Freehold Royalties Ltd. · TSX:FRU
Freehold Royalties — Investor Presentation (May 2020)
30 slides from Freehold Royalties's investor presentation, May 2020
Slide 1: Investor Presentation Spring 2020
Investor Presentation SPRING 2020 Quality Assets • Sustainable Dividends freeholdroyalties.com
Slide 2: Corporate Profile
Corporate Profile Focused on oil and gas royalties Q1-2020 royalty production 10,618 boe/d Annual dividend (1) ($0.015 per month) $0.18/share 2020E revenue and production from Oil & NGL(5) 77% revenue / 56% production Current dividend yield (2) 6% Enterprise Value (2) (3) (4) ~$430 million Net debt
Slide 3: Investment Thesis
Investment Thesis Financial strength, low risk Opportunistic acquiror § >$25/boe operating netback (1) § Completed >$300 million in royalty transactions over the past § $5.74/boe cash costs (1) (2) three years § 97% operating margin (1) (2) § ~$47 million in royalty transactions in 2019, funded via
Slide 4: 2020 First Quarter Results
2020 First Quarter Results Q1 2020 Q1 2019 change Royalty production boe/d 10,618 10,139 5% Royalty liquids production boe/d 5,973 5,557 7% Operating netback $/boe $25.22 $36.22 -30% Payout ratio % 92% 64% 28% Period end net debt to funds from operations times 0.9x 0.7x § Royalty production displaye
Slide 5: Dividend Revision
Freehold continues to target a Dividend Revision 100% payout ratio of 60% – 80% 90% § Reflecting weakness in crude oil prices, Freehold 80% announced a dividend reduction from $0.0525 to $0.015 per month 70% § At revised dividend level, Freehold’s fund from operations are forecast exceed dividend ou
Slide 6: Near Term Free Cash Flow Priorities
Near Term Free Cash Flow Priorities § New dividend level right sized for today’s business environment Dividend § Maintain 60-80% payout ratio In the current commodity price § Maintain financial flexibility strength environment, Freehold generates modest with ~$70 million of facility room as free cas
Slide 7: Royalty Liquids Production
Royalty Liquids Production 8,000 7,000 6,000 Royalty Liquids (boe/d) 5,000 4,000 § Freehold grew Q1-2020 royalty oil volumes by 7% versus the same period in 2019 3,000 § Oil volumes grew 5% versus the previous period 2,000 § We remain focused on enhancing the organic growth profile of our royalty as
Slide 8: Low Risk Profile
Low Risk Profile E&P Torque to Higher Oil Prices ü ü Benefit of: The royalty model provides Dividend Yield ü û a number of advantages over typical E&P operators Capital Costs û ü Exposure to: Abandonment Liabilities û ü Operating & Other Costs û ü TSX : FRU Spring 2020 8
Slide 9: Oil Price Leverage & Downside Protection
Oil Price Leverage & Downside Protection $1.40 2020E Annual free cash flow per share § At $20/bbl WTI, Freehold generates excess funds $1.20 from operations $1.00 § Freehold maintains leverage to upside in commodity $0.80 prices without the exposure to an end of asset life $0.60 liability $0.40 § As
Slide 10: Cash Costs
Cash Costs $7.00 $6.00 Q1-2020 cash costs~$5.75/boe $5.00 Cash Costs ($/boe) Cash costs are typically $4.00 higher in Q1, reflecting $3.00 higher G&A $2.00 $1.00 $0.00 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19 Q3-19 Q4-19 Q1-20 Operating Costs ($/boe) Interest Expense ($/boe) Cash costs =operating costs +
Slide 11: Strong Balance Sheet
Strong Balance Sheet (at December 31, 2019) 5.0 (multiple) 4.5 4.0 3.5 Freehold exited 2019 3.0 with year-end net debt to funds from 2.5 operations of 0.8x 2.0 1.5 1.0 0.5 0.0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Sector Average
Slide 12: Freehold Royalties – Our Assets
Freehold Royalties – Our Assets B.C. Alberta Saskatchewan Manitoba § Activity focused on oil plays in eastern Alberta and Saskatchewan Slave Point § >90% of all activity on our lands Montney Gas Clearwater targeting oil prospects § >70% of all drilling associated with Deep Basin Gas private E&P, who
Slide 13: 2020 Q1 Royalty Drilling Results
2020 Q1 Royalty Drilling Results 2020 Q1 Royalty Drilling Top operators Gross Net Non-Unit: 128 Gross Wells – 6.1 Net Q1 2020 Wells Wells Unit: 47 Gross Wells – 0.1 Net Teine Total: 175 Gross Wells – 6.2 Net 36 3.1 Crescent Point 15 0.2 CLEARWATER Whitecap 10 0.2 Highwood, Perpetual Surge 10 0.2 Ver
Slide 14: Industry Drilling vs. Freehold
Industry Drilling vs. Freehold • Despite a slowdown in 18000 25 activity in western 16000 Gross wells western Canada Canada, Freehold has 14000 20 achieved growth in net Freehold net wells 12000 drilling on its royalty 15 10000 lands 8000 • Growth in net wells 10 6000 reflects the quality of Freehol
Slide 15: Diversified Royalty Payors
Diversified Royalty Payors Spring 2020 TSX : FRU 15
Slide 16: Disciplined Acquirer
During this period of weaker commodity prices, we expect Disciplined Acquirer to be opportunity driven in our A&D strategy Cost Initial Production Year Area ($ millions) Acquired (boe/d) 2010 AB, SK and BC 38 400 2011 NW AB 7 100 2012 AB, SK and BC 60 600 2013 Numerous small acquisitions 10 30 (3) 2
Slide 17: Why Own Freehold
Why Own Freehold § 97% operating margin (1) enables Freehold the ability to pay a High Margins meaningful dividend at lower commodity price levels § Payout (1) target 60%-80% § Top tier operating netback ~$25/boe in Q1-2020 Sustainable § Q1-2020 cash costs $5.74/boe § ~6% dividend yield (2) (3) § Q1
Slide 18: Supplemental Information
Supplemental Information Quality Assets • Sustainable Dividends freeholdroyalties.com
Slide 19: Safe, Lower Risk Asset Base
Safe, Lower Risk Asset Base 2017 2018 2019 Q1-2020 Royalty Production (boe/d) 10,963 10,718 10,229 10,668 Acquisitions (mm) $87 $62 $49 $3 Royalty acres (mm) 5.7 6.2 6.7 6.7 Tax pools (mm) $966 $905 $838 n/a Net debt/funds from operations 0.6x 0.7x 0.8x 0.9x Royalties % of operating income (1) 96% 1
Slide 20: Royalty Production History
Royalty Production History 12,000 Royalty Production (boe/d) 11,270 11,197 11,052 10,919 10,960 11,000 10,701 10,618 10,351 10,322 10,312 10,311 10,149 10,315 10,169 10,139 10,000 9,725 9,495 § Freehold has increased 9,000 royalty production by 8,000 >10% 7,000 6,000 since Q1-2016 5,000 4,000 3,000
Slide 21: Dividend History
Dividend History Dividend ($/share) $/boe $3.00 $2.91 $80 Annual Dividend ($/share) Freehold's Average Selling Price ($/boe) $70 $2.50 § Freehold has returned $2.10 $60 greater than $2.00 $1.92 $1.92 >$32/share $1.56 $1.70 $1.73 $1.68 $1.68 $1.68 $1.68 $1.68 $50 over its history to its $1.50 $1.40 $
Slide 22: Viking Oil-Strong Cash Flow Generator
Viking Oil-Strong Cash Flow Generator § Acquired acreage as part of a 2015 royalty acquisition § Change in operator has resulted in a ramp-up in activity. Drilling represented ~50% of activity in 2019 § Expect activity levels to remain a strong anchor for Freehold’s production and cash flow in 2020
Slide 23: Clearwater Oil-Near Term Growth Upside
Clearwater Oil-Near Term Growth Upside § In Q3-2018 Freehold acquired an interest across 170 sections in the emerging Clearwater oil play § Proceeds funded an initial drilling program that have generated strong production growth § Drilling results have met or exceeded initial type curve forecasts §
Slide 24: Core Area Production Growth
Production (boe/d) 800 850 900 950 1,000 1,050 1,100 Jan-18 Mar-18 May-18 Jul-18 Sep-18 TSX : FRU Nov-18 Jan-19 Mar-19 May-19 Jul-19 Viking Net Royalty Production Sep-19 Nov-19 Jan-20 Production (boe/d) 0 10 20 30 40 50 60 70 80 90 Core Area Production Growth Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-1
Slide 25: New Lease Counts 2014- YTD 2019
New Lease Counts 2014- YTD 2019 New wells associated with leasing represents ~20% of incremental net 120 wells in 2019 with past 3-year Number of Leases Issued leasing 100 100 102 93 80 60 40 20 30 20 0 2015 2016 2017 2018 2019 Lease Period As of December 31, 2019 TSX : FRU Spring 2020 25
Slide 26: Royalties vs. Exploration and Production Companies
Royalties vs. Exploration and Production Companies § The Royalty model A Working Interest Barrel A Royalty Interest Barrel maintains a material cost Operating netback* Operating netback* ~ 60% of gross revenue ~ 100%** of gross revenue advantage over traditional E&P’s § Freehold is a defensive 100%
Slide 27: Owner of Legacy Lands
Owner of Legacy Lands § Mineral titles held in perpetuity 8s and 26s § Historic land grant to predecessor of Hudson’s Bay Company in 1670 by the King of England § HBC surrendered land to Canada in 1870 for cash and 1/20th of lands(Section 8 and ¾ of 26) in Western Canada (HB Lands) § Portion of the
Slide 28: Advisories
Advisories Forward-Looking Information This presentation offers our assessment of Freehold’s future plans and operations as at May 5, 2020 and contains forward-looking information including, Freehold’s expectation of generating free cash flow at commodity price levels above US$20/bbl WTI; targeted p
Slide 29: Advisories cont.
Advisories cont. Non-GAAP Financial Measures Within this presentation, references are made to terms commonly used as key performance indicators in the oil and natural gas industry. We believe that operating income, operating margin, free cash flow, free cash flow yield, cash costs, cash netback and
Slide 30: Investor Relations
Investor Relations toll free 888.257.1873 telephone 403.221.0833 website freeholdroyalties.com Quality Assets • Sustainable Dividends freeholdroyalties.com
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