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.