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PrairieSky widens horizon Encana spinoff picks up Range Royalty, adding 3.5 million acres; no government royalties because of 19th century land grants Gary Park For Petroleum News
PrairieSky Royalty - the Encana spinoff which collects royalties from producers who extract oil and natural gas on lands where it owns mineral rights - is in full flight.
Just six months after being created it has struck a C700 million deal to take over Range Royalty, a limited partnership, adding another 3.5 million acres of royalty-free land to its portfolio, boosting its holdings to more than 9 million acres.
The acquisition will give PrairieSky a toehold in Saskatchewan’s Viking light oil play and add production of about 3,000 barrels of oil equivalent per day to the 15,500 boe per day it pumped in the third quarter.
For the transaction to close it must gain approval from two-thirds of Range unitholders, about one-third of whom have already agreed to tender their stakes.
Governments are unable to collect royalties on the type of land controlled by PrairieSky and Range as a result of land grants made by the Canadian government in the 19th century to Canadian Pacific Railway.
No rush for more land For now PrairieSky indicates it is in no rush to snap up more land, declaring it is “very happy with the position we currently have.”
Third-quarter production was 43 percent crude oil, 10 percent natural gas liquids and 47 percent dry natural gas.
Chief Executive Officer Andrew Phillips said three other third-quarter acquisitions - involving Penn West Petroleum, Ember Resources and Whitecap Resources - should benefit PrairieSky because the new leaseholders will be more active drillers on his company’s properties.
“I expect you’ll see the predominance of activity focused on what we consider our top four plays,” he said, referring to the Montney and Duvernay in Western Canada and the Eagle Ford and Permian in the United States, with Encana gaining entry to the Permian by acquiring Athlon Energy for US$7.1 billion.
Encana Encana raised C$1.67 billion from the initial public offering of PrairieSky, then collected another C$2.6 billion by selling its remaining 54 percent of the company.
That will help Encana make a “substantial” increase in its 2015 capital budget, even if benchmark crude prices remain around US$80.
Encana said it expects capital spending of up to US$2.6 billion this year and cash flow of up to US$3.3 billion, with production peaking at 2.9 billion cubic feet of gas equivalent per day (including 89,000 bpd of oil and liquids).
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