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Penn West, Petrofund Trusts Merge in $2.61B Deal

April 24, 2006
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Calgary-based Penn West Energy Trust has agreed to buy crosstown rival Petrofund Energy Trust in a friendly deal worth C$2.99 billion (US$2.61 billion). The transaction will create Canada's largest energy trust by sales, with a value of about C$11 billion.

The trust, which would operate under the Penn West name, would produce 135,000 boe/d: 45,000 bbl/d of light-and medium-gravity oil, 390 MMcf/d of natural gas, 19,000 bbl/d of heavy oil and 6,000 bbl/d of natural gas liquids.

"We were looking for an opportunity to increase the size of the trust," said Penn West CEO Bill Andrew. "This combination creates what we believe is the premier oil and gas energy trust in North America."

Under terms of the transaction, each Petrofund unit would be exchanged for 0.6 of a Penn West unit on a tax-deferred basis in Canada. In addition, U.S. Petrofund unitholders would receive a one-time special distribution of C$1/Petrofund unit. Besides the combined trust, unitholders will receive common shares in a new publicly listed exploration company called "Exploreco," which is expected to have initial production of between 1,500-2,000 boe/d.

"The increased size of the combined trust will further enhance its ability to pursue large-scale multi-year projects and acquisitions, and we will have a strong balance sheet and conservative payout ratio," Andrew said.

Unitholders will vote on the proposal in late June and if approved, Penn West unitholders would own about 71% of the trust; Petrofund unitholders would own about 29%.

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