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Pengrowth Buying Canadian Properties From ConocoPhillips

Calgary-based Pengrowth Energy Trust will boost its production 27% with the acquisition of Canadian oil and gas properties and undeveloped lands (the "CP properties") from ConocoPhillips for nearly C$1.04 billion (US$914 million).

With the additional properties, Pengrowth production will grow to 100,000 boe/d (before royalties) prior to planned future asset dispositions.

The deal is the largest property acquisition to date by a Canadian energy royalty trust, Pengrowth said. Last month Canada's minister of finance announced a proposal to tax the distributions of trusts such as Pengrowth beginning in 2011 (see Daily GPI, Nov. 2).

The deal, announced Wednesday, entails the acquisition of four subsidiaries of Burlington Resources Ltd., a subsidiary of ConocoPhillips, by Pengrowth. ConocoPhillips announced its acquisition of Burlington Resources nearly a year ago (see Daily GPI, Dec. 14, 2005). In August ConocoPhillips announced the divestiture of nonstrategic western Canadian properties (see Daily GPI, Aug. 22).

According to Pengrowth, the CP properties are high-working interest, largely operated tracts similar to those that Pengrowth already has extensive experience in managing. Current production is about 21,625 boe/d (before royalties), composed of 42% crude oil, 52% natural gas and 6% natural gas liquids.

Based upon a Nov. 1 independent evaluation by GLJ Petroleum Consultants Ltd., the CP properties have proved plus probable reserves of 65.8 million boe and proved reserves of 51.4 million boe (on a company interest before royalties basis using escalated prices). The purchase price of C$1.0375 billion represents transaction metrics of $47,975 per boe per day based on current production levels; C$15.77 per boe of proved plus probable reserves; and C$20.17 per boe of proved reserves.

Pengrowth reserves including the CP properties are 274.7 MMBoe proved and 360 MMBoe proved and probable. The proved figure includes 784.1 Bcf of natural gas and the proved plus probable amount includes 1,024.6 Bcf of gas.

Pengrowth also said it is embarking on a comprehensive asset rationalization program on its entire portfolio of oil and gas properties. The company said it expects to divest assets producing about 7,700 boe/d (before royalties) with proved plus probable reserves of 25 million boe (on a company interest before royalties basis using escalated prices). The divestiture includes properties currently listed for sale for which expressions of interest have been received representing about 4,300 boe/d of production and 17 million boe of proven plus probable reserves. The assets marked for divestiture are in noncore areas or tend to have higher operating costs or shorter reserve lives. Total proceeds from divestitures are expected to be C$300-400 million.

On Nov. 10 Pengrowth received a "comfort letter" from Canada's department of finance advising the company that its acquisition of the CP properties likely would not trigger an acceleration of any tax rule change as would be possible in the case of "undue expansion." The letter is nonbinding on the minister of finance or Parliament.

Pengrowth said it expects the CP properties to provide it with a wide range of opportunities to add value through capital expenditures, including opportunities identified by Pengrowth on developed lands and approximately 375,000 additional net acres of undeveloped land.

Following completion of its recent combination with Esprit Energy Trust (see Daily GPI, Oct. 3) and the acquisition of the Carson Creek property from ExxonMobil Canada Energy, Pengrowth had unused credit capacity of more than C$500 million on a syndicated bank credit facility of C$950 million. The acquisition will be supported by a committed senior bank facility fully underwritten by the Royal Bank of Canada in the full amount of the purchase price with a term of 12 months beginning on the scheduled deal closing on or about Jan. 18, 2007. The acquisition is effective Nov. 1. RBC Capital Markets and Scotia Waterous were advisers to Pengrowth.

The transaction is expected to be strongly accretive to the unitholders of Pengrowth on a per-unit basis in terms of distributable cash flow, production and reserves.

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