As part of a possible restructuring, Calgary-based Provident Energy Trust is mulling the sale of its U.S. units, a mere four months after one unit spent US$1.45 billion to acquire natural gas properties in three states.

Provident Tuesday outlined a strategic review of its U.S. businesses: BreitBurn Energy Partners, a public master limited partnership (MLP), and BreitBurn Energy Co. LP (Devco), a private partnership substantially owned by Provident. In part, the company said it was responding to the Canadian government’s decision to impose growth restrictions on Canadian energy trusts and, effective 2011, implement a tax on income trust distributions (see Daily GPI, Jan. 31, 2007; Nov. 2, 2006).

BreitBurn’s assets consist primarily of producing and nonproducing oil and natural gas reserves in the Los Angeles Basin in California, the Antrim Shale in Michigan, the Wind River and Big Horn Basins in central Wyoming, the Permian Basin in West Texas, the Sunniland Trend in Florida, and the New Albany Shale in Indiana and Kentucky. Devco’s assets consist primarily of producing and nonproducing oil reserves in Los Angeles, Orange and Santa Barbara counties in California.

In November BreitBurn and Quicksilver Resources Inc. completed the $1.45 billion sale of all of Quicksilver’s natural gas, oil and midstream assets in Michigan, Indiana and Kentucky to BreitBurn (see Daily GPI, Nov. 5, 2007). BreitBurn paid $750 million in cash and approximately 21.348 million common units of its stock.

Provident owns approximately 14.8 million units, or approximately 22% of BreitBurn, including units held by the general partner of which Provident indirectly owns approximately 96%. Provident, through a wholly owned subsidiary, indirectly owns approximately 96% of Devco. Provident said that while its intention is to monetize its U.S. investment, there is no certainty that this process will result in any changes to Provident’s ownership stake in its U.S. holdings. Provident has retained Morgan Stanley as its financial advisor.

Provident delivered an offer to BreitBurn providing BreitBurn the opportunity to acquire Devco as an initial step in its strategic review. That offer has expired and Provident said it expects to initiate a formal auction sales process for Devco.

“BreitBurn’s rapid growth has delivered considerable value to Provident and BreitBurn unitholders, while our organizations have enjoyed a mutually beneficial relationship,” said Provident CEO Tom Buchanan. “However, as BreitBurn has funded its accretive growth through U.S. capital markets, Provident’s ownership in the MLP has been reduced to approximately 22%. At this ownership level we view BreitBurn as an investment rather than a strategic growth vehicle for Provident.”

Options under consideration by Provident include the possible separation of oil and natural gas production and the midstream components of its Canadian business, reflecting Provident’s view that the full value of the component parts of the business is not being realized in the market.

Throughout the review Provident will operate its Canadian businesses in the ordinary course and continue to execute its business plan and to assess and undertake strategic growth initiatives, the company said.

“Our decision to assess Provident’s overall structure and business options is a logical step at this time,” said Buchanan. “We have two exceptional Canadian business units with high-quality assets and outstanding people. We believe, however, that the market’s perception of Provident as a hybrid may be affecting our valuation. The government of Canada’s income trust tax initiative is a further driver behind our thinking. The size, scale and strength of each of our business units gives us the flexibility to consider the possibility of separating the Canadian businesses.”

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