Important Links

News Releases

Press Release Navigation
<<< Previous Headlines Next >>>
Harvest Energy Trust and Storm Energy Limited Announce Agreement to Combine Through a Plan of Arrangement, and the Creation of a New Growth-Oriented Junior Producer

Apr 19, 2004 - 08:30 ET

CALGARY, ALBERTA--(CCNMatthews - Apr 19, 2004) -  


Harvest Energy Trust ("Harvest") (HTE.UN - TSX) and Storm Energy 
Limited ("Storm") (SEM -TSX) announced today that they have 
entered into an agreement to effect a business combination 
through a Plan of Arrangement (the "Arrangement") whereby Harvest 
will acquire all the outstanding shares of Storm for 
approximately $189 million, including assumed net debt of 
approximately $64 million. The Arrangement contemplates Harvest 
and Storm combining their assets into Harvest and transferring 
certain of Storm's growth assets to a separate growth-oriented 
junior exploration and production company ("ExploreCo"). 

Each Storm shareholder will receive $4.15 of consideration per 
Storm share from Harvest, in addition to other consideration from 
Storm, pursuant to the Arrangement. The consideration from 
Harvest will be in the following form, at the election of the 
Storm shareholder: 

- $4.15 per share in cash, to a maximum aggregate cash amount of 
$75 million; or 

- 0.281 of an exchangeable share of Harvest Operations Corp., 
exchangeable into Harvest trust units, to a maximum aggregate of 
2 million exchangeable shares; or 

- 0.281 of a Harvest trust unit, to a maximum aggregate of 8 
million units and exchangeable shares combined. 

Should Storm shareholders elect to receive more than 2 million 
exchangeable shares, each Storm shareholder will receive a pro 
rata amount based on their elected amount as a percentage of the 
total amount elected, and trust units for the remainder. Should 
the number of trust units and exchangeable shares elected exceed 
8 million, in aggregate, each Storm shareholder who elected to 
receive such consideration will receive a pro rata amount and 
cash for the remainder. Should all Storm shareholders elect cash, 
each Storm common share will be exchanged for $2.51 cash and 
0.111 of a trust unit. 

Each exchangeable share will be exchangeable into a trust unit at 
any time following completion of the Arrangement. This exchange 
ratio will increase by the amount of monthly distributions made 
by Harvest subsequent to that date. Non-resident and tax exempt 
shareholders of Storm will only be eligible to receive trust 
units or cash from Harvest. 

In addition, each Storm shareholder will receive one common share 
of ExploreCo and approximately 0.053 common shares of Rock Energy 
Inc. ("Rock") for each common share of Storm held. 

The shareholders of Storm will be asked to approve the 
Arrangement at a special meeting to be held in June 2004. 

Arrangement Highlights (net of ExploreCo assets): 

- current production of approximately 4,200 BOE per day 
(acquisition parameter of $45,000 per BOE per day ), concentrated 
primarily in the Red Earth area of North Central Alberta; 

- proven plus probable reserves at January 1, 2004, as determined 
by McDaniel & Associates and Paddock Lindstrom & Associates, of 
14.2 million BOE (acquisition parameter of $13.30 per BOE); 

- reserve life index of 9.2; 

- recycle ratio of approximately 2x; 

- light gravity crude oil averaging 38 degrees API and natural 

- predominately high quality, mature production from large 
original-oil-in-place reservoirs supported by waterflood; 

- 80% of the acquired production is operated; 

- an inventory of property enhancement projects including infill 
drilling, fluid handling optimization, waterflood opportunities 
and natural gas development; and 

- included with these properties, Harvest will acquire the 
following complementary assets: 

-- approximately 10,048 net acres of undeveloped land; 

-- 8 central processing batteries 2 natural gas processing 

Benefits to Harvest Unitholders: 

Harvest believes the Arrangement will enhance value for 
Unitholders by providing the following strategic and financial 

- accretive to Harvest's 2004 cash flow per trust unit; 

- diversify Harvest's production base by adding current 
production of approximately 4,200 BOE/d (1.4 mmcfd, 4,000 bpd) of 
natural gas and light oil production; 

- increase Harvest's reserve weighting to light/medium oil to 
68%, reducing heavy oil weighting to approximately 28%; 

- increase Harvest's proved plus probable reserve base to 
approximately 47 million BOE; 

- based on current production, increase Harvest's proved plus 
probable reserve life index from approximately 6 to 6.7; 

- enhance Harvest's netbacks as a result of the average lower 
operating cost per BOE of the Storm properties and higher per BOE 

- provide an expanded base of production compatible with 
Harvest's proven operating competencies; and 

- add a new core area for additional low cost growth in the form 
of property enhancement and consolidation of additional interests 
through acquisitions. 

Although the Arrangement is accretive to cash flow per trust 
unit, Harvest currently forecasts that it will maintain its 
monthly distribution at $0.20 per trust unit. Additional cash 
flow derived from the Arrangement will be used to fund Harvest's 
ongoing property enhancement program, acquisition strategy and to 
repay debt. 

Reserves Summary: 

An evaluation of the properties being acquired through the 
Arrangement has been performed by McDaniel & Associates 
Consultants ("McDaniel") and Paddock Lindstrom & Associates 
("PLA") adjusted to give effect to reserve additions achieved in 
the first quarter and certain assets to be assigned to ExploreCo. 
The following table outlines the reserves forecast to be acquired 
effective January 1, 2004: 


                           Oil        NGL          Gas           BOE
                         (mbbl)     (mbbl)       (mmcf)     (mboe)(2)
Total Proven             9,162        660        7,635        11,094
Proved Plus Probable    11,842        776        9,410        14,186


Property Summary: 

The properties being acquired through the Arrangement are 
predominantly comprised of a producing area located in the Red 
Earth area of North Central Alberta as well as minor properties 
located in West Central Alberta and Northeast British Columbia. 
The Red Earth area is comprised of large operated oil pools 
produced into predominately company-operated facilities. The 
majority of the drilling has occurred during the 1990's, with 
subsequent modern facilities construction. In addition to the 
stable, predictable base of existing production, Harvest has 
identified 38 additional infill-drilling locations and other 
production optimization and cost reduction opportunities. Harvest 
senior management has direct experience in the Red Earth area of 
Alberta and possesses considerable expertise in both the 
operational and technical features of this area. 

Arrangement Summary: 

The Directors of each of Harvest and Storm have approved the 
Arrangement. Storm management and Directors, representing 
approximately 23% of the issued and outstanding Storm common 
shares, have indicated they intend to vote in favour of the 
Arrangement. The Board of Directors of Storm has agreed to pay 
Harvest a fee of $6.0 million if the Arrangement is not completed 
under certain conditions. Storm has agreed to terminate any 
discussions with other parties and will not solicit any other 
proposals. As well, Harvest has agreed to pay Storm $1.6 million 
in the event the Arrangement does not proceed due to a breach of 
certain conditions by Harvest. 

The Board of Directors of Storm has concluded, based on 
considerations including the recommendation of a committee of 
independent Directors, that the Arrangement is in the best 
interests of the shareholders and has unanimously resolved to 
recommend that shareholders vote their shares in favour of the 
Arrangement. FirstEnergy Capital Corp. is acting as financial 
advisor to Storm and has also provided an opinion to the Board of 
Directors of Storm that the consideration to be received by the 
shareholders of Storm, pursuant to the Arrangement, is fair from 
a financial point of view, to Storm shareholders. 

Storm anticipates mailing an Information Circular with details of 
the Arrangement in May and expects to call a shareholder meeting 
to consider the Arrangement in June 2004. The effective date of 
the Arrangement is expected to be in June 2004. The Arrangement 
will be subject to the receipt of all necessary shareholder, 
court and regulatory approvals and consents. 

2004 Full Year Guidance: 

Combining the incremental production from properties being 
acquired through the Arrangement for the period from July 1, 2004 
to December 31, 2004 with Harvest's existing base of production, 
Harvest expects average production for 2004 to be between 16,750 
and 17,500 BOE/d, with an estimated exit rate in 2004 of between 
18,750 and 19,250 BOE/d. 


Harvest Energy Trust
1900, 330 - 5th Avenue S.W.
Calgary, AB T2P 0L4


ADVISORY: Certain information regarding Harvest Energy Trust and 
Harvest Operations Corp. including management's assessment of 
future plans and operations, may constitute forward-looking 
statements under applicable securities law and necessarily 
involve risks associated with oil and gas exploration, 
production, marketing and transportation such as loss of market, 
volatility of prices, currency fluctuations, imprecision of 
reserve estimates, environmental risks, competition from other 
producers and ability to access sufficient capital from internal 
and external sources; as a consequence, actual results may differ 
materially from those anticipated in the forward-looking 



 Harvest Energy Trust
Jacob Roorda
(403) 265-1178


Harvest Energy Trust
David M. Fisher
Vice President, Finance
(403) 265-1178
(403) 265-3490 (FAX)