Provident Energy Trust
TSX : PVE.UN
NYSE : PVX

Provident Energy Trust

November 09, 2006 17:05 ET

Provident Energy Announces Third Quarter 2006 Results

All values are in Canadian dollars and conversions of natural gas volumes to barrels of oil equivalent 'boe' are at 6:1 unless otherwise indicated Third Quarter Highlights - 59 percent payout ratio highlights second consecutive quarter of record financial results. - Cash flow of $120 million demonstrates the value of Provident's balanced portfolio strategy in a volatile commodity price environment. - Record Midstream EBITDA of $66 million reflects a favourable commodity price environment and operational excellence. - Upstream production of 30,800 barrels of oil equivalent per day includes one month of production from Provident's $473 million acquisition of high-quality, long-life natural gas assets in Northwest Alberta that closed, with concurrent financing, on August 31.

CALGARY, ALBERTA--(CCNMatthews - Nov. 9, 2006) - Provident Energy Trust (Provident) (TSX:PVE.UN) (NYSE:PVX) reported third quarter 2006 cash flow from operations of $120.1 million ($0.61/unit) compared to $86.3 million ($0.53/unit) generated in the third quarter of 2005, an increase of 39 percent. Distributions declared in the quarter totalled $71.0 million ($0.36/unit) compared to $59.3 million ($0.36/unit) in 2005. Provident's payout ratio of cash flow from operations was 59 percent in the third quarter, compared to 69 percent in the same period a year earlier.

"Our results to date this year illustrate that the significant strategic initiatives we have taken over the last couple of years are delivering the anticipated results," said Provident President and Chief Executive Officer Tom Buchanan. "In Midstream, we are realizing the benefits we sought when we combined our existing Redwater-based operations with the major west-to-east Empress-based operations we acquired in late 2005. We continue to strengthen the Canadian Oil and Gas Production business by acquiring quality assets and focusing on our best internal development opportunities. We have also advanced our objective of further growth in the U.S. by completing the BreitBurn IPO, providing our controlled and 65 percent-owned subsidiary, BreitBurn Energy Partners L.P., with direct access to U.S. capital markets and a competitive cost of capital to pursue its growth initiatives."

Provident's net earnings for the third quarter of 2006 were $120.9 million, up substantially from $18.4 million for the third quarter of 2005. Net earnings for this quarter include an unrealized gain of $84.7 million on derivative contracts. Provident's risk management program incorporates the use of financial derivative instruments, including commodity price hedges, to stabilize cash flow over time. Particularly in the Midstream business, Provident routinely enters into crude oil and natural gas futures contracts with effective periods of up to five years, to protect margins on the extraction, fractionation and sale of natural gas liquids (NGLs). Due to the accounting requirement to "mark to market" all unrealized gains and losses associated with future financial derivative instruments at a point in time and report these against current period income, Provident's net earnings show substantial quarterly variation that is not necessarily related to current operations.

Business Unit Results

Provident's balanced portfolio includes diverse assets across the energy value chain in Canada and the United States. The company has three business units: Canadian Oil and Gas Production (COGP), U.S. Oil and Gas Production (USOGP), and Midstream.

Canadian Oil and Gas Production (COGP)

Provident's COGP business unit produces and sells primarily natural gas, light/medium oil, and natural gas liquids (NGLs). Production assets are located in Alberta and southern Saskatchewan.

COGP generated $41.3 million in cash flow from operations for the recently completed quarter, compared to $55.5 million in the third quarter of 2005. The decrease in cash flow is due to reduced production and significantly lower natural gas prices in 2006 than in 2005.

Production averaged 23,100 barrels of oil equivalent per day (boed) in the third quarter, down from 25,900 boed in the third quarter of 2005. The year-over-year decline reflects a property disposition of approximately 2,100 boed in September 2005 and natural declines, partially offset by drilling activity and one month of new production from the Rainbow asset acquisition. Production in September was impacted by short-term outages on transportation pipeline systems and temporary surface facility problems in Northwest Alberta. Current production is approximately 26,500 boed, and production for the year remains ahead of expectations. Production during the third quarter was weighted 57 percent natural gas, 34 percent medium/light crude oil and NGLs, and nine percent heavy oil.

Third quarter 2006 field operating netback was $23.65 per barrel of oil equivalent (boe), down from $32.90 per boe in the same quarter a year ago. The decrease reflects a 30 percent reduction in natural gas prices. Operating costs were $22.9 million ($10.78 per boe) for the third quarter of 2006, compared to $23.9 million ($10.03 per boe) during the third quarter of 2005. While per-barrel operating costs were higher than a year ago due to cost pressures across the industry, they were lower than second quarter 2006 costs of $11.05 per boe.

Provident spent $14.5 million in COGP capital expenditures in the quarter. The bulk of the capital ($10.9 million) was spent on drilling, completion and tie-in activities in Southern Alberta, West Central Alberta and Lloydminster. Southern Saskatchewan expenditures of $1.8 million consisted of further land acquisition in the area as well as drilling activity. Capital spending was minimal in the new Northwest Alberta core area, consisting of preparation costs for the 2007 winter drilling season.

On August 31, Provident closed the acquisition of high quality operated natural gas assets in the Rainbow area for a net purchase price of approximately $473 million. These assets establish Provident's new Northwest Alberta core area and strengthen Provident's Canadian upstream business. The reserve life index exceeds 11 years, and there are over 200 identified drilling locations and an expansive land base with long-term development opportunities. The acquisition was funded by a combination of bank debt and an equity offering of 16.3 million units that provided net proceeds of $214.2 million.

U.S. Oil and Gas Production (USOGP)

Provident's USOGP business unit produces and sells primarily light crude oil from basins in Southern California and Wyoming. In the third quarter, BreitBurn Energy Company L.P. (BreitBurn) operated 99 percent of the production, and Provident owned approximately 96 percent of BreitBurn.

USOGP generated $20.2 million of cash flow from operations in the third quarter of 2006, up from $18.7 million in the same period in 2005. Production averaged 7,700 boed in the third quarter of 2006, comparable to 7,800 boed in the same quarter last year. Completion of several capital projects resulted in a third quarter exit rate of 7,850 boed. Third quarter production was weighted 95 percent light/medium crude oil and five percent natural gas.

Field operating netbacks in the third quarter of 2006 were $42.16 per boe, comparable with $43.03 in the third quarter of 2005. Operating costs were $17.94 per boe during the quarter, up from $14.80 per boe during the third quarter of 2005. While most USOGP production is in high cost operating areas, the competitive royalty regime offsets those costs to produce attractive netbacks.

Provident spent $13.5 million on USOGP capital expenditures during the third quarter. Significant capital projects included drilling three wells and optimizing six others in the Wyoming fields for $3.5 million, continuing to develop the Orcutt field thermal reservoir for $1.7 million, and recompleting three wells and undertaking a water handling project in Santa Fe Springs for $1.8 million. Facility and sustaining capital expenditures totalled $3.1 million, with the balance of capital allocated to corporate and real estate development projects.

On October 3, 2006, Provident, through BreitBurn, announced the initial public offering of BreitBurn Energy Partners L.P. (NASDAQ-BBEP), a master limited partnership that will operate approximately two-thirds of the current USOGP production and approximately half of current reserves. Selected producing assets in California and Wyoming have been transferred to the new public partnership. Key assets to remain in Provident's existing BreitBurn subsidiary are at Orcutt and at West Pico, both in California. Provident continues to own 96 percent of the existing subsidiary, and approximately 65 percent of the new publicly-traded partnership. The Los Angeles-based BreitBurn management team will continue to operate both the new partnership and the existing subsidiary. Provident used the net proceeds of $118.8 million from the initial public offering to pay down debt both in Canada and in the U.S.

Midstream

Provident's Midstream business unit participates in all elements of the natural gas liquids (NGL) value chain, including extraction of NGLs from natural gas, transportation, fractionation of the blended NGLs into products (ethane, propane, butane and condensate), storage of blended NGLs and NGL products, and distribution and marketing of NGL products. Provident is the second largest integrated NGL player in Canada, and is one of two Canadian companies with ownership in a west-to-east NGL system.

For the third quarter of 2006, Provident's Midstream business unit generated earnings before interest, taxes, depletion, depreciation, accretion and other non-cash items (EBITDA) of $66.0 million, up substantially from $13.0 million in the third quarter of 2005. Midstream cash flow from operations was $58.6 million in the third quarter, up from $12.2 million in the same quarter of 2005. The increases reflect the major NGL business acquisition Provident completed in December 2005, an excellent business environment, and operating success. The business environment was characterized by a wide gap between natural gas prices (a key input cost) and crude oil prices (against which NGLs are typically priced), as well as strong NGL prices relative to crude oil. July and August results were stronger than September results, due to crude oil price declines in September that also reduced NGL prices.

Provident managed 166,483 barrels per day (bpd) of NGLs during the third quarter, up from 61,760 bpd in the third quarter of 2005. The additional volumes reflect the NGL business acquisition and the addition of the new condensate offloading facility in the second quarter. Midstream operating results were strong, with notable success in marketing propane volumes on a ratable basis through the summer months, mitigating the impact of what is typically a slower season for propane sales. As well, the new condensate terminal at Redwater performed well, and the expansion of that facility is proceeding on time and on budget.

Midstream capital expenditure in the third quarter was $10.3 million, almost all of which was spent on the expansion of the Redwater condensate terminal.

Outlook

Efforts to strengthen Provident's upstream production business, particularly in Canada, have proceeded very well in 2006. The acquisition of the Rainbow natural gas assets in August gives the COGP team a new core area with excellent development potential. Planning for the 2007 winter drilling season is ahead of schedule, and the team intends to drill 30 to 40 wells beginning in January. The new wells are anticipated to fully offset natural declines, such that production from the Rainbow area (Northwestern Alberta) is expected to remain relatively steady through 2007. Provident also continues to pursue attractive internal development activities in its Southwest Saskatchewan shallow gas play.

In focusing on the best opportunities, the COGP team is continuing to rationalize the overall Canadian upstream portfolio. Consistent with the disposition in September 2005 of non-core properties producing approximately 2,100 boed, the COGP business unit is currently offering another asset package of approximately 2,000 barrels per day for sale. The assets to be sold are heavy oil assets in the Lloydminster area, which is no longer a focus area for Provident. The sale is expected at the end of 2006 or the beginning of 2007.

In the U.S. Oil and Gas Production business, both strategic and operational initiatives are moving ahead. On the operational front, regulatory and permitting activity is underway at Orcutt that will enable the thermal diatomite cyclic steam project in the Santa Maria basin to move to production in 2007. BreitBurn anticipates beginning drilling early in 2007, with production ramping up gradually to peak in 2008 or 2009 at 1,500 to 1,800 boed (based on the success of the initial test wells). If the Orcutt diatomite project is successful, it could prove the potential for additional projects in the future. The expected total capital cost for this first project is in the order of $60 million.

Provident's major strategic initiative of 2006 for BreitBurn was the initial public offering of BreitBurn Energy Partners L.P. ("the IPO"). Provident undertook the IPO to create a U.S.-based public vehicle with direct access to U.S. capital markets at a highly competitive valuation and cost of capital. Accordingly, Provident believes BreitBurn Energy Partners L.P. will be positioned to execute an accretive growth plan in an increasingly competitive U.S. environment for mergers and acquisitions. Pursuant to the IPO, Provident was able to recapture a portion of its capital investment in BreitBurn while retaining control of the general partner of BreitBurn Energy Partners L.P. and holding approximately 65 percent of the outstanding partnership units. Provident also retains approximately 96 percent ownership in the pre-existing BreitBurn Energy Company L.P., which will continue to develop the U.S. assets that still have significant internal growth opportunities. Provident continues to see good potential value in the U.S., and believes that having both a public subsidiary and a development subsidiary based in the U.S. under common strong local management positions the company well for further U.S. growth and value creation.

Provident's upstream production results to date in 2006 have been strong, reflecting a successful 2006 capital program and operational initiatives. In spite of some unexpected downtime in September and October, Provident is still expecting good production figures at the end of the year. Following the Rainbow acquisition, annual production guidance was increased at the end of the second quarter to 29,000 to 31,000 boed. Provident now expects to meet or exceed that guidance.

In the Midstream business, a highly favourable business environment drove exceptionally strong EBITDA in the third quarter. Provident believes the strong Midstream performance seen through 2006 will continue, although the softening crude oil prices and strengthening natural gas prices will likely return NGL revenues to more typical levels for the fourth quarter.

2007 Capital Budget

The Board of Directors has approved a 2007 capital budget of $170 million. This budget anticipates funding attractive internal growth opportunities in all three business units, although the timing and completion of these projects will be reviewed quarterly in light of the evolving business environment and available cash flow. The Canadian oil and gas business is continuing to develop its Southwest Saskatchewan organic shallow gas play, as well as building the capital program for the new core area in Northwestern Alberta. The U.S. oil and gas business is pursuing growth in those assets that were not included in the new partnership, notably at Orcutt. And the Midstream business is finding numerous opportunities around storage and terminalling to serve the growing Alberta oil sands industry.

Government Tax Announcement

On October 31, 2006, the Canadian federal government announced its intention to change the tax treatment for all income trusts, significantly increasing the tax burden on trust distributions. For existing trusts including Provident, these changes would come into effect in 2011. There is no immediate impact on the trust's operations or cash flow, and the trust remains in a strong financial position.

Provident's business strategy is built around creating sustainable long-term value for investors, and that commitment will not change. Management is working to understand the long-term implications of the proposed taxation changes and will respond accordingly. Provident has a strong track record of finding innovative ways to create value - it was the first junior oil and gas company to convert into a trust, the first to diversify along the energy value chain, and the first to acquire U.S. assets, among other "firsts." It is Provident's intent that the legacy of innovation will continue as the energy trust sector adapts to the new taxation regime.

Provident is taking part in efforts by the Coalition of Canadian Energy Trusts and the Canadian Association of Income Funds to urge the Canadian government to engage in consultation about appropriate tax policy with respect to trusts, including energy trusts in particular. The new policy was announced with no warning or consultation, creating an unprecedented market reaction. Energy trusts are a well-established component of the Canadian energy industry, adding unique value by, among other things, developing mature basins to their maximum potential and operating important energy infrastructure. Provident unitholders can express their opinions on this new tax policy by writing or calling the Canadian Minister of Finance. Contact information is available on Provident's website, at www.providentenergy.com.

Provident Energy Trust is a Calgary-based, open-ended energy income trust that owns and manages an oil and gas production business and a natural gas liquids midstream business. Provident's energy portfolio is located in some of the most stable and predictable producing regions in Western Canada, Southern California and Wyoming. 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.

Financial Statements and Management's Discussion and Analysis (MD&A)

Provident's interim consolidated financial statements and MD&A for the quarter ended September 30, 2006, are available on SEDAR (www.sedar.com), and on Provident's website, at www.providentenergy.com, under the heading "Investors."

This document contains certain forward-looking statements 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 statements" or "forward-looking information" under applicable securities legislation. Such statements or information involve substantial known and unknown risks and uncertainties, certain of which are beyond Provident's control, including the impact of general economic conditions, 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 statements or information are 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, capital and other expenditures, and project development activities. Although Provident believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements because Provident can give no assurance that such expectations will prove to be correct. Forward-looking statements or information are 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 statements or information.

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



Consolidated financial highlights

Consolidated Three months ended
($ 000s except per unit data) September 30,
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2006 2005 % Change
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Revenue (net of royalties and financial
derivative instruments) $ 661,022 $ 295,060 124
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Cash flow from COGP operations (1) $ 41,315 $ 55,470 (26)
Cash flow from USOGP operations (1) 20,156 18,669 8
Cash flow from midstream services
and marketing (1) 58,618 12,179 381
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Total cash flow from operations (1) $ 120,089 $ 86,318 39
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Per weighted average unit - basic (2) $ 0.61 $ 0.53 15
Per weighted average unit - diluted (3) $ 0.57 $ 0.53 8
Declared distributions to unitholders $ 70,970 $ 59,333 20
Per unit $ 0.36 $ 0.36 -
Percent of cash flow from operations paid
out as declared distributions 59% 69% (14)
Net income $ 120,850 $ 18,386 557
Per weighted average unit - basic (2) $ 0.61 $ 0.11 455
Per weighted average unit - diluted (3) $ 0.58 $ 0.11 427
Capital expenditures $ 38,254 $ 40,762 (6)
Nautilus acquisition $ - $ - -
Property acquisitions $ 473,197 $ (680) -
Property dispositions $ 466 $ 44,639 (99)
Weighted average trust units outstanding
(000s)
- Basic(2) 197,156 164,218 20
- Diluted(3) 220,362 164,543 34
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Consolidated Nine months ended
($ 000s except per unit data) September 30,
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2006 2005 % Change
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Revenue (net of royalties and financial
derivative instruments) $ 1,639,167 $ 917,587 79
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Cash flow from COGP operations (1) $ 136,754 $ 133,137 3
Cash flow from USOGP operations (1) 49,397 43,807 13
Cash flow from midstream services
and marketing (1) 123,834 37,946 226
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Total cash flow from operations (1) $ 309,985 $ 214,890 44
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Per weighted average unit - basic (2) $ 1.61 $ 1.38 17
Per weighted average unit - diluted (3) $ 1.58 $ 1.38 14
Declared distributions to unitholders $ 207,892 $ 168,068 24
Per unit $ 1.08 $ 1.08 -
Percent of cash flow from operations paid
out as declared distributions 67% 78% (14)
Net income $ 166,421 $ 42,425 292
Per weighted average unit - basic (2) $ 0.87 $ 0.27 222
Per weighted average unit - diluted (3) $ 0.86 $ 0.27 219
Capital expenditures $ 129,522 $ 106,848 21
Nautilus acquisition $ - $ 91,420 (100)
Property acquisitions $ 471,708 $ (680) -
Property dispositions $ (1,239) $ 44,639 -
Weighted average trust units outstanding
(000s)
- Basic(2) 192,180 155,797 23
- Diluted(3) 199,768 156,122 28
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(1) Represents cash flow from operations before changes in working capital
and site restoration expenditures.

(2) Excludes exchangeable shares

(3) Includes dilutive impact of unit options, exchangeable shares and
convertible debentures.


Consolidated
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As at As at
September December
30, 31, %
($ 000s) 2006 2005 Change
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Capitalization
Long-term debt $ 1,161,041 $ 884,604 31
Unitholders' equity $ 1,608,935 $1,404,826 15
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Operational highlights

Three months ended Nine months ended
Consolidated September 30, September 30,
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% %
2006 2005 Change 2006 2005 Change
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Oil and Gas Production (1)
Daily production
Light/medium crude oil
(bpd) 13,955 15,583 (10) 14,185 15,288 (7)
Heavy oil (bpd) 2,004 4,075 (51) 2,125 4,750 (55)
Natural gas liquids
(bpd) 1,326 1,523 (13) 1,443 1,577 (8)
Natural gas (mcfpd) 80,991 75,523 7 79,792 78,353 2
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Oil equivalent (boed)(2) 30,784 33,768 (9) 31,052 34,674 (10)
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Average selling price
(before realized non
hedging derivative
instruments)
Light/medium crude
oil ($/bbl) $ 62.95 $ 62.95 - $ 62.22 $ 54.51 14
Heavy oil ($/bbl) $ 48.15 $ 46.74 3 $ 40.10 $ 31.95 26
Corporate oil blend
($/bbl) $ 61.10 $ 59.59 3 $ 59.34 $ 49.16 21
Natural gas liquids
($/bbl) $ 52.03 $ 54.27 (4) $ 53.40 $ 48.96 9
Natural gas ($/mcf) $ 5.88 $ 8.43 (30) $ 6.64 $ 7.48 (11)
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Oil equivalent
($/boe)(2) $ 49.40 $ 56.00 (12) $ 50.72 $ 47.55 7
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Field netback
(before realized
non-hedging
derivative
instruments) ($/boe) $ 28.26 $ 35.21 (20) $ 29.39 $ 28.56 3
Field netback
(including realized
non-hedging
derivative
instruments) ($/boe) $ 28.17 $ 28.25 - $ 29.01 $ 23.64 23
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Midstream services
and marketing
Managed NGL volumes
(bpd) 166,483 61,760 170 162,959 59,870 172
EBITDA (000s)(3) $ 65,958 $ 12,978 408 $ 145,209 $ 41,123 253
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(1) Production figures reflect the September 29, 2005 disposition of
various non-core properties that averaged 2,100 boed.

(2) Provident reports oil equivalent production converting natural gas to
oil on a 6:1 basis.

(3) EBITDA is earnings before interest, taxes, depletion, depreciation,
accretion and other non-cash items.



Contact Information

  • Provident Energy Trust
    Laurie Stretch
    Senior Manager, Investor Relations and Communications
    Phone: (403) 231-6710
    Email: info@providentenergy.com
    or
    Corporate Head Office:
    800, 112 - 4th Avenue S.W.
    Calgary, Alberta T2P 0H3
    (403) 296-2233 or Toll Free: 1-800-587-6299
    (403) 294-0111 (FAX)
    Website: www.providentenergy.com