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Dave Roberts, Penn West’s chief executive officer, in a statement called the deal a “creative” solution “in challenging circumstances.”

Penn West Petroleum Ltd. has struck a $321-million deal to sell assets and hand over a percentage of its cash flow as the oil and gas firm wrestles with its debt.

The company on Tuesday announced a two-part transaction with Freehold Royalties Ltd., another Canadian energy outfit. Freehold, in a separate announcement, said it has turned to the market to finance the deal. Freehold said it has secured $297-million thanks to an equity offering and another $33-million through a private deal with a pension fund.

Both energy companies, along with the rest of the global energy industry, are under pressure as oil trades around $50 (U.S). per barrel. Penn West, for example, has cut its dividend twice since December and Freehold trimmed payments to shareholders in January. Further, Canada's energy firms are increasingly issuing equity to raise money as they struggle with shrinking cash flow.

In the first part of the deal, Penn West has agreed to sell Freehold an 8.5-per-cent gross overriding royalty – essentially 8.5 per cent of its top-line cash flow – from some of its production in the Viking play. That package of land, near Dodsland, Sask., covers about 18,210 hectares. Freehold expects its share of production on this land in 2015 to be about 660 barrels of oil equivalent per day worth about $14.8-million in annualized operating income.

Penn West, in the second part of the deal, will sell some of its existing royalties and so-called fee title land in Alberta, Saskatchewan, and Manitoba. Freehold, in its statement, said this part of the deal will add roughly 740 barrels of oil per day to its production results, and covers roughly 113,311 hectares. Freehold calculates this will bring in about $14.2-million in annualized operating income for 2015.

Penn West, under the terms of its recently renegotiated debt covenants, will hand over the $321-million to some of its bondholders. Penn West, in March, agreed to direct all the cash it collects from asset sales, up to $650-million, to investors holding its senior, unsecured notes. The deal with Freehold means Penn West will soon fulfill nearly half of this commitment.

Dave Roberts, Penn West's chief executive officer, in a statement called the deal a "creative" solution "in challenging circumstances."

"This disposition marks a critical milestone in our ongoing strategic focus to reduce debt and strengthen our balance sheet without materially impacting [earnings before interest, taxes, depreciation, and amortization] or production volumes."

The deal, expected to close May 6, is effective March 1, Freehold said.

Royal Bank of Canada and the Canadian Imperial Bank of Commerce are leading Freehold's $297-million bought deal. Freehold will issue 16.5 million shares at $18 each in the equity offering. The deal could expand by up to $44.55-million depending on demand. Separately, CN Pension Trust Funds, managed for Canadian National Railway Co. employees, intend to buy 1.83 million shares for an additional $33-million, Freehold said.

As a result, Freehold could raise a total of $374.6-million. Any cash leftover after paying Penn West will be directed toward debt, Freehold said.

Freehold, in a separate asset deal but announced in its statement tied to the Penn West transaction, paid Marquee Energy Ltd. $20-million for an eight-year royalty agreement on land near Lloydminster.