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Canada energy trusts seize the moment Three deals worth a combined C$2 billion indicate positive long-term view of natural gas despite a depressed pricing period By Gary Park For Petroleum News
Three Canadian energy trust transactions in the space of three days involved almost C$2 billion in the latest round of mergers in the sector as dealmakers apparently decided the time may be ripe to pick off some natural gas assets.
Pengrowth Energy Trust spent C$1.1 billion to buy Esprit Energy trust; Harvest Energy Trust scooped up a private, unidentified Western Canada crude oil and gas producer for C$440 million; and True Energy Trust announced plans to take over Prairie Schooner Petroleum for C$431 million, including C$54 million of assumed debt.
Pengrowth moved to No. 2 among conventional trust producers at 75,000 barrels of oil equivalent per day by adding 18,350 boe per day of production and 71.7 million boe of reserves to its portfolio.
Penn West Energy Trust leads the pack among producers at 135,000 boe per day.
Pengrowth’s name will remain alive once the merger is concluded in late September, giving it 82 percent control over the new entity and a stock market value of about C$3 billion based on recent trading values.
The combined operation will have 291 million boe of proved and probable reserves and a reserve life index of 10.6 years weighted 52 percent to gas and 48 percent oil and natural gas liquids/
In raising its gas ratio from 48 percent, Pengrowth welcomes the chance to acquire long-life gas assets “in the current price environment,” notably those with shallow gas potential and coalbed methane acreage, said Chief Executive Officer Jim Kinnear. Pengrowth paying $18.50 per boe But, even with gas prospects at their most tempting level in recent years, Pengrowth is paying C$18.50 per boe for reserves, up 17 percent from last year’s average.
For Pengrowth, it is the first entry to the acquisition market in more than two years since it paid C$550 million to Murphy Oil for 43.6 million boe of proved reserves in Alberta and Saskatchewan.
Harvest said its latest purchase will add 6,300 boe per day of production, two-thirds of it natural gas. It paid C$18.11 for proved plus probable reserves of 22.6 million boe, translating into C$65,079 per flowing barrel.
Once the new volumes are absorbed, Harvest expects to end 2006 at 60,000 boe per day.
In addition, it picks up 56,700 net undeveloped acres, valued at C$30 million, boosting its total to more than 800,000 acres. True pays 16% premium True has agreed to pay Prairie Schooner shareholders a premium of 16 percent to gain liquids-rich, natural gas-focused properties in central and southern Alberta which currently yield 6,800 boe per day from proved plus probable reserves of 20.6 million boe.
The acquisition price works out at C$19.60 per boe of reserves and C$59,400 per flowing boe.
As a result, True will raise its output to almost 18,500 boe per day, with a mix of 67 percent gas, 23 percent heavy oil and 10 percent light oil and gas liquids.
Some analysts say producers who are positive about the long-term outlook for gas and are ready to overlook current weakened prices are comfortable taking advantage of the environment.
Those trusts in a healthy financial state see an opportunity to bulk up on gas assets to gain more attention from financial markets in Canada and the United States and improve their chances of contracting for drilling rigs.
Trusts are also facing stiffer competition from conventional E&P companies which have started to narrow the trading gap on trusts.
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