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Oil and Gas RoyaltyTrust Administration
Canada’s largest, most experienced provider
Today’s Focus
› What makes a Superior trust and what makes an Inferior one?
› What is the difference between an Inferior form of Royalty Trust anda Superior one?
› What does Computershare do with the money they receive? How isthis dependent upon whether the royalty is received for an Inferioror Superior trust?
› Why is it important for lessees and, even more importantly,prospective lessees to recognize the importance of the trusteecaveat and the implications that it brings?
Industry Consolidation History
Montreal TrustCompany of
Canada
Victoria andGrey Trust
Northern TrustCompany
The CanadaPermanentCompany
Eastern &Chartered Trust
Company
Osler & NantonTrust Company
Canada TrustCompany
Toole Peete TrustCompany
Toronto GeneralTrust Company
The CanadaPermanent
Toronto GeneralTrust Company
Chartered TrustCompany
Eastern TrustCompany
Computershare
CentralGuaranty Trust
Company
Trusts &GuaranteeCompany
PrudentialTrust
Company
GuarantyTrust
Company
YorkshireTrust
Company
Western TrustCompany
Crown TrustCompany
Central TrustCompany
NorthAmerican
TrustCompany
Eaton BayTrust
Company
SecurityTrust
Company
First CityTrust
Company
City andSavings
TrustCompany
Alberta Royalty Trusts
GRTAs
GRTCs
GRTs
RTs
Royalty Trusts
› Royalty Trusts were initiated by freehold mineral ownerswho had entered into leases granting them a royalty› Represent an interest in land and most often has precedence
on the title.› Most were set up in the early to mid-1950s› Royalty assigned was generally 12.5%› A caveat was registered against the title to warn all who might
have an interest in the title that there was a trust that had aninterest in land and that a portion of the royalty had beenassigned to a trust.
› Unit certificates (points) were issued to the settler of the trustor to the parties he indicated.
Benefits of a Royalty Trust for theFreehold Owner
› A RT enabled a freehold mineral owner to:› Sell units to raise funds› Gift a portion of royalty to family members› Trade units with neighbours, friends and others to share in the
chance of a discovery› Retain the mineral title making all leasing decisions and retaining
lease bonus payments.
**Note-these interests do not belong to Computershare – nor do wehold interests in these trusts. We are a service provider; we chargea fee for maintaining the registers and caveat, for disbursing royaltyrevenue and for preparing and filing the necessary tax forms.
Royalty Trust Administration
“The Good Old Days”› From 1950 through to the mid-1980s
› Trustees received and distributed royalties to the holders oftrusts
› No questions about the validity of Royalty Trusts or whether theholders were entitled to the money
› And then – the great schism occurred!
Court Actions and Lots ofQuestions
It was a scary time!
› From 1984 through to 1997, action after action proceededthrough the courts in an effort to resolve the perplexingquestions:› What are these things?› Are these things interests in land?› Are the trust holders entitled to the money?› When are they?› When are they not?
Inferior Forms of Royalty TrustAgreement
› Inferior forms are known by a variety of names:› Hetherington form (Prudential Trust – PTC1)› PTC1 (Prudential Trust)› CTC1 (Security Trust)› Other Inferior form (Various odds and ends)
› These forms of agreement DO create an interest in land
› A trust of Inferior form can still be binding:› If the original lease is still the operative lease› If a mineral owner has signed a Supplementary Trust Agreement or
other agreement to validate the Trust› If there are circumstances in the individual file distinguishing the
trust from the straight-up Inferior form.
Superior Forms of Royalty TrustAgreement
› There are far more Superior forms of agreement than there areInferior:› Kasha form (Montreal Trust)› Duncan form (Montreal Trust)› PTC3 (Prudential Trust)› GTC1 (Guaranty Trust)› CTC2 (Security Trust)› Van Houck (Toronto General)
Superior vs. InferiorWhat is the difference?Conveyance/Assignment Clause
Kasha form-Superior
Superior vs. InferiorWhat is the difference?
Conveyance/Assignment Clause
Superior vs. InferiorWhat is the difference?
Conveyance/Assignment Clause
CTC2 form-Superior
Superior vs. InferiorWhat is the difference?Conveyance/Assignment Clause
PTC1 – Hetherington-Inferior
Inferior Forms of Agreement
› Inferior Form of Trust› Pay the royalty into Court (Interpleader)› Search the mineral title› Send the “Choice Letter” to the Mineral Owners as mandated by the Courts
(Includes a list of the holders of interest in the trust)› Terminate the Trust
› Go to a lawyer who will follow the Court-established process› All mineral owners must agree to act together› Regular Court dates are set aside to hear these applications› Trust holders are provided with the opportunity to object or provide
information from their files› Once the Order is granted and served with a standard service period,
the trust is deemed to be expired, the royalties are paid to theMineral Owners’ representative, and the caveat is discharge
OR
Inferior Forms of Agreement
› Validate the Trust› Computershare can provide a form of Agreement or Consent
Order to do this› Upon signing of the form, the royalties are paid out to all of the
holders of units in the trust› Other Choices
› Partially terminate – removing their units from the trust andvalidate the remaining trust interest leaving the other holderswhole
› Add additional royalty (from the producing lease) to the trust andreceive additional units
› Purchase the outstanding units in the trust and collapse the trustunder the terms of the trust agreement
› Arrange a settlement with the holders
Inferior Forms of Agreement
› At the same time:› Computershare writes to the holders of units in the trust (which may
be some of the same people) and…› Indicates that the royalty has been received› Provides detail of the royalty payment› Explains that the royalty is being paid into Court and not to the
trust holders› Provides a copy of the holder list and “Choice Letter”
Superior Forms of Trust
› Active Trust› If the trust is already active, we include the new payment in the
next distribution to the holders, advising them that there is newproduction and the details of the payment.
› Inactive Trust› If the trust has not received revenue before, we write to the holders
and explain that payment is going to be made in 45 days.› We allow this time for holders to get any transfers of units that
may be outstanding.
› In both cases, payment is made to the holders
Royalty Clause
› Some lessees are relying on this provision of the lease.
› The Lessor agrees that the royalty reserved and payablehereunder in respect of the leased substances shall be inclusiveof any prior disposition of any royalty or other interest in thelease substances and agrees to make all payments required byany such disposition out of the royalty received hereunder and toindemnify and save the Lessee harmless from its failure to do so.
Royalty Clause
› We have reviewed this provision in association with the nature of thetrusts themselves, and the interest conveyed to the trustee.
› Practicality› Not a workable solution› Unrealistic expectation of most mineral owner/lessors› Puts the mineral owner in a difficult position if later claim is made
› Legal Position› The Trustee has a valid, binding interest in land› This interest preceded the lease and was not extinguished by it› As such, becomes an “owner” of the minerals› For the lessee to disenfranchise one “owner” by making a deal with
another is not fair or equitable, and is an infringement of the rights ofthe trust holders
Thank you.We appreciateyour time and interest.
Any additional questionsOil Royalties: 403 267 [email protected]