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Crew acquires Caltex; WestFire and Orion merge

Two of the largest energy M&A deals of the 30-day period between mid-April and mid-May were corporate acquisitions by Canadian companies.

On May 2, Canada's Crew Energy Inc., a Toronto Stock Exchange-listed company, said it plans to acquire privately-held Caltex Energy Inc. for US$542 million (CAN$622 million) in an all-stock deal to gain access to heavy oil assets in the provinces of Saskatchewan and Alberta and to raise its full-year production guidance. The Calgary-based oil and gas producer said it will issue about 33.2 million of its shares and assume around $80 million in debt from Caltex as part of the deal.

Prior to the acquisition, Crew had focused on light oil operations, primarily in the Princess area of southern Alberta, and natural gas production in the Montney and Septimus plays in northeastern British Columbia.

Caltex, which was founded in 2005, is expected to add about 23.7 million barrels of oil equivalent to Crew's proved reserves. Crew has a market cap of about $1.5 billion. About 75% of Caltex's shareholders have agreed to vote for the deal, as have the boards of both companies. The transaction is expected to close in July.

Crew Energy now expects to produce between 23,000 and 24,000 boe/day in 2011, compared to its previous forecast of 18,300 to 19,300 boe/day. It expects to exit the year with a production rate of 32,500 to 34,500 boe/day.

With the announcement, Crew raised its full-year capital expenditure 27% to $330 million. The company said the Caltex deal is expected to increase its fourth-quarter production per share by 11% and cash flow per share by 14%.

In another Canadian transaction on May 11, WestFire Energy Ltd. said it would merge with Orion Oil & Gas Corp. in an agreement whereby WestFire will acquire all the issued and outstanding shares of Orion. The merger of the two companies will create an intermediate-sized producer focused in the world-class Viking oil resource play in Alberta and west-central Saskatchewan. The deal is expected to close in late June or early July.

WestFire is focused on exploiting the Viking light oil resource play at Redwater and Provost in Alberta and at Plato and Dodsland in west-central Saskatchewan. The company has assembled a prospective drilling inventory of over 1,100 net Viking locations representing over $1.3 billion of future capital projects. At its current pace of activity, this inventory would take about 15 years to exploit.

Orion has a predictable, long reserve life, highly focused asset base that is 55% weighted to oil and liquids. Orion's assets are substantially 100% operated, high working interest properties (averaging over 90%) and include ownership in key strategic processing infrastructure. Additionally, Orion has been able to enhance its cash flow netbacks by maintaining a low cost structure with operating costs of approximately $12.00 per boe.

On May 11, Houston-based W&T Offshore completed its $366 million acquisition of 21,500 net acres in the Permian Basin of West Texas from private sellers. The effective date is retroactive to Jan. 1, 2011.

Estimates of the acquired proven reserves as of Jan. 1, 2011, were about 27 million barrel equivalents (164 bcfe) and estimates of probable reserves were approximately 26 million barrel equivalents (154 bcfe), both using a 6 to 1 mcf to barrel equivalency. The proved reserves are about 91% oil and natural gas liquids.

Tracy W. Krohn, chairman and CEO of W&T Offshore, commented: "Through this Permian Basin oil property acquisition, combined with 9,400 net exploratory acres we recently acquired in the basin, we now have a new focus area that offers the potential for substantial long-term growth and attractive full-cycle economic returns. Additionally, the oil and liquids component of our total estimated proved reserves as of Dec. 31, 2010, increases from 47% to 58%."

Krohn continued, "Currently the acreage acquired from this acquisition has approximately 73 wells producing about 2,950 barrels of oil equivalent per day and hundreds of proven undeveloped and probable well locations that have been identified. For the balance of 2011, we have allocated between $35 million and $40 million in capital expenditures associated with planned development and expect to maintain an active drilling program with at least three rigs working in West Texas.

W&T plans to target the Spraberry, Dean, Wolfcamp, and Strawn formations in the Wolfberry trend but says there may be potential for production from deeper formations as well.

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