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Heads up U.S.: The trusts are coming Analysts project more Canadian trusts will move south as Enerplus pays C$509M for Lyco, following one buyout last year Gary Park Petroleum News Canadian Correspondent
The long-expected move into the United States by Canada’s income trusts may be under way.
Faced with slim pickings in the Western Canada Sedimentary basin to bolster their reserve base and meet their imperative of at least holding the line on production, it has, in the view of many analysts, been just a matter of time before trusts extended their reach south of the 49th parallel.
But other than last year’s C$190 million takeover of Los Angeles-based BreitBurn Energy by Provident Energy Trust the waiting game continued until July 19 when Enerplus Resources Fund snapped up closely held Lyco Energy for C$509 million.
“Here we go,” was the response from Leslie Lundquist, manager of the Calgary-based Bissett Income Fund.
Accustomed to intense bidding for assets in Canada, the trusts, with their pockets bulging, are seen as formidable rivals for U.S. properties.
The Enerplus deal involves 31 million barrels of oil equivalent of proved plus probable reserves, representing a reserve life of 12.1 years, in the Williston basin of North Dakota and Montana, with production from the Sleeping Giant reservoir at 7,000 boe per day, 92 percent light oil and 8 percent natural gas.
Enerplus said Sleeping Giant has an estimated 300 million barrels of gross original oil in place on developed Lyco lands, offering potential for improved recovery through additional infill drilling, waterflooding and possibly carbon dioxide flooding.
The trust said an independent engineering evaluation assumes the recovery of about 20 percent of the original oil in place with two wells for every 640 acres. Enerplus believes further technological advances could increase the recovery factor. Vermilion may be next Those looking for the next trust to set up operations in the United States should include Vermilion Energy Trust on their list.
It has already demonstrated an adventurous streak by acquiring 16,300 boe per day of production over the last year in Australia, the Netherlands and France.
Provident has underscored its intention to grow in the United States and other countries by allowing the BreitBurn unit to spend C$95.8 million in February to take over Nautilus Resources, with production concentrated in Montana.
Chief Executive Officer Tom Buchanan told unit holders in May that acquisition and development costs in Canada could climb above US$20 per barrel, compared with US$6 in California, while per barrel netbacks will average US$23 in Canada and US$30 in the United States
The cost of acquiring BreitBurn was more attractive than Canadian prices, heightening Provident’s anticipation of more growth in Southern California.
Grant Hofer, an analyst with Scotia Capital, fully expects that politically stable international regions will be the next logical step to sustain trusts.
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