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
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