Topaz
TOU's creation of Topaz resulted in a royalities company that at the begining is now tightly coupled to the growth prospects of Tourmaline. This create a situation that even though you may have a million acres of royality land, there is essentially a single operator, with a single capex budget, TOU planned spend on capex of about 1 billion a year is what drives royality generation on those lands.
The selling of the royalities on your land is like a variable rate loan, if commodity prices go up you pay more, if commodity prices go down you pay less.
The other issue with selling royalities, is that they are top line, before you costs, taxes, dividends, etc. So the impact on rate of return may be greatly understated.
Case in Point (Example)
Tourmaline has a 4% royality on all it gas production, gas is now close to $6 dollars, 36 dollars a boe, that makes those royality costs $1.44 a boe. If TOU were to produce 300,000 boe of gas a day and is paying a 4% royality that is 432,000 a day, or roughly 40 million dollars a quater in royality payments. That is great for the share holders of TOPAZ but not so good for the share holders of TOU.
DEBT FREE (Depends how you look at it)
So we talking about debt free if gas stayed at 6 dollars for a year and you paid 160 million in royalities for the rest of the life of your company. Is that expensive?, TOU can borrow money at 2% so 160 million in royalities would be the same as an interest only payment on 8 billion dollars. So i am not convinced of their royality model in a strong commodity cycle, its good when prices are low and your trying to survive, is seems like your giving away the farm when prices are high.
Bottom Line
The bottom line when you take into account other costs, SG&A etc, you are giving away close to 6-7 percent of your netbacks.
Debt or Liability which is better, one goes away after a period of them, the other you carry around with you forever. Frankly it must have a negative impact on the value of your properties.
IMHO