Norrep Short Duration 2017
Flow-Through Limited Partnership

 

Key Features

Guiding principle is to focus on investment quality first

  • Tax deductions are a valuable benefit

An innovative structure that lowers investment risk:

  • 70% expected to be invested in development (CDE) flow-through shares
  • 30% expected to be invested in exploration (CEE) flow-through shares

Short duration

  • Liquidity (rollover) in approximately one year

Energy focused

  • Capitalizes on our Calgary-based expertise and industry relationships

Canadian resource companies can issue two types of flow-through shares: Canadian Exploration Expense (CEE) and Canadian Development Expense (CDE). Most flow-through limited partnerships invest primarily in CEE flow-through shares yet the oil & gas industry is changing with a growing appetite for CDE flow-through. Norrep’s CDE focus is better aligned with oil & gas producers’ capital spending which is focused on development. In fact, 90% of all oil & gas wells drilled in Western Canada are now development wells as opposed to exploration wells (source: CAPP).

Norrep Short Duration 2017 FTLP sets itself apart by preferring lower-risk development drilling (70% CDE target) to higher-risk exploration drilling (30% CEE target). The focus on CDE flow-through also creates an opportunity for Norrep to invest in larger development-focused companies with critical mass, existing production and cash flow, and tangible production and development opportunities.

Other key benefits include:

  • A highly qualified portfolio management team of energy experts
  • Lower premiums - target 15% overall (CDE ~10% and CEE ~20%-25%)
  • A tax-advantaged way to build positions in any fund within Norrep’s corporate class structure upon rollover

About the Partnership

The preliminary prospectus for Norrep Short Duration 2017 Flow-Through Limited Partnership was filed on March 20, 2017. Please see press release here.

The Partnership will use its best efforts to invest all proceeds available for investment in flow-through shares on or before December 31, 2017 with a target of 70% invested in CDE flow-through shares and 30% in CEE flow-through shares. Limited Partners can expect to receive tax deductions totaling 100% of the proceeds; deductions of approximately 50% in the first year, 15% in 2018 and the remaining 35% over the following taxation years. Detailed information regarding tax deductions can be found in the preliminary prospectus.

Norrep flow-through limited partnerships aim to offer a favorable risk-reward opportunity by focusing on lower-risk development (CDE) activity as opposed to riskier exploration (CEE) activity. Through in-depth fundamental analysis conducted in the core of Canada’s energy sector, the energy investment team builds a concentrated portfolio of flow-through investments in larger development-focused companies with critical mass, existing production and cash flow, and tangible production and development opportunities.

In 12-18 months, after the objectives of Norrep Short Duration 2017 Flow-Through Limited Partnership are achieved, the partnership units are expected to be automatically exchanged for an equivalent value of shares in Norrep Energy Class which may then be sold at any time. The exchange (or “rollover”) is expected to be a tax-deferred event, based on current tax laws, meaning the investment will continue to experience capital appreciation potential without it being a taxable event until the shares are sold or otherwise disposed of in a taxable transaction.

Investors should consult with their tax professional for more information on how flow-through investing can benefit their financial situation.

Background

A main driver of Canada’s economic success has been the intelligent use of our plentiful natural resources. The resource companies that explore for and develop the nation’s oil, natural gas, and minerals require equity financing (issuing shares) to fund their growth.

Incentive

Canadian resource companies incur tax-deductible expenses when investing in exploration and development activities. Section 66 of the Income Tax Act permits these companies to attract equity capital by issuing flow-through shares that allow the company to renounce (or “flow-through”) the incurred tax-deductible expenses to investors.

A flow-through share is a common share issued by a resource company with the added benefit of the full amount of the investment being tax-deductible against all sources of income. Once a flow-through investment is sold the entire amount is taxable as a capital gain.

Flow-through shares are a well-established means for Canadians to obtain valuable tax deductions while participating in the growth of resource companies through share price appreciation. The tax deductions received effectively act as downside protection on the investment. Most Canadians obtain the benefits of flow-through shares by purchasing units in a flow-through limited partnership (FTLP). Flow-through limited partnerships offer professional management and diversification benefits.

Strategy

Norrep flow-through limited partnerships aim to offer a favorable risk-reward opportunity by focusing on lower-risk development (CDE) activity as opposed to riskier exploration (CEE) activity. Through in-depth fundamental analysis conducted in the core of Canada’s energy sector, the energy investment team builds a concentrated portfolio of flow-through investments in  larger development-focused companies with critical mass, existing production and cash flow, and tangible production and development opportunities.

In 12 to 18 months, after objectives of a Norrep flow-through limited partnership are achieved, the partnership units will automatically be exchanged for an equivalent value of shares in a public Norrep mutual fund which may then be sold at any time. The exchange (or “rollover”) is a tax-deferred event meaning the investment will continue to experience capital appreciation potential without it being a taxable event.

Disclaimer

A preliminary prospectus dated March 20, 2017 (the “Preliminary Prospectus”) containing important information relating to these securities has been filed with securities commissions or similar authorities in every province of Canada. The Preliminary Prospectus is still subject to completion or amendment. Copies of the Preliminary Prospectus may be obtained from Norrep Capital Management Ltd. or any member of the syndicate. There will not be any sale or any acceptance of an offer to buy the securities until a receipt for the final prospectus has been issued.