Stock Watch > Encana Corp to spin off oil and gas assets in central and southern Alberta though an IPO of PrairieSky Royalty Ltd.
Calgary-based energy major Encana Corporation (TSE:ECA, Mkt cap 18.91B, P/E 71.95, Div/yield 0.08/1.22, EPS 0.35, Shares 740.85M) is preparing to spin off its oil and gas assets in central and southern Alberta though an initial public offering. PrairieSky Royalty Ltd, the company that will be created through this move, has filed a preliminary prospectus with the relevant authorities across Canada and expects to complete the secondary offering late in May or early June.
When Encana announced its strategy last November, it said that PrairieSky would be set up with the aim of creating opportunities for direct investment in a royalty business. The new entity, which will own about 5.2 million acres of fee simple mineral title lands, will make it possible for Encana to boost its royalty business, the energy producer said.
PrairieSky will not be involved in any exploration, development or production activities on its land. It will instead focus on securing investment from third parties, generating its revenues from fees paid by companies producing oil and gas from the properties.
Encana expects to end up with a majority stake in PrairieSky when the spin-off is finalised. It will remain engaged in daily administrative services during the transition period, which should last until the end of this year. However, Encana does not intend to assume any managerial responsibilities in PrairieSky and will only be involved in the business as an investor.
The timeframe and the transaction itself are subject to the receipt of regulatory and all other necessary approvals, Encana said. PrairieSky’s board will be led by James M. Estey as chairman.
Encana did not reveal how many PrairieSky shares it plans to issue, nor did it reveal the selling price. The company will hold a majority stake in PrairieSky. At some point it could distribute the remaining shares to shareholders in the form of a special dividend.
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