Provident has reached an agreement to combine Provident's Upstream business with Midnight Oil Exploration in a $460 million transaction that, once approved, will form a new growth oriented, intermediate sized oil and gas producer with exposure to a portfolio of resource play upside. The Board of Directors has unanimously approved this proposal that, once implemented, will also enable Provident Midstream to continue as a pure play, cash-distributing natural gas liquids (NGL) infrastructure and services business.
In addition, Provident announced that it has completed the buyout of all fixed price crude oil and natural gas swaps associated with its Midstream business unit for a total cost of $196 million. The buyout of these forward "mark to market" positions will allow the Trust to refocus its Commodity Price Risk Management Program on forward selling a portion of produced NGL products and inventory to lock-in margins for terms of up to one year. Based on the current forward price strip, the buyout of the existing fixed price swaps will result in an increase in funds flow from operations, excluding the one-time cost of the hedge buyout in the second quarter of 2010. The Board will continue to set the distribution on a monthly basis and based on current forward commodity prices, Provident Midstream plans to maintain its cash distribution at $0.06 per month for the remainder of 2010.
"The separation of Provident's businesses is intended to improve overall focus, competitiveness and enhance the growth profile of each business unit in order to realize the full potential of our assets and maximize long term unitholder returns," said Provident President and Chief Executive Officer, Tom Buchanan. "These transactions will position Provident's world class Midstream business for exciting growth as a cash-distributing, pure play with a strong balance sheet. Furthermore, the combination of Provident's Upstream business with Midnight will allow Midnight's strong technical team to exploit and develop the high impact resource potential of the combined asset base."
Merger of Provident Upstream with Midnight Oil Exploration
Provident has entered into an arrangement agreement (the "Agreement") with Midnight which provides for the strategic combination of Midnight's oil and gas business with Provident Upstream pursuant to a plan of arrangement under the Business Corporations Act (Alberta) (the "Arrangement"). Under the Arrangement, Midnight will acquire all outstanding shares of Provident Energy Resources Inc., a wholly-owned subsidiary of Provident Energy Trust which holds all of the oil and gas properties and reserves associated with Provident's Upstream business. Total consideration is approximately $460 million ($1.74 per unit) and will consist of $120 million in cash and 324 million shares of Midnight valued at $340 million, based on the 20 day weighted average trading price of Midnight shares on the Toronto Stock Exchange ("TSX") of $1.05. Cash proceeds received by Provident, net of transaction costs, will be retained by Provident and directed towards repayment of long term debt under Provident's revolving term credit facility.
Under the terms of the Arrangement, each Provident unitholder will directly receive 0.12225 shares of NewCo for every unit of Provident held and each Midnight shareholder will receive 0.1 shares of NewCo for every share of Midnight held. The exchange ratio incorporates a planned one for ten consolidation of Midnight shares pursuant to the terms of the Arrangement and immediately prior to the issuance of NewCo shares. Provident unitholders will own 81 percent of NewCo and Midnight shareholders will own 19 percent of NewCo upon completion of the Arrangement.
Midnight Oil Exploration Ltd. is a Calgary based, junior energy company primarily focused on natural gas exploration, development and production in the Deep Basin portion of northwest Alberta. Common Shares of Midnight are listed on the TSX under the symbol "MOX". Midnight focuses on selected multi-zone, high-potential areas of the Western Canadian Sedimentary Basin primarily in the Deep Basin of Northwest Alberta. Midnight's investment strategy is driven by a risk-balanced portfolio of high- potential resource exploration and development prospects and strategic acquisitions.
Upon successful conclusion of the transaction, the shares of NewCo (formerly Midnight shares) will be delivered to Provident unitholders in exchange for a portion of the units held by each Provident unitholder. Provident unitholders will continue to hold the remaining portion of their units in Provident Energy Trust following the Arrangement. The NewCo shares and the Provident units will continue to be listed on the Toronto Stock Exchange.
The Arrangement requires the approval of Provident unitholders and Midnight shareholders, as well as court and regulatory approvals that are typical of transactions of this nature. A joint management information circular and proxy statement outlining the details of the Arrangement will be mailed to Provident unitholders in mid May 2010 in connection with special meetings of Provident unitholders and Midnight shareholders, expected to occur on or about June 30, 2010. To be implemented, the Arrangement must be approved by not less than 662/3 percent of the votes cast by Provident unitholders and Midnight shareholders voting at the applicable meetings. Closing of the Arrangement is anticipated on or about June 30, 2010.
The $460 million value of this transaction reflects metrics of $43,810 per flowing barrel of oil equivalent per day (boed) of production, $13.69 per barrel of oil equivalent (boe) of total proved reserves and $8.27 per boe of total proved plus probable reserves. These transaction metrics are based on Provident's December 31, 2009 NI 51-101 reserve report as prepared by independent evaluators and adjusted for dispositions in the first quarter of 2010. Once this transaction is complete, Provident will have realized over $1 billion in value from the disposition of its Canadian Upstream business in several transactions over the past year.
The combination of Provident's Upstream business and Midnight will create a growth-oriented, intermediate oil and gas E&P company with pro forma oil and gas production of approximately 13,000 boed (34% oil and natural gas liquids) and over 500 identified drilling locations to pursue. The combined entity has significant resource exposure and access to a suite of low-risk development opportunities. Midnight's expansive Deep Basin resources opportunities and the long life, low decline assets of Provident's Upstream business will provide critical mass and cash flow to allow NewCo to aggressively exploit its substantial resource inventory.
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