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PrairieSky Fee Leases
Kathy Luther, Manager Lease Compliance
CAPLA, January 27, 2015
OPEN BUSINESS for
for
The small print
2
• 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?
3
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 or reclamation obligations
• Collaborative approach to interactions with lessees
4
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
17
• 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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AG
E
CR
ETA
CE
OU
S
JU
RA
SS
IC
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
ownership 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
26
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
}
}
} Present
*Dates are approximate
Royalty Rates & Deductions
34
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
36
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 obligation - 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
37
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 obligation - 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?
38
39
Thanks for helping us transition from Encana to PrairieSky,
&
Wishing all our lessees much success in their 2015 operations!
Thank you and…
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