PrairieSky Fee Leases Kathy Luther, Manager Lease Compliance CAPLA, January 27, 2015 for OPEN BUSINESS for
The small print • This Presentation and any accompanying material or ensuing discussions during or after are for informational purposes only and do not constitute legal conclusions or legal advice from PrairieSky Royalty Ltd. • This Presentation is based on generalizations • The specific terms of your Lease will prevail 2
Agenda • Who are We? • History of PrairieSky’s Fee Lands • Review of lease terms • www.prairiesky.com Lease Compliance Information • Lease Continuation Application • Offsets • Royalties and Deductions • Lease Assignments • Contest Time • Questions? 3
Who Are We? • Created from Encana’s royalty interests in Clearwater BU • Initial Public Offering May 27, 2014 • Included Fee Titles as well as GORR’s • Publicly traded as PSK • Unique Company • A Royalty Company - Not an E&P company • Do not intend to drill wells, explore for, or develop petroleum or natural gas • Growth through third-party development of our properties to increase royalty revenue • Minimal or no operating costs, capital costs, environmental liabilities or reclamation obligations • Collaborative approach to interactions with lessees 4
History of PrairieSky Fee Title Lands 1881Canadian Pacific Railway Main Line Land Grant 5
History of PrairieSky Fee Title Lands continued “Railway executive William Cornelius Van Horne swooped into Winnipeg and took CPR in his hands like a giant whip. He cracked it once to announce his presence, cracked it again to shake loose the sloth and corruption and cracked it a third time simply because the first two felt so good. The railway didn’t know what hit it…” Lords of The Line, 1989 6
History of PrairieSky Fee Title Lands Go West, Young Man 7
History of PrairieSky Fee Title Lands 8
History of PrairieSky Fee Title Lands • 1958 9
History of PrairieSky Fee Title Lands 10
History of PrairieSky Fee Title Lands 11
History of PrairieSky Fee Title Lands • May 2014 Encana IPO creates PrairieSky • December 2014 Range Royalty amalgamated into PrairieSky 12
PrairieSky Fee Title Ownership • Largest Freehold Mineral Title owner in Canada • ~18,600 Mineral Fee Titles • ~ 5.3 MM acres of Fee land • ~ 17,000 active Fee Leases • > 200 Lease forms • ~3.6 MM acres GORR’s 13
PrairieSky 2014 Fee Lease • Two parts • Specific Terms • General Terms and Conditions • Specific Terms • Lessor & Lessee • Lease Date • Leased Lands, Substances, Formations • Type Log • Royalty Rate • Primary Term • Rental rate • Special Provisions • Signatures 14
Drilling and Production Operations “Drilling Operations” means: • spudding, drilling a well for production of Leased Substances to and including the commencement of Production Operations or abandonment “Production Operations” means any of: • production of Leased Substances; • completion operations ; • including the installation of the production casing, tubing and wellhead equipment and all other equipment and material necessary for the permanent preparation of a well for the production of Leased Substances in Paying Quantities; • equipping and tie-in of a well; • re-working, fracture stimulating, acidizing or stimulating of a well ; or • injection or production of water or other substances for the purpose of producing or increasing production … 15
Lease Continuation - Clause 2 (b) Continued if: • Production Operations diligently and continuously conducted + • Continuation Application Form submitted + • Rental for the upcoming year What continues? • those Leased Lands that are contained within the Spacing Unit of a well, and • those Leased Formations within that well where Production Operations are being diligently and continuously conducted 16
Downspacing versus Holdings Downspacing Holdings • Gas downspaced to quarter section • Gas Holding – 4 wells per section • Spacing is now similar to oil = A gas well must • Has no affect on the spacing unit • Changes well density only be drilled in each quarter to continue full section • https://www3.eub.gov.ab.ca/EUB/DDS/spacing/ wellspacing.aspx • Example 1: Well drilled continues NW quarter • Example 2: Any producing lease well continues section only full section spacing unit 17
PrairieSky Website – Lease Compliance www.prairiesky.com/land-managment/lease-compliance 18
Continuation Application: Production Operations Continued beyond primary term by one of two methods: Production Operations • Circa 2000 – today • Lease forms = PSK 2014, ECA, Parkland, Sliding Scale (S/S) • What continues = Formations with Operations • Available on www.prairiesky.com Producing or Capable Well • Circa 1980 - 1999 • Lease Forms = 551 and variations • What continues = to the base of the Deepest Formation capable or producing • Available on request Continuation Spreadsheet available on request Q: Are there other types of Leases ???? 19
Production Operations - Part 1 20
Production Operations - Part 2 21
Production Operations - Part 3 22
Groups vs. Formations ERCB TABLE OF FORMATIONS, ALBERTA Example of stratigraphic AGE equivalents: Bow Island/Viking/ Paddy-Cadotte CRETACEOUS Colony/Notikewin Upper Mannville/ Spirit River/Falher Glauc/Cummings/ Bluesky JURASSIC Sawtooth/Shaunavon/ Rock Creek 23 Groups versus Formations
Groups vs. Formations 1192m 1206m 1235m 1250m 1257m 1269m 1294m 1283m 24
Horizontal Wells & PAUA’s “If a horizontal well straddles more than one Spacing Unit without common mineral ownership at both the lessor and lessee level, then Lessee shall….. enter into a production allocation unit agreement…” Scenario 1: Scenario 2: Scenario 3: 25
Production Operations - Part 4 26
Production Operations: Example 2 - No current production 27
Continuations for Producing/Capable Leases • Very few leases of this type in primary term • Producing or Capable Well • Circa 1980 - 1999 • Lease Forms = 551 and variations • What continues = to the base of the deepest formation capable or producing • Continuation Application Form is available on request by emailing Land.inquiries@prairiesky.com or contacting your PrairieSky Lease Administrator 28
Producing/Capable - Lease Information: Part 2 * No rental cheque required if producing * No production requires Shut-In Well Payment 29
Producing/Capable – Part 3 Continuation Requested 30
Offset Obligations PSK Fee Land Offset Well Offset formation Producing formation 31 http://www.fhoa.ca/
Offsets • Triggering wells • 90 days of production • drilled before or after lease date • Lateral spacing units for older leases • Offset Notice • Response forms • Well already producing from that formation • Surrender (all non-producing formations) • Pay Compensatory Royalties • Separately for each offset formation • Based on Highest Producing Offsetting Spacing Unit • Provides additional time to drill the offset well • Technical Review request • Provide mapping or other evidence indicating the offset formation is not present 32
History of Offset (Remedy/Election) Options Time Line Options to Comply 1950 } 1. Drill 1965 } www.prairiesky.com/land-management/lease-compliance/ 1. Drill 2. Surrender 1990 } 1. Drill 2. Surrender 3. Compensatory Royalty Payment Present *Dates are approximate 33
Royalty Rates & Deductions Royalty Rates • Majority of leases are Fixed Royalty Rates • Sliding Scale Leases • 80% of 2009 Crown Sliding Scale Royalty Rate (no holidays) • Minimum = 4% + Freehold Mineral Tax • Maximum = 40% Deductions • Majority of leases are “No Deductions” • For those leases that do allow deductions: • Actual costs of facilities utilized by each well • NOT Crown GCA 34
PrairieSky Lease Assignments • Lease Notices are addressed to Registered Lessees • Lease Assignments versus Contractual NOA’s • Lessee registered interest not working interest or beneficial interest • Requires PrairieSky’s execution • No Partnerships or Trustco’s • No Partial Assignments • PrairieSky’s Assignment Agreement • Online Assignment Agreement • Recent changes to expedite Assignments • No Longer includes the leased formations • PrairieSky may strikeout leases if • Errors in Lease Schedules • Leases with outstanding royalty issues • Lease Interest Clarification Agreement • Used when there is a break in chain of title • Sample agreement on our website 35
Contest Time 1. What was the minimum price charged by CPR for land sold to the European settler’s? a) $2.50/acre b) $250/acre c) $2.50/Ha 2. Only wells drilled after the lease date can trigger an offset obligation - True/False? 3. Which company was recently amalgamated into PrairieSky Royalty Ltd.? a) Encana Corporation b) Range Royalty c) Ranger Oil & Gas Ltd. 36
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