Crescent Point pays top dollar for junior explorer

Release Date: September 12, 2006
DAVE EBNER

00:00 EDT Tuesday, September 12, 2006

CALGARY — Crescent Point Energy Trust says it is paying about $700-million for Mission Oil & Gas Inc., doling out top dollar for a junior explorer with a major position in the potentially prolific Bakken oil field in Saskatchewan.

It is the trust’s biggest move to date, extending a string of 14 deals that Calgary-based Crescent Point did in the past year, spending a total of about $700-million for those acquisitions. The trust mostly used its units to pay for the deals, and the number of units outstanding has doubled to 63 million at June 30 from 31 million at the end of 2004.

Crescent Point said it plans to increase the float by another 50 per cent, issuing 31.8 million units to pay for Calgary-based Mission.

The new units with which Crescent Point is acquiring Mission were valued at $622-million, based on Crescent Point’s $19.55 close on the Toronto Stock Exchange yesterday, down $2.45 cents or 11.1 per cent. The units were valued at about $700-million when the deal was announced before the start of trading yesterday.

Mission stock fell $1.46 or 10.2 per cent yesterday to $12.84.

Many energy trusts sell units to investors to pay for acquisitions, which are meant to make up for internal production declines, rather than trying to maintain production through their own drilling. Some investors have questioned the long-term sustainability of selling units to buy production.

Crescent Point is paying a high premium for Mission. The price equates to $109,000 for each of Mission’s 5,500 barrels of daily output, more than a third higher than the average valuation of a selection of junior explorers followed by brokerage Peters & Co. Ltd.

Crescent Point said it believes the Bakken field might hold more than a billion barrels of original oil in place, which would rank among the biggest half-dozen crude discoveries in Western Canadian history. It said there is “significant potential” to more than double Mission’s 14 million barrels of proved reserves in the next three years. “The ability to drill hundreds of low-risk development wells each year on the Mission asset base . . . will significantly add to Crescent Point’s sustainability,” Scott Saxberg, the company’s president and chief executive officer said in a statement.

Bakken’s potential gained attention in the past several years and became well known last year, according to a report in 2005 by FirstEnergy Capital Corp. The first oil production from the Bakken occurred about 1955 when Mobil Oil drilled a successful well.

Of Mission’s 5,500 barrels a day, about 4,000 are from the Bakken in southeast Saskatchewan.

‘ The Globe and Mail