Daylight Resources Trust is a conventional royalty trust that operates in the Western Canadian Sedimentary Basin and is focused on new and mature properties.

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By focusing on both oil and natural gas production, Daylight Resources Trust maintains a balanced portfolio of assets that allows it to shift capital back and forth to take advantage of changing commodity prices. With a multi-year inventory of repeatable, contiguous drilling opportunities, Daylight can operate with “lower geological risk,” Executive Vice President Ted Hanbury says. “That’s really been a mantra for our trust.”

Based in Calgary, Alberta, Canada, Daylight is a conventional royalty trust that operates in the Western Canadian Sedimentary Basin. CEO Anthony Lambert adds that Daylight develops both new and mature properties, which allows it to generate opportunities both for the short term and for the future.

“We’re really not looking, in the classic exploration and processing sense, to drill the high-risk exploratory wells,” Lambert says. Instead, he says, [Daylight] aims for a more solid, lower-risk “sustainable business model.”

Daylight’s Evolution
Chief Financial Officer Steve Nielsen says Daylight’s roots go back to Midnight Oil & Gas Ltd., an oil and gas producer based in Calgary. In November 2004, Midnight acquired Vintage Petroleum Canada Inc. and reorganized itself into two entities: Daylight Energy Trust and Midnight Oil Exploration Ltd.

Although Midnight kept Vintage’s exploratory elements, “95 percent of the producing assets coming out of Vintage went into Daylight Energy Trust,” Nielsen says. In the years that followed, Daylight Energy acquired additional entities to expand and complement its asset base.

Increasing its Depth
Daylight Energy made its most significant transaction in 2006, when it joined with Sequoia Oil & Gas Trust to form Daylight Resources Trust.

“[This] significantly increased the depth and breadth of our operation,” Lambert says. “That transaction increased our size by about 50 percent and brought in a new group of assets with solid exploitation potential.”

Diverse Firm
Today, Daylight is a more than 20,000-barrels-a-day energy trust. Its portfolio includes diverse properties in west central, eastern and southern Alberta, as well as the Peace River Arch area.

Although Daylight drills in developed areas, the trust allows other firms to explore its less developed properties. Recently, an intermediate oil and gas company “put $25 million into [exploring on] our land,” Lambert says.

Although Daylight does not place its own funds into those operations, the trust will still receive 40 percent of the reserves and production found. “[It’s] a good way to create value for our unitholders without having to risk our own dollars,” Nielsen explains.

A Dynamic Team
The company’s senior management team is led by Lambert, who was a founder of Midnight, as well as the vice president of operations at Ulster Petroleums.

A professional engineer, Hanbury was previously the chief operating officer of Sequoia Oil & Gas Trust. Nielsen was treasurer and corporate secretary for Ulster Petroleums Ltd.

“The core to a company’s success, though, is in the staff,”  Lambert says. “We continuously strive to find the best people and put them in a team environment where they can be successful, both for the unitholders and for themselves.”

Well Prepared
The Canadian government has announced that trusts will become taxable entities in 2011. However, Nielsen says Daylight Resources Trust is well prepared for that transition when it comes.

“We have generated, and continue to generate, some very good tax pools in the $800 million range,” he explains. “That is going to allow us significant cash tax protection beyond the 2011 time frame.”

Although the trust has seen a rebound from declines in the price of natural gas over the last two years, its balanced portfolio allowed it to shift more of its focus to oil.

“[We’re] able to turn these negatives into positives,” Hanbury says. “We’re starting to gain more traction and see better results as we go forward.

“With the recent increase in natural gas prices, the diversity of our asset base is allowing us to focus on deep tight gas and shallower, lower productivity wells favored by the new Alberta Royalty program,” he adds.

Often, Nielsen says, the trust model is used as an exit strategy for exploration and production companies. However, as Daylight enters its fourth year, the trust’s management plans for an exciting future.

“We’re designing this trust to move forward and be a consolidator,” Hanbury asserts, noting that Daylight believes it is well positioned to take advantage of the challenging times.

Young, Experienced Team
In addition, Hanbury says, Daylight has a young but experienced team. “A lot of us do not see ourselves as near the end-point of our careers,” he asserts. “We are pretty excited about the new technologies coming out and the value they will unlock within our assets.

“We don’t necessarily know what the future’s going to bring,” Hanbury admits.

“[But] I think the trust model is a good one, especially in these more mature oil and gas basins,” he continues. “It’s really reverting into something, I think, truly sustainable.”