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PrairieSky Builds Portfolio, Buys Another Royalty-Fee Specialist

Calgary's PrairieSky Royalty Ltd. agreed Thursday to buy another royalty-fee specialist, Range Royalty LP, which would expand its portfolio by 3.5 million acres and add 3,000 boe/d in production.

Range, a private formed in 2005 and also based in Calgary, has production that is 60% weighted to natural gas, but of late it's been concentrating its efforts in the Viking light oil fairway of western Saskatchewan. PrairieSky agreed to pay C$699 million ($618 million) for the operator.

"With the acquisition of Range, PrairieSky has consolidated a leading private oil and gas royalty company in Western Canada," said CEO Andrew Phillips. "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."

PrairieSky, majority owned by Encana Corp., was spun off in May; it was the biggest public offering in Canada in a decade (see Shale DailyMay 29). Encana created the unit from 5.2 million acres of legacy land that stretch from Southern Alberta to the U.S. border. Investors in PrairieSky share in royalty payments from production on its lands, and Range, a similarly structured partnership, could add more appeal.

With Range, PrairieSky's royalty acreage position would increase to 9.3 million acres, including 5.3 million acres of fee land, 3.6 million acres of gross overriding royalty interests, 200,000 acres in gross royalty trusts and 200,000 acres of crown leases or licenses.

"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," said Phillips.

Under terms of the agreement, each Range unit would be exchanged for 0.8 share of PrairieSky, resulting in about 19.3 million common shares of PrairieSky being issued. Some Range employees also are to join the PrairieSky team.

Range over the past nine years has built an asset base in Alberta, Saskatchewan and British Columbia. Since 2009 Range has recorded a 17% compound annual growth rate in production, with 31% growth in liquids volumes, according to PrairieSky. Production volumes in 3Q2014 averaged 2,917 boe/d, 61% weighted to gas and 39% to liquids, with third party capital spending estimated at C$300 million. The Viking assets in the quarter represented about 27% of production and 41% of revenues.

Within the Viking fairways of Alberta and Saskatchewan, Range holds royalty interests in about 500,000 acres. More than 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 this year, of which three-quarters are focused on Viking targets.

The Viking land base is in the early phase of drilling with only 21% of the lands being developed, management noted. In addition to the Viking activity, 11 wells are targeting the Wilrich in west-central Alberta and five wells are licensed or drilled for the Duvernay formation at Willesden Green. Of Range's 3.5 million acres, only 5% is fully developed.

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