China firm to invest $817MM to form Peace River JV with PennWest, develop oil sands

Source: PennWest Energy

Penn West Energy Trust (PWE) has entered into an agreement with a wholly-owned subsidiary of the China Investment Corporation (CIC) to form a joint venture that will develop Penn West's bitumen assets located in the Peace River area of northern Alberta. CIC has also agreed to purchase trust units of Penn West on a private placement basis. 

Peace River Joint Venture 

The Joint Venture will be organized as a general partnership under the laws of the Province of Alberta. Under the terms of the agreements to be executed at closing providing for the formation of the Joint Venture, Penn West will contribute the Assets valued at approximately $1.8 billion and will retain a 55% partnership interest.
 
The Peace River assets include approximately 237,000 net acres of oil sands leases that Penn West believes contain significant bitumen resources, and current production of approximately 2,700 barrels of oil equivalent per day of bitumen and associated gas. CIC will invest a total of $817 million to acquire a 45% interest in the partnership. Their investment consists of $312 million payable on closing, with the remaining $505 million applied to Penn West's future capital and operating expenses. A wholly-owned subsidiary of Penn West will serve as operator of the Assets. 

Mr. David Middleton will be responsible for directing the operation of the Joint Venture through a joint management committee. Mr. Middleton is currently the Executive Vice President, Engineering & Corporate Development with Penn West. He is a Professional Engineer with more than 30 years of extensive oil industry experience and is particularly well-suited for leading a project of this scope and nature. 

Financing 

Under the terms of the Financing, CIC has agreed to subscribe for 23,524,209 Units of Penn West, representing approximately 5% of Penn West's issued and outstanding Units, for total gross proceeds of approximately $435 million. The Units will be issued at a price of $18.48 per Unit, which is a 2% discount to the volume-weighted average price of the Units on the Toronto Stock exchange for the 5 trading days prior to May 13, 2010. CIC does not currently hold any securities of Penn West. 

CIC will have certain rights to maintain its percentage ownership interest in Penn West through participation in additional private and public offerings of Units or securities convertible into Units.



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