Freehold Royalties Ltd. · TSX:FRU
Freehold Royalties — Q4 2021 Earnings Presentation
38 slides from Freehold Royalties's earnings presentation, March 2022
Slide 1: Investor Presentation Winter 2022
Investor Presentation Winter 2022 freeholdroyalties.com TSX FRU Quality Assets • Sustainable Dividends
Slide 2: Investment Highlights
Investment Highlights A lower risk income vehicle 7.1% dividend yield Torque to commodity sustainable income to shareholders with dividend coverage down to $40WTI ESG friendly investment High margin asset class rated top 1% among global oil producers >$53/boe netback, $3.60/boe cash costs Diversifie
Slide 3: 2021 Fourth Quarter Results
2021 Fourth Quarter Results Q4/2021 Q4/2020 Change Production boe/d 14,005 9,681 45% Funds from operations mm $68.7 $22.1 211% Period end net debt mm $101.2 $65.8 54% Netback per boe $53.58 $25.21 115% Payout ratio 35% 24% 12% Cash costs per boe $3.57 $3.75 -11% ▪ Record production of 14,005 boe/d,
Slide 4: 2021 Q4 Royalty Drilling Results
2021 Q4 Royalty Drilling Results Top Canadian Drillers Drilling activity Gross Wells Net Wells driven by a well Teine Energy 40 2.4 capitalized group of North American Permian Haynesville Perpetual Energy 10 0.4 producers Surge Energy 10 0.2 Bonterra Energy 8 0.2 Crescent Point 5 0.2 Clearwater Eagl
Slide 5: Freehold Return Profile
Freehold Return Profile Free cash allocation ▪ Current market opportunities leave room for growth and strategic acquisition opportunities ▪ >$350 million in acquisitions in 2021 Portfolio ▪ Freehold continues to assess optimal Growth allocation of free funds between shareholder returns and portfolio
Slide 6: Not The Same Old Freehold
Not The Same Old Freehold Accomplishments over the past 24 months 2022E Increasing Production Bringing Revenues to Time to All Record Levels Highs 14,300 boe/d 2018 ▪ 2022E production forecast to be ~14,300 boe/d, higher than 11,400 boe/d any period in Freehold’s history 2012 ▪ Organic drilling and
Slide 7: Sustainable Production Base & Dividend
Sustainable Production Base & Dividend Accomplishments over the past 24 months Improving Royalty Netbacks 2021 Realized Price ▪ US transactions have added higher value barrels OneMap Acq. Pricing ▪ Realized price improves materially (10% uplift) with Sep-2021 Acq. Pricing recently completed US acqui
Slide 8: Canada Surprises to the Upside
Canada Surprises to the Upside Growth driven by well capitalized producers in Canada Net Royalty Production by Producer Core Area (boe/d) 300 Clearwater Oil 200 Continued aggressive growth 100 forecast by all Q1 Exit Q4 Exit operators 900 Deep Basin Gas 650 Strong production growth displayed 400 thr
Slide 9: Canada Surprises to the Upside
Canada Surprises to the Upside Organic Canadian Volumes displaying strong organic growth production growth of 5% in 2021 and 4% q/q, with December decline due to extreme weather freeze offs ▪ Canadian production volumes continue to display Canadian Production (boe/d) a strong organic growth profile
Slide 10: Why the US?
Why the US? The rationale behind recent acquisitions More Opportunity Future Upside – Remaining Drilling Inventory ▪ 70% of US land in major oil and gas producing states¹ is privately owned vs. 20,000 Bubble size represents total only ~25% in Canada (WCSB) locations remaining drilling inventory ▪ 65
Slide 11: Why the US?
Why the US? The rationale behind recent acquisitions More Capital Spending More Production ▪ Over last 10 years, 8 times the capital spending ▪ US oil production is almost 3 times, and gas in the US vs. Canadian upstream production is almost 5 times Canada’s $350 14 140 $300 12 120 $250 10 100 $200
Slide 12: US Expansion – a Measured Approach
US Expansion – a Measured Approach Acres Value Realized Purchase Gross % Min. 2021 2022E CF Prod. Acquisition Core Future Liquids Pricing (C$mm) Acres Title (boe/d) (boe/d) Mult. (C$k/boe/d) /Tier 1 Dev. (C$/boe) Pre-2021 & North $13 65,000 100% 95% 42% 160 175 6.0x $74 75% $56 Tuck-Ins Dakota Jan-2
Slide 13: North American Portfolio Overview
North American 6.2 mm gross royalty acres Portfolio Overview 2022E production ~9,400 boe/d ▪ Over the last 12-months, Freehold has grown its US portfolio from 200 boe/d to 4,900 boe/d in 2022E ▪ Entered the US in 2019 with transactions in North Dakota ▪ North American portfolio provides diversity to
Slide 14: North American Portfolio Overview
North American Portfolio Overview US Production CAN Production Summary Statistics 100% 100% Canada US Total Top 4 areas ~90% Gross Acres (mm) 6.2 0.8 6.9 80% 80% 2022E Production (boe/d) 9,400 4,900 14,300 Top 6 areas ~70% 2022E Production (%) 65% 35% 100% Oil (%) 51% 50% 51% 60% 60% NGL’s (%) 8% 21
Slide 15: Improved Economics
Improved Economics Freehold’s business remains robust across a broad price range Post Dividend ~$30mm Free Cashflow ~$150mm ▪ At current commodity price levels, Freehold able to deliver returns to shareholders several ways US$40WTI Oil Price US$90WTI ▪ US$1/bbl change in WTI represents ~$2.5mm in fu
Slide 16: Strong ESG Performance
Strong ESG Performance ESG values continue to remain integral to Freehold’s business Environmental Social Governance Emissions Equity, Diversity & Inclusion Board of Directors ▪ Factoring emissions intensity into ▪ Focus on training and awareness ▪ 78% of directors are independent acquisition candid
Slide 17: Why Own Freehold
Why Own Freehold Strong Balance Quality Long High Margins Sustainable Sheet, Low Risk Duration Assets, Business Multi-year Upside ▪ Greater than 97% ▪ Dividend increased six ▪ Q4-2021 net debt to ▪ Positioned in the top tier operating margin provides consecutive quarters, trailing funds from oil pla
Slide 18: Continued Strategy Execution
Continued Strategy Execution We remain committed to executing our North American strategy Acquisition Continue to maintain Bigger, better environment remains low-risk identity. Freehold. Royalty robust, improved Sustainable debt, portfolio positioned to portfolio allows dividend levels enables gener
Slide 19: Supplemental Information
Supplemental Information freeholdroyalties.com TSX FRU Quality Assets • Sustainable Dividends
Slide 20: Historical Canadian Drilling Results
Historical Canadian Drilling Results Drilling (gross wells) Activity continues to be 2021 2020 2019 focused on oil weighted Teine Energy 78 77 108 prospects in Freehold’s Canadian portfolio Surge Energy 45 26 26 Bonterra Energy 38 17 19 2019 Drilling Tamarack Valley 35 15 n/a Deep 2020 Drilling Tour
Slide 21: The Royalty Advantage
The Royalty Advantage Freehold provides a lower risk/return proposition than traditional E&P’s Environmental, Social, Financial Strength, Low Risk Diversified Royalty Portfolio Governance ▪ Strong operating margins, enable ▪ Diversified North American ▪ Our approach to ESG is rooted in lower breakev
Slide 22: Royalties vs. Exploration and Production Companies
Royalties vs. Exploration and Production Companies Royalties provide lower costs and higher returns to shareholders A Working Interest Barrel A Royalty Interest Barrel Operating netback Operating netback ~ 60% of gross revenue ~ 100% of gross revenue ▪ The royalty model maintains a material netback
Slide 23: Strong Balance Sheet
Strong Balance Sheet Freehold remains committed to maintaining leverage at levels well below 1.5x debt to FFO ▪ Freehold exited Q4-2021 with 5.0x Net Debt to Funds from Operations net debt to trailing funds from 4.5x operations of 0.5x 4.0x 3.5x ▪ At current commodity price levels and the revised di
Slide 24: Dividend Sustainability
Dividend Sustainability Freehold has paid out $1.7 billion in dividends since initial IPO ▪ Freehold announced a 33% dividend 100% increase from $0.06 to $0.08 per 90% month as part of Q4-2021 results 80% ▪ Forecast funds from operation in 2022 70% Stated Payout Range has our dividend positioned sli
Slide 25: Industry Drilling vs. Freehold
Industry Drilling vs. Freehold Freehold’s royalty portfolio has outperformed the broader Western Canadian Sedimentary basin as a percent of activity 20,000 25 ▪ Despite a slowdown in activity in western Canada, Freehold has historically achieved 18,000 Gross Wells Western Canada growth in net drilli
Slide 26: Viking Dodsland
Viking Dodsland 12 years of inventory, with steady production Freehold Viking Drilling Activity ▪ Initial entrance in 2015 with 8.5% 50% GORR across 76,000 acres ▪ 12+ years of remaining inventory – 916 gross future drilling locations, with 25% 756 gross booked at year end 2020 Freehold Lands – Aver
Slide 27: Clearwater
Clearwater 160,000 acres of exposure to the top growth areas in Canada 2018 2021 ▪ Initial entrance in 2018 with a GORR Nipisi & 2018 2019 Figure Total/ Ukalta Craigend Average across 109,000 acres in the Nipisi and Jarvie Lake Nipisi Jarvie areas for $12 million Deal size $12.0 $1.3 $1.3 $7.9 $22.5
Slide 28: 2022E Guidance
2022E Guidance Guidance March 2nd, 2022E Annual Average 2022 Average production boe/d 13,750-14,750 Funds from operations million $230-$250 West Texas Intermediate crude oil US$/bbl $75.00 Edmonton Light Sweet crude oil Cdn$/bbl $88.00 AECO natural gas Cdn$/mcf $4.00 NYMEX natural gas US$/mmbtu $4.0
Slide 29: Safe, Lower Risk Asset Base
Safe, Lower Risk Asset Base 2018 2019 2020 2021 Production (boe/d) 11,410 10,628 9,781 11,844 Acquisitions (millions) $62 $49 $7 $377 Royalty acres (millions) 6.2 6.7 6.3 6.2 U.S. gross drilling unit acres (millions) 0.8 Tax pools (millions) $905 $838 $775 $972 Net debt/funds from operations 0.7x 0.
Slide 30: Consistent Income Provider
Consistent Income Provider Freehold has provided almost $33/share over its history to its shareholders through dividend payments $2.50 $50 Cumulative Dividends Per Share $2.00 $40 Dividends per share $1.50 $30 $1.00 $20 $0.50 $10 $0.00 $0 2022E 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Slide 31: Cash Costs
Cash Costs Freehold has shown a strong trending down in cash costs in 2021 $7.00 ▪ Q4-2021 cash costs of $6.00 $3.57/boe facilitate a strong corporate netback $5.00 Cash Costs ($/boe) for Freehold $4.00 ▪ 2021 cash costs down $3.00 11% year over year $2.00 ▪ Reduction in costs reflect disposition of
Slide 32: Royalty Production History
Royalty Production History Freehold’s royalty production increased 24% q/q in Q4-2021 with volumes forecast to increase in 2022 16,000 14,300 14,005 14,000 Royalty Production (boe/d) 12,000 11,137 11,265 10,618 10,946 10,322 10,312 10,139 10,311 10,149 10,315 10,000 9,605 9,150 9,096 8,000 6,000 4,0
Slide 33: Diversified Royalty Payors
Diversified Royalty Payors Our top payors remain well financed with no significant concentration risk Winter 2022 | 33
Slide 34: Disciplined Acquirer
Disciplined Acquirer Freehold will continue to look for opportunities that enhance the resiliency and durability of our portfolio across all commodity price cycles Cost Initial Production Year Area ($ millions) Acquired (boe/d) 2012 AB, SK and BC 60 600 2013 Numerous small acquisitions 10 30 2014 SK
Slide 35: Advisories
Advisories Forward-Looking Statements This presentation offers our assessment of Freehold’s future plans and operations as at March 2nd, 2022 and contains forward-looking information including, without limitation, forward-looking information with regards to the expected terms and conditions of the p
Slide 36: Advisories continued
Advisories continued Forward-Looking Statements Continued You are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward looking info
Slide 37: Advisories continued
Advisories continued Non-GAAP Financial Measures Within this presentation, references are made to terms commonly used as key performance indicators in the oil and gas industry. We believe that netback, payout ratio, and cash costs are useful supplemental measures for management and investors to anal
Slide 38: Investor Relations
Investor Relations tf. 888.257.1873 t. 403.221.0833 w. freeholdroyalties.com freeholdroyalties.com TSX FRU Quality Assets • Sustainable Dividends