East woos West in Oilsands

At the height of the market meltdown last week, Abu Dhabi National Energy Co. broadcast its intention to take advantage of depressed share prices and cashed-out balance sheets to expand aggressively in Canada’s energy sector, where it hopes to become one of the top-10 producers.

The plan, the first by a Middle East investor in the Canadian energy scene, raised the question: Why is a state-controlled energy company from one of the lowest-cost, most prolific oil-producing countries in the world interested in Canada’s high-cost industry, which is also a competing supplier of oil to the United States?
Abu Dhabi, with 420,000 residents, holds 8% of the world’s proved oil reserves and produces about 3 million barrels a day, about the same volume as Canada.

Peter Barker-Homek, the Abu Dhabi-based chief executive of TAQA (as the Abu Dhabi company is known), explained why the Middle East’s unique perspective of the oilpatch supports more investment in the Canadian West.

He was in Calgary last week to complete his company’s US$2-billion acquisition of conventional oil and gas producer Northrock Resources Ltd. (renamed TAQA North).

-The Middle East is aware of Canada’s growing importance as an energy producer, particularly from its oilsands deposits, but doesn’t see Canada as a competitor, Mr. Barker-Homek said.

In fact, it’s enthusiastic about oilsands’ development, said Mr. Barker-Homek, an American who worked as a senior advisor on mergers and acquisitions at BP PLC, and also at British Gas and Merrill Lynch, before joining TAQA last year.

“If we start harvesting oilsands, we are setting a floor for [Persian] Gulf oil, because you have to make oilsands economic, which makes lower-cost oil always find a market,” he said. “Refineries upgrade themselves to deal with that product and you have transformed an industry so that it will only be profitable if oil is traded at a certain levels. If you fall below that, and there isn’t enough spare capacity in conventional oil, then you will have a price recovery above that floor so oilsands can produce again. So, if you are a low-cost provider, as in any industry, you are getting market security at a certain price level because of other industry participants.”

Financial Post