Penn West Energy Trust Enters Into An Arrangement Agreement to Acquire Reece Energy Exploration Corp.
March 10, 2009 - Calgary, AB -
(TSX-PWT.UN; NYSE-PWE) Penn West Energy Trust ("Penn West") and (TSXV-RXR) Reece Energy Exploration Corp. ("Reece") jointly announce that they have entered into an arrangement agreement (the "Arrangement Agreement") whereby Penn West will acquire all of the outstanding shares of Reece.
The acquisition will be accomplished through a plan of arrangement (the "Arrangement") wherein each Reece share will be exchanged for 0.125 of a Penn West trust unit. Including the assumption of Reece's debt, the total acquisition cost is expected to be approximately $92.2 million. Penn West will be reducing its 2009 capital program by $40 million, being the amount of debt that Penn West anticipates assuming pursuant to the Arrangement. Based on the volume weighted average trading prices of Penn West's units and Reece's shares during the 20 trading days ending on March 9, the exchange ratio equates to a price of $1.39 per Reece share and represents a 50 percent premium to Reece's closing trading price on this date. The Arrangement will provide Reece shareholders enhanced liquidity and ownership in a large, light oil-weighted energy trust with strong growth prospects and the ability to accelerate the exploitation of Reece's prospect inventory. It is expected that approximately 4.6 million Penn West trust units will be issued to effect the Arrangement. Completion of the Arrangement, which is anticipated to occur in early May2009, is subject to, among other things, the approval of at least 66⅔ percent of the Reece shareholders who vote at a special meeting to be held in late April 2009, the receipt of all necessary regulatory and stock exchange approvals, and certain closing conditions that are customary for a transaction of this nature. The board of directors of Reece has unanimously determined that the proposed Arrangement is in the best interests of and fair to Reece and its shareholders and recommends that Reece shareholders vote in favour of the Arrangement at the upcoming special meeting. Each of the directors and officers of Reece, who collectively beneficially own or control approximately 25 percent of the Reece shares, has entered into a support agreement pursuant to which each has agreed to vote in favour of the Arrangement, subject to the terms of such support agreement.
The transaction is expected to add current production of approximately 2,100 barrels of oil equivalent per day to Penn West's production base, with Reece's current production weighted approximately 67 percent to light oil and natural gas liquids and 33 percent to natural gas. Based on the volume weighted average trading prices of Penn West's units and Reece's shares during the 20 trading days ending on March 9, the arrangement yields a price of approximately $43,900 per flowing barrel of oil equivalent.
Reece's primary property is located in Kindersley, Saskatchewan and complements existing Penn West operations in this area. The acquisition of Reece gives Penn West a contiguous land position and additional production in its Dodsland oil resource play. Both Penn West and Reece have very encouraging results to date using horizontal multi-stage fracture completion techniques in the area. Through this acquisition, Penn West will also add approximately 75,000 net undeveloped acres to its land base.
Sayer Energy Advisors is acting as exclusive financial advisor to Reece with respect to this transaction and has advised the board of directors of Reece that, subject to review of definitive legal agreements, they are of the opinion, as of the date hereof, that the consideration to be received by the Reece shareholders pursuant to the proposed Arrangement is fair, from a financial point of view, to Reece shareholders. The Arrangement Agreement prohibits Reece from soliciting or initiating any discussion regarding any other business combination or sale of material assets, contains provisions for Penn West to match competing, unsolicited proposals and, subject to certain conditions, provides for a $2.5 million termination fee payable by Reece to Penn West.
