The GORR Lands are operated by Anova Resources Inc. (“Anova”), and Elevation Oil & Gas Limited (“Elevation”) is partnered with Anova on the GORR Lands. Source Rock has completed several royalty deals with Anova since January 2019. Over this time, Anova has successfully drilled numerous horizontal wells on Source Rock’s royalty lands and has become one of Source Rock’s largest royalty payors. Gross production from the GORR Lands averaged approximately 500 bbl/d of Frobisher light oil in October 2022. In addition, 8 horizontal wells were recently drilled on the GORR Lands, and 4 of these wells began producing over the last two weeks. It is anticipated that the remaining recently drilled horizontal wells will begin producing prior to year-end.
Future development on the GORR Lands will be focused on the Frobisher formation. The Frobisher is a shallow, conventional light oil play that does not require hydraulic fracturing; it is one of the most economic light oil plays in Canada.
Significant Drill Commitment
As part of the purchase of the GORR, Source Rock has received a drill commitment for 15 additional net horizontal wells (each a “Drill Commitment Well”) to be drilled on Source Rock’s royalty lands prior to December 31, 2024 (the “Drill Commitment Deadline”). Source Rock is entitled to $125,000 in damages for each Drill Commitment Well not drilled before the Drill Commitment Deadline.
The Drill Commitment Deadline may be automatically extended as follows:
- Upon the first time that the price of the NYMEX West Texas Intermediate (“WTI”) Light Sweet Crude Oil Futures Contract (in U.S. Dollars) settles below $70.00 for 30 consecutive days, it shall be extended by 90 days; and
- Every time thereafter that the price of WTI settles below $70.00 for 30 consecutive days, it shall be extended by an additional 30 days.
President’s Message
We are very pleased to add to our portfolio of light oil royalty lands in S.E. Saskatchewan and to expand our relationship with Anova and Elevation. Anova has consistently executed on its operational plans since 2019 and they have proved to Source Rock that they have the necessary expertise to successfully undertake their drilling plans in S.E. Saskatchewan.
Our royalty acquisition strategy continues to focus on supporting the drilling activity and acquisitions of proven junior and intermediate oil and natural gas exploration and production companies. Although robust commodity prices have vastly improved balance sheets, segments of the industry remain capital constrained at a time when rates of return on drilling are very strong and acquisition metrics are attractive. With equity valuations across the Canadian energy industry near all-time lows and the availability of reasonable debt capital for smaller operators being limited, we believe that ‘royalty capital’ is an extremely attractive funding option for exploration and production companies.
Following completion of this acquisition Source Rock has approximately $13 million of working capital ($0.29 per share) to pursue additional royalty acquisitions and partnerships with operators.
Brad Docherty, President & CEO
ATB Capital Markets Inc. acted as a financial and technical advisor to Source Rock on the transaction.
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About Source Rock Royalties Ltd.
Source Rock is a pure-play oil and gas royalty company with an existing, light oil focused portfolio of royalty interests concentrated in southeast Saskatchewan, east-central Alberta, west-central Alberta and west-central Saskatchewan. Source Rock targets a balanced growth and yield business model, using funds from operations to pursue accretive royalty acquisitions and to pay dividends. By leveraging its niche industry relationships, Source Rock identifies and acquires both existing royalty interests and newly created royalties through collaboration with industry partners. Source Rock’s strategy is premised on maintaining a low-cost corporate structure and achieving a sustainable and scalable business, measured by growing funds from operations per share and maintaining a strong netback on its royalty production.
Forward-Looking Statements
This news release includes forward-looking statements and forward-looking information within the meaning of Canadian securities laws. Often, but not always, forward-looking information can be identified by the use of words such as “plans”, “is expected”, “expects”, “scheduled”, “intends”, “contemplates”, “anticipates”, “believes”, “proposes” or variations (including negative and grammatical variations) of such words and phrases, or state that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved. Forward-looking statements in this news release include statements regarding Source Rock’s dividend strategy and the amount and timing of future dividends (and the sustainability thereof), the potential for future drilling on Source Rock’s royalty lands (and in particular the Drill Commitment Wells being drilled prior to the Drill Commitment Deadline, if at all), expectations for results from the drilling on Source Rock’s royalty lands, expectations regarding commodity prices, Source Rock’s growth strategy and expectations with respect to future royalty acquisition and partnership opportunities, and the ability to complete such acquisitions and establish such partnerships. Such statements and information are based on the current expectations of Source Rock’s management and are based on assumptions and subject to risks and uncertainties. Although Source Rock’s management believes that the assumptions underlying these statements and information are reasonable, they may prove to be incorrect. The forward-looking events and circumstances discussed in this news release may not occur by certain dates or at all and could differ materially as a result of known and unknown risk factors and uncertainties affecting Source Rock. Although Source Rock has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements and information, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended. No forward-looking statement or information can be guaranteed. Except as required by applicable securities laws, forward-looking statements and information speak only as of the date on which they are made and Source Rock undertakes no obligation to publicly update or revise any forward-looking statement or information, whether as a result of new information, future events or otherwise.
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