Goodale, who outlined his first federal budget as finance minister this week afternoon, had mused about the possibility of a sale in January, sparking speculation a secondary offering of the 49.4 million shares might soon be in the works with oil and natural gas prices surging.

Petro-Canada chief executive Ron Brenneman has also at times raised the possibility of buying the stock, but said such a move would have to be weighed against other opportunities.

The company may opt to buy back a portion of the stake to preserve its financial muscle for buying assets, analyst Wilf Gobert of Peters & Co. Ltd. said.

"They said they have C$4 billion to C$5 billion of borrowing capacity, so if they put C$1.5 billion into buying back some of their shares, they would still leave themselves with balance sheet capacity for an acquisition," Gobert said.

The shares fell C$1.05, or 1.9 percent, to C$55.85 on the Toronto Stock Exchange as investors worried over the chances of a huge number of shares being put on the market.

The stock surged as high as C$68.53 early this year, but tumbled at the end of January when the company released disappointing fourth-quarter financial and operating results. Ottawa's stake is worth C$400 million less as a result.

Despite the slide, the stock is still worth more than at any time before last December, Gobert pointed out.

For its part, the company said it was pleased with the move but pointed out it would have no impact on its operations.

Ottawa's confirmation of sale plans "is good for Petro-Canada because it ends months of market speculation," spokeswoman Michelle Harries said. Petro-Canada is best known for its national chain of red and white gas stations and oil and gas production in Western Canada and off the East Coast.

In 2002, it bought Germany's Veba Oil & Gas for C$3.2 billion, adding exploration and production assets in the North Sea, Middle East, North Africa and South America.

Pierre Trudeau's Liberal government set up Petro-Canada as a state oil company in 1975, as world oil shortage fears were at their height. Its mandate was to provide a window on what was then a mostly foreign-owned energy industry and to buy up assets to "Canadianize" them.

That angered many western Canadians, some of whom referred to its Calgary headquarters as "Red Square."

Privatization began in 1991 under former Conservative Prime Minister Brian Mulroney, and Petro-Canada has since been free to operate as any other publicly traded firm.

Ottawa last sold a tranche of Petro-Canada stock through a secondary offering in 1995, garnering C$1.8 billion.

Prime Minister Paul Martin said during his run for the leadership of the ruling Liberal Party last year that money from a future sale could be funneled into an agency charged with developing environmental technology.