PrairieSky Royalty Ltd.

Good day, and thank you for standing by. Welcome to the Prairie Sky Royalty Limited announces their first quarter 2022 financial results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Andrew Phillips, President and CEO. Please go ahead.

Thank you, Latonia. Good morning, everyone, and thank you for dialing into the Prairie Sky Royalty Q4 and year-end 2022 conference call. On the call from Prairie Sky are Cam Proctor, COO, Pam Cazale, CFO, and myself, Andrew Phillips. There's certain forward-looking information in my commentary today, so I'd ask investors to review the forward-looking statements qualified in our press release in MD&A I'll provide an operational update and then hand the call to Pam to walk through the financial results. 2022 was strong across the entire western Canadian sedimentary basin. Prairie Sky saw 850 wells spud on its royalty lands throughout the year. This allowed our company to achieve double-digit organic growth over the year, well ahead of any Canadian or U.S. peer. The benefit of undeveloped land is clear in a strong capital cycle. The major investments in CIPO, all in downturns, include Canadian Natural Resources fee mineral title in 2015, Synovus' royalty lands from heritage in 2021, and our large clearwater land base beginning in 2016. The fee mineral title lands acquired represent Canada's largest land position in the heavy oil fairway, a land position that is irreplicable. These were acquired prior to the multilateral drilling techniques being exported from the clearwater to other areas of the basin in a meaningful way. Our company's WCS exposure is now significant and represents 50% of current oil volumes and is our fastest-growing commodity. This is in advance of the Trans Mountain mine fill in the back half of 2023 or early 2024. This new export pipeline to the West Coast to access Asian markets represents 590,000 barrels of new capacity. Structurally lower WCS differentials should result over the medium to long term. In the fourth quarter, we entered into 64 new leases with 53 different producers, which contributed to a record year in 2022 as far as the number of leasing transactions and a record number of counterparties, many of whom are newly capitalized teams with new play ideas exclusively on Prairie Skylands. Strong leasing momentum continues into 2023. Currently in the base and 250 rigs are active versus 225 one year ago. Numerous new startup companies have been recently capitalized, leading to incremental activity in the basin. Clearwater production exited the year at approximately 1,600 barrels per day. Significant new discoveries and step-outs made last winter in the play will see first development activity in 2022, which should lead to new growth in the play. In addition, secondary recovery in the more mature areas of Nipissi and Martin Hills are showing promising early response. Gray Sky is in a unique position in this play. as the majority of our 1.3 million acres in the play are undeveloped. This will provide a decade or more of organic growth for our shareholders without incremental capital. Praise Guide continues to receive some of the strongest ESG ratings in all sectors of the North American economy, including top 1% as ranked by Sustainalytics. Praise Guide will have its biannual investor day in Toronto on May 17th at 9 a.m. at the Royal York Hotel. Concurrent with the presentation from management, we'll publish our 2023 asset handbook detailing the book value of the current development locations that exist on Prairie Sky lands directly offsetting known production. The focus of this investor day will be the Clearwater and the differentiation that Prairie Sky has with its significant undeveloped land inventory. We will also provide a range of outcomes for the business over the medium to longer term. We hope our investors are available to attend either virtually or in person. I will now pass the call over to Pam to discuss the financial results.

Thank you, Andrew. Good morning, everyone. As Andrew mentioned, there is certain forward-looking information in the notes today, so I would remind investors to review the forward-looking statements qualifier in our press release in MD&A for Q4 and the year ended December 31st, 2022. Grace Guy had a very strong Q4, which closed out an exceptional year where we generated record annual oil royalty production, record annual royalty revenue, and record annual funds from operations. Q4 2022 funds from operations totaled $119.5 million, or 50 cents per share, bringing annual funds from operations to $507.6 million, or $2.12 per share diluted. Strong funds from operations were a result of increased royalty production volumes from organic growth, as well as acquisition volumes from 2021. Annual production averaged 25,914 BOE a day in Q4 and generated royalty production revenue of $144.8 million. Annual production averaged 25,206 BOE per day and combined with strong commodity pricing to generate annual royalty production revenue of $615.7 million. Pre-sized oil royalty production grew to 12,166 barrels per day. a 22% increase over Q4 2021, excluding acquisition volumes, and 7% over Q3 2022. Annual oil royalty production totaled 11,739 barrels per day, 56% above 2021, and representing 22% organic growth. Growth in volumes and strong benchmark pricing combined to generate oil royalty revenue of $98.9 million to the quarter. We were very encouraged by the organic growth from third-party drilling already seen in our oil royalty volumes and by the continued leasing of our land. At current commodity pricing, we anticipate another active year of third-party drilling across our royalty properties in 2023. Natural gas royalty volumes averaged $66.4 million a day, 11% over Q4 2021 and in line with Q3. Higher royalty production volumes and strong benchmark pricing generated natural gas royalty revenue of $32.4 million, 46% ahead of Q4 2021 and 34% over Q3 2022. Natural gas royalty volumes averaged $64.7 million a day for the year, 9% ahead of 2021. Natural gas royalty revenue totaled $116.3 million for the year, an 81% increase over 2021. NGL royalty volumes averaged 2,681 barrels per day in line with Q3 2022 and up 32% over Q4 when volumes were negatively impacted by FA and pretendments. To discount benchmark pricing, Prairie Sky generated NGL royalty revenue of $13.5 million, an increase of 5% over Q3 and 26% over Q4 2021. NGL royalty production volumes averaged 2,684 barrels per day for the year, 10% above 2021, and generated $58.6 million of NGL royalty revenue. There were 248 wells spud in our lands in Q4, which were 85% oil. This is up from Q4 2021, when 194 wells were spud. The Manville was the most active play with 48 heavy and light oil wells spud, followed by the Viking with 46 wells spud, and the Clearwater with 43 wells. An additional 73 wells were spud across the basin in the Mississippi and cardium, bodkin, and a number of other oil plays. There were also 38 natural gas wells spent in the quarter, including 20 shallow gas wells, seven Montney wells, and four Manville wells. An active Q4 brought total spuds for the year to 850 wells as compared to 548 wells in 2021. Prairie Sky estimates that $1.5 billion of gross capital and $84 million of net capital was spent on Prairie Sky's royalty lands in 2022. Net capital increased 127% year-over-year, which led to Prairie Sky's strong production growth. Looking forward, Prairie Sky's 2023 annual pricing sensitivities, which are all net of taxes, are as follows. A $5 per barrel change in U.S. dollar WPI would increase or decrease funds from operations approximately $21.5 million. A $0.25 per MTS change in ACO would increase or decrease funds from operations approximately $4.5 million. and a $0.01 change in the US to Canadian dollar FX rate, with increased or decreased funds from operations, approximately $4.5 million. Other revenues total $5.8 million and a quarter, and included $2.1 million in lease rentals, $700,000 of other income, and $3 million of bonus consideration for entering into 64 new leases with 53 different counterparties. This brings annual other revenues to $27.6 million, In 2022, we entered a record 228 new leasing arrangements with 119 different counterparties, up from 139 leases with 85 different counterparties in 2021. This is an increase of 34 new counterparties year over year. New leasing is typically a precursor to increased field activity and is another reason we anticipate drilling on our lands to remain strong in 2023. Prairie Sky is forecasting other revenue in the range of $25 to $30 million in 2023, including lease rental, bonus consideration, and other revenue. Compliance recoveries will be incremental to this amount and included in royalty revenue. Cash administrative expenses total $5.1 million, or $2.14 per BOE in the quarter. This brings annual cash administrative expense to $25.5 million, or $2.77 per BOE. We expect 2023 cash administrative expense to be around $30 million due to strong stock performance positively impacting share-based compensation. Current income tax expense totaled $20.2 million in Q4, and this brings 2022 current tax to $85.6 million. Entering into 2023, Prairie Sky has $1.55 billion of tax pools to offset future taxable income, mostly deductible at 10% per year. For 2023, that means the first $155 million of pre-tax cash flow is tax-free with incremental cash flow tax at 23.5%. During the quarter, Prairie Sky's funds from operations totaled $119.5 million, and we declared dividends of $57.3 million, or $0.24 per share, with a resulting payout ratio of 48%. Annually, Prairie Sky generated $507.6 million in funds for operations, which were used to pay dividends of $143.3 million, with remaining cash flow primarily used to reduce Prairie Sky's bank debt. Prairie Sky's net debt at December 31, 2022, totaled $315.1 million, a decrease of 50% from December 31, 2021, when net debt totaled $635 million. Once again, in 2023, Prairie Sky will receive the full pricing reduction related to our sustainable credit facility, as we further improved our Sustainalytics ESG rating and are now ranked number 51 in Sustainalytics' global universe of over 15,000 companies. Since IPO, Prairie Sky has generated approximately $2.2 billion in funds from operations and returned $1.6 billion to shareholders through dividends and buybacks. We will now turn it over to the moderator to proceed with Q&A.