EXHIBIT 4
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PRIMEWEST ENERGY TRUST
FIRST QUARTER INTERIM REPORT
P R I M E W E S T
FOR THE THREE MONTHS ENDED
MARCH 31, 2001
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WE ARE ONE OF CANADA'S LARGEST CONVENTIONAL OIL AND GAS ROYALTY TRUSTS. WE
MANAGE PRIMEWEST CAREFULLY FOR THE ONGOING BENEFIT OF OUR UNITHOLDERS, AND IN
DOING SO ARE GUIDED BY THE OPERATING PRINCIPLE OF RESPONSIBLE STEWARDSHIP. OUR
MAIN OBJECTIVE IS TO DELIVER STABLE, PREDICTABLE AND SUSTAINABLE CASH
DISTRIBUTIONS MONTHLY, WITHIN THE CONTEXT OF A COMMODITY-BASED BUSINESS
ENVIRONMENT.
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PRIMEWEST ENERGY TRUST INCREASES CASH FLOW AND CONFIRMS EXPECTED CONTINUANCE OF
RECORD DISTRIBUTIONS
CALGARY, MAY 10, 2001 (TSE: PWI.UN) -- PrimeWest Energy Trust (PrimeWest) today
announced unaudited interim operating and financial results for the first
quarter.
THE ACQUISITION OF CYPRESS ENERGY INC. HAS POSITIONED PRIMEWEST AS CANADA'S
LARGEST GAS-WEIGHTED ROYALTY TRUST.
Due to continued strength in commodity prices, first quarter cash flow of $43.5
million was up 143% from $17.9 million posted in the first quarter of 2000 and
up 6% from $40.9 million posted in the fourth quarter of 2000. Fully diluted
first-quarter cash flow from operations was $0.79 per trust unit up from $0.77
per trust unit in the previous quarter. Cash distributions for the quarter
totalled $0.60 per trust unit consistent with the previous quarter.
CYPRESS TRANSACTION CLOSES
On March 29, 2001, PrimeWest closed the acquisition of Cypress Energy Inc.
whereby 97% of the outstanding Cypress shares were tendered to the bid.
PrimeWest acquired the remaining shares under the compulsory acquisition
provisions of Canadian corporate law. Accordingly, PrimeWest issued 50.2 million
trust units, 5.44 million exchangeable shares and paid $58 million in cash for
Cypress and assumed Cypress' debt totaling $179 million. Cash flow related to
the Cypress assets will begin to be recorded in the second quarter.
JUNE DISTRIBUTION DECLARATION
The June payment, totaling $0.22 per trust unit ($0.10 regular plus $0.12
special), will be made on June 15, 2001, to all unitholders of record on May 31,
2001. PrimeWest expects to pay a total of $0.22 per trust unit per month at
least through January 2002, bringing expected full-year 2001 distributions to
$2.58 per trust unit, a 46% increase over 2000 distribution levels.
OPERATING & FINANCIAL
HIGHLIGHTS
OPERATING HIGHLIGHTS THREE MONTHS ENDED MARCH 31
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2001 2000 CHANGE
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Daily sales volumes
Crude oil (barrels) 6,988 5,764 21%
Natural gas liquids (barrels) 1,613 1,264 28%
Natural gas (thousand cubic feet) 49,575 48,128 3%
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Total (barrels of oil equivalent) 16,864 15,049 12%
Average selling prices
Crude oil ($/bbl) 32.33 33.13 (2%)
Natural gas liquids ($/bbl) 40.21 31.54 27%
Natural gas ($/Mcf) 10.38 3.01 245%
Operating netback ($/BOE)
Revenues 47.86 25.07 91%
Royalties, net of ARTC (10.31) (4.76) 117%
Operating expenses (5.49) (4.96) 11%
----------------- ---------------- ----------------
Operating netback 32.06 15.35 109%
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(1) Gas converted to a barrel of oil equivalent at a 6:1 conversion factor.
FINANCIAL HIGHLIGHTS THREE MONTHS ENDED MARCH 31
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(THOUSANDS OF DOLLARS EXCEPT PER-BOE
AND PER-TRUST-UNIT AMOUNTS) 2001 2000 CHANGE
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Operating revenues, net of royalties 56,990 27,829 105%
per BOE 37.55 20.31 85%
per trust unit (fully diluted) 1.04 0.78 33%
Operating expenses 8,340 6,791 23%
per BOE 5.49 4.96 11%
per trust unit 0.15 0.19 (21%)
Cash G&A expenses 2,273 1,104 106%
per BOE 1.50 0.81 85%
per trust unit 0.04 0.03 33%
Cash management fees 1,269 550 131%
per BOE 0.84 0.40 110%
per trust unit 0.02 0.02 --
Financing costs 1,516 1,456 4%
per BOE 1.00 1.06 (6%)
per trust unit 0.03 0.04 (25%)
Cash flow from operations 43,534 17,927 143%
per BOE 28.68 13.09 119%
per trust unit 0.79 0.50 58%
Cash distributed to unitholders 40,783 10,753 279%
per trust unit 0.60 0.30 100%
payout ratio 94% 60% 57%
MARCH 31, DECEMBER 31,
(THOUSANDS OF DOLLARS) 2001 2000
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Net debt (long-term debt net of working capital) 333,354 79,194
per trust unit (fully diluted) (1) (2) 3.04 1.52
Debt-to-current-cash flow (annualized) (2) 1.84 0.48
(1) Includes trust units issued in conjunction with Cypress transaction.
(2) Cash flow excludes Cypress assets.
PRIME WEST ENERGY TRUST 2 1ST QUARTERLY REPORT
THE KEY AIM OF OUR RISK MANAGEMENT STRATEGY - TO PROVIDE AN ELEMENT OF STABILITY
AND PREDICTABILITY TO OUR MONTHLY DISTRIBUTIONS, WHILE MAINTAINING THE
OPPORTUNITY TO CAPTURE BENEFIT FROM STRONG PRICES.
MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A)
The following is management's discussion and analysis about PrimeWest's
operating and financial results for the first quarter of 2001 compared to the
fourth quarter of 2000 and the first quarter of 2000, and the Trust's future
outlook based on currently available information. This discussion should be read
in conjunction with the Trust's annual MD&A and audited consolidated financial
statements for the years ended December 31, 2000 and 1999, together with the
accompanying notes. These are included in pages 17 through 42 of PrimeWest's
2000 annual report to unitholders.
Beginning with the fourth quarter 2000 report and 2000 annual report, we are
using a 6:1 ratio for converting natural gas (Mcf) to barrels of oil equivalent
(BOE). In prior years, PrimeWest has used a 10:1 ratio.
The first quarter results discussed below do not include cash flows from the
recently acquired Cypress acquisition. The transaction was booked on March 29,
2001 just prior to the end of the quarter and cash flows for the Cypress assets
will commence being recorded in the second quarter.
RESULTS OF OPERATIONS
o Production volumes for the quarter averaged 16,864 barrels of oil
equivalent (BOE) per day, down slightly from 16,949 BOE in the fourth
quarter of 2000 and up 12% from 15,049 BOE in the first quarter of 2000
due to new volumes from the Trust's Venator and Reserve Royalty
acquisitions in the second and third quarters of 2000 as well as
production additions from the capital development program, offset by the
disposition of approximately 100 BOE per day in the first quarter, 2001
and natural declines.
During the quarter, 1,900 BOE per day or 11% of total daily production
came from Gross Overriding Royalty (GORR) interests (mostly from former
Reserve Royalty lands). Of this total, 937 BOE per day was crude oil
production, 860 BOE per day was natural gas production, and 103 BOE per
day was natural gas liquids production.
o During the quarter, the average West Texas Intermediate (WTI) crude oil
price was US$28.80 per barrel compared with US$31.86 in the fourth
quarter of 2000 and US$28.73 per barrel for the first quarter of 2000.
Average sales prices for oil were off 2% to Cdn$32.33 per barrel due to
an expansion of crude oil quality differentials partially offset by a
weaker Canadian dollar. Realized oil prices related to WTI are expected
to recover through the balance of 2001 due to the impact of the Cypress
assets which are lighter gravity crude oil.
o North American natural gas prices rose sharply again, both on the New
York Mercantile Exchange (NYMEX) and in the Alberta markets compared
with the fourth quarter of 2000 and the same period in 1999. The average
AECO price was $10.90 per thousand cubic feet (Mcf) compared with $7.42
for the fourth quarter of 2000 and $3.16 for the same quarter in 2000.
o PrimeWest's average gas price for the first quarter, 2001 was $10.38 per
Mcf compared with $7.43 per Mcf for the fourth quarter of 2000 and $3.01
per Mcf for the
PRIME WEST ENERGY TRUST 3 1ST QUARTERLY REPORT
WE HAVE A BALANCED STRATEGY OF FINANCIAL PRUDENCE - MANAGING OUR CURRENT CAPITAL
STRUCTURE WHILE PROVIDING FOR THE FUTURE.
same quarter in 2000. Relative to NYMEX and AECO, PrimeWest's average
gas prices are expected to improve in future quarters as a result of the
high heating content of the acquired Cypress gas production.
o The average selling price PrimeWest received in the first quarter for
all products combined increased to $47.86 per BOE compared with $41.36
per BOE in the fourth quarter of 2000 and $25.07 per BOE in the first
quarter of 2000. These increases were primarily due to higher natural
gas prices.
RISK MANAGEMENT
Our risk management strategy is designed to not speculate on future commodity
price performance. Rather, our objectives are to support the distribution rate
expectations that we set forth to the market support transaction economics
associated with material acquisitions and protect our capital structure should
commodity prices cycle downwards.
PrimeWest uses a number of hedging structures in its program, many of which are
`option'- or `put'-based. For example, a `swaption' provides PrimeWest the
future option or right, should it so elect, to sell future production volumes
for a fixed price for a certain term. Should the market price, at that time, be
higher than the strike price of the option, PrimeWest can elect to sell such
production at the higher market price. Should the market price, at that time, be
lower than the strike price of the option, PrimeWest can exercise the option to
sell the production at the higher price.
Similarly, a `put' allows PrimeWest the right to sell production at the then
prevailing market price, subject to a floor price represented by the strike
price attributed to the `put'.
These structures have the advantage of mitigating downside exposure while
providing substantial upside participation in commodity prices. In essence, they
provide a form of insurance.
PrimeWest continually monitors the markets for both crude oil and natural gas
and makes considered risk-management decisions regularly. The effect of these
hedging transactions will continue to be reported quarterly.
PRIME WEST ENERGY TRUST 4 1ST QUARTERLY REPORT
The following tables of blended prices show the expected effect of hedging
transactions for the next four quarters.
CRUDE OIL (AS AT MAY 9, 2001)
(AS AN APPROXIMATE PERCENTAGE OF TOTAL
ANTICIPATED CRUDE OIL PRODUCTION AFTER QUARTER ENDING QUARTER ENDING QUARTER ENDING QUARTER ENDING
ROYALTIES) JUN. 30, 2001 SEP. 30, 2001 DEC. 31, 2001 MAR. 31, 2002
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Volumes hedged, fixed price (2) 45% 45% 45% 0%
Volumes hedged, insured (2) 51% 51% 51% 0%
(U.S. DOLLARS PER BARREL) PRIMEWEST PRIMEWEST PRIMEWEST PRIMEWEST
IF WTI IS: RECEIVES(1) RECEIVES(1) RECEIVES RECEIVES
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30.00 28.54 28.57 28.72 30.00
28.00 27.64 27.65 27.69 28.00
26.00 26.57 26.55 26.55 26.00
24.00 25.95 25.90 25.84 24.00
22.00 25.83 25.74 25.55 22.00
20.00 25.71 25.57 25.27 20.00
(1) The blended prices PrimeWest would expect to receive. These prices are a
weighted average blend of prices received on hedged volumes and
prevailing market prices received for unhedged sales.
(2) Fixed price (swap) is for a specified term. Insured volumes are puts.
NATURAL GAS (AS AT MAY 9, 2001)
Approximately 44% of 2001 gas volumes is marketed through aggregators, with the
remaining 56% marketed directly by PrimeWest in the Alberta short- and long-term
markets. Volumes sold through aggregators receive prices that are derived from a
number of markets across North America. The following table refers only to the
production that PrimeWest sells directly.
(AS AN APPROXIMATE PERCENTAGE OF DIRECT QUARTER ENDING QUARTER ENDING QUARTER ENDING QUARTER ENDING
MARKETED VOLUMES) JUN. 30, 2001 SEP. 30, 2001 DEC. 31, 2001 MAR. 31, 2002
- ------------------------------------------------------------------- -------------------- ------------------- --------------------
Volumes hedged, fixed price (2) 40% 58% 23% 5%
Volumes hedged, insured (2) 39% 15% 37% 54%
(CANADIAN DOLLARS PER MCF) PRIMEWEST PRIMEWEST PRIMEWEST PRIMEWEST
IF AECO IS: RECEIVES(1) RECEIVES(1) RECEIVES(1) RECEIVES(1)
- ------------------------------------------------------------------- -------------------- ------------------- --------------------
7.50 7.39 7.39 7.46 7.50
7.00 7.08 7.18 7.08 7.03
6.50 6.78 6.96 6.78 6.69
6.00 6.64 6.80 6.57 6.49
5.50 6.54 6.67 6.36 6.29
5.00 6.43 6.54 6.16 6.09
4.50 6.33 6.41 5.96 5.89
4.00 6.56 6.62 6.07 5.69
(1) The blended prices PrimeWest would expect to receive on gas it markets
directly. These prices are a weighted average blend of prices received
on hedged volumes and prevailing market prices received for unhedged
sales.
(2) Fixed price (swap) is for a specified price and term. Insured volumes
include puts and put swaptions.
(3) PrimeWest currently has put swaptions on a portion of its natural gas
production that extend to October 2002.
PRIME WEST ENERGY TRUST 5 1ST QUARTERLY REPORT
OUR OPERATING EXCELLENCE STRATEGY: PURSUE A CONSERVATIVE PROGRAM OF PROPERTY
DEVELOPMENT FOCUSED ON LOWERING OPERATING COSTS AND ARRESTING THE NATURAL
PRODUCTION DECLINES IN MATURE PRODUCING PROPERTIES.
o REVENUES - Revenues from the sale of crude oil, natural gas and natural
gas liquids for the first quarter were $72.5 million, up 111% over the
same period in 2000 due to higher commodity prices and higher production
volumes. Opportunity losses related to hedging activities for the period
were $2.0 million or $0.03per trust unit.
o CASH FLOW - Cash flow from operations was $43.5 million ($0.79 per trust
unit) for the quarter compared with $40.9 million ($0.77 per trust unit)
in the fourth quarter of 2000 and $17.9 million ($0.50 per trust unit)
posted in the first quarter of 2000. These increases are due to higher
commodity prices and higher production volumes.
o ROYALTIES - Crown and other royalties, net of ARTC, were $15.7 million
during the first quarter, up from $11.5 million in the fourth quarter of
2000, and up from $6.5 million in the first quarter of 2000 reflecting
the effect of higher commodity prices. The average royalty rate for the
quarter was 21.6%, up from 17.8% in the fourth quarter to due to higher
natural gas prices.
o OPERATING EXPENSES - Operating expenses were $8.3 million for the first
quarter or $5.49 per BOE, up slightly in aggregate from $8.1 million
($5.20 per BOE) in the fourth quarter. Compared with the corresponding
period in 2000, first quarter operating expenses were up 23% in
aggregate and up 11% on a BOE basis. Power costs, a large component of
operating expenses, rose by $840,000 in aggregate or $0.56 per BOE from
the first quarter of 2000. PrimeWest expects operating costs to decline
for the balance of 2001 as power costs return to more reasonable levels
and the full effects of the Cypress acquisition are recorded. The
Cypress assets, in aggregate, have a lower operating cost structure than
PrimeWest.
o OPERATING NETBACK - PrimeWest's first-quarter operating netback (before
G&A, management fees and interest expense) was $32.06 per BOE, up from
$28.79 per BOE in the fourth quarter of 2000 and $15.35 per BOE in the
corresponding period in 2000. These increases were due to higher
commodity prices, offset by higher crown and other royalties.
o CASH GENERAL AND ADMINISTRATIVE EXPENSES - Cash G&A expenses, net of
overhead recoveries, were $2.3 million or $1.50 per BOE for the quarter,
up $1.2 million from the fourth quarter of 2000 and up $1.2 million from
the same period in 2000. Cash G&A for the quarter includes a one-time
severance payment of approximately $800,000 and some effect of increased
costs associated with PrimeWest's growth.
o NON-CASH GENERAL AND ADMINISTRATIVE EXPENSES - Non-cash G&A expenses,
representing the cost associated with the Trust's long-term incentive
program, were $5.2 million in the first quarter, up from $3.6 million in
the fourth quarter of 2000 and up from $0.5 million for the
corresponding period in 2000. The expense represents the change in the
liability for vested and `in the money' awards as at the end of the
period. Awards under the program are a function of total unitholder
return (unit price plus reinvested distributions) and are subject to
achieving a 5% per annum hurdle rate before any payouts accrue. This is
a non-cash charge in that payouts are made by the issuance of trust
units upon exercise.
PRIME WEST ENERGY TRUST 6 1ST QUARTERLY REPORT
ASSET REPLENISHMENT - ANOTHER KEY TO THE LONG-TERM STABILITY OF PRIMEWEST AND
ITS CASH DISTRIBUTIONS TO UNITHOLDERS. WE WORK TO INCREASE THE SIZE, DIVERSITY
AND QUALITY OF OUR ASSET BASE.
o MANAGEMENT FEES - Cash and non-cash management fees increased to $1.8
million for the quarter as compared with $1.4 million in the fourth
quarter of 2000 and $0.7 million for the corresponding period in 2000.
Management fees are mainly based on net production revenue, which itself
is highly dependent on volumes produced and commodity prices received.
o INTEREST EXPENSE - Interest expense was $1.5 million in the first
quarter compared with $1.7 million in the fourth quarter of 2000 and
$1.5 million in the corresponding period of 2000. Interest costs are
being managed through reducing long-term debt with excess cash flow
above our distributions.
o DEPLETION, DEPRECIATION AND AMORTIZATION (DD&A) - The first-quarter 2001
DD&A rate was $7.52 per BOE compared with a fourth-quarter 2000 rate of
$7.47 per BOE.
o LIQUIDITY AND CAPITAL RESOURCES - Capital expenditures, excluding
corporate acquisitions, totalled $6.9 million during the quarter,
compared with fourth-quarter 2000 capital expenditures of $11.2 million,
and $4.5 million during the corresponding period in 2000.
o ACQUISITION OF CYPRESS ENERGY INC. - On March 29, 2001, PrimeWest
acquired all of the shares of Cypress Energy Inc. and amalgamated the
company into its operations. As a result of this transaction, capital
assets increased by $880 million, long-term debt increased by $239
million, future income taxes increased by $80 million and unitholders'
equity increased by $542 million. The transaction has resulted in a net
decrease in working capital (current assets less current liabilities) of
$17 million. Included in accounts payable and accrued liabilities at
quarter end is $16.7 million for acquisition and investment advisory
fees related to the transaction.
OUTLOOK
PrimeWest's cash flows for the remainder of the year will reflect the combined
operations of PrimeWest and Cypress. Capital development programs continue to be
evaluated however expectations are that approximately $80 million in total will
be spent in 2001. Active farmout and asset rationalization programs are in
process to monetize the value of certain non-core or non-strategic assets.
PrimeWest will continue to monitor the commodity markets and adjust its hedging
programs to protect both its distribution policies, capital programs and to
provide prudent debt management.
DISTRIBUTION REINVESTMENT DISCOUNT
PrimeWest's Distribution Reinvestment and Optional Trust Unit Purchase Plan
enables participants to reinvest their monthly cash distributions and/or
purchase additional trust units directly, at a 5% discount to the 20-day
weighted average monthly market price.
To join the Plan, you must be a registered unitholder or have your units in an
account that allows participation. Not all brokerage firms and banks will allow
you to
PRIME WEST ENERGY TRUST 7 1ST QUARTERLY REPORT
THE ANNUAL GENERAL MEETING OF UNITHOLDERS WILL BE HELD IN THE STRAND/TIVOLI ROMM
OF THE METROPOLITAN CENTRE IN CALGARY ON TUESDAY, JUNE 5, 2001, BEGINNING AT
3:00 P.M. ALL UNITHOLDERS ARE ENCOURAGED TO ATTEND OR TO PARTICIPATE IN THE
LIVE WEBCAST.
participate. Please check directly with your account representative as to their
participation.
For further information or to join this plan, contact our Plan Agent,
Computershare Trust Company of Canada, at 1-800-332-0095. PrimeWest Energy Trust
welcomes questions from unitholders and potential investors; call Investor
Relations at 403-234-6600 or toll-free in Canada at 1-877-968-7878; or visit us
on the Internet at our Web site, www.primewestenergy.com.
On behalf of the Board of Directors:
May 10, 2001
Kent J. MacIntyre
Vice-chairman and
Chief Executive Officer
PRIME WEST ENERGY TRUST 8 1ST QUARTERLY REPORT
CONSOLIDATED
BALANCE SHEETS
(UNAUDITED)
AS AT AS AT
MARCH 31, DECEMBER 31,
(THOUSANDS OF DOLLARS) 2001 2000
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ASSETS
Current assets
Cash and short-term investments 4,313 -
Accounts receivable 60,856 35,064
Prepaid expenses and inventory 14,645 3,400
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79,814 38,464
Cash reserved for site restoration and reclamation 6 398
Capital assets 1,267,941 395,376
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1,347,761 434,238
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LIABILITIES AND UNITHOLDERS' EQUITY
Current liabilities
Bank overdraft - 834
Accounts payable and accrued liabilities 57,539 25,781
Accrued distributions to unitholders 19,712 9,961
Due to related company 15,773 2,052
Current portion of long-term debt 106 106
----------------- ------------------
93,131 38,734
Long-term debt 320,037 78,940
Long-term incentive liability 11,116 8,930
Future income taxes 99,252 16,596
Site restoration and reclamation provision 4,670 1,958
----------------- ------------------
528,206 145,158
UNITHOLDERS' EQUITY
Net capital contributions 983,150 435,342
Accumulated income 67,204 43,014
Accumulated cash distributions (227,301) (186,518)
Accumulated dividends (3,498) (2,758)
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819,555 289,080
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1,347,761 434,238
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CONSOLIDATED STATEMENTS OF
UNITHOLDERS' EQUITY
(UNAUDITED)
THREE MONTHS
ENDED YEAR ENDED
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MARCH 31, DECEMBER 31,
(THOUSANDS OF DOLLARS) 2001 2000
- ---------------------------------------------------------------------------------------------------- -------------------
Unitholders' equity, beginning of the period, as previously reported 289,080 200,040
Adjustment to unitholders' equity at beginning of period to adopt
new future income tax standard - (10,218)
Net income for the period 24,190 55,612
Net capital contributions 547,808 124,291
Cash distributions (40,783) (79,033)
Dividends (740) (1,612)
----------------- ------------------
Unitholders' equity, end of the period 819,555 289,080
----------------- ------------------
PRIME WEST ENERGY TRUST 9 1ST QUARTERLY REPORT
CONSOLIDATED STATEMENTS OF
CASH FLOW
(UNAUDITED)
THREE MONTHS ENDED MARCH 31
------------------------------------------
(THOUSANDS OF DOLLARS) 2001 2000
- ---------------------------------------------------------------------------------------------------- ------------------
OPERATING ACTIVITIES
Net income for the period 24,190 8,081
Add: Items not involving cash from operations
Depletion, depreciation and amortization 11,420 9,218
Non-cash general and administrative 5,195 513
Non-cash management fees 483 115
Future income taxes 2,246 -
----------------- ------------------
Cash flow from operations 43,534 17,927
Change in non-cash working capital 10,386 862
----------------- ------------------
53,920 18,789
----------------- ------------------
FINANCING ACTIVITIES
Proceeds from issue of trust units (net of costs) 1,711 223
Cash distributions to unitholders (40,783) (10,753)
Dividends (740) (118)
Increase (decrease) in long-term debt 62,096 (2,487)
Change in non-cash working capital 9,503 (255)
----------------- ------------------
31,787 (13,390)
----------------- ------------------
INVESTING ACTIVITIES
Expenditures on capital assets (6,863) (4,501)
Corporate acquisitions (76,641) -
Proceeds on disposal of capital assets 3,333 -
Decrease (increase) in cash reserved for future site restoration and
reclamation 392 (99)
Expenditures on site restoration and reclamation (780) (178)
Proceeds on disposition of short-term investments - 172
----------------- ------------------
(80,560) (4,606)
----------------- ------------------
INCREASE IN CASH FOR THE PERIOD 5,147 793
CASH, (BANK OVERDRAFT) BEGINNING OF THE PERIOD (834) 5,503
----------------- ------------------
CASH, END OF THE PERIOD 4,313 6,296
----------------- ------------------
CASH INTEREST PAID 1,514 1,919
----------------- ------------------
PRIME WEST ENERGY TRUST 10 1ST QUARTERLY REPORT
CONSOLIDATED STATEMENTS OF
INCOME AND CASH AVAILABLE
FOR DISTRIBUTION
(UNAUDITED)
THREE MONTHS ENDED MARCH 31
------------------------------------------
(THOUSANDS OF DOLLARS, EXCEPT FOR PER-TRUST-UNIT AND NUMBER OF UNITS) 2001 2000
- ---------------------------------------------------------------------------------------------------- ------------------
REVENUES
Sales of crude oil, natural gas and natural gas liquids 72,539 34,311
Crown and other royalties, net of ARTC (15,651) (6,516)
Other income 102 34
----------------- ------------------
56,990 27,829
----------------- ------------------
EXPENSES
Operating 8,340 6,791
Cash general and administrative 2,273 1,104
Non-cash general and administrative 5,195 513
Interest 1,516 1,456
Cash management fees 1,269 551
Non-cash management fees 483 115
Depletion, depreciation and amortization 11,420 9,218
----------------- ------------------
30,496 19,748
----------------- ------------------
Net income before taxes for the period 26,494 8,081
----------------- ------------------
Capital taxes 58 -
Future income taxes 2,246 -
----------------- ------------------
2,304 -
----------------- ------------------
Net income for the period 24,190 8,081
----------------- ------------------
Add back (deduct) amounts to reconcile to distribution:
Undistributed reserve (1,841) (6,722)
Depletion, depreciation and amortization 11,420 9,218
Contribution to reclamation fund (498) (343)
Non-cash general and administrative 5,195 513
Management fees paid in trust units 483 115
Future income taxes 2,246 -
----------------- ------------------
17,005 2,781
----------------- ------------------
CASH AVAILABLE FOR DISTRIBUTION 41,195 10,862
----------------- ------------------
Cash available to trust unitholders (99%) 40,783 10,753
----------------- ------------------
Cash available for distribution per trust unit 0.60 0.30
----------------- ------------------
Net income per trust unit 0.45 0.23
----------------- ------------------
Fully diluted net income per trust unit 0.44 0.23
----------------- ------------------
Trust units issued and outstanding 102,026,326 35,848,116
Weighted average trust units outstanding 53,846,155 35,834,166
PRIME WEST ENERGY TRUST 11 1ST QUARTERLY REPORT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(THOUSANDS OF DOLLARS EXCEPT TRUST UNIT/SHARE AMOUNTS)
1) SIGNIFICANT ACCOUNTING POLICIES
These interim consolidated financial statements of PrimeWest Energy Trust have
been prepared in accordance with Canadian generally accepted accounting
principles. The specific accounting principles used are described in the annual
consolidated financial statements of the Trust appearing on pages 17 through 42
of the Trust's 2000 annual report and should be read in conjunction with these
interim financial statements.
2) ACQUISITION OF CYPRESS ENERGY INC.
On March 29, 2001, PrimeWest Oil & Gas Corp., a subsidiary company of PrimeWest
Energy Trust, completed the acquisition of all of the issued and outstanding
shares of Cypress Energy Inc. ("Cypress") pursuant to a takeover bid. In
aggregate, PrimeWest issued 50.2 million trust units, 5.44 million exchangeable
shares of PrimeWest Oil & Gas Corp. and paid $58.4 million in cash. Subsequent
to the transaction, Cypress and PrimeWest Oil & Gas Corp. were amalgamated. The
acquisition was accounted for using the purchase method of accounting with net
assets acquired and consideration paid as follows:
Net assets acquired at assigned values
Petroleum and natural gas assets $ 880,285
Working capital assumed 1,942
Long-term debt assumed (179,000)
Site restoration provision (3,085)
Future income taxes (80,410)
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619,732
- -------------------------------------------------------------------------------
Consideration paid:
Cash $ 58,357
Trust units issued 489,815
Exchangeable shares issued 53,040
Costs associated with acquisition (1) 18,520
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$ 619,732
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(1) Included in the costs associated with acquisition is an acquisition fee
to PrimeWest Management Inc. in the amount of $11.7 million.
3) LONG-TERM DEBT
During the quarter and in conjunction with the acquisition of Cypress Energy
Inc., PrimeWest entered into a revised loan agreement with its lender. The
revised agreement increases PrimeWest's total facility to $400 million as
follows:
Revolving term loan $ 325,000
Operating loan 25,000
Bridge loan 50,000
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$ 400,000
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The term/operating loan facility revolves until May 31, 2002 by which time the
lender will have conducted its annual borrowing base review. The lender also has
the right to re-determine the borrowing base at least one other time during the
year. At the end of the revolving period, the lender has the right to extend the
revolving period for a further 364-day period or to convert the facility to a
term facility. During the revolving phase, the facility has no specific terms of
repayment. If the lender converts the loan to a non-revolving facility, the
amounts outstanding under the facility become repayable over a three-year
period, on a unit of production basis.
PRIME WEST ENERGY TRUST 12 1ST QUARTERLY REPORT
The bridge loan expires on September 30, 2001 at which time all borrowings
outstanding under the Bridge become due and payable.
Advances under the revolving and operating loan facility are made in the form of
either Banker's Acceptances (BA's), prime rate loans or letters of credit. In
the case of BA's, interest is a function of the BA rate plus a stamping fee
based on the Trust's current ratio of debt to cash flow. In the case of prime
rate loans, interest is generally charged at the bank's prime rate. Advances
under the Bridge facility are only in the form of prime rate loans. Pricing
under the Bridge Loan is prime plus 1% until June 30, 2001 and prime plus 2%
thereafter until repayment. PrimeWest also has letters of credit outstanding in
the amount of $4.3 million.
Collateral for the facilities is provided for by a floating charge debenture
covering all existing and after acquired property in the principal amount of
$500 million and an unconditional full liability guarantee from each borrower
under the facility.
4) UNITHOLDERS' EQUITY
PRIMEWEST ENERGY TRUST
The authorized capital of the Trust consists of an unlimited number of trust
units.
Trust units # OF UNITS AMOUNT
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Balance at December 31, 2000 50,982,093 $ 426,931
Issued to acquire Cypress Energy Inc. 50,237,417 489,815
Issue costs (179)
Issued pursuant to Long Term Incentive Plan 333,021 3,008
Issued pursuant to Dividend Reinvestment Plan 190,284 1,890
Issued for payment for management fees 26,204 234
Issued on exchange of exchangeable shares 257,309 1,537
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102,026,328 $ 923,237
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The weighted average number of trust units and exchangeable shares outstanding
for the quarter was 53,846,155. For purposes of calculating fully diluted net
income and cash flow, dilution associated with the employee long term incentive
plan was added to the weighted average number. The per unit amount of
distributions paid or declared reflects distributions paid for units outstanding
on the record dates.
PRIMEWEST OIL & GAS CORP
In connection with the Cypress acquisition, PrimeWest Oil & Gas Corp. amended
its articles to create an unlimited number of exchangeable shares. The
exchangeable shares are exchangeable into PrimeWest trust units at any time up
to March 29, 2003, based on an exchange ratio that adjusts each time PrimeWest
makes a distribution to unitholders. The exchange ratio, which was 1:1 on the
date the transaction closed, is based on the total monthly distribution, divided
by the closing unit price on the distribution payment date. The exchange ratio,
effective April 15, 2001, was 1.02207:1.
Exchangeable shares # OF SHARES AMOUNT
- -------------------------------------------------------------------------------- -----------------
Balance at December 31, 2000 -- --
Issued to acquire Cypress Energy Inc. 5,440,000 $ 53,040
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Balance at March 31, 2001 5,440,000 $ 53,040
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PRIME WEST ENERGY TRUST 13 1ST QUARTERLY REPORT
PRIMEWEST RESOURCES LTD.
In connection with the acquisition of Venator Petroleum Company Limited,
PrimeWest Resources Ltd. amended its articles to create an unlimited number of
exchangeable shares. The exchangeable shares are exchangeable into Trust units
at any time up to 5 years after issuance, based on an exchange ratio that
adjusts each time PrimeWest makes a distribution to its unitholders. In certain
circumstances, PrimeWest has the right to force redemption prior to the 5 year
expiry term. Dividends are paid to holders of exchangeable shares based on the
estimated taxable portion of the monthly distribution paid. The exchange ratio,
which was 1:1 on the closing date of the Venator transaction, is based on the
total monthly distribution paid less the dividend paid, divided by the closing
Trust unit price on the distribution payment date. The exchange ratio at April
15, 2001 was 1.1366.
Exchangeable shares # OF SHARES AMOUNT
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Balance at December 31, 2000 1,112,370 $8,410
Exchanged for trust units (225,712) (1,537)
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Balance at March 31, 2001 886,658 $6,873
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5) TRUST UNIT INCENTIVE PLAN
Under the terms of the Trust Unit Incentive Plan, a maximum of 2,490,000 trust
units are reserved for issuance pursuant to the exercise of Unit Appreciation
Rights (UARs) granted to employees of the Manager. Payouts under the plan are
based on total unitholder return, calculated using both the change in the trust
unit price as well as cumulative distributions paid. The plan requires that a
hurdle return of five percent per annum be achieved before payouts accrue. UARs
have a term of up to six years and vest equally over a three-year period, except
for the independent members of the Board, whose UARs vest immediately. The Board
of Directors has the option of settling payouts under the plan in PrimeWest
trust units or in cash. To date, all payouts under the plan have been in the
form of trust units.
UARS ISSUED AND CURRENT RETURN TOTAL
AS AT MARCH 31, 2001 OUTSTANDING UARS VESTED PER UAR LIABILITY
- ------------------------------------------------------- ------------------- ------------------- ------------------
1996 grants 526,875 526,875 6.77 $ 3,565
1997 grants 377,806 377,806 5.90 2,227
1998 grants 623,455 407,616 8.07 3,289
1999 grants 756,384 280,988 5.94 1,670
2000 grants 1,087,827 137,957 2.64 364
2001 grants 481,055 - - -
- ------------------------------------------------------- ------------------- ------------------- ------------------
3,853,402 1,731,242 6.42 $ 11,116
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Cumulative to March 31, 2001, 1,276,741 UARs have been exercised resulting in
the issuance of 575,191 trust units from treasury.
PRIME WEST ENERGY TRUST 14 1ST QUARTERLY REPORT
TRADING PERFORMANCE
FOR THE QUARTER ENDED MAR. 31/01 DEC. 31/00 SEPT. 30/00 JUN. 30/00 MAR. 31/00
- -------------------------------------------------------------- ---------------- ---------------- ---------------- ----------------
TRUST UNIT PRICES (DOLLARS PER TRUST UNIT)
High 9.90 9.30 8.50 8.10 7.40
Low 8.72 8.45 8.35 6.30 6.30
Close 9.00 8.95 8.40 8.05 6.40
Volume traded (MILLIONS OF UNITS) 21.64 7.73 9.58 7.96 4.64
Number of trust units outstanding 100.6 51.0 50.6 38.8 35.9
(MILLIONS OF UNITS)
Including exchangeable shares 108.5 52.2 52.0 40.2 35.9
(ISSUED IN RESPECT OF VENATOR AND
CYPRESS ACQUISITIONS)
Distribution paid per trust unit $0.60 $0.60 $0.48 $0.39 $0.30
---------------- ---------------- ---------------- ---------------- ----------------
FORWARD-LOOKING STATEMENTS - This news release contains forward-looking
statements with respect to PrimeWest. Some of these statements include words to
indicate that management `intends', `expects', or `believes' that an outcome
will occur. Because forward-looking statements address future events and
conditions, they involve risks and uncertainties that could cause actual results
to differ materially from those contemplated by the forward-looking statements.
These risks and uncertainties include commodity price levels and crude oil
quality differentials, production levels, new information about the
recoverability of reserves, and operating and other costs. They also include
other risks detailed from time to time in the publicly filed disclosure
documents and securities commissions reports of PrimeWest.
FOR FURTHER INFORMATION PLEASE CONTACT
INVESTOR RELATIONS AND COMMUNICATIONS
TOLL-FREE AT 1-877-968-7878
1600, 530 - 8 AVENUE SW CALGARY, ALBERT T2P 3S8 PHONE 403-234-6600
TOLL-FREE 1-877-968-7878