CALGARY - Progress Energy Resources and the Malaysian state-owned company that wants to buy it were looking to salvage their $6-billion deal on Monday as observers warned Ottawa's stunning last-minute rejection could scare away foreign investment.

Progress and Petronas said they're meeting with Industry Canada officials to "better understand" what the government's requirements are with respect to the deal.

"Petronas and Progress will work together to ensure that the minister has the necessary information to determine that the proposed acquisition of Progress would likely be of net benefit to Canada," the companies said in a release.

Three minutes before midnight on Friday, Industry Minister Christian Paradis announced the transaction did not pass the net benefit test imposed on large foreign takeovers of Canadian companies — a process widely criticized for its lack of clarity.

Petronas has 30 days to amend its deal and send it back to Ottawa for review.

Analysts at CIBC World Markets give 25 per cent odds to the deal being saved and say there's a 50 per cent chance another multinational oil company comes along if the Petronas deal fails.

A source familiar with the matter said odds are "extraordinarily high" the deal ultimately gets done. Before Friday's bombshell, the person would have put the likelihood of a green light at 99 per cent, but the "ruffled feathers" make it more like 95 per cent now.

"I'm sure there are people who are very offended and there's guys getting on a plane in Kuala Lumpur who weren't expecting to spend their week in Ottawa."

After Progress accepted Petronas' initial $20.45-per-share offer this summer, another unidentified bidder swooped in with a rival bid. Petronas trumped the competing offer by sweetening its bid to $22 per share.

If the Petronas deal falls through, the likes of ExxonMobil or U.K. gas giant BG Petroleum are potential buyers, the CIBC analysts said.

They said it's not likely the government's quibbles centred around things like job promises or reciprocal market access, suggesting the decision may have had more to do with Ottawa positioning itself for the much more politically troublesome $15.1-billion takeover of Calgary-based Nexen Inc. (TSX:NXY) by China National Offshore Oil Co.

One theory is that the government will ultimately approve a tweaked Progress-Petronas deal, but wants to make it look like it's being tough on foreign investment so that it has more credibility when it waves through the CNOOC-Nexen one.

"Another theory is that the government does not want to be seen as anti-China and easily approving the Progress-Petronas deal would make it look like the government's issue is primarily with China as opposed to the national oil company business model and other concerns."

There were reports that Industry Canada asked Petronas to allow it to extend its review for a second time, but the Malaysian company refused.

Whatever the reason, the analysts say it's "bad news for Canada."

"Global investors have already been struggling with why they need to own Canadian energy and this announcement clearly does not help," they said.

"After years of healing the wounds introduced by the Alberta government's disastrous royalty review and the royalty trust termination, the last thing global investors needed was a reminder that Canada is a risky political environment."

Investors punished Progress shares on Monday, pushing them down more than nine per cent to $19.64 in late afternoon trading on the Toronto Stock Exchange.

Other Canadian energy players with deals in the works — notably, Nexen and Celtic Exploration (TSX:CLT) — were also dragged down by the surprise news.

Nexen was off more than four per cent to $24.04. A review of the CNOOC-Nexen deal by Industry Minister Christian Paradis is set to end on Nov. 11, though it can be extended by 30-day increments with the buyer's consent.

Shares in Celtic, which agreed last week to be taken over by U.S. powerhouse ExxonMobil Corp. (NYSE:XOM), were down 1.4 per cent to $25.83. Unlike the other two deals, ExxonMobil is a publicly traded independent company with a decades-long history of operating in Canada.

While the NDP has not taken a stand on the Progress-Petronas deal, it has raised red flags about CNOOC's environmental and human rights record and urged Ottawa to block the deal.

But the process under which both transactions are being handled by Investment Canada is cause for concern, said opposition natural resources critic Peter Julian.

"It is mystifying how any Conservative can think they have economic credibility when they make the decision behind closed doors at midnight on a Friday night. Did the minister flip a coin?" he said in Ottawa.

"And now three days later we have no further idea as to what went into that decision. That is no way to run a Canadian economy."

Interim Liberal Leader Bob Rae said the government's "complete lack of transparency" in the decision is a major problem.

"Decisions that are made in secret and are made by the (Prime Minister's Office), are not decisions that build confidence for anyone — not for the people who are against the investment or the people who are making the investment," he said in French.

"Nobody knows exactly why the government decided to do what it did."

The Canada Pension Plan Investment Board, Progress' top investor, was predictably disappointed.

"We think that it is unfortunate that this transaction was not approved as anticipated. CPPIB continues to believe that there is substantial intrinsic value in Progress Energy and that this proposed acquisition is of long-term benefit.“

Gavin Graham, president of Graham Investment Strategy, said one would think a big boost to the national pension plan would be considered a net benefit to Canada.

"You've actually shot yourself in the foot," he said.

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  • 10. Oil And Gas Accounts For 4.8 Per Cent Of GDP

    The oil and gas industries accounted for around $65 billion of economic activity in Canada annually in recent years, or slightly less than 5 per cent of GDP. Source: <a href="" target="_hplink">Canada Energy Research Institute</a>

  • 9. Oil Exports Have Grown Tenfold Since 1980

    Canada exported some 12,000 cubic metres of oil per day in 1980. By 2010, that number had grown to 112,000 cubic metres daily. Source: <a href="" target="_hplink">Canadian Association of Petroleum Producers</a>

  • 8. Refining Didn't Grow At All As Exports Boomed

    Canada refined 300,000 cubic metres daily in 1980; in 2010, that number was slightly down, to 291,000, even though exports of oil had grown tenfold in that time. Source: <a href="" target="_hplink">Canadian Association of Petroleum Producers</a>

  • 7. 97 Per Cent Of Oil Exports Go To The U.S.

    Despite talk by the federal government that it wants to open Asian markets to Canadian oil, the vast majority of exports still go to the United States -- 97 per cent as of 2009. Source: <a href="" target="_hplink">Natural Resources Canada</a>

  • 6. Canada Has World's 2nd-Largest Proven Oil Reserves

    Canada's proven reserves of 175 billion barrels of oil -- the vast majority of it trapped in the oil sands -- is the second-largest oil stash in the world, after Saudi Arabia's 267 billion. Source: <a href="" target="_hplink">Oil & Gas Journal</a>

  • 5. Two-Thirds Of Oil Sands Bitumen Goes To U.S.

    One-third of Canada's oil sands bitumen stays in the country, and is refined into gasoline, heating oil and diesel. Source: <a href="" target="_hplink">Natural Resources Canada</a>

  • 4. Alberta Is Two-Thirds Of The Industry

    Despite its reputation as the undisputed centre of Canada's oil industry, Alberta accounts for only two-thirds of energy production. British Columbia and Saskatchewan are the second and third-largest producers. Source: <a href="" target="_hplink">Natural Resources Canada</a>

  • 3. Alberta Will Reap $1.2 Trillion From Oil Sands

    Alberta' government <a href="" target="_hplink">will reap $1.2 trillion in royalties from the oil sands over the next 35 years</a>, according to the Canadian Energy Research Institute.

  • 2. Canadian Oil Consumption Has Stayed Flat

    Thanks to improvements in energy efficiency, and a weakening of the country's manufacturing base, oil consumption in Canada has had virtually no net change in 30 years. Consumption went from 287,000 cubic metres daily in 1980 to 260,000 cubic metres daily in 2010. Source: Source: <a href="" target="_hplink">Canadian Association of Petroleum Producers</a>

  • 1. 250,000 Jobs.. Plus Many More?

    The National Energy Board says oil and gas employs 257,000 people in Canada, not including gas station employees. And the Canadian Association of Petroleum Producers says the oil sands alone <a href="" target="_hplink">will grow from 75,000 jobs to 905,000 jobs by 2035</a> -- assuming, of course, the price of oil holds up.

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  • June 18, 2012 -- Elk Point

    Enbridge Inc.'s <a href="" target="_hplink">Athabasca pipeline leaked an estimated 230,000 litres of oil</a> about 24 kilometres southeast of Elk Point, Alberta. <br></br> A member of Greenpeace cleans up a mock oil spill outside the Enbridge Northern Gateway pipeline office in downtown Vancouver, Wednesday, June 13, 2012. The mock spill was set up by Greenpeace to show the risks of spills similar to the recent one outside of Red Deer, Alberta. THE CANADIAN PRESS/Jonathan Hayward

  • June 18, 2012 -- Elk Point

    Although the spill didn't leak into any waterways, Energy Resources Conservation Board's Darin Barter said the<a href="" target="_hplink"> spill was considered "significant" in size</a>.<br></br> "Any amount of crude oil out of a pipeline is significant to us. Obviously we've had a number of pipeline incidents in the past short while and we're monitoring cleanup on them and we have a number of investigations underway."

  • June 7, 2012 -- Red Deer River

    An estimated 475,000 litres of oil <a href="" target="_hplink">spilled from a Plains Midstream Canada pipeline</a> and proceeded to leak into the Red Deer River. <br></br> Oil from a pipeline leak coats a pond near Sundre, Alta., Friday, June 8, 2012. Plains Midstream Canada says one of their non-functioning pipeline leaked between 1,000-3,000 barrels of oil. THE CANADIAN PRESS/Jeff McIntosh

  • June 7, 2012 -- Red Deer River

    Some of the oil <a href="" target="_hplink">seeped into the Gleniffer reservoir</a>, which some Albertans rely on for drinking water. Plains Midstream Canada <a href="" target="_hplink">trucked in drinking water</a> for those residing near the area.

  • May 19, 2012 -- Northwest Alberta

    Pace Oil and Gas's waste disposal line <a href=" Lake spill pegged at 22,000 barrels/6683338/story.html" target="_hplink">leaked about 22,000 barrels of a mixture of oil and water</a> 20 kilometres southeast of Rainbow Lake. The spill was discovered on May 19 by another oil and gas company.

  • May 19, 2012 -- Northwest Alberta

    The oil spill "<a href="" target="_hplink">ranks among the largest in North America in recent years</a>," the Globe and Mail wrote.

  • June 26, 2011 -- Swan Hills

    A pipeline explosion and oil leak at a Pengrowth Energy facility caused a pipeline to leak <a href="" target="_hplink">500 barrels of light, sweet crude oil into Judy Creek</a> near Swan Hills, Alberta.

  • June 26, 2011 -- Swan Hills

    Energy Resources Conservation Board spokesman Darin Barter said the <a href="" target="_hplink">leak was relatively small</a>. <br></br> "It's what we would consider a minor spill with 95 per cent of the product coming out of the pipeline being water and five per cent oil," he told CBC. "However, we're taking it very seriously, as is the company."

  • April 29, 2011 -- Little Buffalo First Nation

    Plains Midstream Canada's 45-year-old Rainbow pipeline<a href="" target="_hplink"> spilled roughly 28,000 barrels of light crude oil</a> near Little Buffalo First Nation.

  • April 29, 2011 -- Little Buffalo First Nation

    Residents, including children, <a href="" target="_hplink">reported incidents of burning eyes, stomach pains, disorientation, nausea and headaches</a>, according to the Assembly of First Nations.