Source Rock Royalties Ltd.

Source Rock Royalties Ltd.

May 27, 2015 07:30 ET

Source Rock Royalties Enters Agreement to Acquire Light Oil Royalty Interests & Engages AltaCorp Capital for Brokered Private Placement

CALGARY, ALBERTA--(Marketwired - May 27, 2015) -

NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR DISSEMINATION IN THE UNITED STATES

Source Rock Royalties Ltd. ("Source Rock") announces that it has entered into a binding letter agreement (the "Agreement") with Toro Oil & Gas Ltd. ("Toro") (TSX VENTURE:TOO) to acquire Viking light oil production volume royalty interests and to provide Toro with an acquisition fund (the "Acquisition") that if utilized will result in Source Rock receiving additional gross overriding royalty interests. The Agreement stipulates that the Acquisition will be a three-part transaction comprised of the following components:

  1. Production Volume Royalty: Source Rock shall pay Toro $8,000,000 (Cdn) for a 19.5-year Viking light oil production volume royalty (the "PVR") on Toro's Hamilton Lake Viking lands (including both unit and non- unit), Consort lands and Esther lands (the "Lands"). The PVR will entitle Source Rock to escalating Viking light oil royalty production, without being subject to any associated royalties or cost deductions, starting at 33 bbl/d in 2015, increasing to 63 bbl/d by 2021 and after 2022 declining by 20% of the prior year's volumes annually.
  2. Additional Production Volume Royalty: If Source Rock closes a financing on or before June 30, 2015 for gross proceeds of at least $10,000,000 (Cdn) (the "Financing"), as more specifically described below, then Source Rock shall pay Toro $4,000,000 (Cdn) for an additional 19.5-year Viking light oil production volume royalty (the "A-PVR") on the Lands. The A-PVR will entitle Source Rock to escalating Viking light oil royalty production, without being subject to any associated royalties or cost deductions, starting at 17 bbl/d in 2015, increasing to 32 bbl/d by 2021 and after 2022 declining by 20% of the prior year's volumes annually.

The PVR and the A-PVR, if applicable, shall be first priority rights to light oil barrels produced from the Lands. As security for the PVR and the A-PVR, if applicable, Toro shall issue to Source Rock second ranking charges and security interests in, to and over the Lands, subject to the consent of Toro's lender.

  1. Acquisition Fund: If Source Rock closes the Financing, it shall make available to Toro for 12 months from the date of closing of the Acquisition, $4,000,000 (Cdn) to acquire oil and gas assets in its core Viking light oil fairway. Use of the Acquisition Fund shall result in immediate royalty production exposure for Source Rock of approximately 30 boe/d (not subject to any royalties or cost deductions) comprised of at least 65% light oil through the issuance of a fixed percentage gross overriding royalty (or royalties) in all production and mineral rights acquired by Toro through the use of the Acquisition Fund.

In addition, Toro will issue 233,333 of its common shares to Source Rock in connection with the closing of the PVR and will issue 116,667 of its common shares to Source in connection with the closing of the A-PVR, if applicable.

The Acquisition has been approved by the board of directors of both Source Rock and Toro, and is anticipated to close on or before June 30, 2015. The Acquisition remains subject to approval of the TSX Venture Exchange.

Engagement of AltaCorp Capital for Brokered Private Placement

Source Rock also announces that it has engaged AltaCorp Capital Inc. ("AltaCorp") to undertake a best efforts brokered private placement for gross proceeds of not less than $10,000,000 (Cdn) of Source Rock common shares (the "Brokered Placement"). AltaCorp will be the lead broker and sole book-runner of the Brokered Private Placement, however it is expected that there will also be a selling group syndicate of other brokers. The Brokered Placement is expected to close on or before June 30, 2015.

About Toro Oil & Gas Ltd.

Toro is a junior oil and gas energy company listed on the TSX Venture Exchange. Toro's business plan focuses on light oil development and exploitation of known or existing reservoirs through the use of technology advancements. Toro's core operating area is the Alberta-Saskatchewan Viking light oil fairway. The Company intends to add to this core area while adding other light oil core areas in the Western Canadian Sedimentary Basin to its portfolio as opportunities arise.

About Source Rock Royalties

Source Rock is a Calgary-based private dividend-paying corporation founded in early 2013 that is exclusively focused on acquiring and managing royalties on oil and gas properties and mineral title interests in the Western Canadian Sedimentary Basin. In addition to acquiring existing royalties, Source Rock strives to creatively manufacture royalty interests on high-quality oil and natural gas assets that are owned and operated by experienced management teams with the technical and fiscal capability to successfully develop the assets. Source Rock owns varying gross overriding royalties on approximately 16,000 acres of land in the Viking light oil fairway in west-central Saskatchewan. As a royalty interest owner Source Rock receives top-line revenue from oil and natural gas production that occurs on its royalty lands. Source Rock does not incur any of the costs associated with activity on its royalty lands, including drilling, completing and equipping wells, maintenance and optimization of wells, enhanced recovery initiatives, abandoning of wells or reclamation of the land.

This news release does not constitute an offer to sell or the solicitation of an offer to buy any securities in any jurisdiction, including, but not limited to, the United States. The common shares of Source Rock referred to herein have not been and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act"), or any state securities laws, and may not be offered or sold in the United States except in certain transactions exempt from the registration requirements of the U.S. Securities Act and applicable state securities laws.

Forward-Looking Statements

Certain statements contained in this news release are forward-looking statements. All statements other than statements of historical fact may be forward- looking statements. Forward-looking statements relate to future events or performance and include statements which contain words such as "anticipate", "could", "should", "expect", "estimate", "seek", "may", "intend", "plan", "likely", "will", "believe" and similar expressions (including the negatives thereof). The forward-looking statements contained herein, including the expected closing date of the Acquisition and the Brokered Placement, the estimated proceeds of the Brokered Placement, are provided to allow readers to better understand our business and prospects. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such statements. Source Rock believes that the expectations reflected in the forward-looking statements contained herein are reasonable but no assurance can be given that these expectations will prove to be correct and, as a result, such statements should not be unduly relied upon. The forward-looking statements contained herein speak only as of the date hereof, and Source Rock assumes no obligation to revise or update these statements whether as a result of new information, future events or otherwise, except as required pursuant to applicable securities laws.

All forward-looking statements are based on certain assumptions and analyses made by Source Rock in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances. The assumptions and other factors upon which the forward-looking statements contained herein are based, include, but are not limited to, the following: the ability of Source Rock to complete the Brokered Placement on acceptable terms; the general stability of the economic and political environment in which Source Rock intends to operate; the impact of increasing competition; drilling results, field production rates and decline rates; the ability of the operator of the projects in which it has an interest to operate the project in a safe, efficient and effective manner and to successfully market the production therefrom; the ability of Source Rock to expand oil and natural gas reserves through acquisition; future oil and natural gas prices; future currency exchange and interest rates; and the ability of Source Rock to obtain qualified staff in a timely and cost efficient manner.

Actual results, performance or achievements could differ materially from those expressed in, or implied by, the forward-looking statements contained herein as a result of known and unknown risks, including, but not limited to, the following: volatility in market prices for oil and natural gas; operating risks inherent in oil and natural gas operations; general economic conditions; competition for, among other things, capital, acquisitions of reserves, and personnel; equipment and labour shortages and inflationary costs; changes in applicable environmental, taxation and other laws and regulations as well as how such laws and regulations are interpreted and enforced; the effect of weather conditions on operations and facilities; risks inherent in the ability to generate sufficient cash flow from operations to meet current and future obligations; and stock market volatility. As a result, no assurance can be given that any of the events anticipated by the forward-looking statements contained herein will transpire or occur, or if any of them do so, what benefits will be derived therefrom. The foregoing list of risks is not exhaustive.

The forward-looking statements contained herein are expressly qualified by this cautionary statement.

Not An Offer to Purchase Securities

This news release is for information purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any securities of Source Rock Royalties Ltd. in any jurisdiction.

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