OTTAWA (dpa-AFX) - Canada's Franco-Nevada Corp. (FNV, FNV.TO) said Tuesday it has entered into a purchase and sale agreement with Penn West Petroleum Ltd. (PWE, PWT.TO) and Penn West Petroleum to acquire an approximate 11.7% net royalty interest in the Weyburn Oil Unit for C$400 million in cash, prior to normal closing adjustments.
Closing of the deal is expected to occur on or about November 30, 2012 and will be funded through Franco-Nevada's existing working capital. Once closed, this acquisition is expected to be immediately accretive to Franco-Nevada's revenue, cash flow and earnings.
The Weyburn Oil Unit is a conventional unitized oil field encompassing about 53,360 acres located in southeast Saskatchewan. The Unit has been in production for about 50 years with production to date of about 460 million barrels ('MMbbl') out of an initial oil in place estimate of 1.4 billion barrels.
Current production levels at the Unit are about 26,000 barrels of oil per day of medium grade slightly sour crude. The reserve life index based on proven plus probable reserves is more than 20 years. The Unit is operated by Cenovus Energy Inc.
The net royalty interest, or NRI, is paid net of operating and capital costs similar to a mineral net profits interest royalty. This adds to Franco-Nevada's existing interests in the Weyburn Unit which include both a 0.44% overriding royalty and a 2.26% working interest.
The NRI adds approximately 24 MMbbl (20.4 MMbbl net after crown royalties) to Franco-Nevada's proven plus probable oil equivalent reserves, based on an independent engineering report effective as of December 31, 2011. Based on the purchase price the cost of the acquired proven plus probable reserves is C$16.53 per barrel.
After thE acquisition, Franco-Nevada expects that at least 80% of its future revenues will continue to be earned from precious metals assets.
For the deal, Scotia Waterous acted as an advisor on behalf of Franco-Nevada, while CIBC World Markets acted as an advisor for Penn West.
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© 2012 AFX News
