Freehold Royalties Ltd. · TSX:FRU
Freehold Royalties — Investor Presentation (November 2019)
38 slides from Freehold Royalties's investor presentation, November 2019
Slide 1: Investor Presentation Winter 2019
Investor Presentation WINTER 2019 Quality Assets • Sustainable Dividends freeholdroyalties.com
Slide 2: Corporate Profile
Corporate Profile Focused on oil and gas royalties 2019E royalty production 10,000-10,500 boe/d Annual dividend (2) ($0.0525 per month) $0.63/share 2019E revenue from oil & NGL 89% Current dividend yield (3) 8% Market capitalization (3) (4) $0.9 billion Net debt to funds from operations (5) 1.0x 1.
Slide 3: Investment Thesis
Investment Thesis Opportunistic acquiror Financial strength, low risk ▪ Completed >$300 million in royalty transactions ▪ >$33/boe operating netback (1) over the past three years ▪ ~$5.25/boe cash costs (2) (3) ▪ $47 million in deals year-to-date(3), funded via free cash flow (1) ▪ 98% operating mar
Slide 4: Our ESG Approach & Commitments
Our ESG Approach & Commitments ▪ Freehold unveiled its first Environmental, Social & Governance Report (ESG) in 2019 ▪ Our approach to ESG is rooted in our collective desire to provide a long-term value proposition to our shareholders ▪ Our commitments ▪ Proactively reduce our asset retirement oblig
Slide 5: ESG Current State and Trends
ESG Current State and Trends Sustainable investing has shown strong growth in Canada. Freehold strives to be a leader in ESG 35,000 3,000 initiatives 30,000 2,500 25,000 2,000 CD$ (Billion) US$ (Billion) 20,000 1,500 15,000 1,000 10,000 500 5,000 0 0 2012 2014 2016 2018 2012 2014 2016 2018 Global Su
Slide 6: Our Approach to ESG
Our Approach to ESG What we do Why we do it Align with competent and Align our business with competent and reputable To ensure continued development of our royalty reputable payors operators and payors that are technically strong, assets in a responsible manner regulatory compliant, fiscally respons
Slide 7: Our Near Term Initiatives
Our Near Term Initiatives ▪ Created 102 new leases on our royalty lands in 2018 ▪ Expect ~100 new leases in 2019 Increasing Activity on our ▪ 2019 drilling activity levels on our lands continues to Royalty Lands outperform broader western Canada ▪ Remain flexible with royalty rates on our lands ▪ Mo
Slide 8: 3+ Year Transition
3+Year Transition 2019 2016 2017 2018 YTD Royalty Production (boe/d) 9,936 10,963 10,718 10,200 GROWTH Acquisitions (mm) $163 $87 $62 $47 Royalty acres (mm) 5.9 5.7 6.2 6.7 Tax pools (mm) $1,028 $966 $905 n/a SAFETY Net debt/funds from operations 0.8x 0.6x 0.7x 1.0x Royalties % of operating income (
Slide 9: Freehold Royalties – Our Assets
Freehold Royalties – Our Assets B.C. Alberta Saskatchewan Manitoba ▪ +/- 700 gross wells per year drilled on Freehold acreage in Canada Slave Point Montney Gas Clearwater ▪ Activity focused on oil plays in eastern Alberta and Saskatchewan Deep Basin Gas Heavy Oil Cardium ▪ Exposure to emerging Alber
Slide 10: 2018 Industry Drilling vs. Freehold Activity
2018 Industry Drilling vs. Freehold Activity 2019 YTD activity at levels flat year-over-year, a ▪ 719 (21.3 net) wells testament to the quality of Freehold’s royalty portfolio given broader industry weakness in western Canada drilled on Freehold’s lands in 2018 WELLS 2018 FRU Royalty Drilling ▪ Appr
Slide 11: F9-2019 Royalty Drilling Results
F9-2019 Royalty Drilling Results Top operators Gross Net F9 2019 Wells Wells Teine 91 8.7 Surge 15 0.5 Tundra 8 0.5 Whitecap 19 0.5 Baytex 11 0.5 Vermillion 16 0.5 Caltex 16 0.4 Bonterra 17 0.3 Perpetual 5 0.3 Crescent Point 15 0.2 Highwood/Woodcote 5 0.2 Artis 12 0.1 Other 78 2.8 Non-Unit Total 311
Slide 12: Industry Drilling vs. Freehold
Industry Drilling vs. Freehold ▪ Despite a slowdown in 18000 25 Gross wells western Canada 16000 activity in western 14000 20 Freehold net wells Canada, Freehold has 12000 achieved growth in net 15 10000 drilling on its royalty 8000 lands 6000 10 ▪ Growth in net wells 4000 5 reflects the quality of
Slide 13: New Lease Counts 2014- YTD 2019
New Lease Counts 2014- YTD 2019 120 Number of Leases Issued 100 100 102 80 77 60 40 20 30 20 0 2015 2016 2017 2018 YTD 2019 Lease Period YTD as of September 30, 2019 TSX : FRU Winter 2019 13
Slide 14: Oil Price Leverage
Oil Price Leverage $1.60 2019E Annual free cash flow per share $1.40 ▪ At current commodity price levels, $1.20 Freehold generates significant funds from operations and remains a $1.00 defensive oil and gas investment ▪ Freehold maintains leverage to $0.80 commodity prices without the exposure to an
Slide 15: Sustainable Dividend
Sustainable Dividend 120% 100% 80% ▪ Freehold continues to Payout (%) target a payout ratio of 60% 60% – 80% 40% 20% 0% Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19 Q3-19 2019E Payout Ratio = Dividends declared/funds from operations see Non-GAAP Financial Measures TSX : FR
Slide 16: Strong Balance Sheet
Strong Balance Sheet (at December 31, 2019) 5.0 (multiple) 4.5 ▪ Freehold maintains 4.0 financial flexibility with 3.5 2019E net debt/funds 3.0 from operations of 0.8x 2.5 2.0 1.5 1.0 0.5 0.0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 201
Slide 17: Strong Operating Margins
Strong Operating Margins $40 $35 $30 ▪ A large percentage of Freehold’s revenues are $25 98% redistributed to our Operating $ per boe $20 shareholders through our Margin in Q3- $15 strong operating margins 2019 (1) $10 $5 $0 Operating costs ($/boe) Operating Margin ($/boe) 1. See Non-GAAP Financial
Slide 18: Cash Costs
Cash Costs $7.00 $6.00 $5.00 Cash Costs ($/boe) ▪ Freehold is forecasting 2019E cash costs of $4.00 ~$5.25/boe $3.00 $2.00 $1.00 $0.00 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19 Q3-19 Operating Costs ($/boe) Interest Expense ($/boe) Cash costs =operating costs + interest expense + general Gener
Slide 19: Increasing Royalty Focus
Increasing Royalty Focus 12,000 10,000 Production (boe/d) 8,000 ▪ Freehold has grown royalty production while reducing 6,000 our working interest volumes 4,000 2,000 0 Q3-2016 Q4-2016 Q1-2017 Q2-2017 Q3-2017 Q4-2017 Q1-2018 Q2-2018 Q3-2018 Q4-2018 Q1-2019 Q2-2019 Q3-2019 Working Interest Production
Slide 20: Low Risk Profile
Low Risk Profile E&P Torque to Higher Oil Prices ✓ ✓ Benefit of: ▪ The royalty model provides Dividend Yield ✓ a number of advantages over typical E&P operators Capital Costs ✓ Abandonment Exposure to: Liabilities ✓ Operating & Other Costs ✓ TSX : FRU Winter 2019 20
Slide 21: Near Term Free Cash Flow Allocation
Near Term Free Cash Flow Allocation In the current commodity price environment, Freehold continues to generate free cash flow over and above our dividend. Our near term focus is on allocating returns to our shareholders via: Dividend ▪ Maintain 60-80% payout ratio Acquisitions ▪ Enhance portfolio th
Slide 22: Long Term Value Proposition
Long Term Value Proposition ▪ Royalties are a long duration asset and have been providing dividends to Freehold’s shareholders since 1996 ▪ 3rd party drilling offsets most of the production decline on our royalty portfolio providing a stable production base without investing any of our capital ▪ Uti
Slide 23: 2019 Guidance
2019 Guidance 2019 Annual Average November 13, 2019 August 1, 2019 May 7, 2019 Royalty production boe/d 10,000-10,500 10,000-10,500 9,900-10,300 West Texas Intermediate (WTI) crude oil US$/bbl 56.50 57.50 62.50 Edmonton Light Sweet crude oil Cdn$/bbl 64.50 66.00 71.00 AECO natural gas Cdn$/Mcf 1.70
Slide 24: Why Own Freehold
Why Own Freehold Oil price leverage ▪ Change in WTI from $50 to $60/bbl increases our free cash flow (1) ~25% ▪ Payout (1) target 60%-80% ▪ Top tier cash netbacks ~$33/boe in Q3-2019 Sustainable ▪ Cash costs ~$5.25/boe ▪ ~8% dividend yield (2) ▪ 2019E net debt to trailing funds from operations 0.8x
Slide 25: Supplemental Information
Supplemental Information Quality Assets • Sustainable Dividends freeholdroyalties.com
Slide 26: Corporate Sensitivities
Corporate Sensitivities Estimated change in funds Variable Change (+/-) from operations ($/share) West Texas Intermediate (WTI) US$1.00/bbl 0.02 Canadian/U.S. dollar exchange rate US$0.01 0.02 Canadian oil price differential to WTI US$1.00/bbl 0.02 AECO natural gas Cdn$0.25/mcf 0.02 Interest rate 1%
Slide 27: Royalty Production History
Royalty Production History 12,000 Royalty Production (boe/d) 11,270 11,197 11,052 10,919 10,960 11,000 10,701 10,351 10,322 10,312 10,139 10,311 10,169 10,149 10,250 10,000 9,725 9,495 9,249 9,000 8,761 ▪ Freehold has increased 8,000 royalty production by >15% 7,000 6,000 since Q3-2015 5,000 4,000 3
Slide 28: Dividend History
Dividend History $3.00 Dividend ($/share) $2.91 $80 $/boe $70 $2.50 $2.10 $60 $2.00 $1.92 $1.92 $50 $1.70 $1.73 $1.68 $1.68 $1.68 $1.68 $1.68 $1.56 $1.50 $1.40 $40 $1.32 $1.31 $1.10 $1.00 $30 $1.00 $0.78 $0.65 $0.63 $0.63 $20 $0.54 $0.58 $0.50 $10 $0.13 $0.00 $0 1996 1997 1998 1999 2000 2001 2002 20
Slide 29: Viking Oil-Strong Cash Flow Generator
Viking Oil-Strong Cash Flow Generator ▪ Acquired acreage as part of a 2015 royalty acquisition ▪ Change in operator has resulted in a ramp-up in activity. Drilling represented ~50% of activity in F9-2019 ▪ Expect activity levels to remain a strong anchor for Freehold’s production and cash flow in 20
Slide 30: Clearwater Oil-Near Term Growth Upside
Clearwater Oil-Near Term Growth Upside ▪ In Q3-2018 Freehold acquired an interest across 170 sections in the emerging Clearwater oil play ▪ Proceeds funded an initial drilling program ▪ Drilling results have met initial type curve forecasts ▪ Expected to be a multi- year growth area for Freehold mov
Slide 31: Core Area Production Growth
Production (boe/d) 850 900 950 1,000 1,050 1,100 1,150 Jan-18 Mar-18 May-18 Jul-18 TSX : FRU Sep-18 Nov-18 Jan-19 Mar-19 Viking Net Royalty Production May-19 Jul-19 Production (boe/d) 10 15 20 25 30 0 5 Core Area Production Growth Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Clearwater Net Royal
Slide 32: Disciplined Acquirer
Disciplined Acquirer Cost Initial Production Year Area ($ millions) Acquired (boe/d) 2010 AB, SK and BC 38 400 2011 NW AB 7 100 2012 AB, SK and BC 60 600 2013 Numerous small acquisitions 10 30 2014 SK/MB/AB 248 1,500 2015 SK/AB/BC 410 2,100 2016 SK/AB 162 1,700 2017 SK/AB 87 420 2018 SK/AB 62 275 20
Slide 33: Diversified Royalty Payors
Diversified Royalty Payors TSX : FRU Winter 2019 33
Slide 34: FRU Stock Price Tracks Oil Price
FRU Stock Price Tracks Oil Price 30.00 WTI in US$ FRU in C$ ▪ 55% 2019E 100.00 25.00 royalties from oil 20.00 and NGL 75.00 15.00 ▪ 100% unhedged 50.00 10.00 25.00 5.00 0.00 - WTI Oil Price (US$) FRU Share Price (CDN$) TSX : FRU Winter 2019 34
Slide 35: Owner of Legacy Lands
Owner of Legacy Lands ▪ Mineral titles held in perpetuity 8s and 26s ▪ Historic land grant to predecessor of Hudson’s Bay Company in 1670 by the King of England ▪ HBC surrendered land to Canada in 1870 for cash and 1/20th of lands(Section 8 and ¾ of 26) in Western Canada (HB Lands) ▪ Portion of the
Slide 36: Advisories
Advisories Forward-Looking Information This presentation offers our assessment of Freehold’s future plans and operations as at November 13, 2019 and contains forward-looking information including, 2019 expected average daily royalty and total production, 2019 estimated cash costs, 2019 operating inc
Slide 37: Advisories cont.
Advisories cont. Non-GAAP Financial Measures Within this presentation, references are made to terms commonly used as key performance indicators in the oil and natural gas industry. We believe that operating income, operating margin, free cash flow, free cash flow yield, cash costs, cash netback and
Slide 38: Investor Relations
Investor Relations toll free 888.257.1873 telephone 403.221.0833 website freeholdroyalties.com Quality Assets • Sustainable Dividends freeholdroyalties.com
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