Sunshine Oilsands Ltd. is committed to providing our investors and the public with timely and accurate information regarding our business and operating activies.
September 24, 2021
SUPPLEMENTARY ANNOUNCEMENT In relation to ROYALTY AGREEMENT
Reference is made to the announcement issued by Sunshine Oilsands Ltd. (the “Corporation” or “Sunshine”) dated September 1, 2021, Hong Kong time (the “Announcement”), in relation to, among others, the Royalty Agreement. Unless defined otherwise, capitalized terms used herein shall have the same meanings as those defined in the Announcement. In relation thereto, the Board wishes to supplement the following information:
Under the Royalty Agreement, Sunshine granted a royalty interest to BEH in exchange for an aggregate consideration of CAD$20 million. The royalty interest entitled BEH to share a percentage of Sunshine’s produced oil of that month (the “royalty share of bitumen”) when average daily WCS of the month rise to US$60/bbl or above. The percentage that BEH can share from Sunshine’s produced oil of the month is calculated based on the following:
-
When the WCS price is below US$60/bbl, the royalty rate is 0%;
-
When the WCS price is US$60/bbl, the royalty rate is 2.5% and thereafter proportionally increases up to a maximum of 15%, when the WCS price rises to US$100/bbl or above.
The bitumen involved under the Royalty Agreement covered all royalty lands owned by Sunshine. Thus far, West Ells is the only project that has been put into operation.
Regarding the settlement of the royalty share of bitumen, BEH may: (i) elect to take delivery of the royalty share of bitumen; (ii) elect to appoint the Corporation as its agent, to dispose of the royalty share of bitumen on its behalf and account to BEH for the proceeds of sale, net of permitted charges (transportation fees and diluent costs); or (iii) elect to receive a royalty payment calculated as the royalty share of bitumen multiplied by a notional realized bitumen price, net of permitted charges.
In terms of accounting treatment, the royalty arrangement would be accounted for as a fair value through Profit and Loss (FVTPL) financial derivative. On initial measurement and for subsequent measurement, the Corporation will engage independent third-party valuation expert to assess the value of the financial derivative. Any fair value change would be recognized into the income statement of the Corporation.
The maximum amount of risk exposure under the Royalty Agreement to the Corporation would occur when the percentage of oil produced to be shared with BEH rises to 15% as WCS rise to US$100/bbl or above. In such scenario, the royalty payment would be 15% multiplied by the realized bitumen price, net of permitted charges (transportation fees and diluent costs).
Nevertheless, based on the historical WCS price data, from the year which data is available (i.e. 1983), there was only once in 2008 (May-July) during the financial crisis that the WCS price stood at US$100/bbl or above. Management estimated that when WCS is higher than US$55/bbl, it will be able to attain gross profit. Therefore, when WCS rise to US$100/bbl or above, the royalty payment would not be a significant burden to the Corporation’s financials as the Corporation would have been making significant profit at those price levels.
Given that the royalty arrangement does not involve any acquisition or disposal of assets of the Corporation, acquisition or disposal of securities through allotment of share capital by subsidiary of the Corporation, formation of joint venture, entering into finance or operating lease, grant of indemnity or guarantee, provision of financial assistance by the Corporation etc., or any title change in its properties, hence, the royalty arrangement is not considered as a notifiable transaction as defined under Chapter 14 of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited. However, the Corporation believes the royalty arrangement is considered as inside information.
About Sunshine Oilsands Ltd.
The Corporation is a Calgary based public corporation, listed on the Hong Kong Stock Exchange since May 1, 2012. The Corporation is focused on the development of its significant holdings of oil sands and heavy oil leases in the Athabasca oil sands region. The Corporation owns interests in oil sands and petroleum and natural gas leases in the Athabasca region of Alberta. The Corporation is currently focused on executing milestone undertakings in the West Ells project area. West Ells Phase 1 has an initial production target of 5,000 barrels per day.
For further enquiries, please contact:
Mr. Kwok Ping Sun
Executive Chairman
Tel: (852) 3188 9298
Email: [email protected]
Website: www.sunshineoilsands.com