Feasting on Canada

Abu Dhabi’s TAQA swallows Pioneer assets for $540 million as part of $3 billion expansion plan, adding 10,000 boe per day

Gary Park

For Petroleum News

Canada has leapt to the top of the shopping list for Abu Dhabi National Energy Co. (better known as TAQA).

Having already locked up its acquisition of Northrock Resources from Pogo Producing earlier this year it disclosed on Aug. 22 a cash deal to buy the Canadian unit of Pioneer Natural Resources.

That came less than a week after TAQA executives set a goal of tripling Canadian production over the next 12 to 15 months to 100,000 barrels of oil equivalent per day and hiking reserves to 500 million boe from the Northrock base of 142 million boe.

Pioneer’s holdings will push TAQA another 10,000 boe per day and 59 million boe of reserves down that road, while giving TAQA expertise in coalbed methane exploration and production in Alberta.

Peter Barker-Homek, chief executive officer of TAQA, said the Pioneer business is a “great addition” to his company’s operations in Canada.

It provides “further scale and efficiencies to our existing business by adding 27 percent to daily production, increasing 2P (proved plus probable) reserves by 35 percent and providing a reserve life index in excess of 17 years,” he said.

Scott Sheffield, Pioneer’s chairman and chief executive officer, said the sale will allow his company to “effectively redeploy capital and enhance our financial flexibility,” with the proceeds going to share repurchases, debt reduction and possibly “bolt-on acquisitions in existing operating areas.”

The first Middle Eastern country to set up a base in Canada, TAQA offered some of the most upbeat comments heard in a long time about Canada’s energy outlook.

Barker-Homek said that despite high production costs, Canada offers political stability and access to U.S. markets. TAQA seeks to balance political and fiscal stability, rather than being swayed by costs alone, he said, adding Canada “may have less bottom line benefit per barrel, but you have a more reliable bottom line benefit per barrel.”

Assets are also easier to purchase in Canada than the United States, where TAQA would like to invest but finds itself stymied by tight rules on foreign-based takeover, he said.

“We see Canada as a core market for investments and have decided to focus on big assets,” Barker-Homek said.

Makes one purchase for every 100 deals

For every 100 deals it examines, 10 are appraised, three enter negotiations and only one is bought, he said, noting that TAQA has walked away from $15 billion in prospective deals this year alone.

Barker-Homek openly conceded that his company may have entered Canada “at the right time for a lot of consolidation,” as the Canadian government’s decision to start taxing trusts at the same rate as corporations in 2011 sets the stage for deal-making.

Dave Pearce, chief executive officer of TAQA North, the renamed Northrock, said the hunt for acquisitions is concentrated in the Western Canada Sedimentary basin — which sprawls across much of British Columbia, Alberta, Saskatchewan and the Northwest Territories, where the assets fetch an average $45,000 per flowing barrel.

Current pressures resulting from weakened natural gas prices and the related difficulties for some producers suggest there may be “quite a lot of opportunities,” he said. “There are organizations that are tapped out and have desirable assets — gas and to a lesser extent oil — on the conventional side,” Pearce said.

Although TAQA North is geared for a “relatively healthy” upstream budget in 2008, it will de-emphasize exploration and production “for the time being in favor of acquisitions,” he said.

In case anyone was inclined to question TAQA’s motives and the level of its commitment in Canada, Barker-Homek said the objective is to become one of the country’s top energy producers, and to build a company focused on sustainable growth and discipline that will last for 100 years.

But the Alberta oil sands are not currently in TAQA’s focus.

“There is a big debate about the environmental impact of the oil sands,” he said. “We will monitor that and see how that market develops,” confident that technology will improve project economics for the resource.

“At this point we are interested in the level of (oil sands) technology relative to delivering product in an environmentally sensitive way,” he said.

For now, TAQA is bullish on the conventional oil and gas plays in Canada, which is “an area we have the greatest confidence in and I would see us aggressively developing in those areas,” Barker-Homek said.

He said TAQA is “keenly interested” in the technology being deployed in recovering an estimated 50 trillion cubic feet of coalbed methane in Canada. It is also prepared to use its power generation expertise if Canada shifts from coal-fired to gas-fired generation and is ready to participate in greenfield power projects, the conversion of existing coal-fired plants to alternate fuels, natural gas storage, LNG regasification, ethanol and wind power, he said.

TAQA was created in 2005 and is a publicly traded company, although it is 75 percent owned by the Abu Dhabi government, which controls more than 90 percent of the oil reserves in the United Arab Emirates.

It has assets valued at $16 billion in the Persian Gulf, Middle East, Europe, Asia, Africa and North America and hopes to attain $40 billion to $60 billion by 2012, Barker-Homek said.