March 10, 2009 / 6:09 PM / in 9 years

UPDATE 1-Penn West to buy small oil firm Reece for C$51 mln

* Penn West buying Reece for 0.125 of a Penn West unit

* Buy adds 2,100 boed, largely in Kindersley, Sask., area

CALGARY, Alberta, March 10 (Reuters) - Penn West Energy Trust PWT_u.TO, Canada’s biggest conventional energy income fund, said on Tuesday it will buy Reece Energy Exploration Corp RXR.V for C$51 million ($40 million) to bolster its position in a Saskatchewan oil play with the industry in a downturn.

Under the friendly deal, Penn West will offer 0.125 of one of its trust units for each Reece share, representing a 50 percent premium to the small explorer’s stock price on Monday, it said.

With the assumption of Reece’s debt, the deal is worth C$92.2 million. Penn West said it plans to cut its capital spending budget by about C$40 million, which is the amount of debt it will assume.

Reece shares were up 17 Canadian cents, or 18 percent, at C$1.10 before being halted on the small-cap TSX Venture Exchange. On the Toronto Stock Exchange, Penn West shares were up 78 Canadian cents, or 8 percent, at C$10.08.

Reece produces about 2,100 barrels of oil equivalent a day, two-thirds of which is oil and gas liquids and the balance natural gas.

The company’s main property is in the Kindersley, Saskatchewan, area, where Penn West has operations. The acquisition will give it a dominant land position in the region. Both companies have had success there using horizontal drilling and rock fracturing techniques.

The deal, which requires the support of shareholders with 66-2/3 percent of the stock, is due to close in May.

$1=$1.28 Canadian Reporting by Jeffrey Jones; Editing by Peter Galloway

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