Vault Energy Trust
TSX : VNG.UN
TSX : VNG.DB
TSX : VNG.DB.A

Vault Energy Trust

September 25, 2007 08:30 ET

Vault Energy Trust Enters Into Arrangement Agreement With Penn West Energy Trust

CALGARY, ALBERTA--(Marketwire - Sept. 25, 2007) - Vault Energy Trust ("Vault") (TSX:VNG.UN)(TSX:VNG.DB)(TSX:VNG.DB.A) is pleased to announce that that it has entered into a definitive agreement with Penn West Energy Trust ("Penn West") whereby Penn West will acquire all the issued and outstanding units of Vault.

The transaction will be accomplished through a Plan of Arrangement (the "Arrangement") whereby each Vault trust unit ("Vault Unit") will be exchanged for 0.14 of a Penn West trust unit ("Penn West Unit"). In addition, all Vault Exchangeable Shares will be exchanged for Penn West Units on the same basis, taking into account the conversion ratio in effect at the effective date of the Arrangement. The Arrangement will be a taxable event for Vault Unitholders, Exchangeable Shareholders and Vault Warrant Holders ("Vault Security Holders"). The Arrangement provides Vault Unitholders with a 9.1% premium based on September 24th closing prices and an 8.6% premium based on volume weighted average prices over the last 20 trading days. Vault Unitholders will continue to receive the current monthly distribution of $0.085 per Vault Unit until closing.

The Arrangement is subject to stock exchange, court and regulatory approval and other conditions that are typical of transactions of this nature, including approval by the holders of at least 66 2/3% of Vault Security Holders represented in person or by proxy. It is anticipated that the Vault Unitholder meeting required to approve the Arrangement will be held in late November 2007, and the Arrangement is expected to close shortly thereafter subject to the timing of regulatory approval. An information circular prepared by Vault is expected to be mailed to Vault Security Holders in late October.

Background of the Transaction

Vault's business plan has been to efficiently operate its properties, develop and exploit its existing assets and grow through acquisitions, while maintaining a sustainable level of distributions for unitholders. The October 31, 2006 announcement by the Federal Government imposing a SIFT Tax has been damaging to all trusts, and is especially punitive to small trusts by limiting their ability to grow under the Safe Harbour provisions. Since the announcement, the equity market has applied a growing discount to the valuations of small oil and gas trusts compared to the larger trusts. The SIFT Tax and the associated Safe Harbour rules have made it increasingly difficult to raise equity at attractive pricing or in sufficient amounts to grow through either drilling or acquisitions. Vault's management and Board of Directors believe that the business plan could be best executed within a large trust. Since the October 31, 2006 announcement, Vault has conducted a thorough assessment process exploring numerous alternatives, which has resulted in the transaction. By becoming unitholders of Penn West, investors will have access to a much broader platform of assets, growth potential, financial flexibility and a superior valuation.

Benefits of the Transaction

- After the addition of Vault, Penn West will have production of 134,000 boe/d to 137,000 boe/d, well diversified across natural gas, light & medium oil, and conventional heavy oil. Vault's assets overlay those of Penn West's and will provide operating synergies.

- Vault has a lengthy inventory of development projects within its long-life, large reserves-in-place assets. These projects are best managed within a large portfolio such as Penn West's, so as to effectively invest the necessary amount and timing of capital to maximize returns.

- Visible growth potential by means of the Peace River Oil Sands Project, enhanced oil recovery, coal bed methane and approximately 3.5 million undeveloped acres of land in addition to Vault's undeveloped land.

- A strong balance sheet, with net debt to cash flow (trailing 12 months) of approximately 1.5 times.

- A history and outlook of stable distributions. Penn West has paid cash distributions of $0.34 per unit for nineteen consecutive months. Penn West's payout ratio (as defined by cash distributions divided by cash flow from operations) during the second quarter of 2007 was 77%, as compared to 95% for Vault.

- Pro forma market capitalization, taking into account the addition of Vault, of approximately $7.5 billion. Units are actively traded on the TSX and NYSE, providing substantial liquidity for investors.

Other Terms of the Arrangement

The Arrangement provides that Vault will pay Penn West a non-completion fee of $10 million in certain circumstances. The Arrangement also contains customary non-solicitation covenants; including that Vault has the right to respond to superior proposals which Penn West has the right to match.

In accordance with the terms governing Vault's convertible debentures, Penn West will make an offer to re-purchase Vault's outstanding convertible debentures within 30 days of closing, at a price of 101% of the principal amount thereof plus accrued and unpaid interest.

Board Recommendation

The Board of Directors of Vault has unanimously approved the Arrangement and has resolved to recommend that the Vault Security Holders vote in favour of the Arrangement. The management and Board of Directors of Vault have agreed to vote their Vault Units, Exchangeable Shares and Warrants in favour of the Arrangement.

Scotia Waterous Inc. acted as exclusive financial advisor to Vault with respect to the Arrangement and has provided Vault's Board of Directors with a verbal opinion that, as of the date hereof, the consideration to be offered pursuant to the Arrangement is fair, from a financial point of view, to Vault Unitholders and Vault Exchangeable Shareholders. CIBC World Markets Inc. acted as a strategic advisor to Vault with respect to the Arrangement.

FORWARD-LOOKING STATEMENTS

Certain information set forth in this document including management's assessment of Vault's and Penn West's future plans and operations contains forward-looking statements. These statements relate to future events or performance. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "intend", "could", "might", "should", "believe", "would" and similar expressions. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond these parties' 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, volatility of commodity prices, currency and interest rate fluctuations, imprecision of reserves estimates, environmental risks, competition from other industry participants, the lack of availability of qualified personnel or management, stock market volatility, ability to access sufficient capital from internal and external sources and geological, technical, drilling and processing challenges. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. The actual results, performance, or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits will be derived. Vault disclaims any intention or obligation to update or review any forward-looking statements, whether as a result of new information, future events or otherwise.

This news release shall not constitute an offer to sell or the solicitation of an offer to buy the securities in any jurisdiction. The securities offered have not and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act") or any state securities laws and may not be offered for sale in the United States except in certain transactions exempt from the registration requirements of the U.S. Securities Act and applicable states securities laws.

Vault Energy Trust is a conventional oil and gas income trust. Vault units are traded on the Toronto Stock Exchange (TSX) under the symbol "VNG.UN". Convertible debentures of Vault trade on the TSX under the symbols "VNG.DB", and "VNG.DB.A".

Contact Information

  • Vault Energy Trust
    Robert Jepson
    President and Chief Executive Officer
    (403) 444-9662
    or
    Vault Energy Trust
    Greg Fisher
    VP, Finance and Chief Financial Officer
    (403) 444-9651
    Email: info@vaultenergy.com
    Website: www.vaultenergy.com