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Vol. 10, No. 19 Week of May 08, 2005
Providing coverage of Alaska and northern Canada's oil and gas industry

Three Canadian juniors form royalty trust

Shareholders of Thunder, Mustang and Forte get stakes in exploration and coalbed methane companies as part of complex deal

Allen Baker

Petroleum News Contributing Writer

Three Calgary-based Canadian juniors are planning to form a new energy trust in a complex arrangement that also spins off two traditional exploration companies and a coalbed methane outfit.

Thunder Trust will get the bulk of production once the deal goes through. It will bring up an estimated 13,000 barrels of oil equivalent daily, most of it in the form of natural gas.

The boards of Thunder Energy Inc., Mustang Resources Inc. and Forte Resources Inc. all approved the deal unanimously, the three companies announced May 3. Those directors hold at least 10 percent of the shares in each company, and have pledged to vote their shares for the deal.

Total assets of the three companies total roughly C$1 billion (US$800 million). The trust will end up with 86 percent of those assets, principally gas reserves in Western Canada.

The trust will have 31.5 million barrels of oil equivalent in proven reserves, plus 45 million equivalent barrels of probable reserves and 173,000 acres of undeveloped land.

9.5-year reserve life

At the estimated production rate, it will take 6.6 years to pump the proven reserves and 9.5 years to exhaust the proven and probable oil and gas in the ground. Managers of the current companies say they’ve identified more than 100 gross drilling sites (75 net) for the first 18 months of development drilling at a cost of $85 million. That will be financed from the 35 percent of cash flow that the company expects to retain, while distributing 65 percent to unit holders.

Along with slices of the trust, current shareholders in the three companies will get pieces of three new companies, provisionally called Thunder Explorco, Forte Explorco and Thunder CBMco. The first two will get traditional oil and gas properties, while the last one will have coalbed methane reserves and exploration acreage.

Shareholder deal

Here’s the way it works out for current shareholders:

—Thunder Energy shares will convert into one trust unit or exchangeable share of Thunder Trust, one share of Thunder Explorco and one share of Thunder CBMco for each current Thunder Energy share.

—Mustang Class A shares will convert to 1.1 trust units or exchangeable shares of Thunder Trust, 1.1 shares of Thunder Explorco and 0.25 shares of Thunder CBMco. Mustang B shares will be converted to A shares based on closing prices over a 10-day period that began May 3.

—Forte shares will convert to 0.35 trust units or exchangeable shares of Thunder Trust and one share of Forte Explorco.

Thunder Explorco will have 178,000 acres of undeveloped land in Alberta and British Columbia, as well as an interest in production infrastructure in northeastern British Columbia and Alberta, including B.C.’s Laprise area. The company will also have central Alberta properties at Sylvan Lake, Arvilla and Bruce.

Forte Explorco will have 84,000 acres in Alberta and British Columbia, along with some production infrastructure in Alberta. The company will inherit Forte properties at Grande Prairie and Leaman/Niton, where new production is expected to start this year, as well as Laprise interests.

Thunder CBMco will get 289,000 net acres of potential coalbed methane lands, including the Horseshoe Canyon play at Fenn-Big Valley with current production of around 2 million cubic feet of gas daily and 150 identified development drilling locations. The new entity will also get three large blocks in central Alberta’s Mannville coal seams with an estimated trillion cubic feet of gas in place.

The royalty trust configuration has attracted a lot of interest in Canada, with several companies considering the conversion in recent months. Penn West Petroleum Ltd. announced plans for such a move last fall.

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