Q2 2024 Freehold Royalties Ltd Earnings Call

Operator: All participants, please continue to stand by. The conference will begin momentarily. Once again, please continue to stand by. We thank you for your patience.

Unknown Attendee: Once again, please continue to stand by.

Unknown Attendee: The conference will begin momentarily. Once again, please continue to stand by. We thank you for your patience.

Operator: Nous vous remercions de bien vouloir patienter. La conférence commencera peu peu. Nous vous prions de bien vouloir attendre quelques instants, et nous vous remercions de patienter.

Unknown Attendee: This conference has been recorded. This conference has been.

Speaker Change: We're really pleased with our quarter, with the production averaging 15,221 BUE a day, a 3% increase over the prior quarter.

David Michael Spyker: a 3% increase over the prior quarter. Oil production was driving this growth, averaging 7,899 barrels a day, which was a 7% increase over the prior quarter. Our results of increased drilling activity in our Eagleford and Permian assets, as well as the recovery from the extreme weather impacts in Q1 2024. This funded our $0.09 per month dividend, resulting in a 68% payout ratio for the quarter. We executed Q2 with a net debt to trailing funds from operations of 0.8 times.

Unknown Attendee: This conference has been This conference has been. This conference has been.

Speaker Change: Our U.S. assets grew 9% over the quarter, to $5,599 BOE a day, a result of increased drilling activity on our Eagleford and Permium assets, as well as a recovery from the extreme weather impacts in Q1 2024.

David Michael Spyker: Natural gas benchmark pricing was weak through the quarter, but we continue to see the benefits of our oil-weighted, premium-priced North American portfolio, with oil and NGLs representing over 95% of our revenue, leading to a top-tier realized price of $59.74 a BOE. We're quite excited about the drilling activity on our portfolio. Gross drilling activity was strong for the quarter with a total of 274 wells drilled across North America. Digging a little deeper on the U.S. side, we are seeing continually evolving drilling and completion practices unlocking value in the high-quality multiple reservoir bench Permian Basin.

Speaker Change: We're quite excited about the drilling activity on our portfolio. Growth drilling activity was strong for the quarter with a total of 274 wells drilled across North America.

Speaker Change: On our U.S. portfolio, we are encouraged by the drilling and rig activity we have seen, with gross drilling up 24% over the previous quarter, and this represents the highest level of quarterly drilling that Freehold has had on its U.S. royalty lands.

Unknown Attendee: Speaking a little deeper on the US side, we're seeing continually evolving drilling and completion practices, unlocking value in the high quality, multiple reservoir vents per me and basin. A recent role in the interest pad in Delaware was brought on at peak rates per well of 3200 barrels a day of oil, with 90 hours of all rates of 2200 barrels a day. We see other areas where current views on completion technology are being applied to older wells, which focus right now in the Eagle Ford, where ConocoPhillips is acquiring Marathon and they reference over 1,000 refrac candidates on the Marathon asset base, and we see 500 plus of these where we have a royalty interest.

Speaker Change: Digging a little deeper on the U.S. side, we are seeing continually evolving drilling and completion practices unlocking value in the high-quality multiple reservoir bench Permian Basin.

David Michael Spyker: A recent royalty interest pad in Delaware was brought on at peak rates per well of 3,200 barrels of oil a day, with 90-day average oil rates of 2,200 barrels a day. We are also seeing leasing activity with our U.S. mineral title lands, with some of the focus in Q2 being on the eastern side of the Midland Basin, with the target being the deeper Barnack Shale. This is moving Barnett oil prospectivity much further east than where wells have been successfully drilled to date and really opens up a deeper prospect opportunity on our U.S. land base.

Speaker Change: We see other areas where current views on completion technology are being applied to older wells, with focus right now in the Eagleford, where ConocoPhillips is acquiring Marathon and they reference over 1,000 reef rock candidates on the Marathon asset base.

Speaker Change: And we see 500 plus of these where we have a royalty interest.

Unknown Attendee: These refracts are targeting wells drilled pre-2016, where profit loading was less than half of what current best practices are, hence not effectively accessing all the reservoir potential. We're also seeing leasing activity with our US mineral tidal lands, with some of the focusing Q2 being on the eastern side of the middle and basin, with the target being the deeper Barnack shale. This is moving Barnack oil prospectivity much further east than where wells have been successfully drilled to date, and really opens up a deeper prospect opportunity under US land base. Activity under US assets continues to be driven by large, high-quality, investment-grade payers in addition to growth-oriented private.

Speaker Change: These refracts are targeting wells drilled pre-2016, where profit loading was less than half of what current best practices are, hence not effectively accessing all the reservoir potential.

Speaker Change: This is moving Barnett oil prospectivity much further east than where wells have been successfully drilled to date, and really opens up a deeper prospect opportunity on our U.S. land base.

David Michael Spyker: Activity on our U.S. assets continues to be driven by large, high-quality, investment-grade payers in addition to growth-oriented privates. Our drilled, uncompleted well, and our permitted well inventory is robust, providing us confidence in the outlook for our US portfolio for the remainder of 2024 and into next year. What's different now?

Speaker Change: Activity on our U.S. assets continues to be driven by large, high-quality investment-grade payers in addition to growth-oriented privates.

Unknown Attendee: Our drill uncompleted well and our permanent well inventory is robust, providing its confidence in the outlook for US portfolio for the remainder of 2024 and into next year. On the key inside, over the last five years, production has been rock solid at $9,600 billion a day with only modest capital investment of about $40 million in early-stage Clearwater opportunities. What's different now, leasing activity, over the last 18 months? We signed 157 leases. That compared to as many leases as we have signed in 2021 and 2022 combined. This leasing strength is showing up in our licensing activity where 2024 year-to-date licensing is at similar levels to full year licensing in both 2022 and 2023.

David Michael Spyker: Leasing activity. Over the last 18 months, we've signed 157 leases. This leasing strength is showing up in our licensing activity, where 2024 year-to-date licensing is at similar levels to full year licensing in both 2022 and 2023. The most active area for leasing has been southeast Saskatchewan, with about 50% of our leasing activity and mostly to private and junior companies who are revitalizing this area with focused attention and multi-leg laterals clear water style technology. Leading indicators such as leasing activity, licensing activity, and drilling activity are all very positive. We'll now take the time to answer any questions.

Speaker Change: What's different now? Leasing activity. Over the last 18 months, we've signed 157 leases. That compares to as many leases that we have signed in 2020, 21, and 2022 combined.

Speaker Change: This leasing strength is showing up in our licensing activity where 2024 year-to-date licensing is at similar levels to full-year licensing in both 2022 and 2023.

Unknown Attendee: The most active area for leasing has been Southeast Saskatchewan, with about 50% of our leasing activity, and mostly the private and junior companies who are revitalizing this area with focused attention and multi-leg laterals, Clearwater style technology. Similarly, the manable stock has gained about 25% of our leasing activity; again, the privates and juniors who are successfully developing with multi-leg laterals. The continued revitalization of these areas represents a significant opportunity for our portfolio.

Speaker Change: Similarly, the Manville stock has gained about 25% of our leasing activity, again to privates and juniors who are successfully developing with multi-leg laterals. The continued revitalization of these areas represents a significant opportunity for our portfolio.

Unknown Attendee: So overall, we're very excited about the quality of our business. It's really been a result of a multi-year transformation into a uniquely North American energy-wealthy company. Reading indicators such as leasing activity, licensing activity, and drilling activity are all very positive.

Unknown Attendee: We'll now take the time to answer any questions. Thank you. We'll now take questions from the telephone lines. If you have a question and you're using a speaker phone, please just answer it before making your selection. Please press star one on your devices. Keep at this time. If you have a question, there will be a brief pause on participants' register. Thank you for your patience. Once again, please press star one. And at this time, if you have a question, we give a question from Aaron Bilkoski from TD Cowlin. Please go ahead. Mr. Bilkoski, your line is open.

Speaker Change: We'll now take the time to answer any questions.

Operator: Thank you. We will now take questions from the telephone lines. If you have a question and you are using a speakerphone, please just answer it before making your selection. Once again, please press star 1 at this time if you have a question.

Speaker Change: Thank you. We will now take questions from the telephone lines. If you have a question and you are using a speakerphone, please just answer it before making your selection.

Aaron Bilkoski: Sorry about that. So now that you guys have had these permanent assets for a couple of years, and you've got a sense of pace of drilling and pace of completions and tie-ins throughout the year. How do you guys think about the sort of cadence of production additions through 2025? I guess an associated question would be. Do you anticipate any other highly high productivity permit pads come on in any particular quarter, given what you know about the spacing between drilling and completion and tie-ins?

Unknown Attendee: Sorry about that. Now that you guys have had these permanent assets for a couple of years, and you've got a sense of the pace of drilling and pace of completions and tie-ins throughout the year, how do you guys think about the cadence of production additions through 2025? I guess an associated question would be

Unknown Attendee: Thank you, Aaron. It's a draw here. You may have a highly little bit of what the Q2 activity was like, both from a drilling perspective and also a permitting perspective. So in the quarter, we had about one net well that was drilled, which is actually our highest level of drilling activity that we've ever had on our US assets, as well in the quarter. We had about 1.4 net permits that were permitted on our US lands, which also was sort of the highest level of permitting activity that we've had since we've owned our US assets.

Speaker Change: Thanks Aaron, it's Rob here.

Speaker Change: of drilling activity that we've ever had on our U.S. assets. As well in the quarter, we had about 1.4 net permits that were permitted on our U.S. lands, which also was sort of the highest.

Unknown Attendee: And so one of the things that is different within the US and Canada is just the time between when a well is permitted, to when it's completed, to when it's turned in line. And that's overseeing anywhere between six to 12 months, and beyond that we need to wait for the operator to get active on our lands. In that comparison, Canada's measured it weeks. So that really is kind of highly for a little bit of how it shows in 25.

Unknown Attendee: It's likely going to shape out because we have this strong inventory right now of ducks. There are about 1.7 net ducks at the end of Q2. We have a 1.9 net permits at the end of Q2. Just as a reminder, one doesn't sound like a lot; one net well, but that's over 1,200 BUE today of production. So it's pretty meaningful.

Speaker Change: It shows in 2025 it's likely going to shape out because we have this strong inventory right now of ducts, 1.7 net ducts at the end of Q2 and we have a 1.9 net permits at the end of Q2. Just as a reminder, one doesn't sound like a lot, one net well, but that's over 1,200 BOEs a day of production, so it's pretty meaningful.

Unknown Attendee: Thank you. Once again, please press star one at this time if you have a question.

Speaker Change: Thank you. Once again, please press star 1 at this time if you have a question.

Unknown Attendee: There are no further questions you should have this time.

Operator: There are no further questions registered at this time. I'd like to turn the meeting back over to you, Mr. Spyker.

David Spyker: I'd like to turn the meeting back over to you, Mr. Spyker. Okay, thanks everyone for participating today and say we're excited about everything that we've got on the go right now and looking forward to reconnecting with everyone on our Q3 results. Thank you.

David Michael Spyker: Thank you.

Unknown Attendee: The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.

Unknown Attendee: Mr. Spyker, is there anything I can do for you today? No, I think we're here. Thank you very much for your help.

Speaker Change: Mr. Spyker, is there anything I can do for you today?

Mr. Spyker: I think we're good here. Thank you very much for your help. You're welcome. Have a great day. Bye-bye.

Operator: You're welcome. Have a great day!

Unknown Attendee: Yeah, welcome. Have a great day. Thank you.

Speaker Change: I beg your pardon. But I know you're not a spy. I'm just a spy. You're not a spy. Yes, I am a spy. I'm just a spy. When I'm in the military, I'm a spy. I'm a spy. I'm a spy. I'm not a spy. I'm not a spy. I'm a spy. I'm not a spy.

Unknown Attendee: Bye bye.

Unknown Attendee: This conference is no longer being recorded.

Operator: This conference is no longer being recorded.

Speaker Change: This conference is no longer being recorded.