The Fairbourne crooks are back at it:
Fairborne sheds trust status
Private equity firm gains $100M stake
Lisa Schmidt
Calgary Herald
Thursday, December 20, 2007
Fairborne Energy Trust reverted to a corporation Wednesday -- the first trust to successfully convert back -- in a deal that gives a U.S. private equity firm a $100-million stake in the new exploration and production company.
The conversion to Fairborne Energy Ltd. was completed Wednesday after the deal was approved by 98 per cent of shareholders at a special meeting a day earlier.
"The first order of business is to get back to drilling," said chief executive Steven VanSickle, adding the company plans to spend up to $150 million in 2008.
"We're out in the field building a couple of locations right now so we can start drilling activities between Christmas and New Year's."
The conversion was closely watched in the sector since no trust had successfully folded back into a corporation after the federal government last year imposed new tax rules for the sector starting in 2011.
In March, unitholders voted down conversion plans by True Energy Trust, angered by an options plan they called too favourable to management. They also argued there was no reason to convert so quickly into the transition period.
The impending tax changes have driven a wave of consolidation in the sector, which is also struggling with lower natural gas prices that have forced some trusts to cut payouts to unitholders.
But analysts also said the case of Fairborne -- an exploration-oriented trust that landed an equity deal -- is not necessarily representative and most trusts will likely hang on to the tax shelter as long as possible.
Under the deal, Fairborne issued 13.4 million shares of the new company to U.S. private equity firm Denham Commodity Partners Fund IV LP at $7.45 each. The proceeds of $100 million will be used initially to pay down debt.
Fairborne, which converted to a trust two years ago, operates in central, northwestern and west-central Alberta and produces about 13,100 barrels of oil equivalent a day. In March, the trust cut distributions to unitholders and struck a deal to acquire its original spinoff, Fairquest Energy Ltd.
VanSickle said it's too early to tell whether the early conversion will give the company a first-mover advantage.
"The market hasn't been kind to a lot of E&P (exploration and production) companies of late, but I do think there's a lot of opportunities out there right now in Western Canada," he said.
The equity injection from Denham will allow the company more room on its balance sheet, allowing it to pursue acquisitions at a time of lower natural gas prices, VanSickle said.
In trading, Fairborne units fell 10 cents to $5.40 on the Toronto Stock Exchange.
lschmidt@theherald.canwest.com
© The Calgary Herald 2007
