Calgary-based Source Rock Royalties Ltd. (TSXV: SRR) has acquired a 0.75% gross overriding royalty on approximately 126,000 acres, or 197 sections, of oil sands leases in Alberta for $4 million, the company announced.
The leases, which are 100% working interest and largely contiguous, are operated by a team that has developed the lands for six years. Source Rock said the deal expands its total gross royalty acreage by more than 60% and was funded entirely from its existing cash balance.
According to the company, production from the acquired lands averaged approximately 3,300 barrels per day of heavy oil between January and September 2026, from one formation. Source Rock said portions of the lands also hold potential for heavy oil production from secondary zones, including the Clearwater, Bluesky and Pekisko formations, and are located in an area where several intermediate operators are active and where nearby Crown land sale activity has increased.
Drilling Commitments and Potential Payments
As part of the acquisition, the operator has committed to drill 10 horizontal wells on the lands before September 30, 2028, with an initial three-well program already underway. Source Rock said it is entitled to non-performance damages for any commitment well not drilled by that deadline, though the deadline can be extended if the Cushing, Oklahoma West Texas Intermediate spot price declines materially for an extended period.
The company also said it could be required to pay up to an additional $1.2 million to the operator if production from the lands reaches specified levels between 4,000 and 5,000 barrels per day for specified periods on or before June 30, 2029.
Company’s Broader Growth Since IPO
Brad Docherty, President and CEO of Source Rock, said the acquisition expands the company’s heavy oil royalty lands with an experienced operator, offering exposure to base production, primary zone drilling growth, secondary zone potential and enhanced recovery opportunities, while using cash on hand to generate production and revenue growth without diluting shareholders.
Docherty noted that since completing its initial public offering in March 2022, which raised approximately $12.4 million in net proceeds, the company has deployed $22 million on royalty and Crown mineral lease acquisitions in Alberta and Saskatchewan, while paying out $15 million, or $0.34 per share, in dividends. He said the company has grown its gross royalty and mineral lease acreage by approximately 350% without additional equity dilution, by recycling cash flow from its royalty business, and said Source Rock intends to continue pursuing further oil royalty acquisitions.
Cassels Brock & Blackwell LLP acted as legal counsel to Source Rock on the acquisition.
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