Penn West and Canetic to merge and create Canada's flagship energy trust Wednesday October 31, 2:49 am ET The combination will form the largest conventional oil & gas trust in North America and create a world-class Canadian platform to compete against global energy companies and deliver superior unitholder returns. The Combined Trust will have a diverse and high quality asset base, a large portfolio of development opportunities, an experienced and strong organization, and a healthy balance sheet with significant financial capacity.
CALGARY, Oct. 31 /PRNewswire-FirstCall/ - Penn West Energy Trust ("Penn West") (TSX - PWT.UN; NYSE - PWE) and Canetic Resources Trust ("Canetic") (TSX - CNE.UN; NYSE - CNE) are pleased to announce that they have entered into a combination agreement (the "Combination Agreement") that provides for the strategic combination of Penn West and Canetic to form Canada's flagship energy trust (the "Combined Trust"). The Combined Trust will be the largest conventional oil and gas trust in North America with an enterprise value of over C$15 billion and current production of over 200,000 barrels of oil equivalent ("boe") per day. The combined asset portfolio will include interests in a significant number of Western Canada's highest quality conventional oil and natural gas pools and will also include a number of non-conventional growth opportunities including oil sands, coalbed methane, shale gas and enhanced oil recovery. At closing, this strategic merger of assets and people will operate under the Penn West name and will be led by a combined management team and Board of Directors.
Under the terms of the Combination Agreement, Canetic unitholders will receive 0.515 of a Penn West unit for each Canetic unit on a tax-deferred basis for Canadian and U.S. tax purposes. Immediately prior to the closing of the combination, a one-time special distribution of $0.09 per unit will be paid to Canetic unitholders. The special distribution will keep Canetic unitholders whole, in cash distributions, for a period of six months. Canetic unitholders will receive an aggregate value of C$15.84 per Canetic unit based on the closing price of Penn West units on the Toronto Stock Exchange ("TSX") as at October 30, 2007 which represents a premium of 7.1 percent to the closing price of Canetic units on the TSX as at October 30, 2007. On completion of the combination, Penn West unitholders will own approximately 67 percent and Canetic unitholders will own approximately 33 percent of the Combined Trust. Penn West units will continue to be listed on both the TSX and the New York Stock Exchange ("NYSE").
The combination is subject to stock exchange, court and regulatory approval, and the approval of at least 66 2/3 percent of Canetic unitholders. It is expected that the Canetic unitholder meeting to vote on the combination and closing will occur in mid January 2008. An Information Circular is expected to be mailed to unitholders of Canetic in December 2007.
Highlights of the Combined Trust
- Creates Canada's flagship energy trust and the dominant independent light oil producer in Western Canada with production of approximately 200,000 to 210,000 boe per day in 2008 and conventional proven plus probable reserves in excess of 800 million boe - A large inventory of unconventional opportunities including a multi-billion barrel (discovered heavy oil resources in place) Peace River Oil Sands Project, coalbed methane, shale gas and enhanced recovery from Canada's largest legacy light oil pools - The increased size will assist in the future development of both its conventional and unconventional growth opportunities - Pro forma asset base rivals senior North American exploration and production companies providing added flexibility in positioning the Combined Trust for 2011 and beyond - The combined assets exhibit a compelling overlap and similarities in operating philosophies, which improve operating efficiencies, field optimization and cost reductions availed by economies of scale. The Combined Trust will operate approximately 80 percent of its production - The larger size of the Combined Trust is expected to enhance liquidity on the Toronto Stock Exchange and New York Stock Exchange, increase its weighting in major indices including the S&P/TSX 60 Index and should receive increased attention from both equity and income investors - Increased liquidity and enhanced financial flexibility will allow expansion both domestically and internationally - Estimated cash flow for 2008 of $2.0 to $2.2 billion and a capital program of $900 million to $1 billion directed to further enhance the combined asset portfolio - Combined tax pools of over $5.5 billion at the end of 2007, plus the ability to increase the tax base using the trust model over the next three years, results in an efficient tax position well beyond 2011 - Safe harbour capacity for the issuance of new units under the Undue Expansion rules set out for income trusts by the Canadian Government will expand to approximately $8.7 billion on an equity basis in 2008, and approximately $15 billion on an equity basis in total - Management team and Board of Directors which combines the best and most experienced personnel from each organization
William E. Andrew, President and Chief Executive Officer of Penn West, said, "We are bringing together two great organizations with world-class assets and people to create an aggressive Canadian player in the global markets. The Combined Trust will be well positioned to compete in North America and internationally."
J. Paul Charron, President and Chief Executive Officer of Canetic, commented, "As I have stated many times in the past, sitting still in today's dynamic market is not an option. This strategic combination brings together two organizations with complementary strategies, asset bases and management teams resulting in a strong shared future. I believe the Combined Trust is more than the sum of its parts."
Combined Management
The Combined Trust will be led by William E. Andrew as Chief Executive Officer, J. Paul Charron as President and David W. Middleton as Chief Operating Officer, and will include senior management from both Penn West and Canetic including:
Richard J. Tiede, Senior Vice President, Business Development Thane A.E. Jensen, Senior Vice President, Exploration & Development Todd H. Takeyasu, Senior Vice President, Finance - Treasury David J. Broshko, Senior Vice President, Finance - Financial Reporting Mark P. Fitzgerald, Senior Vice President, Operations Eric J. Obreiter, Senior Vice President, Production Brian D. Evans, Senior Vice President, General Counsel & Corporate Secretary Keith Luft, Senior Vice President, Stakeholder Relations
Combined Board of Directors
The combined Board of Directors will be drawn from the existing boards of Penn West and Canetic and will be led by John A. Brussa from the Penn West board as Chairman and by Jack C. Lee from the Canetic board as Vice Chairman.
Pro Forma Distributions
It is anticipated that the Combined Trust's distribution will be set at C$0.34 per unit per month beginning with the first distribution payable following completion of the combination. It is expected that this distribution level will result in a 2008 payout ratio of approximately 67 percent to 72 percent. If the closing of the combination proceeds as planned, Canetic unitholders will receive their first $0.34 monthly distribution effective with the January 2008 Penn West distribution, payable on or about February 15, 2008.
Key Operating and Financial Information for the Combined Trust
Estimated 2008 Production (boe/d)(1) 200,000 to 210,000 boe/d 45% light oil & NGLs 42% natural gas 13% heavy oil
Pro Forma Market Capitalization(2) $11.4 billion Pro Forma Debt(2) $3.9 billion Pro Forma Enterprise Value $15.3 billion
Pro Forma Reserve Estimates(3) Proved (mmboe) 600 Proved plus Probable (mmboe) 800
Reserve Life Index (P+P)(4) 11 years
Estimated 2008 Cash Flow(5) $2.0 to $2.2 billion
Estimated 2008 Capital Program $900 million to $1 billion
Proposed Initial Monthly Distributions per Unit $0.34 CDN
Total Debt to 2008E Cash Flow Ratio 1.8 to 1.9 times
Total Debt to 2008E EBITDA 1.6 to 1.7 times
Trust Units Outstanding(6) 372 million
Undeveloped Land Base (net acres) 4.3 million
Notes: (1) Includes estimated production contribution from the pending acquisitions of Vault Energy Trust ("Vault") and Titan Exploration Ltd. ("Titan"). (2) Forecast debt outstanding at December 31, 2007, pro forma the Vault and Titan acquisitions and including the estimated transaction costs and the special distribution payment to Canetic unitholders. The market capitalization is calculated based on the October 30, 2007 Penn West unit price of $30.59. (3) Represents the sum of independent reserve reports for Canetic and Penn West, adjusted for acquisitions and dispositions in 2007, as at December 31, 2006 (pro forma the pending Vault and Titan acquisitions). (4) Based on reserves as at December 31, 2006 (pro forma the pending Vault and Titan acquisitions) and estimated current production. (5) Based on budgeted prices of US$75/bbl WTI for oil, $7.00/mcf at AECO for natural gas and a par USD/CAD exchange rate. (6) Pro forma the Vault and Titan acquisitions and reflecting the proposed combination
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