Wave of trust deals hits C$2B

Gary Park

Petroleum News Calgary correspondent

Deal-making in the Canadian energy trust sector has hit C$2 billion inside a month amidst an asset-buying binge.

Since March 31, the acquisition flurry has seen six separate transactions, with four junior E&P companies, one trust and a bundle of Murphy Oil assets snapped up in the process.

The latest occurred April 19 when Harvest Energy Trust bid C$189 million, including C$64 million of debt, for the bulk of properties held by Storm Energy.

Provided Storm shareholders approve the offer in June, Harvest will see its reserve life index climb to 6.7 years from 6 years as it adds proven plus probable reserves of 14 million barrels of oil equivalent to its existing base of 33 million boe and increases its output by 4,200 boe per day to an average 16,750-17,500 boe per day in 2004. The trust expects its exit rate for the year will be 18,750-19,250 boe per day.

The cash-and-shares offer marks the second time in two years that Storm has sold into the trust sector.

In a fall 2002 reorganization, Storm spun off some assets to create Focus Energy Trust, which has since expanded its production to more than 8,000 boe per day.

Storm executives will start a new junior producer by inheriting production from their own company of 4.2 million cubic feet per day of natural gas and 210 bpd of natural gas liquids. They plan to drill for gas in west-central Alberta.

The expectation among analysts is that the buying spree is far from over.

Trusts, many of whom budgeted for 2004 oil prices of $25 a barrel, are flush with cash and under pressure to maintain production levels to support their monthly and quarterly distributions to unit holders.

Conventional producers in the junior ranks are the obvious target, with companies such as Purcell Energy, which has strong interests in the Northwest Territories, Real Resources and Zargon Oil & Gas among those labeled as takeover candidates.