EXHIBIT 99.1
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VIKING ENERGY ROYALTY TRUST
AND HARVEST ENERGY TRUST AGREE TO MERGE
THE MERGER WILL BRING TOGETHER TWO VALUE-FOCUSED ORGANIZATIONS WITH
SUPERIOR TECHNICAL AND OPERATING EXPERTISE.
SUSTAINABILITY WILL BE THE FOCUS AND WILL BE ACHIEVED THROUGH A BALANCED
PRODUCTION BASE WITH A MULTI-YEAR INVENTORY OF DEVELOPMENT OPPORTUNITIES,
ENHANCED BY A STRONG BALANCE SHEET AND SIGNIFICANT FINANCIAL FLEXIBILITY.
CALGARY, ALBERTA (November 28, 2005; TSX - HTE.UN and VKR.UN; NYSE - HTE) -
Harvest Energy Trust ("Harvest") and Viking Energy Royalty Trust ("Viking") are
pleased to announce that their respective boards of directors have unanimously
approved an agreement (the "Combination Agreement") providing for the merger of
Harvest and Viking. The combined trust, which will retain the Harvest name, will
have an initial enterprise value in excess of $4 billion and will be managed by
an experienced senior management team which will include key personnel from both
Harvest and Viking.
This merger of equals will be accomplished by the exchange of 4 Viking units for
1 Harvest unit on a tax-deferred basis in Canada. The transaction exchange ratio
reflects an "at-market" merger based on an average of the trust units' recent
trading prices. Upon completion of the merger, Harvest unitholders will own
approximately 55% of the combined trust and Viking unitholders will own
approximately 45%.
HIGHLIGHTS
o Strong asset portfolio with a dominant position in key operating
areas, a production base of approximately 64,000 boe/d comprised of
approximately 50% light/medium oil, 25% natural gas and 25% heavy
oil, 215 Mmboe of proved plus probable reserves, 700 drilling
locations and over 760,000 net acres of undeveloped land.
o More efficient and effective operations due to scale and diversity of
opportunities. Harvest and Viking employ a similar focus on technical
exploitation of large resource pools, utilizing the same operating
and administration systems, and bring together strong technical,
field operations and administrative teams which will lead to a smooth
integration of the two entities into one stronger organization.
o With an enterprise value in excess of $4 billion, a strong balance
sheet, annual cash flow of approximately $650 million based on
current commodity prices and significant financial capability, new
Harvest will be in a strong position to exploit its inventory of
projects as well as pursue new opportunities.
o New Harvest will have a well-balanced production portfolio, capable
of maintaining stable cash flow and distributions to unitholders.
o New Harvest will be among the largest energy trusts on a production
and enterprise value basis. As a result, unitholders may expect
improved unit trading liquidity on the Toronto Stock Exchange, due to
an increased indexation percentage, as well as the New York Stock
Exchange.
o Subject to stable commodity pricing, new Harvest has established a
distribution policy which will result in a distribution of $0.38 per
unit per month, effective for the first distribution following
closing.
The Combination Agreement prohibits both Harvest and Viking from soliciting or
initiating any discussions concerning the sale of material assets or any other
business combination, provides each trust with the right to match any competing
proposal in the event such an unsolicited proposal is made and, subject to
certain conditions, provides for a $65 million termination fee.
Successful completion of the transaction is subject to stock exchange and
regulatory approvals and the approval by at least two-thirds of the unitholders.
It is expected that the unitholder meetings required to approve this transaction
will be held, and the transaction will close, prior to the end of March 2006. An
information circular is expected to be mailed to unitholders in January 2006.
The combination of these two trusts will create Canada's fourth largest
conventional oil and natural gas royalty trust with production of approximately
64,000 boe/d comprised of 50% light/medium oil, 25% natural gas and 25% heavy
oil. With an estimated 215 Mmboe of proved plus probable reserves, the combined
trust will have a reserve life index of approximately 9.2. At current commodity
prices, annual funds flows are expected to be approximately $650 million
enabling annual capital spending of approximately $250 million. Pro forma debt
to cash flow (including convertible debentures) will be approximately 1.1 times.
New Harvest will operate approximately 85% of its production. On a pro forma
basis, foreign ownership of new Harvest is approximately 32%.
GOVERNANCE
The combined trust will retain key personnel from both entities and will be led
by Xxxx Xxxxxx, who has an excellent track record of building high performance
technical teams that create value for investors by efficiently operating
established assets and selectively acquiring incremental assets with low risk
upside potential. The executive team will also include Xxx Xxxxxxxxxxxx as Vice
President, Finance and CFO, Xxx Xxxxxx as Vice President, Engineering and COO,
Xx Xxxxxxx as Vice President, Production, Xxxxx Xxxxxxxx as Vice President,
Geosciences and Xxxxx Xxxxxx as Vice President, Corporate.
The Harvest Board of Directors, including chairman Xxxxx Xxxxxxxx, will remain
in place and will be supplemented by Xxxx Xxxx, Xxxxx Xxxxx and Xxxxxxx Xxxxxx
from the Viking board.
"The combined trust will capitalize on its size and production base with a
consistent and significant capital development program," comments Xxxx Xxxxxx,
President and Chief Executive Officer of Viking. "With our extensive combined
technical operating experience and ability to reduce costs, I expect our
exploitation of this enhanced portfolio of assets to be very rewarding for
unitholders of new Harvest."
"We anticipate that the timing of the combination of these two trusts will
enhance the financial uplift from the inclusion of energy trusts in the TSX/S&P
Composite Index as well as provide increased liquidity with the near doubling of
market capitalization," added Xxxxx Xxxxxx, President of Harvest. "Further, the
combined trust will have improved access to capital markets to finance a much
wider range of opportunities than either organization currently has on a
stand-alone basis."
DISTRIBUTIONS
New Harvest has established a distribution policy which will result in a
distribution of $0.38 per unit per month, commencing with the first distribution
payable following closing of the transaction. It is expected that this level of
distribution would represent a payout ratio of approximately 65% for new Harvest
based on current commodity prices. In 2006, retained cash flows after
distributions will be used to fund a planned $250 million capital program
focused on exploitation and development opportunities within the existing asset
base. It is expected that the combined trust has sufficient internal
opportunities to allow for spending at the same level for at least 3 years. We
currently estimate that for Canadian unitholders,
distributions paid from the combined trust in 2006 will be 100 percent taxable
which is unchanged from the tax status for each of Harvest and Viking prior to
the combination.
The Combination Agreement provides that the Harvest and Viking unitholders will
continue to receive monthly distributions of $0.35 and $0.12 per trust unit,
respectively, through to closing of the transaction. These distribution levels
represent payout ratios of approximately 55% and 85%, respectively.
KEY OPERATING AND FINANCIAL INFORMATION
NEW HARVEST TRUST
PRO FORMA
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Estimated current production (boepd) (1) 64,000
Combined current enterprise value $4.3 billion
Reserve Estimates (1) ((2))
Proved (Mmboe) 161
Proved plus Probable (Mmboe) 215
Reserve Life Index (P + P) 9.2
Estimated combined funds flow from
operations (current commodity prices) $650 million
Estimated combined capital program $250 million
Monthly distributions per unit $0.38
Trust units outstanding (millions) 100.0
Debt (including convertible debentures)
to cash flow 1.1 times
Undeveloped land base (net acres) 760,000
(1) A BOE conversion 6 mcf : 1 bbl is based on an energy equivalency
conversion method primarily applicable at the burner tip and does not
represent a value equivalency at the wellhead. BOE's may be misleading,
particularly if used in isolation.
(2) Based on evaluations of the independent engineering evaluations
of Harvest and Viking as at January 1, 2005 (compliant with National
Instrument 51-101) and adjusted for the acquisition of the Hay River
property for Harvest, the acquisition of Krang Energy Inc., Calpine
Natural Gas Trust and Kensington Energy Ltd. for Viking.
FINANCIAL ADVISORS
National Bank Financial is acting as financial advisor to Harvest with respect
to this transaction and has advised the Board of Directors of Harvest that,
subject to review of definitive legal agreements, it is of the opinion, as of
the date hereof, that the consideration to be provided to the Viking unitholders
is fair, from a financial point of view, to Harvest unitholders. CIBC World
Markets is acting as financial advisor to Viking with respect to this
transaction and has advised the Board of Directors of Viking that, subject to
review of definitive legal agreements, it is of the opinion, as of the date
hereof, that the consideration to be received by the Viking unitholders is fair,
from a financial point of view, to Viking unitholders. TD Securities Inc. is
acting as mergers and acquisitions advisor, and BMO Xxxxxxx Xxxxx Inc., GMP
Securities Ltd. and Tristone Capital Inc. are acting as strategic advisors to
Harvest. Scotia Capital Inc. is acting as mergers and acquisitions advisor, and
RBC Capital Markets, Canaccord Capital Corporation and FirstEnergy Capital Corp.
are acting as strategic advisors to Viking.
JOINT CONFERENCE CALL
The management of Harvest and Viking will host a joint conference call to
discuss the proposed transaction on Monday, November 28, 2005 beginning at 9:00
a.m. Mountain Standard Time (11:00 a.m. Eastern Standard Time). To participate,
call toll-free 0-000-000-0000, and for listeners in Toronto or outside of
Canada, call 0-000-000-0000. A recording of the call will be available for
review until December 5, 2005 by calling 0-000-000-0000 or 0-000-000-0000.
ADVISORY
Certain information in this press release, including management's assessment of
future plans and operations, contains forward-looking information that involves
risk and uncertainty. Such risks and uncertainties include, but are not limited
to, risks associated with imprecision of reserve estimates, conventional oil and
natural gas operations; the volatility in commodity prices and currency exchange
rates; risks associated with realizing the value of acquisitions; general
economic, market and business conditions, changes in environmental legislation
and regulations; the availability of sufficient capital from internal and
external sources and such other risks and uncertainties described from time to
time in Harvest's and Viking's regulatory reports and filings made with
securities regulators.
Forward-looking statements in this press release include, but are not limited
to, production volumes, operating costs, commodity prices, administrative costs,
commodity price risk management activity, acquisitions and dispositions, capital
spending, distributions, access to credit facilities, capital taxes, Funds Flow
From Operations and regulatory changes. For this purpose, any statements that
are contained in this press release that are not statements of historical fact
may be deemed to be forward-looking statements. Forward-looking statements often
contain terms such as "may", "will", "should", "anticipate", "expects" and
similar expressions.
Readers are cautioned not to place undue reliance on forward-looking statements
as there can be not assurance that the plans, intentions or expectations upon
which they are placed will occur. Such information, although considered
reasonable by management at the time of preparation, may prove to be incorrect
and actual results may differ materially from those anticipated. Neither Harvest
nor Viking assumes any obligation to update forward-looking statements should
circumstances or management's estimates or opinions change. Forward-looking
statements contained in this press release are expressly qualified by this
cautionary statement.
This press release contains the term Funds Flow From Operations which as
presented does not have any standardized meaning as prescribed by Canadian
generally accepted accounting principles ("GAAP") and therefore it may not be
comparable with the calculation of similar measures for other entities. Funds
Flow From Operations as presented is not intended to represent operating profits
nor should it be viewed as an alternative to cash flow from operating
activities, net income or other measures of financial performance calculated in
accordance with GAAP. Funds Flow From Operations is used by the management of
both Harvest and Viking to analyze operating performance, leverage and
liquidity. All references to Funds Flow From Operations in this press release as
based on funds flow from operating activities before asset retirement
expenditures and changes in non-cash working capital.
Harvest is a Calgary based energy trust actively managed to maintain or increase
cash flow per unit through its strategy of acquiring, enhancing and producing
crude oil, natural gas and natural gas liquids. Harvest trust units are traded
on the Toronto Stock Exchange (TSX) under the symbol "HTE.UN" and on the New
York Stock Exchange ("NYSE") under the symbol "HTE".
Viking is Calgary based energy trust that generates income from long life oil
and natural gas producing properties in Alberta and Saskatchewan. Viking's units
currently trade on the Toronto Stock Exchange (TSX) under the symbol VKR.UN.
For further information contact:
Harvest Energy Trust Viking Energy Royalty Trust
2100, 000-0xx Xxxxxx X.X. 000, 000-0xx Xxxxxx X.X.
Calgary, Alberta T2P 0L4 Calgary, Alberta T2P 0L4
(000) 000-0000 (000) 000-0000
or Toll Free (000)000-0000 or Toll Free (000)000-0000
Xxxxx Xxxxxx Xxxx Xxxxxx
President President and CEO
Xxxxx Xxxx Xxxxxx Xxxxxxxxxxxx
Vice President & CFO Vice President, Finance and CFO
Xxxxx Xxxx Xxxxx Xxxxxxxx
Investor Relations & Communications Advisor Investor Relations
