Pengrowth Acquires Esprit Energy in Latest Income-Trust Consolidation

CALGARY (CP) -- Pengrowth Energy Trust plans to swallow Esprit Energy Trust in a stock-swap deal that will increase Pengrowth's enterprise value to more than $6 billion as consolidation continues unabated in Canada's oilpatch income-trust sector.

''We believe that the combination of Pengrowth and Esprit presents an outstanding strategic fit in terms of assets, people and ongoing business philosophies,'' Jim Kinnear, chairman and CEO of Pengrowth, said in a release Monday.

''The unitholders of both trusts will benefit.''

Under the deal, each Esprit unit [TSX:EEE.UN] will be exchanged for 0.53 of a Pengrowth unit [TSX:PGF.B] after consolidation of Pengrowth's class A and class B units on July 27. Esprit's board of directors also plans to grant Esprit unitholders a one-time special distribution of up to 30 cents a unit.

Including that payment, the deal represents a market premium of approximately 26% based on the closing prices on July 21, the companies said in a joint release.

As a result, Esprit units gained nearly 16% or C$1.80 Monday on the Toronto Stock Exchange to C$13.18. Pengrowth units dropped C$1.10 or more than 4% to C$25.26.

The acquisition will leave Pengrowth unitholders with about 82% of the combined new firm that will retain the Pengrowth name and carry an enterprise value of about C$6 billion, making it one of the largest income trusts in the Canadian oilpatch.

It will also give Pengrowth about 18,350 barrels of oil equivalent per day of current production. And it includes nearly 72 million barrels of proved and probable oil and natural gas reserves and 1,000 square kilometres of undeveloped land, including shallow gas and coal-bed methane potential.

The all-stock deal was able to offer ''an attractive premium to market and nonetheless essentially acquire those assets at prices that would be below prices we would typically pay for asset acquisitions in the marketplace,'' said vice-president Charles Selby.

''So we were motivated to do a corporate deal here to gain control of those assets,'' Selby said in an interview.

That would bring Pengrowth's total production to about 75,000 barrels per day, almost evenly weighted between oil and gas production.

Almost all of Esprit's employees would join the new Pengrowth, while Michael Stewart, chairman of the board of trustees at Esprit, would join Pengrowth's board.

''It is difficult to obtain high-quality personnel in today's environment and we will have a really superior combined team,'' said Selby.

Esprit CEO Paul Myers said combining the two companies would create ''a well-balanced trust with a very high-quality asset base.''

''Esprit's high working interest and the 75% natural gas weighting adds product mix and new areas of focus to Pengrowth. Pengrowth has interests in five of the largest oil pools in Western Canada, which are expected to continue to deliver incremental reserves through technological advances in enhanced recovery.''

The Pengrowth-Esprit deal is just the latest in a series of big-money moves in the energy income trust sector as companies acquire and merge in order to maintain healthy reserves and production numbers.

Earlier in July, Shiningbank Energy Income Fund [TSX:SHN.UN] announced an all-stock takeover of Find Energy Ltd. [TSX:FE] in a deal initially valued at C$443 million.

Provident Energy Trust [TSX:PVE.UN] also made a big move this month, buying a package of primarily natural gas assets in northwestern Alberta from privately held U.S. producer Samson for C$475.9 million.

One of the biggest deals in the sector so far this year was Penn West Energy Trust's [TSX:PWT.UN] C$3.5-billion takeover of Petrofund Energy Trust in April.

Other recent deals include Nav Energy Trust's merger with Clear Energy Inc. to create a new entity called Sound Energy Trust with a total blended stock market value of more than $470 million; Advantage Energy Income Fund's acquisition of Ketch Resources Trust, and Daylight Energy Trust's merger with Sequoia Oil & Gas trust.

(c) The Canadian Press 2006

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