May 02, 2014
Encana’s proposed spinoff IPO has been stirring comment; associate David Cuschieri weighed in on the unusual deal for a Financial Post article.
Below is an excerpt of the article.
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.
To read the full article, click here.