Calgary-based royalty trust Provident Energy Trust has acquired privately held Los Angeles-based producer BreitBurn Energy LLC for C$155 million in cash and the assumption of $35 million net working capital and financial obligations in what is the first Canadian trust purchase of a U.S. producer. Royalties on BreitBurn's production average 15%, compared with the average royalty of 22% paid on Provident's Canadian production, Provident reports. It estimates the effective tax rate in 2005 will be approximately 10% to 15% of earnings before interest, taxes, depreciation and amortization (EBITDA), averaging C$2.75 per barrel of oil equivalent (BOE) of BreitBurn production. In 2006, Provident expects the tax rate to increase to 25% of EBITDA. All told, the effective tax rate on cash flow earned from the sale of BreitBurn production is expected to average 15% to 20% over the life of the assets, Provident reports. The deal will be funded with a unit sale and available credit facilities. BMO Nesbitt Burns was financial adviser to Provident, which will reorganize BreitBurn into a limited partnership and hold 92% while BreitBurn co-founders and co-chief executive officers Randy Breitenbach and Hal Washburn will buy 8% for C$13.7 million. Washburn and Breitenbach will continue to manage BreitBurn, which is one of California's largest independents. Its assets, which are 99% operated, are focused in southern California. Production is 4,200 BOE per day (89% light/medium oil). Reserves at year-end 2003 totaled 39.4 million BOE of proved-plus-probable with a reserve life of more than 22 years. (For more on BreitBurn, see "Urban Oil," June 2004, Oil and Gas Investor.) "Consistent with our balanced portfolio strategy, the acquisition of BreitBurn adds high-quality, long-life oil and gas production assets at attractive valuation metrics, that will provide a stable source of cash flow over the long term," says Provident chief executive officer Tom Buchanan. "BreitBurn also provides Provident with an exceptional platform for growth in the U.S. as well as an experienced, highly technical U.S.-based management team committed to creating long-term value for Provident unit-holders." Breitenbach and Washburn say the deal will enable BreitBurn to expand in the Los Angeles Basin. Provident estimates it is acquiring proved reserves at C$6.62 per BOE and proved-plus-probable reserves at C$5.38 per BOE. The price per annual flowing barrel is C$42,960, it adds. Its proved-plus-probable reserve life will grow to 8.3 years. BreitBurn has identified 200 development projects around its current asset base, Provident adds. The current operating netback, net of taxes, is C$19.77 per BOE, compared with C$20.50 per bbl. on Provident's current Canadian production. Ross Kobayashi, president of Kobayashi Partners Ltd., a Calgary-based independent oil and gas advisory firm, says the buying power of trusts is becoming more attractive in the current marketplace. "Both trusts and junior trusts are getting exceptional market support. There are many private equity supporters that find 12% distributions more attractive than the interest earned from putting cash in the bank." He added that the buying power of the trusts is remarkable and the market will often see trading at twice the net asset value. He said that this trend, combined with fantastic product prices, would likely lead to similar transactions in the future. "I think it's a precursor," says another source close to the asset marketplace. "I heard the trusts were coming close-not to breaking the tax code, but in minimizing the tax leakage." The BreitBurn acquisition will increase Provident's average production for 2004 to approximately 32,000 BOE per day, consisting of 42% gas; 37% light/medium oil and natural gas liquids; and 21% heavy oil. Its proved developed reserves will increase 31% to 67.9 million BOE with a reserve life of 5.4 years; total proved reserves will increase 52% to 94 million BOE with a life of 6.8 years; and proved-plus-probable reserves will increase 48% to 120.9 million BOE with a life of 8.3 years. -Petroleum Finance Week