WCSB 2008-I Fund enters into an Agreement to sell Royalties (Tax-Deferred) to Caledonian Royalty Corporation

August 09, 2011

VANCOUVER, BRITISH COLUMBIA:   WCSB Holdings Corp. is pleased to announce that WCSB GORR Oil & Gas Income Participation 2008-I Limited Partnership (the “Partnership”), has entered into an agreement (the “Agreement”) to sell, on a tax deferred basis, its portfolio of oil and natural gas gross over-riding royalties ("GORRs") held by the subsidiary of the Partnership (referred to as the “Subsidiary”), to Caledonian Royalty Corporation ("Caledonian"), a private Alberta-based corporation (the “Transaction”). Under the terms of the Agreement, Caledonian will be issuing 141,666 Royalty Units valued at $1,699,992 for the GORRs.

The Partnership issued a total of 66,946 limited partnership units at a price of $100 per unit (the “Units”) for gross proceeds of $6,694,600 in the summer of 2008.

Pursuant to WCSB’s business model the investment is 100% tax deductible and, therefore, unitholders will realize in the aggregate tax savings estimated at $3,012,570.  Further, the Partnership has made total cash distributions to investors of $634,648 as at June 2011.

The return on “At-Risk” capital on an investment in units is estimated at -41.2% after income tax savings (1) and distributions (2); the breakdown on the investment is as follows:

(1)           Assumed marginal tax rate of 45%.
(2)           This amount is after the general partner’s share and does not include capital gains tax on disposition or tax on cash distributions.

The Partnership invested the net proceeds from the sale of its units into 13 joint ventures with 5 operators. Current production is approximately 20 BOE/d providing approximately $27,500 per month of revenue to the Partnership with 67% of the production being natural gas.

Closing of the transaction is subject to receipt of all required approvals, including Partnership unitholder approval.

Prior to the completion of the Transaction, the business and affairs of the Partnership will be restructured by amalgamating the Subsidiary together with the subsidiaries of WCSB Oil & Gas Royalty Income 2008-II Limited Partnership and WCSB Oil & Gas Royalty Income 2009 Limited Partnership (together, the “Other WCSB LP’s”) (whose gross overriding royalties Caledonian is also purchasing) to create a new company (“Amalco”). 

The Partnership will then be wound up, with the result that the existing Unitholders and the general partner of the Partnership (in consideration of the general partner’s share) will become shareholders of Amalco in proportion to the consideration being paid by Caledonian for the portfolio of GORRs held by the Partnership. 

Caledonian will then purchase the GORRs from Amalco in exchange for the Royalty Units, with the result that upon completion of the Transaction, former Unitholders of the Partnership and the general partners will own shares of Amalco, and Amalco will in turn hold the Royalty Units issued by Caledonian. 

The consideration payable by Caledonian has been calculated as at April 1, 2011 and is subject to adjustment based on deducting the amount of the royalties that were paid or payable in respect of the GORRs and adding the amount of the royalty distributions paid in respect to the Caledonian Royalty Units made by the Partnership and Caledonian, respectively, from that date until the date of closing of the Transaction.

The Agreement also provides for customary deal protections, including a non-solicitation covenant by the Partnership, a right for Caledonian to match any superior proposal received by the Partnership and payment of a termination fee if the Transaction is not completed in specified circumstances.  

Subject to receipt of all required approvals, the Transaction is expected to close in October 2011.

The proposed sale of the GORRs to Caledonian follows a comprehensive open market canvass of potential purchasers of the GORRs conducted with the assistance of the Partnership’s financial advisor, RBC Rundle.

“We are very pleased to be able to offer this opportunity to WCSB Unitholders. Caledonian has a very experienced, respected and successful oil and gas management team with a proven track record of building shareholder value. Further Caledonian is currently paying attractive monthly distributions from its exceptional asset base and an attractive royalty agreement covering in excess of one million acres of land in the western basin. While Caledonian is currently a private company, and the Transaction will not result in immediate liquidity to our Unitholders, we are confident that the transaction with Caledonian results in the best value (through ongoing regular monthly cash distributions to investors and capital gains potential on liquidation) available to our Unitholders” said Mr. Bill Bonner Chairman of the Board of the general partner.

In addition, Mr. Bonner stated that “Pursuant to our agreement, Caledonian has agreed to use its commercially reasonable efforts to effect a transaction to provide the former unitholders with liquidity on or before January 1, 2013.”  The Board has unanimously determined that the Transaction is fair from a financial point of view to the Partnership’s unitholders, and recommends that the unitholders vote in favor of the Transaction and the related restructuring.

The Partnership intends to request approval of the Transaction and the related restructuring at a special meeting of unitholders of the Partnership to be held in September, 2011.  A Management Information Circular for this meeting, providing a full summary of the Transaction and the related restructuring, as well as the material attributes of the Royalty Units, is expected to be mailed to Unitholders in late August, 2011.  The Management Information Circular will also be available on the internet at www.sedar.com.

ABOUT CALEDONIAN ROYALTY CORPORATION
Caledonian was established to provide investors with attractive tax-effective income paid monthly from Gross Overriding Royalties (“GORR”) that have limited risk and are not subject to capital and operating expenses associated with operated oil & gas assets.

Caledonian investors receive their returns in the form of monthly cash distributions on royalty units.  The royalty units are essentially a direct royalty interest on the oil and gas interests held by Caledonian.

Caledonian was formed in 2009 and concluded the acquisition of a 5% GORR on substantially all the assets of Compton Petroleum Corporation (“Compton”) including approximately 600,000 net acres of undeveloped land for gross proceeds of $100 million in 2010. 

The Compton GORR was structured as an interest in land ahead of Compton’s lenders and the purchase price of the GORR was based upon an independent engineering appraisal. 

Compton’s production is approximately 85% natural gas so that there is considerable upside in distributions, which are currently 7¢ cash per royalty unit paid monthly (providing an annualized return on invested capital of 8.4%).  Compton has subsequently sold properties and farmed out a portion of its undeveloped lands to reduce bank debt.  These properties remain subject to the GORR to Caledonian and, as a result, Caledonian is now receiving GORR payments from several companies including Compton.

Caledonian is presently considering other acquisition opportunities, including opportunities to acquire royalties and non-operated oil and natural gas properties. 

Caledonian is currently a private Alberta company.  Management has provided Caledonian royalty unit holders with an undertaking to provide a source of liquidity within three years of the formation of the Company in late 2009.

Caledonian is managed by Kinnear Financial Limited (“KFL”), which is controlled by James S. Kinnear, who was the founder, Chairman and CEO of Pengrowth Energy Trust.  For over 20 years, Pengrowth provided investors with compound average returns of over 14% per annum. KFL is a Calgary-based merchant bank that initiates structures and finances innovative financial solutions for the resource sector. As a merchant bank, KFL commits and invests its own capital alongside investors in commodity-related investments that provide attractive cash yields with limited downside risk.  KFL and Mr. Kinnear presently hold 45% of the outstanding royalty units of Caledonian.

ABOUT WCSB ROYALTY INVESTMENT PROGRAMS
WCSB Royalty Investment Programs are jointly owned and operated by CADO Bancorp Ltd. and Brickburn Asset Management Inc. CADO Bancorp Ltd. specializes in structuring, distributing and managing high quality tax-assisted investments. WCSB Royalty Income Investments are energy focused funds with a mandate to provide Canadian investors with income, capital appreciation, liquidity and up to a 100% tax deduction through the ownership of royalties on producing oil & natural gas companies.

FOR FURTHER INFORMATION
Shane Doyle, CEO
www.wcsb.ca

WCSB Royalty Income Investment Programs
609 Granville Street, Suite 808 Vancouver BC   V7Y 1G5
Tel:  604.684.5742    |   Email:  info@cadobancorp.ca

This press release contains forward-looking statements that involve known and unknown risks, uncertainties, assumptions and other factors, some of which are beyond the control of WCSB Holdings Corp., which may cause actual results or events to differ materially from those anticipated in such forward-looking statements. WCSB Holdings Corp. believes that the expectations reflected in those forward-looking statements are reasonable at the time made by no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in, or incorporated by reference into, this press release should not be unduly relied upon. These statements speak only as of the date of such information, as the case may be, and may be superseded by subsequent events. WCSB Holdings Corp. does not intend, and does not assume any obligation, to update these forward-looking statements.