Encana deal moves heaven and earth

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Encana deal moves heaven and earth

[ http://www.thestarphoenix.com/business/ ... story.html ]

Encana spinoff of PrairieSky involves special land package

By Drew Hasselback, Financial Post May 1, 2014

Encana Corp.' s proposed spinoff of PrairieSky Royalty Ltd. is no conventional real estate initial public offering. It involves a very special real estate deal involving one of the most unusual land packages in the country. [ http://www.calgaryherald.com/Encana+mov ... story.html ]

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The Encana land package is different. It's one of the rare bits of Canadian real estate in which the landowner also has full title to the subsurface rights. Whatever lays beneath the soil belongs to Encana, and post closing, will belong to PrairieSky. "They're valuable to Encana because they're free of government royalties because the government isn't the owner of the mineral rights," says Chrysten Perry, a senior partner with Norton Rose Fulbright Canada LLP in Calgary.

The situation results from the story of Canada's most famous infrastructure project, the Canadian Pacific Railway. As part of the construction price, the young Dominion government gave CP Rail about 25 million acres of land across the Prairies in 1881.

The feds sweetened the deal by giving CP full grants in fee simple or "freehold" lots without any restrictions or "reserves." In other words, the Crown didn't keep any mines or mineral rights for itself.

As the Latin legal phrase goes, CP received the land and all the rights that run with it "usque ad coelum et ad inferos" - up to heaven, and down to hell.

The basic land package called for CP to receive a checkerboard-like allotment of properties stretching 24 miles on each side of the proposed rail line. As the line reached Alberta, CP was able to take a large contiguous land package just east of modern-day Calgary. This land would become immensely valuable after oil was discovered in Alberta. CP held the land through an oil subsidiary for many years.

That subsidiary was spun-off, and ultimately became Encana in 2002.

When Encana transfers the land to PrairieSky, the company will literally be moving heaven and earth.

Encana and its predecessor companies weren't the only ones to acquire freehold land in the Canadian West. Similar grants were extended to early Prairie pioneers to encourage them to settle in the West, but those individual grants are minuscule in comparison to the land package that would pass to CP. According to the PrairieSky prospectus, about 81% of fee simple mineral title land in Alberta is held by the provincial government and 9% is held by the feds. Public and private corporations hold another 9%, while individual landowners hold about 1%.

Fee simple is a common law concept that dates back to medieval times - the word "fee" itself comes from the old English word fief. The Crown would grant estates to individuals, subject only to the right of the Crown to expropriate it or take it back. This one limitation was designed to prevent the nobles who took the land from turning around and establishing their own sovereign realms.

"Fee simple title is an estate in property, and it's often called the greatest estate known to law," says Paul Negenman, a partner in the Calgary office of Lawson Lundell LLP. "That's a fantastic estate."

Encana and its predecessors chose not to extract oil and gas from the land. Instead, they adopted a royalty model that will continue with PrairieSky after the spin off. The idea is to lease rights to other companies. These lessees pay an upfront amount that grants them the right to explore the property for a fixed term. If a lessee finds some oil or gas and starts production, it pays a royalty on this output to the landlord, not the Crown. The land returns to the landlord once the lease expires.

"There's absolutely no royalty paid to the Crown because they don't own the resource," says David Cuschieri, an associate in the Calgary office of Torys LLP.

Greg Southam, a commercial real estate lawyer with Davies Ward Phillips Vineberg LLP in Toronto, says the advantage of freehold land is the landlord's ability to negotiate custom deals with the lessees. Leases can be as unique as the parties like. For example, it's possible for the landlord to grant leases to "strata" or layers of the subsurface soil, just like urban land developers do when they sell fee simple slices of air for the units stacked up in highrise condos.

For Encana, and eventually PrairieSky, the model allows the landlord and its investors to take current and future benefits from the land without putting the company's balance sheet at risk.

"It's a purely negotiated deal," Mr. Southam says. "To me, it's the highest and best use of the property."

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ENCANA moves forward with plans for a publicly traded spinoff called PrairieSky Royalty

[ http://www.calgaryherald.com/Encana+mov ... story.html ]

April 15, 2014

QUOTE: “Net proceeds from the proposed sale of PrairieSky shares will go to Encana.”

CALGARY — Encana Corp. (TSX:ECA) has advanced its plans for spinning off a portion of its assets in Western Canada into a separate publicly traded business, to be called PrairieSky Royalty Ltd.

PrairieSky doesn’t intend to directly develop or produce petroleum or natural gas. Instead, the new company will focus on attracting third party capital investments to develop the properties.

The filing says PairieSky intends to use a majority of its free cash flow to pay dividends to its shareholders on a monthly basis.

Calgary-based Encana expects to continue owning a majority interest in PrairieSky after the IPO, but details of Encana’s stake aren’t disclosed in documents prepared for the new company’s initial public offering.

A management analysis provided in the document estimates that PrairieSky would have produced $195.2 million of free cash flow last year if it had been an independent company and would have paied a total of $165 million of cash dividends in 2013.

Free cash flow is a financial measure that analysts and investors frequently use to measure the performance of oil and gas companies, although there’s no definition of the term under international financial reporting standards.

Encana originally announced plans for a spinoff in November, when it slashed its dividend and said it would reduce its workforce by 20 per cent as it simplifies its sprawling operations.

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RELATED:

Encana Announces Filing of Amended and Restated Preliminary Prospectus for Initial Public Offering of PrairieSky Royalty

[ http://www.theglobeandmail.com/globe-in ... 0942849001 ]

Wednesday, April 30, 2014 Press release from Marketwire

Encana Announces Filing of Amended and Restated Preliminary Prospectus for Initial Public Offering of PrairieSky Royalty

18:14 EDT Wednesday, April 30, 2014

CALGARY, ALBERTA--(Marketwired - April 30, 2014) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR DISSEMINATION IN THE UNITED STATES

Encana Corporation ("Encana") (TSX:ECA)(NYSE:ECA) announced today that PrairieSky Royalty Ltd. ("PrairieSky"), a wholly-owned subsidiary of Encana, has filed and obtained a receipt for an amended and restated preliminary prospectus ("Amended Prospectus") in respect of its initial public offering of common shares with the securities regulatory authorities of all provinces and territories in Canada (the "Offering"), which amends and restates the preliminary prospectus of PrairieSky filed on April 14, 2014. The Offering is being conducted by way of a secondary offering by Encana, and the Amended Prospectus states that Encana proposes to sell 32,500,000 common shares at an indicative offering price of between $23.00 and $26.50 per common share for aggregate gross proceeds to Encana of approximately $747.5 million to $861.3 million. Following closing of the Offering, it is anticipated that Encana will own 75% of the common shares of PrairieSky (prior to any exercise of the over-allotment option).

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[ http://www.theglobeandmail.com/globe-in ... 0942849001 ]