Q4 2021 Prairiesky Royalty Ltd Earnings Call

[music].

Speaker 1: Good day and thank you for standing by. Welcome to the Prairie Sky Royalty Limited, announcing their fourth quarter 2021 financial results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during that session, you will need to press star one on your telephone.

Good day, and thank you for standing by and welcome to the premise Guy royalty limited announcing fourth quarter 2021 financial results Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session.

Session, you will need to press star one on your telephone.

Speaker 1: If you require any assistance during the call, please press star zero. I would now like to hand the conference over to your speaker today, Mr. Andrew Phillips. Mr. Phillips, the floor is yours.

Require any assistance during the call. Please press star zero.

I would now like to hand, the conference over to your Speaker today, Mr. Andrew Phillips Phillips the floor is yours.

Speaker 2: Thank you, Chris. Good morning, everyone, and thank you for dialing into the Prairie Sky Q4 2021 year-end conference call. On the call from Prairie Sky are Cam Proctor, COO, Pam Cazelle, CFO , and myself, Andrew Phillips.

Thank you Chris Good morning, everyone and thank you for dialing into the Prairie Sky Q4 of 2021 year end conference call on the call from price dire Cam Proctor COO, Tom <unk>, CFO and myself Andrew Phillips.

Before we get started there are certain forward looking information in my notes today. So I would ask investors to review the forward looking statements qualifier and in our press release and MD&A for Q4, and the year ended December 31 2021.

Speaker 2: Before we get started, there are certain forward-looking information in my notes today, so I'd ask ambassadors to review the forward-looking statements qualifier in our press release in MDNA for Q4 in the year-ended December 31, 2021.

Q4 saw strong organic growth in our crude oil royalty portfolio as a result of increased drilling activity across the western Canadian sedimentary basin.

Speaker 2: Q4 saw strong organic growth in our crude oil royalty portfolio as a result of increased drilling activity across the Western Canadian sedimentary base.

Speaker 2: Volumes were up 10% from Q3, reflecting the strong trailing activity number of 193 spuds from the third quarter. Q4 also had a strong activity number with 166 spuds versus 74 one year ago. Activity was broadly spread across the basin geographically and also across operators and play types.

Volumes were up 10% from Q3, reflecting the strong trailing activity number of 193 spots from the third quarter Q4 also had a strong activity number was 166 spuds versus 74, one year ago Act.

Activity was broadly spread across our base and geographically.

And also across operators in place.

2021 was a successful year for price Guy.

Speaker 2: 2021 was a successful year for Prairie Sky.

Speaker 2: We executed on approximately a billion dollars of accretive M&A transactions, adding producing and undeveloped assets in the best parts of the cost curve, including 3 million acres of oil-prone, predominantly fee-titled lands, while issuing less than 10% of our outstanding shares.

We executed on approximately $1 billion of accretive M&A transactions, adding producing an undeveloped assets in the best parts of the cost curve, including 3 million acres of oil prone predominantly fee title lands, while issuing less than 10% of our outstanding shares.

Our strong cash flow per share growth and unhedged commodity portfolio has allowed us to increase the dividend by 33% and still pay down all of the debt incurred on the heritage <unk> title asset acquisition within two years.

Speaker 2: Our strong cash flow per share growth and unhedged commodity portfolio has allowed us to increase the dividend by 33% and still pay down all of the debt incurred on the Heritage Peatitle Asset Acquisition within two years.

The new quarterly dividend of <unk> 12 per quarter, or <unk> 48 cents per share per year.

Speaker 2: The new quarterly dividend is 12 cents per quarter or 48 cents per share per year.

Speaker 2: By using the excess cash flow to reduce our debt, we'll be well positioned to execute on quality opportunities as they become available.

By using the excess cash flow to reduce our debt will be well position to execute on quality opportunities as they become available.

Speaker 2: Our technical team is busy prospecting and identifying new opportunities across the vast prairie skylands.

Our technical team is busy prospecting and identify new opportunities across the vast prairie Sky land base.

Strong industry cash flows have operators looking for new opportunities to expand their asset basis.

Speaker 2: Strong industry cash flows have operators looking for new opportunities to expand their asset bases. In addition, there are numerous new startup companies.

In addition, there are numerous new startup companies working in the basin.

Our total proved plus probable reserves grew to 60 625 million barrels at year end up 37% year over year.

Speaker 2: Our total proved plus probable reserves grew to 66.25 million barrels at year end, up 37% year over year.

Speaker 2: This is, this included the addition of 10.5 million barrels related to the 2021 acquisitions, as well as the 9.7 million barrels related to third-party drilling and technical revisions, which more than exceeded our 2021 royalty production volume.

This included the addition of $10 5 million barrels related to the 2021 acquisitions as well the $9 7 million barrels related to third party drilling and technical revisions, which more than exceeded our 2021 royalty production volumes.

There was also an incremental 5 million barrels added strong due to strong pricing.

Speaker 2: There was also an incremental 5 million barrels added due to strong pricing.

At year end, the NPV of our total proved plus probable reserves, just kind of a 10% to $1 6 billion, 88% above 2020, and this represents of course only the producing wells on allowance no future wells.

Speaker 2: At year end, the NPV of our total approved plus probable reserves discounted 10% total $1.6 billion, 88% above 2020. And this represents, of course, only the producing wealth on our lands, no future wealth.

Our early entrants into the Clearwater play differentiates us as we have near term development lines that will see our net royalty oil volumes grow to over 600 barrels per day by year end.

Speaker 2: Our early entrance into the clear water plate differentiates us. As we have near-term development lines that will see our net royalty oil volumes grow to over 1600 barrels per day by year end.

2022 on the play our proved plus probable reserves in the Clearwater grew to $2 6 million Boe.

Speaker 2: 2022 on the play. Our proved plus probable reserves in the Clearwater grew to 2.6 million BoE from 435,000 last year. Excluding the 1.4 or 5 million barrels we purchased in Martin Hills, our Clearwater reserves grew over 2.7 times in a single year.

From 435000 last year, excluding the $1 $4 5 million barrels we purchased in Marten Hills, our Clearwater reserves grew over two seven times.

Oh here.

In addition to these already developing areas. We are the largest holder of exploration acreage in the Clearwater fairway.

Speaker 2: In addition to these already developing areas, we are the largest holder of exploration acreage in the clear water fairway.

Speaker 2: The act of exploration across the sacred will result in sizable new developments over the next few years at no additional cost to praise Skylder.

The active exploration across this acreage will result in sizable new developments over the next few years at no additional cost to pray sky owners.

Speaker 2: We are hard to work on our newly acquired fetal lands and expect to enter into numerous leases with qualified counterparts to enhance the growth profile of our well-prone asset.

We are hard at work on our newly acquired fee title lands and expect to enter into numerous leases with qualified counterparties to enhance the growth profile of our oil prone assets.

We'd like to thank our shareholders existing and new for their support as we build the premier North American royalty business as well as the team at Prairie Sky for their hard work and crisp execution during an active year for the company I.

Speaker 2: We'd like to thank our shareholders existing and new for their support as we build the premier in North American royalty business, as well as the team at Prairie Sky for their hard work and crisp execution during an active year for the company. I'll now turn the call over to Pam.

I'll now turn the call over to Pam to summarize the financial highlights.

Thank you Andrew Good morning, everyone as Andrew mentioned, there are certain forward looking information in my notes today, So I would remind investors to review the forward looking statements qualifier in our press release and MD&A for Q4, and the year ended December 31 2021.

Speaker 3: Thank you, Andrew. Good morning, everyone. As Andrew mentioned, there are certain forward-looking information in my notes today, so I would remind investors to review the forward-looking statement's qualifier in our press release in MDNA for Q4.

<unk> generated record funds from operations in Q4 of $101 $8 million or <unk> 45 cents per common share. This was 54% above Q3.

Speaker 3: First, I generated record funds from operations in Q4 of $101.8 million or $4.5 per common share. This was 54% above Q3.

Speaker 3: The increase in funds from operations was as a result of strong royalty revenue of $94.2 $ downtown

The increase in funds from operations was as a result of strong royalty revenue with $94 2 million genera.

<unk> generated from average royalty production volumes of 20340 Boe per day as well as our income tax recovery in the quarter of $12 4 million.

Speaker 3: generated from average royalty production volumes of 20,340 B.O.E. per day, as well as our income tax recovery in the quarter of $12.4 million.

Speaker 3: Parade Skies Oil Royalty Production Roo to 8,311 barrels per day, a 10% increase over Q3 2021, and included 190 barrels per day of incremental acquisition volumes, and 48 barrels per day of increased flooding scale pricing volumes.

Great guys oil royalty production grew to 8311 barrels per day, a 10% increase over Q3 2021 and included a 190 barrels per day of incremental acquisition volume and 48 barrels per day of increased sliding scale pricing volume.

The quarter included only one day of contribution from the Heritage acquisition, which was effective December 31 2021.

Speaker 3: The quarter included only one day of contribution from the Heritage acquisition, which was effective December 31st, 2021.

Speaker 3: We will see the full impact from this acquisition in Q1 2022.

We will see the full impact from this acquisition in Q1 2022.

The remainder at the oil and royalty volume increase was due to organic growth on the royalty properties. Following an active Q3 drilling program by third party operators.

Speaker 3: The remainder of the oil royalty volume increase was due to organic growth on the royalty properties following an active Q3 drilling program by third party operators.

These higher volumes and strong benchmark pricing combined to generate oil royalty revenue of $61 3 million, 22% above Q3.

Speaker 3: These higher volumes and strong benchmark pricing combine to generate oil royalty revenue of $61.3 million, 22% above Q3.

Speaker 3: We are very encouraged by the growth already seen in our oil royalty volumes in Q4 and by the level of activity through the fourth quarter and already into Q1.

We are very encouraged by the growth already seen in our oil royalty volumes in Q4 and by the level of activity during the fourth quarter and already into Q1.

Natural gas royalty volumes averaged 60 million a day, an increase of 3% over Q3.

Speaker 3: Natural gas royalty volumes average 60 million a day, an increase of 3% over Q3.

Speaker 3: Higher production volumes and strong equal pricing generated $22.2 million in rural to revenue, a 42% increase over Q3.

Higher production volumes and strong April pricing generated $22 $2 million in royalty revenue of 42% increase over Q3.

Revenues from natural gas alone more than enough to fund our Q4 dividend.

Speaker 3: Revenues from natural gas alone were more than enough to fund our Q4 dividend.

Speaker 3: NGL royalty volumes averaged 2,029 barrels per day, down from Q3, primarily as a result of ethnic curtailment.

NGL royalty volumes averaged 2029 barrels per day down from Q3, primarily as a result of ethane curtailment due to strong benchmark pricing for price guys NGL royalty revenue for crude NGL royalty revenue still increased 6% over Q3 to $10 7 million.

Speaker 3: Due to strong benchmark pricing for price guys NGL, royalty revenue. For price guys NGL, royalty revenue still increased 6% over Q3 to 10.7 million.

There were 951 BOE per day of prior period adjustments adjustments in Q4, which were 32% liquids in the quarter.

Speaker 3: There were 951 B.O.E. per day of prior prior adjustment adjustments in Q4, which were 32% liquid in the system.

These prior period adjustments included 357, Boe's a day from compliance activities and an additional 594 billion Dave other prior period adjustments related to new wells on stream and better well performance.

Speaker 3: These prior prior to adjustments included 357 BOE a day from compliance activities and an additional 594 BOE a day of other prior prior to adjustments related to new welcomes dreams and better well performance.

Speaker 3: compliance group recovered mist and incorrect royalties through friends at the county, collecting 1.4 million in the quarter and bringing 2021 annual collections to 4.2 million.

The compliance group recovered missed an incorrect royalties through forensic accounting collecting $1 4 million in the quarter and bringing 2021 annual collections to $4 2 million.

Speaker 3: There were 166 wells but in Q4, which were 95% oil. The Viking was the most active play with 60 wells. And that was...

There were 166 wells spud in Q4, which were 95% Ohio.

<unk> was the most active play with 60 well.

And that was followed by the Clearwater with 44 specs.

Speaker 3: Additional activity took place across the basin with well-spotted demands of the Pacificians, Duvernay and Cardium.

Additional activity took place across the basin with wells spud in the mantle Mississippian given a and cardiac.

Speaker 3: In 2021, there were a total of 548 wells but on a prairie skyline, 95% oil. This is up from 200.

In 2021, there were a total of 548 wells unimproved skyline, 95% oil.

This is up from 288 wells in 2020.

Speaker 3: Prave's Dye Estimates at 783 million of gross capital and 37 million of net capital was spent on our lands in 2021. We anticipate that third part of capital budgets in 2022 will be hires in 2021, and we expect to benefit from this incremental activity across the land base, including on the additional 3 million acres of royalty properties added to support folio in 2021.

<unk> estimates that $783 million of growth capital and $37 million of net capital spent on our land in 2021.

We anticipate that third party capital budgets in 2022 will be higher than 2021, and we expect to benefit from this incremental activity across our land base, including on the additional 3 million acres of royalty properties added to the portfolio in 2021.

Looking forward price by 2022 annual pricing sensitivities, which are all net of G&A and taxes are as follows.

Speaker 3: Looking forward, Prairie Sky's 2022 annual pricing sensitivities, which are all met of GNA and taxes, are as follows.

Speaker 3: $5 change in US dollar WTI would increase or decrease funds from operations approximately 19 million.

A $5 change in U S <unk> with increased or decreased decreased funds from operations of approximately $19 million 25 per Mcf change in April with increased or decreased funds from operations of approximately $4 million.01 change in the U S to Canadian FX rate would increase or decrease funds from operations approximately $3.

Speaker 3: 25 cent per MCF change in APO would increase your decrease funds from operations approximately 4 million and a one cent change in the US To Canadian FX rate would increase your decrease funds from operations approximately 3.5 million

$5 million.

Other revenue totaled $6 4 million in the quarter and included $2 million in lease rentals half a million dollars of other income and $3 9 million in bonus consideration for entering into 48, new leases with 42 different counterparties.

Speaker 3: Other revenue totaled $6.4 million in the quarter and included $2 million in lease rentals, a half a million of other income, and $3.9 million of bonus consideration for entering into 48 new leases with 42 different counterparts.

This brings the annual other revenues to $16 2 million.

Speaker 3: This brings annual other revenues to $16.2 million.

Speaker 3: In 2021, we entered into 139 new leasing arrangements, up from 85 in 2020.

In 2021, we entered into a 139, new leasing arrangements up from 85 in 2020.

Speaker 3: New leasing is typically a precursor to increase field at PIT. And we anticipate near term drilling on many of these new leases in 2022.

New leasing is typically a precursor to increased field activity and we anticipate near term drilling on many of these new leases in 2022.

Speaker 3: Prairie Sky is forecasting other revenue in the range of $20 million in 2022, including lease rentals, bonus consideration and other revenue. Signs for pepperoni will be in an incremental amount.

Guys forecasting other revenue in the range of $20 million in 2022, including lease rentals bonus consideration and other revenue compliance recoveries will be incremental to this amount.

Cash administrative expenses totaled $5 4 million or $2 89 per Boe.

Speaker 3: Cash administrative expenses totaled $5.4 million or $2.89 per BOE. This brings annual cash administrative expense to $20.2 million or $2.79 per BOE. We expect cash administrative expenses to be well below $3 per BOE again in 2022.

This brings the annual cash administrative expense to $20 2 million or $2 79 per Boe.

We expect cash administrative expenses to be well below $3 per Boe again in 2022.

Speaker 3: First, I recorded a $12.4 million current tax recovery in Q4 through the use of the tax school deductions from the Heritage Act.

Gray Sky recorded a $12 4 million current tax recovery in Q4 to the use of the tactical deductions from the heritage acquisition.

Speaker 3: This brings 2021 annual current tax to 4.6 million.

The spring 2021 annual current tax $4 6 million.

Speaker 3: Entering into 2022, Prairie Sky has $1.75 billion of tax pools to offset future taxable income.

Entering into 2022 pre sky has $175 billion of tactical as to offset future taxable income.

During the quarter <unk> declared dividends of $21 5 million or <unk> <unk> per share with a resulting payout ratio of 21%.

Speaker 3: During the quarter, per side declared dividends of 21.5 million or $9 per share with a resulting payout ratio of 21%.

Speaker 3: Annually, PRESA generated $273.4 million in funds from operations, which were used to fund dividends of $70.5 million and repurchase shares for $22.7 million, with remaining cash flow put towards acquisition.

Annually priced that generated $273 4 million in funds from operations, which we used to fund dividends of $70 5 million and repurchase shares for $22 7 million with remaining cash flow put towards acquisitions.

Speaker 3: Praise God's net debt at December 31, 2021 was $635 million, which we expect to reduce in 2022 with excess funds from operations over our increased annual dividend of approximately $115 million.

Great guys net debt at December 31, 2021 was $635 million, which we expect to reduce in 2022 with excess funds from operations or increased annual dividend of approximately $115 million 48 per share.

Due to our updated sustainability ESG report, which ranked US number 68 in a world with a rating of negligible risks.

Speaker 3: due to our updated Sustainalytics ESG report, which ranks us number 68 in the world with a rating of negative...

Speaker 3: Pro-Sky will receive the full pricing reduction related to our sustainable credit facility.

<unk> Sky will receive the full pricing reduction related to our sustainable credit facility.

Speaker 3: Given current commodity prices, we expect to repay the debt used for the heritage acquisition within 24 months.

Given current commodity prices, we expect to repay the debt used for the heritage acquisition within 24 months.

Since the IPO price guys generated approximately $1 7 billion in funds from operations and returned $1 4 billion to shareholders through dividends and buybacks.

Speaker 3: Since IPO, price-dise generated approximately 1.7 billion of funds from operations and return 1.4 billion to shareholders through dividends and buybacks. We will now turn it over to the moderator to proceed with.

We will now turn it over to the moderator to proceed with the Q&A.

Thank you.

As a reminder to ask a question press star one on your telephone to withdraw your question. Please press the pound key.

Speaker 1: As a reminder, to ask a question, you'll need to press star 1 on your telephone. To withdraw your question, please press the pound key. Stand by as we complete.

Standby as we compile the Q&A roster.

Our first question comes from technical Roth of ATB capital markets.

Speaker 1: Our first question comes from Patrick O'Raw of ATB Capital Markets.

Your line is open.

Hey, good morning, guys. Thanks for taking my question here just in terms of the dividend.

Speaker 4: Hey, good morning guys, thanks for taking my question here. Just in terms of the dividend bump here and sort of the messaging in terms of capital allocation and debt repayment, just wondering, what was the catalyst for the dividend increase here? Obviously, activity levels were very strong in the quarter based on spuds.

Hump here in sort of the messaging in terms of capital allocation and debt repayment. Just wondering what was the catalyst for the dividend increase here, obviously activity levels were very strong in the quarter based on spot.

Speaker 4: But commodity price also strong is that is it one, the other is it's some combination of both. And then as we think out into the future here, and sort of the path of shareholder returns and how you're thinking about it, how you're leaning in terms of that debt repayment, and further dividend increases kind of through 2022 here. I know that debt repayment has been an important part of the thesis and strategy for the company post-theheritage acquisition.

But commodity price also strong as it is the one the other is it some combination of both and then as we think out into the future here and sort of the path of shareholder returns and how youre thinking about it how youre leaning in terms of that debt repayment.

And further dividend increases.

Through 2022 here I know that debt repayment has been an important part of.

The thesis and strategy for the company posted heritage acquisition.

Yes, thanks for the question Patrick on the dividend.

Speaker 2: Yeah, thanks to the question Patrick and on the dividend, we, you know, were fortunate that since the heritage acquisition, the excess cash return return to shareholders is in line with the increased cashflow.

We're fortunate that since the heritage acquisition.

Excess capital returning to shareholders is in line with the increased cash flow generating ability of the business. So.

Speaker 2: We're still almost have the exact same debt repayment schedule. So it's just directly in line with that. And then, you know, when you look out three, five, and ten years, we should have pretty strong dividend growth when you think about the business. This is a business that has paid 85% of cash flow.

So almost the exact same debt repayment schedule so.

It's.

Just directly in line with that and then when you look out three.

Three five and 10 years, we should have pretty strong dividend growth. When you think about the business. This is a business that has paid 85% of cash flow out of the dividend in times. When we can find high quality acquisitions to increase the per share value of our business. So the dividend growth could be pretty substantial will obviously be paying down a huge amount of debt in the next two years.

Speaker 2: in times when we can't find high quality acquisitions to increase the per share value of our business. So the dividend growth could be pretty substantial. We'll obviously be paying down a huge amount of debt in the next two years at the current quality prices. Even lower quality prices will still pay down quite quickly. So I think that'll hold well for future shareholder returns in the form of the dividend. And we kind of look from a buyback perspective, we almost looked at this acquisition as pre-funding the buyback rather than fully aquatizing the deal two-thirds.

At the current commodity prices, even lower commodity prices, we will still pay down quite quickly so.

Think that will bode well for future shareholder returns in the form of the dividend.

We kind of look from a buyback perspective, we almost looked at this acquisition as pre funding the buyback rather than fully advertising the deal two thirds of it was done with.

Speaker 2: just over 2% leverage and now we're paying that down so we almost did the buyback we look at it in the 13th.

Just over 2% leverage and now we're paying that down so we all looked at the buyback we look at it in the 13th.

Speaker 4: Okay, and then just in the activity levels in the quarter and looking forward to you guys obviously have a, you know, your thumb on the pulse of activity in the base and wondering you've got the core four plays there, but with the run in prices here, maybe some better capital access. Are you seeing a bit of an uptick in activity in terms of maybe the secondary place in the portfolio?

Okay, and then just on the activity levels in the quarter and looking forward here you guys obviously have.

I'm on the pulse of activity in the basin.

Wondering you've got the core four plays there, but with the run in prices here, maybe some better capital access or are you seeing a bit of an uptick in activity.

In terms of maybe the secondary place in the portfolio.

For sure we are.

Speaker 2: the pressure we are uh... patrick i think you know we had forty-two latest in the last quarter alone we had a look for no knowledge of the issue bonus forty-two releases with uh... forty-two different counterpart forty-eight different leases so we're leading up to a great thing from that all the way to northern alberta still it was quite a broad uh... leading program and then we look at the spot across

Patrick I think we had 42 like you just in the last quarter alone, we had almost $4 million in lease issuance bonus 42 leases 42 different counterparties 48 different leases. So we're leasing across the entire basin from Manitoba, all the way to north of Northern Alberta. So it was quite a broad leasing program and then when you look at this.

It's across the base and it's been on every play average geographic region. So it's a more balanced recovery than it was in 2017 when it was very concentrated in a few core place. The other thing. We're seeing that is kind of unique is given the recycling of a lot of the teams over the last year. There was a lot of privates that are sold in some public mergers, we're seeing a lot of new teams starting up.

Speaker 2: on every play, every geographic region. So it's a more balanced recovery than it was in 2017, when it was very concentrated in a pew.

Speaker 2: core plays. The other thing we're seeing that's kind of unique is given the recycling of a lot of the teams over the last year There was a lot of privates that had sold and some public mergers. We're seeing a lot of new teams starting up So we're very busy here presenting to numerous teams on the acreage potential and potential leasing opportunities and our seismic data rooms busy again So it's it's we're starting to see those new startups enter the enter the market as well Thank you very much

So we're very busy here presenting to numerous teams on the acreage potential and potential leasing opportunities in our seismic data rooms busy again so.

We're starting to see those new startups entered the enter the market as well.

Okay. Thank you very much.

Thanks for the question.

Thank you.

And next we have Jeremy Mccrea of Raymond James Your line is open.

Speaker 1: And next we have Jeremy McCray of Raymond James. Your line is open.

Speaker 5: Yeah, I was wondering if you could comment more on the M&A environment here today, just with commodity prices. Is it as easy as to do deals now with a lot of the offers having to cash flow? Is there still as many opportunities out there and anything on those kinds of lines there?

Yeah, Hi, guys I was wondering if you could comment more on the M&A.

You know environment here today, just with commodity prices.

Is it as easy as to do deals now with a lot of the operators have any cash flow.

Is there still has many opportunities out there.

And anything on that on those kind of lines there.

Yes.

Speaker 2: Yeah, and I hate to speculate on what the whole year looks like Jeremy, but I think when you think about the M&A environment, some of the manufactured type royalties were a result of the very low trading multiples of some of the public producers, but them still wanting to enhance the vibe.

Heat to speculate on what the whole year, it looks like Jeremy but I think when you think about the M&A environment and some of the manufactured type royalties were a result of the very low trading multiples of some of the public producers, but them still wanting to enhance the value of their business.

So I think some of that likely becomes available but for sure there is going to be higher expectations, given this higher price deck.

Speaker 2: So I think some of that likely become available, but for sure there's gonna be higher expectations given this high price deck, and we typically discount that a little bit. So I think it'll probably be a little thinner this year, would be my guess just given the industry cash flows and people paying down banks.

We typically discount that a little bit so I think it will probably be a little thinner. This year would be my guess just given the industry cash flows and people paying down bank lines.

Speaker 2: But I guess time will come.

But.

I guess time will tell.

Speaker 5: Not the appropriate of all I have here for today. Thank you.

Okay.

Perfect. That's all I have for today. Thank you. Thanks.

Thanks, Jamie.

Thank you.

Up next we have David <unk> of RBC. Your line is open.

Speaker 1: Next we have a lit Davis of RBC. Your line is open.

Hey, good morning, Andrew and Pam just wanted to clarify did you did you say eight current exit Clearwater volumes would be at about 1600 barrels a day this year.

Speaker 4: Hey, good morning, Andrew and Pam, just wanted to clarify, did you did you say current or exit clear water volumes would be at about 1600 barrels a day?

That's correct, yes, we expected.

Speaker 2: That's correct, yeah. We expected we were in and around 1,000 B O E, we have net royalty well production. It's probably conservative number because it includes no exploration or development on some of the new discoveries that have been made across the base across our clear water acreage. But just with kind of nepathy and marten hills, which are our two core areas right now, we're expecting it to grow by 60% this year from 1,000 to 1,600 exit this year.

We were in at around 1000 BOE net royalty oil production, that's probably a conservative number because it includes no exploration or development on some of the new discoveries that have been made across the basin.

Water acreage, but just with kind of Nicosia, and Marten Hills, which are our two core areas right now.

We're expecting it to grow by 60% this year from 1600 exit this year.

Got you that's helpful and I know your biggest royalty holder would be spur, but can you provide some commentary on other producers that are operating in that play that you have exposure to.

Speaker 4: Gotcha. That's helpful. And I know, you know, your biggest referral would be Spur, but can you provide some commentary on other producers that are operating in that play that you have exposure to?

Speaker 2: Yeah, you bet. I think, you know, there have been a couple of other discoveries made in the South Clearwater, just west of Peabine as well, and then a little bit of work in some other exploration areas that we can't comment on just because it's been conducted by privates. But it is, the play has expanded and I think the South Clearwater is probably the one that's seeing the most development right now.

Yes, you bet I think.

There have been a couple of other discoveries made in the Clearwater, just west of <unk> as well and then a little bit of work and some other exploration areas that we can comment on just because it's.

<unk> been conducted by privates.

It is.

It has expanded and I think the south Clearwater is probably the one that's being the most development right now at Rolling Hills has made some pretty good discoveries in some compartmentalized pools that we think could be really conducive to polymer floods and so there is that's expanded pretty dramatically as well, but I think in the two core areas what you're seeing is.

Speaker 2: I know Rolling Hills has made some pretty good discoveries in some compartmentalized pools that we think will be.

Speaker 2: really conducive to polymer floods. And so that's expanded pretty dramatically as well. But I think in the two core areas, what you're seeing is just type cryptic cough substantially, each new wells, the URs are 35% higher than they were the year before. So that's where we got the big uptick in reserves on just the proven. Gotcha, the top hole. Thanks.

The type curve the cost substantially each new wells.

<unk> <unk> or 35% higher than they were the year before so that's where we got the big uptick in reserves on just the proven.

Got you that's helpful. Thanks.

Thanks for the question Luke.

Thank you.

Sure.

Speaker 1: And next we have Aaron Bilkowski of TD Securities. Your line is open.

And next we have Aaron Phil Coffey.

<unk> Securities Your line is open.

Good morning, I had a couple questions just following up on some of Pam's comments.

Speaker 6: Morning, I've had a couple of questions just following up on some of Pam's comments. In terms of lease expiries, is there anything significant that's up for renewal this year that you guys think could be meaningful, especially now that we're sitting at $90 WTI?

In terms of lease expiry is there anything significant that's up for renewal. This year that you guys think could be meaningful, especially now that we're sitting at 90.

$90 <unk>.

Speaker 2: Yeah, that's a it's a good question. I think we did see a nice uptick in lease issuance bonus in Q4, almost $4 million. We did, we do have a large expiry west of the home Glen Ruby Reef in the DuVernay Shale.

Yes.

It's a good question I think we did see a nice uptick in lease issuance. Both in Q4, almost $4 million. We did we do have a large expiry west the homeland <unk> reef in the Duvernay shale.

Speaker 2: We've already kind of, we're working with a couple of counterparties on some smaller leasing arrangements there, but there is a large piece of land available there, and there's been some pretty significant results.

We've already kind of we're working with a couple of Counterparties on some smaller leasing arrangements there, but there is a large piece of land available there and theres been some pretty significant results.

Of course.

Speaker 2: Of course, the play is very sensitive just given the very high initial rates and then the higher declines because it's a multi-prack wall.

It's very sensitive just given the.

Very high initial rates and then the higher declines because it's a multi stage multi product wall.

Speaker 2: It's very sensitive to the first year oil price and gas price and of course both of those are very strong right now. So we do expect some leasing opportunities there with industries. So I just hate to speculate on as to when those happen, but in the next 12 months we do expect some...

It's very sensitive the first year of oil price and gas price and of course, both of those are very strong right. Now. So we do expect some leasing opportunities there with industry. So I just hate to speculate as to when those happen, but in the next 12 months, we do expect some leasing there and then I think one of the things we saw in 2020 are complete.

Speaker 2: And then I think, you know, one of the things we saw in 2020, our compliance team is really active and really busy.

<unk> team is really active in really busy making sure that we got back all of the Reits, we could in the downturn and as a result of that we got back over 4000 leases in 2020, and now industries looking to re lease a lot of those smaller pieces of acreage across the basin.

Speaker 2: making sure that we got back all the rights we could in the downturn. And as a result of that, we got back over 4,000 leases in 2020. And now, industries looking to release a lot of those smaller pieces of a bridge across the basin.

Speaker 2: to reactivate wells, to reactivate a water flood, et cetera. So we're expecting that to be busy as well on the conventional side. Eric.

To reactivate wells to reactivate, a waterflood et cetera. So.

We're expecting that to be busy as well on the conventional side.

Perfect. Thanks, that's really helpful.

Speaker 6: Perfect. Thanks. That's really helpful. If I could ask another question, I know what's early days on the recently acquired assets. I'd be curious if you had any initial comments on the potential magnitude of compliance revenue from those properties.

If I could ask another question I know, it's early days on that recently acquired assets, but I'd be curious if you had any initial comments on the potential magnitude of compliance revenue from those properties.

Speaker 2: That's on the compliance that's that is one that takes quite a bit of time Sometimes the contract can be a hundred pages and you got to go through every little detail of it to understand it We did a lot of work prior to the acquisition. We

Alright, thats on the compliance that.

That is one that takes quite a bit of time.

Sometimes the contract can be 100 pages and you got to go through every little detail of it to understand it we did a lot of work prior to the acquisition.

We worked on it obviously for almost six months last year. So we did identify a number of opportunities but.

Speaker 2: We worked on it obviously for almost six months last year. So we did identify a number of opportunities, but these are the situations where you gotta make sure you're a long ways advanced so you know exactly what the opportunity is there. So we think it's significant. I don't think you'll see a significant bump in compliance revenue from that specific asset in 2022, but I do think you're gonna see some strong numbers come out of there past that.

These are these situations, where you got to make sure you're a long ways as bad So you know exactly.

What the opportunity is there so we think it's significant.

Don't think youll see a significant bump in compliance revenue from that specific asset in 2022, but I do think youre going to see some strong numbers come out of their past that.

Thanks, and if I can ask one more question and this is sort of a follow up too.

Speaker 6: And if I can ask one more question, this is sort of a follow up to, I guess Patrick's first question. When I look at the world from space, most of your peers have a targeted dividend pay-or-range. At the EMP level, producers are starting to, I guess increasingly, outline targets that return a portion of free cash flow back to shareholders. Do you foresee perwing sky becoming more formulaic in a strategy around shareholder returns?

I guess Patricks first question when I look at the royalty space most of your peers have a targeted dividend payout range.

The E&P level producers are starting to I guess increasingly outlined targets that returned a portion of free cash flow back to shareholders do you foresee pairing sky, becoming more formulaic and our strategy around shareholder returns.

Yes, it's a good question I don't I don't think we will Erin I think one of the reasons, we like to be flexible because we'd like to do what's best for the business and what's best per share for shareholders and I think when you get to formulaic you get boxed in and even when it is a variable dividend you end up basically a dividend then you've committed to in the formulaic approach to others.

Speaker 2: Yeah, it's a good question. I don't think we will. Aaron, I think, you know, one of the reasons we like to be flexible is because we like to do what's best for the business and what's best per share for shareholders. And I think when you get too formulaic, you get boxed in and even when it is a variable dividend, you end up it's basically a dividend that you've committed to and the formulaic approach doesn't allow you to

How you to change your strategy slightly when the opportunity presents itself and I think last year. It was soup is very unique we had a very low payout ratio, we did $1 billion in M&A and diluted shareholders by less than 10%. So it really allowed us to grow the business and compound the business over time and then in 2017 18 and 19, we paid we added.

Speaker 2: change your strategy slightly when the opportunity presents itself. And I think last year, it was very unique. We had a very low payout ratio. We did a billion dollars in M&A and diluted shareholders by less than 10%. So it really allowed us to grow the business and compound the business over time.

Speaker 2: And then, you know, in 2017, in 2019, we paid, we had around an 80% pair of ratio, paid 185 million annual dividends, and just because we couldn't find the right opportunities and did very low on the day.

Rounded, 80% payout ratio paid $185 million in annual dividends and just because we couldnt find the right opportunities and did very little M&A in those years and when you get back to that that's the opportunity at the time, So I don't see us getting more formulaic I don't see special dividends being reflected in multiples and we were just we will do.

Speaker 2: And when you get back to that, that's the opportunity at the time. So I don't see us getting more formulaic. I don't see special dividends being reflected in multiples. And we're just, we'll do what's best for the business on that front.

What's best for the business.

On that front.

Perfect. Thank you very much.

Thanks for the question Sir.

Yes.

Thank you.

And again to ask a question. Please press star one on your telephone to withdraw your question. Please press the pound key.

Speaker 1: And again, to ask a question, please press star 1 on your telephone. To withdraw your question, please press the pound key.

Our next question comes from Omar Saad of Delaware part.

Speaker 1: Our next question comes from Amara Seth of Delwood Park. You'll line it open.

Your line is open.

Hi, hope you're well thanks for taking my question.

Speaker 7: Hi, hope you're well. Thanks for taking my question. I was wondering if you could comment more on the Heritage acquisition. I saw just from the purchase agreement, a couple assets were held back and

I was wondering if you could comment more on the heritage acquisition.

I saw just from the purchase agreement a couple of assets were held back in.

Speaker 7: More about the, what's the long term kind of potential of why you guys really thought it was an attractive acquisition?

More about the what's the long term kind of potential of <unk>.

Why are you guys really thought it was an attractive acquisition.

Speaker 2: You bet. So it's a good question. I think it's one of those, it's the premier feed tidal asset in the oil portion of the Western Canadian Sedimentary Basin. So it's a very oily asset. There's been a major step change in technology with multilateral drilling and better drilling fluids.

You bet. So it's a good question I think.

It's one of those.

It's the premier fee title asset in the oil portion of the Western Canadian sedimentary basin. So it's a very oily asset there's been a major step change in technology with multilateral drilling and better drilling fluid systems that have really unlock the potential of it.

Speaker 2: that have really unlocked the potential of it. It's at 2,700 barrels per day of net royalty production. Without us doing anything, we think it's on a modest growth profile. We think with a strong leasing program over the next 10 years.

Yes.

2700 barrels per day of net royalty production.

Without doing anything we think it is on a modest growth profile, we think with strong leasing program over the next 10 years, we can grow it.

In the higher single digits. So we think it's a great growth asset with no future capital.

It's only 20% lease so we just believe it's.

Under managed from the standpoint that we can we can get a lot more of those lands lease so what's great about it. It's got this very strong cash flow profile.

Over a 10% free cash yield on the purchase price, we paid but but 80% of the lands are currently not generating revenue. So that's the potential for shareholders and Thats. The difference between this and a lot of other royalty asset acquisitions is not only do you get this really strong cash flow stream at a very reasonable discount rate. But then you also get in 2030, you've got the.

Speaker 2: But 80% of the lands are currently not generating revenue. So that's the potential for shareholders. And that's the difference between this and a lot of other roles. The asset acquisitions is not only do you get this really strong cash flow stream at a very reasonable discount rate, but then you also get in 2030, you've got the growth potential on those undeveloped lands. So that was the rationale behind it. It's something we've coveted for a long time. We did on it.

Growth potential on those undeveloped land so that was the rationale behind it it's something we've coveted for a long time, we bid on it jointly with Franco Nevada on this asset in 2015 and they were the successful acquirer. So we've kind of wanted to hold it ever sense, something we can add very scalable scalable if we add zero staff.

Speaker 2: jointly with Franco Nevada on this asset in 2015, and they were the successful acquirer, so we've kind of wanted to own it ever since. Something we can add very scalably, we add zero staff in order to manage another 1.9 million acres, so we're well-equipped to own it.

In order to manage another one 9 million acres. So we're well equipped on it.

Speaker 7: extremely, extremely helpful. And I guess my question is on, you know, in some of the presentation, you guys presented an extraordinarily helpful slide about production over time on Earth, the Island. And it, you know, obviously with this recent downturn has been quite, just wondering in terms of, what you guys do on endurance election happening currently? Um.

Hi, it's extremely extremely helpful.

And I guess my.

My question is one.

Some of the presentations you guys presented extraordinarily helpful Slide about production overtime on partners like Lance and.

Hey, Rob.

Obviously with this recent downturn patent client I'm just wondering in terms of what's your guys view on enduring inflection happening currently.

Of that Jamie.

Yes, we have seen an inflection in activity in the basin, we started to see it in the middle part of last year, where we saw some growth across a lot of the basin I think.

Speaker 2: Yeah, we have seen an inflection in activity in the basin. We started to see it in the middle part of last year, where we saw some growth across a lot of the basin. I think our view is that there's enough activity right now in the basin to grow production on our land.

Our view is that there is enough activity right now in the basin to grow production on our lands, which is great. So we have seen an inflection on the conventional activity. The other thing that's differentiated us a little bit as we've invested all our acquisitions at a lowest cost parts of the cost lowest cost parts of the cost curve on the oil cost curve. So we've.

Speaker 2: which is great. So we have seen an inflection on the conventional activity. The other thing that's differentiated us a little bit is we've invested all our acquisitions in the lowest cost parts of the cost, the lowest cost parts of the cost curve on the oil cost curve.

Speaker 2: So we, which allows us to help perform the basin, acts like the clear water again, at the lowest full cycle of indian.

It allows us to outperform the basin.

Assets like the Clearwater again at the lowest full cycle F&D in the basin on the light oil side, it's the Viking and we're the largest royalty owner on both of those so that allows us to outpace the basin as well so we should see a stronger inflection on <unk> acreage.

Speaker 2: on the light all sides of the Viking and where the largest real deal around both of those. So that allows us to have pace the basin as well. So we should see a stronger inflection on Prairie Sky Day Courage.

Okay. Thank you very much.

Thanks for questions for Mark.

Yes.

Thank you.

And next we have Matthew Weekes.

Speaker 1: And as we have Matthew Weeks of IA Capital Markets, your line is open.

Capital markets. Your line is open.

Alright. Thanks, I, just think I wanted to clarify something said earlier, you said exiting 2021.

Speaker 8: Hi, thanks. I just think I wanted to clarify something said earlier, you said exiting 2021, your net production on Clearwater Acreage was about 1000 BOE a day. Is that correct?

Net production on Clearwater acreage was about a 1000 BOE a day is that correct.

Speaker 8: Correct. Yeah, that's correct, Matthew. And this is expected to grow to about 1,600 net by the end.

Correct, Yes, Thats correct Matthew.

And this is expected to grow to about $600 by the end of 2022.

That's correct yeah. So the Clearwater alone should grow to 1600 and of course.

Speaker 2: That's correct, yeah. So the Clearwater alone should grow to 1,600 and of course it's a reasonably conservative estimate because we're kind of just including the core areas of Nipissing and Martin Hills but of course we have a huge acreage position outside of that as well that totals only 100,000 acres of our over a million acres on the place so there is potential upon seeing further developments from upside there but I think that's a reasonable estimate.

Reasonably conservative estimate because we're kind of just included in the core areas.

Nicosia and Marten Hills, but of course, we have a huge acreage position outside of that as well that totaled only 100000 acres of our over 1 million acres on the place. So there is potential upon seeing further developments for upside there, but I think that's a reasonable estimate.

Yes.

Speaker 8: If you had an estimate on how many rigs in the industry were operating on prairie skylines in the quarter and compared to what you're seeing now?

If you have an estimate on how many rigs in the industry. We are operating on Prairie Sky lagged in the quarter and compared to what Youre seeing now.

Speaker 2: Yeah, we don't actually, we don't put that out. And part of the reason is it can sometimes be misleading because of course, sometimes you can have a rig or two operating in a unit where you have a 0.2% interest.

Yes, we don't actually we don't put that out in part of the reason is it can sometimes be misleading because of course, sometimes you can have.

A rig or two operating in a unit, where you have a 2% interest.

Speaker 2: And sometimes you know, four rigs running in an area where you have 17 and a half percent royalty. So it's, we don't, we don't put out that specific number, but because of our broad swap maker, from Manitoba, all the way to BC, we get a pretty significant share of that rig count. And today there's 25 rigs running versus 180 this same day last year.

And sometimes you got four rigs running in an area, where you have 17, 5% royalties. So we.

We don't we don't put out that specific number but because of our broad swath of acreage from Manitoba, all the way BC, we got a pretty significant share of that rig count and today. There is 225 rigs running versus 180. The same day last year. So obviously there is an uptick so it looks like capital spend will be higher in the basin. This year and we will.

Speaker 8: So obviously there's an uptick. So it looks like capital spend will be higher in the basin this year, and we'll get our share of that as a Prairie Sky acreage owner. Okay, thanks. I appreciate it. That's all my.

R R.

Sure that is a pre sky acreage owner.

Okay. Thanks I appreciate it that's all my questions I'll turn it back.

Thanks for the question.

Yeah.

Thank you.

And with no further participants in the queue I will return the conference back to the speakers.

Speaker 1: I'm seeing no further participants in the queue. I will return the conference back to the speaker.

Well, thank you everyone for dialing into the Prairie Sky Q4.

Speaker 2: Well, thank you everyone for dialing into the Praise Guy queue for 2021 comments. Call and please feel free to call Pam or myself if you have any further questions. Have a good day.

2021 conference call and please feel free to call Pam or myself. If you have any further questions have a good day.

This concludes today's conference call. Thank you all for participating you may now disconnect and have a pleasant.

Speaker 1: This concludes today's conference call. Thank you all for participating. You may now disconnect and have a pleasant...

Okay.

[music].

Speaker 9: And.