Overriding Royalty
Between July 2009 and July 2010, Caledonian Royalty Corporation negotiated,
financed and closed the purchase of a 5
percent gross overriding royalty on the oil and gas properties of
Compton Petroleum Corporation, a mid-sized Canadian energy producer for
a total cost of $100 million. This is a unique investment opportunity which
has not been available in the Canadian
oil and gas sector historically.
The royalty covers existing production and potential future production
from a large undeveloped land base. Royalty Units offered by Caledonian
Royalty Corporation allow investors to participate in the royalty
opportunity with the following features:
- Top line cash flow stream based upon gross revenues;
- A registered interest in land representing a secure source of revenue;
- The royalty ranks ahead of banks and other creditors;
- The investment is weighted to natural gas which enables investors to
participate in the expected recovery of natural gas markets.
As a result of the recent economic downturn and decline in crude oil and
natural gas prices, it has become challenging for smaller and
medium-sized oil and gas companies to raise new equity or debt capital.
In addition, the banking industry has generally reduced its exposure to
the resource sector as a result of internal constraints. Caledonian’s
purchase of the gross overriding royalty enables Compton to raise funds
at a reasonable cost while retaining control of the assets. Investors in
this broadly structured royalty have a low-risk, high-yield
participation in cash flow from Compton’s properties that is not
burdened by rising operating and capital costs.