Freehold Royalties Ltd.

Please continue to stand by. The conference will begin momentarily. Once again, please continue to stand by. We thank you for your patience. This conference is being recorded. This conference is recorded.

All participants, please stand by. Your meeting is ready to begin. Good morning, ladies and gentlemen. Welcome to the Q1 results conference, Carl. I would now 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 from Freehold are Rob King, our COO, Dave Hendry, our CFO, and Todd McBride, our manager of IR. Before we jump into our Q1 results, I just wanted to highlight some of the structural improvements that we've been working on at Freehold. First off, most of you would have seen our end of April news release highlighting that Freehold and Rife have mutually agreed to terminate the management agreement. This management agreement has been in place since Freehold's inception in 1996, and for a long time, it was mutually beneficial to all the companies involved. Today, Freehold is a much larger company with a broader North American mandate. We no longer have working interest assets that benefited from Rice expertise, and we've been very focused on building a royalty business through strategic acquisition work. With all this in the backdrop, it created the right opportunity to refine our business structure and terminate the management agreement. So effective May 1st, we have a fully dedicated team of executives and employees that are solely focused on freeholds. So this change has really simplified our governance and streamlined our decision-making process as we look to keep building our business with the continued emphasis on generating value for our shareholders. The leadership and employee continuity will ensure a seamless and stable transition to this revised governance and operating model. CNID, as our major shareholder, will retain a seat on the board as they have been a valued investor and contributor to our board since inception in 1996. I also want to touch on yesterday's announcement that we are in the process of putting an NCIB in place provide flexibility in our return of capital structure through share buybacks. We have the size and scale and have increased the stability of our cash flows to look at other ways outside of the dividend to drive shareholder returns. Our buyback strategy will develop over time, but our dividend policy remains unchanged with this announcement. Dividends will continue to be the main method of returning capital to our shareholders. we are continuing to target a 60% payout ratio. We will take a disciplined approach to share buybacks. Along with our share price, we will look at our expected cash flows and debt levels, as well as any potential acquisition opportunities as key decision factors in determining when to buy back shares. So if we turn to our Q1 results, our production was 16,248 BW a day in the quarter. Taking our 2024 acquisitions into consideration, this is the highest level of production since freeholds were started in late 96. 65% of our production was liquid weighted, contributing $68 million in funds from operations in the quarter, or 42 cents a share. Our realized pricing averaged 49.25 BAE in Canada, and 72.64 BAE in the US. a premium of 47% on U.S. production compared to Canada. This was driven by higher oil weighting in the U.S., light oil pricing, and lower transportation costs to benchmark pricing sales points. We also had a robust leasing in Q1, with leasing of our U.S. mineral tidal lands setting a new high water mark at $3.3 million in the quarter. Overall, we had 14 new leases in Canada and 11 in the US, and together they contributed a healthy $3.9 million in revenue. Drilling in Q1 was up 12% from Q4 2024 levels on both the gross and net basis. Most of the increase is attributed to the larger land base in the US, as we did see some softening in wells drilled in Canada compared to Q1 2024. This was mainly due to a pullback in activity in the Viking compared to the prior year, but this was somewhat offset by an increase in activity in our oil-weighted plays, including southeast Saskatchewan light oil and the Manville stack. One of our biggest growth plays in Canada continues to be our heavy oil operating areas. So with that, our heavy oil production is up 19% from Q1 a year ago, with continued strong activity levels in the Clearwater and Manville stacks. Freehold's lands are well positioned throughout the basin to capture the momentum in the conventional heavy oil window, with multilateral drilling, favourable crown-lead royalty structures and narrower heavy oil differentials after the TMX pipeline start-up last year. We also continue to see growth in our broader deep basin asset base. This production is in the gassier area of our portfolio and we've seen steady production growth over the past three quarters. We have $25 million a day, or $4,100 BUEAD, of Canadian gas exposure heading into what is anticipated to be a strengthening of eco-gas pricing with the completion of the Allergy Canada project online in Q3 of this year. Next, I would like to just take some time to speak to activity in the US. There have been a lot of headlines over the past week or two on the Permian, with some viewing it as rolling over, while others are looking at rig counts and implying production is falling off. I think there's a few things to keep in mind when we frame freeholds opportunity set in the US. First off, to put things into perspective, if the Permian were a country, it would rank ahead of Canada in terms of both oil and gas production. There's a tremendous amount of resource and opportunity here. The Permian produces over 6 million barrels a day of oil compared to the 5.8 million barrels a day that Canada produces. In terms of natural gas, the Permian produces 26 BCF a day while Canada produces 18. So just putting this into context compared to Canada just helps show how big the Permian is relative to the supply of energy in North America. and the opportunity that lies ahead. Time and time again, it's shown that the best place to find oil is where you've already found oil. And we feel there's a significant runway that remains to be developed in the Permian, and as technology continues to progress, there will be even more resources to recover in the years to come. We do share the view that the pace of production growth in the Permian will not likely continue at historical levels. If we take a look at Canada, where conventional oil production has stayed relatively flat for the past 25 plus years, it is examples like the multilateral drilling technology being used in plays like the Clearwater and Manville Stack and in southeast Saskatchewan, along with frac design, unlocking Montney and Duvernay resource, along with associated condensate growth, that are really backfilling the decline and keeping overall conventional oil production relatively flat. We see a very similar situation in the U.S. Most of the historical production in the Permian is coming from a handful of reservoir benches or zones that are present. And we are now seeing development in the rest of the benches contributing to production longevity in the Permian. As you think through rig counts, despite the pullback in active rigs, operators are able to do more with less. Rigs in the Permian are becoming much more efficient in drilling as technology continues to progress. Rig counts certainly aren't at the record levels of 2018, but well drills remain very similar to 2018 levels. If you look at the meterage drilled in the Permian, you'll find that the increase in rig efficiency is making up for the lower rig counts. I think what is very key and what we've really been focusing on very specifically and strategically is growing our portfolio in the Permian to maximize our footprint in the undeveloped benches and drilling spacing units to take advantage of production growth capacity on these targeted lands. Our existing lands complemented by our efforts in the ground game form the basis for a rich inventory of light oil drilling locations. Our recent leasing activity focused on deeper benches in the Midland Basin highlights the opportunity set that exists. So to wrap up today's call, I'd just like to address the market volatility that Trump and other factors have introduced over the past few months and how that impacts what we are expecting to see for the remainder of the year. We are maintaining our production guidance for 2025. We are starting to see some operators tweak their 2025 capital plans, but there are still far too many unknowns to change their overall views today. The break-up season in Canada is upon us and we'll be watching drilling activity coming out of break-up to give us a better sense of the balance of the year. In the US, we have positioned ourselves in the lowest break-even place under investment grade operators who take a long-term approach to capital planning. As a reminder, our largest corporate payer is ConocoPhillips at 17% of our revenue and our second largest corporate payer is ExxonMobil at approximately 13% of our revenue. These investment grade operators have signaled they will continue execution of their strategic plans throughout the commodity price cycle. So overall, the quality of our payers along with the plays we are positioned in and the overall financial health of our industry gives us confidence that our payers will manage through the commodity price variability and deliver on their plans. Our cash flows, we expect our larger and more balanced portfolio to support our ability to generate cash flows. The price we need to cover off all our costs plus our dividend is about $50 a barrel, West Texas Intermediate. We have a view that although oil may fluctuate down towards that level at times, it will not stay at that level for an extended period. And then what that means to you as a shareholder is that the dividend is sustainable. So at Freehold, investors get a multi-decade inventory of drilling locations across an expansive Canadian and US portfolios, a dollar rate of share annual dividend, which is covered at oil prices in the range of US $50. So with that, we're happy to take questions.