CALGARY—Canadian Natural Resources is selling a large portion of its land holdings and production to PrairieSky Royalty Ltd. for a total of $1.8 billion in stock and cash.
The friendly deal will add the equivalent of 6,700 barrels per day to PrairieSky’s oil and natural gas production and add about 21,850 square kilometres of lands (5.4 million acres) to its portfolio.
“With this transaction, Canadian Natural and PrairieSky have co-operated to form a true Canadian champion with a royalty land position that cannot be duplicated,” PrairieSky CEO and president Andrew Phillips said in a statement Monday.
The Calgary-based company, which was spun off last year from Calgary-based Encana, also announced its third-quarter financial results.
As with most other oil and gas companies, which have suffered from a plunge in global prices that began about a year ago, PrairieSky’s revenue and profit have plunged but its production has increased. In the third quarter, it produced about 16,000 oil-equivalent barrels per day—primarily from natural gas—up from 15,448 a year earlier.
Under the deal with Canadian Natural, PrairieSky will pay $680 million in cash and about 44.4 million of its common shares, priced at $25.20 each, for the royalty portfolio.
Canadian Natural says its shareholders will get most of the PrairieSky stock through a special dividend or similar distribution next year after a shareholders meeting in May and the company will use the cash to reduce its bank debt.
CNRL president Steve Laut said the transaction with PrairieSky “provides Canadian Natural shareholders with an opportunity to directly and indirectly participate in the largest and most dominant oil and natural gas royalty enterprise in Canada.”
With the addition of the Canadian Natural royalty lands, PrairieSky’s portfolio will grow to about 59,500 sq. km. (14.7 million acres) in Saskatchewan, Alberta and British Columbia.
Canadian Natural said it has preserved the right to develop about 420 sq. km (104,000 acres) of lands in western Saskatchewan through a leasing and drilling commitment with PrairieSky.
PrairieSky says it has lined up certain investors to provide the $680 million in cash through a private placement of equity that’s expected to close by Dec. 2.
Its revenue in the three months ended Sept. 30 dropped to $44 million from $91.4 million in the third quarter of 2014. Its funds from operations fell to $36.5 million or 23 cents per share, from $68.7 million or 53 cents per share, and net earnings plus comprehensive income plunged to $14.1 million or nine cents per share from $61.2 million or 47 cents EPS.