PrairieSky Royalty Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to Prairie Sky Royalty Limited announces their third quarter 2025 financial results. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Instructions will be given at that time. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Andrew Phillips, President and Chief Executive Officer. Sir, please go ahead.

Thank you, and good morning, everyone, and thanks for dialing into our Q3 2025 earnings call. On the call from Prairie Sky are Pam Cazale, CFO, Dan Bertram, CCO, and Mike Murphy, VP Geosciences and Capital Markets, as well as myself, Andrew Phillips. Before we begin, there's certain forward-looking information and statements in our commentary today, so I'd ask listeners to and investors to review the forward-looking statements qualifier in our press release and MD&A, which can be found on our website. Q3 royalty volumes grew 11% from Q3 2024 to 14,127 barrels per day. This growth was achieved through duvernay drilling, with royalty production volumes more than doubling since Q3 2024, and clearwater activity with volumes reaching over 2,500 barrels per day. It was a busy quarter in the Clearwater play with a record 57 wells spud on our royalty acreage. Man-built stack royalty production volumes were down in the quarter following spring breakup, but year-to-date growth remains strong at 13%, and we expect further growth through the back half of the year. Operators were busy in this play with 20 wells spud in the quarter. Successful water and polymer floods continue to bring declines lower, allowing for further growth and higher recovery factors. Leasing activity remained robust and we entered into 44 new leases with 37 separate counterparties. On the A&D front, we successfully closed $9.9 million of acquisitions over the quarter. The largest asset included over 50,000 acres of fee mineral title in the heart of the heavy oil fairway in Saskatchewan. These lands were only 30% leased and numerous opportunities have been identified on the land. We have reduced the share count from 239 million shares to under 233 million shares over the year. We now all own a larger portion of Canada's largest mineral title portfolio. We also welcome Ian Dundas to our Board of Directors, effective January 1st, 2026. He brings broad knowledge and experience in the oil and natural gas business, as well as a North American perspective. I'll now turn the call over to Mike to discuss the activity on our lands.

Thanks, Andrew. An increasing proportion of multilateral wells being drilled on Prairie Sky land continues to have a positive impact on Royalty Oil production growth. We saw a record number of multilateral wells spot in Q3 focused in the Clearwater and Mandel stack, with multilaterals accounting for 40% of all spots year to date, which is up from 36% last year. We now estimate 40% of our Clearwater volumes to be under water flood support which is up from our estimate of 33% at our investor day in May. In the DuVernay, we've had 46 wellspot year-to-date, including 26 in the West Shale Basin. This activity has driven year-to-date DuVernay royalty production growth of 87% relative to the same period in 2024, with Q3 volumes estimated at close to 1,500 BOEs per day. Given the recent improvement in capital efficiencies in the West Shale Duvernay, we expect an increased allocation of third-party capital to the play in 2026. I'll now pass it over to Pam to discuss the financials.

Thank you, Mike. Good morning, everyone. As Andrew noted, oil royalty production averaged 14,127 barrels per day in Q3 2025. This was one of our strongest third quarters on record with only modest oil production declines following spring breakup when third party activity across the basin and on our properties generally slows. Oil production in the quarter represented 11% growth over Q3 2024 and 7% growth year to date and generated revenue of $97.8 million in the quarter. NGL royalty production of 2,210 barrels per day added $7.4 million of revenue. and natural gas royalty volumes averaged $56.1 million a day, adding revenue of $2.5 million. Other revenues totaled $7.1 million and included bonus consideration of $4.8 million, bringing year-to-date bonus consideration to $18.3 million from entering into 143 new leases with 77 different counterparties. Prairie Sky generated funds from operations of $90 million, or $0.38 per share. We declared dividends of $60.5 million, 26 cents per share, with the resulting payout ratio of 67%. Excess funds from operations were used to acquire incremental royalty interest totaling $9.9 million, primarily targeting Manville and DuVernay Oil. And we repurchased and canceled $66.5 million of stock. Prairie Sky exited the quarter with net debt of $281.7 million. We'll now turn it over to the moderator to proceed with the Q&A.

Thank you. To ask a question, please press star 11 on your telephone and wait for your name to be announced. And to withdraw your question, please press star 11 again. And the first question comes from Patrick O'Rourke with ATB Capital Markets. Your line is open.

Hey, good morning, guys. Just wondering, thinking about sort of the leading edge indicators here, in particular well spuds, I know they were down year over year, but there's been sort of a changing nature to the wells that are being spud. You talked about more multilateral, more duvernay. I'm wondering if there's any other nuance you could provide i.e., like capital deployment or lateral meters that sort of would push us in sort of an indication of where things are going from a production perspective on the oil side here?

Yeah, no, good morning, Patrick, and thanks for the question. I think one of the unique things that's kind of happening is the Mandelstack plate, for example, is quite new. And people this year, year over year, have really kind of dialed in which fluid systems to use. They've gone to bigger hole diameters, 7-inch hole instead of 5-inch hole. The other thing that's changed over the last two years is if you go back two years, almost every spud was above 6,000 to 8,000 meters of total drilling. Today, some of them are 16,000. So you've almost got double the meterage per well on some of these wells. So again, I think some of those efficiency gains can't We can't see the same step change in 2026 and 2027, but I think you're seeing a lot more productivity per well now because of those dynamics. And then in the Duvernay, of course, the wells are coming in quite significantly above our type curves, and that's also kind of helped from capital deployment on an individual spot basis as well.

Okay, great. And then second question here, just thinking about capital allocation, free capital allocation and balance sheet management, that went up slightly in the quarter. You are buying back shares now. If maybe you could give us a little bit of insight in terms of what the core focus on the free cash flow profile. I know, you know, previously you wanted to take the debt down to zero. Now you're buying back shares. And then, of course, you have the dividend policy. So how are you thinking about allocating free cash flow from here out through 26 and into 2027?

Yeah, it's a good question. I think this year we're really happy that we were able to cancel just over 2.5% of the shares outstanding. We've also found a few acquisitions that are kind of in the high-teens IRRs. So that's great as well. I think, again, on top of the dividend, we have still a significant wedge of incremental cash flow. Even though oil over the last three years has gone from $94 to $58 and gas is virtually at zero, we still have roughly $100 million of excess free cash flow a year. So we just thought with the growth we've seen in the business and the strong free cash flow yield is a great opportunity to cancel shares. We're happy with the amount we've canceled this year. So, again, the debt repayment should continue through the back half of the year. And we'll just be flexible over the next few years to see what the world brings us in terms of pricing and activity levels. But I do think if you go back to 2022, if you had another couple of years of that, we'd be in a net cash position today. And you will build cash and pay down debt very quickly in some kind of modest price recovery. So we'll be flexible with that capital allocation depending on what we see in 2026. But we should start repaying debt today. Okay, thank you very much. Thanks for the questions.

And the next question will come from Jeremy McRae with BMO Capital Markets. Your line is open.

Hey, guys. This is just a follow-up on Patrick's question here, a little bit more on activity levels. Are you seeing, when you talk to these operators in the Clearwater, in the Manville, are they Talking about maybe slowing down their activity here, just given where oil prices are, are they still happy and still want to grow at 10%? I'm just trying to get a better sense of how these private operators, I think for the most part, are looking into next year. And then more importantly, are you able to give a better sense of are we seeing more operators drilling these manvilles or is it one company who's still increasing their activity? And that's why we're seeing the increase in activity.

Yeah, thanks for the question, Jeremy. Good morning. On Spurs' front, they're our largest operator and one of our most active drillers. Again, they're net cash and still growing in the 20% range, and they're paying out wells very quickly. So even in this kind of depressed price environment, we expect activity to continue throughout the rest of this year and into 2026. And then in the Clearwater Palais, we have seen another larger operator, Canadian Natural, start to license wells on our land. So there is a new, and a lot of that production hasn't kind of come through yet, but they do have a significant amount of well licenses and rigs active in the area. So that would be, it's not a new operator for us, but they weren't active over the past 18 months. And then Caltex Trilogy, another private operator, they're running three rigs right now. And I think just given the success they've had and the efficiency gains we've seen, they should continue that activity through the next year. But again, in general, I think obviously oil price is in a pretty challenging position. So we're very happy with the growth rates we've seen in the business, just given oil subdued and rig counts gone from 220 a year ago to about 200 today. we've just captured a better share of that and seen pretty significant efficiency gains.

Okay. And maybe just quickly on the M&A, I see that you picked up a bit of land here. Is there more opportunities like that, just given where commodity prices are falling, or do you think these were just kind of one-off situations here?

Yeah, we hope so, and we always try and capture these opportunities in the $60 crude range or lower. And this was a feed mineral title position last It goes back a long time. It was kind of old Fletcher Challenge Petroleum fee in Saskatchewan, 8s and 26s. And one of the interesting things is a little bit is in the kind of biking area in southern Saskatchewan. And then the remainder of it is in kind of western Saskatchewan in the heavy oil belt. There's a lot of SAGD opportunities being developed in those areas, as well as some interesting new primary technologies. And so I think we should be able to capture some really good value out of that acreage. It's only about 30% leased. And there are other smaller opportunities we're always targeting, and those are lands we've been trying to buy for about 10 years, so we're quite happy to be able to execute on that.

Okay, perfect. Thanks, Andrew. Thanks for the questions.

As a reminder, to ask a question, please press star 11 on your telephone. The next question comes from Jamie Kubik with CIBC. Your line is open.

Thanks for taking my question. Just a little bit more of the same, I suppose, but can you talk about licensing and drilling activity in the DuVernay at current oil pricing? Do you expect it to moderate from here? Do you think operators have improved economics in that play to a lower break-even price that you see activity maintained?

additional color just given the growth that you did put up in the in the quarter on that side would be great thanks yeah you bet jamie and i think um you know paramount the southern operators gotten that cash so i don't imagine their plans would be changed and then bay text to the north had a very small program the year prior so we're talking about growth off a very low level so i think that should probably even grow into 2026. And then Spartan Delta, I wouldn't want to speak for their capital budget for next year, but they're in a very good position financially. So I think they do have the ability to continue with their strong growth rates and even some of the efficiency gains that people have seen. And as they move to more pad drilling, they should be able to grind costs down slightly lower. We expect pretty reasonable activity. And I think the one benefit on that play is it's a light oil play, so it's a four or five dollar discount to MSW, and with the weak Canadian dollar, you're still getting a pretty good oil price on the light oil side. So we do expect activity to even potentially grow next year, given the dynamics of those three operators.

Great, thank you. And then another question on capital allocation, just with oil prices retreating here a bit. You know, we have seen Periscope historically become more active at sub $60 a barrel WTI with respect to acquisitions. Should we think about acquisitions as being more likely in the current environment? Do you slow down the buyback? How do you weigh dividend increases? Just can you talk about that mix, Andrew?

Thanks. Yeah, you bet. I mean, I think when you look out into next year, there's room for a modest dividend increase without even increasing the capital outlay, just given the over 6 million shares we've canceled. On the capital allocation front, just the dynamics of it are unchanged for us. And I think if we can find high-quality assets that have better growth rates than our current company, and we can buy them at high IRRs at a low oil price, that's something we're always keen on doing. So we're actively looking at a number of smaller opportunities right now. And I think we were really happy with the $10 million of acquisitions we did in the quarter. Q1, of course, we closed the $50 million Petro-Canada fee. which has worked out exceptionally well. We've had a lot of success on the compliance opportunities there and some new leasing. So again, I think this is the kind of market where we try and either buy back stock at what we believe is a really good defined IRR and or make acquisitions. So we'll continue to look at those and hopefully we're successful with them. And when pricing recovers again, we'll be happy that we executed on these opportunities.

Okay, thanks. I'll turn it back.

I show no further questions at this time. I would now like to turn the call back to Andrew for closing remarks.

Thank you all again for dialing into the Q3 conference call. And please call Pam, Mike, or myself if you have any further questions. And I hope everyone has a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.