2023-05-10 21:30:00 ET
Summary
- PrairieSky Royalty Ltd. is the largest private landowner in Canada, with 9.7 million acres of land in western Canada.
- Despite a CAD 5 billion market cap, and CAD 643 million of revenues, PREKF has only 65 employees.
- You’d think this largest land company in North America would be better known.
The following segment was excerpted from this fund letter.
PrairieSky Royalty Ltd. ( PSK:CA , PREKF )
Texas Pacific Land is not the only superb land company, though it has the important distinction of also being a royalty company. There is a publicly traded, income-paying land and royalty company that parallels TPL and its history, but which has at least 11x greater land area.
PrairieSky Royalty Ltd. is the largest private landowner in Canada, with 9.7 million acres of land in western Canada, about the combined size of New Jersey and Massachusetts. It’s 18.3 million acres, if including royalty interests in Canadian government-owned land.
PrairieSky could easily have been the model for the preceding land return analysis, except that it has been publicly traded as land for only a decade. The land itself had an inception much like TPL’s: in 1881 as a government grant to Canadian Pacific Railways to build a transcontinental railroad. The mineral-titled lands were eventually placed into a new company, Canadian Pacific Oil & Gas Ltd., which through mergers eventually became Encana. It was only in March 2014 that PrairieSky was created to hold the mineral title lands and had its IPO.
On a business model basis, PrairieSky has, like TPL, engaged in a long-term anti-dilutive capital allocation strategy. In TPL’s case, that was enforced by the establishing Trust Agreement; the company couldn’t stray. In PrairieSky’s case, it is a management choice. PrairieSky shares have a 4.6% dividend yield. It could be higher, but the company maintains a low payout ratio so as to have sufficient cash flow to both invest in additional properties and to repurchase shares. Its cash flow is allocated to all three purposes. The results, even in only nine years, have been impressive.
Like TPL’s historical business practice, PrairieSky engages in no direct operating or physical capital investment activity. Third party operators explore and drill, and pay lease rental and royalty fees to the company. Accordingly, despite a CAD 5 billion market cap, and CAD 643 million of revenues, it has only 65 employees. Its free cash flow margin tends toward 80%. Some historical return metrics:
- At its IPO, PrairieSky had a stock market value of CAD2.825 billion and 4 acres per 100 shares. As of March 2023, it has 7.7 acres per 100 shares, so the per-share land content has been growing at a 7.5% annual rate.
- At the beginning of 2014, it had proved and probable reserves, in oil-equivalent terms, of 36 million barrels. Since then, 65 million barrels have been produced on the company’s properties, which is almost twice the original stated reserves. Yet, its current reserves are measured at 67 million barrel. The company has spent substantial sums on property and reserves acquisitions, but the number of barrels per 100 shares has increased from 24 to 28.
Interestingly enough, PrairieSky also has a AAA ESG ranking from MSCI, a #1 Environment & Social score from Institutional Shareholder Services, and was ranked #1 among Global Oil & Gas Producers by Sustainalytics. You’d think this largest land company in North America would be better known.
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Horizon Kinetics - PrairieSky Royalty: The Less Known, Largest Land Company In North America