Deepwell Energy Services Trust has acquired a 50% equity interest in Palko Energy Ltd., a water disposal business operating in the heart of the Bakken oil play, for cash consideration of $5.3 million. The acquisition adds approximately 25% to Deepwell's water disposal capacity and is expected to boost Deepwell's annual revenues by more than 10% and be immediately accretive to earnings for Deepwell Unitholders.
Palko operates a water disposal well and related surface facilities in the heart of the Bakken oil play in SE Saskatchewan. The Bakken oil play is one of the most active oil plays in North America. The formation also extends over the southern portion of the province of Manitoba and into the states of North Dakota and Montana.
The Palko acquisition marks a strategic turning point in Deepwell's short history. Previously, Deepwell predominantly focused on construction and development of greenfield projects, and while it will continue to pursue greenfield opportunities, Deepwell will also seek accretive acquisitions that provide expansion and diversification opportunities throughout Western Canada. The Board's appointment of Mr. Ritchie as President & CEO, with his extensive experience in the Midstream business, was the first move in this strategic mandate.
Palko provides Deepwell with a strategic foothold in a new geographic region with a bright future due to growing drilling and production activity that should generate an increasing demand for water disposal services. Over the past year, the number of new Bakken wells on production increased 110 percent. For the Weyburn - Estevan area for the months of August 2007 and August 2008, land sales were $27.7 million and $212.3 million respectively, a 766% increase. The growth in land sales indicates more drilling activity is likely in the Bakken play and will require the development of additional oilfield water disposal and waste management services. The Palko acquisition will position Deepwell to capitalize on such opportunities.
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