E&P firm moves assets into trust

Gary Park

Petroleum News Calgary correspondent

Formed in 1988, Canadian E&P junior Zargon Oil & Gas has joined the trust sector to take advantage of a “more tax-efficient structure,” while continuing to explore for natural gas and exploit existing oil reservoirs.

The Calgary-based company announced May 17 that, rather than following the recent trend of creating a production-focused trust and small exploration-focused junior, it will move all of its assets into Zargon Energy Trust.

The trust, assuming approval by two-thirds of Zargon shareholders in July, will produce 30 million cubic feet per day of gas and 3,400 barrels of light and medium oil.

Based on a reserves report by McDaniel & Associates Consultants, the trust will have proved reserves of 18.86 million barrels of oil equivalent and 24.9 million boe of proved plus probable reserves. The reserve life index will be 5.9 years for proved producing reserves, 6.5 years for proved reserves and 8.7 years for proved plus probable.Zargon plans to reinvest half of its cash flow to maintain production levels and distribute the other half to unit holders. Based on first-quarter results, that would have seen the distribution at 14 cents per trust unit per month.

Management said it plans to maintain Zargon’s 2004 capital budget at C$34 million.