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Providing coverage of Alaska and northern Canada's oil and gas industry
December 2007

Vol. 12, No. 49 Week of December 09, 2007

Energy trusts: Goin’ to the chapel, and we’re…

Gary Park

For Petroleum News

The scramble to exchange marriage vows among Canadian income trusts carries a high cost these days — more than C$32 billion in market value over the past two months.

Enerplus Resources Fund and Focus Energy Trust were latest to unite in a compatible match that will establish a combined entity with a market-cap of C$7.6 billion and output in 2008 a tick over 100,000 barrels of oil equivalent per day (80,000 boe per day from Enerplus).

The deal, announced Dec. 3, creates an operation that is No. 3 among trust producers in Canada and with a portfolio that is sufficiently diversified — conventional oil, shallow and deep, tight natural gas, the oil sands and a major stake in the United States — to reduce the risks of asset concentration, said Focus Chief Executive Officer Derek Evans.

The C$1.38 billion merger, if completed in February, will “provide greater financial capacity to pursue additional M&A activity and large capital projects,” the two trusts said.

With increased trading volumes on the New York Stock Exchange and the Toronto Stock Exchange there will be improved access to debt capital markets, while a broader investor base will include both Canadian and U.S. retail and institutional markets.

Williston key operating area

One of the key operating areas is the Williston basin, which spills from Montana and North Dakota across the 49th parallel to Saskatchewan and Manitoba.

Focus brings to the marriage a key stake in the Shackleton shallow gas play of Saskatchewan, which produces 69 million cubic feet per day and provides about 1,500 drilling locations.

To the south in Montana, Enerplus pumps 11,500 boe per day, or 13 percent of its total output, from the Bakken oil play, which has 280 million barrels of oil in place.

Focus also has strong interests in deep tight gas positions in British Columbia, allowing it to contribute 110 million cubic feet per day of gas production to Enerplus’ forecast 259 million cubic feet per day in 2008.

But Enerplus Chief Executive Officer Gordon Kerr is not fazed by the increased gas weighting.

He said that although it “may appear counter-intuitive to increase natural gas exposure at a time when North American gas prices are depressed, (the Focus) assets have attractive economics at current prices and cost structures and we see signs of potential cost savings.”

Kerr said he is bullish on the long-term outlook for gas prices, given the decline in U.S. and Canadian basins, the need for more gas to fuel Alberta’s oil sands operations and the likelihood of a changing global economy placing limits on liquefied natural gas imports to North America.

A rarity among trusts, Enerplus also holds an estimated 443 million barrels of contingent resources in the oil sands and future production potential of 60,000 bpd.

It is starting out with a 15 percent stake in the Total-operated Joslyn project, and 100 percent of the Kirby project which is due to come on stream in 2011 at 10,000 bpd and grow to 30,000 bpd by 2015.

Kerr was not greatly troubled by the impact on cash flow of Alberta’s planned royalty hikes, suggesting the new trust, which will carry the Enerplus name, is shielded by the nature of its assets and play types and the government’s decision not to introduce an oil sands severance tax.






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