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NEW YORK In other energy-rich countries, a decision to knock back a major foreign investment would likely provoke cries of resource nationalism and raise questions about prospects for oil and gas production growth.
Canada's surprise move last week to block Malaysian state-run oil firm Petronas' $5.2 billion (3.2 billion pounds) bid for Calgary-based Progress Energy has spooked some investors, and raised concerns that Chinese state firm CNOOC's $15.2 billion bid for Calgary-based Nexen may also be rejected.
Yet even if Canada sets steeper hurdles for foreign takeovers of its energy firms, few analysts expect that to stall development of new oil and gas fields that could nearly double Canada's output over the next 25 years.
For one explanation, just look south.
For CNOOC, the Petronas episode serves as a reminder of its own failed $18.5 billion bid in 2005 for California-based oil firm Unocal. U.S. lawmakers thwarted that deal on national security concerns, drawing ire from Beijing.
That deal's collapse reshaped China's investment strategy -- shifting its focus, at least in developed countries, to joint ventures for oil and gas development after 2005, rather than bold corporate takeovers. But that did little to crimp huge production gains in the U.S. oil and gas patch, where China's companies continue to invest heavily.
"There are other avenues for investment for foreign firms in Canada," says Pavel Molchanov, an energy analyst at Raymond James.
"The United States has had a de facto block on large foreign M&A deals in the energy sector since 2005, yet U.S. oil and gas production has been growing in leaps and bounds. The same would likely happen in Canada."
Undeterred, Chinese state-owned energy firms started pouring cash into North America, announcing deals to acquire oil and gas assets in the region worth nearly $40 billion since 2008, investment consultancy Dealogic says.
Even CNOOC has re-entered the U.S. market. In 2010, it pledged to invest $2.2 billion to share in production of shale oil and gas from Texas with Chesapeake Energy Corp. (CHK.N)
In Canada, energy-hungry Asian firms covet a major role developing the world's third-largest oil reserves. Several state-controlled Chinese firms have already invested billions in the country since 2009, although CNOOC's proposed takeover of Calgary-based Nexen is the largest planned investment yet.
A CNOOC spokesman in Canada, Peter Hunt, said the firm's application to buy Nexen is "proceeding normally," and the company still expects the deal to close this year. CNOOC declined further comment.
Canada has given Malaysia's Petronas 30 days to re-submit an offer to buy Progress, after the government questioned whether the transaction would benefit Canadians.
Now in question is whether foreign takeovers of Canada's firms can meet vague criteria laid out in Canada's Investment Act, a 1985 law which says foreign-led buyouts worth more than C$330 million must bring a "net benefit" for the country.
Canada requires more than $200 billion in energy investment to nearly double its production, which could sharply boost exports to Asia.
The Conservative Party government, led by Prime Minister Stephen Harper, is the ultimate arbiter on any given deal. He has made exports to Asia a national priority, and was given a warm welcome in Beijing earlier this year.
But at home, some Canadian officials question whether foreign takeovers will create jobs for Canadians, speed infrastructure spending or help Canada's companies get their own buyouts of assets in China approved by regulators there.
Canada's government is now working towards setting clear guidance on how foreign investors can meet the "net benefit" threshold to get their deals approved.
A LESSON FROM UNOCAL
CNOOC's failed Unocal bid in 2005 initially led to three years of sparse Chinese investment in North America's oil industry. More recently, however, the deal-making has roared, albeit without new major U.S. company takeovers by Chinese rivals.
While China has also struck deals to gain access to reserves in politically unstable countries including Yemen, Venezuela and Sudan, North America remains the top foreign destination for energy spending by Chinese firms.
Dealogic figures show CNOOC's proposed takeover of Nexen is just one of a record nine North American energy deals announced by Asian energy giants this year, totalling $22.8 billion. Most have been promptly approved.
In January, China Petrochemical announced a buyout of oil and gas assets from Oklahoma-based Devon Energy in a transaction worth $2.4 billion. The deal closed within four months.
China is keen to participate in North America's technology-driven shale drilling boom, which could help it tap vast shale reserves back home. U.S. shale production has added more than a million barrels a day to domestic output over the last five years and turned the country into the top natgas producer.
In Canada, state-owned Chinese oil firms, including CNOOC, have invested some $8.7 billion in oil and gas firms since 2009, mostly in oil sands projects.
"Asian investors are committed to work towards exporting Canada's energy to Asia, so they are particularly motivated," said Sarah Emerson of Energy Security Analysis Inc. (ESAI) in Boston.
CANADA'S BARGAINING POWER
The lure of Canada's energy reserves can hardly be overstated. Unlike its southern neighbour, there is little political opposition in Canada to energy exports.
Canada is expected to almost double its oil and gas output over the next 25 years, according to the U.S. Energy Information Administration (EIA).
The country's vast tar sand deposits have reserves of 170 billion barrels of oil, trailing only Saudi Arabia and Venezuela. Canada already pumps more than 3.7 million barrels per day of oil - around 5 percent of world supplies - and it's the No. 3 natural gas producer, with more than 60 trillion cubic feet of conventional natural gas reserves. Canada's untapped shale gas reserves could be six times larger, the EIA says.
Canada wants to ship more to Asia in part because U.S. import demand has stagnated due to lower fuel consumption and higher domestic output. The U.S. buys nearly 99 percent of Canadian energy exports.
In many respects, Ottawa has time and bargaining power on its side.
"There's a lot of money out there looking for a stable country like Canada to invest in. The Canadians could go a long way without Asian capital if they wanted to," said Mikkal Herberg, research director for energy security at the National Bureau of Asian Research in Washington.
Canada needs new pipelines, ports and natural gas terminals to ship fuel to fast-growing Asia rather than selling more to the United States. Energy exports are already limited by pipeline bottlenecks into the United States.
"They face capacity constraints to get the stuff out," said Colorado-based energy consultant Phil Verleger. "So Canada may be looking at this scenario and saying, 'hey, we don't have to rush'."
(This story corrects Investment Act figure to $330 million in 14th paragraph)
(Editing by Jonathan Leff, Ken Wills and Bob Burgdorfer)