Canada’s Freehold Royalties to Buy Texas Shale Assets for CA$155 Million

Freehold Royalties Ltd. entered into separate agreements with two private sellers to acquire “high-quality U.S. mineral title and royalty assets” located in the Permian Basin and Eagle Ford Shale, the Canadian firm said July 7.

According to a company release, Freehold agreed to pay CA$123 million for Midland Basin assets, located predominantly in Howard County, Texas, and CA$32 million for Eagle Ford assets in South Texas. Freehold plans to fund the acquisitions, totaling CA$155 million, using its existing credit facility. 

Freehold said the acquisitions will add roughly 1,100 boe/d in production volumes and $31 million in funds from operations in 2023 while growing the company’s U.S. land holdings by about 147,000 gross acres and 8,000 net royalty acres (90% mineral interests).

“The U.S. acquisitions enhance the quality of Freehold’s North American royalty portfolio through further strengthening of our peer leading realized commodity pricing, building on the production growth platform we have established in the Permian Basin, and continuing to position our portfolio in the highest quality oil and gas development areas across North America,” Freehold said in the release.

On July 7, Freehold also reported the close of its $19 million acquisition, previously announced in May, of mineral title and royalty assets in the Midland Basin.

Freehold Royalties Ltd. is a dividend-paying oil and gas royalty company based in Calgary, Alberta. The company has one of the largest independently owned portfolios of royalty lands in North America, according to its website, with more than 6.2 million gross acres in Canada and 800,000 gross drilling unit acres in the U.S.

The company plans to provide an update on its 2022 guidance and payout levels as part of its second-quarter release after market close on Aug. 9.

The Midland Basin acquisition has an effective date of June 1 and closing is expected to occur late August. The acquisition comprises mineral title and royalty land position in the core of the Midland Basin across 51,000 gross acres (approximately 4,400 net royalty acres) with an average royalty rate of approximately 1.1%. The assets are expected to add 550 boe/d of average production forecast for fourth-quarter 2022.

Freehold said the acquisition increases its Midland Basin exposure by approximately 40% on a net royalty acre basis and more than doubles production. The deal includes about 650 gross future drilling locations identified for development with 0.9 net DUC and permitted wells, which increases Freehold’s net line of sight inventory wells by approximately 30%, the company added.

U.S. publicly listed HighPeak Energy and two private entities, Surge Energy and Bayswater Exploration and Production LLC, are the main drivers of material near-term growth for the soon-to-be acquired assets. Freehold is expected the assets to generate funds from operations in 2023 of approximately $23 million.

The effective date of the Eagle Ford acquisition is April 1 and closing is expected to occur mid-September. The acquisition consists of a concentrated mineral title and royalty land position in the core of the Eagle Ford across 41,000 gross acres (approximately 2,500 net royalty acres ) with an average royalty rate of approximately 0.8%. The assets are expected to add 210 boe/d (78% liquids) of average production forecast for fourth-quarter 2022.

Freehold said the acquisition increases its Eagle Ford basin exposure by approximately 15% on a net royalty acre basis and 10% on a production basis. The deal includes about 700 gross future drilling locations identified for development.

Operator mix includes exposure to EOG Resources Inc., ConocoPhillips Co., BP Plc, Devon Energy Corp. and private 1776 Energy Operators LLC. Freehold generate is expecting the assets to funds from operations in 2023 of approximately $5 million.