PrairieSky Royalty Ltd. reports its inaugural quarterly results Monday and investors in the company, spun off by Encana Corp. in May in Canada's largest initial public offering in 14 years, have their eyes peeled for any new leasing deals for its vast oil and gas acreage.
PrairieSky derives most of its cash flow from third parties, including Encana, which pay royalties and fees to drill on its 5.2 million acres of "fee-simple" lands in Alberta. Encana has retained a 54-per-cent stake in the company.
The shares have remained well above the $28 initial public offering price, hitting a high of $40.83 in early July on the Toronto Stock Exchange, as investors took a shine to the opportunity for a stable dividend supported by a low-risk business with minimal costs. They have since given up some ground, closing on Friday at $38.16.
Investors will be watching for growth in oil production on the fee lands, due to relatively strong crude prices, and weakening gas prices, through the period, said FirstEnergy Capital Corp. analyst Michael Dunn.
"The production they report is a royalty take based on others' production," Mr. Dunn said. "Some of the royalty agreements have a sliding scale with price and well rates."
PrairieSky's ability to ink new lease deals spells opportunity for investors. The company has a marketing staff tasked with attracting oil and gas producers, and even private equity funds, to the acreage through meetings and invitations to data rooms, BMO Nesbitt Burns analyst Gordon Tait said in research report.
Acquisitions of similar land spreads could also be in the cards, he said.
For the quarter, PrairieSky will report results just for May 27 through June 30, as that represents the time after the corporate entity formally acquired the assets, vice-president Cameron Proctor said. It will release the numbers after market close.
The spinoff – and a host of other deals – has affected the outlook for the remainder of the year at Encana, which is due to report its second-quarter numbers on Thursday.
Along with pocketing gross proceeds of $1.67-billion from the IPO, Chief Executive Doug Suttles shelled out $3.1-billion (U.S.) for a sizable chunk of the Eagle Ford oil and gas liquids shale play in south Texas from Freeport-McMoRan Copper & Gold Inc.
Then in June, it sold its Bighorn natural gas-rich properties in west-central Alberta to privately held Jupiter Resources Inc. for $1.8-billion, as Mr. Suttles pushed ahead with his year-long reshaping of Encana.
"There are a lot of moving parts there, so everybody's kind of waiting on updated guidance," Mr Dunn said.
On June 17, Encana shares hit $26.66, their highest in nearly three years, on the company's improving outlook and tighter focus on oil and gas liquids production. However, they have since weakened along with North American natural gas prices, settling at $23.24 on Friday.
Other energy companies due to report results on Thursday include Husky Energy Inc. and Precision Drilling Corp.