CALGARY, Alberta, Nov. 29, 2021 – PrairieSky Royalty Ltd. (“PrairieSky” or the “Company“) (TSX: PSK) is pleased to announce that it has entered into a definitive agreement with Heritage Royalty (“Heritage”) to acquire: (i) over 1.9 million acres of royalty lands throughout Alberta, Saskatchewan and Manitoba (the “Royalty Lands”) including over 1.7 million net acres of fee simple mineral title lands; and (ii) extensive seismic assets that are complementary to the Royalty Lands, for total cash consideration of $728 million (the “Acquisition“). The Acquisition includes current estimated royalty production of 2,700 BOE per day (92% liquids), from which PrairieSky expects to generate approximately $65 million of royalty revenue in 2022, excluding any leasing, compliance and other revenues associated with the Royalty Lands. The Acquisition will reunify a preeminent fee simple mineral title asset across Alberta, Saskatchewan and western Manitoba with PrairieSky’s existing royalty portfolio of approximately 16.3 million acres. The Acquisition will be funded through a new $500 million term loan provided by TD Securities Inc., and a concurrent $200 million bought deal equity financing led by TD Securities Inc. and RBC Capital Markets as joint bookrunners and co-led by CIBC Capital Markets and BMO Capital Markets on behalf of a syndicate of underwriters.
“With this Acquisition, PrairieSky consolidates a complementary and historic asset base, one of the largest blocks of fee mineral title acreage in Canada, with our incomparable existing royalty portfolio,” said Andrew Phillips, President and CEO of PrairieSky, commenting on the Acquisition. “The Acquisition is highly accretive on a per-share basis and is consistent with our strategy of adding complementary royalty assets that provide near term cash flow accretion per-share along with near, medium and long-term value enhancement potential. These other benefits include extensive leasing opportunities, near term implementation of multi-lateral drilling and other technological advancements, early stage and future enhanced oil recovery projects, and future exploitation of other minerals such as potash, helium and lithium, in each case at no additional cost to PrairieSky. Including the proposed Acquisition, PrairieSky has successfully added approximately 3.0 million acres of incremental royalty lands, predominantly fee mineral title, to our business in 2021.”
BENEFITS OF THE ACQUISITION
PrairieSky believes the key benefits of the Acquisition are as follows:
- Increases PrairieSky’s already dominant oil and natural gas royalty acreage position by adding over 1.9 million acres of royalty interest lands, including 1.7 million net acres of fee simple mineral title lands, providing a vast undeveloped land position for future leasing and royalty generating opportunities and the perpetual optionality that exists only with fee simple mineral title.
- Adds 2,700 BOE per day of current royalty production volumes which are expected to generate approximately $65 million of royalty production revenue in 2022. The Acquisition adds 2,400 barrels of oil per day, increasing PrairieSky’s oil royalty production by over 30%. PrairieSky expects its total liquids royalty production weighting to be over 55% in 2022.
- Immediately accretive to funds from operations per share and expected to be approximately 17% accretive to funds from operations per share in 2022.
- Adds approximately 20% to oil royalty production per share.
- Adds multi-decade inventory with numerous original oil-in-place development opportunities with proven growth potential, down spacing, secondary recovery and enhanced oil recovery (“EOR“) upside potential.
- Adds acreage in multiple areas that are expected to see implementation of multi-lateral drilling and other sustainable technologies pioneered in the Clearwater oil play.
- Adds $728 million of tax pools which are expected to reduce PrairieSky’s 2021 cash taxes by over $20 million as well as reducing PrairieSky’s future taxability.
- Further diversifies the geographical and geological nature of PrairieSky’s royalty revenues, with high quality, well capitalized and capital efficient royalty payors, including Canadian Natural Resources Limited, Crescent Point Energy Corp. and Enerplus Corporation who are three of the top royalty payors.
- Achieves significant general and administrative cost synergies through economies of scale.
The Acquisition is expected to close in December 2021, with an effective date of December 31, 2021. The Acquisition is subject to applicable regulatory approvals and satisfaction of certain other closing conditions customary in transactions of this nature, including approval under the Competition Act (Canada). A copy of the purchase and sale agreement will be filed on PrairieSky’s SEDAR profile and will be available for viewing at www.sedar.com.
BOUGHT DEAL FINANCING
PrairieSky has entered into an approximate $200 million bought deal equity financing (the “Financing“) whereby a syndicate of underwriters led by TD Securities Inc. and RBC Capital Markets as joint bookrunners and co-led by CIBC Capital Markets and BMO Capital Markets (collectively, the “Underwriters“) have agreed to purchase 14,930,000 million common shares of the Company (“Common Shares“) at a price of $13.40 per Common 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 issued pursuant to 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 $230 million.
The Common Shares issued pursuant to the Financing will be eligible to receive the quarterly dividend expected to be declared on or about December 8, 2021 and payable to shareholders of record on December 31, 2021. The dividend is expected to be paid on January 17, 2022. PrairieSky will use the net proceeds of the Financing to fund a portion of the purchase price for the Acquisition. The Financing is subject to certain conditions including customary regulatory and Toronto Stock Exchange (“TSX“) approvals. Closing of the Financing is not conditional 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 December 15, 2021. Closing of the Acquisition is not subject to closing of the Financing as PrairieSky has financial capacity under its existing credit facility and the Term Loan (described below) to complete the Acquisition.
This press 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.
In connection with the Acquisition, PrairieSky has entered into a binding agreement with TD Securities Inc. to provide PrairieSky with a new two-year, $500 million term loan (the “Term Loan“). The Term Loan will include financial and other covenants and pricing identical to PrairieSky’s existing $425 million revolving credit facility which matures on February 28, 2025. Funding under the Term Loan will take place concurrently with closing of the Acquisition. To the extent the available credit under the Credit Facility is expanded prior to closing of the Acquisition, the amount of credit available under the Term Loan will be reduced in an equivalent amount or in its entirety.