada's Nexen Inc. Some members of Canada's governing Conservative Party are wary of the CNOOC offer, in part because of what they say are unfair Chinese business practices.

Earlier this month, Prime Minister Stephen Harper said China's "very different" political and economic systems were a concern. The Canadian government has extended its review of CNOOC's bid for Nexen by 30 days, to Nov. 11.

A CNOOC spokeswoman in Beijing said she had no comment on the ruling against Petronas or whether it could mean the Chinese company's bid for Nexen was in trouble.

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