UBS Doubts Natural Gas Trust Takeover Targets Would Sell

TAQA’s $5-billion dollar bid for PrimeWest Energy Trust (PWI) is not a harbinger of things to come, writes UBS Investment Research analyst Grant Hofer in a note to clients Tuesday.

He said the western Canadian energy trusts still trade at healthy valuations to their global peers, and that domestic mergers are more likely than more large-scale buyouts by international companies.

He also said that eroding industry fundamentals such as rising costs played a larger role in the PrimeWest acquisition than lingering fallout from last October’s decision to tax income trusts like regular corporations.

TAQA said it has a $20-billion kitty to spend on further acquisitions in Canada, but Mr. Hofer does not believe any of the most likely natural gas trust targets – Focus Energy Trust, Progress Energy Trust or Peyto Energy Trust – would be willing sellers, even at hefty premiums.