Freehold Royalties Ltd. · TSX:FRU
Freehold Royalties — Investor Presentation (May 2022)
36 slides from Freehold Royalties's investor presentation, May 10, 2022
Slide 1: Investor Presentation Spring/Summer 2022
Investor Presentation Spring/Summer 2022 freeholdroyalties.com TSX FRU Quality Assets • Sustainable Dividends
Slide 2: Investment Highlights
Investment Highlights A lower risk income vehicle 6.4% 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 $109/bbl realized oil price, $3.70/boe cash costs
Slide 3: 2022 First Quarter Results
2022 First Quarter Results Q1/2022 Q1/2021 Change Production boe/d 13,676 10,944 25% Funds from operations mm $71.9 $32.4 122% Period end net debt mm $62.6 $64.8 -3% Corporate Realized Price per boe $69.17 $37.31 85% Oil Realized Price per bbl $109.01 $59.16 84% Payout ratio 38% 24% 14% Cash costs p
Slide 4: 2022 Q1 Royalty Drilling Results
2022 Q1 Royalty Drilling Results Top Canadian Drillers Drilling activity Gross Wells Net Wells driven by a well Teine Energy 30 2.6 capitalized group of North American Permian Haynesville Bonterra Energy Corp. 12 0.4 producers Whitecap Resources 12 0.2 Tamarack Valley 9 0.2 Obsidian Energy 6 0.1 Cle
Slide 5: US Activity Update
US Activity Update Inventory of DUCs and Permits (gross/net) Gross Permitted Wells Net Permitted Wells Gross Permitted Wells 400 1.8 Net Permitted Wells 350 1.6 300 1.4 250 1.2 1.0 200 0.8 150 0.6 100 0.4 50 0.2 0 0.0 Permian Bakken Eagle Ford Other Permian Bakken Eagle Ford Other Gross DUCs Net Roy
Slide 6: US Activity Update: US cycle times three times longer than Canada
US Activity Update US cycle times three times longer than Canada ▪ Permit to drilling is comparable Cycle Time Averages – POST COVID between Canada and the US, but 600 drilling to on-production is 5 months on 500 Average # Days average in the US (vs. 2 months in 400 Canada) May not add due to roundi
Slide 7: 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 8: 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 14,200 boe/d 2018 ▪ 2022E production forecast to be ~14,200 boe/d, higher than 11,400 boe/d any period in Freehold’s history 2012 ▪ Organic drilling and
Slide 9: Sustainable Production Base & Dividend
Sustainable Production Base & Dividend Accomplishments over the past 24 months Improving Royalty Netbacks 2021 Realized Oil Price CD Q1-22 Realized Oil Price ▪ US transactions have added higher value barrels US Q1-22 Realized Oil Price ▪ Realized price improves materially (10% uplift) Q1-2022 Realiz
Slide 10: 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) 9,900 4,300 14,200 Top 6 areas ~70% 2022E Production (%) 70% 30% 100% Oil (%) 50% 54% 50% 60% 60% NGL’s (%) 9% 19
Slide 11: Improved Economics
Improved Economics Freehold’s business remains robust across a broad price range Post Dividend ~$45mm 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 12: 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 13: 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 ▪ Q1-2022 net debt to ▪ Positioned in the top tier operating margin provides consecutive quarters, trailing funds from oil pla
Slide 14: 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 15: Supplemental Information
Supplemental Information freeholdroyalties.com TSX FRU Quality Assets • Sustainable Dividends
Slide 16: 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 17: 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 18: 2022E Guidance
2022E Guidance 2022E Annual Average Guidance May 10, 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 $4.00 E
Slide 19: Safe, Lower Risk Asset Base
Safe, Lower Risk Asset Base 2019 2020 2021 Q1-2022 Production (boe/d) 10,628 9,781 11,844 13,676 Acquisitions (millions) $49 $7 $377 - Royalty acres (millions) 6.7 6.3 6.2 U.S. gross drilling unit acres (millions) 0.8 Tax pools (millions) $838 $775 $972 Net debt/funds from operations 0.8x 0.9x 0.5x
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: Net Debt to Funds from Operations
Strong Balance Sheet ▪ Freehold exited Q1-2022 with 5.0x Net Debt to Funds from Operations net debt to trailing funds from 4.5x operations of 0.3x 4.0x 3.5x ▪ At current commodity price levels and the revised dividend 3.0x level, Freehold has capacity to 2.5x pay down debt or pursue 2.0x acquisition
Slide 22: 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 23: Top Decile Dividend Return
Top Decile Dividend Return Freehold offers a compelling yield relative to peers TSX Composite Index Base Dividend Yields (%) ▪ Freehold has increased the base dividend six 8% times over the last 18 months to the highest per FRU 1st out of 239 share level in the past five years 7% ▪ Freehold’s base d
Slide 24: 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 25: Why the US? More Capital Spending, More Production
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 26: 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) 400 Clearwater Oil 300 Continued aggressive growth 200 forecast by all Q1 2021 Exit Q1 2022 Exit operators 900 Deep Basin Gas 650 Strong production growth display
Slide 27: Industry Drilling vs. Freehold
Industry Drilling vs. Freehold 20,000 25 ▪ Despite a slowdown in activity in western Canada, Freehold has historically achieved 18,000 Gross Wells Western Canada growth in net drilling on its royalty lands 16,000 20 Freehold net Wells ▪ Approximately 6% of all spending in Western 14,000 Canada has o
Slide 28: Consistent Income Provider: Cumulative Dividends Per Share
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 29: Cash Costs
Cash Costs Freehold has shown a strong trending down in cash costs $7.00 ▪ Q1-2022 cash costs of $6.00 $3.70/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 $2.00 ▪ Reduction in costs reflect disposition of working
Slide 30: Royalty Production History
Royalty Production History 16,000 14,005 14,250* 14,000 13,676 Royalty Production (boe/d) 12,000 11,137 11,265 10,618 10,946 10,139 10,311 10,149 10,315 10,000 9,605 9,150 9,096 8,000 6,000 4,000 2,000 0 2022E Q1-19 Q2-19 Q3-19 Q4-19 Q1-20 Q2-20 Q3-20 Q4-20 Q1-21 Q2-21 Q3-21 Q4-21 Q1-22 Spring/Summe
Slide 31: Diversified Royalty Payors
Diversified Royalty Payors Our top payors remain well financed with no significant concentration risk Spring/Summer 2022 | 31
Slide 32: Disciplined Acquirer
Disciplined Acquirer Freehold will continue to look for opportunities that enhance the resiliency and durability of our portfolio across all commodity price cycles Cost Initial Production Year Area ($ millions) Acquired (boe/d) 2012 AB, SK and BC 60 600 2013 Numerous small acquisitions 10 30 2014 SK
Slide 33: Advisories
Advisories Forward-Looking Statements This presentation offers our assessment of Freehold’s future plans and operations as at May 10th, 2022 and contains forward-looking information including, without limitation, the expectation of being able to pay dividends with WTI pricing as low as $40/bbl; the
Slide 34: Advisories continued
Advisories continued Drilling Locations This presentation discloses anticipated future drilling or development locations associated with Freehold assets and in certain circumstances specific area where Freehold has an interest. Of the 20,000 gross future drilling locations, 4,632 represent booked lo
Slide 35: 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 36: 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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