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PrimeWest Energy Trust lands Calpine assets Calpine joins American exodus from Western Canada as energy trust makes complex deal for U.S. power producer’s assets Gary Park Petroleum News Calgary Correspondent
PrimeWest Energy Trust has tightened its hold on one of the top rungs in Canada’s income trust sector by grabbing the assets of another U.S.-based company fleeing Western Canada.
The C$825 million deal with power producer Calpine bolsters PrimeWest’s portfolio by 14,500 barrels of oil equivalent per day, mostly liquids-rich natural gas in central and southern Alberta, from about 55 million boe of proved plus probable reserves.
Assuming the sale is closed in early September, the trust expects its full-year 2004 production to be about 35,500 boe per day.
The deal, announced Aug. 16, also includes 627,306 net acres of undeveloped land, seismic data, tax write-offs and a 25 percent stake in the Calpine Natural Gas Trust.
The reserve life index of the Calpine properties is 10.6 years, enhancing PrimeWest’s reserve base of 9.6 years. Sales will help pay for acquisitions To help pay for the acquisitions, PrimeWest said it will sell off C$100 million of properties it no longer sees as core assets.
It will also sell 10.3 million units to an underwriting syndicate for C$251.3 million and C$250 million worth of debentures that can be converted into trust units.
“This transaction represents an opportunity for PrimeWest to acquire high-quality, long-life assets with significant development potential,” PrimeWest Chief Executive Officer Donald Garner told a conference call.
Calpine Chief Financial Officer Bob Kelly said his company welcomed the opportunity to “capture significant value for our natural gas assets during attractive market conditions” and put the San Jose, Calif.-based firm “well on our way toward achieving our goal of having US$3 billion of cash and liquidity on hand by year-end.” Calpine acquisitions began in 2000 Calpine entered the Canadian E&P sector with a major splash in 2000 and 2001, following completion of the Alliance gas pipeline from northern British Columbia to Chicago, acquiring Encal Energy, TriGas Exploration and Quintana Minerals.
But it has since gone into a rapid descent, with its shares dropping by more than 90 percent from a 2001 peak of US$58 because of the debt load incurred in the buying binge.
The demand for producing properties by income trusts and the challenge of achieving growth in the maturing Western Canada Sedimentary basin has seen a broadly based exodus from the region by U.S.-based companies.
In the past year, Marathon Oil, El Paso, Murphy Oil, ChevronTexaco and Vintage Petroleum have either bailed out or drastically cut their holdings. Next in line is Anadarko, which is expected to sell 35,000 boe per day or 40 percent of its Canadian production in the next two months, completing what is likely to be a US$1 billion transaction.
The PrimeWest-Calpine terms underscored the willingness of trusts to fork over premium prices for assets.
PrimeWest estimates it is paying C$44,800 per boe, close to C$10,000 per boe above the median purchase price in 2003.
Since then the bar has been progressively raised, with Pengrowth Energy Trust starting the year at C$35,000 per boe for Murphy Oil properties in Alberta and Saskatchewan, followed closely by Provident Energy Trust buying two small junior companies at a cost of more than C$41,000 per boe.
But those transactions pale alongside a deal by rival junior companies, with Thunder Energy paying about C$70,000 per boe in a C$147 million purchase of Impact Energy, enticed by the growth potential in Impact’s exploration lands and undeveloped reserves.
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