Freehold Royalties Ltd.

Good morning, ladies and gentlemen. Welcome to the third quarter results conference call. I would now like to turn the meeting over to Mr. David Spiker. Please go ahead, sir.

Good morning, everyone, and thank you for joining us today. On the call from Freehold are Dave Henry, our CFO, and Rob King, our Chief Operating Officer. So we've had a good third quarter, highlighted by growing U.S. production volumes. active drilling programs across North America, and an 18% reduction in net debt. Production of 14,605 BUE a day was in line with the previous quarter, and up 3% versus the same period in 2022. Growth in volumes was due to drilling from our third-party payers, leading to organic, oil-weighted growth, most notably within our US portfolio. U.S. production in the quarter averaged 5,427 BUE a day, eclipsing the previous U.S. production record by 160 BUE a day, which was set in Q4 last year. The 12% quarter-over-quarter growth was driven by several high-impact multi-well pads being brought on stream and higher net royalty interest wells being turned in line. Prehold's Canadian portfolio saw a slight production decline quarter over quarter, and this was primarily due to a negative prior period adjustment, as wildfire impacted areas were offline in June longer than originally estimated. A revenue of $84 million was in line with expectations, generating funds from operations of $65 million, or $0.43 per share. Realized pricing of $61.55 per BUE continues to benefit from the premium pricing associated with our U.S. portfolio. In the U.S., we realized a 34% uplift over our Canadian realized pricing during the same period, and this is due to both quality and weighting of production mix to oil, as well as proximity to sales points, which significantly reduces pipeline transportation costs. We reduced our net debt by $23 million or 18%, ending the period at $107 million or 0.4 times trailing funds from operations. We continue to maintain significant financial flexibility. We paid $40.7 million to our shareholders in dividends or 27 cents a share, up 8% versus the same period in 2022. Dividend payout for the period was 62% and we believe our dividend is right sized and provides freehold of flexibility to continue to reduce leverage or pursue value enhancing acquisitions as we continue to see a strong set of opportunities on both sides of the border. During the first nine months of this year, 779 gross or 14.1 net wells were drilled on our North American royalty lands. representing the highest level of gross drilling activity through the first three quarters of the company's 27-year history. For the quarter, we had 251 gross or 4.6 net wells drilled, with 90% of these wells targeting oil prospects. In Canada, we had 116 gross, 3.9 net locations drilled. Activity was slower in Q3 2023 relative to Q3 last year, relating in part to reduced gas well drilling activity. On the oil side, we are seeing increased activity and capital programs as we go into year end. In the US, 135 gross wells were drilled on our royalty lands, which compares to 157 gross wells during the same period last year. and 124 gross locations during the previous quarter. Given the composition of our U.S. portfolio, which is greater than 60% investment-grade payers, we see sustained development on our lands with more than 13 years of multi-zone, oil-weighted drilling inventory. Our U.S. operators have been focused on drilling light oil prospects in the Permian and Eagleford with 83% of the activity within these basins. In total, we had 71 gross locations targeting prospects in the Permian and 35 gross locations in the Eagleford. We also continue to see activity associated with the Bakken and Haynesville plays. We've had significant leasing activity through our Canadian portfolio in 2023, with nearly half of the 102 new leases issued for the first nine months of this year targeting Mississippian oil in southeast Saskatchewan and Manville oil in Alberta. We continue to see a revitalization of our southeast Saskatchewan light oil and heavy oil portfolios, with several well-capitalized, growth-oriented junior producers focusing in these areas. Multilateral drilling has also been a focus by operators in both southeast Saskatchewan and the heavy oil areas with the aim to improve both well productivity and oil recovery. We continue to highlight the sawtooth nature of our U.S. production, driven both by pace of activity and variation with our royalty interests across our land base. As well as come off flush production associated with the shale plays, we continue to build a low decline underlying asset base. As the drilling continues on our lands, this asset base will continue to grow. On a gross basis, we had a number of new pads in the Midland Basin and Eagleford contribute gross production of 50,000 to 60,000 BUE a day or approximately 350 BUE net to freehold over the period from high quality operators such as Pioneer, Exxon and EOG. Additional contribution to our robust US volumes came from well out performance relative to our tight curves and higher than expected completion activity. On an annual basis, we expect our U.S. portfolio to provide organic growth of approximately 3% over the next 12 months, aligned with third-party projections of production growth in the U.S. oil-producing basins. We are very excited about the position of strength we are in, given the quality, diversity, and long-duration characteristics of our portfolio. We continue to unlock value as new technology is being deployed, new reservoir benches are being tested and brought on production, and operators continue to lease and drill on our extensive land base. Looking forward, we continue to expect robust performance from our assets, generating significant funds flow to underpin our sustainable dividend, maintain our balance sheet strength, and to fund further growth opportunities on both sides of the border. We will now take the time to answer any questions that you may have. Thank you.

Thank you. We will now take questions from the telephone lines. If you have a question and you're using a speakerphone, please lift your handset before making your selection. If you have a question, please press star 1 on your device keypad. You may cancel your question at any time by pressing star 2. Please press star 1 at this time if you have a question. There will be a brief pause while the participant register for questions. Thank you for your patience. The first question is from Duke Davis. One moment, please. Your line is now open.