This is all I know, whats in the press release, the figures are only assumptions, could be more, could be less..
Founders to reorganize into Provident Energy
Founders Energy Ltd FDE
Shares issued 59,862,734 2001-01-18 close $2.75
Friday Jan 19 2001 News Release
Mr. Thomas Buchanan reports
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 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 trust unit in Provident in exchange for each three common shares of Founders. Based on detailed production and cash flow modelling Provident is forecasting to make monthly distributions to unitholders of approximately 25 cents 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 midlife to mature assets and to harvest and pay out 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 the company's 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:
The company's 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 Dec. 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.
The company's asset base primarily comprises 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 per cent versus 34 per cent 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 Tom Buchanan and 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. 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 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, Byron Seaman, Mike Shaikh and Victor Roskey. Management and directors of Provident Energy Trust will own approximately 10 per cent of the units of the trust, on a fully diluted basis.
Financial adviser to the corporation
The board of directors has retained Scotia Capital Inc. as its financial adviser for the transaction. Scotia Capital is the leading adviser 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, and ending on Dec. 31, 2001, was prepared using an average production of 2,809 barrels a day of crude oil and natural gas liquids and 10.1 million cubic feet a day of natural gas. Commodity prices were forecast to be $25.00 (U.S.) per barrel West Texas Intermediate (WTI) for crude oil and $6.00 (Canadian) per thousand cubic feet at AECO for natural gas. The Canadian/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 $17.25 (Canadian) per barrel, including diluent costs, for the forecast period. The forecast also assumes that the company will forward sell 5.0 million cubic feet a day of natural gas production for the balance of 2001 at a price of $8.18 (Canadian) per thousand cubic feet. 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 10-month period from the effective date to Dec. 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 25 cents per trust unit. The corporation is forecasting a debt to cash flow ratio of approximately 1:1, which is comparable with the other energy trusts. Based on the company's modelling for 2001, approximately 40 per cent of the trust distributions will be taxed as income in the hands of unitholders and the remaining 60 per cent 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 per cent and 25 per cent. 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 Jan. 1, 2001, and discounting future cash flows at 11 per cent, 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 Jan. 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 per cent for 2001, Provident would trade at approximately 82 per cent of NAV compared with a sector average of 106 per cent.
Conversion of the Citicorp debenture
Citicorp Capital Investors Ltd., the holder of the $15.0-million 7.5-per-cent subordinated secured convertible 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 under the Business Corporations Act, Alberta, whereby the holders of common shares of Founders will ultimately receive one trust unit of Provident in exchange for every three 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 66.66 per cent 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 shareholder rights plan will terminate and a new unit rights plan will be adopted.
Founders Energy Ltd. has scheduled a conference call for Monday, Jan. 22, 2001, at 1:30 p.m. MT to discuss the transaction. Interested parties may participate by calling 1-877-461-2814 or you may access a recording of the conference call any time before 4 p.m. on Friday, Jan. 26, 2001, by calling 1-888-742-2490. |
