CALGARY, Nov. 13, 2014 /CNW/ – PrairieSky Royalty Ltd. (“PrairieSky” or the “Company”) (TSX:PSK) is pleased to announce that it has entered into an agreement (the “Arrangement Agreement”) to acquire Range Royalty Limited Partnership (“Range”), a leading private oil and gas royalty company with approximately 3,000 boe/d (40% liquids) of high quality royalty production and 3.5 million acres of royalty lands. Pursuant to the Arrangement Agreement, Range unitholders will receive 0.8 of a PrairieSky common share for each Range unit, resulting in approximately 19.33 million common shares of PrairieSky being issued on completion of the acquisition. Based on the 20 day volume weighted average trading price of PrairieSky, total consideration for Range is approximately $699 million. Upon the successful completion of this acquisition, PrairieSky intends to increase its annual dividend from $1.27 per share to $1.30 per share.
Benefits of the Acquisition
The key benefits of this strategic acquisition to PrairieSky shareholders are as follows:
- The acquisition is approximately four percent accretive to free cash flow per share, six percent accretive to production per share and 39% accretive to acres per share.
- Increases PrairieSky’s royalty acreage position to 9.3 million acres, including approximately 5.3 million acres of Fee Land, 3.6 million acres of gross overriding royalties (“GORRs”), 0.2 million acres in Gross Royalty Trusts and 0.2 million acres of crown leases or licenses.
- Provides PrairieSky with a significant land position in the Viking light oil fairway of western Saskatchewan, one of the most economic resource plays in Western Canada.
- Expands PrairieSky’s acreage position in active drilling areas of the Alberta Deep Basin, including 70,000 GORR acres of Duvernay rights contiguous with PrairieSky’s existing Fee Land position and exposure to Wilrich drilling at Edson.
- PrairieSky maintains a strong financial position with cash on its balance sheet and no debt.
- Adds approximately $60 million of tax pools.
- Addition of highly skilled professionals with royalty knowledge while still achieving significant administrative and operational synergies through economies of scale.
“With the acquisition of Range, PrairieSky has consolidated a leading private oil and gas royalty company in Western Canada” commented Andrew Phillips, President and CEO of PrairieSky. “Range has accumulated a large portfolio of royalties with high quality, well capitalized producers in addition to 139,000 acres of Fee Lands that are predominantly unleased. Our expanded footprint provides PrairieSky shareholders with significant exposure to the highly economic Viking light oil play in Saskatchewan, which we expect will provide strong oil production growth in the coming years.”
Conference Call and Updated Presentation
A conference call to discuss the proposed transaction has been scheduled for today, Thursday, November 13, at 7:00 AM MT (9:00 AM ET) for interested investors, analysts, brokers and media representatives. To participate, approximately 10 minutes prior to the conference call, please dial (888) 231-8191 (toll-free in North America) or (647) 427-7450 (Toronto & International). A digital replay will be made available approximately two hours after the call’s completion and will remain available until November 20. To listen to the replay, please dial (855) 859-2056 (toll-free in North America) or (416) 849-0833 (Toronto & International) and enter Encore Password 34348276. An updated presentation is currently available on the investor information page of PrairieSky’s website, http://www.prairiesky.com/investors.
About Range Royalty
Range was founded in 2005 and over a nine year history has established a large portfolio of royalty lands in Alberta, Saskatchewan and British Columbia. Since 2009, Range has recorded a 17% compound annual growth rate in production, highlighted by a 31% compound annual growth rate in liquids volumes. Production volumes for the three month period ended September 30, 2014 averaged 2,917 boe/d (39% liquids) with 2014 third party capital spending on the lands estimated at $300 million. Range’s Viking assets represented approximately 27% of production and approximately 41% of revenues for the three month period ended September 30, 2014.
Range has amassed 3.5 million acres of high quality royalty lands including 139,000 acres of Fee Lands, 3.0 million acres of GORR lands, 185,000 acres in Gross Royalty Trusts and 179,000 acres of crown leases and licenses. Crown leases and licenses are available for future farmout royalty agreements. Within the Viking fairways of Alberta and Saskatchewan, Range holds royalty interests in approximately 500,000 acres. Over 1,600 Viking locations have been identified on Range’s lands.
Drilling activity has continued to increase on the Range land base with an estimated 250 wells drilled or licensed to date during 2014, of which approximately 75% are focused on Viking targets. The Viking land base is in the early phase of drilling with only 21% of the lands being developed. In addition to the current Viking activity, 11 wells are currently licensed targeting the Wilrich in west central Alberta and five wells licensed or drilled for the Duvernay at Willesden Green. Of Range’s 3.5 million acres, only 5% is fully developed.
Range maintains a high quality and diverse roster of approximately 165 royalty payors on its land base including the top Viking operators in Alberta and Saskatchewan. An average royalty of 5% is paid on approximately 5,300 producing wells. Within the Viking, Range receives an average royalty of 8%.
PrairieSky maintains a conservative dividend philosophy by providing shareholders with a sustainable, consistent dividend. Based on accretion related to the Range acquisition, while being mindful of the current commodity price environment, the Board of Directors has approved an increased dividend of $1.30 per share (annualized). The first increased dividend is expected to be paid in February 2015 to shareholders of record on January 30, 2015. The Board of Directors of PrairieSky expects to review the dividend during the first quarter of each fiscal year. The amount of cash to be distributed as dividends will be determined at the discretion of the Board after consideration of numerous factors including: (i) the earnings of the Company; (ii) financial requirements for the Company’s operations; and (iii) the satisfaction by the Company of liquidity and insolvency tests described in the applicable legislation.
Summary of the Transaction
Under the terms of the Arrangement Agreement, Range unitholders will receive 0.8 of a PrairieSky share for each Range unit held, resulting in approximately 19.33 million common shares of PrairieSky being issued on completion of the acquisition. Based on the 20 day volume weighted average trading price of PrairieSky, total consideration for Range is approximately $699 million, including transaction costs and cash payments to cancel incentive securities granted by Range to its executives, directors and employees. After completion of the proposed acquisition the combined assets and employees will be led by PrairieSky’s existing management team.
The Board of Directors of PrairieSky has unanimously (other than the directors who have recused themselves from the process of considering the proposed transaction) approved the Arrangement Agreement. The Board of Directors of Range has unanimously approved the Arrangement Agreement and has concluded that the proposed transaction is in the best interests of Range. The Board of Directors of Range has recommended that its unitholders vote their Range securities in favor of the Arrangement. Each of the directors and officers and certain other securityholders of Range, representing approximately 35% of the voting securities of Range, have delivered support agreements pursuant to which they have agreed to vote in favor of the proposed transaction.
The proposed transaction will be carried out by way of a court-approved plan of arrangement (the “Arrangement”) and will require the approval of at least 66 2/3% of holders of Range securities represented in person or by proxy at the special meeting of Range unitholders (the “Range Meeting”) to be called to consider the Arrangement. It is expected that the proposed transaction will be exempt from the registration requirements of the U.S. Securities Act of 1933, as amended, pursuant to the court approval exemption afforded by section 3(a)(10) under that Act. The proposed transaction is subject to applicable regulatory approvals and the satisfaction of certain other closing conditions customary in transactions of this nature, including compliance with the Competition Act (Canada) and the acceptance of the Toronto Stock Exchange (the “TSX”). It is expected that the Range Meeting will take place in late December, 2014, with closing expected to occur as soon as possible thereafter subject to regulatory and other approvals.
A copy of the Arrangement Agreement will be filed on PrairieSky’s SEDAR profile and will be available for viewing at www.sedar.com.
CIBC World Markets Inc. is acting as exclusive financial advisor to PrairieSky with respect to the proposed transaction. Blake, Cassels & Graydon LLP is acting as legal advisor to PrairieSky.
TD Securities Inc. is acting as exclusive financial advisor to Range in connection with the Arrangement and has provided the Range Board with its verbal opinion that the consideration to be received by the Range unitholders is fair from a financial point of view. Burnet, Duckworth & Palmer LLP is acting as legal advisor to Range.
This press release includes certain statements regarding PrairieSky’s future plans and operations, including with respect to the Arrangement, and contains forward-looking statements that we believe allow readers to better understand our business and prospects. The use of any of the words “expect”, “anticipate”, “continue”, “estimate”, “objective”, “ongoing”, “may”, “will”, “project”, “should”, “believe”, “plans”, “intends”, “strategy” and similar expressions are intended to identify forward-looking information or statements. More particularly and without limitation, this press release contains forward-looking statements and information concerning: the anticipated benefits of the acquisition of Range to PrairieSky shareholders, including anticipated synergies, anticipated accretion levels, anticipated future drilling commitments and capital spent on Range’s royalty lands, expected oil production growth from Range’s Viking royalty assets; the timing and anticipated receipt of required regulatory, court and securityholder approvals for the Arrangement; the ability of PrairieSky and Range to satisfy the other conditions to, and to complete, the Arrangement; the anticipated timing of the holding of the Range Meeting and the closing of the Arrangement; the listing of PrairieSky’s shares to be issued under the Arrangement on the TSX; and PrairieSky’s anticipated dividend increase following completion of the Arrangement.
With respect to the forward-looking statements and information concerning the anticipated benefits and completion of the proposed Arrangement, the anticipated timing for completion of the Arrangement and the listing of PrairieSky’s shares on the TSX, PrairieSky has provided such in reliance on certain assumptions that its believes are reasonable at this time, including assumptions as to the time required to prepare and mail Range securityholder meeting materials, including the required information circular; the ability of the parties to receive, in a timely manner, the necessary regulatory, court, securityholder, stock exchange and other third party approvals, including but not limited to the receipt of applicable approvals under the Competition Act (Canada); the ability of the parties to satisfy, in a timely manner, the other conditions to the closing of the Arrangement; and expectations and assumptions concerning, among other things: commodity prices and interest and foreign exchange rates; planned synergies, administrative efficiencies and cost-savings; applicable tax laws; future production rates; and budgeted capital expenditures of third parties carrying out planned activities on PrairieSky and Range royalty lands The anticipated dates provided may change for a number of reasons, including unforeseen delays in preparing meeting materials, inability to secure necessary securityholder, regulatory, court or other third party approvals in the time assumed or the need for additional time to satisfy the other conditions to the completion of the Arrangement. Accordingly, readers should not place undue reliance on the forward-looking statements and information contained in this press release. In respect of the forward-looking statements and information concerning the potential increase in PrairieSky’s dividend following completion of the Arrangement, PrairieSky has provided such in reliance on certain assumptions that it believes are reasonable at this time, including assumptions in respect of: prevailing commodity prices, margins and exchange rates; that PrairieSky’s future results of operations will be consistent with past performance and management expectations in relation thereto; the continued availability of capital for third parties at attractive prices to fund future exploration, development and production activities on PrairieSky’s and Range’s royalty lands; the success of third party exploration, development and production activities; that counterparties to material agreements will continue to perform in a timely manner; and that there are no unforeseen events preventing the performance of contracts. Readers are cautioned that the assumptions used in the preparation of such forward-looking information and statements, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. Our actual results, performance, or achievement could differ materially from those expressed in, or implied by, these forward-looking statements. We can give no assurance that any of the events anticipated will transpire or occur, or if any of them do, what benefits we will derive from them.
Since forward-looking statements and information address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to the risks associated with the PrairieSky’s business including the impact of general economic conditions, industry conditions, volatility of commodity prices, lack of pipeline capacity, currency fluctuations, imprecision of reserve estimates, crown royalty rates and incentives, environmental risks, taxation, regulation, changes in tax or other legislation, competition from other industry participants, the lack of availability of qualified personnel or management, stock market volatility, our ability to access sufficient capital from internal and external sources, failure to realize the anticipated benefits of the Arrangement and to successfully integrate Range. Risks and uncertainties inherent in the nature of the Arrangement include the failure of Range or PrairieSky to obtain necessary securityholder, regulatory, court and other third party approvals, or to otherwise satisfy the conditions to the Arrangement, in a timely manner, or at all. Failure to so obtain such approvals, or the failure of Range or PrairieSky to otherwise satisfy the conditions to the Arrangement, may result in the Arrangement not being completed on the proposed terms or at the anticipated time, or at all. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on other factors that could affect the operations or financial results of PrairieSky, and the combined company following completion of the Arrangement, are included in reports on file with applicable securities regulatory authorities, including but not limited to PrairieSky’s final prospectus dated May 22, 2014 under “Risk Factors” and in PrairieSky’s MD&A for the period ended September 30, 2014 under the heading “Risk Management”, each of which is available at www.sedar.com.
Further, any forward-looking statement is made only as of the date of this press release, and PrairieSky undertakes no obligation to update or revise any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events, except as required by applicable securities laws. New factors emerge from time to time, and it is not possible for PrairieSky to predict all of these factors or to assess in advance the impact of each such factor on PrairieSky’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. The forward-looking information contained in this document is expressly qualified by this cautionary statement.
Conversions of Natural Gas to BOE
To provide a single unit of production for analytical purposes, natural gas production and reserves volumes are converted mathematically to equivalent barrels of oil (BOE). We use the industry-accepted standard conversion of six thousand cubic feet of natural gas to one barrel of oil (6 Mcf = 1 bbl). The 6:1 BOE ratio is based on an energy equivalency conversion method primarily applicable at the burner tip. It does not represent a value equivalency at the wellhead and is not based on either energy content or current prices. While the BOE ratio is useful for comparative measures and observing trends, it does not accurately reflect individual product values and might be misleading, particularly if used in isolation. As well, given that the value ratio, based on the current price of crude oil to natural gas, is significantly different from the 6:1 energy equivalency ratio, using a 6:1 conversion ratio may be misleading as an indication of value.
About PrairieSky Royalty Ltd.
PrairieSky is a royalty-focused company, generating royalty revenues as petroleum and natural gas are produced from its properties. PrairieSky has a diverse portfolio of properties that have a long history of generating stable free cash flow and that represent one of the largest and most concentrated independently-owned fee simple mineral title positions in Canada. PrairieSky common shares trade on the Toronto Stock Exchange under the symbol PSK.
SOURCE PrairieSky Royalty Ltd.
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For further information: Please Contact: PrairieSky Royalty Ltd., Andrew Phillips, President & Chief Executive Officer, (587) 293-4005; Cristina Lopez, VP, Corporate Development, (587) 293-4085; Investor Relations: (587) 293-4000, www.prairiesky.com