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Abu Dhabi takes a foothold in Western Canada

TAQA, Abu Dhabi's national energy company, has made a surprise entry to Western Canada's oil patch with a $2bn all-cash offer for Northrock Resources. State-owned Taqa's approach raises the prospect of further investments in the country by companies from the Mideast Gulf.

Northrock – a unit of Houston's Pogo Producing, which is under pressure from investors to sell all or part of its assets outside onshore Texas and the US Rockies – will add 29,000 barrels of oil equivalent a day (boe/d) of production and proved reserves of 116m boe (55% oil and natural gas liquids) to Taqa's portfolio, plus 2.6m undeveloped acres. The deal translates into a price of $55,000 per flowing barrel of production, about the same as comparable acquisitions this year in Western Canada.

Taqa, a subsidiary of Abu Dhabi Water and Electricity Authority, was established in 2005 to pursue energy assets outside the United Arab Emirates (UAE). The company has embarked on a rapid growth path this year, paying $0.55bn for Talisman Energy's non-operated Brae assets in the North Sea, including production of 19,000 boe/d and proved reserves of 18.5m boe, and an estimated $0.7bn for BP's oil and gas interests in the Netherlands.

As well as properties in British Columbia and Alberta, Taqa will take a 30% stake in 0.96m acres of leases in the Northwest Territories, where Northrock and four other partners have logged two significant oil and natural gas discoveries that have added momentum to plans for opening up development of the region. Taqa's chief executive officer, Peter Barker-Homek, said the package is a "solid base for further investments and growth in Canada" and indicated that the company is ready to make acquisitions in the range of $50m.

The take-over came as a surprise to industry observers, who have been focused on foreign investment in Alberta's oil sands, led in recent times by Statoil, Total, Korea National Oil Company, and China's Sinopec and China National Offshore Oil Corporation.

Barker-Homek said the purchase could open the door to the oil sands for Taqa, although it has no immediate plans. "If you look at the potential, there is no way you can ignore the oil sands," he said. "As long as the oil price stays above $45 a barrel, they are very viable."

FirstEnergy Capital analyst Mark Friesen says the deal was "quite unexpected" given the pattern of declining reserves and production in Western Canada's conventional fields. However, he also says that Northrock's assets have potential. "They have cash flow of C$400m ($376m) a year, but they have been under-capitalised for along time. Pogo did not get the results and, arguably, they did not give it enough of a chance."

Northrock's chief executive, David Pearce, was surprised by Taqa's interest, considering the access it has to the UAE's oil riches. "But they saw an opportunity and they have a very ambitious acquisition plan," he said. "It is my understanding through preliminary discussions that they have a desire to diversify into relatively secure geographies."

Adam Waterous, president of Calgary-based law firm Scotia Waterous, which concentrates on international mergers and acquisitions, doubts Taqa will be the last company from the Middle East to take a foothold in Canada. Middle Eastern companies are "very aggressive in a number of markets", including Canada, the North Sea and Africa "as they recycle their huge capital resources", he says.

Waterous adds that it makes sense for those companies to invest in conventional plays, taking advantage of their expertise, rather than tackling the highly-specialised oil sands, which demand considerable experience and expertise to be competitive.

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