Jay, nice timing. Up over 8% in two days -D
Vermilion Energy Trust (TSX:VET)
Shares Issued 58,236,936
Last Close VET.UN 1/31/2005 $20.94
Tuesday February 01 2005 - News Release
Mr. Curtis Hicks reports
VERMILION ENERGY TRUST ANNOUNCES PROPOSED ACQUISITION
Vermilion Energy Trust has entered into a letter of intent to acquire 4,800 barrels of oil per day of production through a 60-per-cent operated interest in an offshore field located on Western Australia's northwest shelf. The purchase price for the proposed transaction is approximately $95-million, effective Jan. 1, 2005, subject to normal closing adjustments, and the transaction is scheduled to close by March 1, 2005. Closing is subject to the parties entering into a definitive purchase and sale agreement, the satisfaction of all conditions precedent, and the receipt of all necessary regulatory approvals. The transaction is also subject to the waiver of first rights of refusal by the owner of the remaining 40-per-cent working interest.
Vermilion is targeting Australia as its third core region of operations, complementing its assets in Canada and Western Europe. Vermilion's strategy over the next three to five years is to expand production in each of these three core regions. Australia, an energy-resource-rich country, is the world's leading coal exporter, and a source of significant reserves of oil and natural gas. Strong domestic demand for petroleum, combined with the country's proximity to Asian markets, provide alternative markets for existing and new production. Australia's stable political and economic environment and well-established energy industry afford an ideal setting for Vermilion to realize future growth opportunities. Vermilion's goal is to achieve an Australian production base of between 10,000 and 15,000 barrels of oil equivalent per day and the acquisition of these assets would be an ideal entry point into this market.
Acquisition summary
The assets are expected to average 4,400 barrels per day of Australian sweet crude oil in 2005, which equates to an annualized production increase of approximately 3,700 barrels per day assuming a closing date of March 1, 2005. The acquisition would add 12.1 million barrels of oil equivalent of proven (P90) reserves and 16.0 million barrels of oil equivalent of proven plus probable (P50) reserves to Vermilion based on an evaluation by Gilbert Laustsen Jung Associates Ltd., an independent engineering evaluations firm. The estimated reserve life of these assets is 9.9 years, based on proven plus probable reserves. Acquisition costs would be $19,800 per barrel of oil equivalent per day, $7.85 per barrel of oil equivalent of proven reserves and $5.95 per barrel of oil equivalent of proven plus probable reserves.
Vermilion has identified opportunities to create additional value on the property through workovers, operating cost reductions and the potential debottlenecking of the production facilities. Longer-term upside opportunity exists with respect to infill drilling potential as a means of maximizing oil recoveries from this reservoir.
Impact on Vermilion
Should the acquisition be completed, it is expected to add approximately 15 per cent to Vermilion's 2005 produced volumes based on an expected closing date of March 1, 2005. Oil and natural gas liquids will increase to 55 per cent from 46 per cent of Vermilion's production stream, and international properties will now provide 58 per cent of Vermilion's forecast 2005 global production. If the proposed acquisition is completed, Vermilion expects its production in 2005 to average between 25,000 and 26,000 barrels of oil equivalent per day, with approximately 42 per cent of the production coming from Canada, 44 per cent from Western Europe and the balance from Australia.
Based on forecast pricing of $40 (U.S.) for WTI (West Texas Intermediate) crude, the additional production if acquired, would generate an after-tax cash flow netback of approximately $20.00 (Canadian) per barrel of oil equivalent.
Assuming a closing date of March 1, 2005, the acquisition is expected to increase each of Vermilion's 2005 cash flow per unit, production per unit and reserves per unit, by approximately 15 per cent. Vermilion anticipates financing the proposed acquisition using existing lines of credit and will maintain considerable balance sheet strength. Upon completion of the proposed transaction, Vermilion's pro forma net debt of approximately $180-million would be less than one year's forward cash flow. Based on current distribution levels and cash flow forecasts, Vermilion's expected payout ratio in 2005 will drop to approximately 63 per cent, further improving the long-term sustainability of distributions.
New director
As Vermilion expands its global asset base, it has also strengthened its international experience, announcing the appointment of William F. Madison as a new director. Mr. Madison brings a wealth of international experience, both onshore and offshore to Vermilion. He has spent his entire career from 1965 to 2000 with Marathon Oil Company, one of the world's premier integrated oil companies. Beginning his career in West Texas as a field engineer, Mr. Madison has held numerous positions around the world, including manager offshore technology division in Houston and general manager North Sea operations in Aberdeen. Mr. Madison completed his career with Marathon as senior vice-president, worldwide production. Vermilion is excited about Mr. Madison joining its board, and contributing his strategic executive and international perspective.
© 2005 Canjex Publishing Ltd. |
