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Longford Energy Inc V.LFD



TSXV:LFD - Post by User

Comment by Baxter4on Dec 23, 2010 1:09pm
204 Views
Post# 17888981

RE: Royalty

RE: RoyaltyYou should really explain how those royalties were determined.

In Niko and Vast's case, both companies had a 27% interest in their block with Groundstar having 6% and the KRG having 40%. The royalty for all was 10%. The KRG Then decided to sell half of its' interest to Niko and Vast. I believe Niko paid cash for their extra 10% and so kept the 10% royalty rate. Vast negotiated a royalty of 30% only applicable on their additional 10% interest, which works out to a royalty of 15% overall for 37% interest. In other words, Vast increased their ownership by 10% while only increasing the royalty by 5%.

Longford negotiated differently. They initially had a 20% WI at a 10% royalty rate. The KRG then gave Longford an additional 20% WI at an overall royalty rate of 40% for a total 40% WI. Not as sweet a deal as Vast got as it works out to a 70% royalty on the additional 20% WI but remember Longford knows for sure they have oil on their block while Vast has only about a 30% chance (assuming the chances of finding oil instead of gas is 50/50 ).

Niko kept their 10% royalty as they had cash. Vast and Longford would have had to go to the market to do the same which would mean a large dilution in shares for both. Paying higher royalties is much better than diluting the shares for shareholders.
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