Energy companies in western Canada are trying to sell a number of packages of land, providing acquisition opportunities for PrairieSky Royalty Ltd. as it seeks more land-leasing opportunities, the company said Tuesday.
PrairieSky, a company that went public at the end of May, said its competitors are shopping small packages of royalty-free land, ranging from 6,400 acres to 32,000 acres. PrairieSky controls 5.2 million acres of so-called fee simple land.
“We’re currently seeing a reasonable amount of product for sale in terms of royalty streams, however we remain disciplined and focused on per share accretion,” PrairieSky chief executive Andrew Phillips said on the company’s inaugural conference call Tuesday.
“We’ve seen royalty packages anywhere from to 10 to 50 sections,” he said.
There are 640 acres in a section, so the upper end of these packages would ring in at 32,000 acres. PrairieSky said it is hard to quantify the acres it has seen up for grabs because the royalty structures vary.
“There’s a variety of different packages out there, mostly on the smaller scale,” Mr. Phillips said.
PrairieSky does not have to pay royalties to the government for the oil and gas extracted on its lands. The deal, which is held over from a deal in the 1880s, makes energy production on the property especially lucrative. However, PrairieSky does not do its own operating. Instead, it leases land to others and collects royalties from them.
This structure reduces risk for PrairieSky. If the company is able to add more fee-simple land to its holdings thanks to acquisitions, it would have more land to offer other operators, increasing its revenue.
Encana Corp. created PrairieSky in May, in an initial public offering where the natural gas company raised $1.64-billion while retaining a 54 per cent stake in the new entity. PrairieSky leases its property to other oil and gas companies, including Encana, making money by extracting royalties from its lessees.
The healthy IPO prompted Canadian Natural Resources Ltd. to say it is considering a similar move. CNRL’s royalty assets generate about $140-million to $150-million in annual revenue.
PrairieSky said it has bought some Crown land sitting under its 3-D seismic and is contiguous with its existing position. “So we have accumulated land on that front,” Mr. Phillips said.
The company said it made $23.9-million or $1.01 per share in the second quarter. Because PrairieSky is new, this only covered a 35-day stretch ended June 30. The company launched “active operations” on May 27 and completed its IPO on May 29.
Calgary-based PrairieSky has working capital totalling $57.4-million, including $27.7-million of cash and cash equivalents. It does not have any bank debt.
“PrairieSky Royalty may strategically seek additional petroleum and natural gas assets, from time to time, that provide it with medium-term to long-term value enhancement potential,” the company’s website says, listing contact information for seven people. “If you are looking to divest of a fee simple mineral title or royalty interests, please contact us.”