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

Vol. 12, No. 33 Week of August 19, 2007

Canadian trust embarks on growth plans

Gary Park

For Petroleum News

Some have made their choice to get out, some are plain confused about their futures and some intend to stay the course.

Put NAL Oil & Gas Trust in the third category as the shuffle continues in the Canadian trust world now that Canada’s Finance Minister Jim Flaherty has emphatically told them he won’t budge from his planned tax changes.

It has bet C$246.6 million on its future as a Canadian energy trust and is ready to up that ante.

It has struck a deal to buy Seneca Energy Canada, whose parent company National Fuel Gas has opted to bail out of Canada and redirect its Seneca Resources unit to focus on properties in the Gulf of Mexico, Appalachia and California “to maximize their potential for growth and development.”

National Fuel Chairman and Chief Executive Officer Philip Ackerman said the Seneca Canada assets were “no longer a strategic fit.”

NAL takes a different view in acquiring 10.3 million barrels of oil equivalent in proved plus probable assets, production of 4,500 boe per day that is expected to reach 5,500 boe per day in 2008, and more than 157,000 net acres of undeveloped land in Alberta and British Columbia valued at C$30 million.

The Seneca properties include an 89 percent operator stake in eastern Alberta and a 52 percent non-operated stake in deep gas plays in northeastern British Columbia operated by Talisman Energy.

Takeover trust’s ‘first step’ in repositioning

NAL Chief Executive Officer Andrew Wiswell said the Seneca takeover is the trust’s “first step” to reposition itself for the post-2010 era when the Canadian government will start taxing trusts as corporations.

He said the Seneca interests are “exactly the kind of thing we were looking for to add to our production base.”

He said the C$246.6 million transaction is about 25 percent of NAL’s current market value and large enough to make an impact, without being unmanageable and difficult to integrate into the trust organization.

He said the assets were “too small for some of the big guys to look at and too big for some of the gas-weighted” companies or trusts at a time of low gas prices.

NAL believes there will be more opportunities

NAL Chief Financial Officer Keith Steeves said NAL believes there will be similar opportunities in the future as the shakeout of the trust sector continues.

“We wanted to make sure we kept enough powder dry to be able to do further acquisitions,” he said.

NAL said the current environment “represents an opportune time to acquire assets with a gas weighting and position NAL to benefit from improving natural gas prices.”

Wiswell said the deal is a start of NAL’s efforts to “create an attractive, sustainable entity post 2010.”

NAL’s strategic partner, Manulife Financial Corp., is interested in adding more oil and gas holdings to its current 16,000-17,000 boe per day production base and investing in new opportunities in the sector. It was prepared to participate equally in the purchase of the Seneca shares, but agreed to defer to the trust in this transaction.

The deal also adds C$127 million of tax pools, adding to NAL’s existing pools of almost C$500 million.






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