Freehold Royalties Ltd. · TSX:FRU
Freehold Royalties — Investor Presentation (November 2022)
32 slides from Freehold Royalties's investor presentation, November 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 North American energy royalty company 6.4% dividend yield Torque to commodity current dividend coverage to $40 WTI direct returns to shareholders without cost inflation ESG friendly investment High margin asset class rated top 1% among global oil producers >95% operating marg
Slide 3: 2022 Third Quarter Results
2022 Third Quarter Results Q3/2022 Q3/2021 Change Production boe/d 14,219 11,265 26% Funds from operations mm $80.8 $48.2 68% Period end net debt mm $159.9 $75.3 112% Netback per boe $69.77 $46.60 50% Payout ratio % 47% 35% 34% Cash costs per boe $3.62 $2.49 45% ▪ 14,219 boe/d Q3-2022 production ave
Slide 4: YTD Royalty Drilling Results
YTD Royalty Drilling Results Top Canadian Drillers Gross Wells Net Wells Q3-2022 represented one of Freehold’s top Teine Energy 57 5.1 quarters for activity Tamarack Valley 31 1.0 Permian Haynesville >30 rigs running on Freehold’s North Whitecap Resources 26 0.8 American assets Bonterra Energy 24 0.
Slide 5: Relative Performance
Inflation Hedge Performance Through All Commodity Cycles ▪ Since June 2022, WTI prices have declined >25% and in conjunction, the Canadian Energy Index has declined by ~10% ▪ During this period, Freehold has outperformed WTI by ~30% and the Canadian Energy Index by >10% ▪ Freehold is not exposed to
Slide 6: US Royalty Expansion
US Royalty Expansion Adding core positions in the Permian and Eagle Ford ▪ In Q3-2022, Freehold closed transactions, adding Howard County Eagle Ford core positions in the Midland Permian (Howard Midland County) and Eagle Ford for CAD$159 million Purchase price (CAD$, mm, net of estimated closing $12
Slide 7: Canadian Royalty Expansion
Canadian Royalty Expansion Expanding Clearwater Land Base ▪ On August 30, 2022, Freehold closed a royalty transaction prospective for Clearwater oil ▪ Transaction adds over 300,000 gross acres to Clearwater transaction Freehold’s Clearwater land position, tripling Freehold’s adds acreage in the curr
Slide 8: Balanced Portfolio
Balanced Portfolio Commodity Portfolio Clearwater Deep Basin Mannville ~20% of 65% Cardium Revenue Conv Viking Production Gas SE Sask Production 60% Volumes Revenue 38% Natural Gas 62% 35% Oil & NGL’s Production 40% ~80% of Revenue Revenue Permian Eagle Proforma 2022 Proforma 2022 Ford Acquisitions
Slide 9: Diversity Amongst Payors
Diversity Amongst Payors Diversified Group of Well Capitalized Producers ▪ North American royalty portfolio provides exposure to a broad group of oil and gas plays across North America ▪ No payor represents > 15% of 12-months trailing revenue ▪ Top 10 payors represent ~ 50% of 12-month trailing reve
Slide 10: Better Pricing, Growth, Opportunity
Better Pricing, Growth, Opportunity Upstream capital drives growth Oil production growth driven by Texas $166 9 +2.4 million bbls/d 6x investment in the US Oil Prod (MMbbl/d) Permian & 8 Eagle Ford $121 US$ billions $110 7 $88 6 6x growth 5 4 +0.4 million bbls/d $21 $17 $22 $23 3 Oil Sands & 2 Conve
Slide 11: Bigger & Better Freehold
Bigger & Better Freehold >$500mm of US assets added over 2 years Significant FFO growth, solid balance sheet 16,000 $350 50% growth 14,000 Corporate Production (boe/d) since Q2-2020 $300 US 12,000 $250 10,000 Funds From Operations Canada $ millions 8,000 $200 6,000 $150 4,000 $100 2,000 Net Debt 0 $
Slide 12: Record Level of Activity Wells On US Assets
Record Level of Activity Wells On US Assets Gross permits & DUCs Net permits & DUCs 5 900 800 Gross Activity Wells 4 Net Activity Wells 700 Permit Permit 600 3 500 400 2 300 DUC 200 DUC 1 100 - 0 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22
Slide 13: Freehold Return Profile
Freehold Return Profile 60% Payout Ratio Return of ▪ Dividend of $0.09/share announced at Q3-2022 is Capital to the highest level since 2015 Shareholders ▪ Current dividend reflects ~60% payout at US $75/bbl WTI for 2023 2022E Funds from Less than 1.0x Funds From Operations Operations Balance Sheet
Slide 14: Freehold Capital Allocation & Leverage
Freehold Capital Allocation & Leverage ▪ Targeting a payout of 60% at $75 WTI allows for excess ▪ Low leverage leaves significant room to continue to cash flow that can be utilized to maintain balance sheet reinvest and enhance our portfolio, allowing for future strength and flexibility when financi
Slide 15: Balanced Returns
Balanced Returns FRU has maintained a balance between dividend growth, portfolio growth, debt reduction 18 Dividend Change 16 Deal Announcement Share Price ($/share) 14 12 10 8 Dividend increased 6 times from $0.015 to $0.09/share over last 8 6 quarters 4 Current dividend yield 6.4% 2 Executed great
Slide 16: Sustainable Through All Commodity Cycles
Sustainable Through All Commodity Cycles 120 West Texas intermediate (US$/bbl) 100 Business planning on a long term WTI price of US$75/bbl 80 60 40 Current dividend payable down to ~US$40/bbl WTI 20 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 WTI Crude Oil (US$/bbl) Futures Pricing
Slide 17: Long History of Returns
Long History of Returns Matching growth in dividend to growth in production and cash flow Dividend ($/share) $3 $2 ▪ From an Initial Public Offering of $10/share in 1996, Freehold has paid $1 out $1.9 billion in dividends to its shareholders (~$34/share) $0 2023E 1997 1998 1999 2000 2001 2002 2003 2
Slide 18: Why Own Freehold
Why Own Freehold Strong Balance Quality Long High Margins Sustainable Sheet, Low Risk Duration Assets, Business Multi-year Upside ▪ High operating margin ▪ Increased dividend as ▪ Q3-2022 net debt to ▪ Positioned in the top tier provides Freehold the part of Q2-2022 results trailing funds from oil p
Slide 19: Investor Relations
Investor Relations tf. 888.257.1873 t. 403.221.0833 w. freeholdroyalties.com freeholdroyalties.com TSX FRU Quality Assets • Sustainable Dividends
Slide 20: 2022E Guidance
2022E Guidance Guidance August 9 2022E Annual Average 2022 Average production boe/d 13,750-14,750 Funds from operations million $300-$320 West Texas Intermediate crude oil US$/bbl $97.00 Edmonton Light Sweet crude oil Cdn$/bbl $120.00 AECO natural gas Cdn$/mcf $5.00 NYMEX natural gas US$/mmbtu $5.00
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: Safe, Lower Risk Asset Base
Safe, Lower Risk Asset Base 2019 2020 2021 F9-2022 Production (boe/d) 10,628 9,781 11,844 13,784 Acquisitions (millions) $49 $7 $377 $184 Royalty acres (millions) 6.7 6.3 6.2 6.4 U.S. gross drilling unit acres (millions) - - 0.8 0.9 Tax pools (millions) $838 $775 $1,001 - Net debt/funds from operati
Slide 24: Strong Balance Sheet
Strong Balance Sheet ▪ Freehold exited Q3-2022 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 dividend level, 3.0x Freehold has capacity to pay 2.5x down debt or pursue 2.0x acquisitions with free
Slide 25: Industry Drilling vs. Freehold
Industry Drilling vs. Freehold ▪ We have seen a strong upward momentum in 20,000 25 activity on Freehold’s royalty land along with 18,000 Gross Wells Western Canada the broader Western Canadian Sedimentary portfolio 16,000 20 Freehold net Wells 14,000 ▪ Approximately 6% of all spending in Western Ca
Slide 26: Cash Costs
Cash Costs Freehold has shown a strong trending down in cash costs $7.00 ▪ Q3-2022 cash costs of $6.00 $3.62/boe facilitate a strong corporate netback $5.00 for Freehold Cash Costs ($/boe) $4.00 ▪ Freehold’s operating margin >90% $3.00 ▪ Changes in costs reflect $2.00 disposition of working interest
Slide 27: Royalty Production History
Royalty Production History 16,000 14,219 14,250 14,005 13,676 14,000 13,453 Royalty Production (boe/d) 12,000 11,137 11,265 10,618 10,946 10,139 10,311 10,149 10,315 10,000 9,605 9,150 9,096 8,000 6,000 4,000 2,000 0 2022E Q1-19 Q2-19 Q3-19 Q4-19 Q1-20 Q2-20 Q3-20 Q4-20 Q1-21 Q2-21 Q3-21 Q4-21 Q1-22
Slide 28: Disciplined Acquirer
Disciplined Acquirer Freehold will continue to look for opportunities that enhance the resiliency and durability of our portfolio across all commodity price cycles Cost Initial Production Year Area ($ millions) Acquired (boe/d) 2012 AB, SK and BC 60 600 2013 Numerous small acquisitions 10 30 2014 SK
Slide 29: Advisories
Advisories Forward-Looking Statements This presentation offers our assessment of Freehold’s future plans and operations as at November 8, 2022 and contains forward-looking information including, without limitation, future dividends per share; the expectation that operating and capital cost inflation
Slide 30: Advisories continued
Advisories continued Production All production disclosed herein is considered net production for the purposes of National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities, which includes Freehold's working interest (operating and non-operating) share after deduction of royalty
Slide 31: 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 analy
Slide 32: Investor Relations
Investor Relations tf. 888.257.1873 t. 403.221.0833 w. freeholdroyalties.com freeholdroyalties.com TSX FRU Quality Assets • Sustainable Dividends
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