Franco-Nevada

SCOOP/STACK (Continental) (Oil & Natural Gas)

Scoop Stack Other

Location: Oklahoma, United States
Operator: Continental Resources, Ovintiv Inc., Devon Energy, Others
Royalty: Various Royalty Rates

Royalty Acquisition Venture

In the fourth quarter of 2018, Franco-Nevada and Continental Resources, Inc. (“Continental”) entered into a unique strategic relationship to jointly acquire royalty rights under Continental’s area of operations. In exchange for a partial capital carry in favour of Continental, the venture provides Franco-Nevada with an opportunity to acquire royalty rights at the grass-roots level, leverage the value of Continental’s drilling plans, and benefit from the company’s knowledge of local land title and geology. In addition, Continental manages the assets and Franco-Nevada does not incur any administrative burden. The venture was established to acquire royalty rights in areas primarily within acreage operated by Continental. These areas offer excellent economics, proximity to infrastructure and future upside via stacked hydrocarbon-bearing horizons.

The venture is structured such that Franco-Nevada funds 80% of the acquisition capital and Continental funds the remaining 20%. Franco-Nevada receives a minimum of 50% of revenue from the venture and up to 75% of revenue, depending on performance against mutually agreed performance thresholds. Continental receives a minimum of 25% of revenue and up to 50% of revenue depending on performance against those performance thresholds.

As at December 2020, Franco-Nevada had contributed $406 million to the venture and has committed, subject to satisfaction of agreed upon development thresholds, to spend an additional $114 million, approximately half of which is expected to be deployed in 2021. In 2020, due to a drop in oil prices, Continental reduced their capital spending and drilling activities in the SCOOP/STACK, which negatively impacted royalty volumes for the year. The expectation is that volumes will benefit from increased drilling activity in a stronger commodity price environment.

ASSET HIGHLIGHTS

  • Royalty acreage concentrated in the core of the SCOOP/STACK resource play
  • Continental is a top tier operator with an exceptional land position
  • Royalty volumes are supported by volume targets from Continental

New Strategy