???? maybe I'm missing something but FDE-tse Founders is going to become "Provident Energy Trust"?
Quick skim of news release indicates some assumptions on the go-forward...... 2,809 barrels per day for oil & nat'l. gas liquids and another 10.1 mmcf/day of gas?
As indicated, possibly too quick a glance however the starting production base looks quite low...... for a trust? Creative I suppose and mgmt. is seasoned but is this the start of some new flavour for oilpatch jrs.?
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JANUARY 19, 2001 - 11:25 ESTFounders Energy Ltd. Announces Plans to Convert into
Provident Energy Trust
CALGARY, ALBERTA--Founders Energy Ltd. (TSE- FDE) ("Founders" or
the "Corporation") announced today that the Board of Directors has
unanimously agreed to reorganize the Corporation into Provident
Energy Trust ("Provident"). The transaction will be accomplished
by way of a Plan of Arrangement (the "Arrangement") and among
other approvals is subject to the approval of shareholders at a
meeting expected to be held on March 5, 2001. The Arrangement will
result in the shareholders of Founders receiving one (1) trust
unit in Provident in exchange for each three (3) common shares of
Founders. Based on detailed production and cash flow modeling
Provident is forecasting to make monthly distributions to unit
holders of approximately $0.25 per unit in 2001 or approximately
$3.00 per unit annualized; the first payment will be declared
effective March 31, 2001 and payable on April 15, 2001.
Reasons for Reorganizing
The Western Canadian Sedimentary Basin has become largely a mature
basin with an operating emphasis on exploitation. The trust
structure is designed to acquire mid-life to mature assets and to
harvest and payout the cash flow in a low risk, cost effective
manner. The Corporation's board of directors believes that this
proposed structure will maximize the financial return for
Founders' shareholders through the creation of a yield-based
investment that can take maximum advantage of the strong commodity
prices and market fundamentals currently prevailing in the oil and
gas sector and the oil and gas royalty trust sector.
Some of the compelling reasons for converting Founders into a
trust are as follows: * Founders shareholders should realize enhanced value by
converting to a yield-based investment that, based on comparable
valuations for existing Canadian oil and gas trusts, should trade
substantially closer to the Corporation's December 31, 2000
estimated net asset value of $4.90 per Founders Common Share or
$14.70 per Provident Unit.
* Oil and gas trusts are currently trading at a premium of at
least one full cash flow multiple point over the junior
exploration and production ("E & P") sector.
* Founders' asset base is primarily comprised of mature, stable,
operated oil and gas properties with low risk development or
exploitation potential. This type of asset base is ideally suited
to a trust structure.
* Citicorp Capital Investors Ltd. has agreed to convert the $15.0
million subordinated convertible debenture that it holds in the
Corporation which will result in a debt level of approxiamtely one
times cash flow. * Founders believes that there is a significant consolidation
opportunity currently existing in the junior E & P sector. As part
of an aggressive growth strategy, Provident Energy Trust will use
its' trust units as currency to pursue both corporate and property
acquisitions. During 2000, the oil and gas royalty trust sector
completed more than $2 billion of corporate and property acquisitions.
* Oil and gas royalty trusts raised more than $700 million in new
equity in 2000. * Average two year returns for the oil and gas royalty trust
sector totalled 47 percent versus 34 percent for the TSE Oil and
Gas Producers Index over the same period. Management of Provident Energy Trust
Provident Energy Trust will be managed and governed by a team with
extensive oil and gas and trust experience. The trust will be
managed through a privately-held management company controlled by
Mr. Tom Buchanan and Mr. Randy Findlay who are currently senior
executive officers of Founders. Mr. Buchanan and Mr. Findlay both
have extensive industry experience with more than 45 years of
combined senior management experience with both public and private
resource companies. Mr. Grant Billing will serve as Chairman of
the Board of Provident Energy Trust. Mr. Billing also currently
serves as the Executive Chairman of Superior Propane Inc., a $1
billion income fund and is formerly the President and Chief
Executive Officer of Norcen Energy Resources Limited. Mr. Findlay
currently serves as an independent director of Transalta Power
L.P., a $250 million utility based income fund. Other independent
directors of Provident will include Mr. John Zaozirny who also
serves as an independent director of Pengrowth Energy Trust, a
$1.5 billion energy trust and Canadian Oilsands Investments Inc.,
a $1 billion energy trust, Mr. Byron Seaman, Mr. Mike Shaikh and
Mr. Victor Roskey. Management and directors of Provident Energy
Trust will own approximately 10 percent of the units of the trust,
on a fully diluted basis. Financial Advisor to the Corporation
The Board of Directors has retained Scotia Capital Inc. as its
financial advisor for the transaction. Scotia Capital is the
leading advisor on income fund and royalty trust mergers and
acquisitions transactions. At the request of the Board of
Directors of Founders, Scotia Capital has prepared a fairness
opinion for the transaction stating that, in Scotia Capital's
opinion, the Arrangement is fair, from a financial point of view,
to the holders of common shares of Founders. 2001 Forecast Distributions
Founders has completed a detailed financial forecast for Provident
Energy Trust. A forecast for the period commencing on March 6,
2001 (the "Effective Date") and ending on December 31, 2001 was
prepared using an average production of 2,809 bpd of crude oil and
natural gas liquids and 10.1 mmcfd of natural gas. Commodity
prices were forecast to be U.S. $25.00 per barrel WTI for crude
oil and Cdn. $6.00 per mcf at AECO for natural gas. The Cdn/U.S.
exchange rate was forecast to be $1.50. Heavy oil differentials
(being the quality adjustment between Edmonton par price and
Lloydminster blend at Hardisty) were forecast to be Cdn. $17.25
per barrel, including diluent costs, for the forecast period. The
forecast also assumes that the company will forward sell 5.0 mmcfd
of natural gas production for the balance of 2001 at a price of
Cdn. $8.18 per mcf. Based on these assumptions, Provident Energy
Trust is forecasting operating cash flow of $23.4 million ($3.30
per unit) and cash flow available for distribution of $17.7
million ($2.50 per unit) for the ten month period from the
Effective date to December 31, 2001. Annualized, this produces a
cash distribution of approximately $3.00 per Trust Unit or $1.00
per equivalent Founders Common Share. Monthly distributions for
the forecast period are forecast to be approximately $0.25 per
Trust Unit. The Corporation is forecasting a debt to cash flow
ratio of approximately one to one, which is comparable to the
other energy trusts. Based on our modeling for 2001, approximately
40 percent of the trust distributions will be taxed as income in
the hands of Unitholders and the remaining 60 percent will be tax deferred.
Valuation Parameters for Provident Energy Trust.
The primary valuation measures for royalty trusts are cash-on-cash
yields and net asset value ("NAV"). Based on the current trading
ranges for existing oil and gas trusts, the 2001 cash-on-cash
yields are currently averaging between 21 percent and 25 percent.
The Corporation's net asset value has been calculated based on an
independent evaluation of the company's established reserves by
Sproule Associates Limited, effective January 1, 2001 and
discounting future cash flows at 11 percent, before tax.
Adjustments have been made for the value of undeveloped land and
deductions have been made for debt, net of working capital and the
future value of general and administrative and management fees
over the life of the reserves. These valuation parameters result
in an estimated NAV calculation for the Corporation at January 1,
2001 of $4.90 per Founders Common Share or $14.70 per Provident
unit, on a fully diluted basis. At a cash-on-cash yield of 25
percent for 2001, Provident would trade at approximately 82
percent of NAV compared to a sector average of 106 percent.
Conversion of the Citicorp Debenture
Citicorp Capital Investors Ltd., the holder of the $15.0 million 7
1/2 percent subordinated secured convertible debenture (the
"Debenture") due June 30, 2004, has agreed to the early conversion
and redemption of the Debenture prior to the Arrangement taking
effect. Under the provisions of the conversion agreement, Citicorp
will receive five million common shares and cash consideration.
The cash component of the consideration will be determined by the
difference between the $15.0 million principal amount of the
Debenture and the amount determined by multiplying the five
million shares by the lower of $2.50 and the 20 day average
trading price of the Corporation's shares on The Toronto Stock
Exchange for the period immediately preceding the Arrangement
taking effect. After the early conversion of the Debenture and the
exercise of other in-the-money options and warrants, there will be
approximately 21.3 million common shares of Founders issued and outstanding.
Structuring the Transaction
The reorganization will be effected pursuant to a Plan of
Arrangement (the "Arrangement") under the Business Corporations
Act, Alberta whereby the holders of common shares of Founders will
ultimately receive one (1) Trust Unit of Provident in exchange for
every three (3) Common Shares of Founders. This will result in
approximately 7.1 million Trust Units of Provident being issued
and outstanding on the Effective Date. The conversion of Founders
Common Shares into Trust Units of Provident Energy Trust will be a
taxable transaction.
The Arrangement is subject to the approval of 66 2/3 percent of
the holders of common shares of Founders, all regulatory approvals
and court approval, all of which are expected to be obtained by
early March 2001. Pursuant to the Arrangement, the company's
current Shareholders Right Plan will terminate and a new Unit
Rights Plan will be adopted.
Founders Energy Ltd. has scheduled a conference call for Monday,
January 22, 2001 at 1:30 p.m. Calgary Time to discuss the
transaction. Interested parties may participate by calling
1-877-461-2814 or you may access a recording of the conference
call anytime before 4:00 p.m on Friday January 26, 2001 by calling
1-888-742-2490. Forward Looking Statements
This disclosure contains certain forward-looking estimates that
involve substantial known and unknown risks and uncertainties,
certain of which are beyond Founders control, including: 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, fluctuations in commodity prices, foreign exchange or
interest rates, stock market volatility and obtaining required
approvals of regulatory authorities. Founders actual results,
performance or achievement could differ materially from those
expressed in, or implied by, these forward-looking estimates and,
accordingly, no assurances can be given that any of the events
anticipated by the forward-looking estimates will transpire or
occur, or if of them do so, what benefits, including the amounts
of proceeds, that Founders will derive therefrom. -30-
FOR FURTHER INFORMATION PLEASE CONTACT:Founders Energy Ltd.
Thomas Buchanan, Executive Vice PresidentCorporate Development and CFO
(403) 296-2232orFounders Energy Ltd.Randy Findlay, Executive Vice President
and Chief Operating Officer(403) 781-5343E-mail: info@foundersenergy.com
Website: www.foundersenergy.com |
