A mining financier, Franco-Nevada Corp., announced it will buy a stake worth $400 million in the Weyburn Oil Unit, in a deal with Penn West Petroleum.
The company said they have a deal with Penn West to acquire 11.7 per cent royalty interest in the Weyburn Oil Unit, operated by Cenovus Energy in southeast Saskatchewan.
Described as a conventional unitized oilfield, the Weyburn Oil Unit currently has a production level of 26,000 barrels of oil per day, with a reserve life index based on proved and probable reserves of more than 20 years.
This acquisition adds to Franco-Nevada’s existing interest in the unit which includes a 0.44 per cent overriding royalty, and 2.26 per cent working interest.
The deal is expected to close by Nov. 30, and will be funded through Franco-Nevada’s working capital.
The company said the acquisition will further diversify its royalty and stream portfolio, and adds known and proven assets in a safe jurisdiction.
“The agreement to acquire an 11.7 per cent net royalty interest on the Weyburn Oil Unit further strengthens and balances the portfolio with a long-term Canadian-based asset which is expected to be immediately accretive to all our financial metrics,” said David Harquail, president and CEO of Franco-Nevada.
Franco-Nevada specializes in financing for mining projects in return for production streams once they begin production.
In regard to Penn West, the same day as they sold this interest in the Weyburn Oil Unit, four vice-presidents stepped down, and their stock fell to a new 52-week low. The company has been restructuring, in part to pay down their debt.
In October, Penn West agreed to sell some $1.3 billion worth of non-core properties, representing about 12,000 barrels a day of production.