TAQA North completes PrimeWest acquisition
Deal part of Abu Dhabi's push to grow global franchise
Shaun Polczer
Calgary Herald
Thursday, January 17, 2008
If oil companies are measured by the height of their office towers, TAQA North Ltd. is shooting for the moon.
Perched atop the 51st floor of the Petro-Canada building, TAQA on Wednesday closed its $4.6-billion acquisition of PrimeWest Energy Trust to become a top-10 player in Calgary's oilpatch.
Peter Barker-Homek, who heads the Abu Dhabi National Energy Co., called it a "formative" day for the United Arab Emirates member's drive to establish a $60-billion global franchise.
"It's the first time the company has created a business that has the ability to invest in itself and grow organically," he said in an interview. "The closing of this transaction is an important milestone in our company's history."
With the deal, TAQA -- which is 75 per cent owned by the government of Abu Dhabi -- becomes one of the first state-backed enterprises to become a major oil and gas company outside its country of origin.
PrimeWest president and CEO Don Garner takes over the reins of the merged outfit, which will be run as a wholly owned subsidiary.
In conjunction with the takeover, TAQA announced a $500-million capital program, roughly double what PrimeWest would have spent this year.
"This is an opportunity to move forward our development programs we had at PrimeWest," Garner said.
"We all know what's happened around here with natural gas prices and capital markets, and executing those kinds of programs in a trust model was challenging."
TAQA North is targeting 140 per cent reserve replacement, which Barker-Homek and Garner both agreed is an "optimistic" view of a troubled market that has seen tax changes to royalty trusts and impending hikes to royalty rates in Alberta.
Compounding the situation in Canada, Garner said, the credit crunch south of the border is limiting the ability of Canadian and American companies to access much-needed capital.
Joining forces with TAQA effectively removes those barriers, he added.
"The market is in a pessimistic mood and we're seeing a pullback in development. A lot of people don't realize how hard it's come down," he said. "But we're not caught up in that pessimism. That number ($500 million) is real and it's exciting."
In less than a year, TAQA has spent about $7.5 billion to acquire roughly 100,000 barrels per day of production.
The company is targeting $20 billion worth of Canadian assets in five years, and both Garner and Barker-Homek said to expect more deals.
Analysts said TAQA is well within its means to fulfil that pledge. As the wealthiest of the United Arab Emirates, Abu Dhabi is widely considered to be among the richest cities in the world.
"There are pockets of capital around the world that would blow people's minds," said Dirk Lever, an analyst with RBC Capital Markets in Toronto who covered PrimeWest.
Lever described TAQA's takeover as a blueprint of things to come as governments laden with petro-dollars look to diversify their holdings worldwide.
"Most people think they overpaid (for PrimeWest) but I don't think it matters to them," he said. "Money is money. The amount of dollars in government-owned organizations out there is staggering. It far exceeds most people's imaginations. I'm interested to see where those organizations put it."
Steve Calderwood, an oil and gas analyst with Raymond James in Calgary, said the entire junior sector is ripe for consolidation in light of falling prices and rising costs.
He covers Compton Petroleum Corp., which has been fingered as the next TAQA takeover target, a deal that could be worth more than $2 billion.
Compton in December hung out the For Sale sign after one of its largest shareholders requested the company to review strategic alternatives.
Calderwood said it's probably a good time for buyers to be shopping heavily discounted assets.
"If you've got a longer-term view, then yeah, these companies are all ripe for takeover," he said.
When asked if Compton was in TAQA's sights, Garner shrugged: "We're friendly with them," he said.
spolczer@theherald.canwest.com
© The Calgary Herald 2008
