Q4 2019 Earnings Call

Standing by and welcome to the very Skyway, <unk> analysis that annual and fourth quarter 2019 financial results Conference call.

At this time, all participants are not listen only mode.

So to speak of presentation, there will be question and answer session.

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If you acquire any further questions. Please press star zero I would now like to hand, the call speaker today and you fill up.

<unk> CEO. Please go ahead Sir.

Thank you all and good morning, and thank you for dialing into the crazed a year end 2019 conference call.

On the Gulf Grace Guy or camp Crocker C O M 'cause LTL and myself.

Before I turn the call over to Pam I will give an operational update any your end review.

We entered 2019 with 15.4 or 5 million royalty barrels.

Reserves.

We received over 3 million royalty barrels of production in 2019, which was the largest contributor to our 220 million of free cash flow.

We exited the year with 16.1 million royalty oil barrels booked in reserves as industry sign up.

Drilling to replace all produced oil and at 650000 barrels of new oil reserves.

This is a year in which crazy I Didnt know production acquisition.

Result.

Natural gas reserves decreased by 11% not production in NGL reserves grew by 8.5% medical and yell royalty production.

Funds from operations totaled 55.8 million.

Well the dividend was 45.4 million for an 81% <unk> ratio.

LT production for the quarter totaled 22203 year old girls, including 8884 royalty oil barrels per day.

Decline for 2020 are expected to be modestly lower than the 90% decline experienced on the beach.

2019.

Flooding oil declines are result of more conventional lower decline drilling waterflood activity throughout the portfolio and the stability of our thermal oil project food, which represent approximately 10% of our royalty oil production.

Cash administration with $2.01 per barrel.

And $2.68 per barrel for the year, the lowest cost Houston's right yeah.

Compliance recovery for the quarter for $1.6 million.

All departments approach I worked very hard for shareholders over the past here. So thank you to the dedicated stop praised by all of whom are also shareholders of the business.

Over the fourth quarter, a number of acquisitions were evaluated and bids submitted but none were executed on.

We did spend 3.2 million acquiring additional montney Clearwater mannville undeveloped land with excellent prospectivity of stock oil and gas opportunities.

Sizable M&A has occurred or pending I'm crazy acreage, including the acquisition of the Lindbergh thermal oil project and the proposed acquisition of the southern Alberta block and might oilfield.

These two out that's total approximately 1000 royalty oil barrels net grace Guy in both cases, the acquirers are well capitalized operators with growth growth plans on the outside.

33 lease arrangements with 31 different operators were entered into for total consideration of 1.4 million in the quarter.

A number of new oil plays were generated by our technical team throughout 2019 and in conjunction with our line negotiators, we'll look for qualified operators to throw the cross docks.

Since our IPO, we have now returned one third of our market cap to shareholders and expect to return another two thirds over the next 10 years. These are unlevered returns.

I would like to thank our shareholders for their supported this capital light business.

We continue to work hard for you to generate strong returns in the future.

2019 results an important year for advancing praise guys U.S.G. platform.

This is a focus for investors and industry participants alike, and it's been a core part of <unk> business model the strategy since inception.

We continue to look for areas of improvement across the organization and opportunities to partner with companies that show our long term I meant to sustainability.

During 2019, we partnered with enhanced energy and Alberta Private company, who is pioneering seo to enhanced oil recovery scheme.

The Clive field and the pen Big Valley field in Alberta, These projects will safely store.

Two delivered through the Alberta carbon trunk line that would otherwise be admitted into the atmosphere. What the same time revitalizing the pool and maximizing recovery factors.

Enhanced believed that no other crude oil produced in the world will have a lower net carbon impact on the environment, then well produced from the club deal, making this project a truly low carbon.

Canadian energy solution.

This is just one example of the innovation being applied by our industry partners on pre skyline.

We also continue to showcase the differentiating factors in our business model are leading governance strategy and risk management process are recognized by several third party rating agency.

In 2019, we received a b score from CDP and an eight score from M.S., <unk>, which is a reflection of price guys shrank relative to other businesses and across industries.

We continue to own zero facilities zero, Wellbores and have no abandonment or end of life out that liabilities.

We continue to examine ways to improve efficiencies in our business, while reducing costs consumption and our overall impact on the environment.

Our corporate culture fostered performance combined with diversity into our knowledge, great guys a high percentage of women.

Approximately 75% working in an energy company in Canada. This is in addition to strong female leadership with the board executive and senior management level.

2020 will be another important year for price guys U.S.G. continues to a ball and take root and more formalized measurement and disclosure requirements praise God goal is to demonstrate leadership in this evolution and showcase the strength of its E.S.G. <unk> attributes to existing investors stakeholders in the broader investment community.

I will now turn the call over to Pam to walk through the financials.

Thank you Andrew good morning, everyone.

Great I delivered a strong Q4 generating funds from operations of 55.8 million 24 cents per share.

Royalty production of 22200 for you feel we per day, representing 8% increase over Q3, 2019 production volumes and generated 53.4 million of royalty production revenue.

Oil royalty production bonds 8884 barrels per day up 11% from Q3 due to act if their party drilling appraised, Thailand in the second half maybe in the second half the year.

Hi period adjustments for oil totaled 618 barrels a day comprised of 457 barrels a day, new wells Onstream in better well performance and 161 barrels a day from compliance recovery.

Well I O royalty revenue totaled 6.9 million up 8% from Q3 2019 as higher royalty production was partially offset by wider Canadian light and heavy oil differentials.

Natural gas volumes totaled 53 million at eight up 3% from Q3, primarily due to the addition of Montney, while I don't area.

Natural gas volumes included 2.2 million today in price paid adjustments, including 1.6 million to Dave complaint volumes.

Natural gas revenue of 9.8 million with more than double Q3, 2019 natural gas revenue of 4.1 million.

As a result at the significant increase in April benchmark natural gas pricing in the quarter.

NGL royalty production volumes totaled 2819 barrels a day, 21% from Q3 and generated 6.7 million in revenue.

It was a strong quarter for Ngls as they received new royalty volumes from a pipe some montney wells, which increased our NGL not back to 20 590 to prepare.

NGL volumes included 220 per barrels a day of price case volumes with 179 barrels a day related to new wells on stream.

Annually precise funds from operations totaled 220.1 million or nine four cents per share generate a prime more primarily from oil royalty revenue was 188.7 million natural gas royalty revenue of 26.7 million and NGL royalty revenue of 29.5 million.

There were 150 wells, but in Q4 comprised of 148 oil wells and she natural gas well.

This brings total wealth for Tonight, 2019, but I'm personally I have to 661 as compared to 810 in 2018, you average royalty rate per spots in Q4 was 6% and 7.1% for the year.

Those capital spending embraced guidelines totaled 1.1 billion and 58 million.

Looking forward price that you have 2020 annual price sensitivities are as follows.

Dollar per barrel increase or decrease in U.S. dollar W.G. I will result in a 13 million dollar increase or decrease in funds from operation and this is net of cash taxes in Germany.

20, 525 cents per Mcf moved in a call up or down will result in a 4 million dollar increase or decrease in funds from operation again. This is net of taxes and Genie and a one cent change in the U.S. dollar <unk> to Canada FX rate will result in a 2 million dollar change in funds from operation and a cash taxes in January and a one dollar.

Per barrel increase or decrease in the differentials for light and heavy oil myself [laughter] 5 million dollar change in funds from operations net of cash [laughter] Jana.

Other revenue in Q4 totaled 3.7 million, including 2.2 million or lease rental point 1 million and other revenue and 1.4 million in bonus consideration on entering into a 33 leasing transactions with 31 different counterparty.

For 2019 other revenue totaled 23.5 million made up of 7.2 million or lease rental 4.2 million about their revenue and 12.1 million in bonus consideration on entry 1927 leasing transactions with 80 different counterparties.

Precise collected 1.6 million and sometimes revenue in Q4, bringing the total collected to 7.2 million for the year. These amounts are included in royalty revenue.

Great Sky anticipates other revenue in the range of 25 million 2020, including lease rentals bonus consideration other revenue and combined recovery.

Production in mineral taxes totaled 1.3 million or 64 cents per BOE, we for Q4, bringing annual production mineral taxes to 4.6 million or 58 cents per Boe we.

Cash administrative expenses for the quarter totaled 4.1 million and 21.3 million or $2.68 per be only for the year, our lowest cashed <unk> since IPO.

Cash administrative expense is expected to be below $3 can be a we again in 2020.

Current tax expense for the quarter totaled 5.5 million, bringing annual cash taxes to 19.4 million for the year at year end Crazy I had approximately $1.3 billion intact tool available to shelter future income in 2020. This will provide tax shelter at approximately $130 million.

During Q4, appraised by declared $45.4 million and dividends with resulting payout ratio of 81% and repurchased and canceled point 2 million common shares for $2.8 million.

For the year very sad declared dividend of 182.1 million with resulting payout ratio of 83% and repurchased and canceled 1.1 million common shares for $19 million.

Great Great guys balance sheet remains strong at because the here with the minor working capital deficiency of $3.1 million and no long term debt.

Since IPO price guys generated approximately $1.3 billion in funds from operation and returned over $1 billion in dividends and repurchased and canceled I think 2 million common shares.

We will now turn it over to the moderator to proceed with acuity.

Thank you.

A reminder, ask a question you'll need to press star one on your telephone.

To withdraw your question press the pound key please stand by well be compiled a given day roster.

Our first question comes from Matt Murphy with Tudor Pickering, Holt and company. Your line is now open.

Hi, its gena, we're on for Matt Murphy and thanks for taking your question.

The Viking was just continued to drive well performance on your lands this quarter going forward do you view this asset as more of a driver of growth in the near term or hold flatten the harvest free cash what type of assets.

And as we look on the basin at the Cardium and the Mannville. For example, how are you thinking about activity here and the base business being able to hold flat. Thank you.

You bet Yeah. It's a good question Jenna and talk about the Viking specifically, it's a very important asset for us. It's currently roughly 3000 net royalty oil barrels not to praise guy.

It's getting drilled at a pace of about 350 to 400 wells per year, which gives us over a 16 year inventory to hold production flat. So it really is just a matter of how much capital allocated towards those up that's what we've seen as a modest decline on this is Scott from side over the last year I'm in terms of total royalty oil production and that growth on the Alberta side is that.

Has become a lot more active the Alberta tied unique because almost all the growth on the Alberta side has been in conjunction with waterflood. So they're effectively drilling one mile laterals, and then right beside them drilling one mile a water injectors. So that's actually help some the sustainability of the Viking and lowered the base decline a bit more Alberta, well get drilled so were.

We're comfortable that with what we've seen from budgets capital budgets from our operators and the Viking They should keep production roughly in the 3000 barrel range. It will have its typical Q3 decline in Q4 ramp up but that asset remains a roughly flat and then again if you have higher oil price you could probably see that a growing again.

And then your question your second question was Cardium and Mannville.

And you know we expect a in 2020 of the Cardium at Mandalay drilling to be roughly equivalent. If you include the thermal oil sand.

Which is also mannville age sand and Lindbergh and onion Lake it'll actually show some growth. This year and then the balance of the portfolio. What are the things is seen as some of our bigger pool that have been in decline on the conventional cider now seeing new operators that are likely a little more activity. So.

Again, we don't give guidance but.

There was you don't should be roughly enough capital spend to keep a lot of those on the fly to see on the new assets are being drilled like the Clearwater, which is growing.

It's in our portfolio.

Great. Thank you.

Thank you as a reminder to ask a question do we need to press star one on your telephone.

Our next question comes from Mike Dunn with Stifel First energy. Your line is now open.

Thanks, Good morning, everyone I'm, just wondering maybe Pam if you could.

I think you mentioned 25 million and other revenues a guidance for 2020, what would that number be excluding compliance revenue.

Yes, so for two.

2020, we expect lease rentals to remain flattish in around $7.5 million other revenue generate generally around $1.5 million and bonus consideration, we expect that to be in the range about $12 million.

So the compliance revenue piece would make up about $3 million to $5 million.

And usually were up and usually Mike will be ahead on that and compliance is really difficult one to forecast that we almost every you're kind of add up north of 7 million. So hopefully that's the hopefully does end up there but.

That's the guidance, we're providing for the other revenues.

Great that's all from age.

The previous.

My other questions were asked there so thank you.

Thanks, Mike. Thanks. Thank you. Our next question comes from Jamie cubic foot CBC. Your line is open.

Good morning, guys. Thanks for this can you talk about how you're thinking about the uncertainty over the coming here with where price is currently sits and and would you look to use the balance sheet at all to advance repurchases.

Yes. Good question and you know one of the things that we have that flexibility with the excess free cash flow on top of the $182 million dividend and eight we've consistently bought stock everyday a modest amount of stock every single day and how that same program last few years.

And the way, we kind of view the ideas will effectively utilize it to cancel shares the excess free cash flow, but upon finding good opportunities to make acquisitions.

That will add long term value for shareholders, we prefer to do that if they are available.

But if they don't compete with our portfolio will continue buy back stock and in terms of answer your question for utilizing a leverage for the Entebbe again, we've never use leverage of the long term part of our capital structure. So it's unlikely that we would oh, we would do a substantial issuer bid or utilize entre leverage.

I thought.

Okay. Thank you.

Thank you I'm not showing any further questions at this time of another to turn the call back over to and your Phillips for any closing remarks.

Thank you everyone for dialing into the price Guide Q4 conference call and as always please call either camera myself. If you have any follow up question.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

<unk>.

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