PrimeWest updates plan to ensure increased distribution
PrimeWest Energy Trust PWI.UN
Shares issued 38,061,130 Mar 6 close $9.07
Tue 6 Mar 2001 News Release
Also Cypress Energy Inc (CYZ.A)
Mr. Kent MacIntyre reports
PrimeWest Energy Trust today confirmed details of a series of
commodity-risk management contracts it has implemented to backstop its
plan, reported in Stockwatch on March 5, 2001, to increase the distribution
rate to a total of 22 cents per trust unit.
Beginning with the April-declared, May-paid distribution, and contingent
upon the successful closing of the Cypress Energy Inc. acquisition,
PrimeWest intends to increase its monthly rate by 10 per cent -- from 20
cents to 22 cents per trust unit (the 10-cent regular distribution and a
12-cent special distribution). It expects to pay at this level at least
through January, 2002.
PrimeWest mailed its offer to purchase Cypress on March 6, 2001, and that
offer will expire on March 28, 2001. This transaction will make PrimeWest
Canada's largest gas-weighted royalty trust.
In total, the commodity-risk-management structures entered into since
PrimeWest reported its intent to make an offer to purchase Cypress in a
Stockwatch news release on Feb. 16 will assist PrimeWest in meeting the
following distribution objectives:
protect the 22-cent monthly distribution;
retain substantial upside participation if commodity prices remain at or
increase from current levels; and
lock in a substantial portion of the Cypress acquisition economics.
In conjunction with the offer to purchase Cypress, PrimeWest entered into
contracts that:
insured 50,000 thousand cubic feet per day of gas in respect of a series of
gas "swaptions" at a strike price of $7.25 per thousand cubic feet,
representing various terms through to Oct. 31, 2002; and
insured 4,500 barrels per day of crude oil at a minimum price of $25.00
(U.S.), West Texas Intermediate, per barrel in respect of a series of
"puts" through to Dec. 31, 2001.
The natural gas structures consisting of swaptions give PrimeWest the
future right to enter into a swap transaction for the indicated fixed price
and term. The benefit of a swaption is that it provides a fixed price at
which gas can be sold at a future date should PrimeWest so elect. Because
current gas prices are higher than the strike price of the swaptions, the
structures provide a form of insurance should future gas prices decrease.
The crude oil hedging structures consisting of puts represent essentially a
floor price. The effect of the structures is to secure a minimum price of
$25.00 (U.S.) WTI per barrel for the term indicated.
To supplement the foregoing, PrimeWest entered into the following
commodity-risk management structures on March 5 and 6:
PrimeWest swapped 20,000 thousand cubic feet per day of gas at a fixed
price of $8.00 per thousand cubic feet for the period April through
October, 2001. A portion of the gas swaptions entered into on Feb. 16, 2001
-- in the amount of 20,000 thousand cubic feet per day at a strike price of
$7.25 per thousand cubic feet -- will either be left to expire unexercised
or sold into the market on March 15, 2001.
The company swapped 4,000 barrels per day of crude oil production at an
all-in fixed price of $27.28 (U.S.) WTI per barrel for the period April
through December, 2001.
The company insured 30,000 thousand cubic feet per day of gas at a minimum
of $6.95 per thousand cubic feet, in respect of a put structure for the
period April through July, 2001.
In total, the commodity-risk management structures initiated by PrimeWest
including those of Feb. 16, will serve to either fix a price or insure a
minimum price level (puts or swaptions) for the following production, pro
forma Cypress.
Gas (Mcf)
Fixed price 20,000 20,000 7,000
Insured(*) 66,000 55,000 48,000
Total 86,000 75,000 55,000
Oil (bbl)
Fixed price 4,000 4,000 4,000
Insured 4,500 4,500 4,500
Total 8,500 8,500 8,500
* Includes the portion that expires on March 15, 2001.
"These risk management tools solidify for PrimeWest unitholders more
stability and predictability in their monthly and full-year distribution
streams," said vice-chairman and chief executive officer, Kent MacIntyre.
Additional commodity-risk-management activities, designed to meet the
foregoing distribution objectives, will be considered for 2002 following
the successful acquisition of Cypress.
WARNING: The company relies upon litigation protection for
"forward-looking" statements.
(c) Copyright 2001 Canjex Publishing Ltd. stockwatch.com |
