CALGARY, ALBERTA–(Marketwired – Dec. 14, 2016) – PrairieSky Royalty Ltd. (“PrairieSky” or the “Company”) (TSX:PSK) is pleased to announce it has entered into a definitive agreement with Pengrowth Energy Corporation (“Pengrowth”) to acquire a 4% Gross Overriding Royalty on current and future phases of its Lindbergh SAGD thermal oil project (the “Lindbergh Royalty Acquisition”), as well as seismic over certain lands in British Columbia and Alberta, for total cash consideration of $250 million (the “Transaction”).
Complementary Asset to PrairieSky’s High Quality Royalty Portfolio
- Acquiring a 4% Gross Overriding Royalty on Pengrowth’s Lindbergh and Muriel Lake properties, a long-life, SAGD oil project with a low sustaining capital and operating cost structure.
- Phase I of commercial development at Lindbergh represented average daily production of 15,190 barrels per day of crude oil for the three months ended September 30, 2016, implying royalty production net to PrairieSky of over 600 barrels per day of crude oil.
- The acquired royalty includes future phases of development at Lindbergh and Muriel Lake, including Phase II (as defined below) which received regulatory approval in May 2016 and represents an incremental 17,500 barrels per day project and a combined nameplate capacity of 30,000 barrels per day.
Increased Free Cash Flow per Share
- The Transaction provides shareholders with near term cash flow accretion and medium and long term value enhancement.
- The Transaction increases PrairieSky’s oil production and liquids weighting adding over 600 barrels per day of crude oil royalty interest production and exposure to future phases of development.
- Upon closing of the Lindbergh Royalty Acquisition, approximately 10% of PrairieSky’s total crude oil production is expected to be from thermal oil projects.
- The Transaction provides an additional $250 million of tax pools, including $225 million of COGPE and $25 million of CEE which reduces PrairieSky’s future taxability.
Long Life Asset with Growth Potential
- Low decline, long-life asset with potential to double thermal production in the medium term and with a similar duration to PrairieSky’s existing portfolio of royalty assets.
- PrairieSky shareholders will benefit from future technological advancements in the industry with no further investment by or cost to PrairieSky.
- Along with the Lindbergh Royalty Acquisition, PrairieSky will also acquire seismic in areas of British Columbia and Alberta where PrairieSky has Fee Mineral Title lands.
Commenting on the Transaction, Andrew Phillips, President and CEO of PrairieSky said, “The Lindbergh Royalty Acquisition provides new and existing PrairieSky shareholders with unique exposure to what we believe is a large resource in place SAGD project with stable production and sizable growth opportunities. Lindbergh is performing well above original nameplate production estimates and design steam oil ratios, generating positive netbacks through 2016 with low associated operating costs and sustaining capital requirements. This is a significant addition to PrairieSky’s oil portfolio which provides PrairieSky shareholders with near-term cash flow accretion, medium and long-term value enhancement, and exposure to future phases as well as the benefits of technological advances by industry at no additional cost to PrairieSky.”
The Board of Directors of PrairieSky has unanimously approved the Transaction which is anticipated to close on or about January 6, 2017, with an effective date of January 1, 2017. The Transaction is subject to satisfaction of customary closing conditions.
KEY ATTRIBUTES OF PENGROWTH’S LINDBERGH AND MURIEL LAKE PROPERTIES
Lindbergh is Pengrowth’s 100% owned and operated thermal project which is located in the Cold Lake area of Alberta and encompasses 42.5 sections of land. The Lindbergh thermal oil project achieved first steam in December 2014 and first commercial production in April 2015. Lindbergh had average daily production of 15,190 barrels per day for the three months ended September 30, 2016 at an average steam oil ratio of 2.46. Lindbergh provides certain cost advantages including enhanced bitumen quality and flow characteristics resulting in an efficient steam oil ratio which translates into a lower operating cost structure and higher netbacks compared to many other thermal projects. In May 2016, Pengrowth received regulatory approval for the 17,500 barrels per day second commercial phase (“Phase II”) of the Lindbergh thermal project. With Phase II, nameplate capacity of the Lindbergh project will be 30,000 barrels per day.
On October 6, 2016, Pengrowth released an update of bitumen reserves and contingent resources for the Lindbergh project as evaluated by GLJ Petroleum Consultants Ltd. (“GLJ”) as of September 30, 2016 which estimated proved plus probable plus possible reserves for the Lindbergh property of 414.5 million barrels of oil. This represents an increase of 12% from the December 31, 2015 estimate as a result of the approval of the Phase II expansion as well as the addition of reserves associated with ongoing positive production performance.
The reserves described above do not include any potential development related to the Muriel Lake project, northeast of Lindbergh, where development is forecasted by Pengrowth to begin in 2023 with production to commence in 2025.
BOUGHT DEAL FINANCING
Concurrent with the Transaction, PrairieSky has entered into a $251 million bought deal equity financing (the “Financing”) whereby a syndicate of underwriters led by TD Securities Inc. as the sole bookrunner and co-led by CIBC Capital Markets (the “Underwriters”) have agreed to purchase 8 million common shares of the Company (“Common Shares”) at a price of $31.40 per share (the “Issue Price”). The Company has granted the Underwriters an option, exercisable at any time until 30 days following the closing of the Financing, to purchase up to an additional 15% of the Common Shares under the Financing to cover over-allotments, if any. If the over-allotment option is exercised in full, the Company will receive aggregate gross proceeds of approximately $289 million. The Common Shares issued pursuant to the Financing will be eligible to receive the dividend for the month of January 2017 which is expected to be declared on January 13, 2017 and paid on or about February 15, 2017 to shareholders of record on or about January 31, 2017.
PrairieSky will use the net proceeds of the Financing to pay the purchase price for the Transaction and the remainder of the proceeds, if any, to finance future acquisitions. The Financing is subject to certain conditions including customary regulatory and Toronto Stock Exchange (“TSX”) approvals. Closing of the Financing is not contingent on closing of the Acquisition. The Common Shares will be offered in all provinces and territories of Canada by way of a short form prospectus and in the United States pursuant to the exemptions from the registration statement requirements under the United States Securities Act of 1933. The closing of the Financing is expected to occur on or about January 6, 2017.
This news release does not constitute an offer to sell or a solicitation of an offer to buy any of the securities in the United States. The securities have not been and will not be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”) or any state securities laws and may not be offered or sold within the United States or to U.S. Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.