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Canadian Midstream Makes First Acquisition

Canadian Midstream Makes First Acquisition

New to the scene as of three months ago, privately held Canadian Midstream Services Ltd. (CMSL) made its first acquisition when it acquired a significant interest in sour natural gas processing facilities in west central Alberta from Poco Petroleum. Formed in Calgary by four former executives of Pan East Petroleum, which was bought by Poco in December, CMSL aims to capitalize on asset acquisition opportunities.

Right now, said Vice President Steve VanSickle, formerly Pan East manager of business development, some Canadian producers are looking to raise capital through asset sales. "The equity market for the producers was beaten down a little bit. This is a way for producers to free up trapped capital.. We're not a competitor of producers." CMSL plans to buy operating and controlling interests in midstream assets, particularly in western Canada west of the fifth meridian. This is where the company's executives have had experience with producing facilities.

The newly acquired facilities include the Brazeau River sour gas processing plant, which has a gross capacity of about 218 MMcf/d, and a controlling interest in 340 Km of gas pipelines, covering an area of 845 square Km that connects more than 100 wells to the gas plant. "There are seven separate gathering systems, operating at different pressures, feeding into the [processing] plant." CMSL and the processing plant's operator, Gulf Midstream Services of Calgary, are examining options for enhancing recovery efficiencies of the plant, which was built in 1969. Poco and CMSL also agreed to certain ongoing commitments in the area surrounding the facility.

CMSL just closed a private equity issue for total proceeds of $36.5 Million consisting of 18.25 Million common shares and 9.125 Million common share purchase, which gives the holder the right, under certain terms and conditions, to purchase additional common shares. In addition to this new equity CMSL established a credit facility with a major Canadian chartered bank, and has about $17 Million in un-drawn bank lines.

Energy Spectrum Partners LP of Dallas was the largest subscriber and now owns more than 50% of the outstanding shares. James W. Spann, chief investment officer of Energy Spectrum, said "We are pleased that our second investment in Alberta, and our largest to date, is with a company whose 'mid-streaming' strategy is so compatible with our own."

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