Western Canadian Oil Start-Ups Revive Royalty Leasing
Summary
PrairieSky and Freehold say 40+ new WCSB oil start-ups are leasing dormant conventional plays and selling royalties to fund drilling, lifting lease counts.
Canadian oil royalty companies are seeing a start-up wave in the Western Canadian Sedimentary Basin (WCSB). On their third-quarter 2026 earnings calls in late October and early November, PrairieSky Royalty (PSK) and Freehold Royalties (FRU) both described newly formed oil companies returning to long-quiet conventional plays to lease land, drill wells and raise money, which brought both royalty companies more leases and financing deals.
New operators return to old plays and go to mineral owners first
The WCSB is Canada's main oil and gas producing region, and much of its subsurface mineral rights is held privately or by companies. Royalty companies such as PrairieSky and Freehold do not drill. They lease mineral land to oil producers, collect a payment when the lease is signed, and then take a set share of revenue once wells produce. That share is the royalty.
For the past few years, the basin's large producers were busy consolidating, and new exploration in conventional reservoirs (traditional reservoirs, as opposed to unconventional resources such as shale) had nearly stopped. That is changing. PrairieSky's management said federal tax and depreciation incentives put more cash flow into the industry that can be deployed in the field [1]. Freehold said many teams spun out of recent consolidation are starting new companies with fresh capital [2].
These new companies have no existing land and need drilling capital. So they lease land from mineral owners and sell part of their future production revenue to royalty companies to fund wells up front. They are also bringing multilateral wells (one wellbore that branches into several horizontal legs underground, covering more reservoir at lower cost) and waterflooding (injecting water to maintain reservoir pressure and push oil toward producing wells) into conventional plays that have seen little activity over the past five years [1].
Leases, new wells and royalty financing deals are rising at both royalty companies
PrairieSky signed 39 lease arrangements with 41 oil companies in the third quarter, with new leases spread across its land base [1]. In the second quarter it signed 57 leases with 46 operators and said many new oil companies had been founded over the past year [3]. The CEO said that with the capital cycle returning and a number of teams restarting, grassroots exploration in the basin has returned for the first time since 2013-2014 [1]. In the third quarter, 230 wells were spudded on its land at an average royalty rate of 6.5%, compared with 5.1% in 2025. Year to date, its Viking spud count is up 49%, and multilateral drilling in the heavy-oil Mannville stack rose 57% in the first nine months versus the same period of 2025 [1].
Freehold dated the change to the past six to nine months and said it was led mainly by the change in the federal government [2]. It said that in the past it could only place a million or a couple of million dollars at a time in Canada, while now more than 40 start-up teams are looking for capital, making deals of scale possible [2]. Freehold will take a 3% gross overriding royalty (the funder bears no costs and takes a fixed share of gross revenue from the land) across 179 contiguous sections held by private company Refraction Energy. The initial C$20 million is payable at closing in the fourth quarter, with the balance deployed through 2027 and 2028 as operational milestones are met. The company expects the asset could reach 5% to 10% of its Canadian production [2].
The two companies hold different land and deal with different counterparties, yet they describe the same kind of new operator. Taken together, two independent disclosures say more than either company alone about new capital flowing back into the basin.
Royalty owners are paid on leases first; production and rig days follow
For a royalty company, revenue from these new producers arrives in two steps: first lease payments and financing deals at signing, then production royalties at higher rates once wells come online. PrairieSky expects its conventional portfolio could flatten out and potentially grow within the next three years, but only "assuming oil price hangs in there" [1].
The chain may extend to drilling services. Multilateral wells need rigs, and if rig days rise, vendors that charge per rig day could also benefit. The source material also contains evidence that cuts the other way. Precision Drilling said Canadian activity was at multi-year highs, but its Canadian margin fell on rig mix and its contract-book growth came mainly from large consolidated producers, not start-ups [4]. Royalty financing is also not a new instrument: Freehold entered a C$120 million gross overriding royalty joint venture as early as 2014 [5].
Three indicators are worth tracking: the number of operators PrairieSky signs each quarter and the royalty rate on new wells; whether Freehold's milestone funding for Refraction is deployed on schedule in 2027 and 2028; and whether Canada's active rig count keeps rising.
Companies exposed to this change
- Topaz Energy (TPZ): Also holds royalty land in the WCSB. In the second quarter it said its land captured a record 22% share of basin drilling, and that the acquisition market had opened up as some operators had capital needs [6]. If start-up producers keep raising money by selling royalties, Topaz faces the same counterparties, though it has not disclosed deals with start-ups.
- Precision Drilling (PDS): Canada's largest driller. Heavy-oil multilateral wells use its Super Single rigs. In the third quarter it had 73 active Canadian rigs, up 10 year over year, and heavy-oil Super Single utilization rose 18% [4]. There is no direct evidence yet that start-up drilling demand is reaching its contracts.
- Pason Systems (PSI.TO): Rents drilling data systems by the rig day. In the third quarter its North American Drilling revenue rose 15% to a record C$80 million, and it cited a higher share of Canadian activity [7]. It is exposed through rig days; the contribution from new operators has not been disclosed separately.
Sources
[1] Drillr · PrairieSky Royalty (PSK) · 2026-10-27 · Earnings call
[2] Drillr · Freehold Royalties (FRU) · 2026-11-10 · Earnings call
So you're not only dealing with just a half a dozen people or something like that, you've got 40 plus startup teams looking to get going and so we think that that presents an opportunity for us that just hasn't existed in the past few years.
[3] Drillr · PrairieSky Royalty (PSK) · 2026-07-14 · Earnings call
[4] Drillr · Precision Drilling (PDS) · 2026-10-28 · Earnings call summary
[5] BOE Report · Freehold Royalties enters $120 million gross overriding royalty joint venture · 2014-06-25 · News · https://boereport.com/2014/06/25/freehold-royalties-ltd-enters-into-120-million-gross-overriding-royalty-joint-venture-and-announces-equity-financing/
[6] Drillr · Topaz Energy (TPZ) · 2026-07-28 · Earnings call summary
[7] Drillr · Pason Systems (PSI.TO) · 2026-11-06 · Earnings call summary
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