Q3 2024 PrairieSky Royalty Ltd Earnings Call
Speaker Change: Ladies and gentlemen, thank you for standing by welcome to Prairie SkyRoll TLTD 3rd Quarter 2024 Financial Results.
Speaker Change: 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 the session, you would need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised.
Speaker Change: To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would like to turn the conference over to Andrew Phillips, President and Chief Executive.
Speaker Change: Officer, please go with he head.
Andrew Phillips: Thank you Michelle and good morning everyone and thank you for dialing into the Q3 2021 praise guide earnings call on the call from PSK at our Pam Cesel CFO Dan Bertram, Chief Commercial Officer and Michael Murphy's VP Capital Markets as well as myself.
Andrew Phillips: Before we begin, there is certain forward-looking information in my commentary today, so it asks investors to review the forward-looking statements, qualifier and our press release MDNA.
Andrew Phillips: The third quarter was a very busy one for the team of Prairie Scott. Our oil volumes grew organically by 5% over Q3, 2021. Year to day 6% organic oil growth has been achieved.
Andrew Phillips: Strong licensing and 247 will all spots on PSKA, a bridge are representative of the strong economics operators are seeing on our acreage in the current commodity environment. The strong spot levels this quarter should continue our momentum and oil growth over the upcoming quarters.
Andrew Phillips: 2025 activity levels should also be similar to this year as an image or change of pricing.
Andrew Phillips: New Leasing Activity Remains Robots with 54 New Leasing Signed Over the Quarter with 41 different counterparties.
Andrew Phillips: Leasing was active across most major oil plays in the quarter.
Andrew Phillips: The compliance from our moves act of bringing back land to the company and collecting $2.2 million in revenue.
Andrew Phillips: Water Flood Activity across a clear water has continued to show positive response, lowering our declines and ultimately increasing recovery factors in this play.
Speaker Change: Continued refinement of both drilling techniques, as well as fluid systems, has not only improved economics and recovery factors, but also opened up the potential on a number of new zones within the mantle stack that were previously on economic. I'll now pass all over to Mike for their comments.
Mike: Yeah, thanks Andrew. Well spots were up quarter over quarter coming out of spring break up in Q2. We continue to see growth augmented by a growing proportion of higher productivity multilateral wells.
Mike: In the quarter, multilateral is accounted for approximately 38% of drilling activity on Prairie Skylands, which is up from 33% in the third quarter, third quarter, up 2023.
Mike: Year to date, multilateral has accounted for 35% of total spuds, which compares to 28% over the same period last year.
Mike: Clearwater activity remains strong with estimated oil production from the play greater than 2,000 barrels per day in Q324 and year-to-date volumes, up 19% year-over-year.
Mike: The Mandel Stack in the Cold Lake Region remained very active with 20 multilateral drills in the quarter which is up to 12 drills, Q323.
Mike: And finally, in the dovernaid recent FOIL was brought on in the Pamela area having increased Q3 Roecy production to over 700 BOEs per day from the dovernaid, which represents 76% growth year-over-year. We look forward to active upcoming capital programs in the West of the dovernaid from our counterparts.
Mike: which we expect to drive lighter out growth in 2025 and beyond. With that, I'll pass a call over to Pam to discuss the financials.
Pam: and thank you, Mike, good morning, everyone. First, guys, total production volumes average 24,422 BOE per day in the quarter, with oil world two volumes of 2073 barrels today.
Speaker Change: 5% over Q3, 2023 and up 6% here today. As Mike mentioned, we continue to see growth in the clear water and mammal stack plays and these two plays now represent over 20% of our oil production.
Speaker Change: We did see the climb in natural gas and NGL volumes in the quarter in response to weak natural gas pricing. We estimate approximately 2 million a day of natural gas and 80 barrels per day of NGL have been shut in. The price that these volumes come back on is yet to be determined.
Speaker Change: Discoordered, Boyle Generated 90% of our world to revenue, do the combination of strong volumes and price.
Speaker Change: We're also production revenue total 11.5 million in Q3 with other revenues generating an incremental 5.8 million. These bonus consideration totaled 4.1 million, bringing year to day bonus consideration to 15 million, which was our annual budget to a very pleased with the level of activity year
Speaker Change: Funds from Operations total 92.4 million, or 39 cents per share in the quarter. So, I leave a low Q3, 2023.
Speaker Change: Praise God, declared a dividend of 59.7 million or 25 cents per share in the quarter with the resulting pay at ratio 65%.
Speaker Change: At September 30th, praise guys nested at total 149.6 million, a decrease of 33% from your end. We'll now turn it over to the moderator to proceed with the Q&A.
Speaker Change: Thank you as a reminder to ask a question please press star 11 on your telephone and wait for your name to be announced to withdraw your question please press star 11 again
Speaker Change: Police, standby, while we compile the Q&A roster.
Speaker Change: and our first question comes from Patrick O'Rourke with ATB Capital Market. Your line is open.
Patrick O'rourke: Yeah, good morning guys and thank you for taking my question. I guess just to start off with respect to the leasing activity in the quarter. Can you speak to any trends or, you know, is there anything potentially you're seeing different underneath the hood with the leasing activity this quarter?
Speaker Change: Yeah, thanks for the first question there Patrick, you know, good morning. The leasing was pretty broadly spread all the way. We actually did some leasing in Manitoba for Light O'El, but also do for adjuvenate leasing the East-Shale basin, as well as a variety of manbal leases across Alberta and some of the Saskatchewan.
Speaker Change: In particular, in the schedule and there's some new ideas getting tested there. So again, in the kind of heavy old man Bill Regions, so this is pretty broadly spread to answer questions on the leasing.
Patrick O'rourke: Okay, thank you and then just with respect to volumes that are under secondary recovery, water, flood, etc. if you provide a little bit of an update in the trends there.
Speaker Change: Yeah, I think...
Speaker Change: Over 25% of our clear water oil is under secondary coverage, probably actually a higher number than that now, but we just...
Speaker Change: We get a trailing update from the operator there. I think an increasing number of those barrels will be under water or polymer floods by the end of next year. And I think just the the great results we've seen on the nine.
Speaker Change: Different patterns that they've tested and piloted.
Speaker Change: and the show in Great Results and so I think we'll continue to see that play expand on the water flood side. I think it is really important piece for us just given the amount of production it represents in our core propoleums and the low declines associated with it. So that's a big cause of us and I think over there.
Speaker Change: During an Art Investor Day in May, we're going to do a big roll out of our water and polymer floods.
Speaker Change: and Wider for the business.
Speaker Change: Okay, thank you very much.
Speaker Change: Thank you for your question.
Speaker Change: and the next question comes from Adam Schwartz with Black Bear, Value Partners, your line is open.
Speaker Change: and do more and thank you for taking my question.
Speaker Change: Good morning.
Adam Schwartz: So I had a couple so I'll try and keep them
Speaker Change: Some of the briefs. Was one that you can comment on needing to long-term, so more than a few years from now. We are expectations for natural gas volumes.
Speaker Change: and pricing as the U.S. L. and G in Canadian takeaway improves and how much you incorporate that into your projected cash flows.
Speaker Change: and also.
Speaker Change: How you think about looking out a few years, three, five plus years away, what contribution when you think about like your cash flows, how much could be coming potentially from natural gaps versus where it is to that.
Speaker Change: Yeah, no thanks to that question Adam and I know, you know, natural gas represented only 2% of our volumes
Speaker Change: I'm here this quarter, but we have a math of natural gas resource based.
Speaker Change: Bouchy Spanardid in the Monty.
Speaker Change: We have a very, very significant natural gas resource base in the doverna as well in the West Shale. And again, a lot of conventional natural gas assets across Western Canada, TTF to this.
Speaker Change: We don't know exactly when pricing will improve, but in terms of the trajectory of the volumes, what we saw in 2022 when we had a good price signal, we saw pretty good suppliers bonds. We had 5% year over year growth in our natural gas points. I think
Speaker Change: You know, in a more normalized price environment, we could get kind of low to mid-single digital growth in our natural goth points.
Speaker Change: But again, that would require snow, liquid pricing is going to be, but in this environment, obviously, you're going to see some shut-ins which we have.
Speaker Change: National Gas Drilling right now, one-third of our National Gas volumes are actually associated with gas.
Speaker Change: So they're more driven by the economics of the oil and so that's part of our asset base, like we rose over the next year, just because it's mostly driven by the oil economics.
Speaker Change: So hopefully that helps answer your question. Again, it's the nice thing about having female title is it lasts forever, you own it and so again whenever that pricing will occur, we'll capture the value of that and it will be someday a significant part of our cash flow.
Speaker Change: and Andrew thinks that...
Speaker Change: Like is there a house of you I know?
Speaker Change: Predictions, I'm not really asking for prediction more sort of.
Speaker Change: You're kind of overall inkling as to
Speaker Change: You think that Canadian natural gas will eventually converge with US and then kind of overall, do you think more the American natural gas will converge with rest of the world?
Speaker Change: just as the takeaway capacity getting off-continent improves. How do you think about that with your existing assets and then do you incorporate any of those house views when you're looking at potential acquisitions?
Speaker Change: Yeah, and I think it's a good question and of course I don't have the perfect answer to it, but I do think over time when you see these differentials and pricing people take it to the energy of it and that's one of the reasons why I'm on G-Sing built out in Canada. You have Pedro Chemical Plains being built out. We're now exporting a lot of propane.
Speaker Change: And again, I think over time people will find ways to take advantage of these low prices in both North America and Canada at the end of the pipe.
Speaker Change: So I do think those will converge over longer periods of time. Don't know the exact timing of it and the portion of thing with owning a long duration asset is you don't have to be right on time and you just have to own it. So we do continue to actually add resource on the natural gas side when we can buy good optionality that has long duration.
Speaker Change: and we'll continue to do that over time and we will capture that by you when things are proved. But don't know the exact time.
Speaker Change: Yeah, I mean, I appreciate the answer. So it's fair to say when someone's asking about the company to say a lot of natural gas is incorporated right now or in the cash flow is but you have an infinite exploration call option.
Speaker Change: and proves economics.
Speaker Change: Percycling, Percycling. Yeah, it's called options that don't expire and we do love our natural gas reserves basin.
Speaker Change: The Canadian operators have become extremely efficient.
Speaker Change: at Exploding the Resource. So we are excited when we start to see pricing improve that we can see some growth in our opportunities. I think one of the things that said if gas was equivalent to oil over a lot of 10 years, we would be a 70% natural gas company.
Speaker Change: We'd have the same oil in the meantime. But we'd be 7% to 70% natural gas, so just to give an idea of the actual resource we own. Again, that would require better pricing, but we'll see in time when that happens.
Speaker Change: Thank you.
Speaker Change: Thanks for watching.
Speaker Change: and our next question comes from Aaron Bill Kostsky with TV Cohen, your line is open.
Speaker Change: and I'm sure you're about your dover-nate position. I'm hoping you'll be able to talk a little bit about what we might expect over the next.
Speaker Change: One to five years in terms of cadence of wells being drilled, or the capital commitments on the lands, or drilling commitments on the lands, which would be the expecting for either IP rates or IP365 rates, what percentage is that? It's going to be oil. Let's keep talking a little bit more about the play and your expectations for me.
Speaker Change: Yeah, you bet thanks for the question Aaron. You know it's interesting we actually expect some pretty meaningful growth over the next one to five years I think we're a 10 year period The two Renee should be somewhere between 4 and 6,000 net royalty barrels from 700 today
Speaker Change: So it should be one of our largest individual producing areas. One important thing about that place is 40 degree API crewed.
Speaker Change: So it really helps us double the net back of a heavy barrel. So it'll be very important for the net back for the company. It also comes with a lot of associated gas. So we'll receive the NGL portion of that as well.
Speaker Change: Again, the IP365 City of Timel, Telem, because it is a, you know, we have a huge land position over 800,000 acres, including the East Shale. And it's spread over a large...
Speaker Change: Lodge Geographic Area
Speaker Change: What we're seeing today is the more recent IP90s are in the kind of 1500 plus barrel a day range and it really depends whether they're drilled the further west they are obviously to get gas here and you get up to a couple million a day of natural gas.
Speaker Change: 5-600-Birds a day of oil as you move east.
Speaker Change: and the more volatile window, you start to see closer to 800,000 girls a day and less than a million a day of gas. So it depends exactly where their drills, but in the fullness of time I think just given.
Speaker Change: The ability to get the gas out, there's good e-grads opportunities with the big car or a run-by plan sitting right in the middle there.
Speaker Change: We do expect pretty good growth there, certainly with the better well results for sync. And again, I think as Mike pointed out in the call earlier, we saw...
Speaker Change: 70% growth this year from one single well-bad. So just show the gear and you have these high-rate balls with the higher rollties.
Speaker Change: Thanks and maybe you touched on it, you didn't, but are there capital commitments with your account number for you on this land or no?
Speaker Change: Um, no, the way we structured it is, um, so we've, we've layered the bonuses and over an eight-year period and in order to continue the lands, uh, minimum amount of capital has to be spent. So, in effect.
Speaker Change: They don't, they're not forced to spend the capital, but to the extent that they want to retain the land they have to spend a minimum now. So in the different agreements we have throughout the play. So again, the one thing about mineral title is...
Speaker Change: You do have an expiry on it so in order to maintain that aspect, you do have to have some sort of continuous drilling and I think what we saw is our very first leases with Enkana and it seemed like a long time, but as it got closer to the end
Speaker Change: We ended up getting all those lands back and then we got a whole bunch of new lease insurance bonus and we can choose more qualified operators texted you on the play
Speaker Change: So they are in a fact capital commitments and if they're not executed on we get those lines back and that's one of the reasons why in other plays you've gone to shorter term leasing just because there's a lot of demand for oil leasing right now So if you have a year or two to get your wilddrill, we're able to take those lines back in a reasonable amount of time
Speaker Change: That's perfect. Thank you very much, Andrew.
Speaker Change: Thanks for watching.
Speaker Change: and the next question comes from Jeremy McCree with BMO. Your line is now open.
Jeremy McCree: Okay Andrew, just a question when you look at your goal for here for the next few years, what would be the top one, two, three, growth areas? Like you talk about the duver-naked growing quite rapidly. It will be the next one here and then is there any surprise new well results on your land that you're seeing saying, you know, this could actually be pretty big as well too, but it's not.
Jeremy McCree: on the radar quite yet, but it could be quite near, like meaningful here in a couple of years.
Andrew Phillips: Yeah, so the top three growth areas for sure on the liquid side, the dovernates one we touched on already on this call. What you need to have come from a very small low level production, it was about 400 bells a day a few quarters go to now 700.
Andrew Phillips: But it does have the potential to be in the thousands.
Andrew Phillips: in the next three, five, 10 year period. The clear water is just around 2000, that royalty barrels and that's on a trajectory down to $50 a while to still grow.
Andrew Phillips: So well over 3000 girls a day and then be stabilized there and then the manville stack obviously I think that you know that's an area of the basin that once produced 350,000 barrels down to 150 we think it has the
Andrew Phillips: Easy ability to get back there and we're the largest one on that place so that's one that will be in the multi-thousand barrel today of natural deep production.
Andrew Phillips: A couple of areas where we've seen some need well results or kind of something over people taking kind of more modern self-raxed.
Andrew Phillips: The tighter man, they'll sand, like the basil quarts and seeing some really good results.
Andrew Phillips: We've had some pretty good well results also in the morning that we've seen that could expand
Andrew Phillips: That for us and I think the longer dated one is we've done a ton of leasing to
Andrew Phillips: Sonobus and his predecessor, Husky and some other operators that are smaller for small scale saggy and scarecrowing.
Andrew Phillips: So again, if one or two of those projects are built over time, we think that could provide more long duration while growth for the company. So when you kind of walk through all the different areas that are growing and then still we're busy every single day, almost every day we're entering into a new lease.
Andrew Phillips: It's really hard to find things that we can buy that make our business better, that growth that raised. So again, most other peers in our world have to buy assets at all parts of the cycle to maintain their growth.
Andrew Phillips: We can just leave the land so those are the top three that do overnaid the clear water in the man belt for sure that are kind of more near-term and we're seeing them real time.
Andrew Phillips: Thank you, Andrew.
Andrew Phillips: Thanks for watching Jeremy.
Speaker Change: I am showing no further questions at this time. I would like to hand the call back over to Andrew for closing remarks.
Andrew Phillips: Well, thank you everyone for joining our call today and if you have any further questions, please feel free to reach out to any of us during the day.
Andrew Phillips: Thank you.
Speaker Change: This concludes today's conference call. Thank you for participating. You may now disconnect.