Freehold Royalties Ltd.

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

Good morning, everyone, and thank you for joining us today. On the call with me with Freehold are Rob King, our COO, and Dave Henry, our CFO. 2023 was a strong year for Freehold. It really showcased the strengths of our unique North American portfolio, which consists of a robust production base in Canada and a growing oil-weighted position in the US. Total production of 14,714 BUE a day in 2023 was up 4% over the previous year, driven primarily by oil-weighted US production growing 16% year-over-year to 51.02 BUE a day. Growth on our US assets was driven by the Midland Basin with volumes up 25% over 2022. Our Canadian portfolio had no decline in production year-over-year. 2023 production in Canada was 9,612 BUE a day driven by consistent operator activity. This was achieved in the absence of any material acquisitions and really highlights the quality of our Canadian asset base. For 2024, we're expecting production in the range of 14,700 to 15,700 BWI a day, implying approximately 3% growth at the midpoint over 2023. Revenue in 2023 was $315 million, and funds from operations was $240 million, both in line with expectations, and funded our annual dividend of $163 million, or $1.08 per share. This resulted in a payout ratio of 68% for the full year. We expect to continue to maintain our current dividend level, striking a balance between strong shareholder returns and retaining the ability to continue to fund business growth through reinvestment of excess free cash flow above the dividend. This strategy has allowed us to reduce our net debt by 27% in 2023 compared to year end 2022, and facilitate funding of the $115 million in transactions that we announced in December utilizing the strength of our balance sheet. These December transactions were with two private sellers and we acquired high quality Permian mineral title and royalty assets in the Midland Basin in Texas and the Delaware Basin in New Mexico and Texas. Some of the highlights associated with the assets include 2024 forecast average production of 600 BUE a day, increasing Freehold's Permian production by approximately 30%, and the company's U.S. production by 12%. These assets are 85% liquids-weighted production. Of that, most of it is oil. On a full basis, it's 65% oil-weighted, and that versus Freehold's U.S. liquids-weighting of 78%. and the company's total liquids weighting of 64%, thus providing meaningful uplift to Freehold's realized price. With the assets, we see multiple years of future upside, with greater than 2,000 gross development locations identified, increasing Freehold's total U.S. drilling inventory by 25%. The future development is expected to be underpinned by some of North America's top operators, with the combined ExxonMobil and Pioneer Natural Resources expected to move into Freehold's top five payer lists and represents greater than 25% of future gross locations within the company's U.S. inventory. Pro forma, these transactions are expected to double Freehold's Midland Basin activity, with one in every seven wells drilled in 2023 would have occurred on Freehold's land on this combined asset base. In total, 993 wells were drilled on our royalty lands in 2023. 95% of the wells drilled targeted oil prospects in Canada and the U.S., Approximately 28% of gross wells on freehold royalty lands targeted prospects in Alberta, approximately 18% in Saskatchewan, and almost half at 46% in Texas, with a balanced spread across other regions. We estimate that in 2023, approximately $8 billion in gross third-party capital was spent on our lands, up from $6 billion in 2022. Spending was comprised of $7 billion, about $35 million net on our U.S. royalty assets, and about $1 billion or $34 million net on our Canadian royalty assets. Backstopped by the quality of our asset base, we delivered record level of leasing on our Canadian lands in 2023 with 122 leases signed. Approximately 10% of these leases have already had wells spud, and we expect to see continued momentum on the drilling on these lands through 2024. The majority of these 122 new leases are made up of Mississippian light oil targets in southeast Saskatchewan, representing about 51% of the leases, and Manville heavy oil targets in Alberta, representing about 28% of the leases. We continue to see a revitalization of southeast Saskatchewan light oil and Manville heavy oil with several well-capitalized, growth-oriented junior producers focusing on these areas. Multilateral tilling has been a focus by operators in the heavy oil areas to improve both well productivity and ultimate oil recovery. With our year-end results and our forward look, we are very excited about the position of strength we have in both the quality and the diversity of our portfolio. Looking forward, we continue to expect robust performance from our assets, generating significant funds flow that will underpin our sustainable dividend, will maintain our balance sheet strength, and fund further growth opportunities on both sides of the border. We will now take the time to answer any questions that investors may have.

Thank you. We will now take questions from the telephone lines. If you have a question, please press star 1 on your device's keypad. You may cancel the 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 participants register. Thank you for your patience. And the first question is from Travis Wood from National Bank Financial. Please go ahead.