Facing an ongoing battle with Alberta regulators over the impact of its gas production on oilsands recovery, Paramount Energy Trust continued to expand its operations outside Alberta Wednesday with a C$148 million purchase of Cavell Energy Corp. The deal increases Paramount’s daily natural gas production by 21% to 110 MMcfe/d, is accretive to cash flow and expands the company’s operations into Saskatchewan.

“The Cavell acquisition fits [Paramount’s] business plan perfectly, providing substantial geographic diversification outside the trust’s northeast Alberta core areas while maintaining its technical focus on shallow natural gas,” said Paramount President Sue Riddell Rose. “We are excited about the quality of the upside opportunities that the Cavell team has compiled on their focused asset base.”

The purchase follows a C$189 million acquisition by Paramount on Tuesday of significant oil and natural gas assets in the Kaybob area in central Alberta and in the Fort Liard area in the Northwest Territories and northeastern British Columbia from Acclaim Energy Trust and Enerplus Resources Fund (see Daily GPI, May 26).

The two large transactions quickly diversify Paramount’s position in western Canada. Last year the Alberta Energy and Utilities Board ordered the shut in of substantial gas wells in northeastern Alberta in order to preserve future crude bitumen production from oilsands projects. Paramount, which had made a specialty of gas drilling in the region affected, stood to lose 44 MMcf/d of its production or nearly half its output, but managed to reduce its losses through the filing of exemption applications. Nevertheless, the oilsands situation provides a significant incentive for the company to expand into other growth areas in the region.

The ChevronTexaco assets it purchased give it 10,000 boe/d of new production outside the oilsands region, including 40 MMcf/d of gas and 3,300 bbl/d of oil and NGLs. The Cavell assets give it another 3,200 boe/d, consisting of 13.2 MMcf/d of gas and 1,000 Bbl/d of oil. They also include 7,700 Mboe of proved reserves and 10,350 Mboe of proved and probable reserves, which are 70% gas. And the Cavell asset base is focused in Saskatchewan and the Mitsue area of north central Alberta.

The Cavell purchase price represents a premium of 17% to Cavell’s closing price on May 25 and a premium of 23% to the 30 day volume-weighted average trading price for Cavell’s common shares. It breaks out to about $12.82 per proved plus probable boe of reserves. The assets include 197,000 net undeveloped acres with significant drilling and development potential, including 55 defined locations planned for the remainder of 2004. Operating costs total $6.17/boe.

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