Freehold Royalties Ltd.

This conference is being recorded. All participants, please stand by. Your conference is ready to begin. Good morning, ladies and gentlemen, and welcome to the first 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 Rob King, our Chief Operating Officer, and Dave Henry, our Chief Financial Officer. Production for the quarter averaged 14,714 BUE a day, essentially unchanged over the previous quarter. Canadian volumes averaged 95.93 BUE a day, 56% liquids, and the US averaged 51.21 BUE a day, 78% liquids, generating total revenue of $74 million. Severe January weather events both in Canada and the US impacted our production in the quarter. However, volumes made a strong recovery from these unplanned outages, with corporate production in the second half of the quarter over 15,000 BME a day. In the U.S., our light oil-weighted Midland volumes increased 18%, and Delaware volumes increased 59% over Q4 2023. This is due in part to the closing of the previously announced acquisitions of high quality core acreage concentrated in the Midland and Delaware basins of the Permian. These acquisitions contributed approximately 400 Bwe a day to first quarter production, in line with their expectations. We maintained our balance sheet strength and exited the quarter with net debt to trailing funds from operations of 0.9 times after closing $116 million in the previously announced premium acquisitions. With natural gas benchmark pricing being weak throughout the quarter, we continue to see the benefits of our liquids-weighted, premium-priced North American portfolio, with oil and NGLs representing 90% of our revenue, driving a top-tier realized price of $54.81 in BOE. Funds from operations for the quarter total $54 million, or $0.36 per share. funding our $0.09 per month dividend and resulting in a 75% payout ratio for the quarter. Our high margin oil weighted portfolio enables us to provide consistent and sustainable returns to our shareholders while retaining optionality to fund future growth initiatives. On the drilling side, growth drilling activity was strong throughout Q1, with a total of 300 wells drilled across our North American portfolio, a 15% increase over the previous quarter. Approximately 56% of the total growth wells drilled on freehold lands targeted prospects in Texas, 23% in Saskatchewan, and 20% in Alberta. Canadian net drilling increased 55% over the previous quarter, led by increased drilling targeting Viking, southeast Saskatchewan light oil, and heavier oils in the Clearwater and Manville stacks. Following a record year of leasing in Canada, we have seen the momentum continue, with 20 leases signed during the quarter, predominantly in southeast Saskatchewan and the Manville stack. The continued revitalization of these areas through new drilling techniques and core area focus from new management teams represents a significant opportunity for our portfolio. Approximately 75% of the 2024 leasing activity has been associated with public and private junior companies. And the operators that we have issued leases to have been very active. 20% of our drilling year to date has been on the record 122 leases signed in 2023. On our U.S. portfolio, we're encouraged by the growth drilling and the rig activity that we have seen to start the year, with growth drilling up 18% over the previous quarter. Activity in our U.S. assets continues to be driven by large, high-quality, investment-grade payors, in addition to growth-oriented privates. Our drilled, uncompleted well and permitted well inventory remains in a position of strength, providing us confidence in the outlook for our US portfolio for the remainder of the year. As a tidbit, the first major US acquisition that we closed in January 2021 for $74 million pays out this quarter, so just over three years and is still contributing almost 1,000 barrels a day of production. We will talk further about the exceptional performance of our U.S. asset base at our annual general meeting this afternoon. So we're very excited about the quality of our business, a result of the multi-year transformation into a uniquely North American energy royalty company, providing significant returns to our shareholders while retaining the ability to self-fund future growth opportunities. We'll now take the time to answer any questions.

Thank you. We will now take questions from the telephone lines. If you have a question, please press star one on your device's keypad. You may cancel your question at any time by pressing star two. Please press star one at this time if you have a question. There will be a brief pause while participants register for questions. We thank you for your patience. Our first question is from Jamie Kubik from CIBC. Please go ahead.

Good morning, and thanks for taking my question, guys. I'm just curious if you can talk about the trend in the net wells drilled on your acres, both in Canada and the U.S., and some of the trends that you're seeing with respect to operators and specific plays that they're targeting and things of that nature.

Thanks. Thanks for the question. I'll turn that over to Rob. He's got a pretty good handle on that.

Morning, Jamie. I'll talk first on the Canadian side where I think when we look at our activity on a quarter-over-quarter basis, it was quite strong on both a gross basis and in particular on a net basis. I think really where the strength of the nets came from is, you know, the quarter-over-quarter basis was one of our key drillers, you know, in the Viking time was, you know, less active in Q4 and a lot more active, you know, in Q1. And that certainly helped, you know, given that's under a meaningfully high gross overriding royalty interest that we have, about 8.5%. You know, I think some of the other, you know, themes on the Canadian side we saw in the quarter was Dave talked about just really just that lease conversion. We saw in the quarter, the number is the same at 20%. 20% of the wells that were drilled in Canada in the quarter were from the leases that we signed in 2023. And 20% of the leases that we signed in 2023 have been drilled in the first quarter. So we're pretty encouraged by that in terms of just what we're seeing those leases get converted into drilling. And that has continued on pace to see meaningfully more incremental leasing in the first quarter this year. It continued on with the same momentum. I think the other highlight that we sort of point to on the Canadian side was in the Clearwater. Clearwater both had our highest production that we've seen, just under 500 BOEs a day. And we've seen some really interesting results from Woodcott in the West Nipissi block where we have a gore with them. On the US side, it really was led by oil drilling. It was 99% of our drilling in the corridor was targeting oil and liquids, with the bulk of that being really in the Permian, 73% of gross wells were targeted there. We did see on a quarter-over-quarter basis an increase in the gross number of drilling, but a decrease in the net number of drilling. To us, the gross number is an important reflection on what the overall activity is. On the net side, that really speaks to timing issues and timing where we will see some of the higher NRIs that we have in our portfolio get drilled over the course of the year.

Okay, thanks. And then in your press release, you state that the portfolio demonstrated a strong recovery in the second half of the quarter with volumes above 15,000 BBs a day. I'm just curious if you can provide a number with respect to production of where your volumes are at currently and how much was lost as a result of the weather impacts.

Thanks. I mean, I think what we really saw was January was what we call the monster for guests, particularly on the US side in terms of what we saw. in particular on our Eagleford assets under Marathon where severe weather had quite a negative impact on our January production in the Eagleford. Coming into February and then also into March we saw those that revenue and that production come back very materially. So that sort of led us to have the confidence to kind of know that the portfolio in March is sort of back up above 15,000 BOEs a day, largely from sort of seeing that temporary weather impact in January subside. So it was a temporary aspect, not a structural aspect within the portfolio.

Okay, thanks. I'll turn it back. Thanks, guys.

Thank you.

Thank you. We have no further questions registered at this time. I'd now like to turn the meeting back over to Mr. Spiker.

Great. Thank you, and thanks, everybody, for participating on the call this morning, and hope to see you at the EGM this afternoon. Thank you.

Thank you. The conference is now ended. Please disconnect your line at this time. And we thank you for your participation.