Calgary-based Provident Energy Trust on Tuesday acquired a package of natural gas-rich prospects in the Rainbow and Peace River Arch areas of northwestern Alberta for an estimated price of C$475.9 million (US$420.4 million) after adjustments. The assets, purchased from a private independent U.S.-based producer, are 90% natural gas and currently produce 33 MMcfe/d (5,500 boe).
Provident will operate 97% of the assets and hold an average working interest of 75%, including ownership interests in four natural gas plants and associated gathering and compression facilities. The assets, which are mainly low-risk shallow gas assets, have a land base of more than 280,000 net acres, including more than 80,000 net acres of undeveloped land. Provident has identified more than 200 drilling locations, which would enable production to be maintained to 2010 with about C$25-$30 million a year in capital investment. The estimated reserve life index is more than 11 years.
Proved plus probable (3P) reserves, evaluated internally and by AJM Petroleum Consultants, are estimated at 22.2 million boe. The production is mostly sweet gas from shallow reservoirs in the Rainbow, Haro, Boyer and Rainbow South areas, and from multiple zones in the Pouce Coupe and Gordondale areas in the Peace River Arch.
“The Rainbow assets provide excellent economic and strategic value to Provident, strengthening our energy businesses and reinforcing our balanced and integrated portfolio strategy,” said CEO Tom Buchanan. “Consistent with our disciplined and strategic approach to acquisitions, these high quality Canadian natural gas reserves provide strong future development potential and solid economics. This acquisition will bolster our Canadian upstream operations, building on the significant moves we have made over the last two years to expand our midstream and U.S. production businesses.”
Provident expects its average daily production for 2006 to increase by 2,000 boe, which represents about four months of production from the Rainbow assets averaged over the whole year. Provident now expects full-year production to average between 29,000-31,000 boe/d.
“Our Canadian upstream team has recently been delivering excellent results, and these high quality assets create a new core area for us,” said COO Dan O’Byrne. “We have demonstrated our operating expertise in this type of shallow gas play in southwest Saskatchewan, and the Rainbow assets offer similar strong development drilling opportunities. As well as the value of the assets themselves, we will gain key employees to augment our Canadian staff. Furthermore, we see synergies with our midstream business, given the location of the assets near our proprietary liquids gathering system pipeline, and our ability to process the natural gas liquids at our Redwater and Empress facilities.”
Provident expects accretion to cash flow per unit of 6% in 2007, with accretion to anticipated 2007 production per unit of about 7%. Netbacks from the assets are expected to increase Provident’s average Canadian netbacks by more than C$2.00/bbl ($1.77/bbl). Based on Provident’s internal reserves estimates, the cost of the 3P reserves is C$21.44/boe ($18.93/boe).
The acquisition will be funded by an equal mix of equity and bank debt. The transaction is expected to close by the end of August, with an effective date of June 1.
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