Penn West Petroleum Ltd. (TSX:PWT)(NYSE:PWE) has seen better days. In the past 12 months, shares are down roughly 75% after earnings took a tumble in the wake of falling oil prices. With the company’s earnings turning negative, Penn West’s balance sheet has been under considerable pressure given its high-debt load.

Given the financial strain, the firm needed to make a deal with senior creditors to amend some debt covenants the company could no longer meet after oil prices dropped by more than half. On April 14, 2014, Penn West struck a deal with Freehold Royalties Ltd. (TSX:FRU) to sell its royalty interest in some western Canadian oil fields. The pressured sale would meet nearly half of the $650 million the company has promised to pay the holders of its senior notes.

A quality acquisition

The deal involves Penn West’s 8.5% royalty from production in part of the Viking oil field in Saskatchewan, as well as royalty payments in Alberta, Saskatchewan, and Manitoba. The acquired interests, totaling 280,000 acres of royalty and mineral-title lands, are already near Freehold’s current properties and should add $14.2 million to its operating income this year.

The company is not responsible for any of the capital costs to drill and equip the wells for production, and will not incur any costs to operate and maintain the wells.

Freehold is taking advantage of other struggling operators as well

The need for additional financing has forced many operators other than Penn West to sell royalties to Freehold at attractive prices. Freehold completed $200 million in acquisitions last year, representing the second-busiest year in company history.

The company has now amassed a diversified portfolio with over 200 operators, reducing its exposure to major downturns in drilling activity. Its largest royalty interest only constitutes 7% of total royalty income. With a strong balance sheet and one of the lowest leverage ratios in the industry, expect Freehold to continue to capitalize with value-creating deals.

A sustainable 6% dividend

Freehold management reduced the monthly dividend payout from $0.14/share to $0.09/share for 2015. At yesterday’s close however, this still represents a 6% yield. Because management set this dividend payout after the dramatic fall in oil prices, the company does not anticipate needing to lower it any further, assuming commodity prices stabilize.

Through the company’s DRIP program, Canadian investors can also reinvest their dividends in company stock at a 5% discount. An immediate 5% return is always an inviting option.

Keep holding this stock

Freehold Royalties looks to be strengthening the business model that has allowed it to outperform the TSX since its IPO almost 15 years ago. With a healthy balance sheet and a significant amount of attractive acquisition opportunities, Freehold looks primed to outperform in the years to come.

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Fool contributor Ryan Vanzo has no position in any stocks mentioned.