Paramount Energy Trust

Paramount Energy Trust

March 23, 2005 16:48 ET

Paramount Energy Trust Announces Highly Accretive $290 Million Acquisition


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: PARAMOUNT ENERGY TRUST

TSX SYMBOL: PMT.UN

MARCH 23, 2005 - 16:48 ET

Paramount Energy Trust Announces Highly Accretive $290
Million Acquisition

CALGARY, ALBERTA--(CCNMatthews - March 23, 2005) -

PET secures 48 MMcf/d natural gas acquisition in NE Alberta increasing
Trust production by 40% and reducing 2005 payout ratio to 75%

Paramount Energy Trust ("PET" or the "Trust") (TSX:PMT.UN) has entered
into an agreement to acquire natural gas producing properties in
Northeast Alberta (the "Acquisition") for $290 million, subject to
closing adjustments. The Acquisition is expected to close no later than
May 17, 2005 with an effective date of January 1, 2005.

The 100% natural gas assets being acquired are located in close
proximity to the Trust's Northeast Alberta Core Areas but well outside
the defined boundaries of the Alberta Energy and Utilities Board
("AEUB") gas over bitumen area of concern. The assets are an excellent
fit with PET's existing operations and will be managed from the Trust's
Athabasca field office. BMO Nesbitt Burns is acting as financial advisor
to PET on the Acquisition.

As a result of the Acquisition, the Trust's current daily production of
122 MMcf/d will increase by 40% to 170 MMcf/d and PET's proved plus
probable reserves will increase by 44% to 337 Bcf. The Acquisition will
result in an increase of approximately 19% to PET's estimated cash flow
per Trust Unit on a pro forma basis for the second half of 2005 and
approximately 24% for 2006. In addition, the Acquisition is 21%
accretive to current production per Unit and 25% accretive to reserves
per Unit as at January 1, 2005.

This highly accretive transaction will reduce PET's projected 2005
payout ratio to approximately 75% of estimated cash flow which
significantly enhances the sustainability of PET's current level of
monthly distributions of $0.22 per Trust Unit.

It is expected that this level of monthly distributions will be
sustainable for at least the remainder of the next three years assuming:

1. the successful closing of the Acquisition prior to May 17, 2005;

2. PET's current hedging and gas marketing portfolio and the current
forward market for natural gas prices;

3. PET's continued successful development of its inventory of
undeveloped land; and

4. no additional benefits from future acquisitions.

Sue Riddell Rose President and Chief Operating Officer of the Trust
commented, "We are extremely excited to have achieved another milestone
in our strategy of consolidating the shallow gas production in Northeast
Alberta. It is not often that we are able to crystallize on an opportunity
as synergistic with our existing operations and business plan as today's
major acquisition."

ACQUISITION HIGHLIGHTS

- Current average daily production of approximately 48 MMcf/d (8,000
BOE/d; 100 per cent natural gas);

- 103.8 Bcf (17.3 MMBOE) of proved plus probable reserves, as evaluated
by the Trust's internal engineers, as at January 1, 2005 (131.7 Bcf
(22.0 MMBOE) of proved plus probable reserves as evaluated by the
Vendor's third party independent engineering consultants);

- Proved reserves are 81% of PET's estimated proved plus probable
reserves and proved developed producing reserves are 100% of PET's
internal proved reserve estimate;

- Favorable transaction metrics of $33,750 per flowing BOE of production
at January 1, 2005 (48 MMcf/d) and $15.61 per proved plus probable BOE
based on PET's internal reserve estimates; excluding $20 million
assigned to undeveloped land and seismic;

- Approximately 412,160 net acres of undeveloped land at an average 80%
working interest;

- Average 2004 operating costs of $0.85 per Mcf enhance PET's high field
netbacks and reduce the Trust's overall operating costs per Mcf by
approximately 3%; and

- Monthly cash flow from operations of approximately $6 million per
month at current natural gas prices.

Other operational highlights include:

- A licensed copy of a minimum of 4,627 km of seismic to assist the
Trust in the ongoing identification and evaluation of the multi-zone
upside potential associated with these assets;

- High working interest of approximately 72%;

- Operatorship in excess of 75%;

- The Acquisition includes various working interests in 17 gas plants
through which the acquired production is processed as well as numerous
booster compressor stations;

- The majority of the gas is uncontracted and therefore available for
PET to market or hedge as opportunities in the forward market arise.

BENEFITS TO PET UNITHOLDERS

- Significant accretion of approximately 19% to PET's cash flow per
Trust Unit on a pro forma basis for the second half of 2005 and
approximately 24% for 2006. The accretion figures are based on PET's
engineering assessment of proved developed producing reserves of the
Acquisition at current forward commodity prices including the Trust's
hedging and PET's base forecast for 2006 including reinvestment of 15%
of consolidated cash flow in development activities on pre-Acquisition
assets;

- Accretion of 22% and 26% in current production per Trust Unit and
reserves per Trust Unit as at January 1, 2005, respectively;

- Maintains and reinforces PET's natural gas focus;

- Provides additional production diversification outside of the AEUB gas
over bitumen area of concern;

- Technically synergistic with PET's existing NE Alberta shallow gas
asset base;

- The facilities and equipment being acquired are consistent with PET's
existing shallow gas assets providing for the opportunity to utilize
existing equipment inventory in the future;

- Uncontracted gas production brings additional flexibility to PET's
natural gas price management program;

- Although the Trust anticipates some staff additions to our core asset
teams, very little incremental G&A will be required to manage and
optimize the properties.

NE ALBERTA ASSETS



---------------------------------------------------------------------
Area Properties Production/Reserves(1)(2) Characteristics
---------------------------------------------------------------------
Teepee Liege, Woodenhouse 17.0 MMcf/d Grand Rapids,
Proved: 31.0 Bcf Viking,
P+P: 38.6 Bcf Clearwater,
Wabiskaw, Wabamun
and Grosmont
production;
252,322 net
acres with an
average 90%
interest
---------------------------------------------------------------------
Marten Mistahae,
Hills Marten Hills 11.7 MMcf/d Grand Rapids,
Proved: 20.6 Bcf Viking,
P+P: 24.8 Bcf Clearwater and
Wabiskaw
production;
39,460 net
acres with an
average 96%
interest
---------------------------------------------------------------------
Cherpeta Cherpeta, 17.0 MMcf/d Wabamun,
Calling Lake, Proved: 28.8 Bcf Mannville
Wandering River P+P: 35.9 Bcf group and
Viking
production;
81,802 net
acres with an
average 55%
working interest.
---------------------------------------------------------------------
Darwin Darwin 2.3 MMcf/d Bluesky production;
Proved: 3.5 Bcf 38,576 net acres
P+P: 4.4 Bcf with an average
84% working
interest.
---------------------------------------------------------------------
Total 48.0 MMcf/d 269,351 net
Proved: 83.9 Bcf developed acres
P+P: 103.8 Bcf and 412,160 net
undeveloped acres
for total land
holdings of
283,933 net acres.
---------------------------------------------------------------------


(1) Reserve volumes are per PET's internal evaluation as at January 1,
2005. "P+P" are proved plus probable reserves.

(2) Production volumes are March 2005 estimate.

FINANCING

The acquisition price of $290.0 million, prior to adjustments, will be
funded through a combination of bank debt, an issue of Trust Units and
an issue of convertible debentures (the "Offering"). In conjunction with
the acquisition, PET has entered into an agreement to sell on a bought
deal basis, 9,500,000 subscription receipts ("Subscription Receipts") at
a price of $16.85 each for gross proceeds of approximately $160 million,
and $80 million of 6.25% convertible extendible unsecured subordinated
debentures ("Debentures") to a syndicate of underwriters co-led by BMO
Nesbitt Burns Inc. and CIBC World Markets Inc. PET has also granted the
underwriters an option to purchase up to an additional $20 million of
Debentures on the same terms as above. Closing is expected to occur on
or about April 26, 2005.

Each Subscription Receipt represents the right to receive one Trust Unit
on the closing of the Acquisition. The proceeds from the Offering of
Subscription Receipts will be deposited in escrow pending closing of the
Acquisition. If the Acquisition closes on or before June 30, 2005, the
net proceeds will be released to PET and used to pay part of the
purchase price of the Acquisition. If the Offering closes before the
Acquisition closes, holders of Subscription Receipts will be entitled to
receive a payment equivalent to the amount of any cash distributions to
Unitholders for which record dates occur between the closing of the
Offering and the closing of the Acquisition. If the Acquisition fails to
close by June 30, 2005 or the Acquisition is terminated at an earlier
time, the escrow agent will return the issue proceeds and the pro rata
entitlement to interest thereon to holders of the Subscription Receipts.

The Debentures will have a face value of $1,000 per Debenture, a coupon
of 6.25%, a final maturity date, if extended, of June 30, 2010, and will
be convertible into the trust units of PET at a price of $19.35 per
Trust Unit. The initial maturity date of the Debentures will be June 30,
2005, with an automatic extension to June 30, 2010 upon the closing of
the Acquisition. If the Acquisition does not close on or before June 30,
2005, or if the Acquisition is terminated at an earlier time, the
Debentures will mature on the initial maturity date. The Debentures will
pay interest semi-annually on June 30 and December 31, with the initial
interest payment on June 30, 2005.

UPDATED 2005 GUIDANCE

Incorporating this Acquisition and current natural gas prices, PET
herein provides updated estimates of operating and financial performance
for the second half of 2005.



Annual 2005 July 1 to December 31,
----------- ----------------------
2005
----
---------------------------------------------------------------------
Previous New Previous New
-------- ---- -------- ----
-------- ---- -------- ----
Guidance Guidance(1) Guidance Guidance(1)
-------- ----------- -------- ----------
---------------------------------------------------------------------
Natural Gas
Production (MMcf/d) 120 148 118 160
---------------------------------------------------------------------

---------------------------------------------------------------------
Gas Prices
---------------------------------------------------------------------
AECO Monthly
Index ($/GJ) $7.10 $7.30 $7.75 $7.75
---------------------------------------------------------------------
PET Realized ($/Mcf) $7.50 $7.77 $8.15 $8.15
---------------------------------------------------------------------

---------------------------------------------------------------------
Cash Flow ($ millions) $205 $258 $113 $150
---------------------------------------------------------------------
Cash Flow
per Unit ($/Unit/Month) $0.260 $0.294 $0.286 $0.340
---------------------------------------------------------------------

---------------------------------------------------------------------
Payout Ratio 85% 75% 77% 65%
---------------------------------------------------------------------

---------------------------------------------------------------------
Ending Debt
to Cash
Flow
Ratio (4) Times 1.0 0.9 0.9 0.9
---------------------------------------------------------------------


Notes:

1. The updated 2005 guidance reflects the results of the Acquisition.
Cash flow from the January 1, 2005 effective date to closing, estimated
at $20 million will be recorded as a reduction in the purchase price.

2. Cash flow incorporates royalty adjustments for gas over bitumen
shut-in gas.

3. Includes forward gas prices as of March 21, 2005 gas prices, PET
hedging activity and physical forward sales and PET contracts but no
future acquisitions.

4. Calculated as ending net debt including convertible debentures as
debt divided by annualized cash flow.

Conference Call and Webcast

PET will be hosting a conference call and webcast at 9:00 a.m., Calgary
time, Thursday, March 24, 2005 to review this transaction. Interested
parties are invited to take part in the conference call by dialing one
of the following telephone numbers 10 minutes before the start time,
Toronto and area - 1 416 695-9753, outside Toronto - 1 888 789-0089. To
participate in the live webcast please visit www.paramountenergy.com or
www.companyboardroom.com. The webcast will also be archived shortly
following the presentation.

About PET

Paramount Energy Trust is a natural gas-focussed Canadian energy trust.
PET's Trust Units are listed on the Toronto Stock Exchange under the
symbol "PMT.UN". Further information with respect to PET can be found at
its website at www.paramountenergy.com.

Forward-looking Information

This news release contains forward-looking information. Implicit in this
information, particularly in respect of cash distributions, are
assumptions regarding natural gas prices, production, royalties and
expenses which, although considered reasonable by PET at the time of
preparation, may prove to be incorrect. These forward-looking statements
are based on certain assumptions that involve a number of risks and
uncertainties and are not guarantees of future performance. Actual
results could differ materially as a result of changes in PET's plans,
changes in commodity prices, general economic, market, regulatory and
business conditions as well as production, development and operating
performance and other risks associated with oil and gas operations.
There is no guarantee by PET that actual results achieved will be the
same as those forecast herein.

BOE's may be misleading, particularly if used in isolation. A BOE
conversion ratio of 6 Mcf:1bbl is based on an energy equivalency
conversion method primarily applicable at the burnertip and does not
represent value equivalency at the wellhead. Estimated values referred
to in this news release do not represent fair market value.

-30-

Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    Paramount Energy Trust
    Susan L. Riddell Rose
    President and Chief Operating Officer
    (403) 269-4400
    or
    Paramount Energy Trust
    Cameron R. Sebastian
    Vice President, Finance and Chief Financial Officer
    (403) 269-4400
    or
    Paramount Energy Trust
    Sue M. Showers
    Investor Relations Advisor
    (403) 269-4400
    (403) 269-6336 (FAX)
    info@paramountenergy.com
    or
    Paramount Energy Operating Corp,
    administrator of Paramount Energy Trust
    Suite 500, 630 - 4 Avenue S.W.
    Calgary, AB T2P 0J9
    The Toronto Stock Exchange has neither approved nor disapproved the
    information contained herein.