Paramount Spins Off Western Canadian Assets into Trust
Calgary-based Paramount Resources Ltd. will spin off its oil and natural gas assets in two of its operating units into an energy income trust, the company said Monday. Paramount, whose assets are 80% weighted to natural gas, said the properties targeted for the trust are in the Kaybob and Marten Creek areas of western Alberta, which produce about 120 MMcf/d of gas and 5,000 bbl/d of crude oil and natural gas liquids (NGL).
Paramount shareholders would receive units in the new trust and still remain investors in the exploration and production company, according to the arrangement. If it is approved by the shareholders, the trust would be completed in late February or early March.
"The transaction will allow shareholders to participate either separately or on a combined basis in the growth potential and mature qualities of Paramount's assets," said CEO Clayton Riddell. He and other insiders controlling 53% of Paramount's stock intend to support the new arrangement.
The Paramount assets that would be indirectly owned by the trust consist of total proved reserves of approximately 203.4 Bcf of natural gas and 9.5 billion barrels of oil and NGLs. Proved undeveloped reserves account for only 7% of total proved reserves. The reserve life index for the trust based on total proved and probable reserves and current production would be approximately seven years.
The trust's primary mandate will be to focus on low-cost operations, maintain and grow reserves and production through drilling and continually review value accretive acquisitions, the company said. Its extensive development drilling portfolio is expected to make it less reliant on the acquisition market to maintain distributions as compared to its peer group. To facilitate this, the trust is expected to distribute approximately 65% of its cash flow to unitholders in monthly distributions.
Following the transaction, the exploration and production arm of Paramount will hold assets in northwest Alberta, the Northwest Territories, northeastern British Columbia and the southern Canadian Prairies, it said.
Upon completion of the spinoff, Paramount's shareholders will own approximately 81% of the outstanding units of the trust, and Paramount will own approximately 19% of the units. As part of the transaction, Paramount also will receive approximately C$150 million from the trust, expected to be financed by bank credit facilities to be established for the trust.
The board of directors for the trust will include Clayton Riddell, the chairman and CEO of Paramount, and Jim Riddell, the president and COO of Paramount. Most of the trust's directors will be independent of Paramount and independent of the management of the trust. The executive team will initially be the same as the executive team of Paramount. Eventually, the trust will operate independently from Paramount.
In 3Q2004, Paramount's total production averaged 196 MMcf/d of natural gas and 8,446 bbl/d of oil and natural gas liquids. Average daily production for the quarter was 41,072 boe/d, a 27% sequential increase over 2Q2004 and a 36% increase over 3Q2003.
Paramount was incorporated in 1978, and it has five core producing areas: Kaybob, Grande Prairie, southern Alberta/southeast Saskatchewan/Montana/North Dakota, northwest Alberta and northeast British Columbia/Northwest Territories.