PrairieSky Royalty Ltd.

Good day and welcome to Prairie Sky Realty Limited announced the first quarter 2020 cloud financial results. At this time, all participants are on listen-only mode. After the speaker's presentation, there will be a question and answer session. Instructions will be given at that time. As a reminder, this call may be recorded. I would like to turn the call over to Andrew Phillips, President and CEO. Please go ahead.

Thank you, Michelle, and good morning, everyone, and thank you for dialing in to the Prairie Sky Q1 2025 conference call. On the call from Prairie Sky are Pam Cazell, Dan Bertram, Mike Murphy, and myself, Andrew Phillips. Before we begin, there's certain forward-looking information and statements in our commentary today, so I'd ask listeners and investors to review the forward-looking statements qualifier in our press release in MD&A, which can be found on our website. Prairie Sky achieved record oil volumes of 13,502 barrels per day of net royalty production in the first quarter of 2025. Over 200 wells were spud in Q1, an increase of 26 wells from the same period in 2024. The average royalty rate on these new wells was 6.9% versus 6% last year. 52 new leases with 39 counterparties were signed, generating $5 million in lease issuance bonus. Notably in the quarter, we closed the Petro-Canada fee title package in southeast Saskatchewan for $50 million. This asset is only 20% leased, which represents an opportunity for the team to lease the asset and achieve leasing percentage similar to our corporate average. We also acquired 3.4 million Prairie Sky shares prior to the 26 cent dividend, giving remaining shareholders an additional 1.4% interest in the business. We view this as an acquisition of 259,000 royalty acres in the best parts of the basin. We have also quietly added well over 100,000 acres of oil sands leases over a three-year period, well below where current values sit at Crown land auctions. This has added years of new economic drilling inventory on a two to three times recycle ratio heavy oil asset. Subsequent to quarter end, oil prices have declined and there has been significant market volatility. Our well-capitalized counterparties and strong balance sheet will allow us to be resilient and take advantage of further disconnects in value. There's an advantage to owning hard assets with long duration profiles at all parts of the cycle. With decades of economic inventory and 98% operating margins, short-term price swings both up and down have less of an effect on Prairie Sky's value. Our investor day is on May 14th in Calgary at the Brookfield Building and will be available via webcast as well. We will publish our new royalty asset book, which details known asset values based on today's discovered resource. We will also provide owners with a range of outcomes for the next 10 years. Thank you to our investors for their support and our employees for their continued execution and hard work. I'll now turn the call over to Pam to walk through the financials.

Thank you, Andrew. Good morning, everyone. Prairie Sky's royalty production averaged 25,339 BOE per day in the quarter. Our percentage of liquids royalty production has been steadily climbing over the last three years from 58% in Q1 2022 to 63% today. It was another record quarter of oil royalty production, which averaged 13,502 barrels per day and included 177 barrels per day of production from our $50 million acquisition of Fee Lands and Gore Intra that closed on January 10th. As Andrew mentioned, it was an active quarter with 200 spuds in our lands at an average rate of 6.9%. Activity was focused in the Clearwater, Duvernay, and Manville heavy and light oil plays. We've seen a decline in natural gas volumes, which averaged 55.9 million a day as compared to Q1 2024. Q1 2025 volumes included an estimate of cold weather downtime in the quarter of 1.1 million a day. There were 14 natural gas wells spud in the quarter, primarily in the Montmey, which we anticipate will come on production later in the year. Juvenile and Viking wells will also provide incremental solution gas volumes. Royalty production revenue totaled $119.9 million and was 93% from liquids. With narrowed heavy oil differentials, our realized price for oil increased to 87% of Edmonton from 84% in Q1 2024. Other revenue totaled $8.2 million and included $5 million of bonus consideration. Leasing was primarily focused in the DuVernay Light Oil and Manville Heavy Oil Plays. During the quarter, Prairie Skies funds from operations totaled $85.8 million, and we declared dividends of $61.2 million, or $0.26 per share, with a resulting payout ratio of 71%. We repurchased and canceled 3.4 million shares in the quarter for $90 million. Our current NCIB expires in early June, and we intend to apply to the TSX to renew it. Prairie Sky's balance sheet remains strong with net debt at March 31st of $258.8 million. We will now turn it over to the moderator to proceed with the Q&A.

Thank you. If you'd like to ask a question, please press star 1-1. If your question has been answered and you'd like to remove yourself from the queue, please press star 1-1 again. And our first question comes from Patrick O'Rourke with ATB Capital Markets. Your line is open.

Hey guys, good morning and thanks for the rundown. Just wanted to ask you maybe, you know, first off, more of a broad philosophical question. But we saw a bit of a shift in free cash flow policy here with dipping into the NCIB in the quarter and just sort of, you know, wondering how you think about where the net debt is here, sustainability, sort of break-even prices on the dividend and then sort of the appetite to dig into the NCIB here over the rest of the year versus a focus on paying down debt?

Yeah, thanks for the question, Patrick, and good morning. I think the NCIB, again, we view it more as an acquisition. We look at our business currently, and it's outpacing the base in terms of growth by 200% to 300% on any given year. And so, again, we're effectively buying the best assets in the basin. You add on the free cash flow yield, you're kind of in the teens for total returns. So that's our hurdle rate. So it's more challenging to find assets that look as good as the current Prairie Sky suite of assets. And I think, again, you know, no different than we used a bit of leverage in COVID, knowing we could pay it down in a short period of time. We're willing to do that to... use the NCIP and buy stock below intrinsic value when the opportunities arise.

Just to follow up on that, have you guys stress tested sort of your cash flows for breakeven oil prices in this choppy environment?

Yes, we have, Patrick, and the dividend is sustainable well below $50.

Excellent. and then just second question here um you know you guys are typically at the cutting edge of trends that we're seeing in the basin you know we have the multilateral development both in the clearwater manville uh west shell duvernay has been successful for you i think we've seen a little bit of uh chops activity or renaissance there on uh some of your lands can you maybe walk through um what's going on there from a technical perspective and you know sort of what the volume of potential locations and opportunities that is?

Yeah, thanks for the question. It's a great question. I think it is one of the assets that we kind of saw as a big resource, of course, when we acquired those heavy oil assets, both from CNRL and then Heritage. And we have in the range of 600,000 acres in the broader area, including in the Saskatchewan side. And that stuff we didn't put any value on when we were acquiring it because it was cold flow heavy oil production and there's a lot of sand that comes along with it. Operators are now running horizontal single legs and they're running liners and they're putting in circulation strings. So they're effectively kind of circulating over the backside to clean out the sand consistently and they're getting very good results. And so what it really does is opens up an entire new fairway of opportunities. We don't have a number, but it's in the hundreds, probably some days north of a thousand new locations over time on our land. It won't be part of this current playbook because I think it's just being refined in terms of technological advancements, but it kind of really just steps back to the thesis. And one of the things we've always tried to do at Prairie Skies when we acquire assets We like big pay packages and lots of large oil in place assets that we think can ultimately be exploited. And, you know, similar to what we talked about in Saskatchewan, where we've done over seven different leases for steam assisted gravity drainage for these small modular type projects. On the Alberta side, we've actually identified a number of opportunities for small scale safety as well. in zones like the wrecks and the white minster so i think that you know as technology improves we're believers that a lot of this large oil in place will be exploited okay thank you very much thanks for your question thank you our next question comes from aaron vilkoski with td cowan your line is open thanks i just wanted to follow up on patrick's question and get a little bit more clarity to make sure i understand what you

said, am I correct to assume that you're saying you're willing to take on a little bit of incremental debt to repurchase shares if they're at the right valuation? That's correct. Perfect. I have another question too. Of the net wells drilled in your lands in Q1, how many or what percentage of that would be from the Williston Green window at the DuVernay? And what would that have been a year ago?

Yeah, so probably the best thing to talk about is is last year in the Wilson Green DuVernay, we had, including the Paramount, we had seven wells total drilled on the lands, and this year we expect 19. They'll come on across the entire year, so again, when they're spud is not necessarily indicative of when they'll go on production. So we did have an active program. Mike, I think, was the exact number.

Yeah, yeah. Hey, Aaron, it's Mike here. Yeah, I believe approximately 14 DuVernay wells were spud, the Williston Green area in Q1, and that would have been higher than last year. And what's important about these 14, there'd be higher royalty interest as well compared to what we would have seen previously.

Yeah, and of course, depending on the timing, Aaron, these could drift all the way into Q3, just given the very large fracts, and they typically do them as a big program. But it's very positive. I think it's because they are such high-rate wells and because we have high royalties, you'll see... some significant spikes in production throughout the year.

Perfect. Thanks, guys. I appreciate that.

Thanks for the question.

Thank you. Our next question comes from Jamie Kubik with CIBC. Your line is open.

Yeah, good morning. Thanks for taking my question here. Just a bit of a follow-on to Aaron's question there. You did disclose 15 well spud in the Duvernay light oil play. Based on... Based on my count, that's more than double what you've ever reported. Can you just talk about where you expect that to trend for the rest of the year? Is this a bit of a one-time item in terms of ramp-up for the different operators in the play, or how can you talk about licensing activity and what you see going forward there? Thanks.

You bet. No, thanks for the question. I think, you know, it'll be very steady on the East Shale Basin, so we should see five to seven new wells, perhaps even as high as 10 this year on the East Shale Basin side. But when you jump to the West Shale Basin, where all the new leasing activity's been and where there's been some really exceptional results, we think that could ramp again next year. So in 2026, you could have a full doubling of that program, just given the given the very economic wells and the high-rate light oil wells that have been drilled in the area. One of the producers to the north signed a take-pay with a midstreamer for their liquids, and then the central one, Spartan Delta, has had some excellent results and is in a very good part of the play. And then Paramount, of course, is upgrading their leafline facility and getting their gas takeaway taken care of.

we do expect activity to continue to ramp in the duvernay in general jamie yeah that's great and then on on the manville stack um you have a slide in your presentation just showing how substantial the growth has been from 2022 to 2024 but based on on that chart as well volumes have plateaued a little bit since q2 of last year can you Can you just talk a little bit about where you expect production from this play to move to in the coming years and perhaps some additional detail on things that are going on in that part of your asset base?

Yeah, Jamie, it's Mike here. Yeah, we see, you know, the Mandelstack is having potential to have, you know, volumes approaching down into clear water. So, you know, in that chart that you saw, it did look like, you know, production's plateauing a bit. We still expect pretty strong growth. In 2025, it's not going to be, you know, the 70% we saw last year, but somewhere between 30% and 50% would be reasonable. So, you know, we only saw probably seven or eight Manville stack spots in Q1, but we expect a pretty active program for the rest of the year, similar to last year or stronger.

Yeah, and actually... And just one other comment on that. At our investor day on May 14th, we're going to have three... CEOs present, Fotis from Spartan Delta, Ian Currie from Spur, and then also Tom Bischke from Caltex Trilogy. And it'll be a great opportunity to really get some color on the Mandelstack and just the amount and quantum of drilling locations that they've uncovered just in their general area. And then, of course, CNRL has a massive amount of drilling inventory on Prairie Sky, Sea Mineral Titles. gores. So it'll be a good opportunity to kind of hear it from the producer that's grown the fastest in the region. So that's less than one month away. So hopefully you can ask the same question to someone who's actually spending the capital.

Great. Thanks for the additional color. I'll hand it back.

Thank you. Our next question comes from Jeremy McRae with BMO Capital Markets. Your line is open.

Hey guys, just with the decline in oil prices here recently, have you seen any indications that you're seeing a bit of a slowdown? Like I know most of your lands are in pretty economic plays. And so there's a bit of a debate saying, you know, how much of a slowdown do we potentially see? And just have any operators express that? And then kind of part two of that is with the rebound in natural gas prices, are you seeing any more operators express interest in developing more of the gas assets that you have here, specifically maybe in the Montney?

Yeah, so just to touch on the second question, on the gas side, we have a significant money development, both Pacific Cambrium, but also Coelacanth has some wells coming on. So we do have some significant money volumes coming on, and those were drilled in advance of this gas price run up. So that'll be positive for them, assuming that hangs in there at the ACO basis level. And then on the oil side, I think it's probably too early for operators to have made any shifts. We haven't. been told of any shifts. I think some of our privates will drill right through this, just given their net cash positions and very economic wells. But certainly you would expect to see some activity fall off somewhere throughout the year with the big drawdown in WTI prices. But we haven't heard of anything yet. I think what makes it a little easier for operators is we're heading into spring breakup right now as we speak. So there's going to be the natural every year slowdown as rigs drop because of road bans. And that'll give people a chance to regroup and really understand what they want to do for the rest of the year. But interestingly enough, a lot of our producers are in exceptional shape going into this one. It was a different story going into COVID when they had stretch balance sheets in some cases going into it. So we'll see how the rest of the year kind of unfolds. But we haven't heard of anything, any major changes yet.

Okay, perfect. Thanks, Andrew. Thanks for the question, Jeremy.

Thank you. I'm sure no further questions at this time. I'd like to turn the call back over to Andrew Phillips for any closing remarks.

Thank you all very much for dialing in to the early morning conference call. Hope everyone has a great day and hope to see a number of you at our investor day.

Thank you for your participation. This does include the program. You may now disconnect. Good day.