Esprit Energy Trust

Esprit Energy Trust

July 07, 2005 15:06 ET

Esprit Energy Trust Announces Agreement to Acquire Two Private Oil and Gas Producers, Bought-Deal Financing and Upward Revision of 2005 Guidance

CALGARY, ALBERTA--(CCNMatthews - July 7, 2005) - Esprit Energy Trust (TSX:EEE.UN) is pleased to announce that it has entered into agreements to acquire two privately-held Calgary-based oil and gas producers. Esprit will acquire all of the issued and outstanding shares of the companies for an aggregate cash consideration of $98.7 million. The total value of the transaction, including assumption of bank debt and working capital deficiency of approximately $2.6 million, is $101.3 million.

"These acquisitions are a good fit for Esprit," said Steve Savidant, President and Chief Executive Officer of the Trust. "The value is in the very significant upside we see in reserves and, most of all, production, which can be realized through further development drilling. We believe the 2006 drilling program will allow us to grow production to approximately 2,500 boe per day from the acquired properties."

The rationale for these two acquisitions can be summarized as follows:

- The properties are concentrated in Esprit's core area of Berry and substantially enhance reserves, production and production potential in that area;

- The properties have an average 86% working interest with over 90% of the production operated;

- Production involves high netbacks, low operating costs and no incremental overhead; and

- Importantly, the transactions are accretive to net asset value and cash flow, on a per unit basis.

Concentration of Assets

The majority of the acquired assets are focused in Esprit's core area of Berry in southern Alberta, east of Three Hills. The acquired production in this area is primarily light oil with a low expected operating cost per boe of $4.00.

The acquisition also increases Esprit's assets in southeast Alberta (Aden, Manyberries and Pakowki), Cold Lake and Buck Lake. The areas include a number of drilling opportunities, high working interests and additional upside.

Impact on Reserves and Production

The two acquisitions represent 6.14 million boe of proved plus probable reserves of which 4.0 million boe are proved. These estimates were prepared by the vendors' independent engineers. In view of Esprit's experience in the producing areas, the Company has developed its own internal reserve estimates which are approximately 82% of the total proved plus probable reserves provided in the independent engineering report. The Company used its own estimates in the valuation of the transaction. The reserves are roughly 65% light oil and 35% natural gas.

Production from the acquired properties for the month of June averaged 1,845 boe per day and, with normal declines, is expected to average 1,575 boe per day over the last half of 2005. After these transactions, Esprit's Proved plus Probable Reserve Life Index (RLI) will be essentially unchanged, moving from 10.8 years to 10.7 years.

Revised Outlook for 2005

With these acquisitions production is expected to be 19,000 boe per day for the third quarter and, 19,500 boe per day for the fourth quarter of 2005. As a further result of these acquisitions, Esprit is also revising operating costs from $7.00 per boe to $6.75 per boe. G&A is expected to decline from $1.40 to $1.30 per boe of production. Esprit will increase its capital program by $1.0 million in the second half of 2005 and a further $10 million in 2006 to develop the acquired assets. The Company expects to drill approximately 20 wells on the new properties. Development plans include downspaced drilling on the Berry properties and, pending regulatory approval, drilling could commence in the second half of 2005.

Hedging Program

Esprit has hedged a portion of its production from the newly acquired properties in order to protect its rate of return on these transactions. A total of 650 barrels per day of oil has been hedged from November 1, 2005 to October 31, 2008 at a Canadian dollar WTI equivalent of Cdn$71.50 per barrel.

Bought Deal Financing

In conjunction with the transactions, Esprit also announces that it has entered into an agreement, on a bought deal basis, with a syndicate of underwriters led by CIBC World Markets Inc. and Scotia Capital Inc., for an offering of $100 million aggregate principal amount of extendible convertible unsecured subordinated debentures. The Convertible Debentures, with a face value of $1,000 per debenture, will have a coupon of 6.50%, and an initial maturity date of August 31, 2005, but will be automatically extended to mature on December 31, 2010 upon closing of the transactions. If the transactions do not close on or before August 31, 2005 or if the transactions are terminated at an earlier time, the Convertible Debentures will mature on the initial maturity date.

The Convertible Debentures will be convertible into trust units of Esprit at $13.85 per trust unit plus accrued and unpaid interest. The net proceeds of the offering will be used to fund the acquisitions. The offering is expected to close on or before July 28, 2005.

The offering of the Convertible Debentures will be issued by way of a short form prospectus to be filed with the securities regulatory authorities in each of the provinces of Canada and pursuant to Rule 144A in the United States, if required. The offering is subject to the receipt of all necessary regulatory and stock exchange approvals and other customary conditions. The securities offered have not been registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. This press release shall not constitute an offer to sell or the solicitation of an offer to buy securities.

Esprit is a Calgary based, natural gas weighted income trust. Esprit's operations are geographically concentrated in Alberta and are characterized by long-life, natural gas-focused assets. The Trust Units of Esprit are traded on the Toronto Stock Exchange (TSX) under the symbol "EEE.UN".

Contact Information

  • Esprit Energy Trust
    Dan Payne
    Investor Relations
    (403) 213-3764 or toll free 1-888-213-3713
    Esprit Energy Trust
    Greg Jerome
    Vice President, Finance & Corporate Secretary
    (403) 213-3732
    Esprit Energy Trust
    Stephen Savidant
    President & Chief Executive Officer
    (403) 213-3729