Green Star Acquires Forest Carbon Offset Royalties, Receives First Offsets Delivery

Green Star Acquires Forest Carbon Offset Royalties, Receives First Offsets Delivery - Carbon Herald

Star Royalties Ltd. (OTCQX:STRFF), through its joint venture, Green Star Royalties Ltd., announced the execution of a definitive royalty agreement with NativState LLC to acquire several gross revenue royalties on a carbon offset-issuing portfolio of Improved Forest Management (IFM) projects in the southeastern United States.

NativState is an Arkansas-based forest carbon project developer focused on aggregating small-to-medium forest landowners into IFM projects being developed under the American Carbon Registry (ACR). The Royalties are expected to deliver to Green Star premium voluntary carbon offsets over a 20-year period, with a total consideration for the Royalties of $5.6 million to be paid over a series of tranches.

Investment Highlights

  • Expansion of Green Star’s North American nature-based portfolio: The Royalties on NativState’s IFM projects complement and further diversify Green Star’s existing portfolio of North American nature-based carbon offset solutions.
  • First carbon offset-issuing royalty for Green Star: Project ACR 783 in Arkansas becomes Green Star’s first carbon offset-issuing investment with approximately 180,000 carbon offsets expected to be delivered under the Royalty in 2024, inclusive of 120,000 carbon offsets at closing. Approximately 75% of Green Star’s attributable carbon offsets from the Royalties are expected to be delivered in the first five years.
  • Aligned and defensive royalty structure: Green Star and NativState have agreed to several defensive mechanisms, including minimum carbon offset volumes to be delivered over the 20-year royalty term.
  • Multiple Royalties with strong investment metrics: The Royalties consist of a 20% Royalty on Project ACR 783 and 10% Royalties on an additional 60,000 acres across Arkansas, Louisiana, Mississippi, and Missouri, to be developed by NativState and registered as future ACR projects. At prevailing carbon offset prices, the Royalties are expected to provide significant net present value accretion and allow for an attractive payback period.
  • Demand and pricing trends for premium North American carbon offsets are stable and rising: Premium North American nature-based carbon offsets remain in limited supply and in increasing demand. Current market pricing for these premium avoidance and removal carbon offsets is approximately $13-15/t CO2e and over $20/t CO2e, respectively.
  • Partnership with rapidly growing carbon developer: NativState, with over 300,000 acres under management, is striving to become the largest U.S. aggregator of small-to-medium forest landowners. Green Star is proud to be building a long-term partnership with NativState by funding American forest landowners keen to participate in both IFM practices and voluntary carbon markets.

Alex Pernin, Chief Executive Officer of Star Royalties, commented: “We are proud to announce this multi-royalty investment in NativState’s portfolio of high-integrity IFM projects in the southeastern United States. This thoughtful transaction transitions Green Star into free cash flow generation and provides desirable economic returns, while expanding and diversifying our existing premium North American portfolio.”

Relevant: New Study Highlights The Importance Of Forest Type Selection In Afforestation

“This investment will allow for the conservation of roughly 78,000 acres of prime timberland and is a culmination of extensive due diligence by our team and multiple third-parties. We respect NativState’s team and their meticulous approach to building a sustainable business model rooted in forestland conservation and stewardship. NativState’s attractive carbon offset issuance profile as well as their objective of enabling American forest landowners to generate carbon revenue made this partnership a natural fit for Green Star.”

Stuart Allen, Founder and Chief Executive Officer of NativState, commented: “NativState was founded to give small and medium forest landowners access to global carbon markets. This announcement and our relationship with Green Star mark an important step in making the promise of voluntary carbon markets a reality for our landowner partners. We are thankful for Green Star’s trust in NativState, and we look forward to continuing to create value in forest conservation as a project proponent. Each new project brought to market provides our landowners revenue to implement sustainable forest management practices and access to professional foresters. These practices then deliver high-quality carbon offsets to our corporate stakeholders.”

Relevant: NativState Completes Sales Of First Verified Forest Carbon Credits

Transaction Terms

Green Star has agreed to acquire the Royalties for $5.6 million, payable over a series of tranches linked to ACR registration milestones. In consideration of its investment, Green Star will receive a 20% Royalty on Project ACR 783 as well as 10% Royalties on an additional 60,000 acres to be enrolled by NativState and registered as ACR projects. Each Royalty will have a 20-year term commencing at the underlying ACR project’s first carbon offset issuance date. The Royalties will be paid directly in carbon offsets. As part of this transaction, Green Star and NativState have agreed to several defensive mechanisms, including minimum carbon offset volumes to be delivered over the 20-year royalty term.

Transaction Impact on Green Star’s Carbon Offset and Revenue Profiles

The transaction provides Green Star with immediately monetizable avoidance and removal carbon offsets. The Royalties are expected to deliver carbon offsets to Green Star over the 20-year royalty term, with an estimated 75% of these attributable carbon offsets expected in the first five years.

Improved Forest Management

IFM is a type of conservation project where the undertaken IFM practices increase carbon storage over a baseline, or a business-as-usual level. IFM projects can both increase net carbon stocks by sequestering carbon from the atmosphere (removal) through photosynthesis due to increased forest cover or maintained existing forest cover relative to the baseline and can reduce greenhouse gas emissions (avoidance) from reduced timber harvesting relative to the baseline. Acceptable IFM practices, including rotation extension, thinning, fire prevention practices, and changes in harvesting techniques, must be deemed allowable practices as per the projects’ selected carbon registry methodology.

IFM projects form an important subset of nature-based solutions, a set of land management, conservation and restoration practices aimed at mitigating climate change, while also sustaining biodiversity and other ecosystem services. In the United States, timber harvesting is the most extensive disturbance across forestlands, with the vast majority of timber harvested annually coming from private lands. Consequently, improved forest and land management decisions can have a significant impact on the role of forests as a carbon sink.

The removed and avoided carbon emissions as a result of IFM projects, when overseen by a carbon project developer and properly validated and verified through an existing carbon registry methodology, can result in the generation of carbon offsets, tagged as removal and avoidance offsets, respectively. The current market pricing for U.S. premium avoidance and removal carbon offsets is approximately $13-$15/t CO2e and over $20/t CO2e, respectively.

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