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 $634,648 as at June 2011.
The return on “At-Risk” capital on an investment in units is
estimated at -41.2% after income tax savings (1) and distributions (2);
the breakdown on the investment is as follows:
|Initial investment ||$ |
| 100.00 |
|Tax savings (1) || $ || 45.00 |
|At-Risk Capital || $ || 55.00 |
| || || |
| Cash distributions (2) || $ || 9.48 |
| Net Asset Value @ sale to Caledonian (2) ||$ |
| 22.85 |
| || $ || 32.33 |
| || || |
| Return on At-Risk Capital || || |
(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.
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
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.
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
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.
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.
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
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.
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.
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.
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.
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.
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
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.
is presently considering other acquisition opportunities, including
opportunities to acquire royalties and non-operated oil and natural gas
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.
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.
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.
Shane Doyle, CEO
WCSB Royalty Income Investment Programs
609 Granville Street, Suite 808 Vancouver BC V7Y 1G5
Tel: 604.684.5742 | Email: email@example.com