8. INCOME TRUSTS: THE NEXT GENERATION

Progress Energy Ltd. and Cequel Energy Inc. merged and then converted into the $1.14-billion Progress Energy Trust. The three- stage transaction (see below) was a welcome sign to oil patch lawyers, subsisting as they were on a long diet of trust conversions, that the trusts were developing more creative — and remunerative — approaches to packaging the ageing assets of the Western Canadian Sedimentary Basin (WCSB).

As explained by Robert Engbloom, a senior corporate partner with Macleod Dixon in Calgary, the deal is special not just because it was the largest trust conversion of the year, but because it was “the first of its kind” for a sector where trusts are usually created from scratch, from one company’s assets or the conversion of a single producer. The Progress deal comprised a merger between Progress and Cequel, followed by a conversion of the merged entity into a trust, followed by a spin-off of two junior exploration companies, ProEx and Cyries.

Grant Zawalsky, a well-known corporate partner with Calgary- based Burnet, Duckworth & Palmer, agrees with Mr. Engbloom about the importance of the Progress deal. “If Calgary had a deal of the year, Progress was it.” Burnets represented Progress Energy. A Macleod Dixon team was on for Cequel.

Progress Energy has real significance for an industry in which the intermediate companies have been largely replaced by income trusts and in which more and more juniors are considering the trust option. “We’re seeing a shift of royalty trusts from just being a harvester of existing assets to a more sustainable model,” Mr. Engbloom explains. “Progress is an example of that.”

That the trusts are “coming of age” is also evident in such transactions as the $500-million acquisition by Petrofund Energy Trust of Ultima Energy Trust, represented by Burnets and Bennett Jones, respectively, and the $2.5-billion reclassification of Pengrowth Energy Trust’s trust units.

As explained by Perry Spitznagel, a senior corporate partner with Bennett Jones, “The Pengrowth reorganization is the first transaction to implement a solution to the non-resident ownership problems of income trusts. There’s going to be 10 or 15 of these coming down the pipe.” Likewise, the Petrofund/Ultima and Progress/ Cequel mergers have set the stage for more of the same for 2005.

Fun fact In 2004, income trusts officially came of age with Enerplus Resources Fund, the oil patch’s first trust, celebrating its 18th birthday. Enerplus was launched as a $9-million oil and gas income fund. Today, its market value of $3.4-billion makes Enerplus Canada’s largest conventional oil and gas trust.

CANADIAN, EH? As Canadian as toques and beavers.

9. PATIENT MONEY

If you’ve never heard of OPTI Canada Inc., you’re not alone. Even in the oil patch, Calgary-based OPTI is not a household name. But it soon will be. In 2001, OPTI entered into a 50/50 joint venture with Nexen Inc. to develop the oilsands at Long Lake. With the low- hanging fruit in the Western Canada Sedimentary Basin long gone, exploiting the oilsands is increasingly critical to the future of the oil and gas sector. Problem is, oilsands development is extremely expensive and comes with long time horizons. The Long Lake Project, expected to be the fourth-largest oilsands project in the Athabasca region, carries with it a $3.4-billion price tag.

But this is old news, as is, to a certain extent, OPTI’s patented OrCrude technology, which is expected to deliver to Long Lake partners a $4- to $7-per-barrel cost advantage over competitors. What put OPTI on the map is how it raised its share of that $3.4- billion price tag: $701-million through what is likely the largest private equity placement ever completed by a startup company in the Canadian oil and gas sector; $301-million through an IPO; and $800- million through a limited recourse project debt facility.

“It was quite remarkable to see the financial commitment to this project,” says Robert Engbloom, “particularly considering the company won’t produce anything for a few years yet. It shows the appetite there is for the tar sands right now.”

“The financing for this project came from all across the country,” notes David Smith, a senior corporate partner with Lawson Lundell, which acted for BCIMC, one of the parties to the transaction. “It’s fairly dramatic in terms of the amount of capital raised in a relatively short period of time.”

CANADIAN, EH? Most of the money came from Canadian players such as TD Securities Inc., Scotia Capital Inc., and RBC Capital Markets. Both joint venture partners are headquartered in Calgary. Of course the Calgary-based OPTI was founded by the Israel-based ORMAT Group of Companies, a unit of which continues to own about 34.76% of the company. Another 11.97% is held by Boston’s Wellington Management. So, Canadian? Adequately so.

10. REPATRIATING PAPER

“The forests have been busy this year,” notes Mitch Gropper at Farris. Indeed, 2004 was a year of unprecedented consolidation. In April, Canfor Corp. completed a $630-million buyout of Slocan Forest Products. After a heated battle, hostile bidder Tolko Industries finally acquired Riverside Forest Products for $387-million in November. Smaller deals included Riverside’s earlier acquisition of Lignum Inc. and Vancouver’s International Forest Products purchase of three Washington state mills from Crown Pacific Partners.

Dwarfing all of these transactions in size, if not drama (the battle for Riverside, like most hostile takeovers, takes first prize here), is West Fraser Timber’s $1.26-billion purchase of Weldwood of Canada from International Paper.

“It’s by far the largest forestry transaction in years,” says Neil de Gelder, a leading corporate partner with the Vancouver office of Borden Ladner Gervais. “Its sheer size makes it notable in an industry not noted for recent transactions of this magnitude.” And, he adds, “It involves the repatriation of Weldwood to a Canadian company.”

The transaction, completed Dec. 31, made West Fraser the third- largest lumber producer in North America. It was delayed for months not, as in so many other deals this year, by a gaggle of dissatisfied shareholders, but by the Competition Bureau. The acquisition only got the green light from the bureau after West Fraser agreed to divest some of its B.C. assets.

CANADIAN, EH? The lengthy Competition Bureau review alone makes this deal as Canadian as the takeover of Microcell, International Paper notwithstanding. And the Toronto office of Blake, Cassels & Graydon drove the bus for International Paper without U.S. counsel riding piggyback.

(Copyright National Post 2005)