Provident Energy Trust

Provident Energy Trust

October 06, 2010 21:00 ET

Provident Announces Plans for Corporate Conversion, Corporate Dividend Policy and Conference Call Details

CALGARY, ALBERTA--(Marketwire - Oct. 6, 2010) -

All values are in Canadian dollars unless otherwise indicated.

Provident Energy Trust (Provident) (TSX:PVE.UN) (NYSE:PVX) is pleased to announce its proposed reorganization into a dividend paying corporation on or about January 1 2011, subject to unitholder, court and regulatory approval. Pursuant to the conversion, unitholders will receive one common share of Provident Energy Ltd. for each Trust Unit.

"We are excited about Provident's prospects as a corporation," said Doug Haughey, President and CEO. "Provident is the leading Canadian pure-play natural gas liquids infrastructure and marketing business. Our goal is to generate stable fee-for-service and margin based revenue, augmented by managed leverage to commodity prices. Provident's large scale strategic assets are well situated to drive dividend income and organic growth."

Corporate Dividend Level

Provident's new dividend level, beginning with the January 2011 dividend, is planned to be $0.045 per share per month, which reflects a reduction from the current monthly cash distribution of $0.06 per unit. The new dividend level is intended to allow for internally generated cash flow to support organic growth, maintain a strong balance sheet and provide sustainable monthly dividends to shareholders. Payment of the December 2010 cash distribution will be accelerated and paid to unitholders in December 2010.

Benefits of Conversion

Management and the Board of Directors believe the conversion to a corporation and dividend policy revision provides a number of strategic benefits to Provident and its unitholders including:

  • The removal of uncertainty;
  • A wider potential investor base;
  • A simpler corporate structure; and
  • A strong financial position from which to grow.

Favorable Tax Horizon

At January 1, 2011, Provident estimates that it will have accumulated approximately $900 million in combined tax pools. Given current earnings expectations, Provident anticipates these pools will offset material cash taxes until 2014.

Tax Considerations for Unitholders

Provident anticipates that the conversion transaction will likely be considered a tax deferred exchange for Canadian unitholders. For unitholders in the U.S., the exchange will likely qualify as a tax deferred reorganization and as such no gain or loss will need to be recognized. This information is not intended to be, and should not be construed as tax advice and investors in both Canada and the U.S. should consult with financial advisors, legal counsel or accountants regarding the tax consequences of the proposed conversion transaction and any subsequent dividend payments received from Provident post conversion.

Special Meeting of Unitholders

Provident has scheduled a Special Meeting of Unitholders at 9:00 a.m. MST on December 1, 2010 at the Livingston Club Conference Centre, 222 - 3rd Avenue S.W., Calgary, Alberta, to consider a proposed arrangement pursuant to the Business Corporations Act (Alberta) involving Provident and a number of its subsidiaries, pursuant to which Provident will be reorganized into a dividend paying corporation that will be named "Provident Energy Ltd." The arrangement is expected to be completed on or about January 1, 2011 and is subject to, among other things, the approval of at least two-thirds of the unitholders, the approval of the Court of Queen's Bench of Alberta and certain regulatory approvals, including the approval of the Toronto and New York Stock Exchanges.

After due consideration of the financial and other impacts of the conversion, including the potential impact on Provident, unitholders and employees as well as other relevant matters, the board of directors has unanimously determined that the conversion, including the transactions and other matters related thereto, is in the best interests of Provident and unitholders and is fair to unitholders. Accordingly, the board unanimously recommends that unitholders vote for the resolution approving the conversion at the Special Meeting on December 1.

Provident's senior management team and directors will continue to serve in their current roles with the new corporation. A management information circular and proxy statement outlining the details of the matters to be dealt with at the meeting is expected to be mailed to unitholders on or about November 5, 2010 and will be available on SEDAR ( and Provident's website (

Repurchase of Convertible Debentures

In connection with the planned corporate conversion, Provident intends to make an offer for its 6.5% convertible unsecured subordinated debentures maturing on August 31, 2012 (Trading Symbol: PVE.DB.C), and its 6.5% convertible debentures maturing on April 30, 2011 (Trading Symbol: PVE.DB.D) at 101 percent of their principal values plus accrued and unpaid interest. The repurchase offer will be made within 30 days of Provident's corporate conversion. The Trust intends to establish contingent replacement financing arrangements in respect of the amounts owing under the Provident Debentures prior to effecting the conversion.

Should a holder of debentures elect not to accept the repurchase offer, the debentures will mature as originally set out in their respective indentures. The debentures will continue to trade on the TSX following the conversion and Provident Energy Ltd. will assume all covenants and obligations in respect of the debentures following the conversion. Holders of the debentures who convert their debentures following the effective date of the conversion will receive common shares of Provident Energy Ltd.

As of October 6, 2010 there was approximately $249.0 million combined aggregate principal amount outstanding under the debentures. Further information regarding the repurchase offer will be available in the information circular available on SEDAR ( and Provident's website ( on or about November 5, 2010 and in the offer to purchase to be delivered to debenture holders following the completion of the conversion.

Risk Management Program

Provident's commodity price risk management program utilizes commodity hedges to protect against adverse price movements. Subject to market conditions, Provident's intention is to hedge approximately 50 percent of its natural gas and natural gas liquids (NGL) volumes on a rolling 12 month basis. Also, subject to market conditions, Provident may add additional hedges as appropriate for up to 24 months. The following table provides a summary of Provident's hedged volumes as of September 30, 2010.

    2010     2011   2012   2013
    Q4     Q1     Q2   Q3   Q4   Q1   Q2   Q3   Q4   Q1
% Hedged: NGL   82%   83%   55%   29%   17%   7%   12%   22%   25%   14%
% Hedged: Purchased  Natural Gas   80%   85%   55%     28%     28%     4%     7%     11%     12%     10%

Note: % hedged is calculated using internal sales and production forecast assumptions.

A detailed summary of all Provident's current financial derivative positions is available on Provident's website at

2010 Adjusted EBITDA Guidance Update

Provident confirms that given the current forward pricing assumptions it expects to be at the lower end of its estimated 2010 adjusted EBITDA guidance range of $200 to $230 million. Provident's adjusted EBITDA guidance range is subject to certain market and operational assumptions, including normal weather conditions, and excludes the one-time cost of the financial derivative instruments buyout in the second quarter of 2010 and strategic review and restructuring costs. This guidance is based, in part, on the 2010 fourth quarter average forward pricing of WTI crude U.S. $77.74 per barrel, AECO gas Cdn$3.45 per gj, Canadian/U.S. dollar exchange rate of $1.03 and a Mont Belvieu propane price at 63 percent of the WTI crude oil price.

Conference Call Details

A conference call has been scheduled for Thursday, October 7 2010, to discuss details regarding the conversion at 7:30 a.m. MDT (9:30 a.m. Eastern). To participate, please dial 1-888-340-9642 or 1-416-340-2216 approximately 10 minutes prior to the conference call. An archived recording of the call will be available for replay until October 14, 2010 by dialing 1-800-408-3053 or 1-416-695-5800 and entering pass code 3020416. Provident will also post an audio replay of the call to its website at

2010 Analyst Day

Provident will outline its business strategy and prospects (at its 2010 Analyst Day) on October 14, 2010 at  8:30 a.m. MDT. The event will be available to the public via a live webcast at To listen to the live event and view the corresponding presentations, please go to the web site at least 10 minutes early to register. A replay of the presentations will be available after the event on Provident's website at

Provident Energy Trust is a Calgary-based, open-ended energy income trust that owns and manages a natural gas liquids (NGL) midstream business. Provident's Midstream facilities are strategically located in Western Canada and in the premium NGL markets in Eastern Canada and the U.S. Provident provides monthly cash distributions to its unitholders and trades on the Toronto Stock Exchange and the New York Stock Exchange under the symbols PVE.UN and PVX, respectively.

This news release contains certain forward-looking information concerning Provident, as well as other expectations, plans, goals, objectives, information or statements about future events, conditions, results of operations or performance that may constitute "forward-looking information" or "forward-looking statements" under applicable Canadian and U.S. securities legislation (collectively, "forward-looking information"). In particular, forward-looking information includes, but is not limited to: information regarding the proposed conversion and business plan of Provident Energy Ltd.; the anticipated benefits of the conversion; the timing of the required Court approvals; the effective date of the conversion; the making of applications and the satisfaction of conditions for listing on the TSX and NYSE and the timing thereof; the composition of the Provident Energy Ltd. board and management team of Provident Energy Ltd. upon completion of the conversion; the treatment of unitholders under tax laws; the extent of available tax pools and the anticipated tax horizon of Provident Energy Ltd.; EBITDA guidance; commodity prices and exchange rates; the financial derivative positions of Provident and the planned dividend policy of Provident Energy Ltd.

Such forward-looking information involves substantial known and unknown risks and uncertainties, certain of which are beyond Provident's control, including: the failure of Provident to satisfy the conditions relating to the proposed conversion; inability to meet the TSX and NYSE requirements respecting listing of the common shares of Provident Energy Ltd.; inability to obtain required approvals, including Court approval of the conversion and unitholder approval of the conversion resolution; failure to realize anticipated benefits of the conversion the impact of general economic conditions in Canada and the United States, industry conditions, changes in laws and regulations including the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, pipeline design and construction, fluctuations in commodity prices, foreign exchange or interest rates, stock market volatility and obtaining required approvals of regulatory authorities.

Such forward-looking information is based on a number of assumptions which may prove to be incorrect. In addition to other assumptions identified in this news release, assumptions have been made regarding, among other things, commodity prices, operating conditions, earnings and other financial conditions, capital and other expenditures, receipt of required approvals relating to the proposed conversion, and project development activities. 

Although Provident believes that the expectations reflected in such forward-looking information is reasonable, undue reliance should not be placed on forward-looking information because Provident can give no assurance that such expectations will prove to be correct. Forward-looking information is based on current expectations, estimates and projections that involve a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by Provident and described in the forward-looking information.

The forward-looking information contained in this news release is made as of the date hereof and Provident undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, unless required by applicable securities laws. The forward-looking information contained in this news release is expressly qualified by this cautionary statement.

Contact Information

  • Provident Energy Trust
    Investor and Media Contact:
    Glen Nelson
    Manager, Investor Relations
    Phone (403) 231-6710
    Corporate Head Office:
    2100, 250 - 2nd Street SW
    Calgary, Alberta T2P 0C1
    (403) 296-2233 or Toll Free: 1-800-587-6299
    (403) 264-5820 (FAX)