Acting while markets were closed, the Canadian federal government blocked the C$5.2-billion bid by Malaysian state oil company Petronas for Progress Energy Resources Corp. under the provisions of the Investment Canada Act, citing that the foreign investment by Petronas was not of “net benefit” to Canada. The rejection came as a surprise to Progress chief executive officer Michael Culbert, who blamed the decision on a “communications breakdown.”

Whatever the rationale for the government’s decision, the rejection negatively impacts other E&P companies’ efforts to secure deals during a time of rising ...