Q1 2025 PrairieSky Royalty Ltd Earnings Call

Speaker Change: Good day, and welcome to PrairieSky Rolety Limited, announced its first quarter 2020

Great Guy achieved record oil volumes of 13502 barrels per day of net royalty production in the first quarter of 2025 over 200 wells were spud in Q1, an increase of 26 wells from the same period in 2024, the average royalty rate on these new wells was six 9% versus 6% last year.

Sure.

Speaker Change: <unk> 52, new leases with 39, Counterparties were signed generating $5 million at least issuance bonus.

Speaker Change: Notably in the quarter, we closed the Petro Canada fee title package in southeast Saskatchewan for $50 million.

Speaker Change: So there's only 20% leased which represents an opportunity for the team to lease the asset and achieved leasing percentage similar to our corporate average.

Speaker Change: We also acquired $3 4 million Prairie Sky shares.

Speaker Change: Prior to the 26 cent dividend, giving remaining shareholders an additional one 4% interest in the business. We view this as an acquisition of 259000 royalty acres in the best parts of the basin.

Speaker Change: We are also quietly added well over 100000 acres of oil sands leases over three year period, well below where current values did at Crown land options. This is out of the years of new economic drilling inventory on a two to three times recycle ratio heavy oil asset.

Speaker Change: Subsequent to quarter end oil prices have declined and theres been significant market volatility are well capitalized counterparties and strong balance sheet will allow us to be resilient and take advantage of further disconnect in value.

Speaker Change: There is an advantage to owning hard assets with long duration profiles at all parts of the cycle.

Speaker Change: With decades of economic economic inventory at 98% operating margins.

Speaker Change: Short term price swings, both up and down have less of an effect on Paris guys value.

Speaker Change: Our Investor day on May 14th in Calgary at the Brookfield building.

Speaker Change: And we will be available via webcast as well.

Speaker Change: Our new royalties asset book, which details known asset values based on today's discovered resource.

Speaker Change: We will also provide owners with a range of outcomes for the next 10 years. Thank.

Speaker Change: Thank you to our investors for their support and our employees for their continued execution and hard work I'll now turn the call over to Pam to walk through the financials.

Pam: Thank you Andrew and good morning, everyone.

Speaker Change: This guy's royalty production averaged 24339 Boe per day in the quarter.

Speaker Change: Our percentage of liquid biopsy production has been steadily climbing over the last three years from 58% in Q1, 2022% to 63% today it.

Speaker Change: It was another record quarter of oil royalty production, which averaged 13502 barrels per day and included 177 barrels per day of production from $50 million acquisition of fever, and garner interest that closed on January 10.

Speaker Change: As Andrew mentioned it was an active quarter with 200 spots on our lands at an average rate of six 9% active.

Speaker Change: Activity was focused in the Clearwater, Duvernay and Manville heavy and light oil plays we've seen a decline in natural gas volumes, which averaged $55 9 million a day as compared to Q1 2024.

Speaker Change: Q1, 2025 volume included an estimate of cold weather downtime in the quarter of $1 1 million a day.

Speaker Change: Were 14 natural gas wells spud in the quarter, primarily in the Montney, which we anticipate will come on production later in the year.

Speaker Change: Do you have any in Viking wells will also provide incremental solution gas volumes.

Speaker Change: We're obviously production revenue totaled $119 9 million and was 93% from liquids with narrowed heavy oil differential.

Speaker Change: Our realized price for oil increased to 87% of Edmonton from 84% in Q1 2024.

Other revenue totaled $8 2 million and included $5 million of bonus consideration.

Speaker Change: The team was primarily focused in the Duvernay light oil and manville heavy oil play.

Speaker Change: During the quarter price guys funds from operations totaled $85 8 million and we declared dividends of $61 2 million or <unk> 26 cents per share.

Speaker Change: With a resulting payout ratio of 71%, we repurchased and canceled three 4 million shares this quarter for $90 million. Our current <unk> expires in early June and we intend to apply to the PSX to renew it.

Speaker Change: <unk> balance sheet remains strong with net debt at March 31 of $258 8 million.

Speaker Change: I will now turn it over to the moderator to proceed with the Q&A.

Speaker Change: Yes.

Speaker Change: Thank you if you'd like to ask a question. Please press star one one.

Speaker Change: If your question has been answered and you'd like to remove yourself from the queue. Please press star one again.

Speaker Change: And our first question comes from Patrick O'rourke with HEB capital markets. Your line is open.

Speaker Change: Hey, guys good morning, and thanks for the rundown.

Speaker Change: So maybe first off more of a broad philosophical question.

Speaker Change: But we saw a bit of a shift in free cash flow policy here with dipping into the CIB in the quarter and just sort of.

Speaker Change: I'm wondering how you think about where the net debt is here sustainability sort of breakeven prices.

Speaker Change: The dividend and then sort of the appetite.

Speaker Change: To dig into the CIB here over the rest of the year versus a focus on paying down debt.

Speaker Change: Yeah no. Thanks for the question Patrick and good morning, I think the <unk>.

Speaker Change: CIB.

Speaker Change: We view it more as an acquisition we look at our business currently and it's outpacing the basin in terms of growth by.

Speaker Change: 2% to 300% on any given year and so again, we're effectively buying the best assets in the base and you add on the free cash flow yield youre kind of in the teens for total returns. So that's our hurdle rates. So it's more challenging to find assets that look as good as the current price sky suite of assets.

Speaker Change: And I think again no different than we were used a bit of leverage in COVID-19, knowing we could pay it down in a short period of time.

Speaker Change: We're willing to do that.

Speaker Change: Sure.

Speaker Change: Use the NCI.

Speaker Change: Stock below intrinsic value when the opportunities arise.

Speaker Change: Okay.

Speaker Change: And then just to follow up on that have you guys stress tested sort of your cash flows for breakeven oil prices in this choppy environment.

Speaker Change: Yes, we have Patrick and the dividend is sustainable although up $50.

Speaker Change: Excellent and then just second question here.

Speaker Change: You guys are typically at the cutting edge of trends that we're seeing in the basin. We had the multilateral development both in the Clearwater Manville.

Speaker Change: West Shale Duvernay has been successful for you think you've seen a little bit of chops activity or Renaissance there on some of your landscape you walked through.

Speaker Change: What's going on there from a technical perspective and sort of what the.

Speaker Change: Volume potential locations and opportunity set is.

Speaker Change: Yeah no. Thanks for the question.

Speaker Change: It's a great question I think.

Speaker Change: It is one of the assets that we kind of size the big resource of course, when we acquired those heavy oil assets both from sooner on that heritage and we are in the range of 600000 acres in the broader area, including in the Saskatchewan side.

Speaker Change: That stuff, we didn't put any value on when we're acquiring it because it was cocoa heavy oil production.

Speaker Change: There is a lot of sand that comes along with it operators are now running horizontal single lags and theyre running liners and theyre, putting in circulation strengths, so effectively kind of circulating over the backside to clean out sand consistently and they're getting very good results and so.

Speaker Change: What it really does opens up an entire new fairway of opportunities. We don't have a number but it's in the hundreds probably some days north of 1000, new locations over time on our lands. It won't be part of this current playbook because I think it is just being refined in terms of technological assets, but it kind of really just back to the thesis and one of the things we.

Speaker Change: While we tried to do a price guide when we acquire assets, we like big pay packages and lots of large oil in place assets that we think could ultimately be exploited and.

Speaker Change: Similar to what we talked about the scotchman, where we've done.

Speaker Change: Over seven different leases for steam assisted gravity drainage for these small modular type.

Speaker Change: Projects on the Alberta side, we've actually identified a number of opportunities for small scale safety as well.

Speaker Change: Sounds like the racks in the wide minutes or so I think that as.

Speaker Change: As technology improves we're believers that a lot of this large oil in place will be exploited.

Speaker Change: Okay. Thank you very much thanks.

Speaker Change: Thanks for your question.

Aaron Bukovsky: Thank you. Our next question comes from Aaron Bukovsky with TV Cowen Your line is open.

Aaron Bukovsky: Okay. Thanks, I just wanted to follow up on Patrick's question and get a little bit more clarity to make sure I understand what you.

Aaron Bukovsky: Am I correct to assume that youre, saying youre willing to take on a little bit of incremental debt to repurchase shares.

Aaron Bukovsky: We're at the right valuation.

Aaron Bukovsky: That's correct.

Aaron Bukovsky: Okay I have another question too.

Aaron Bukovsky: Of the net wells drilled on your lands in Q1, how many or what percentage of that would be from the Williston green window at the Duvernay and what would that have been a year ago.

Aaron Bukovsky: Yes so.

Aaron Bukovsky: Really the best thing to talk about.

Aaron Bukovsky: It is last year in the Williston Green Duvernay, we had including the Paramount we had seven wells total drill down the lines and this year, we expect 19.

Aaron Bukovsky: I'll come on.

Aaron Bukovsky: Ross the entire year, so again when theyre spot is not necessarily indicative of when they'll go on production.

Aaron Bukovsky: So we did have an active program Mike I think it was the exact number yet.

Mike: Aaron It's Mike here.

Mike: I believe approximately 14 Duvernay wells were spud wells.

Mike: Williston Green area in Q1, and that would have been higher than last year and what's important about these 14 that be higher oil royalty interest as well compared to what we would've seen previously.

Mike: And of course, depending on the timing error and these could be this could drift all the way into Q3, just given the very large fracs and they typically do them is a big program, but.

Mike: But it is very positive I think it's because they are such high rate wells and because we have high royalties youll see.

Mike: Some significant spikes in production throughout the year.

Mike: Perfect. Thanks, guys I appreciate that.

Mike: Thanks for the question.

Jamie Kubik: Our next question comes from Jamie Kubik with CIBC. Your line is open.

Speaker Change: Yes. Good morning, Thanks for taking my question here, just a bit of a follow on to Aaron's question. There you did disclose 15 wells spud in the Duvernay light oil play.

Based on.

Speaker Change: Based on my count that that's more than double what you've sort of ever reported can can you just talk about where that.

Speaker Change: You expect that to trend for the rest of the year is this a bit of a one time item in terms of ramp up for the different operators in the play are or how can you talk about.

Speaker Change: Licensing activity and what you see going forward there. Thanks.

Speaker Change: You bet. Thanks for the thanks for the question I think it'll.

Speaker Change: It'll be very steady on the east shale basin. So we should see five to seven new wells, perhaps even as high as 10. This year on the shell based side, but when you jumped the west shell based on where all the new leasing activity has been and where theres been some really exceptional results.

Speaker Change: We think that could ramp again next year. So in 2006, you could have full doubling of that program just given the.

Speaker Change: Given the very economic wells in the high rate light oil wells that have been drilled in the area.

Speaker Change: One of the producers to the north side to take or pay.

Speaker Change: With the midstream or for their liquids.

Speaker Change: And then.

Speaker Change: The central one Spartan Delta has had some excellent results and has been a very good part of the play and then.

Speaker Change: Mount of course is.

Speaker Change: Upgrading their refund facility in getting their gas takeaway taken care of so we do expect activity to continue to ramp in the Duvernay in general Jamie.

Speaker Change: Okay, that's great and then on the Manville stack.

Speaker Change: You have a slide in your presentation, just showing how substantial the growth has been from 2022% to 224, but.

Speaker Change: Based on that chart as well volumes have plateaued, a little bit since Q2 of last year can you can you just talk a little bit about where you expect production from this play to move to in the coming years and perhaps some additional detail on.

Speaker Change: Things that are going on in that part of your asset base.

Speaker Change: Yes, Jamie it's Mike here, Yeah, we see the mandrel stack as having potential to have volume approaching the Clearwater. So in that chart that you saw it did look like.

Speaker Change: Production's plateauing a bit we still expect pretty strong growth in 2025, it's not going to be the 70%, we saw last year, but somewhere between 30% to 50% would be reasonable.

Speaker Change: We only saw its probably seven or eight manville stacks bites in Q1, but we expect a pretty active program for the rest of the year similar to last year are stronger.

Speaker Change: Yes, I'm actually at all for me.

Speaker Change: And just one other comment on that at our Investor Day on May 14th we are going to have three Ceos presents photos from Spartan Delta inquiry from spur and then also Tom Bishkek from Caltech strategy and.

Speaker Change: It'll be a great opportunity to really get some color on the metal stock and just the amounts and quantum of drilling locations that they've uncovered just in their general area and then of course, the NRL has a massive amount of drilling inventory upgrades <unk> mineral title and gore's. So it's it'll.

Speaker Change: It'll be a good opportunity to kind of hear it from the producer that's growing the fastest in the region. So thats less than one month away. So hopefully we can.

Speaker Change: You can ask the same question to someone who is actually spending the capital.

Speaker Change: Okay, great. Thanks for the additional color I'll hand, it back.

Speaker Change: Thank you.

Speaker Change: Next question comes from Jeremy Mccrea with BMO capital markets. Your line is open.

Speaker Change: Hey, guys just with the decline in oil prices here recently have you seen any indications that you are seeing a bit of a slowdown like I know most severe lands are in pretty economic plays and so there's a bit of a debate, saying how much of a slowdown do we potentially see in and just have any operators express that and then kind of part two of that is.

Speaker Change: With the rebound in natural gas prices are you seeing any more operators express interest in developing more gas assets that you have here specifically maybe in the montney.

Speaker Change: Yes, so just to touch on the second question on.

Speaker Change: On the gas side, we have a significant montney development, both specific Cambrian, but also seal accounts.

Speaker Change: Some wells coming on so we do have some significant monty volumes coming on and those were drilled in advance of this gas price run up so that'll be positive positive for them assuming that hangs in there at the eco basis level.

Speaker Change: And then on the oil side I think it's probably too early for operators to have made any shifts we haven't been told of any shifts I think some of our private fill drill right through this just given there.

Speaker Change: Net cash positions in very economic wells, but certainly you would expect to see some activity fall off somewhere throughout the year with the big drawdown in WCS prices, but we have it.

Speaker Change: <unk> heard of anything yet I think what makes it a little easier for operators as we're heading into spring breakup right now as we speak so theres going to be the natural every year slowdown in.

Speaker Change: As rates drop because it road bans and that will give people a chance to regroup and really understand what they wanted to do for the rest of the year, but.

Speaker Change: Interestingly enough a lot of our producers are in exceptional shape going into this one it was a different story going into Covid, one they had stretched balance sheets in some cases going into it so.

Speaker Change: We'll see how we'll see how the rest of the year kind of unfolds, but we haven't heard of anything any major changes yet.

Andrew: Okay perfect. Thanks, Andrew.

Speaker Change: Thanks for the question Jeremy.

Speaker Change: Thank you I'm showing no further questions at this time I'd like to turn the call back over to Andrew Phillips for any closing remarks.

Speaker Change: Thank you all very much for dialing in to the early morning Conference call Hope everyone has a great day and hope to see a number of you at our Investor day.

Speaker Change: Thank you for your participation. This does conclude the program and you may now disconnect good day.

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