Canadian juniors bulk up

Two moderate-sized Canadian E&P companies have taken a growth hormone, buying into the notion that bigger is the recipe for survival.

Progress Energy Trust and ProEx Energy have agreed to merge, creating a mid-sized producer with an enterprise value of C$2.4 billion and proved-plus-probable reserves of 816 billion cubic feet of natural gas and 15.4 million barrels of liquids — most of it concentrated in northern British Columbia and Alberta.

ProEx Chief Executive Officer David Johnson said this is a time when “scale has increased the importance to future success in our industry,” so the two entities are leveraging their combined strengths “to create even greater value.”

Michael Culbert, Johnson’s peer at Progress, said the strategy will create a new company ready to build on a strong assets base in the Western Canada Sedimentary basin, aiming for annual growth of 10-15 percent and an annual dividend of 40 cents per share.

The current objective is production within 12 months of 41,000-42,000 barrels of oil equivalent per day, or a 10-15 percent hike over the 2008 fourth-quarter forecast.

Culbert said the strengths come from core operating regions in the Foothills region of northeastern British Columbia and the Deep basin area of northwestern Alberta.

The merged company will have an undeveloped land base of more than 1.1 million net acres, including 265,000 acres added this year; a drilling inventory of more than 500 locations, or enough to sustain the current pace of growth for four years; and a 2009 capital spending program of C$340 million-$360 million.

Johnson said rapid gains in drilling and well completion technologies have “changed the competitive landscape” in Western Canada, unlocking the “large resource potential of the combined company’s asset base.”

“Our new company will have the scale of operations, technical know-how, strong capital efficiencies, sound financial management and access to capital markets to expand our existing resource plays and pursue larger scale developments,” he said.

—Gary Park