China National Offshore Oil Corp.'s proposed takeover of Nexen could still be approved, despite the Canadian government blocking Malaysian state-owned Petronas' $5.2 billion acquisition of Progress Energy, analysts said Monday.

Canada's Minister of Industry Christian Paradis said Friday that the Progress deal would not be of 'net benefit' to Canada, following a thorough review of the proposed transaction, but did not specify why he did not favor the acquisition.

Under the Investment Canada Act, Paradis extended his original deadline for a Petronas-Progress verdict from September 25 to October 19. Petronas now has up to 30 days to make any additional representations and submit any further undertakings, which can be extended with Paradis' agreement.

Petronas made an offer in late June to take over Progress, which owns three shale gas blocks at Altares, Lily and Kahta spread over 150,000 acres in North Montney, British Columbia. The companies had planned to build two gas liquefaction trains, each with a capacity of 3.7 million mt/year, an export terminal and pipeline access in British Columbia utilizing 1 Bcf/d of feedstock gas. First LNG production was targeted after 2016.

The ruling leaves in heavy doubt CNOOC's $15.1 billion acquisition of Nexen, which was announced late July. Paradis said October 11 he would extend his review of the deal by 30 days to November 12. The continued examination of CNOOC's offer will cover six factors contained in the Investment Canada Act and the government's "guidelines on investment by state-owned enterprises," Paradis said.

Both deals faced pressure from opposition federal legislators and some petroleum industry leaders who were reluctant to see control of Canada's oil and natural gas resources pass to Asian state-owned companies.

Credit Suisse said Monday in a note that the "Canadian government messaging appears confused," on the one hand appearing keenly interested in increased foreign participation and on the other rejecting the Petronas deal without explicit detail of why it did not meet requirements under the Investment Canada Act.

Duc Huynh, analyst at PFC Energy, said: "My position [that the deal will go through] is still unchanged. I had assumed they would probably face more opposition from the US rather than Canada."

Given the upcoming US presidential elections, there has been heavy controversy surrounding Chinese companies' presence in the US, he said.

"There's an inherent contradiction here," said Huynh. "The Canadian government has announced they need a lot of capital to move these projects forward in Canada yet at the same time they're rejecting this deal. The question is how much influence does the Canadian government have over these other regulators," he added.

Credit Suisse is also still optimistic that approval will be given to CNOOC. "A rejection of two friendly takeovers by Asian entities in one quarter would send a clear signal that Canada is not in fact 'open for business,' reducing its attractiveness as an investment destination for Asian capital," it said.

"One view is that the decision is designed to make the Canadian government look tough as they negotiate final concessions from CNOOC over the Nexen acquisition," Credit Suisse pointed out.

Bernstein Research said Monday in a report: "Ultimately we still believe the CNOOC Nexen deal will close, although it will depend on China's ability to provide assurances of reciprocity for Canadian companies in China and CNOOC to be flexible over conditions."

The bank listed four reasons why the Nexen deal is more likely to be approved.

Petronas, which acquired Progress mainly to underpin planned LNG exports from British Colombia to Asia, would be in a position to set the price of LNG exports, conflicting with its role as both a buyer and seller of LNG and creating misaligned interests with Ottawa on pricing.

"Nexen is more international and does not have the same conflict of interest with LNG sales to Asia as Petronas would have with Progress," said Bernstein.

In addition, Nexen's portfolio is more diversified, with only a third of its current producing assets located in Canada, while Progress' shale gas projects were all in Canada.

Thirdly, the Nexen deal came at a time when investment in Canadian oil sands from other third countries is being scaled back in favor of shale liquids, so Canada is likely to be more receptive to the benefits of Chinese investment in oil sands.

Lastly, CNOOC itself has done significant groundwork to ensure approval: guaranteeing a post-merger plan for existing Nexen employees, making Calgary its North American headquarters and proposing a secondary listing in Toronto.

Nexen cleared the first major hurdle toward its takeover by CNOOC, gaining strong backing in a shareholder vote on September 20. This leaves the final verdict to regulators and governments in Canada and the US. CNOOC said September 5 that it had filed an application with the US' Committee on Foreign Investment for it to review the acquisition but provided no timeline on the process.