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PROSPECTUS SUPPLEMENT FILED PURSUANT TO GENERAL INSTRUCTION II.L.
(TO PROSPECTUS DATED MAY 12, 2006) OF FORM F-10; FILE NO. 333-133818.
NEW ISSUE
[GRAPHIC OMITTED]
P R I M E W E S T
ENERGY TRUST
UP TO 3,000,000 TRUST UNITS
PrimeWest Energy Trust (the "TRUST") is hereby qualifying for
distribution (the "OFFERING") up to 3,000,000 trust units of the Trust ("TRUST
UNITS").
The Trust and PrimeWest Energy Inc. ("PRIMEWEST") have entered into a
sales agreement dated July 28, 2006 (the "SALES AGREEMENT") with Cantor
Fitzgerald & Co. ("CF&CO") relating to the Trust Units offered by this
Prospectus Supplement and the accompanying Prospectus. In accordance with the
terms of the Sales Agreement, and except as noted below, the Trust may offer
and sell up to 3,000,000 Trust Units, from time to time through CF&Co, as the
Trust's agent for the offer and sale of the Trust Units. See "Plan of
Distribution".
INVESTING IN THE TRUST UNITS INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 7 OF THE ACCOMPANYING PROSPECTUS.
NEITHER THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE
"SEC") NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE
TRUST UNITS OR DETERMINED IF THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS ARE TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENCE.
THE TRUST IS PERMITTED, UNDER A MULTIJURISDICTIONAL DISCLOSURE SYSTEM
ADOPTED BY THE UNITED STATES, TO PREPARE THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS IN ACCORDANCE WITH CANADIAN DISCLOSURE REQUIREMENTS.
PROSPECTIVE INVESTORS SHOULD BE AWARE THAT SUCH REQUIREMENTS ARE DIFFERENT FROM
THOSE OF THE UNITED STATES. THE TRUST'S FINANCIAL STATEMENTS INCORPORATED
HEREIN BY REFERENCE HAVE BEEN PREPARED IN ACCORDANCE WITH CANADIAN GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES ("CANADIAN GAAP") AND ARE SUBJECT TO CANADIAN
AUDITING AND AUDITOR INDEPENDENCE STANDARDS AND THUS MAY NOT BE COMPARABLE TO
FINANCIAL STATEMENTS OF UNITED STATES' COMPANIES OR TRUSTS.
PROSPECTIVE INVESTORS SHOULD BE AWARE THAT THE ACQUISITION OF ANY OF
THE TRUST UNITS MAY SUBJECT INVESTORS TO TAX CONSEQUENCES BOTH IN THE UNITED
STATES AND CANADA. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
MAY NOT DESCRIBE THESE TAX CONSEQUENCES FULLY. PROSPECTIVE INVESTORS SHOULD
READ THE TAX DISCUSSION IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS FULLY. SEE "CERTAIN INCOME TAX CONSIDERATIONS".
YOUR ABILITY TO ENFORCE CIVIL LIABILITIES UNDER THE UNITED STATES
FEDERAL SECURITIES LAWS MAY BE AFFECTED ADVERSELY BECAUSE THE TRUST IS
ORGANIZED UNDER THE LAWS OF THE PROVINCE OF ALBERTA, CANADA, A MAJORITY OF
PRIMEWEST'S OFFICERS AND DIRECTORS AND CERTAIN OF THE EXPERTS NAMED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS ARE RESIDENTS OF CANADA,
AND ALL OF THE TRUST'S ASSETS AND ALL OR A SIGNIFICANT PORTION OF THE ASSETS OF
SUCH PERSONS ARE LOCATED OUTSIDE THE UNITED STATES.
Cantor Fitzgerald & Co.
The date of this Prospectus Supplement is July 28, 2006.
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The outstanding Trust Units are listed on the Toronto Stock Exchange
(the "TSX") under the symbol "PWI.UN" and the New York Stock Exchange ("NYSE")
under the symbol "PWI". On July 27, 2006, the closing price of the Trust Units
on the TSX was Cdn.$34.45 per Trust Unit and the closing price of the Trust
Units on the NYSE was U.S.$30.36 per Trust Unit. The TSX has conditionally
approved the listing of the Trust Units offered by this Prospectus Supplement.
Listing is subject to the Trust fulfilling all of the requirements of the TSX
on or before June 12, 2008. The NYSE has authorized, upon official notice of
issuance, the listing of the Trust Units offered hereunder.
Sales of Trust Units, if any, under this Prospectus Supplement and the
accompanying Prospectus may be made in negotiated transactions or transactions
that are deemed to be "at the market offerings" as defined in Rule 415 under
the Securities Act of 1933 (the "SECURITIES ACT") and "at the market
distributions" as defined in National Instrument 44-102 - SHORT FORM PROSPECTUS
DISTRIBUTIONS ("NI 44-102") ("at the market offerings" and "at the market
distributions" being herein referred to as "AT THE MARKET DISTRIBUTIONS"),
including sales made directly on the NYSE, any other existing trading market
for the Trust Units or sales made to or through a market maker other than on an
exchange. As a result, prices may vary as between purchasers and during the
period of distribution. To the extent that the Trust sells Trust Units in other
transactions that are deemed to be "at the market distributions" pursuant to
one or more sales agreements with other agents, the number of Trust Units
available for sale under this Prospectus Supplement will be reduced by the
number of Trust Units sold by the other agents.
CF&Co will be entitled to compensation equal to two and one-half
percent (2.5%) of the gross sales price per Trust Unit for any Trust Units sold
under the Sales Agreement (the "COMMISSION"). In connection with the sale of
the Trust Units on the Trust's behalf, CF&Co may be deemed to be an
"underwriter" within the meaning of the Securities Act, and the compensation of
CF&Co may be deemed to be underwriting commissions or discounts. We have agreed
to provide indemnification and contribution to CF&Co against certain
liabilities, including liabilities under the Securities Act.
No underwriter or dealer involved in an "at the market distribution",
no affiliate of such an underwriter or dealer and no person acting jointly or
in concert with such an underwriter or dealer has over-allotted, or will
over-allot, Trust Units in connection with the distribution or effect any other
transactions that are intended to stabilize or maintain the market price of the
Trust Units.
In connection with any distribution of the Trust Units, other than an
"at the market distribution", the underwriters, if any, may allot or effect
transactions which stabilize or maintain the market price of the Trust Units
offered at a level above that which might otherwise prevail in the open market.
Such transactions, if commenced, may be discontinued at any time.
IMPORTANT NOTICE ABOUT INFORMATION IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
This document is in two parts. The first part is this Prospectus
Supplement, which describes the specific terms of the Trust Units the Trust is
offering and also adds to and updates certain information contained in the
accompanying prospectus and the documents incorporated by reference. The second
part, the accompanying prospectus dated May 12, 2006, gives more general
information. The accompanying prospectus is referred to as the "Prospectus" in
this Prospectus Supplement.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. THE TRUST HAS
NOT, AND CF&CO HAS NOT, AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH
DIFFERENT INFORMATION. IF ANYONE PROVIDES YOU WITH DIFFERENT OR INCONSISTENT
INFORMATION, YOU SHOULD NOT RELY ON IT. THE TRUST IS NOT, AND CF&CO IS NOT,
MAKING AN OFFER TO SELL THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR
SALE IS NOT PERMITTED. YOU SHOULD ASSUME THAT THE INFORMATION APPEARING IN THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS, AS WELL AS INFORMATION THE TRUST
PREVIOUSLY FILED WITH THE SEC AND WITH THE SECURITIES REGULATORY AUTHORITY IN
EACH OF THE PROVINCES AND TERRITORIES OF CANADA THAT IS INCORPORATED BY
REFERENCE, IS ACCURATE AS OF THEIR RESPECTIVE DATES ONLY. THE TRUST'S BUSINESS,
FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS AND THAT OF PRIMEWEST
MAY HAVE CHANGED SINCE THOSE DATES.
(ii)
TABLE OF CONTENTS
NOTE REGARDING FORWARD-LOOKING STATEMENTS...............S-1 CONSOLIDATED CAPITALIZATION OF THE TRUST................S-7
EXCHANGE RATE...........................................S-3 PLAN OF DISTRIBUTION....................................S-8
ADDITIONAL INFORMATION..................................S-4 CERTAIN INCOME TAX CONSIDERATIONS.......................S-9
DOCUMENTS INCORPORATED BY REFERENCE.....................S-5 LEGAL MATTERS..........................................S-18
RISK FACTORS............................................S-6 INTERESTS OF EXPERTS...................................S-18
RECENT DEVELOPMENTS.....................................S-6 AUDITORS, TRANSFER AGENT AND REGISTRAR.................S-18
USE OF PROCEEDS.........................................S-7 AUDITORS' CONSENT......................................S-20
TABLE OF CONTENTS FOR BASE SHELF PROSPECTUS
NOTE REGARDING FORWARD-LOOKING STATEMENTS.................1 DESCRIPTION OF TRUST UNITS...............................16
PRESENTATION OF OUR FINANCIAL, RESERVE AND DESCRIPTION OF THE ROYALTY...............................17
OTHER INFORMATION......................................3 PLAN OF DISTRIBUTION.....................................18
NON-GAAP MEASURES.........................................4 CASH DISTRIBUTIONS ON TRUST UNITS........................19
EXCHANGE RATE.............................................4 CERTAIN INCOME TAX CONSIDERATIONS........................19
ADDITIONAL INFORMATION....................................5 LEGAL MATTERS............................................20
ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES...............5 INTERESTS OF EXPERTS.....................................20
DOCUMENTS INCORPORATED BY REFERENCE.......................5 AUDITORS, TRANSFER AGENT AND REGISTRAR...................20
RISK FACTORS..............................................7 DOCUMENTS FILED AS PART OF THE REGISTRATION
PRIMEWEST ENERGY TRUST...................................15 STATEMENT.............................................20
USE OF PROCEEDS..........................................16 AUDITORS' CONSENT........................................21
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus Supplement and the documents incorporated by reference
herein contain forward-looking statements with respect to the Trust, including
forward-looking statements within the meaning of the United States Private
Securities Litigation Reform Act of 1995.
The use of any of the words "anticipate", "continue", "estimate",
"expect", "forecast", "may", "will", "project", "should", "believe", "outlook"
and similar expressions are intended to identify forward-looking statements. In
addition, statements relating to "reserves" or "resources" are deemed to be
forward-looking statements, as they involve implied assessment, based on
certain estimates and assumptions, that the resources and reserves described
can be profitably produced in the future. These statements involve known and
unknown risks, uncertainties and other factors that may cause actual results or
events to differ materially from those anticipated in the forward-looking
statements.
The Trust and PrimeWest believe the expectations reflected in those
forward-looking statements are reasonable. However, neither the Trust nor
PrimeWest can assure you that these expectations will prove to be correct. You
should not unduly rely on forward-looking statements included in, or
incorporated by reference into, this Prospectus Supplement. These statements
speak only as of the date of this Prospectus Supplement or as of the date
specified in the documents incorporated by reference into this Prospectus
Supplement, as the case may be.
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In particular, this Prospectus Supplement, and the documents
incorporated by reference, contain forward-looking statements pertaining to the
following:
o The quantity and recoverability of the Trust's reserves;
o The timing and amount of future production, including full year average
daily production for 2006 of 39,000 to 40,000 barrels of oil
equivalent;
o Prices for oil, natural gas and natural gas liquids produced;
o Operating and other costs;
o Business strategies and plans of management;
o Supply and demand for oil and natural gas;
o Expectations regarding the Trust's ability to raise capital and to add
to the Trust's reserves through acquisitions and exploration and
development;
o The Trust's treatment under governmental regulatory regimes;
o The amount of our capital expenditures, including our forecast total
capital expenditures for 2006 of $300 million, and the focus of capital
expenditures on development activity rather than exploration;
o The sale, farming in, farming out or development of certain exploration
properties using third-party resources;
o The objective to achieve a predictable level of monthly cash
distributions;
o The intention of maintaining a payout ratio of distributions to cash
flow from operations within any range;
o The use of development activity and acquisitions to replace and add to
reserves;
o The impact of changes in oil and natural gas prices on cash flow after
hedging;
o Drilling plans;
o The existence, operations and strategy of the commodity price risk
management program;
o The approximate and maximum amount of forward sales and hedging to be
employed;
o The Trust's acquisition strategy, the criteria to be considered in
connection therewith and the benefits to be derived therefrom;
o The impact of the Canadian federal and provincial governmental
regulations on the Trust relative to other oil and natural gas issuers
of similar size;
o The goal to sustain or grow production and reserves through prudent
management and acquisitions;
o The emergence of accretive growth opportunities; and
o The Trust's ability to benefit from the combination of growth
opportunities and the ability to grow through the capital markets.
With respect to forward-looking statements contained in this Prospectus
Supplement, including the documents incorporated herein by reference, the Trust
and PrimeWest have made assumptions regarding, among other things:
o Future oil and natural gas prices and differentials between light,
medium and heavy oil prices;
o The cost of expanding the Trust's property holdings;
o The Trust's ability to obtain equipment in a timely manner to carry out
development activities;
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o The Trust's ability to market the Trust's oil and natural gas
successfully to current and new customers;
o The impact of increasing competition;
o The Trust's ability to obtain financing on acceptable terms; and
o The Trust's ability to add production and reserves through the Trust's
development and exploitation activities.
The Trust's actual results could differ materially from those
anticipated in these forward-looking statements as a result of the risk factors
set forth below and elsewhere in this Prospectus Supplement and the Prospectus
and the documents incorporated by reference in this Prospectus Supplement and
the Prospectus:
o Volatility in market prices for oil and natural gas;
o The impact of weather conditions on seasonal demand;
o Risks inherent in the Trust's oil and natural gas operations;
o Uncertainties associated with estimating reserves;
o Competition for, among other things: capital, acquisitions of reserves,
undeveloped lands and skilled personnel;
o Incorrect assessments of the value of acquisitions;
o Geological, technical, drilling and processing problems;
o General economic conditions in Canada, the United States and globally;
o Industry conditions, including fluctuations in the price of oil and
natural gas;
o Royalties payable in respect of the Trust's oil and natural gas
production;
o Government regulation of the oil and natural gas industry, including
environmental regulation;
o Fluctuation in foreign exchange or interest rates;
o Unanticipated operating events that could reduce production or cause
production to be shut-in or delayed;
o Failure to obtain industry partner and other third-party consents and
approvals, when required;
o Stock market volatility and market valuations;
o OPEC's ability to control production and balance global supply and
demand of crude oil at desired price levels;
o Political uncertainty, including the risks of hostilities in the
petroleum-producing regions of the world;
o The need to obtain required approvals from regulatory authorities; and
o The other factors discussed under "Risk Factors" contained in the
Prospectus.
These factors should not be construed as exhaustive. The
forward-looking statements contained in this Prospectus Supplement and the
Prospectus and the documents incorporated by reference herein are expressly
qualified by this cautionary statement. The Trust and PrimeWest undertake no
obligation to publicly update or revise any forward-looking statements.
EXCHANGE RATE
The following table sets out certain exchange rates based upon the noon
buying rate in New York City for cable transfers in Canadian dollars as
certified for customs purposes by the Federal Reserve Bank of New York.
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The rates are set out as United States dollars per Cdn.$1.00 and are the
inverse of the rates quoted by the Federal Reserve Bank of New York for
Canadian dollars per U.S.$1.00.
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Year Ended December 31, Three Months Ended March 31,
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2003 2004 2005 2005 2006
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Low 0.6349 0.7158 0.7872 0.7961 0.8528
High 0.7738 0.8493 0.8690 0.8346 0.8834
Average(1) 0.7205 0.7719 0.8282 0.8155 0.8660
Note:
(1) Average represents the average of the rates on the last day of each
month.
On July 27, 2006, the inverse of the noon buying rate quoted by the
Federal Reserve Bank of New York for Canadian dollars was Cdn.$1.00 per
U.S.$0.8814.
ADDITIONAL INFORMATION
The Trust has filed with the SEC a registration statement on Form F-10
of which this Prospectus Supplement and the Prospectus forms a part. This
Prospectus Supplement does not contain all the information set out in the
registration statement. For further information about the Trust and the Trust
Units, please refer to the registration statement. The Trust is subject to the
information requirements of the United States SECURITIES EXCHANGE ACT OF 1934,
as amended (the "EXCHANGE ACT") and applicable Canadian securities legislation,
and in accordance therewith, the Trust files and furnishes reports and other
information with the SEC and with the securities regulatory authorities of the
provinces of Canada. Under a multi-jurisdictional disclosure system adopted by
the United States and Canada, the Trust generally may prepare these reports and
other information in accordance with the disclosure requirements of Canada.
These requirements are different from those of the United States. As a foreign
private issuer, the Trust is exempt from the rules under the Exchange Act
prescribing the furnishing and content of proxy statements, and PrimeWest's
officers and directors, and those Unitholders holding 10% or more of the Trust
Units, are exempt from the reporting and short-swing profit recovery provisions
contained in Section 16 of the Exchange Act.
The reports and other information filed by the Trust with the SEC may
be read and copied at the SEC's public reference room at 100 F Street, N.E.,
Washington, D.C. 20549. Copies of the same documents can also be obtained from
the public reference room of the SEC in Washington by paying a fee. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference room.
The SEC also maintains a web site (www.sec.gov) that makes available reports
and other information that the Trust files electronically with it, including
the registration statement that the Trust has filed with respect to this
offering.
Copies of reports, statements and other information that the Trust
files with the Canadian provincial securities regulatory authorities are
electronically available from the Canadian System for Electronic Document
Analysis and Retrieval (www.sedar.com), which is commonly known by the acronym
"SEDAR". Reports and other information about the Trust are also available for
inspection at the offices of the TSX.
Words importing the singular number only include the plural, and VICE
VERSA, and words importing any gender include all genders.
All dollar amounts set forth in this Prospectus Supplement are in
Canadian dollars, except where otherwise indicated.
All financial information for the Trust is determined using Canadian
GAAP. "U.S. GAAP" means generally accepted accounting principles that are in
effect from time to time in the United States. For a discussion
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of the principal differences between the Trust's financial results as
calculated under Canadian GAAP and under U.S. GAAP, you should refer to Note 20
of the Trust's audited financial statements for the year ended December 31,
2005 incorporated by reference in the Prospectus and included in the Trust's
annual report on Form 40-F for the year ended December 31, 2005.
DOCUMENTS INCORPORATED BY REFERENCE
This Prospectus Supplement is deemed, as of the date hereof, to be
incorporated by reference into the Prospectus only for the purposes of the
Trust Units offered hereby. Other documents are also incorporated or deemed to
be incorporated by reference into the Prospectus and reference should be made
to the Prospectus for full details. The material change report of the Trust
dated July 14, 2006 relating to the indirect acquisition by the Trust of
producing oil and gas assets located in Montana, North Dakota and Wyoming for
approximately U.S.$300 million, which is not specifically listed in the
Prospectus, and which is filed with the various provincial securities
commissions or similar authorities in Canada, is specifically incorporated into
and forms an integral part of this Prospectus Supplement.
Any of the following documents, if filed by the Trust with the
provincial securities commissions or similar authorities in Canada after the
date of this Prospectus Supplement and before the completion or withdrawal of
any offering hereunder, are deemed to be incorporated by reference in this
Prospectus Supplement:
(a) material change reports (except confidential material change reports);
(b) business acquisition reports;
(c) comparative interim financial statements;
(d) comparative financial statements for the Trust's most recently
completed financial year, together with the accompanying report of the
auditor; and
(e) information circulars.
ANY STATEMENT CONTAINED IN THE PROSPECTUS, THIS PROSPECTUS SUPPLEMENT
OR IN A DOCUMENT INCORPORATED OR DEEMED TO BE INCORPORATED BY REFERENCE IN THE
PROSPECTUS FOR THE PURPOSES OF THE OFFERING SHALL BE DEEMED TO BE MODIFIED OR
SUPERSEDED, FOR THE PURPOSES OF THE PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT,
TO THE EXTENT THAT A STATEMENT CONTAINED HEREIN OR IN ANY OTHER SUBSEQUENTLY
FILED DOCUMENT WHICH ALSO IS OR IS DEEMED TO BE INCORPORATED BY REFERENCE
HEREIN MODIFIES OR SUPERSEDES SUCH STATEMENT. THE MODIFYING OR SUPERSEDING
STATEMENT NEED NOT STATE THAT IT HAS MODIFIED OR SUPERSEDED A PRIOR STATEMENT
OR INCLUDE ANY OTHER INFORMATION SET FORTH IN THE DOCUMENT THAT IT MODIFIES OR
SUPERSEDES. THE MAKING OF A MODIFYING OR SUPERSEDING STATEMENT SHALL NOT BE
DEEMED AN ADMISSION FOR ANY PURPOSES THAT THE MODIFIED OR SUPERSEDED STATEMENT,
WHEN MADE, CONSTITUTED A MISREPRESENTATION, AN UNTRUE STATEMENT OF A MATERIAL
FACT OR AN OMISSION TO STATE A MATERIAL FACT THAT IS REQUIRED TO BE STATED OR
THAT IS NECESSARY TO MAKE A STATEMENT NOT MISLEADING IN LIGHT OF THE
CIRCUMSTANCES IN WHICH IT WAS MADE. ANY STATEMENT SO MODIFIED OR SUPERSEDED
SHALL NOT CONSTITUTE A PART OF THE PROSPECTUS OR THIS PROSPECTUS SUPPLEMENT,
EXCEPT AS SO MODIFIED OR SUPERSEDED.
To the extent that any document or information incorporated by
reference into the Prospectus or this Prospectus Supplement is included in a
report that is filed with or furnished to the SEC on Form 40-F, 20-F, 10-K,
10-Q, 8-K or 6-K (or any respective successor form), such document or
information shall also be deemed to be incorporated by reference as an exhibit
to the registration statement on Form F-10 of which this Prospectus Supplement
forms a part. In addition, if and to the extent indicated therein, we may
incorporate by reference into
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the Prospectus and this Prospectus Supplement from documents that we file with
or furnish to the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act.
The Trust maintains an Internet web site on the World Wide Web at
www.primewestenergy.com. Information on the Trust's web site is not, and should
not be deemed to be, part of this Prospectus Supplement or the Prospectus and
is not being incorporated by reference herein.
You may obtain any of the information identified above, and any items
incorporated by reference into this Prospectus Supplement or the Prospectus, by
writing or calling the Trust at the following address and telephone number:
PrimeWest Energy Trust
5100, 150 - 6th Avenue S.W.
Calgary, Alberta, Canada, T2P 3Y7
Attention: Corporate Secretary
RISK FACTORS
An investment in the Trust Units is subject to a number of risks. In
addition to the other information contained in this Prospectus Supplement and
the accompanying Prospectus, prospective purchasers of the Trust Units should
consider carefully the risk factors set forth under the heading "Risk Factors"
beginning on page 7 of the accompanying Prospectus.
RECENT DEVELOPMENTS
On June 24, 2006 PrimeWest announced that it had entered into an
agreement to acquire, indirectly through a wholly-owned U.S. subsidiary,
producing oil and gas assets located in Montana, North Dakota and Wyoming for
total consideration of approximately U.S.$300 million (Cdn.$330 million using a
Canadian to U.S. dollar exchange rate of 0.90) (the "ACQUISITION"). The
Acquisition closed on July 6, 2006. To finance the Acquisition, PrimeWest
utilized its existing credit lines plus a supplementary bridge credit facility
of Cdn.$250 million. See "Consolidated Capitalization of the Trust".
This Acquisition establishes a new operating area for PrimeWest within
the Williston Basin, with significant secondary and tertiary development
potential. Current production is approximately 3,200 barrels of oil equivalent
("BOE") per day. Approximately 94% of this production is crude oil, of which
80% is light crude oil produced primarily from the Mississippian and Devonian
formations. Prior to the Acquisition, PrimeWest's production was weighting at
73% to natural gas and 27% to crude oil and other liquids. The Acquisition
changed the weighting to 68% natural gas and 32% crude oil and other liquids.
The properties are long-life assets with a reserve life index on a
proved plus probable basis of 24.8 years and are therefore accretive to
PrimeWest's total proved plus probable reserve life index, raising it from 11.2
years at the end of 2005, to 12.3 years. There are a number of infill drilling
and waterflood optimization opportunities on these properties that comprise
approximately 47,000 net acres of land. PrimeWest is the operator of the
majority of the acquired properties and holds an average working interest of
over 95%. Further highlights of the Acquisition are as follows:
o PrimeWest acquired approximately 3,200 BOE per day of production, of
which 94% is crude oil and 6% is natural gas, representing an
incremental 1,500 BOE per day on an annualized basis in 2006.
Approximately 80% of the oil production is conventional light crude
with an average 38-degree API and
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the remaining 20% has an average 20-degree API. PrimeWest now estimates
that its full year total production for 2006 will be 39,000 to 40,000
BOE per day;
o approximately 20.4 million BOE of proved reserves and 28.9 million BOE
of proved plus probable reserves were acquired based upon an
independent engineering assessment completed by GLJ Petroleum
Consultants Ltd. ("GLJ") under National Instrument 51-101 - STANDARDS
OF DISCLOSURE FOR OIL AND GAS ACTIVITIES. Approximately two thirds of
the reserves fall into the proved category and will require up to
U.S.$100 million of additional future capital to fully develop;
o the major fields included in the Acquisition are Flat Lake, Dwyer and
Goose Lake in Montana; Rival, Grenora, Alexander, Wiley, Glenburn and
Sherwood in North Dakota; and Rocky Point in Wyoming. The most prolific
field is Flat Lake, which is geologically similar to the producing
fields found immediately north of the Canada/U.S. border in the
Province of Saskatchewan;
o operating costs for the acquired assets for the balance of 2006 are
estimated to be approximately Cdn.$11.50 per BOE;
o PrimeWest expects to invest approximately Cdn.$23 million of capital
for the remainder of 2006. A number of drilling opportunities have
already been identified, most of which are infill horizontal wells.
Current well spacing on these properties ranges from 80 to 160 acres,
making them relatively undeveloped when compared to similar pools in
Saskatchewan. PrimeWest's total capital expenditures for 2006 are now
forecast to be approximately Cdn.$300 million; and
o additional upside opportunities in the form of higher density infill
drilling, waterflood optimization, and possible future enhanced oil
recovery projects have been delineated, based on preliminary mapping by
PrimeWest and a separate study conducted by an independent third party
consultant. This upside would be in addition to the proved plus
probable reserves identified by GLJ.
USE OF PROCEEDS
The net proceeds from the Offering are not determinable in light of the
nature of the distribution. The net proceeds of any given distribution of Trust
Units through CF&Co in an "at the market distribution" will represent the gross
proceeds after deducting the Commission of two and one-half percent (2.5%) and
the estimated expenses of the distribution. The net proceeds will be added to
the general funds of the Trust and will be used for general business purposes,
including to repay a portion of the indebtedness under PrimeWest's bank credit
facility and/or bridge credit facility. See "Consolidated Capitalization of the
Trust".
CONSOLIDATED CAPITALIZATION OF THE TRUST
There have been no material changes in the in the unit or debt
capitalization of the Trust since March 31, 2006, other than:
(a) the lenders under the bank credit facility confirmed the
borrowing base of PrimeWest at $650,000,000 and extended the
revolving portion of the credit facility to June 2007;
(b) PrimeWest completed a private placement of (pound)63,000,000 of
senior secured notes due June 14, 2016 (the "U.K. NOTES"),
bearing interest at an effective rate of 5.93% per annum. The
net proceeds of this placement were used to repay a portion of
the indebtedness under PrimeWest's bank credit facility. The
amount of credit available under PrimeWest's revolving term
loan portion of the bank credit facility was correspondingly
reduced to $340,500,000, of which $123,000,000 (including
letters of credit in the amount of $6,712,000) was drawn as at
June 30, 2006. The holder of the UK Notes share on a PARI PASSU
basis the security interests previously provided to a
collateral agent for the benefit of the lenders under the bank
credit facility and the holders of the U.S. $125,000,000 senior
secured notes. The U.K. Notes are a legal obligation of
PrimeWest and are guaranteed by the Trust; and
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(c) PrimeWest has refinanced its bank credit facilities, including
the credit facility made available to a U.S. subsidiary of
PrimeWest in connection with the completion of the Acquisition.
PrimeWest, the Trust and the U.S. subsidiary now have bank
credit facilities available to them in the aggregate amount of
$625,500,000, which include a bridge facility in the amount of
$150,000,000. The bridge facility matures on April 26, 2007.
All amounts outstanding under the bank credit facilities are
secured by a charge over all of the assets of PrimeWest, the
Trust and its subsidiaries. The bank credit facilities, other
than the bridge facility (collectively, the "REVOLVING
FACILITIES"), revolve until June 30, 2007, at which time the
lenders may extend the revolving period for a further 364 days
or convert the Revolving Facilities to a term facility. If the
lenders convert the Revolving Facilities to a term facility,
60% of the aggregate principal amount of the Revolving
Facilities shall be repayable on the date that is one year
after the date of conversion, and the remaining 40% of that
aggregate principal amount shall be repayable on the date that
is two years after the date of conversion. The next review of
the borrowing base is to take place on November 30, 2006,
unless PrimeWest has repaid the bridge facility by that time,
in which case the next review of the borrowing base is to take
place on May 31, 2007 and annually thereafter.
PLAN OF DISTRIBUTION
Subject to the terms and conditions of the Sales Agreement and upon
written instructions from the Trust, CF&Co will use its commercially reasonable
efforts consistent with its sales and trading practices, to solicit offers to
purchase the Trust Units. CF&Co's solicitation will continue until the Trust
instructs CF&Co to suspend the solicitations and offers. The Trust will
instruct CF&Co as to the amount of Trust Units to be sold by CF&Co. The Trust
or CF&Co may suspend the offering of Trust Units upon proper notice and subject
to other conditions.
CF&Co will provide written confirmation to the Trust no later than the
opening of the trading day on the NYSE following the trading day in which Trust
Units are sold under the Sales Agreement. Each confirmation will include the
number of Trust Units sold on the preceding day, the prices at which such Trust
Units were sold, the gross proceeds to the Trust, the aggregate Commission
payable by the Trust to CF&Co in connection with the sales and the net proceeds
payable to the Trust.
The Trust will pay CF&Co a Commission for its services in acting as
agent in the sale of Trust Units. CF&Co will be entitled to compensation equal
to two and one-half percent (2.5%) of the gross sales price per Trust Unit of
any Trust Units sold under the Sales Agreement. The Trust estimates that the
total expenses that it will incur for the Offering, excluding compensation
payable to CF&Co under the terms of the Sales Agreement, will be approximately
$100,000.
Settlement for sales of Trust Units will occur on the third business
day following the date on which any sales are made, or on such other date as is
industry practice for regular-way trading, in return for payment of the net
proceeds to the Trust. There is no arrangement for funds to be received in an
escrow, trust or similar arrangement.
In connection with the sale of the Trust Units on the Trust's behalf,
CF&Co may, and will with respect to sales effected in an "at the market
distribution", be deemed to be an "underwriter" within the meaning of the
Securities Act, and the compensation of CF&Co may be deemed to be underwriting
commissions or discounts. The Trust has agreed to provide indemnification and
contribution to CF&Co against certain civil liabilities, including liabilities
under the Securities Act.
The offering of Trust Units pursuant to the Sales Agreement will
terminate upon the earlier of (1) the sale of all Trust Units subject to the
agreement by CF&Co or (2) termination of the Sales Agreement. The Sales
Agreement may be terminated by the Trust in its sole discretion at any time
following a period of three months from the date of the Sales Agreement by
giving notice to CF&Co. CF&Co may terminate the Sales Agreement
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under the circumstances specified in the Sales Agreement and in its sole
discretion at any time following a period of three months from the date of the
Sales Agreement by giving notice to the Trust and PrimeWest.
No underwriter or dealer involved in an "at the market distribution",
no affiliate of such an underwriter or dealer and no person acting jointly or
in concert with such an underwriter or dealer has over-allotted, or will
over-allot, Trust Units in connection with the distribution or effect any other
transactions that are intended to stabilize or maintain the market price of the
Trust Units.
The TSX has conditionally approved the listing of the Trust Units
offered by this Prospectus Supplement. Listing is subject to the Trust
fulfilling all of the requirements of the TSX on or before June 12, 2008. The
NYSE has authorized, upon official notice of issuance, the listing of the Trust
Units offered hereunder.
CERTAIN INCOME TAX CONSIDERATIONS
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Stikeman Elliott LLP ("COUNSEL"), the following
summary fairly describes the principal Canadian federal income tax
considerations pursuant to the Tax Act and the regulations thereunder (the
"REGULATIONS") generally applicable to a subscriber who acquires Trust Units
pursuant to the Offering and who, for purposes of the Tax Act, holds the Trust
Units offered hereby as capital property and deals at arm's length, and is not
affiliated, with the Trust. Generally, the Trust Units will be considered to be
capital property to a holder provided the holder does not hold the Trust Units
in the course of carrying on a business of trading or dealing in securities and
has not acquired them in one or more transactions considered to be an adventure
in the nature of trade. Certain Canadian resident holders who might not
otherwise be considered to hold their Trust Units as capital property may, in
certain circumstances, be entitled to have them treated as capital property by
making the irrevocable election permitted by subsection 39(4) of the Tax Act. A
holder who is considering making such election should first consult his or her
own tax advisor. This summary is not applicable to: (i) a holder that is a
"financial institution", as defined in the Tax Act for purposes of the
mark-to-market rules; or (ii) a holder an interest in which would be a "tax
shelter investment" as defined in the Tax Act. Any such holder should consult
its own tax advisor with respect to an investment in the Trust Units.
This summary is based upon the provisions of the Tax Act and the
Regulations in force as of the date hereof, all specific proposals to amend the
Tax Act and the Regulations that have been publicly announced by or on behalf
of the federal Minister of Finance prior to the date hereof (the "PROPOSED
AMENDMENTS"), and Counsel's understanding of the current published
administrative practices of the Canada Revenue Agency ("CRA"). Except for the
Proposed Amendments, this summary does not take into account or anticipate
changes in the income tax law, whether by legislative, governmental or judicial
action, nor any changes in the administrative practices of the CRA. This
summary is not exhaustive of all Canadian federal income tax considerations nor
does it take into account any provincial, territorial or foreign tax
considerations arising from the acquisition, ownership or disposition of the
Trust Units. Except as otherwise indicated, this summary is based on the
assumption that all transactions described herein occur at fair market value.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, NOR
SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PROSPECTIVE HOLDER OF
TRUST UNITS, AND NO REPRESENTATIONS WITH RESPECT TO THE INCOME TAX CONSEQUENCES
TO ANY PROSPECTIVE HOLDER ARE MADE. CONSEQUENTLY, PROSPECTIVE HOLDERS SHOULD
CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THEIR PARTICULAR CIRCUMSTANCES.
Status of the Trust
Based on representations of PrimeWest, the Trust presently qualifies as
a "mutual fund trust" as defined in the Tax Act, and this summary assumes that
the Trust will so qualify on the date of the closing of this offering
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and continuously thereafter for the duration of its existence. In the event
that the Trust were not to qualify as a mutual fund trust, the income tax
considerations would in some respects be materially different from those
described below.
Taxation of the Trust
The Trust is subject to taxation in each taxation year on its income
for the year, including net realized taxable capital gains, less the portion
thereof that it claims in respect of amounts paid or payable to Unitholders in
the year. The taxation year of the Trust is the calendar year.
The Trust is required to include in its income for each taxation year
all amounts in respect of the Royalty, including any amounts subject to set-off
in respect of any Crown charges reimbursed by it to PrimeWest in that year. The
Trust is also required to include in its income for each taxation year all
interest that accrues to it to the end of the year, or becomes receivable or is
received by it before the end of the year, except to the extent that such
interest was included in computing its income for a preceding taxation year.
Provided that appropriate designations are made by the Trust, all dividends
from taxable Canadian corporations which would otherwise be included in its
income as dividends received on shares owned by the Trust, including the shares
of PrimeWest, will be deemed to have been received by Unitholders and not to
have been received by the Trust.
In computing its income the Trust may deduct reasonable administrative,
interest and other expenses incurred to earn income and may amortize over a
five year period the underwriting fees and other expenses of this offering and
any previous offering. The Trust may also deduct, in computing its income for a
year, an amount not exceeding 10% of any positive balance of its cumulative
Canadian oil and gas property expense ("COGPE") account at the end of that
year. The cost of acquiring the Royalty was added to the Trust's cumulative
COGPE account, and, assuming the Royalty qualifies as a "Canadian resource
property" within the meaning of the Tax Act, any amount that the Trust has been
or will be required, pursuant to the terms of the Royalty, to pay in a year in
respect of additional Canadian resource properties acquired by PrimeWest has
been or will be added to the cumulative COGPE account of the Trust. An amount
that becomes receivable by the Trust in a year as a result of a sale of a
property by PrimeWest and the release of the Royalty relating to that property,
will be required to be deducted in computing the Trust's cumulative COGPE
account. If the balance of the cumulative COGPE of the Trust at the end of a
particular taxation year after all additions and deductions for that year have
been made would otherwise be a negative amount, the negative amount will be
included in the Trust's income for the year.
In accordance with the Regulations, the Trust may deduct in computing
its income for a year a resource allowance equal to a specified percentage of
its "adjusted resource profits". Generally, the Trust's adjusted resource
profits are equal to its income from the Royalty less amounts deducted in
computing its income other than deductions in respect of its cumulative COGPE,
interest expense or any amount deducted in respect of distributions to
Unitholders. The resource allowance is being phased out over a five-year period
that commenced in 2003. In 2006, the amount that may be deducted in respect of
the Trust's resource allowance is 8.75% of the Trust's adjusted resource
profits. That percentage will be reduced to 0% in 2007.
Prior to 2003, the Trust could not deduct Crown charges reimbursed by
it to PrimeWest in respect of the Royalty. After 2002, Crown charges that were
previously not deductible are deductible. This deduction is being phased in
over the same five-year period over which the resource allowance is being
phased out. In 2006, 65% of Crown charges are deductible. That percentage will
increase to 100% in 2007.
Prior to full phase-out of the deduction for the resource allowance and
full phase-in of the deduction for Crown charges, the excess, if any, of
non-deductible reimbursed Crown charges over the resource allowance deductible
by the Trust in the year is deemed to be an amount that has become payable to
the Unitholders, to the extent designated by the Trust. Counsel understands
that the Trust has designated and will continue to designate the full amount of
any such excess annually in respect of the Unitholders.
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Where the Trust distributes property of the Trust to a Unitholder on a
redemption of Trust Units, the Trust will be deemed to receive proceeds of
disposition equal to the fair market value of such property at that time, and
such distribution may give rise to income or capital gains to the Trust. The
Trust will be entitled for each taxation year to reduce (or receive a refund in
respect of) its liability, if any, for tax on its net taxable capital gains by
an amount determined under the Tax Act based on the redemption or retraction of
Trust Units during the year (the "CAPITAL GAINS REFUND"). The Capital Gains
Refund in a particular year may not completely offset the Trust's tax liability
for such taxation year which may arise upon distributions of property in
connection with the redemption of Trust Units. The Declaration of Trust
accordingly provides that income of the Trust which is required to satisfy any
tax liability on the part of the Trust shall not be payable to Unitholders.
The Trust may deduct amounts which become payable by it to Unitholders
in the year, to the extent that the Trust has net income for the year after the
inclusions and deductions outlined above. An amount will be considered to have
become payable to a Unitholder in a taxation year only if it is paid in the
year by the Trust to the Unitholder or the Unitholder is entitled in that year
to enforce payment of the amount. The terms of the Declaration of Trust
generally provide that all income of the Trust for a taxation year net of the
Trust's expenses will be paid or made payable to Unitholders in the year.
Therefore, as a result of such deduction from income and the Trust's
entitlement to a Capital Gains Refund it is anticipated that the Trust
generally will not have any taxable income for the purposes of the Tax Act. In
order to utilize losses from prior taxation years, the Trust may claim as a
deduction an amount that is less than the amount of its income that is paid or
payable to Unitholders in the year if it designates such amount not to have
been paid or become payable to the Unitholders.
Taxation of Unitholders Resident in Canada
The following summary is applicable to Unitholders who are or are
deemed to be resident in Canada for purposes of the Tax Act.
A Unitholder will generally be required to include in computing income
for a particular taxation year the portion of the net income of the Trust that
is paid or becomes payable to the Unitholder in that particular taxation year,
whether or not the amount is actually paid to the Unitholder in that year or
reinvested in additional Trust Units. An amount will be considered to have
become payable to a Unitholder in a taxation year if the Unitholder is entitled
in the year to enforce payment of the amount. For the purposes of the Tax Act,
income of a Unitholder from the Trust Units will be considered to be income
from property and not resource income. Any deduction or loss of the Trust for
purposes of the Tax Act cannot be allocated to, or treated as a deduction or
loss of, a Unitholder. The Trust will provide Unitholders with the relevant
information required for completion of their Canadian income tax returns at the
relevant time.
Provided that appropriate designations are made by the Trust, such
portions of its net taxable capital gains and taxable dividends from taxable
Canadian corporations as are paid or payable to a Unitholder will effectively
retain their character as taxable capital gains and taxable dividends,
respectively, and be treated as such in the hands of the Unitholder for
purposes of the Tax Act.
Any amount paid or payable by the Trust to Unitholders in excess of the
income of the Trust and the non-taxable portion of capital gains made payable
to Unitholders in a year generally will not be included in the income of the
Unitholders but will reduce the adjusted cost base to Unitholders of the Trust
Units. The non-taxable portion of capital gains realized by the Trust that is
paid or made payable to a Unitholder in a year will not be included in
computing the Unitholder's income for the year and will not reduce the adjusted
cost base to the Unitholder of the Trust Units. To the extent that the adjusted
cost base of Trust Units would otherwise be less than zero, that negative
amount will be treated as a capital gain realized by the Unitholder from the
disposition of Trust Units and the Unitholder's adjusted cost base will be
increased by the amount of such deemed capital gain.
The cost to a Unitholder of Trust Units acquired pursuant to this
Offering will equal the purchase price of the Trust Units plus the amount of
any other reasonable costs incurred in connection therewith. This cost will be
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averaged with the adjusted cost base of all other Trust Units held by the
Unitholder at that time as capital property to determine the adjusted cost base
to the Unitholder of each Trust Unit.
Upon the disposition or deemed disposition by a Unitholder of a Trust
Unit, whether on a redemption or otherwise, the Unitholder will generally
realize a capital gain (or a capital loss) equal to the amount by which the
proceeds of disposition are greater (or less) than the aggregate of the
Unitholder's adjusted cost base of the Trust Unit and any reasonable costs
associated with the disposition. Where Trust Units are redeemed and property of
the Trust, including a portion of the Royalty, is distributed IN SPECIE to a
Unitholder on the redemption, the proceeds of disposition to the Unitholder of
the Trust Units will generally be equal to the fair market value of the
property so distributed less the amount of any income or capital gain realized
by the Trust on the distribution of such property, other than on the
distribution of the portion of the Royalty. The cost to a Unitholder of any
property distributed to the Unitholder on a redemption of Trust Units will
generally be equal to the fair market value of such property at the time of the
distribution. Where notes are distributed to a Unitholder on the redemption of
a Trust Unit, holders of notes generally will be required to include in income
interest that is received or receivable or that accrues (depending on the
status of the Unitholder as an individual, corporation or trust) on the notes.
Generally, one-half of any capital gain (a "TAXABLE CAPITAL GAIN")
realized by a Unitholder in a taxation year must be included in the
Unitholder's income for the year, and one-half of any capital loss (an
"ALLOWABLE CAPITAL LOSS") realized by a Unitholder in a taxation year must be
deducted from taxable capital gains realized by the Unitholder in that year.
Allowable capital losses for a taxation year in excess of taxable capital gains
for that year generally may be carried back and deducted in any of the three
preceding taxation years or carried forward and deducted in any subsequent
taxation year against net taxable capital gains realized in such years, to the
extent and under the circumstances described in the Tax Act. Where the
Unitholder is a corporation, any capital loss realized on the disposition of a
Trust Unit will generally be reduced by the amount of any taxable dividends
that were designated by the Trust in respect of the corporation and were
deductible by the corporation in computing its taxable income. Similar rules
apply where the Unitholder is a partnership or a trust.
Taxable capital gains realized by a Unitholder who is an individual may
give rise to "alternative minimum tax" depending on the Unitholder's particular
circumstances. A Unitholder that throughout the relevant taxation year is a
"Canadian-controlled private corporation", as defined in the Tax Act, may be
liable to pay an additional refundable tax of 6 2/3% on certain investment
income, including taxable capital gains and certain income from the Trust.
Taxation of Unitholders Not Resident in Canada
The following summary is applicable to Unitholders who are not resident
or deemed to be resident in Canada for purposes of the Tax Act.
Any distribution of income of the Trust to a Unitholder who is not
resident or deemed to be resident in Canada will generally be subject to
Canadian withholding tax at the rate of 25%, unless such rate is reduced under
the provisions of a tax treaty between Canada and the Unitholder's jurisdiction
of residence. A Unitholder resident in the United States who is entitled to
claim the benefit of the Canada-US Tax Convention will be entitled to have the
rate of withholding reduced to 15% of the amount of any income distributed. The
Trust is also obligated to withhold on all capital distributions to
non-residents at the rate of 15%, including on any amount distributed to a
non-resident holder on a redemption of Trust Units that is not subject to the
25% withholding tax referred to above. Where a non-resident sustains a capital
loss on a disposition of Trust Units such loss may reduce the non-resident's
tax liability in respect of capital distributions.
A disposition or deemed disposition of a Trust Unit, whether on
redemption or otherwise, will not give rise to any capital gains subject to tax
under the Tax Act to a holder who is not resident or deemed to be resident in
Canada provided the Trust Units are not "taxable Canadian property" of the
holder for the purposes of the Tax
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Act. Trust Units will not be considered to be taxable Canadian property to a
non-resident holder unless: (a) the holder holds or uses, or is deemed to hold
or use, the Trust Units in the course of carrying on business in Canada; (b)
the Trust Units are "designated insurance property" of the holder for purposes
of the Tax Act; (c) at any time during the 60 month period immediately
preceding the disposition of the Trust Units the holder, persons with whom the
holder does not deal at arm's length (within the meaning of the Tax Act) or the
holder together with such persons owned 25% or more of the issued Trust Units;
or (d) the Trust is not a mutual fund trust for the purposes of the Tax Act on
the date of the disposition.
Interest paid or credited on notes to a non-resident Unitholder who
receives such notes on a redemption of Trust Units will be subject to Canadian
withholding tax at a rate of 25%, unless such rate is reduced under the
provisions of an applicable tax treaty. A Unitholder resident in the United
States who is entitled to claim the benefit of the Canada-US Tax Convention
generally will be entitled to have the rate of withholding reduced to 10% of
the amount of such interest.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of certain material anticipated U.S.
federal income tax consequences to a U.S. Unitholder, as defined below, of the
ownership or disposition of Trust Units to which this Prospectus Supplement
pertains. This discussion is based on the U.S. Internal Revenue Code of 1986,
as amended (the "CODE"), Treasury regulations promulgated under the Code,
administrative pronouncements or practices, judicial decisions, the Income Tax
Convention between the U.S. and Canada, as well as certain representations made
by the Trust, all as of the date hereof. Future legislative, judicial, or
administrative modifications, revocations, or interpretations, which may or may
not be retroactive, or the failure of any factual representation to be true,
correct, and complete in all material respects, may result in U.S. federal
income tax consequences significantly different from those discussed herein.
This discussion is not binding on the U.S. Internal Revenue Service (the
"IRS"). No ruling has been or will be sought or obtained from the IRS with
respect to any of the U.S. federal tax consequences discussed herein. There can
be no assurance that the IRS will not challenge any of the conclusions
described herein or that a U.S. court will not sustain such a challenge.
This discussion does not address any U.S. federal alternative minimum
tax; U.S. federal estate, gift, or other non-income tax; or any state, local,
or non-U.S. tax consequences of the ownership or disposition of Trust Units. In
addition, this discussion does not address the U.S. federal income tax
consequences to U.S. Unitholders subject to special rules, including U.S.
Unitholders that (i) are banks, financial institutions, or insurance companies,
(ii) are regulated investment companies or real estate investment trusts, (iii)
are brokers, dealers, or traders in securities or currencies, (iv) are
tax-exempt organizations, (v) hold Trust Units as part of hedges, straddles,
constructive sales, conversion transactions, or other integrated investments,
(vi) acquire Trust Units as compensation for services or through the exercise
or cancellation of employee stock options or warrants, (vii) have a functional
currency other than the U.S. dollar, or (viii) own or have owned directly,
indirectly, or constructively 10% or more of all classes of stock or trust
units entitled to vote.
As used herein, "U.S. UNITHOLDER" means a holder of Trust Units that is
for U.S. federal income tax purposes (i) a citizen or resident of the U.S.,
(ii) a corporation (or other entity taxable as a corporation for U.S. federal
tax purposes) organized under the laws of the U.S. or any political subdivision
thereof, including the States and the District of Columbia, (iii) an estate the
income of which is subject to U.S. federal income tax regardless of its source,
or (iv) a trust that (a) is subject to the primary jurisdiction of a court
within the U.S. and for which one or more U.S. persons have authority to
control all substantial decisions or (b) has a valid election in effect under
applicable U.S. Treasury Regulations to be treated as a U.S. person. If a
pass-through entity, including a partnership or other entity taxable as a
partnership for U.S. federal tax purposes, holds Trust Units, the U.S. federal
income tax treatment of an owner or partner generally will depend on the status
of such owner or partner and on the activities of the pass-through entity. A
U.S. person that is an owner or partner of a pass-through entity holding Trust
Units is urged to consult its own tax advisor.
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This discussion assumes that Trust Units are held as capital assets,
within the meaning of the Code, in the hands of a U.S. Unitholder at all
relevant times.
U.S. UNITHOLDERS AND ALL OTHER HOLDERS OF TRUST UNITS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS REGARDING THE NON-TAX CONSEQUENCES OF THE OWNERSHIP OR
DISPOSITION OF TRUST UNITS AND THE NON-U.S., U.S. FEDERAL, STATE, LOCAL, OR
OTHER TAXING JURISDICTION CONSEQUENCES OF THE OWNERSHIP OR DISPOSITION OF TRUST
UNITS THAT ARE RELEVANT TO THEM AND THEIR PARTICULAR CIRCUMSTANCES.
Classification as a Corporation
Although the Trust is organized as an unincorporated open-end
investment trust under Canadian law, the Trust is classified as a corporation
for U.S. federal income tax purposes under current Treasury regulations.
Accordingly, Trust Units will be treated as shares of stock of a non-U.S.
corporation for U.S. federal tax purposes. The discussion below reflects this
classification and employs terminology consistent with this classification,
including references to "dividends" and "earnings and profits".
Ownership or Disposition of Trust Units
The U.S. federal income tax consequences to a U.S. Unitholder of the
ownership or disposition of Trust Units will depend to a significant extent on
whether or not the Trust will be a passive foreign investment company ("PFIC")
during such U.S. Unitholder's holding period in its Trust Units.
Determining Passive Foreign Investment Company Status
For U.S. federal income tax purposes, a non-U.S. corporation is a PFIC
for each taxable year in which either:
(a) at least 75% of its gross income is passive income (the "INCOME TEST");
or
(b) at least 50% of the average value of its assets, generally measured by
fair market value, are assets that either produce or are held for the
production of passive income (the "ASSET TEST").
In determining whether or not it is a PFIC, the Trust is required to
take into account its pro rata portion of the income and assets of each entity
treated as a corporation for U.S. federal tax purposes in which the Trust owns,
directly or indirectly, at least a 25% interest (measured by value). Also, for
purposes of the income test and the asset test, passive income does not include
any income that is interest, a dividend or a rent or royalty, which is received
or accrued from a related person to the extent that such income is properly
allocable to income of the related person that is not passive income.
For purposes of the PFIC rules, passive income includes net gains from
some commodities transactions, including some transactions involving oil and
gas. For this purpose, net gains from commodities transactions will not be
included in passive income for purposes of the PFIC rules if (i) they are
active business gains or losses from the sale of commodities and (ii)
substantially all of the corporation's commodities are stock in trade or
inventory of the corporation, property used in the trade or business of the
corporation, or supplies used in the ordinary course of a trade or business of
the corporation.
Under these rules and definitions, the Trust believes that neither the
Trust nor PrimeWest was a PFIC in 2005, and the Trust expects that neither the
Trust nor PrimeWest will be PFICs in 2006 or any subsequent year. PFIC status
is fundamentally factual in nature, generally cannot be determined until the
close of the taxable year in question, and is determined annually.
Consequently, the Trust can provide no assurance that the Trust or
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PrimeWest will not be a PFIC in 2006 or any subsequent year. A U.S. Unitholder
is urged to consult its own tax advisor regarding the consequences of the Trust
being a PFIC in 2006 or any subsequent year.
Tax Consequences if the Trust Is Not and Does Not Become a PFIC During
Your Holding Period
DIVIDENDS
If the Trust is not and does not become a PFIC during a U.S.
Unitholder's holding period in its Trust Units and the Trust makes a
distribution with respect to Trust Units, such U.S. Unitholder will be required
to include in gross income as ordinary income the gross amount of such
distribution, to the extent that such distribution does not exceed the Trust's
current or accumulated earnings and profits as determined under U.S. federal
income tax principles (a "DIVIDEND"). Dividends will not be eligible for the
dividends-received deduction generally allowed to corporations on dividends
received from a domestic corporation. A distribution in excess of the Trust's
current and accumulated earnings and profits will first be treated as a
tax-free return of capital to the extent of a U.S. Unitholder's adjusted tax
basis in its Trust Units and will be applied against and reduce that basis on a
dollar-for-dollar basis (thereby increasing the amount of gain and decreasing
the amount of loss recognized on a subsequent disposition of the Trust Units).
To the extent that the distribution exceeds the U.S. Unitholder's adjusted tax
basis, the excess will be gain from a sale or exchange of the Trust Units.
If Trust Units are readily tradeable on an established U.S. securities
market, within the meaning of the Code, or if the Trust is eligible for
benefits under the Tax Convention, then a distribution on Trust Units received
by a non-corporate U.S. Unitholder before January 1, 2011 may be "qualified
dividend income" to such U.S. Unitholder if the Trust is not a PFIC during
either the tax year in which the distribution occurs or the preceding tax year.
If certain holding period and other requirements are met, qualified dividend
income is subject to a maximum rate of U.S. federal income tax of fifteen
percent (15%) to a U.S. Unitholder that is not a corporation.
Foreign Tax Credits
Any foreign income tax withheld with respect to a dividend on Trust
Units, subject to a number of complex limitations (including special
limitations to coordinate with the qualified dividend income rules described
above), may be claimed as a foreign tax credit against a U.S. Unitholder's U.S.
federal income tax liability or may be claimed as a deduction for U.S. federal
income tax purposes. The limitation on foreign taxes eligible for credit is
calculated separately with respect to specific classes of income. For this
purpose, a dividend paid with respect to Trust Units generally will be "passive
income" or, in the case of certain U.S. Unitholders, "financial services
income" for taxable years beginning before January 1, 2007. For taxable years
beginning after December 31, 2006, a dividend will be "passive category income"
or "general category income" for purposes of computing the foreign tax credit
allowable to a U.S. Unitholder. A U.S. Unitholder is urged to consult its own
tax advisor regarding the availability of the foreign tax credit.
Foreign Currency Gain or Loss
A taxable dividend with respect to Trust Unit paid in Canadian dollars
will be included in the gross income of a U.S. Unitholder as translated into
U.S. dollars by reference to the exchange rate in effect on the day such
dividend is received by such U.S. Unitholder regardless of whether the Canadian
dollars are converted into U.S. dollars at that time. A U.S. Unitholder paid in
Canadian dollars that converts Canadian dollars into U.S. dollars at a
conversion rate other than the rate in effect on the day of the dividend
distribution may have a foreign currency exchange gain or loss that would be
treated as U.S. source ordinary income or loss. A U.S. Unitholders is urged to
consult its own tax advisor concerning the U.S. federal tax consequences of
acquiring, holding, or disposing of Canadian dollars.
S-15
SALE, EXCHANGE, OR OTHER TAXABLE DISPOSITION OF OUR TRUST UNITS
If the Trust is not and does not become a PFIC during a U.S.
Unitholder's holding period in its Trust Units, such U.S. Unitholder generally
will recognize gain or loss on the sale, exchange, or other taxable disposition
of any of its Trust Units in an amount equal to the difference between (a) the
amount of cash and the fair market value of any property received and (b) its
adjusted tax basis in the Trust Units. Any gain or loss will be long-term
capital gain or loss if, on the date of the sale, exchange, or other taxable
disposition, the U.S. Unitholder's holding period exceeds one year. Any gain or
loss realized by a U.S. Unitholder on the sale, exchange, or other taxable
disposition of any of its Trust Units generally will be treated as having a
U.S. source for U.S. foreign tax credit purposes.
Foreign Currency Gains
In the case of a cash basis U.S. Unitholder that receives Canadian
dollars or any other foreign currency in connection with a sale, exchange, or
other disposition of Trust Unit, the amount realized will be based on the U.S.
dollar value of the foreign currency received with respect to the Trust Units
as determined on the settlement date of the sale or exchange. An accrual basis
U.S. Unitholder may elect the same treatment required of a cash basis taxpayer
with respect to a sale or exchange of Trust Units, provided that such election
is applied consistently from year to year. This election may not be changed
without the consent of the IRS. If an accrual basis U.S. Unitholder does not
elect to be treated as a cash basis taxpayer, such U.S. Unitholder may have a
foreign currency gain or loss for U.S. federal income tax purposes because of
any difference between the U.S. dollar value of the currency received
prevailing on the date of the sale or exchange of the Trust Units and the date
of payment. This currency gain or loss would be treated as ordinary income or
loss and would be in addition to any gain or loss recognized by that U.S.
Unitholder on the sale, exchange or other disposition of the Trust Units.
Tax Consequences if the Trust Were to Become a PFIC During Your Holding Period
If the Trust were to become a PFIC during a U.S. Unitholder's holding
period in its Trust Units and such U.S. Unitholder has not timely made a
"qualified electing fund" election or a mark-to-market election (both as
described below), such U.S. Unitholder generally would be subject to special
rules with respect to any "excess distribution" (as defined below) and any gain
realized on the sale or other disposition of Trust Units. Under these rules:
(a) the excess distribution or gain would be allocated ratably over a U.S.
Unitholder's holding period;
(b) the amount allocated to the current taxable year and any year prior to
the first year in a U.S. Unitholder's holding period in which the Trust
became a PFIC would be taxed as ordinary income in the current year;
(c) the amount allocated to each of the other taxable years would be
subject to tax at the highest ordinary income rate of tax in effect for
the applicable class of taxpayer for that year; and
(d) an interest charge for the deemed deferral benefit would be imposed
with respect to the resulting tax attributable to each of the other
taxable years.
An "excess distribution", in general, is any distribution on Trust
Units received in a taxable year by a U.S. Unitholder that exceeds 125% of the
average annual distributions received by such U.S. Unitholder in the three
preceding taxable years or, if shorter, such U.S. Unitholder's holding period
in its Trust Units. A distribution will not be treated as an excess
distribution for the taxable year during which a U.S. Unitholder's holding
period in its Trust Units begins. A distribution received by a U.S. Unitholder
that is not an excess distribution will be taxable under the rules described
above in "TAX CONSEQUENCES IF THE TRUST IS NOT AND DOES NOT BECOME A PFIC
DURING YOUR HOLDING PERIOD - DIVIDENDS".
S-16
For purposes of the PFIC rules, if the Trust were to become a PFIC
during a U.S. Unitholder's holding period in its Trust Units, such U.S.
Unitholder would be deemed to own an interest in any PFIC owned directly or
indirectly by the Trust. Accordingly, if the Trust and PrimeWest both were
PFICs, a U.S. Unitholder would be deemed to own an interest in PrimeWest for
purposes of the PFIC rules. If, as a result of this rule, a U.S. Unitholder is
treated as owning stock of PrimeWest, such U.S. Unitholder may be subject to
the excess distribution rules on:
(a) a distribution with respect to the indirectly owned stock by PrimeWest
to the Trust,
(b) a disposition of the indirectly owned PrimeWest stock by the Trust, and
(c) a disposition of Trust Units by the U.S. Unitholder that reduces or
terminates the U.S. Unitholder's indirect ownership of PrimeWest stock.
All or a portion of any tax withheld by Canadian taxing authorities
with respect to an excess distribution on Trust Units may be eligible for
foreign tax credits, subject to complex limitations described above in "TAX
CONSEQUENCES IF THE TRUST IS NOT AND DOES NOT BECOME A PFIC DURING YOUR HOLDING
PERIOD - DIVIDENDS - FOREIGN TAX CREDITS", including additional special
limitations under the excess distribution rules. Because of the complexity of
these limitations, a U.S. Unitholder is urged to consult its own tax advisor
with respect to any amount of foreign taxes that may be claimed as a credit.
A U.S. Unitholder that holds "marketable stock" in a PFIC may avoid the
imposition of the additional tax and interest rules described above by making a
mark-to-market election in the first year of it holding period in such PFIC's
stock. The Trust believes that Trust Units are "marketable stock" for purposes
of the mark-to-market election. If a U.S. Unitholder makes a timely
mark-to-market election with respect to Trust Units that it owns at the close
of its taxable year, such electing U.S. Unitholder will include as ordinary
income in that taxable year any excess of the fair market value of its Trust
Units as of the close of such year over its adjusted tax basis in the Trust
Units. An electing U.S. Unitholder's tax basis in its Trust Units will be
adjusted to reflect any such income or loss. Any gain or loss on the sale of
Trust Units will be ordinary income or loss, except that any loss will be
ordinary loss only to the extent of the previously included net mark-to-market
gain. An election to mark-to-market applies to the year for which the election
is made and subsequent years unless the PFIC stock ceases to be marketable or
the IRS consents to the revocation of the election. If the Trust ceases to be a
PFIC, a U.S. Unitholder that has marked its Trust Units to market will not
include mark-to-market gain or loss with respect to its Trust Units for any
taxable year that the Trust is not a PFIC, and if the Trust again becomes a
PFIC in a taxable year after a year in which it is not treated as a PFIC, a
U.S. Unitholder's original mark-to-market election, unless revoked or
terminated, continues to apply and such U.S. Unitholder must include any
mark-to-market gain or loss in such year.
The mark-to-market rules do not appear to prevent the application of
the excess distribution rules in respect of stock in PrimeWest that also is a
PFIC. If the Trust were a PFIC and PrimeWest also were a PFIC, a U.S.
Unitholder would be deemed to own an interest in PrimeWest for purposes of the
PFIC rules. Accordingly, if the Trust and PrimeWest were PFICs, and a U.S.
Unitholder made a mark-to-market election with respect to the Trust, such U.S.
Unitholder may remain subject to the excess distribution rules described above
with respect to its indirectly owned stock in PrimeWest.
If a U.S. Unitholder were able to make a timely "qualified electing
fund" election (a "QEF ELECTION"), such U.S. Unitholder may avoid the
additional tax and interest rules described above and instead would be required
to include in gross income each year such U.S. Unitholder's pro rata share of
the Trust's ordinary earnings and net capital gains, if any. Generally, in
order to avoid taxation under the excess distribution rules, a QEF election
must be made in a timely filed U.S. federal income tax return of a U.S.
Unitholder for the first taxable year of such U.S. Unitholder during which the
Trust was (at any time) a PFIC. A QEF election cannot, however, be validly made
unless the Trust were to provide certain U.S. tax basis information and meet
certain other requirements.
S-17
Therefore, the Trust can provide no assurance that a U.S. Unitholder will be
able to make a timely QEF election even if the Trust were to become a PFIC
during such U.S. Unitholder's holding period.
A U.S. Unitholder is urged to consult its own tax advisor regarding the
consequences in the event that the Trust were to become a PFIC and regarding
the availability and the consequences of a QEF or mark-to-market election.
United States Information Reporting and Backup Withholding
Under some circumstances, a U.S. Unitholder may be subject to U.S.
information reporting and backup withholding tax on distributions paid on, or
proceeds from the disposition of, Trust Units. Information reporting and backup
withholding will not apply, however, to a U.S. Unitholder that is a corporation
or is otherwise exempt from information reporting and backup withholding and,
when required, demonstrates this fact. Backup withholding also will not apply
to a U.S. Unitholder that furnishes a correct taxpayer identification number
and certifies on a Form W-9 or successor form, under penalty of perjury, that
it is not subject to backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. A U.S. Unitholder that fails to
provide the correct taxpayer identification number on Form W-9 or successor
form may be subject to penalties imposed by the IRS. Backup withholding,
currently at a 28% rate, is not an additional tax, and any amount withheld
under these rules will be allowed as a refund or credit against a U.S.
Unitholder's U.S. federal income tax liability if the required information is
furnished to the IRS.
LEGAL MATTERS
Certain legal matters relating to Canadian law in connection with the
Trust Units offered hereby will be passed upon on behalf of the Trust by
Stikeman Elliott LLP, Calgary, Alberta. Certain legal matters relating to
United States law in connection with the Trust Units offered hereby will be
passed upon on behalf of the Trust by Paul, Weiss, Rifkind, Wharton & Garrison
LLP, New York, New York and on behalf of CF&Co by DLA Piper Rudnick Gray Cary
US LLP, New York, New York.
INTERESTS OF EXPERTS
The partners and associates of Stikeman Elliott LLP, as a group,
directly or indirectly, less than 1% of the outstanding Trust Units.
Reserve estimates contained in the AIF, and incorporated by reference
into this Prospectus, are based upon the report of GLJ dated January 23, 2006
evaluating, as at December 31, 2005, the reserves of crude oil, natural gas and
associated products attributed to the properties. Reserve estimates discussed
under "Recent Developments" and in relation to the assets acquired pursuant to
the Acquisition are based upon the report of GLJ dated April 1, 2006,
evaluating as at April 1, 2006 the reserves of crude oil, natural gas and
associated products attributed to the acquired properties. The principals of
GLJ, as a group, own, directly or indirectly, less than 1% of the outstanding
Trust Units.
AUDITORS, TRANSFER AGENT AND REGISTRAR
The auditors of the Trust are PricewaterhouseCoopers LLP, Chartered
Accountants, 111 - 5th Avenue S.W., Suite 3100, Calgary, Alberta T2P 5L3.
The transfer agent and registrar for the Trust Units is Computershare
Trust Company of Canada at its principal offices in Toronto and Calgary.
S-18
AUDITORS' CONSENT
We have read the shelf prospectus supplement of PrimeWest Energy Trust (the
"TRUST") dated July 28, 2006 (the "PROSPECTUS SUPPLEMENT") relating to the
issue and sale of up to 3,000,000 trust units of the Trust. We have complied
with Canadian generally accepted standards for an auditor's involvement with
offering documents.
We consent to the incorporation by reference in the above-mentioned Prospectus
Supplement of our report to the Unitholders of the Trust on the consolidated
balance sheets of the Trust as at December 31, 2005 and 2004 and the
consolidated statements of income, cash distributions, unitholders' equity and
cash flows for the years then ended. Our report is dated February 10, 2006.
Calgary, Alberta /s/ PricewaterhouseCoopers LLP
July 28, 2006 Chartered Accountants
[GRAPHIC OMITTED]
P R I M E W E S T
ENERGY TRUST