Copyright of the Daily Oil Bulletin 2017
PrairieSky Generates Record Quarterly Lease Bonus In Q2; Company Sees Increased Activity
PrairieSky Royalty Ltd. generated a record quarterly lease bonus consideration of $29.5 million in the second quarter on its fee lands as the company entered into 37 leasing arrangements with 34 different producers during the three months ended June 30, 2017.
“Land leasing was very active in the quarter, resulting in $14.3 million in cash bonus,” Andrew Phillips, president and chief executive officer, told this morning’s second quarter conference call. “This was from a variety of play types, including the Duvernay, tight Mannville, Viking and other oil resource plays.”
He added: “Of note, we were able to release a number of expiring lands leased in 2014, further highlighting the recycling potential of our fee-title lands.”
Leasing was particularly active in more than 890 sections of Duvernay rights during Q2 2017, according to the Q2 financial and operational results, and producers spud 104 wells on PrairieSky lands despite challenging commodity-price and physical-seasonal environments.
“Operationally, our producers faced rough spring conditions, numerous facility outages, and typical road bans put in place during breakup,” said Phillips. Drilling activity focused on the Viking oil play in Saskatchewan and Alberta, the multi-zone fairway of Alberta and British Colombia, as well as light and heavy oil plays across central Alberta.
“There are now over 200 rigs working in Western Canada, which is double the rig count from one year ago.”
PrairieSky celebrated its third anniversary during the second quarter, acquiring gross overriding royalties on $9.7 million in producing and undeveloped lands during the three-month period to provide exposure on existing and future development for all commodities, including Deep Basin multi-zonal resource play opportunities.
For the three and six months ended June 20, 2017, the company recorded revenue of $102.2 million and $182.5 million, respectively, which is 112 and 88 per cent more than during the same periods in 2016. PrairieSky achieved net income of $40.5 million and $61.3 million in Q2 and the first half of this year, respectively, compared to net losses of $5.7 million and $4 million for the comparative timeframes one year prior.
Management attributes the improved net earnings situation to increased royalty revenue and bonus consideration offsetting higher depletion costs and administrative expenses.
On PrairieSky lands, companies achieved average production of 25,706 and 26,257 boe per day, respectively, in the three and six months ended June 30, 2017, which is up 11 and 14 per cent from the same 2016 periods.
“When you distill the business into individual well economics, you get a good gauge of industry economic profitability,” Phillips said, adding his company has a unique view of the Canadian energy business. “Today, we are seeing both private and public operators paying out wells in less than a year and a half that should remain net operating and income positive for over 20 years. We are therefore encouraged that capital flows to industry will return.”
Natural gas production volumes of 80.6 mmcf per day in Q2 2017 were seven per cent higher than in Q2 2016, due to production additions from new drilling on the royalty properties and acquisitions more than offsetting natural declines. Natural gas liquid production volumes for Q2 2017 of 2,664 bbls per day represented an 11-per-cent increase from Q2 2016, due to incremental volumes from new wells onstream more than offsetting natural declines.
Crude production volumes of 9,609 bbls per day in Q2 2017 were up 17 per cent from Q2 2016, due to the impact of production additions from new drilling on the royalty properties and a full quarter of production related to late last year’s acquisition of a 3.95 per cent gross overriding royalty interest on a heavy and thermal oil project at Onion Lake (DOB, Dec. 2, 2016), as well as the Q1 acquired production from the Lindbergh acquisition (DOB, Jan. 6, 2017).
While low commodity prices, limited access to capital for many industry participants, and legislative and regulatory frameworks continue to challenge the energy sector’s economic environment, management says PrairieSky maintains a strong balance sheet and continues to employ a conservative capital structure as it monitors controllable costs.
During the second quarter, the Toronto Stock Exchange accepted notice of PrairieSky’s intention to commence a normal course issuer bid, enabling the company to purchase — over a period of 12 months commencing on May 4, 2017 — up to 1.6 million common shares (DOB, May 2, 2017).
Earlier this month, PrairieSky’s board of directors declared a dividend of 6.25 cents per common share, payable in cash on Aug. 15 to shareholders of record as of July 31.