Low risk, income focused, exposure to oil & gas
production and commodity prices
| Corporate Presentation | March 2015 | Strictly Private and Confidential
An Introduction to Our Business
Caledonian Royalty Corporation
Is a specialist investment management firm, headquartered in Calgary, Alberta,
which acquires and manages asset backed, commodity-based cash flow
yielding investments.
Focuses on providing high yield to investors through low risk oil and gas
acquisitions in the form of royalties.
Minimizes risk by obtaining title to oil and gas lands and structuring royalties as
the most senior claim where possible.
Principals and executives have seen through a number of market cycles and
have experience and expertise in making opportunistic acquisitions in all
conditions.
2 | Corporate Presentation | Strictly Private and Confidential
A Solid Heritage – Experience, Execution, Expertise and
Results
Solid Management Team
James S. Kinnear,
Founder, Chairman, CEO & Director
B.Sc., CFA, D.Comm. (Hon.)
 Management team led by James S. Kinnear,
founder and former CEO of Pengrowth Energy
Trust.
 Mr Kinnear and the Caledonian Management
Team collectively have more than 160 years
experience acquiring petroleum and natural gas
properties and sourcing capital to support
acquisitions.
 Proven investment approach – Caledonian
employs a similar investment approach to that
developed by its senior management while at
Pengrowth where they grew entity value from
$12.5 million to over $4 billion over 20 years,
and paid out $4.2 billion in cash
distributions achieving a compound annual
rate of return of 14% including reinvestment.
3 | Corporate Presentation | Strictly Private and Confidential
Caledonian Management – A Solid Heritage
Charles V. Selby,
B.Sc. (Hon.), P.Eng.,
J.D., President
David Horn,
Vice President,
Business
Development
Over 30 years of
experience in strategy
and negotiations. At
Pengrowth participated in
more than 50 asset and
corporate acquisitions and
20 public equity raises.
Extensive independent
energy experience.
Over 30 years experience in
A&D and Land experience.
David has executed over $5
billion in corporate and asset
acquisitions and divestitures
and has directed land
departments from small to
major exploration and
production companies.
Mark Smith,
Grant A. Henschel,
CGA,
Controller
B.Sc., P.Eng,
Senior Evaluations Engineer
Over 30 years of
experience in reserves
evaluation, sourcing and
evaluating domestic and
international acquisition
opportunities.
4 | Corporate Presentation | Strictly Private and Confidential
Over 10 years of
experience in operational
accounting, treasury and
financial accounting both in
domestic and international oil
and gas companies.
Why Invest In Oil & Gas
Owning an interest in Oil & Gas represents ownership in some of the most widely used and valuable
commodities in the world.
Oil & Gas are “real assets”
 Real assets provide protection against inflation.
 Real assets have relatively low correlation with financial assets such as stocks and bonds.
Oil & Gas properties can have long economic lives
 A long tail of cash flows can be produced.
 Technological advancement may increase the amount of economically recoverable oil & gas –
further expanding the magnitude and length of cash flows.
The use of Oil & Gas is pervasive in the Global economy
 The uses of Oil & Gas include: transportation fuels, fuel oils for heating and electricity
generation, asphalt and road oil, and the feedstocks used to make chemicals, plastics, and
synthetic materials found in nearly everything we use today.
 There are no viable substitutes that could meet global demand for the current uses of oil and
gas.
 Extensive consumption of oil and gas will persist into the future.
5 | Corporate Presentation | Strictly Private and Confidential
Market Opportunity – A distressed oil and gas industry
The ‘Shale revolution’ has resulted in depressed oil and natural gas prices in North America.
Downstream oil and gas companies face significant challenges:
 Operating cash flows are reduced
Project and operating economics have deteriorated and are challenged in some cases
 Internally sourced capital is insufficient to fund drilling programs
Ability to grow production limited
Ability to replace base declines challenged
 Balance sheets are stretched
Pressure from creditors
 Reduced engineering reserve valuations
Results in reduced borrowing base  pressure to reduce leverage from creditors
As a result companies will raise capital
 Equity issuance
 Asset sales
 Alternative capital sources - Royalties
… there is a buyers market
Cashed up investors can acquire quality assets at attractive prices
6 | Corporate Presentation | Strictly Private and Confidential
The North American Oil and Gas Market
Notwithstanding the present challenges, the current market presents
attractive characteristics for new investment entry.
Peaking shale and total production
Natural gas export capacity
The impact of falling oil prices
The “war on coal”
The current challenging environment provides an opportunity to buy into
a positive long term investment at an attractive price.
7 | Corporate Presentation | Strictly Private and Confidential
Peaking shale and total production
Annual US natural gas production rate Bcf/d
Billion Cubic Feet per day
80
… shale gas has been the
source of growth
60
… Shale has significantly larger
decline rates than conventional
production.
40
First year declines range from
45% to 68%[1]
Total
Ex
Shale
20
… The current price environment
has reduced drilling
-
… once already completed wells are
connected into distribution
infrastructure base declines will
become prevalent and pricing will
receive support
Source: Total Production – EIA
Shale Production – Groppe, Long Littell
[1]
EIA, Annual Energy Outlook 2012
8 | Corporate Presentation | Strictly Private and Confidential
14
12
10
08
06
04
02
00
Shale
Peaking shale and total production
US Crude oil production rate MBBl/d
10,000
Total
Shale*
8,000
US Crude Production MBBl/d
… shale oil has been the source
of growth
Ex Shale
6,000
4,000
… The current price environment
has reduced drilling
2,000
Source: Total Production – EIA
Shale Production – EIA DPR
* Total production from DPR used as a proxy for shale production
9 | Corporate Presentation | Strictly Private and Confidential
Jan-15
Jul-14
Jan-14
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
0
… once already completed wells are
connected into distribution
infrastructure base declines will
become prevalent and pricing will
receive support
Over the medium term US LNG exports add significant
export capacity
Approved & Under Construction
1
Sabine, LA 2.76Bcfd
(Cheniere/Sabine Pass LNG)
Estimated Start-up late 2015
2
Freeport, TX 1.8 Bcfd
(Cheniere/Freeport LNG Dev.Expansion)
Estimated Start-up - 2018
3
Cameron, LA 1.7 Bcfd
(Sempra Energy)
Estimated Start-up 2018
4
Dominion Cove, MD 0.82 Bcfd
(Dominion Resources)
Estimated Start-up 2017
5
Corpus Christi, TX 2.14 Bcfd
(Cheniere)
Estimated startup 2018
… 9.22 Bcf/d of incremental
demand in a market currently
totaling 72 Bcf/d will support
natural gas prices
1-2
5
Existing
6
Kenai*, AK 0.20 Bcfd
(Conocophillips)
6
Source: FERC
10 | Corporate Presentation | Strictly Private and Confidential
4
3
Pipeline exports to Mexico will further support this trend
US pipeline exports to Mexico continue to increase
… available capacity in 2015 is
~6Bcfd after completion of a new
2.1 Bcfd cross border pipeline in
December 2014.
Pipeline flows to Mexico have more than doubled
during the last five years to over 2Bcf/d
Gas consumption in Mexico is rising as a fuel for
generation of electricity. Consequently the state owned
electric utility ‘Comisión Federal de Electricidad’ has
authorized construction of additional pipeline capacity.
Additional projects are underway to raise capacity to
9 Bcf/d by 2017
Export volumes are forecast to increase from an
average 2 Bcfd in 2014 to 6.5 Bcfd in 2020
Source: Groppe, Long, Littell
11 | Corporate Presentation | Strictly Private and Confidential
The War on Coal
The “war on coal” by the Obama administration is having success well in
advance of actual regulations for existing plants.
The recent agreement between the US and China to cut greenhouse gases
will provide further ongoing support.
Approximately 93% of coal consumed in the United States is used in power
generation (1).
US exporters face limited export capacity and are at a geographic
disadvantage to other global coal exporters.
Use of natural gas for base load generation will continue to grow
Source: (1) EIA use of coal
12 | Corporate Presentation | Strictly Private and Confidential
Oil prices – history suggests a strong rebound
Date
1986
1988
1991
1998
2001
2008
Average
% Change in
Length of Oil Price
% Increase in Oil
Oil Price
Decline (in trading days) Price 1 Year Post-Low
-67.2%
82
79.0%
-43.7%
295
58.4%
-57.2%
90
5.4%
-59.6%
484
134.5%
-53.1%
290
46.2%
-78.4%
119
134.8%
-59.9%
227
76.4%
Event
Saudi Market Share War
Oil Glut
Global Recession / End of Gulf War
Asian Crisis
Global Recession
Great Recession
Oil prices 2014 to Today
Peak $107.62, 23 July 2014
… Oil prices fell
58.7%
110
100
Decline for:
130 trading days
90
…Price recovery
1 year
post low ???
80
70
60
50
Low $44.45, 28 January 2015
13 | Corporate Presentation | Strictly Private and Confidential
Feb 15
Jan 15
Dec 14
Nov 14
Oct 14
Sep 14
Aug 14
Jul 14
Jun 14
May 14
Apr 14
Mar 14
Feb 14
Jan 14
40
Track Record: Pengrowth - 25 Years of Providing High
Cash Yields to Investors
Pengrowth paid
out more than
C$4.2billion in
distributions or
C$42.34 to mid
September
2009
James Kinnear
retired from
Pengrowth in
September
2009
*To September 2009
14 | Corporate Presentation | Strictly Private and Confidential
Track Record: Caledonian - A uninterrupted distribution
track record in a challenging market
To the end of December 2014, Caledonian has paid $35.1 million in distributions to unit
holders ($3.8725 per unit), an average yield of 7.4% p.a. since inception to founding
investors.
Monthly Distribution (cpu)
8
AECO Gas Spot Price
$8.00
$7.00
7
$6.00
6
$5.00
5
$4.00
4
$3.00
3
$2.00
2
15 | Corporate Presentation | Strictly Private and Confidential
Dec 14
Oct 14
Aug 14
Jun 14
Apr 14
Feb 14
Dec 13
Oct 13
Aug 13
Jun 13
Apr 13
Feb 13
Dec 12
Oct 12
Aug 12
Jun 12
Apr 12
Feb 12
Dec 11
Oct 11
Aug 11
Jun 11
Apr 11
Feb 11
Dec 10
Oct 10
Aug 10
Jun 10
$0.00
Apr 10
0
Feb 10
$1.00
Dec 09
1
AECO Month Average Spot Price CDN$ per
MMbtu
9
Oct 09
Month Distributions Cents Per Unit
 Caledonian has paid uninterrupted monthly distributions for the past five years.
Executable Deal Flow: Prospective Acquisition Targets
Prospect 1
Vendor holds an average 43% Working interest and is seeking to manufacture a
15% GORR.
Prospective GORR price of $40 million
Prospect 2
Vendor requires funds for two horizontal work-overs and one new well.
GORR over entire company a possibility. Vendor has current production of 1,270
Boe/d.
Letter of intent in place
Evaluation and Land Title
complete
Raising Funds
Engineering and Geology reviewed
Independent Valuation provided by
vendor
Prospective GORR price of $10 - $12 million
Prospect 3
Vendor is seeking to divest a portfolio of ‘mineral fee title land rights’ and royalty
interests.
Initial Engineering review underway
Full access to vendors dataroom
Royalty production was 742 boe/d (57% oil weighted) .
Provisional value of PDP reserves alone ~$63 million, with 2015 cash flow estimated
at ~$11 million. Potential upside through development of fee lands and recovery in oil
prices.
Prospect 4
Vendor is seeking to divest their working interests. Current production is 2,000 Boe/d.
In discussions with Vendor
Full access to vendors dataroom
Prospect 5
A third party is seeking to acquire natural gas working interest properties. Caledonian
has been retained to complete diligence on the properties. The third party desires to
reduce their net purchase price through issuing a GORR to Caledonian as part of the
working interest acquisition.
Waiting on engineering and reserve
data from the vendor
Prospective GORR price $10-$12 million
16 | Corporate Presentation | Strictly Private and Confidential
Prospect 1: $40 million royalty acquisition
Caledonian has an exclusive opportunity to acquire a manufactured 15% overriding royalty with
no deductions (“the royalty”) over a high quality, long life, dry gas, coal bed methane (“CBM”)
Mannville (in the Corbett area) play from a Canadian based industry partner (“the vendor”) for
consideration of CDN$40 million.
The royalty has a number of positive characteristics that support
and enhance value to Caledonian unitholders:
 The acquisition is expected to be accretive to Caledonian in terms of
production, reserves and cash flow
 CBM natural gas production that is not impacted by recent declining oil
prices
 A production profile with low and flattening decline rate (consistent with
CBM isotherm theory)
 Potential upside through compression optimization
 The area underlying the royalty is a core development area for the
vendor
17 | Corporate Presentation | Strictly Private and Confidential
Prospect 1: Characteristics of the acquisition that will
drive increased value to unitholders
Potential upside through:
 Long-reach quad-lateral horizontal wells
 Compression optimization (field boosters and gas plant suction)
 Target of maintaining flat stable total royalty production over 10 years
The area underlying the royalty is a core development area for the vendor
 The vendor intends to develop the underlying lands
 The asset will be the vendors largest producing area
 The vendor maintains and operates over 90% of the production and ownership of all gas
operating plants in the area
 There is significant capacity in these natural gas plants for expansion
18 | Corporate Presentation | Strictly Private and Confidential
Prospect 1: Asset Snapshot
Quality Geological Position
 The assets coal bed is flanked by deep channels to
the north, east and west of the core operating area
 Coals in the Mannville formation are wet, thick (up to
10 meters) and continuous. Coals in the core area
have shown high gas content and permeability.
Significant Footprint
 The area includes 389 gross sections or approximately
250,000 acres
Substantially Undeveloped
 Approximately 40% of the area is undeveloped
Drilling Efficiency Improved
 Latest drilling designs provide the best production
output per capital invested
Infrastructure Ready
 Infrastructure already
development
in
place
for
full
field
19 | Corporate Presentation | Strictly Private and Confidential
Prospect 1: Development Potential

Drilling has been configured to maximize the use of
long-reach well designs.

Standard well designs are in place for locations where
only one section can be reached

Locations under evaluation include developments that
best proceed following the development of the
evaluated sections
Category
Long Reach
Standard
Under Evaluation
Total
Gross Sections
66
14
63
143
Long reach drilling design
 2-section wells that employs up to 2 mile lateral legs
 Coal contact in the long-reach design increases to
12,000 metres
20 | Corporate Presentation | Strictly Private and Confidential
Long Reach
Standard
Under
Evaluation
Prospect 1: Development Scenario
Modelling evenly distributed over 10 year period
Production increases in year following capital expenditure period
Large inventories of identified drill locations mean production rates can be maintained at current or
higher levels over more than 10 years
 As the GORR holder, Caledonian does not pay for this development, however will receive its 15%
royalty on an average 43% working interest in the area.
Forecast Gross Working Interest Production*
… There is significant
upside potential to
Caledonian as the GORR
holder
* Chart displays production to a 100% working interest. Caledonian’s Royalty is over an average 43% working interest.
21 | Corporate Presentation | Strictly Private and Confidential
Caledonian: A solid base through four initial
transactions
$200m
$184.3m
$161.0m
First Transaction - Compton
5% GORR on substantially all Compton’s producing
assets including 310,000 net acres of undeveloped lands.
Properties are located in Alberta.
$150m
$125.3m
$100m
Second Transaction – WCSB
Portfolio of GORR’s located in Western Canada. GORR
rate percentages from 2.5% to 15% on over 40 producing
oil and gas wells which are managed by qualified
operators.
$100.0m
Third Transaction – Lario Oil & Gas Company
Portfolio of long-life producing non operated working
interests in Alberta which are adjacent and
complementary to a large area of Caledonian’s other
GORR lands.
$50m
June 2014
Including Athabasca
Acquisition
February 2012
Including Lario
Acquisition
October 2011
Including WCSB
Acquisition
June 2010
1st transaction
Compton
$0m
Fourth Transaction – Athabasca Royalty
100% exposure to natural gas with no production risk. A
direct play on increasing natural gas prices, free from
operating expenses, capital development expenses and
production risk.
22 | Corporate Presentation | Strictly Private and Confidential
The Royalty Advantage: revenues are a direct play on
commodity prices, with reduced claims on revenues
Working Interest Revenues
23 | Corporate Presentation | Strictly Private and Confidential
Royalty Revenues
The Royalty Advantage: A low risk play on commodity
prices
Claim on revenues
Risk Tower
Federal & Provincial
Government
Exploration
Royalties
Development
Secured Creditors
Working Interests production
Unsecured Creditors
Land
Equity Holders
Royalties
24 | Corporate Presentation | Strictly Private and Confidential
High
Low
An active growth model
Caledonian plans to complete additional acquisitions to grow and support distributions to unit holders.
Caledonian’s Model of growth through low risk acquisitions
Production
Growth through
acquisitions
High Risk
Exploration &
Development
Low Risk Accretive
Acquisition Yield
Vehicle
Time
25 | Corporate Presentation | Strictly Private and Confidential
Investment Opportunity Recap
Oil & Gas is an attractive commodity to own
 Its a real asset, provides protection from inflation and has low correlation with financial assets.
 Oil & Gas properties can have long economic lives – cash flows can be expected well into the future.
 Its use in the global economy is pervasive and no viable alternative exist.
An attractive time for new capital to enter the market  A buyers market
 The current environment of low prices (especially for oil) has resulted in financial stressed operators.
 Companies are facing significant pressure to raise capital
 Quality assets can be acquired at attractive prices by cashed up buyers
Notwithstanding short term challenges the long term prospects for oil and gas prices are strong
 Has the experience and expertise necessary to make opportunistic acquisitions to exploit the current
market.
 Can quickly deploy capital to pre-identified and screened industry partners
 Has a low risk, income focused business model
 Provides the royalty advantage
26 | Corporate Presentation | Strictly Private and Confidential