Viking, Calpine Trusts Plan $1.3B Merger
In an effort to become more competitive for future acquisitions, obtain a lower cost of capital and build a more diversified asset portfolio, Viking Energy Royalty Trust and Calpine Natural Gas Trust (CNG Trust) announced plans to merge their two exploration and production operations, which are concentrated in Alberta.
The combined entity will have current production of 23,000 boe/d, which is 50% natural gas and 50% oil and gas liquids, and will have an enterprise value of $1.3 billion.
Under the terms of the agreement, each CNG Trust unit will be exchanged for two Viking trust units on a tax-deferred rollover basis. The transaction exchange ratio reflects market-to-market based on an average of historical trading unit prices. Viking's most recent monthly distribution was $0.08 per unit while CNG Trust's was $0.15 per unit. CNG Trust unitholders should anticipate receiving a 6.7% increase in distributions per unit from $0.15 to $0.16 based on recent historical monthly distributions of Viking and the proposed two-for-one exchange ratio.
"This transaction represents an important step in the strategy of Viking," said Viking CEO John Zahary. "The combination of CNG Trust's high quality natural gas assets with our strong base of oil production will create a fund with excellent stability for future distributions. Further, CNG Trust's strategic alliance and development drilling prospects will enhance the production growth opportunities for Viking."
CNG Trust CEO Gary Guidry said the transaction will create a "leading royalty trust with significantly enhanced access to the capital markets and strength to pursue a much wider range of available opportunities than those available to a stand-alone CNG Trust."
The transaction is subject to regulatory approval and the approval by a majority of at least two thirds of CNG Trust's unitholders voting at a meeting to be held on or about Jan. 27. It is expected to close Feb. 1.
The companies touted the combination as a "stronger, more efficient trust" that will be better positioned to "add future unitholder value through the development of a well balanced portfolio of low risk internal drilling prospects and the ability to compete more effectively for potential acquisitions." They said the new trust will be able to leverage technical skills over a larger asset base to achieve operating efficiencies and expected reductions in general and administrative expenses per boe of daily production.
The trust will have a 2005 capital expenditure budget of $60 million to pursue identified drilling prospects and opportunities on significant undeveloped landholdings.
The transaction is expected to be accretive to Viking's cash flow per unit and production per unit. It also will increase its exposure to natural gas and current high gas prices. It provides Viking with significant new core areas in central Alberta at Markerville, Sylvan Lake and Innisfail as well as in northern Alberta at Pouce Coupe and Grand Prairie. And it should result in a reduction in Viking's operating costs per boe.
The combination also will benefit CNG Trust unitholders, who will receive a 6.7% increase in distributions per unit. It is expected to be accretive to CNG Trust's reserves per unit and extends the company's proved plus probable reserve life index from 8.1 years to 9.3 years. In addition, it provides CNG Trust with increased exposure to oil prices, which are currently very strong, the companies noted.
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