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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.  

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