PrimeWest Energy Trust Acquires Calpine Energy Assets, A
25% Interest Of Calpine Natural Gas Trust And Announces
Bought Deal Financing
CALGARY, ALBERTA--(CCNMatthews - Aug. 16, 2004) - (TSX: PWI.UN;
PWX; NYSE: PWI) - PrimeWest Energy Trust (PrimeWest) today
announces that it has entered into an agreement with Calpine
Canada Natural Gas Partnership, Calpine Energy Holdings Limited
and Calpine Corporation (Calpine) for the purchase of all of the
petroleum and natural gas assets owned by Calpine Energy Holdings
Limited and Calpine Canada Natural Gas Partnership, including a
25% interest in Calpine Natural Gas Trust, for total
consideration estimated to be on closing of approximately $806
million.
Approximately $649 million of the total consideration is
attributable to the purchase of oil and gas reserves, $48 million
to undeveloped land and seismic data, $35 million to third party
processing income, and approximately $74 million to the purchase
of the units of Calpine Natural Gas Trust.
The acquisition metrics are approximately $44,800 per BOE per day
based on the current production rate of 14,500 BOE per day, with
acquisition costs of $11.90 per BOE for the proved plus probable
(P+P) reserves estimated as at September 1, 2004, excluding
unbooked upside reserves potential, undeveloped land, seismic
data, and third party processing income based on an external
engineering report.
The transaction is expected to close on September 2nd, 2004 and
is subject to regulatory and other conditions, which are typical
of acquisitions of this nature.
This transaction represents an opportunity for PrimeWest to
acquire high quality, long life assets, with significant
development potential, at a price that should generate an
attractive return for investors. PrimeWest will fund the
acquisition with the proceeds of a concurrent bought deal
financing and the deployment of existing credit facilities.
The acquisition is expected to be approximately 23% accretive to
cash flow per trust unit and 18% accretive to production per
trust unit on a 2005 forecast basis, assuming completion of an
asset divestiture process.
Subject to the successful closing of this transaction on
September 2nd, 2004, PrimeWest would expect to increase the
distribution payable October 15th, 2004 by $0.025 per unit
resulting in a total distribution of $0.30 Canadian per unit. The
proposed increase represents 33% of the forecast cash flow
accretion for 2005. The record date for this payment would be
September 22nd, 2004 and the ex-distribution date would be
September 20th, 2004.
Asset Acquisition Highlights
- PrimeWest is acquiring approximately 14,500 BOE/day of high
quality, predominantly liquids rich natural gas production in
west central and southern Alberta, which has a strategic fit with
the existing PrimeWest asset base. The production is weighted 83%
to natural gas, 11% to natural gas liquids and 6% to crude oil.
- Approximately 55.5 million BOE of the P+P reserves, including
gross over-riding royalty interests, are being acquired through
this transaction based upon an independent engineering
determination conducted in accordance with National Instrument
51-101.
- The P+P reserve life index of the properties being acquired is
10.5 years, not including the unbooked upside potential,
enhancing the 9.6 year reserve life of the existing PrimeWest
reserve base. The properties are 73% operated, with an average
working interest of approximately 60% and more than one half of
production is concentrated in three key areas that are in
proximity to PrimesWest's existing core operations.
- Operating expenses are currently $6.50 per BOE net of
processing income.
- Undeveloped land holdings of 627,306 net acres and a seismic
database, including all interpreted data, are included with the
acquired assets.
- Full tax pools, up to the purchase price of the assets, are
being acquired, which will increase value to Canadian unitholders
in the form of lower immediate taxability of distributions.
- PrimeWest has identified what it believes is significant
unbooked upside potential in the asset base being acquired.
Approximately $270 million of capital development projects have
been tentatively identified.
- Economies of scale and operating synergies achieved through
this acquisition are expected to reduce PrimeWest's general and
administrative costs per BOE for 2005.
- Upon completion of the acquisition PrimeWest will proceed with
disposition of up to $100 million of non-core properties as part
of the ongoing effort to upgrade the asset portfolio and maintain
balance sheet strength, including reducing its debt.
Hedging Update
Consistent with its hedging policy, PrimeWest anticipates hedging
up to 90% of the acquired natural gas production, net of the
royalty portion, with costless collars having a floor price of
$6.00 per GJ and ceiling prices ranging from $7.20 to $10.70 GJ
over terms ending as late as to March 31, 2006.
As part of the Asset Purchase Agreement with Calpine, PrimeWest
has entered into an agreement with Calpine providing for the sale
to Calpine of production attributed to the acquired assets over a
seven-year term at an AECO-based benchmark price. That agreement
provides for a revenue sharing mechanism should natural gas
prices rise above specified levels over the quarterly forward
price strip during the next two and a half years effective July
1st, 2004. Revenues in excess of the set prices plus $1.00 per
Mcf will be shared 50/50 with Calpine with a maximum payment of
$2.5 million in any quarter.
Reserves Summary
A total of 55.5 million BOE of P+P company interest reserves,
including gross over-riding royalty interests, are being acquired
based upon independent engineering reports, as at July 1, 2004,
prepared in accordance with National Instrument 51-101. The
following table is a summary of the reserves being acquired based
upon forecast prices and costs and on a company interest basis.
/T/
Natural Crude
Gas Oil Total
(Bcf) & NGLs (MMBOE)
(Mbbl)
---------------------------------------------------------------------
Proved Developed Producing 181.7 7.0 37.3
Proved Undeveloped 37.2 1.3 7.5
---------------------------------------------------------------------
Total Proved 218.9 8.3 44.8
Probable 53.5 1.8 10.7
---------------------------------------------------------------------
Total Proved plus Probable 272.4 10.1 55.5
/T/
Major Property Profiles
Wilson Creek, Ferrier, Willesden Green, Modeste and Gilby Areas
- Current production of approximately 5,700 BOE per day.
- These fields are bounded by PrimeWest's core areas of Caroline
to the south and Thorsby to the north.
- Upside opportunities include multi-zone production in the
Mannville, Pekisko, and Wabamun formations.
Irricana Area
- Current production of approximately 2,550 BOE per day.
- Directly adjacent to PrimeWest's core holdings in Crossfield
East and overlayed by PrimeWest's Lone Pine Creek assets.
- PrimeWest's ownership in the PrimeWest operated Crossfield East
gas plant will increase by 26.7% to 55.5%.
- Improvements in reservoir performance from gathering system
optimization are anticipated.
Edson, Minehead, Columbia and Harlech Areas
- Current production of approximately 2,200 BOE per day primarily
from Viking and Cardium formations.
- These fields are northwest of PrimeWest's Caroline assets on
trend for the Viking and Cardium formations.
- Significant development drilling for both new and down-spaced
sections exist on these tight gas assets.
Bindloss Area
- Current production of 800 BOE per day primarily from the Viking
sand formation.
- There is shallow gas drilling potential in the Milk River,
Medicine Hat and Second White Specks formations.
Princess Area
- Production of approximately 350 BOE per day from the Milk
River, Medicine Hat, and Second White Specks formations.
- Directly adjacent to PrimeWest's long life Dinosaur property
and the properties acquired from Seventh Energy earlier in 2004.
- Additional drilling opportunities exist to add reserves and
production.
Calpine Natural Gas Trust
- Included in the transaction are 6.8 million units, representing
approximately 25% of the oustanding Trust units of Calpine
Natural Gas Trust presently held by Calpine Energy Holdings
Limited. The Calpine Natural Gas Trust is a publicly listed
trust, which trades on the Toronto Stock Exchange (TSX) under the
symbol CXT.UN. The $74 million attributable to the acquisition of
the Trust units represents a value of approximately $10.89 per
unit, compared to the closing price of $11.91 per unit on August
13th, 2004.
- At the current distribution rate of $0.15 per unit per month,
PrimeWest expects to receive a cash distribution of approximately
$1 million per month.
- PrimeWest currently intends to hold these Trust units initially
as a passive investment, and is assessing a number of
alternatives for the future.
- Total production for the Trust is approximately 7,300 BOE per
day, weighted 73% to natural gas and 27% to crude oil and natural
gas liquids.
- The Trust has approximately 22.6 million BOE of P+P reserves
with a reserve life index of 8.5 years, as reported at fiscal
year-end 2003.
- Five key properties contribute 80% of the production:
Markerville, Sylvan Lake, Grande Prairie, Pouce Coupe, and
Whitecourt.
Outlook for 2004
Following the successful acquisition of the Calpine assets
PrimeWest expects its full year 2004 production to be
approximately 35,500 BOE per day representing a 5,000 BOE per day
increase from our previous outlook. Operating expenses are
anticipated to be $6.65 per BOE versus previous estimate of $6.75
per BOE for the full year. Full year capital expenditures are
expected to increase by $35 million to $125 million for
development opportunities for 2004.
Financing
In conjunction with the acquisition, PrimeWest has entered into
an agreement to sell on a bought deal basis, to a syndicate of
Canadian underwriters led by Scotia Capital Inc. and CIBC World
Markets Inc., 10,300,000 PrimeWest units at $24.40 per unit
raising gross proceeds of approximately $251.3 million, $150
million of five year and $100 million of seven year convertible
unsecured subordinated debentures. The five-year convertible
debentures will bear a coupon of 7.50 percent per annum, payable
semi-annually, and be convertible to units of PrimeWest at a
price of $26.50 per trust unit. The seven-year debentures will
bear a coupon of 7.75 percent per annum, payable semi-annually,
and be convertible to units of PrimeWest at a price of $26.50 per
trust unit. The financing is expected to close on September 2,
2004, and as such purchasers of this offering will not be
eligible to receive the $0.275 per unit distribution payable on
September 15, 2004 to unitholders of record on August 23, 2004.
The offering issue price, net of this distribution adjustment,
represents a discount to the volume weighted average price of
$25.75 per unit of 4.2%. PrimeWest senior debt facilities have
been increased to $625 million from its previous level of $400
million. At the time of closing the Calpine acquisition this
facility is expected to be drawn to approximately $518 million,
leaving adequate capacity for capital expenditures. The Calpine
Natural Gas Trust units are not pledged under the credit
facility. As part of its asset divestment program, PrimeWest
expects to receive cash proceeds of up to $100 million to add to
its capacity to fund future investment.
The offering of units will be made in Canada by means of a
short-form prospectus and to eligible international investors and
is subject to normal regulatory approvals. The securities to be
issued have not been and will not be registered under the United
States Securities Act of 1933, as amended, and may not be offered
or sold within the United States or for the account or benefit of
American residents. This release does not constitute an offer for
sale of trust units in the United States.
Conference Call and Webcast
PrimeWest will be conducting a conference call and Webcast for
interested analysts, brokers, investors and media representatives
to review the announced acquisition. The call will be held at
3:00 PM Mountain Daylight Time, 5:00 PM Eastern Daylight Time, on
August 16, 2004.
Callers may dial 1-800-796-7558 a few minutes prior to
commencement of the call and request the PrimeWest conference
call. The call also will be available for replay by dialing
1-877-289-8525, and entering passcode 21053065 followed by the
pound (#) key.
Interested users of the Internet are invited to go
www.newswire.ca/en/webcast/viewEvent.cgi?eventID=888140 for the
live Webcast and/or replay or access the Web cast at the
PrimeWest Web site, www.primewestenergy.com
Forward-Looking Information - Caution
In the interest of providing PrimeWest unitholders with
information regarding these acquisitions, this news release
contains forward-looking information that represents management's
view of PrimeWest's internal projections, expectations and
beliefs concerning, among other things, future operating results
and various components thereof, including but not limited to
production volumes, natural gas, crude oil and NGL commodity
prices, and operating, G&A and capital costs, and PrimeWest's
future economic performance. The projections, estimates and
beliefs contained in such forward-looking statements necessarily
involve known and unknown risks and uncertainties which may cause
PrimeWest's actual performance and financial results in future
periods to differ materially from any estimates or projections of
future performance or results expressed or implied by such
forward-looking statements. These risks and uncertainties
include, among other things, such risks and uncertainties
described above and in PrimeWest's filings with the Canadian and
U.S. securities authorities. Accordingly, PrimeWest unitholders
and potential investors are cautioned that events or
circumstances could cause actual results to differ materially
from those predicted.
PrimeWest is a Calgary-based conventional oil and gas royalty
trust that actively acquires, develops, produces, and sells
natural gas, crude oil, and natural gas liquids for the
generation of monthly cash distributions to unitholders. Trust
units of PrimeWest are traded on the Toronto Stock Exchange (TSX)
under the symbol "PWI.UN" and on the New York Stock Exchange
under the symbol "PWI". Exchangeable shares of PrimeWest Energy
Inc. are listed on the TSX under the symbol "PWX".
Learn more about PrimeWest on our Web site,
www.primewestenergy.com.
-30-