Freehold Royalties Ltd. · TSX:FRU

Freehold Royalties — Investor Presentation (March 2016)

34 slides from Freehold Royalties's investor presentation, March 2016

  1. Slide 1: Investor Presentation March 2016

    Investor Presentation March 2016

  2. Slide 2: Advisories

    Advisories TSX : FRU Forward-Looking Information This presentation offers management’s assessment of Freehold’s future plans and operations and contains forward-looking information pertaining to Freehold’s expected tax horizon, dividend policy and timing for paying dividends, tax treatment of divide

  3. Slide 3: Corporate Profile

    Corporate Profile TSX : FRU focused on oil and gas royalties 2016e production (78% royalty production) boe per day 9,800 2016 operating income from royalties 94% 2016e annualized dividend(1) ($0.04 per month) $ per share 0.48 Current dividend yield(2) 4.5% Market capitalization(2)(3) $ billion 1.1 N

  4. Slide 4: Corporate Strategy

    Corporate Strategy TSX : FRU Effectively manage and grow our assets to consistently deliver returns to shareholders over the long term:  Acquire appropriate assets with a focus on royalty interests to provide long-term growth in value. Our acquisition criteria include:  Quality assets  Attractive

  5. Slide 5: Q4-YearEnd Results

    Q4-YearEnd Results TSX : FRU 3-months ended 12-months ended Financial ($mm) 2015 2014 Change 2015 2014 Change Funds from operations 25.5 30.8 -17% 103.8 138.4 -25% Operating income 89% 80% 11% 87% 78% 12% from royalties Acquisitions -0.1 60.6 nm 411.3 248.3 66% Net debt 146.9 135.8 8% 146.9 135.8 8%

  6. Slide 6: Q4-2015 Highlights

    Q4-2015 Highlights TSX : FRU  Achieved record production averaging 11,815 boe/d in Q4-2015  Production increased 20% y/y  Royalty production up 26% y/y  Royalties represented 78% of total production and 89% of operating income  Grew 2P royalty reserves by 26% y/y  377 (18.9 net equivalent) wel

  7. Slide 7: Royalty Focused Production

    Royalty Focused Production TSX : FRU boe/d 78% Growth in royalty focused production 10,945 9,800 12,000 Royalties (1) 10,000 8,000 6,000 4,000 2,000 0 Royalty Interest Production Working Interest Production (1) Based on 2016e production. 7

  8. Slide 8: Royalty Focused Cash Flow

    Royalty Focused Cash Flow TSX : FRU 2015 % of Operating Income Working Interest 13% Production Volume Royalties 9% 40% Mineral Title Royalties Gross Overriding Royalties 38%  87% of our Operating Income is derived from royalties, offering higher netback, lower risk barrels Source: Company Estimates

  9. Slide 9: Investment Performance

    Investment Performance(1) TSX : FRU Cumulative dividends declared $29.93 per share ($1.4 billion in dividends) $93 $34 $21 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Freehold Royalties Ltd. S&P/TSX Oil and Gas Exploration & Production Index S&P/TSX Composite Index 1) From November 2

  10. Slide 10: The Freehold Advantage

    The Freehold Advantage TSX : FRU 1) Royalty growth (production and drilling) despite weakness in commodity prices 2) Free cash flow vehicle (low cash costs, low opex, low debt) 3) Quality long life asset base (Low decline, 9+ years of identified prospects) 4) Compelling relative valuation vs recent

  11. Slide 11: Production (boe/d)

    Counter cyclical production growth TSX : FRU 12,000 11,500 Production (boe/d) 11,000 10,500 10,000 9,500 9,000 8,500 8,000 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q4-15 Despite weakness in the commodity, production has increased over the past year 11

  12. Slide 12: YTD Royalty Net Drilling Trends

    YTD Royalty Net Drilling Trends TSX : FRU * 2015 includes wells drilled from January 1st on our acquisition lands 12

  13. Slide 13: Growth through Acquisitions

    Growth through Acquisitions TSX : FRU  >$400 million in acquisitions in 2015  Executed varying deal types through our strategy Highlights 1. Corporate acquisition extended Freehold’s tax free horizon 5+years 2. Production volume royalty deals added over 1,300 boe/d of flat royalty production for 7

  14. Slide 14: The Royalty Advantage: Netbacks

    The Royalty Advantage: Netbacks TSX : FRU The royalty model offers a higher margin barrel then your typical E&P A Working Interest Barrel A Royalty Interest Barrel Operating netback* Operating netback* ~ 30% of gross revenue ~ 100%** of gross revenue Royalties and Operating Costs 100% of gross Opera

  15. Slide 15: The Royalty Advantage: Cash Costs

    The Royalty Advantage: Cash Costs TSX : FRU  Royalty model offers a material cost advantage over E&P’s Freehold $0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00 $40.00 $45.00 Cash Costs ($/boe) (OPEX, Transportation, Royalties, Interest and Taxes) Source: TD Securities Research Peer group incl

  16. Slide 16: The Freehold Advantage: Low Capex

    The Freehold Advantage: Low Capex TSX : FRU Capital Expenditures represent a small percentage of Freehold’s Funds from Operations enabling sustainability in a low price environment 150% Sector average 110% 125% 100% 75% Freehold < 20% 50% 25% 0% 2010 2011 2012 2013 2014 2015 2016e Sector Average Fre

  17. Slide 17: The Freehold Advantage: Low Debt

    The Freehold Advantage: Low Debt TSX : FRU Debt to Funds from Operations(1) (multiple) > $100 million credit 4.5 capacity 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Sector Average Freehold 1) See advisory regardi

  18. Slide 18: 2015 Royalty Drilling Highlights

    2015 Royalty Drilling Highlights TSX : FRU Alberta West 92 Gross Wells Lloydminster 129 Gross Wells Saskatchewan East 156 Gross Wells  FRU had 377 (18.9 net) royalty wells drilled on its lands in 2015.  2015 net free Royalty drilling increased 25% over 2014.  Top Royalty plays: Viking, Miss SC, B

  19. Slide 19: Quality Long Life Asset Base

    Quality Long Life Asset Base TSX : FRU 9+ YEARS OF FUTURE DRILLING POTENTIAL (3) 90+ Locations Belly River, Mannville, (1) Pekisko, Devonian 550+ Locations Widely Diversified Portfolio Mannville Heavy Oil Play 2800+ Locations(2) 950+ Locations Viking Light Oil Play 640+ Locations 375+ Locations Miss

  20. Slide 20: Compelling Value

    Compelling Value TSX : FRU Acquiror Seller Deal Type Commodity Envr. Value Liquids Land acres Undeveloped Prod. Prod. 2015E 2015 HH $/mmbtu WTI $/bbl (mm) (%) (gross mm) (gross mm) (boe/d) ($/boe/d) CF CF (x) Royalty Co. X1 Co. Y1 Asset $2.20 $45.00 $1,800 60% 5.4 1.3 6,700 $268,657 $82 22.0 Royalty

  21. Slide 21: 2016 Guidance

    2016 Guidance TSX : FRU Annual Average Mar. 3, 2016 Nov. 12, 2015 Daily production boe/d 9,800 9,800 Operating costs $/boe 4.75 5.00 G&A costs* $/boe 2.65 2.85 Capital expenditures $ millions 7 15 Dividends paid in shares $ millions 8 13  Production guidance of maintained at 9,800 boe/d despite low

  22. Slide 22: Free Cash Flow Sensitivities

    Free Cash Flow Sensitivities TSX : FRU $1.20 $1.00 Funds From Operations Free Cash Flow $0.80 Capital Spending Per Share $0.60 Free cash flow available for dividend at varying $0.40 commodity prices $0.20 $0.00 $30/bbl WTI, $40/bbl WTI, $50/bbl WTI, $60/bbl WTI, $0.65 CAD/USD, $0.70 CAD/USD, $0.75 C

  23. Slide 23: 2016 Sensitivities

    2016 Sensitivities TSX : FRU Estimated Change in Funds From Change Operations Variable (+/-) ($ per share) WTI oil price US$1.00/bbl 0.03 Canadian/U.S. dollar exchange rate US$0.01 0.01 Edmonton Par/WCS differential Cdn$1.00/bbl 0.01 AECO natural gas price Cdn$0.25/Mcf 0.02 Interest rate 1% 0.02 Oil

  24. Slide 24: The Freehold Advantage

    The Freehold Advantage TSX : FRU 1) Royalty growth (production and drilling) despite weakness in commodity prices 2) Free cash flow vehicle (low cash costs, low opex, low debt) 3) Quality long life asset base (Low decline, 9+ years of identified prospects) 4) Compelling relative valuation vs recent

  25. Slide 25: Supplemental Information

    Freehold ROYALTIES LTD. Supplemental Information

  26. Slide 26: The Manager

    The Manager TSX : FRU Managing Royalties for more than 30-years CN P ENSION T RUST F UNDS Pension fund for employees of Canadian National Railway 100% ownership 100% ownership Manager of the assets 24%(1) ownership 1) Based on 98.9million shares outstanding as at December 31, 2015 26

  27. Slide 27: Management Contract

    Management Contract TSX : FRU  Freehold announced in November 2015 an amended and restated Management Agreement with Rife Resources Management Ltd.  Freehold originally entered into a Management Agreement with Rife in 1996.  Generated a total return of >300% over this period.  Highlights  Conti

  28. Slide 28: Diversified Royalty Payors

    Diversified Royalty Payors TSX : FRU 1) Diversified group of payors: Top 30 account for over 80% of royalty revenue on a trailing 12 month basis. 28

  29. Slide 29: Counter Party Risk Mitigation

    Counter Party Risk Mitigation TSX : FRU  Mineral title leases to third parties have default mechanisms for protection and repossession of lessee interest, including the ability to take in kind. We own the land in perpetuity.  Gross Overriding Royalty Agreements are interests in land and have remed

  30. Slide 30: 2016 Small Capital Program

    2016 Small Capital Program TSX : FRU $7 million capital program represents only a small percentage of our funds from operations Southeast Sask. Light Oil 75% Other 25% 1) Per guidance dated March 3, 2016. 30

  31. Slide 31: Counter cyclical acquirer

    Counter cyclical acquirer TSX : FRU Initial Production Cost Acquired Year Area ($ millions) (boe/d) 2001 Southeast Saskatchewan 25 800 2005 Petrovera (CNRL) 352 3,800 2007 Alberta/Saskatchewan 90 700 2010 Alberta, Sask. and B.C. 38 400 2011 Northwest Alberta 7 100 2012 Alberta, Sask. and B.C. 60 600

  32. Slide 32: FRU Stock Price Tracks Oil Price

    FRU Stock Price Tracks Oil Price* TSX : FRU WTI in US$ 150.00 62% FRU in C$ 30.00 oil and NGL 125.00 production 25.00 100.00 20.00 75.00 15.00 50.00 100% 10.00 25.00 unhedged 5.00 - - WTI Oil Price (US$) FRU Share Price (CDN$) * Based on 2016 guidance 32

  33. Slide 33: Proud Owner of Legacy Lands

    Proud Owner of Legacy Lands TSX : FRU  Mineral titles are held in The 8s and 26s perpetuity  Historic land grant to the Hudson’s Bay Company (HBC) in 1670 by the King of England  HBC surrendered land to Canada in 1870 in exchange for cash and 1/20th of lands (Section 8 and ¾ of Section 26) in wes

  34. Slide 34: Investor Relations

    Investor Relations toll free. 888.257.1873 telephone. 403.221.0833 website. freeholdroyalties.com

Freehold Royalties — Investor Presentation (March 2016) on 6ix