Tetra Tech Inc.’s acquisition last week of a Canadian company that generated revenue equal to only one-fiftieth of Tetra Tech’s might not seem like a big play.

But the purchase of British Columbia’s Fransen Engineering is one more indicator of a mounting modern-day Gold Rush that the Pasadena engineering firm wants to get in on.

Fransen is in the business of oil sands – petroleum deposits that contain a mixture of sand, clay, water and bitumen, an especially thick form of petroleum.

Canada’s vast reserves of oil sand were long considered too difficult and expensive to tap into, but improvements in technology have led to increasing extraction over the past 10 years. As a result, the country is now the largest exporter of oil to the United States, beating out Mexico and Saudi Arabia.

Fransen’s specialization is in treating and handling waste water and tailings, a mixture of waste and water, left over from the extraction of oil sands.

“It’s a rapidly growing market in which the No. 1 technical problem is water treatment, and the specific expertise of Tetra Tech and Fransen brings us access into the oil sands market,” said Mike Bieber, Tetra Tech’s vice president of corporate development. “More and more of all the new permits being issued for new facilities require some form of water treatment or recycling of water.”

Tetra Tech isn’t the first local engineering group to have a finger in the oil sands pie. Jacobs Engineering, also based in Pasadena, announced three oil sands-related contracts in late 2009. Jacobs has provided engineering services for oil processing facilities as well as tailings management services.

In fact, the recent rise in oil prices has set off a flurry of investment in oil sands. In November, a Thai company reportedly paid $2.3 billion for a 40 percent stake in Statoil ASA’s oil sands project in Alberta. Just three years prior, Statoil had reportedly paid $2 billion for the entire project.

However, environmental issues threaten to slow down the tapping of Canada’s reserves of oil sands, which are estimated to contain petroleum equivalent to the world’s existing crude oil supplies.

Flocks of birds have died after landing in the tailings ponds of some projects, prompting an outcry from environmental groups. Alberta’s government has begun imposing stricter regulations on tailings, and Tetra Tech believes expertise in tailings management will be in high demand as regulations tighten.

Fransen’s clients have included oil giants Shell and Suncor. Bieber said the company hopes to double Fransen’s annual revenue of $27 million in that market over the next few years.

Jeff Beach, an analyst at St. Louis-based Stifel Nicolaus & Co., said Fransen had mostly been limited to smaller projects, but that could change.

“Tetra Tech is a huge company with lots of cash and a strong balance sheet,” he said. “It could allow them to move in and bid on much larger projects that have maybe a little better margins than they’re getting off of the smaller ones.”

Strategic shift

Beach said the Fransen acquisition also reflects a mostly successful strategy that Tetra Tech has had to diversify out of both the United States and the public sector. Contracts with the federal government accounted for 42 percent of the company’s revenue last year.

“They think Canada has a good solid economy, and it’s heavily resource oriented between oil, gas, energy and mining,” Beach said. “It seems to be playing out. You’ve seen prices of key ores moving up dramatically, and now oil is moving up.”

Three years ago, just 1 percent of Tetra Tech’s revenue came from outside the United States. Last year, the figure was about 15 percent, most of that from Canada, and the company expects that figure to jump to 25 percent this year. With the acquisition of 180-employee Fransen, 3,300 of the company’s 12,000 employees are now in Canada.

In early 2009, Tetra Tech bought Toronto’s Wardrop Engineering Inc., which had annual revenue of $120 million. That was followed by acquisitions last year of Edmonton’s EBA Engineering Consultants and Quebec City’s BPR Inc., which had annual revenues of $100 million and $170 million, respectively. The acquisitions gave the company coast-to-coast coverage across Canada, Bieber said.

In a conference call with investors in November, Tetra Tech Chief Executive Dan Batrack said BPR, which also specializes in water treatment, would be the company’s last large acquisition in the country. But he added that acquisitions of niche companies would follow.

Fransen clearly appears to fall in that category.

“We’ll still have additional small pieces that we’ll look to have that will bring us specialty services and additional client penetration,” he said.

Batrack also said in the same call that Australia, which is in the middle of a huge minerals mining boom, could be the next country the company targets for expansion.

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