Penn West's CEO predicted its foreign takeover following Flaherty's trust tax

THEN: Canada's Trust Tax May Spark Oil Industry Takeovers

By Reg Curren - November 2, 2006
Bloomberg

A surge in foreign takeovers of income trusts would mean the government's attempt to stem a decline in tax revenue by taxing trusts may have the opposite affect, said Lee Goldman, a money manager at First Asset Funds Inc. in Toronto.

``Where you've seen a Canadianization of the energy industry, it will go the other way, there will be a lot of purchases,'' William Andrew, chief executive officer of Penn West, said in a telephone interview from Calgary.

The decline in Canadian energy income trusts will make them more attractive to foreign companies interested in acquiring natural gas and crude oil assets, BMO Capital Markets analyst Gordon Tait said. The new tax structure also removes a disadvantage foreigners faced when buying a Canadian trust. Under the current rules, a trust would lose its tax exemption if it were controlled by non-Canadians, meaning buyers would be paying for a benefit they couldn't use.


``As some of these assets get sold off and some of these good companies get sold down, you could see more foreign takeovers, in which case you could see a lot of income stripping coming out of Canada,'' Tait said.

NOW: Penn West, Mitsubishi sign gas venture

By: Nathan VanderKlippe
Calgary — The Canadian Press

Photo: Penn West CEO Bill Andrew


Calgary — The Canadian Press Published on Tuesday, Aug. 24, 2010 7:07AM EDT Last updated on Tuesday, Aug. 24, 2010 7:41PM EDT

Penn West Energy Trust PWT.UN-T signed an $850-million natural-gas joint venture with Japan's Mitsubishi Corp., cashing in on a surge of foreign interest in Canada's most promising energy plays.

The deal is the latest in a string of partnerships that has Asian buyers spending billions on natural-gas properties, which are now attracting nearly as much attention as the oil sands from overseas companies with deep pockets.

South Korean and Chinese investors have also made substantial bets on the prolific Horn River and Montney shale gas plays in northeastern British Columbia. In its deal with Mitsubishi, Penn West is selling a stake in its Wildboy and Cordova Embayment plays, which contain a mix of conventional gas and shale, where gas is trapped in dense rock that makes it more difficult to extract.

Mitsubishi, a Japanese conglomerate with interests in energy, metals, machinery and chemicals, agreed to pay $250-million upfront, and a further $600-million to develop the two properties and take a 50-per-cent share in the properties, which are located in the northeastern corner of B.C. near the Northwest Territories border.

The Mitsubishi deal comes after Penn West signed a similar partnership earlier this year with China Investment Corp., which will pay $1.25-billion for a 45-per-cent stake in northern Alberta heavy oil property.

“A lot of the historic sources of capital have been either the U.S. or Europe, but because of the recession in both those places, there’s just not as much risk capital available,” said Penn West chief executive officer Bill Andrew. “The Japanese and the Chinese – and the Indians and the Koreans to some extent – want to diversify and take on some risk. So they’ve been actively pursuing plays in Canada and elsewhere.”

Those investments have proven a critical source of funds, particularly as companies look to unlock assets that may otherwise not have been developed for years.

The Mitusbishi deal will allow Penn West “to move ahead with very little capital exposure on our part,” said Mr. Andrew.

Natural gas prices have sunk to their lowest levels of the year, hovering just above $3 per thousand cubic feet in Alberta. But low prices have done little to dissuade investors who believe that gas has a bright future in North America, particularly as a relatively clean source of energy compared with coal and oil.

The deal works out to roughly $50,000 per flowing barrel equivalent, a solid valuation despite current gas prices, according to Alan Tambosso, president of Sayer Energy Advisors.

“These are strong prices, and I think they're reflective of a long-term view toward natural gas, and a long-term commitment to this play,” he said.

“Sometimes it’s not a bad idea to start these things in a down part of the cycle and hopefully you’re there if the cycle improves and gas prices recover,” said Gordon Tait, an analyst with BMO Nesbitt Burns.

Mitsubishi joins China National Petroleum Corp. and Korea Gas Corp., which have both partnered with Encana Corp. to speed production of British Columbia’s enormous gas fields. Foreign firms began scouring the country for acquisitions nearly three years ago, Mr. Andrew said, and interest has grown since then. In the U.S., French and Indian companies have also partnered on huge new natural gas plays.

B.C. is attractive in part for the size of its resource. Mitsubishi believes its joint venture gives it access to land that can produce up to 500-million cubic feet a day, just under 10 per cent of Canada’s daily consumption and far more than Japan’s own output. Mitsubishi is buying into lands that currently produce just 30-million cubic feet a day, but the “potential of this enormous resource could greatly exceed Japan’s natural gas annual demand,” the company said in a release Tuesday.

The mounting Asian interest in northeastern B.C. comes as EOG Resources Inc. and Apache Corp. work to build a $3-billion port that would export liquefied natural gas from the West Coast. Those plans have raised the possibility of overseas firms being able to physically take possession of the gas they buy in Canada.

Japan currently relies on natural gas for about 14 per cent of its energy needs, a number it is seeking to boost. Much of its supply currently comes from Indonesia, Australia, Malaysia, Qatar and Brunei. Canada could prove a valuable additional gas source.