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Fairborne Energy Trust’s bid to return to corporate ranks viewed as ‘test case’
Fairborne Energy Trust is heading for shore after a year of being tossed around in uncertain seas.
Its bid to become the first energy trust to convert back to corporate ranks needs unit holder approval for Fairborne to sell a 16 percent stake to Denham Commodity Partners Fund, a U.S. private equity fund, for C$100 million.
That offer for 13.4 million shares of the new company is C$7.45 per share, or 8 percent above Fairborne’s closing price on Oct. 19.
Analysts view the proposed reorganization as a “test case” in a sector where True Energy Trust was rebuffed six months ago when investors turned down its conversion plan.
Fairborne Chief Executive Officer Steve VanSickle said Fairborne sees “greater value creation to security holders from investing all of our cash flow in our existing assets and growth opportunities than under the current trust structure.”
He said the Denham infusion would significantly improve Fairborne’s balance sheet by paying down debt “without diluting existing shareholders” and would enable the trust to “aggressively pursue identified opportunities on our existing asset base.”
VanSickle said Fairborne is “on the small side” of a sector that has evolved into very large and very small trusts.
Production 13,100 boe per day Fairborne currently produces 13,100 barrels of oil equivalent per day, 75 percent of its natural gas in Alberta and Saskatchewan and has 233,500 net undeveloped acres.
The trust also has tax pools of about C$490 million, which will allow it to remain non-taxable beyond 2011, when the Canadian government will put trusts in the same tax category as corporation.
If the conversion goes through it has a 2008 capital spending program of C$125 million to C$150 million.
Turned into a trust in May 2005, Fairborne struck a deal to acquire its original spinoff Fairquest Energy for C$197 million earlier this year and picked up production of about 10,000 barrels of oil equivalent per day.
Meanwhile, Provident Energy Trust is scooping up a private heavy oil producer for C$79 million to expand its operations in southwestern Saskatchewan.
The deal involves 1,300 bpd of production from proved plus probable reserves of 3.6 million barrels and 17,900 net acres of undeveloped land.
—Gary Park
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