WCSB 2008-II FUND ANNOUNCES COMPLETION OF RESTRUCTURING TRANSACTION
November 04, 2011
VANCOUVER, BRITISH COLUMBIA: WCSB Holdings Corp. is pleased to announce the completion of its previously announced transaction, on October 28, 2011 involving a restructuring of WCSB Oil & Gas Royalty Income 2008-II Limited Partnership (the “Partnership”) and its assets and the sale, on a tax deferred basis, of its portfolio of oil and natural gas gross over-riding royalties (the “GORRs”) to Caledonian Royalty Corporation (“Caledonian”) in exchange for royalty units of Caledonian (“CRC Royalty Units”), a private Alberta-based corporation (the “Transaction”). Under the terms of the Agreement, Caledonian issued 377,822 CRC Royalty Units valued at $4,533,864 for the GORRs.
The Partnership originally issued a total of 75,342 limited partnership units at a price of $100 per unit (the “LP Units”) for gross proceeds of $7,534,200 in the winter of 2008 and spring of 2009.
Pursuant to WCSB’s business model the investment is 100% tax deductible and, therefore, unitholders will realize in the aggregate tax savings estimated at $3,390,390. Further, the Partnership has made total cash distributions to investors of $948,555.78.
The return on “At-Risk” capital on an investment in LP Units is estimated at 21.4% after income tax savings(1) and distributions(2) the breakdown on the investment is as follows:
| || Initial investment || |
| || Tax savings (1) || |
| || At-Risk Capital || |
| || || |
| || Cash distributions (2) || |
| || Net Asset Value @ sale to Caledonian (2) || |
| || || |
| || || |
| || Return on At-Risk Capital || 21.4% |
(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 the LP Units into 11 joint ventures and one seismic program with 6 operators. Current production is approximately 37 BOE/d providing approximately $44,000 per month of revenue to the Partnership with 82% of the production being natural gas.
The sale of the GORRs to Caledonian followed 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 pleased to close this transaction. 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 unitholders of the Partnership, 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, if any) available to our unitholders” said Mr. Bill Bonner, Chairman of the Board of the general partner.
In addition, Mr. Bonner stated that Caledonian has agreed to use its commercially reasonable efforts to effect a transaction to provide liquidity on or before January 1, 2013.”
As part of the Transaction, the Partnership has been dissolved and the limited partners of the Partnership became shareholders of CRC Royalty Corporation (“CRC Holdco”).
In order to determine the number of common shares in the capital of CRC Holdco (“CRC Holdco Shares”) that a prior limited partner held immediately following the closing of the Transaction, a limited partner should multiply the number of LP Units the limited partner held by the final entitlement ratio of 4.153286.
Management expects that the limited partners’ beneficial ownership interest in CRC Holdco Shares should be reflected in their broker accounts that currently reflects their beneficial ownership interest in LP Units within a month of the closing of the Transaction.
It is expected that CRC Holdco will pay dividends on CRC Holdco Shares, on the last business day of each month to commencing November, 2011.
CRC Holdco’s initial dividend policy will contemplate an annual dividend of approximately $ 0.63 per CRC Holdco Share.
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 and gas assets. Caledonian investors receive their returns in the form of monthly cash distributions on CRC Royalty Units. The CRC 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 CRC 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 unitholders with a best efforts undertaking to provide a source of liquidity within three years of its formation in late 2009. Caledonian is managed by Kinnear Financial Limited (“KFL”), which is controlled by James S. Kinnear, who was the founder, Chairman and Chief Executive Officer 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.
About CRC Royalty Corporation
CRC Holdco is a Calgary-based company organized under the laws of British Columbia. It was created in October 2011 for the purpose of effecting a restructuring of WCSB GORR Oil & Gas Income Participation 2008-I Limited Partnership, WCSB Oil & Gas Royalty Income 2008-II Limited Partnership and WCSB Oil & Gas Royalty Income 2009 Limited Partnership (collectively, the “Partnerships”) and their respective related entities. CRC Holdco does not have any securities listed on a stock exchange. It is currently a reporting issuer under the laws of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland. CRC Holdco does not have any assets or operations other than CRC Royalty Units. CRC Holdco is owned by the former holders of limited partnership units and the general partners of the Partnerships.
Caledonian provides investors with the following key benefits:
Diversification of Assets and Revenues
Caledonian provides widespread diversification in respect of the number of producing wells (750+) that it has a royalty interest in, which result in regular cash distributions to investors. Caledonian also has interests in a widespread geographic diversification of existing and potential production locations and zones including but not limited to Cardium, Notikewin, Wilrich, Bluesky, Fernie, Belly River, Edmonton Sand, Milky River. During 2010, CRC received royalty revenue on approximately 19,100 barrels of oil equivalent per day (“boe/d”) and is currently receiving royalty revenue on lands with total production of over 17,000 boe/d.
Attractive Monthly Cash Distributions
Caledonian currently pays investors attractive monthly cash distribution of $0.07 per CRC Royalty Unit per month – which distributions represent approximately an 8.4% annualized return on investment to the holders of CRC Royalty Units.
Long Reserve Life Assets
Caledonian’s revenue from its royalties are derived from royalty interests in an asset base that GLJ an independent oil & gas engineering firm states are long estimated reserve life assets.
Control of Infrastructure
CRC operators have control of 3 gas plants.
Significant Land Base with terrific upside potential
Caledonian holds a 5% royalty interest on its royalty lands consisting of 1,127,105 gross acres of which 570,653 are undeveloped providing investors with exciting upside potential through hundreds of development drilling targets, including down-sizing and multi-zone opportunities on Caledonian’s royalty lands.
Solid Asset Base
As at December 31, 2010, Caledonian had royalty interests in assets with a net present value of approximately $98 million (calculated at a 10% discount), average daily production of 955 boe/d and a net asset value per CRC Royalty Unit of $12.05.
Sustainable Business Model
Caledonian’s business model provides investors with sustainability of returns and enhanced upside potential. For example, when Compton, which continues to actively develop CRC’s royalty lands, or any one of four other operators which have acquired the rights to develop its lands, drill and tie-in a well on its lands, then Caledonian is automatically entitled (without any further capital contribution) to a royalty of 5% of production from each new well. Caledonian’s lands currently have hundreds of drill-ready targets which can each add new production and royalty revenue’s to Caledonian’s already strong production base.
Asset Acquisition Mandate
Caledonian is actively evaluating potential future royalty acquisitions and transactions that have the potential to both enhance distributions and liquidity opportunities.
Significant Upside Potential
With royalty rights on over 1,000,000 gross acres and with over 570,000 acres of undeveloped land there exists considerable upside potential through both further development of Caledonian’s royalty lands and by way of improved natural gas prices. Further, much of Caledonian’s royalty lands provide operators with down-spacing and commingling potential and with multi-zone development opportunities and contiguous land blocks. Certain of Caledonian’s royalty lands are in close proximity to the Cardium play which has experienced recent success.
Experienced and Successful Management Team
Caledonian has an experienced and successful management team in the Canadian energy sector, having founded and managed Pengrowth Energy Corporation to over 80,000 boe/d, raised over $3.5 billion in equity financing and produced an average annual compound rate of return in excess of 14% over twenty years, including distribution re-investment.
Liquidity for investors
Caledonian will use its commercially reasonable efforts to cause a liquidity event to occur by January 1, 2013. A Caledonian liquidity event would include the listing by Caledonian on a recognized stock exchange in Canada or elsewhere of (a) the Common Shares in the capital of Caledonian, (b) the common shares of an affiliate of Caledonian, (c) CRC Royalty Units or (d) other securities of Caledonian or its affiliates.
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.
Bill Bonner, Chairman
WCSB Royalty Income Investment Programs
Charles Selby, President
CRC Royalty Corporation
Suite 2200, 300 - 5th Avenue SW, Calgary,AB
Tel: (403) 532-8800 Fax: (403) 532-8805