Franco-Nevada (TSX: FNV; NYSE: FNV) and Continental Resources (NYSE: CLR) have struck a strategic relationship to jointly buy mineral rights in the Scoop and Stack oil & gas plays in Oklahoma.
Franco-Nevada says it will contribute about US$220 million for the acquisition of existing mineral rights owned by a Continental subsidiary and has committed, subject to satisfaction of agreed-upon development thresholds, to spend up to US$100 million per year over the next three years to acquire additional mineral rights to be jointly held in a newly-formed company.
Franco comments that the Scoop and Stack areas offer "prolific well results, excellent economics, proximity to infrastructure and future upside via stacked hydrocarbon-bearing horizons ... [T]he mineral rights represent a perpetual ownership interest in land which provide an entitlement for royalties from oil & gas production."
The Toronto-based royalty company says it expects revenues from the deal to build as Continental ramps up full-field development of its land position, and this increase oil and gas revenues "will be more than matched by a significant increase in its precious metals revenue as Cobre Panama ramps-up production next year."
The US$220-million portion of the agreement is expected to close in the fourth quarter, and Franco says it intends to fund its staged investment from cash on hand, partial use of its credit facilities and its projected future cash flows.
Based in Oklahoma City, Continental Resources is a top 10 independent oil producer in the U.S. Lower 48. It is the largest leaseholder and the largest producer in the Bakken play of North Dakota and Montana and has significant positions in Oklahoma.