CALGARY, Alberta (Reuters) - Freehold Royalties Ltd (FRU.TO) said on Monday it is buying royalty interests from Husky Energy (HSE.TO) that represent around 1,700 barrels of oil equivalent per day of western Canadian production for C$165 million ($131.74 million).
The company will fund the acquisition of the royalty production and mineral title lands with C$165 million equity financing led by underwriters RBC Capital Markets (RY.TO), CIBC (CM.TO) and TD Securities (TD.TO). Freehold said it should close the deal around May 25.
“Overall we see today’s transaction as complementing and enhancing Freehold’s underlying royalty asset base while further increasing our royalty weighting for both production and cashflow,” Chief Executive Tom Mullane said on a conference call following the acquisition.
Royalty lands are privately held oil and gas properties that are not subject to the royalties producers pay to governments on publicly owned lands. Producers pay a mineral tax, while the royalties go to the property owners, in this case Freehold.
For investors, the royalty streams from the properties can offer exposure to oil and gas production free from the costs of finding and developing reserves.
Last year Freehold also bought royalty interests from Penn West Petroleum PWT.TO for C$321 million and the Husky deal takes its total fee lands to 1 million acres, and total royalty lands to 5.9 million acres.
News of the acquisition comes a week after Husky said it was selling a partial interest in a package of Canadian energy midstream assets to two Hong Kong-based firms, one of which like Husky is controlled by billionaire Li Ka-shing, for C$1.7 billion in cash.
Like its peers Husky has been hammered by the nearly two-year global crude price slump and in December announced plans to raise cash by selling assets, including around 60,000 barrels per day of non-core conventional oil and gas production.
Husky said proceeds from the Freehold deal would be used to strengthen its balance sheet, and that work continues on divesting the other oil and gas properties up for sale.
As part of the deal, Husky would also receive royalty and working interests in select heavy oil properties in the Lloydminster region, where it already has an extensive and growing portfolio of conventional heavy oil production.
($1 = 1.2525 Canadian dollars)
Editing by Diane Craft