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CALGARY HERALD: Penn West plans oilsands pipeline

Trust acquires assets in $350M deal
ASHOK DUTTA

Penn West Energy Trust plans the construction of a 300 kilometre pipeline to deliver Athabasca oilsands output via Nipisi through to Edmonton, a senior trust official said Thursday.

“We are scoping out an additional sales pipeline of capacity in excess of 100,000 barrels per day to serve multiple users,” William Andrew, Penn West’s president and chief executive acknowledged.

“As oilsands development proceeds in the province, there will be a need to transport additional volumes of products to be produced in the coming several years. The new pipeline will target existing refineries in Edmonton, in addition to new ones planned. Besides, Edmonton is expected to be the hub for oil pipelines planned to run from northern Alberta to markets in the U.S.”

He did not give a time line either on the construction schedule or project cost, stating that it is still early stages.

Penn West is the owner of a 50-kilometre sales pipeline that already exists in the area, as part of an acquisition it announced early this year. The pipeline runs from Seal Main to the oil battery and onto the Alberta market.

Les Stelmach, an analyst with Calgary-based Bissett Investment Management, said that increasing the capacity of a pipeline will assist in getting a better price for products.

On Feb. 9, Penn West entered into an agreement to acquire conventional oil and gas assets located mainly in Alberta. The assets currently produce about 3,200 bpd of light oil and 10.2 million cubic feet per day of natural gas.

Of the total, roughly 3,000 bpd and six million cfpd of production is situated within or close to Penn West’s Peace River oilsands project in the adjacent Red Earth-Utikuma area. The acquired assets also include a 10,000 bpd oil processing facility, a natural-gas plant and compression facility with a design capacity of 33 million cfpd.

Penn West completed agreement on April 11.

“The deal was worth about $350 million and we acquired the the assets from a large integrated oil and gas company,” he said, without identifying the seller. “We view it as a strategic acquisition in our Peace River Seal area. It provides us with new production capabilities and additional infrastructure. We will review the existing assets and work on the area.” Stelmach viewed the acquisition as ‘relatively small’ and part of a ‘normal activity’ by an energy trust.

In addition to the acquisition, Penn West is also moving ahead with its $100-million, 2007 capital expenditure program for Peace River that includes the drilling of about 65 wells and associated infrastructure.

“We have already drilled about 20 vertical wells. There are rigs onsite and we will complete drilling by the fall,” Andrew said.

Output from the acreage is at present 3,500 to 4,000 bpd of heavy oil — a figure that is likely to more than quadruple over the coming few years.

“By end 2007 our target is 5,000 to 6,000 bpd and by late 2010/early 2011 we are targeting 20,000,” he said.

Concurrently, Penn West is also carrying out engineering evaluations on thermal and enhanced oil recovery methods.

“In the western part of the Peace River oilsands, Shell Canada has an experimental thermal recovery project. Due to their (Shell’s) history and our work, we feel there are opportunities for tertiary recoveries,” Andrew said, stating that he estimates heavy oil resources in-place at the acreage to be six million barrels.

On April 18, Penn West announced that it had entered into additional $250-million bank-credit facility and the staging of a $475-million US bond issue on a private placement basis, primarily in the U.S.

“The credit facility is a short-term, bridge loan to finance the acquisition and was arranged by Bank of Montreal,” he said.

Penn West’s shares were traded at $34.02 on Thursday, down 19 cents from the previous day.

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