Freehold Royalties Ltd. · TSX:FRU
Freehold Royalties — Investor Presentation (August 2022)
38 slides from Freehold Royalties's investor presentation, August 2022
Slide 1: Investor Presentation Summer 2022
Investor Presentation Summer 2022 freeholdroyalties.com TSX FRU Quality Assets • Sustainable Dividends
Slide 2: Investment Highlights
Investment Highlights A lower risk income vehicle 8.0% 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 $116/bbl realized oil price, $6.55/mcf natural ga
Slide 3: 2022 Second Quarter Results
2022 Second Quarter Results Q2/2022 Q2/2021 Change Production boe/d 13,453 11,137 21% Funds from operations mm $83.9 $40.2 109% Period end net debt mm $33.1 $40.8 -19% Netback per boe $78.80 $39.83 98% Payout ratio % 43% 33% 10% Cash costs per boe $8.38 $4.48 87% ▪ Record funds from operations of $8
Slide 4: Balanced Return Profile
Balanced Return Profile FRU has maintained a balance between dividend growth, portfolio growth, debt reduction # Event Description $18 Increased dividend from 7 1 Dividend Change Dividend Change $0.02/sh to $0.03/sh $16 Deal Announcement Increased dividend from 9 2 Dividend Change $0.03/sh to $0.04/
Slide 5: Sustainable Production Base & Dividend
Sustainable Production Base & Dividend Matching growth in dividend to growth in production and cash flow $3 ▪ From an Initial Public Offering of $10/share in 1996, Freehold has paid out $1.9 billion in dividend to its shareholders (~$33/share) Dividend ($/share) $2 ▪ Q2-2022 payout 43%, below the ou
Slide 6: 2022 Q2 Royalty Drilling Results
2022 Q2 Royalty Drilling Results Top Canadian Drillers Drilling activity Gross Wells Net Wells driven by a well Teine Energy 12 1.0 capitalized group of North American Permian Haynesville Surge Energy 7 0.1 producers Peyto 5 0.2 Strathcona 5 0.2 Tourmaline 5 0.1 Clearwater Eagle Ford Total Canadian
Slide 7: Focus on Freehold's Midland & Eagle Ford Assets
Focus on Freehold’s Midland & Eagle Ford Assets Midland Drilling Activity Eagle Ford Drilling Activity 900 18% 700 35.0% 800 16% 600 30.0% FRU % of Eagle Ford Drilling FRU % of Midland Drilling 700 14% 500 25.0% 600 12% # of Wells Spud # of Wells Spud 500 10% 400 20.0% 400 8% 300 15.0% 300 6% 200 10
Slide 8: Freehold US Permit and DUC Activity
Freehold US Permit and DUC Activity Gross Permits & DUCs Net Permits & DUCs 800 4.5 700 4 Gross Activity Wells 3.5 Net Activity Wells 600 3 500 2.5 400 2 300 1.5 200 1 100 0.5 0 0 DUC Permit DUC Permit Gross Development Locations by Royalty Interest Net Development Locations by Royalty Interest 41 G
Slide 9: Location Conversion
Location Conversion Inventory of permits & DUCs to drive near term production additions Q3-2021 Q4-2021 Q1-2022 Q2-2022 Q2-2022 Proforma Acquisitions Gross 291 314 321 385 416 Permits Net 1.58 1.63 1.64 1.88 2.54 Gross 226 220 255 259 312 DUCs Net 1.17 1.07 1.28 1.13 1.49 Gross (*) 25% 20% 14% On Pr
Slide 10: Freehold's Corporate Production
Freehold’s Corporate Production Freehold Corporate Production Cdn H1-2022 Production 16,000 Other 22% 14,000 Deep Basin Corporate Production (boe/d) 26% 12,000 Clearwater US 3% SE Sask 10,000 Viking 12% 13% 8,000 SW Sask Cardium 13% 12% CANADA 6,000 US H1-2022 Production Delaware 4,000 5% Bakken 7%
Slide 11: Freehold Realized Price
Freehold Realized Price • Freehold’s realized price continues to benefit from the addition of US assets. In Q2 2022, US assets have added C$5/boe to Freehold’s average realized price $120 $100 FRU US Realized Price C$/boe FRU FRU CAN $80 $60 $40 September 2021 Eagle Ford Additional Realized & Price
Slide 12: U.S. Royalty Expansion
U.S. Royalty Expansion Adding core positions in the Permian and Eagle Ford ▪ Freehold entered into Definitive Agreements to further Howard Eagle Ford Diversified add core positions in the Midland Permian (Howard County Midland Midland County) and Eagle Ford for $155 million Purchase price (CAD$, mm,
Slide 13: Transaction Highlights
Transaction Highlights ▪ Collectively, Freehold acquiring 1,100 boe/d and $31 million of forecast 2023 production and funds from operations respectively for total consideration of CAD$174 million. U.S. ▪ Q4-2022 U.S. production forecast to represent approximately 35% of corporate production and 40%
Slide 14: Strategic Rationale
Strategic Rationale North American portfolio continues to expand Q4/22E Revenue Pre-Acquisitions ▪ Completing the latest U.S. Royalty transactions is accretive to Freehold on a number of key metrics 34% – 10% accretive on funds flow per share (2023E) U.S. – 7% accretive on a production per share Can
Slide 15: Freehold Return Profile
Freehold Return Profile Free cash allocation ▪ >$350 million in acquisitions in 2021, ~$174 million in 2022 Portfolio ▪ Freehold continues to assess optimal allocation of free funds between shareholder Growth returns and portfolio growth, and will continue to execute on attractive opportunities that
Slide 16: Sustainable Returns
Sustainable Returns Freehold’s business remains robust across a broad price range Post Dividend ~$65mm Free Cashflow ~$160mm ▪ US$1/bbl change in WTI represents ~$2.8mm in funds from operations US$40WTI Oil Price US$90WTI ▪ $0.25/mcf change in AECO represents ~$1.6mm in funds from ~70% Payout Ratio
Slide 17: Why Own Freehold
Why Own Freehold Strong Balance Quality Long High Margins Sustainable Sheet, Low Risk Duration Assets, Business Multi-year Upside ▪ >95% operating margin ▪ Increased dividend as ▪ Q2-2022 net debt to ▪ Positioned in the top tier provides Freehold the part of Q2-2022 results trailing funds from oil p
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: 2022E Guidance
2022E Guidance Guidance August 9, Guidance May 10, 2022E Annual Average 2022 2022 Average production boe/d 13,750-14,750 13,750-14,750 Funds from operations million $300-$320 $230-$250 West Texas Intermediate crude oil US$/bbl $97.00 $75.00 Edmonton Light Sweet crude oil Cdn$/bbl $120.00 $88.00 AECO
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 benefit from inflation protected revenue ▪ The royalty model maintains a material margin/return A Working Interest Barrel A Royalty Interest Barrel advantage over traditional Operating netback Operating netback E&P’s ~ 60% of gross revenue
Slide 23: 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 ▪ 80% of directors are independent acquisition candid
Slide 24: Howard County Midland Acquisition Overview
Howard County Midland Acquisition Overview ▪ Howard County Midland Asset is accretive to Freehold’s existing growth profile, realized pricing and payor quality ▪ Total consideration CAD$123 million – Q4-2022 forecast production of 550 boe/d (95% liquids), forecast to grow to 750 boe/d (95% liquids)
Slide 25: Eagle Ford Acquisition Overview
Eagle Ford Acquisition Overview ▪ Low volatility Eagle Ford asset with attractive balance of current production and future development upside ▪ Total consideration CAD$32 million Acquisition DSU – 2023 average production forecast 250 boe/d FRU DSU Active Rig – Increases Freehold Eagle Ford forecast
Slide 26: Diversified Midland Assets Overview
Diversified Midland Assets Overview ▪ Tuck-in asset to previous Midland transactions underpinned by focused Midland operators ▪ Total consideration CAD$19 million – 2023 average production forecast at 130 boe/d – Numerous undeveloped and underdeveloped sections within the core of this asset are expe
Slide 27: Strong Balance Sheet
Strong Balance Sheet ▪ Freehold exited Q2-2022 with 5.0x Net Debt to Funds from Operations net debt to trailing funds from 4.5x operations of 0.1x 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 28: Dividend Sustainability
Dividend Sustainability Freehold has paid out $1.9 billion in dividends since initial IPO ▪ Freehold announced a 13% dividend 100% increase from $0.08 to $0.09 per 90% month as part of Q2-2022 results 80% ▪ Forecast funds from operation in 2022 70% Stated Payout Range has our dividend positioned sli
Slide 29: 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 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 2023E 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Slide 31: Cash Costs
Cash Costs Freehold has shown a strong trending down in cash costs ▪ Q2-2022 cash costs of $9.00 $8.38/boe facilitate a strong $8.00 corporate netback for Freehold $7.00 Cash Costs ($/boe) $6.00 ▪ Includes one time payment Cash Costs of for Share Based $5.00 $3.61/boe excl. Share Compensation of $4.
Slide 32: Royalty Production History
Royalty Production History 16,000 14,250* 14,005 13,676 14,000 13,453 Royalty Production (boe/d) 12,000 10,618 10,946 11,137 11,265 10,139 10,311 10,149 10,315 10,000 9,605 9,150 9,096 8,000 6,000 4,000 2,000 0 Q1-19 Q2-19 Q3-19 Q4-19 Q1-20 Q2-20 Q3-20 Q4-20 Q1-21 Q2-21 Q3-21 Q4-21 Q1-22 Q2-22 2022E
Slide 33: Diversified Royalty Payors
Diversified Royalty Payors Our top payors remain well financed with no significant concentration risk Summer 2022 | 33
Slide 34: Disciplined Acquirer
Disciplined Acquirer Freehold will continue to look for opportunities that enhance the resiliency and durability of our portfolio across all commodity price cycles Cost Initial Production Year Area ($ 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 August 9th, 2022 and contains forward-looking information including, without limitation, estimated 2023 dividends per share; the expectation that DUCs will contribute to H2 2
Slide 36: 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 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 analy
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
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