Canada's only 100% natural gas energy trust, Calgary-based Paramount Energy Trust (PET), said Tuesday it plans to buy cross-town explorer Profound Energy Inc. in a friendly stock transaction worth an estimated C$113 million (US$90 million).
Once the merger is completed, PET's current output of 175 MMcfe/d (29,167 boe/d) would increase by 10% to 193 MMcfe/d (32,167 boe/d). Proved plus probable reserves would jump an estimated 15% to 560.7 Bcfe (93.5 MMboe). The trust's reserves/production ratio, using current production and year-end 2008 proved and probable reserves, would increase by 4% to a reserve life index of an estimated eight years. Profound's gas production is said to be largely uncontracted and "therefore available for PET to market or hedge as opportunities in the forward market arise," the trust said.
"This is an important strategic acquisition for PET, providing not only solid base production but also an operating foothold in the Pembina area with exposure to resource style gas plays that provide an attractive supplement to our prospect inventory," said Paramount CEO Sue Riddell Rose. She said the transaction had the support of Profound's management and the board of directors.
PET, an energy trust for six years, was launched with a base of shallow gas assets located in northeastern Alberta. It now operates in seven core areas in northeastern and east-central Alberta. PET also owns 93% of a privately held Severo Energy Corp., which explores for gas in central Alberta.
Profound, which is weighted to gas, was formed in November 2007 through the merger of Profound Energy Ltd. and Cork Exploration Inc.
Part of Profound's appeal is its development in the Rock Creek gas zone of Alberta, where PET also is exploring. Most of Profound's capital expenditures this year are to be invested in west-central Alberta, where the company has gas exploration ongoing in the Rock Creek gas zone, including the Ellerslie, Ostracod and Viking formations. In addition, Profound's portfolio includes the Belly River light oil discovery at West Pembina, AB.
PET said adding additional exploration areas in the Rock Creek area would enhance its ability "to translate Profound's extensive inventory of drilling locations to value as well as capitalize on additional opportunities in the area."
Under the terms of the transaction, Profound shareholders would receive 0.278 of a Paramount trust unit and about C39.5 cents for each Profound share. The offer is a 100% premium to Profound's C$1.20/share closing price on Monday. The estimated total purchase price includes Profound's debt, estimated at C$61.5 million.
Profound's board of directors and management team unanimously approved the transaction and plan to recommend it to shareholders. Profound agreed not to solicit or initiate discussions or negotiations with any third party concerning any asset sale while negotiations are under way. The company also granted PET the right to match any subsequent offer. Profound also agreed to pay the trust a noncompletion fee of C$1.25 million under certain circumstances.
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