Lexpert Special Editions

20 | Oil vs. LNG an SOE to acquire control of oil sand companies or resources. That warning was somewhat cemented by the passing of Bill C-60 on June 10, though the bill doesn't specifically say that the oil sands industry will be treated differently than any other. It does, however, include amendments to the Investment Canada Act (ICA) broadening the definition of what an SOE can be. The amendments also give the industry minister broader discretion to label a foreign firm an SOE if it's found to have employees or other linkages that, through direct or indirect ties, could subject them to undue influence by their national governments. That, say Canadian law firms working with SOEs, will increase the uncertainty and risk in investing in Canada. The ICA amendments do mean it will be easier for non-SOE foreign firms to invest in Canadian businesses, regardless of the sector. Prior to the rule changes this year, non-national foreign firms would be drawn into the uncertainty and cost of a federal review if seeking control (33.3 per cent or higher) of companies with an asset value of $344 million or more. That threshold has now been raised to $600 million for this year and will increase by $200 million each year to $1 billion in four years. The threshold for review of SOEs, however, remains lower at $344 million. It will only rise incrementally, according to an index tied to Canada's gross domestic production. Since Harper's pronouncements, deal flow has clearly shrunk in the energy sector, though some energy lawyers suggest that could be because foreign players have paused to figure out how best under the new regulations to take their next swing at getting a piece of Canada's vast oil and gas resources. That swing may now be aimed more often toward liquid natural gas (LNG) projects, suggests Al Hudec, a senior M&A lawyer and Vancouver-based partner with Farris, Vaughan, Wills & Murphy LLP. It was Harper's specific reference to "oil sands" in his statements after the Nexen and Progress deals that has corporate and energy lawyers thinking that could mean LNG-related foreign investments might get easier treatment from the government in the future. "So that's a pretty limited statement: control and oil sands," says Nick Kangles, a senior partner in Calgary with Norton Rose Fulbright Canada LLP who counsels clients, including SOEs, developing energy projects. Harper "didn't talk about natural gas, LNG development, non-conventional gas or conventional oil. He talked specifically about oil sands. I am taking that at face value. I think the government spent a lot of time coming to the decisions they came to and the explanations they came to." While he believes Harper's statements will dissuade SOEs from seeking control of oil sands companies, Kangles says typically, regardless of the energy stream, "a lot of foreign investors aren't looking for control any way. They are looking for minority interests." That's what Sinopec did in 2010 when it bought a 9 per cent interest in oil sands giant Syncrude Canada Ltd. for $4.5 billion. Out in BC, Hudec is already seeing foreign clients, including SOEs – who are asking plenty of questions about the new rules – leaning toward LNG investment. He says in addition to market factors, Harper stated policy, rather than actual government regulations, are making LNG more attractive to them than oil-related projects. "So I think there will be quite a bit more M&A activity around LNG projects," Hudec predicts. At the moment there are at least six gas liquefaction projects worth tens of billions of dollars and promising tens of thousands of jobs on the planning board for British Columbia, where industry investment grew from $1.8 billion in 2000 to $7.1 billion in 2010. Projects include the proposed LNG Canada plant — Lexpert®Ranked Lawyers Hurley, John Gowling Lafleur Henderson LLP (514) 392-9431 john.hurley@ gowlings.com Mr. Hurley has extensive experience in commercial law, with special emphasis on First Nations, energy and infrastructure, environmental law, regulatory matters and international development. Hurst, Michael A. Dentons Canada LLP (403) 268-3046 michael.hurst@ dentons.com Ignasiak, Martin Osler, Hoskin & Harcourt LLP (403) 260-7007 mignasiak@osler.com Jamieson, JoAnn P. Lawson Lundell LLP (403) 218-7514 jjamieson@ lawsonlundell.com Jenkins, William K. Dentons Canada LLP (403) 268-6835 bill.jenkins@dentons. com Mr. Hurst's energy law expertise embraces oil and gas upstream, midstream and pipeline acquisitions, structuring greenfield projects, financing and product sales arrangements. He works on infrastructure projects in Canada and South America. Mr. Ignasiak appears in courts and tribunals in his regulatory and environmental law practice. He advises on oil sands, electric generation and mining facilities approvals. He also advises on Aboriginal issues and impact benefit agreements. Ms. Jamieson advises on energy regulatory, environmental and Aboriginal law matters. She acts for companies developing major resource projects including oil sands, oil and gas facilities, power, wind energy and mining. Mr. Jenkins' practice includes M&A transactions, project financings, joint ventures, IPOs, public debt offerings, syndicated financings and corporate governance. He is Global Vice Chair of Dentons and co-heads the M&A practice of Dentons in Canada. Johnson, QC, Kevin E. Norton Rose Fulbright Canada LLP (403) 267-8250 kevin.johnson@ nortonrosefulbright. com Mr. Johnson counsels issuers, selling shareholders, independent committees and investment dealers on securities and related-party transactions, corporate reorganizations, M&A, cross-border public offerings, take-overs and governance matters.

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