PrairieSky Fee Leases Kathy Luther, Manager Lease Compliance CAPLA, - - PowerPoint PPT Presentation

PrairieSky Fee Leases Kathy Luther, Manager Lease Compliance

CAPLA, January 27, 2015

OPEN BUSINESS

for for

The small print

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• 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

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?

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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
• r reclamation obligations
• Collaborative approach to interactions with lessees

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History of PrairieSky Fee Title Lands

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1881Canadian Pacific Railway Main Line Land Grant

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

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History of PrairieSky Fee Title Lands

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Go West, Young Man

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History of PrairieSky Fee Title Lands

History of PrairieSky Fee Title Lands

• 1958

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History of PrairieSky Fee Title Lands

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History of PrairieSky Fee Title Lands

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History of PrairieSky Fee Title Lands

• May 2014 Encana IPO creates PrairieSky
• December 2014 Range Royalty amalgamated into

PrairieSky

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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

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PrairieSky 2014 Fee Lease

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• 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

Drilling and Production Operations

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“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 …

Lease Continuation - Clause 2 (b)

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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

Downspacing versus Holdings

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• Gas downspaced to quarter section
• Spacing is now similar to oil = A gas well must

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

section only

• Gas Holding – 4 wells per section
• Has no affect on the spacing unit
• Changes well density only
• Example 2: Any producing lease well continues

full section spacing unit

Downspacing Holdings

PrairieSky Website – Lease Compliance

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www.prairiesky.com/land-managment/lease-compliance

Continuation Application: Production Operations

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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 ????

Production Operations - Part 1

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Production Operations - Part 2

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Production Operations - Part 3

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Groups vs. Formations

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AGE CRETACEOUS JURASSIC ERCB TABLE OF FORMATIONS, ALBERTA

Example of stratigraphic equivalents:

Bow Island/Viking/ Paddy-Cadotte Colony/Notikewin Upper Mannville/ Spirit River/Falher Glauc/Cummings/ Bluesky Sawtooth/Shaunavon/ Rock Creek

Groups versus Formations

Groups vs. Formations

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1283m 1192m 1294m 1257m 1206m 1269m 1250m 1235m

Horizontal Wells & PAUA’s

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“If a horizontal well straddles more than one Spacing Unit without common mineral

• wnership at both the lessor and lessee level, then Lessee shall….. enter into a

production allocation unit agreement…”

Scenario 1: Scenario 2: Scenario 3:

Production Operations - Part 4

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Production Operations: Example 2 - No current production

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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

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Producing/Capable - Lease Information: Part 2

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* No rental cheque required if producing * No production requires Shut-In Well Payment

Producing/Capable – Part 3 Continuation Requested

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Offset Obligations

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PSK Fee Land Offset Well Offset formation Producing formation

http://www.fhoa.ca/

Offsets

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• 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

History of Offset (Remedy/Election) Options

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www.prairiesky.com/land-management/lease-compliance/

Options to Comply

• 1. Drill
• 1. Drill
• 2. Surrender
• 1. Drill
• 2. Surrender
• 3. Compensatory Royalty Payment

Time Line 1950 1965 1990

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Present

*Dates are approximate

Royalty Rates & Deductions

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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

PrairieSky Lease Assignments

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• 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

Contest Time

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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

• bligation - True/False?

3. Which company was recently amalgamated into PrairieSky Royalty Ltd.? a) Encana Corporation b) Range Royalty c) Ranger Oil & Gas Ltd.

Contest Answers

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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

• bligation - True/False?

3. Which company was recently amalgamated into PrairieSky Royalty Ltd.? a) Encana Corporation b) Range Royalty c) Ranger Oil & Gas Ltd.

Q & A

Questions?

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Thanks for helping us transition from Encana to PrairieSky, & Wishing all our lessees much success in their 2015 operations!

Thank you and…