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Franco-Nevada to buy Weyburn Oil stake for $400-million

Franco-Nevada to buy Weyburn Oil stake for $400-million

Milan Radulovic/istockphoto

Franco-Nevada Corp. said Tuesday it is buying a $400-million stake in a Saskatchewan oilfield as it also announced a dividend increase and third-quarter earnings that beat analysts expectations.

The mining financier said it has a deal with Penn West Petroleum Ltd. to acquire an approximate 11.7 per cent net royalty interest in the Weyburn Oil Unit for $400-million in cash.

The Weyburn Oil Unit is a conventional unitized oilfield in southeast Saskatchewan, operated by Cenovus Energy Inc.

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Current production levels are about 26,000 barrels of oil per day with a reserve life index based on proven and probable reserves of more than 20 years.

The acquisition adds to Franco-Nevada's existing interests in the project, which include a 0.44 per cent overriding royalty and a 2.26 per cent working interest.

The deal is expected to close around Nov. 30 and will be funded through Franco-Nevada's existing working capital.

The company said the acquisition will further diversify its royalty and stream portfolio and adds known and proven cash-flowing assets in a safe jurisdiction.

Also on Tuesday, Franco-Nevada said it is raising its monthly dividend by 20 per cent to 6 cents per share.

The company said it turned a profit of $52-million (U.S.), or 36 cents per share in its third quarter, up from $44.1-million, or 35 cents per share, during the quarter a year-earlier.

Revenue fell to $105.2-million from $113.3-million, partly because it did not benefit from guaranteed minimum payments from its Ezulwini asset.

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Earnings on an adjusted basis rose to $45.3-million, or 31 cents per share.

That beat analysts' expectations of 28 cents per share, according to Thomson Reuters and compared to $39.8-million, or 31 cents per share, in the quarter a year earlier.

"Our solid third-quarter results reflect the strength provided by a diversified portfolio," said presdent and CEO David Harquail.

"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."

Franco-Nevada specializes in financing for mining projects in return for production streams once they begin commercial operations. The company's aim is to sell the production at a higher future price than it pays for the production streams.

Earlier Tuesday, Penn West Petroleum stock fell to a new 52-week low after the company announced four vice-presidents stepped down.

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Penn West shares dropped 3.5 per cent, or 41 cents (Canadian) to $11.19 on the Toronto Stock Exchange after earlier falling as low as $11.05.

The Calgary-based oil and gas producer said the senior executives whose departure was effective immediately are: Hilary Foulkes, executive vice-president and chief operating officer; Thane Jensen, senior vice-president and operations engineering; James Burns, vice-president of corporate planning; and Wendy Henkelman, vice-president, treasury.

The company has been restructuring, partly to pay down debt.

Penn West agreed in principle last month to sell $1.3-billion worth of its non-core properties, representing the equivalent of 12,000 barrels per day of production.

The Calgary-based company said it would use funds from the sale to repay a portion of the money drawn on its credit facilities.

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