Few may have heard of Taqa, one of oil-rich Abu Dhabi’s youngest companies. But the quasi-sovereign investment vehicle has been on a multi-billion dollar spending spree that has seen it make aggressive inroads into energy markets in North America and Europe.
With little fuss and attention it has doubled its assets to $21bn following six acquisitions last year, emerging as another tool in the Abu Dhabi government’s growing chest of investment entities that are expanding the emirate’s global portfolio.
The pace of Taqa’s growth is likely to slow in 2008, but the energy company is hoping to increase its assets to about $30bn by the year’s end. The goal is to achieve 25 per cent year-on-year growth through to the end of 2012 with assets of $60bn.
“We are always looking at opportunities. We are looking at plays in Mena [Middle East and North Africa], Europe and North America,” says Peter Barker-Homek, Taqa chief executive.
The group is in negotiations with Shell and ExxonMobil for the acquisition of assets in the North Sea and is in talks with India’s Tata Group about developing a power plant in India.
Set up in 2005, Taqa is 75 per cent owned by government entities while 25 per cent is traded on Abu Dhabi’s bourse.
It started life as the emirate’s power company. But since then it has spent $10.5bn, mostly in the past year, as it has sought to become Abu Dhabi’s international energy operator. It now boasts interests in upstream exploration and production; pipelines and liquefied natural gas, as well as downstream power projects. It also provides 85 per cent of the water and power in Abu Dhabi and has majority stakes in six independent water and power projects in the emirate, which is home to about 95 per cent of the United Arab Emirates’ oil and gas resources.
“Taqa, for us, ranks alongside ADIA [the Abu Dhabi Investment Authority] and Mubadala as an entity that has very significant sovereign strategic importance. The key difference between Taqa and the other companies is that Taqa wants to be an operating company,” says Philipp Lotter, senior credit officer at Moody’s, the rating agency.
“In that sense Taqa not only plays the role of diversifying the economy out of Abu Dhabi, but it also plays a very important role establishing the flagship Abu Dhabi operating entity. That is very important; everything that Taqa is doing is being driven by that desire.”
With operations in nine countries, Mr Barker-Homek, says that part of Taqa’s role is “bringing the east to the west and the west to the east. We are creating an institution that quite frankly opens doors,” he says.
“It’s building an energy brand for the GCC [Gulf Cooperation Council] and the UAE. I think the amazing [thing] ... is the dialogue about what it is to be an Arabian company doing business somewhere else has shifted as Taqa has entered markets,” Mr Barker-Homek adds. “They can now say ‘it looks just like Petro-Canada or it looks just like Shell, or Chevron; a smaller scale, but they behave the same way, the same corporate governance model.’”
Taqa’s global portfolio stretches from Canada where it made acquisitions last year worth more than $7.5bn, including PrimeWest, Pioneer Natural Resources Canada and Northrock Resources, to Europe where it bought BP’s Netherlands-based exploration and production business for $694m, and power generation projects in Ghana and Morocco.
As it searches for opportunities, Taqa’s target is assets “with sophisticated employees” in the range of $500m to $5bn, Mr Barker-Homek says.
One area of attention will be Europe, where Taqa’s portfolio is a “little bit thin”, he adds. Ultimately, the company wants a portfolio spread with 40 per cent in each of upstream and downstream, and 20 per cent in midstream operations.
“BP got us on the map, and PrimeWest said we are not going to get off the map any time soon,” says Mr Barker-Homek.
But the test for the company will be integrating its assets, says Mr Lotter. “It is a key thing because they’re essentially buying companies that, the likes of BP, from a larger magnitude believed for them are no longer worth keeping. Now that doesn’t mean they’re not valuable, but it certainly means they require an operational focus that the big guys aren’t prepared to give these entities. And that’ll be the key yardstick success for Taqa,” he says.
He adds that Taqa will also need some balance sheet “maintenance work” given the levels of debt the company has taken on as it expanded.
However, with the backing of the government it is likely to receive any support it requires and Moody’s has rated the company Aa2, the same as Abu Dhabi’s sovereign rating.
Mr Barker-Homek says the global economic climate is creating new opportunities as tier two and three energy companies become starved of the cash needed to meet growth targets.
“Shareholders, equity providers, [and] debt providers are still very interested in Taqa. I would say the opportunity set has risen,” he says. “Prices are down, which is good and the opportunity set has expanded.”