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Press release from Marketwire

Parallel Energy Trust Announces Acquisition of Remaining 41% Interest in West Panhandle Field; Trust Unit and Convertible Debenture Financing;

Increased Monthly Distribution; Fourth Quarter 2011 Financial Results and Updated Reserve Report

Wednesday, March 21, 2012

Parallel Energy Trust Announces Acquisition of Remaining 41% Interest in West Panhandle Field; Trust Unit and Convertible Debenture Financing;16:13 EDT Wednesday, March 21, 2012CALGARY, ALBERTA--(Marketwire - March 21, 2012) -THIS PRESS RELEASE IS NOT FOR DISTRIBUTION TO ANY UNITED STATES NEWSWIRE SERVICES OR OTHERWISE FOR DISTRIBUTION IN THE UNITED STATES. ANY FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF UNITED STATES SECURITIES LAWS.Parallel Energy Trust (TSX:PLT) ("Parallel" or the "Trust") today announced that it has entered into an agreement with Bravo Natural Gas LLC ("Bravo") to acquire the remaining 41% of the jointly owned West Panhandle Field currently owned by Bravo. In addition, Parallel announced that it has entered into an agreement with a syndicate of underwriters pursuant to which it will issue 8,500,000 units and $60 million principal amount of convertible debentures on a bought deal basis, more fully described below, to finance this acquisition (the "Financing"). Acquisition of Bravo Interest Parallel has entered into an agreement with Bravo pursuant to which Parallel will acquire the remaining 41% of the West Panhandle Field which it does not currently own (the "Bravo Interest"), plus certain field equipment and inventory, for a purchase price of US$189.4 million (the "Acquisition"). The purchase price is equal to the net present value of the proved producing reserves attributable to the Bravo Interest, as established in the Ryder Scott Reserve Report dated December 31, 2011, further described below, using a 10% discount rate plus the market value of certain field equipment and inventory. Closing is expected to occur on or about April 12, 2012, contemporaneously with the closing of the Financing. The Acquisition will have an effective date of April 1, 2012.In addition to the Acquisition of the Bravo Interest, Parallel is very pleased to announce that Tony Swindell, currently Vice President Operations with Bravo, has agreed to join Parallel as Vice-President, Mid-Continent and President of Parallel's US subsidiary. Mr. Swindell is a petroleum engineering graduate of Oklahoma State University and has over twenty-five years of experience in the exploration and production business in the U.S. Mid-Continent area. Joining Mr. Swindell will be the current field staff and a significant portion of the office operations personnel of Bravo. As a result, Parallel will become the operator of the West Panhandle Field shortly after closing, with virtually the same operating team as is currently in place. The U.S. operations office will be located in Tulsa, Oklahoma."We are extremely pleased that Tony and his team have agreed to join Parallel," said Dennis Feuchuk, President and CEO of Parallel Energy Trust. "With this acquisition, not only have we acquired the balance of our asset at what we consider to be a very advantageous price, but we have also acquired one of the best operating teams in the Mid-Continent area. We look forward to working with Tony to increase production and enhance operational performance of the West Panhandle Field." Financing The Acquisition will be financed through the issuance of new trust units and convertible debentures and advances under an increased bank facility. Parallel has entered into an agreement with a syndicate of underwriters led by Scotiabank, RBC Capital Markets and CIBC for the trust unit and convertible debenture financing. Pursuant to the agreement, Parallel will issue, and the Underwriters will acquire, on a bought deal basis, 8,500,000 units of Parallel at a price of $7.05 per unit and $60 million principal amount of convertible unsecured subordinated debentures of Parallel ("Convertible Debentures") at a price of $1,000 per Convertible Debenture. The Convertible Debentures will bear an interest rate of 6.50%, and will be convertible into units of Parallel at a price of $9.50 per unit. The underwriters have also been granted an over-allotment option, exercisable for a period of 30 days from the date of the closing of the offering, to purchase up to an additional 425,000 trust units at the offering price of $7.05 per unit and to purchase up to an additional $3 million of Convertible Debentures, to cover over-allotments, if any. If the over-allotment option is exercised, all of the proceeds to be received by the Trust pursuant to the exercise of the over-allotment option will be used to reduce the amount of bank debt that would otherwise have been incurred to finance the Acquisition.The balance of the purchase price will be funded from Parallel's bank facility. Commitments have been obtained from Parallel's existing bank syndicate to increase the borrowing base and facility amount to US$175 million upon closing of the Acquisition. Parallel expects to draw approximately US$75 million to fund the balance of the purchase price assuming no exercise of the over-allotment options. After closing of the Acquisition, and assuming no exercise of the over-allotment options, Parallel expects to have approximately US$40 million of undrawn capacity available under its bank facility. Increase in Distribution In recognition of the favourable impact of the Acquisition on Parallel's operations and financial metrics, subject to the closing of the Acquisition, the Board of Directors of the Trust has confirmed an increase to the distribution payable on Parallel's units from the current $0.075 per unit per month, to $0.08 per unit per month, effective the first record date after closing of the Acquisition. Given that the Acquisition is currently expected to close on or about April 12, 2012, the first increased distribution will be payable May 23, 2012 to unitholders of record on April 30, 2012. Pro Forma Impact of the Acquisition The Acquisition is an accretive transaction on all metrics related to reserves, production, cash flow and payout ratios. The following chart compares guidance provided by the Trust in January 2012 to expected results for the 12 months after the Acquisition closes based on current forward oil and natural gas prices. The expected production rates for the next 12 months for 100% of the West Panhandle Field are consistent with prior guidance given by the Trust for 2012 for 59% of the field.Previous 2012 GuidanceApril 2012 to March 2013Forecasted average annual production4,200 to 4,500 boe/day7,100 to 7,500 boe/dayForecasted basic payout ratio(1)80%70%Forecasted all-in payout ratio(2)116%95%P+P reserves per 1,000 units(3)7751,075(3)Forecasted average annual production (boe/day) per 1 million units(3) 105 to 115 145 to 155(3)Basic payout ratio is defined as distributions divided by cash flow available for distribution. All in payout ratio is defined as the sum of distributions and capital expenditures divided by cash flow available for distribution. Per unit calculation based on number of basic units outstanding at March 21, 2012 for the "Previous 2012 Guidance" column and number of basic units outstanding after closing of the Acquisition and of the financing (assuming no exercise of the over-allotment options) for the "April 2012 to March 2013" column. Amounts are not adjusted for leverage. As discussed below, Parallel is also announcing its December 31, 2011 reserve information. The following table summarizes the reserve valuation per share (based on a 10% discount rate of proved plus probable reserves) after taking into account the Acquisition and the financing:Total PV10 Proved plus Probable Reserves - 100% Interest (USD$000's)US$651,758Canadian dollar equivalent (at $1.00 USD = $0.99 CAD)C$645,240Less: Estimated Canadian dollar bank debt after Acquisition(133,500)Convertible Debentures(60,000)Reserve Value after deduction of debt451,740Approximate Trust Units outstanding after Acquisition and financing (000's)48,500(1)Reserve Value per unit$9.31Prior to exercise of the over-allotment options. Drilling PlansIn guidance provided in January 2012, the Trust announced plans to utilize two drilling rigs throughout 2012. Upon closing of the Acquisition, the Trust intends to continue to utilize two drilling rigs for the foreseeable future. All guidance in this press release is predicated on two rigs running for the next 12 months. Commodity Price HedgingThe Trust has not entered into any additional commodity price hedges for 2012 beyond those provided in the January 2012 update. The Trust has the following additional commodity price hedges in place for 2013 and 2014:January to June 2013 - 600 bbls/day crude oil at an average floor price of US$92.60 and average ceiling price of US$101.50July to December 2013 - 400 bbls/day crude oil at an average floor price of US$89.00 and average ceiling price of US$97.90January to March 2014 - 200 bbls/day crude oil at an average floor price of US$91.55 and average ceiling price of US$101.55The Trust intends to enter into additional hedges shortly after the closing of the Acquisition which will result in hedges of at least 50% of production for the next 12 months and up to 30% of production for the following 12 months. Fourth Quarter 2011 Financial Results and Reserve Report HighlightsThe following are highlights from the December 2011 year end reserve report:Total proved developed producing ("PDP") reserves of 18.9 million barrels of oil equivalent ("boe"), comprised of 12.0 million boes (63% of total reserves) of condensate and natural gas liquids ("NGLs") and 41 bcf of natural gas. Total PDP reserves represents an increase of 12% over PDP reserves at December 31, 2010 representing a replacement of approximately 250% of 2011 production. For the full year 2011, Parallel added approximately 3.3 million boes of PDP reserves. Total drilling and workover capital for 2011 was $11.5 million, representing a cost to convert to PDP reserves of $3.50 per boe. Total proved plus probable reserve volumes declined by approximately 9% year over year and the PV10 value of the proved plus probable reserves declined by 26%. The reduction in the PV10 value of the reserves is due to the decline in the number of reserves estimated, a lower natural gas price utilized for the 2011 reserve report and higher drilling costs than estimated in the original reserve report. The decline in reserve volumes was due to lower than expected drilling results from wells drilled in 2011 which reduced the expectation of results from future drilling locations. Reserve life index based on current production rates of 13 years based on PDP reserves and 21 years based on total proved plus probable reserves. Number of potential drilling locations has increased from 189 gross locations in the December 31, 2010 reserve report to 191 gross locations, despite drilling 23 gross wells during 2011. At the current estimated drilling pace of 44 wells for 2012, this represents over four years of drilling potential. 2011 Year-End Reserve SummaryThe following information is provided on the Trust's reserves, representing a 59% interest in the West Panhandle Field, as at December 31, 2011, as evaluated by the Trust's independent reserves engineering firm, Ryder Scott. The evaluation of Parallel's petroleum and natural gas reserves was conducted pursuant to National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities ("NI 51-101") and the Canadian Oil and Gas Evaluation Handbook ("COGEH") reserves definitions.Reserves Summary (Company interest before royalties - January 1, 2012 escalated price forecast)Condensate & NGLs and CondensateNatural GasTotal Oil EquivalentmbblsmmcfmboeProved developed producing12,02641,00418,860Proved undeveloped4,96116,6497,736Total proved17,00557,71726,625Probable2,7629,0484,270Total proved plus probable19,76766,76530,985December 31, 2011 Net Present Value (Company interest - January 1, 2012 escalated price forecast)Present Value of cash flows before tax (US$000s)10% Discount RateProved developed producing$267,995Proved undeveloped66,369Total proved334,581Probable49,956Total proved plus probable$384,537Financial highlights for the quarter ended December 31, 2011 Production for the three month period ended December 31, 2011 averaged 3,794 boe/day, an increase of 4% over the previous quarter. Production during the quarter was negatively impacted by extreme winter weather during November and December. Eight gross wells (five net wells) were drilled during the quarter. All wells but one are currently on production. One well drilled during the quarter was abandoned due to downhole problems which rendered the wellbore unusable. The drilling rig was moved 15 metres and the well was redrilled in January and is currently on production. Distributions announced during the quarter totaled $0.225 per unit for a total of $8.9 million. The distributions were $0.075 per month for October, November and December. Funds from operations was $7.7 million for the quarter, a reduction of 15% from the third quarter. The decline was due to lower average natural gas prices during the quarter, which reduced net revenue by approximately $0.6 million and an increase in general and administrative expenses of approximately $0.7 million due to the timing of certain expenditures including year-end audit and reserve costs, directors fees and variable compensation payments. Due to the decline in reserves valuation, Parallel incurred a writedown in the value of oil and gas properties of $47.6 million during the quarter, contributing to a loss for the quarter of $50.9 million. Also contributing to the loss was a loss on derivative financial instruments of $5.3 million due to significant strengthening of oil prices from September 30, 2011 to December 31, 2011. Summary of Operating and Financial ResultsQuarter ended December 31, 2011Quarter ended September 30, 2011($000s except were indicated)Natural gas (mcf/day)7,6197,766Condensate (bbls/day)955729NGLs (bbls/day)1,5491,639Total (@6:1) (boe/day)3,7943,662Revenue, net of royalties13,77913,373Funds from operations (1)7,7329,068Net income(50,918)5,768Distributions8,8678,849Capital expenditures4,3974,764Working capital(3,530)2,126Bank loan (C$equivalent of US$debt)62,99162,432Unitholder's equity320,977386,904(1) Non-GAAP measure. Readers are referred to Advisories at the end of the press release for additional information.Operational UpdateBased on field data, production has averaged approximately 3,800 boe per day for 2012 year to date. Production has continued to be impacted by plant outages and other operational issues and is running approximately 5% below the productive capacity of the field. There have been nine gross wells drilled since December 31, 2011, of which three have been on production for more than 30 days, four have been on production less than 30 days and two are awaiting tie-in. Average production for the three gross wells that have been on production for at least 30 days have been in the expected range. Operationally, changes to field staff were made in the first quarter to reduce the operational down time in day to day operations. Production optimization opportunities have been identified which will include changes and upgrades to several compressors, which are expected to improve daily production rates and maintain consistent daily production levels. As more single lateral wells are drilled through the remainder of 2012, the time required to bring on new well production will be reduced, resulting in more frequent production additions. We continue to evaluate alternative processing facilities for production in the Carson area to provide an alternative source of processing during downtime currently experienced with the existing processing plant."We are excited by this acquisition, and our transformation to an operating company in the US," said Dennis Feuchuk. "Our recent drilling results and identified opportunities for operational improvements give us confidence in our production guidance. With a combination of a low decline, liquids rich asset and a top notch operating team, we have confidence that we will be able to continue to increase production at reasonable metrics, and meet our investors' expectations for a sustainable yield." ABOUT PARALLEL ENERGY TRUSTParallel's objectives are to create stable, consistent returns for investors through the acquisition and development of conventional oil and natural gas reserves and production with unexploited low risk potential in certain regions of the United States, and to pay out a portion of available cash to holders of trust units on a monthly basis. The trust units of Parallel are listed on the Toronto Stock Exchange under the symbol "PLT.UN".Parallel is a "mutual fund trust" under the Income Tax Act (Canada) (the "Tax Act"). The Trust will not be a "SIFT trust" (as defined in the Tax Act), provided that the Trust complies at all times with its investment restriction which precludes the Trust from holding any "non-portfolio property" (as defined in the Tax Act). Further information relating to Parallel and the trust units is set out in Parallel's final prospectus dated April 14, 2011. The trust units and Convertible Debentures will be issued by way of a short form prospectus that will be filed with securities regulatory authorities in all provinces of Canada.The offering is subject to normal regulatory approvals, including approval of the Toronto Stock Exchange.The securities offered have not been and will not be registered under the U.S. Securities Act of 1933, as amended, or any state securities laws and may not be offered or sold in the United States absent registration under or exemption from the applicable registration requirements. This news release does not constitute an offer to sell or the solicitation of any offer to buy nor will there be any sale of these securities in any province, state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such province, state or jurisdiction.ADVISORIESForward-Looking InformationThis news release contains forward-looking information that involves substantial known and unknown risks and uncertainties, most of which are beyond the control of Parallel, including, without limitation, those listed under "Risk Factors" and "Notice to Investors-Forward-Looking Statements" in Parallel's final prospectus filed April 14, 2011 (collectively, "forward-looking information"). Forward-looking information in this news release includes, but is not limited to, Parallel's objectives and status as a mutual fund trust and not a SIFT trust, the completion of the Acquisition and the closing of the Financing, Parallel's expectations and estimates regarding capital expenditure plans, drilling plans, drilling locations, drilling costs per well, current and future production rates, production decline rates, reserve information, production mix, operating costs, royalty rates, processing fees, general and administrative expenses, commodity prices and foreign exchange rates, availability under bank facility, funds from operations distributions, basic payout ratios, all-in payout ratios, sustainability of distributions and proceeds from the Trust's dividend reinvestment plan and Premium DRIP™. Parallel cautions investors in Parallel's securities about important factors that could cause Parallel's actual results to differ materially from those projected in any forward-looking statements included in this news release. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking and may involve estimates, assumptions and uncertainties which could cause actual results or outcomes to differ materially from those expressed in such forward-looking statements. No assurance can be given that the expectations set out in Parallel's final prospectus or herein will prove to be correct and accordingly, prospective investors should not place undue reliance on these forward-looking statements. These statements speak only as of the date of this press release and Parallel does not assume any obligation to update or revise them to reflect new events or circumstances.In this news release, Parallel and its subsidiaries are referred to collectively as the "Trust" or "Parallel" for purposes of convenience.FOR FURTHER INFORMATION PLEASE CONTACT: Dennis FeuchukParallel Energy TrustPresident and CEO403-781-7888 or Toll Free: 1-855-781-7888investor@parallelenergy.caORRick MillerParallel Energy TrustChief Financial Officer403-781-7888 or Toll Free: