Freehold Royalties Ltd. · TSX:FRU
Freehold Royalties — Investor Presentation (May 2023)
42 slides from Freehold Royalties's investor presentation, May 2023
Slide 1: Spring 2023: Quality Assets, Sustainable Dividends
SPRING 2023 Quality Assets • Sustainable Dividends FREEHOLDROYALTIES.COM | TSX FRU
Slide 2: Investment Highlights
Investment Highlights A North American energy royalty company 7.6 dividend yield % Torque to commodity direct returns to shareholders current dividend coverage to $50 WTI without cost inflation ESG friendly investment High margin asset class rated top 1% among global oil producers >90% netback Diver
Slide 3: First Quarter 2023 Results
First Quarter 2023 Results Q1 2023 Q1 2022 CHANGE West Texas Intermediate US$/bbl $76.13 $94.29 (19%) Production boe/d 14,724 13,676 8% Funds from operations millions $58.6 $71.9 (19%) Period end net debt millions $115.8 $101.2 14% Netback per boe $50.79 $66.17 (23%) Dividend payout ratio % 69% 38%
Slide 4: Long History of Returns
Long History of Returns No matter the underlying commodity environment, Freehold has ALWAYS provided a dividend $180 $160 $140 Annual Dividend Payment ($mm) $120 $100 $80 $60 $40 $20 $0 2023E 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 201
Slide 5: Torque to Commodities
Torque to Commodities Royalties are a high margin asset class, with upside to commodity prices $, millions Annual Dividend @ $0.09/share $50/bbl WTI $80/bbl WTI $100/bbl WTI 2023E Funds from Operations ($mm) Cash Costs ($mm) Cash Tax ($mm) Costs approximately $30 million per year to run our business
Slide 6: Q1-2023 Royalty Drilling Results
Q1-2023 Royalty Drilling Results N. Dakota Bakken Deep Basin Clearwater Highest Canadian Viking gross drilling since Midland Q1-2020 Haynesville Cardium 200 Miles Record level 200 Delaware Eagle Ford SE Saskatchewan Miles of Gross Drilling on TOP CANADIAN PLAYS TOP U.S. PLAYS CANADA GROSS WELLS NET
Slide 7: Gross Overriding Royalty vs. Mineral Title Drilling
Gross Overriding Royalty vs. Mineral Title Drilling GROSS DRILLING (%) Through the advancement of Freehold’s 100% US portfolio, the Company has seen a 90% 17% material increase in the capital allocated 30% 32% towards drilling on its mineral title 80% 43% acreage 70% 57% ▪ 57% of gross wells drilled
Slide 8: Balanced Portfolio
Balanced Portfolio COMMODITY GEOGRAPHY PRODUCTION VOLUMES 36% CLEARWATER ~20% NATURAL DEEP 65% BASIN MANNVILLE GAS CARDIUM REVENUE PRODUCTION ~80% CONV VIKING GAS 60% SE SASK REVENUE ND 64% BAKKEN REVENUE OIL & NGLs SUPERIOR OIL AND GAS PRICING (Q1-2023) Nymex Natural Gas $4.46/mcf 35% FRU Realized
Slide 9: Canadian Portfolio
Canadian Portfolio 12,000 Q1-2023 gross Canadian drilling is 240 the highest quarterly total since Q1-2020 10,000 200 8,000 160 Gross Wells Drilled (boe/d) 6,000 120 4,000 80 2,000 40 0 0 Q2/20 Q3/20 Q4/20 Q1/21 Q2/21 Q3/21 Q4/21 Q1/22 Q2/22 Q3/22 Q4/22 Q1/23 Canadian Production (LHS) Gross Wells Dr
Slide 10: Clearwater – Key Canadian Growth Asset
Clearwater – Key Canadian Growth Asset ASSET BASE ▪ ~440,000 gross acres with strategic positions with publics (Tamarack Valley, Rubellite) and privates (Woodcote, Clear North) ▪ Substantial inventory remaining – ~1,400 gross locations – 20 years of drilling inventory (at 2022 pace) ▪ Clearwater pro
Slide 11: U.S. Portfolio
U.S. Portfolio 6,000 240 5,000 200 4,000 160 Gross Wells Drilled (boe/d) 3,000 120 2,000 80 1,000 40 0 0 Q2/20 Q3/20 Q4/20 Q1/21 Q2/21 Q3/21 Q4/21 Q1/22 Q2/22 Q3/22 Q4/22 Q1/23 US Production (LHS) Gross Wells Drilled (RHS) Active rigs on our U.S. land base averaged over 30 in March, U.S. drilling is
Slide 12: US Inventory Breakdown
US Inventory Breakdown N. Dakota Bakken Q1-2023 US PRODUCTION SPLIT Freehold has built up a quality US Midland DJ Appalachia portfolio over the 1,600 boe/d last three years, Eagle Ford Anadarko 2,550 boe/d Midland concentrated in Haynesville the most Delaware Delaware productive US 200 boe/d Eagle F
Slide 13: Untapped Opportunity Set
Untapped Opportunity Set Delaware Midland Montney Eagle Ford Clearwater Viking ~10,500’ TVD Depth ~8,500’ TVD Depth ~7,300’ TVD Depth ~9,850’ TVD Depth ~2,100’ TVD Depth ~2,300’ TVD Depth ~100 Upper Austin Chalk ~300 Upper Clearwater ft Upper Spraberry Upper Montney ~1,100ft ft ~900ft Upper Avalon M
Slide 14: US Productivity
US Productivity Productivity across our major US assets has been performing in line with expectations EAGLE FORD TYPE CURVE MIDLAND TYPE CURVE 1,400 1,400 1,200 1,200 Gross Production (boe/d) Gross Production (boe/d) 1,000 1,000 800 800 600 600 400 400 200 200 0 0 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4
Slide 15: Acquisition Lookback
Acquisition Lookback Strong Performance to Date US ACQUISITION INVESTMENT RECOVERY Recent focus has been on the advancement of the 45% of investment Company’s US portfolio $165 million returned in less than Added royalty positions in the Eagle Ford, Midland, recovered two years Delaware, Haynesville
Slide 16: Inflation Hedge
Inflation Hedge Performance Through All Commodity Cycles Freehold is not exposed to capital or In an inflationary environment operating costs Freehold’s profit margins are Significant margin advantage not impacted relative to E&P producers OPERATING NETBACK COMPARISON 2023 CONSENSUS CAPEX CHANGE Q1-
Slide 17: ESG Focused
ESG Focused Advancing Freehold’s ESG strategy January 2023 Sustainability Report published – Outlines commitment to creating value for all stakeholders with sustainability a top priority As a royalty business Freehold is not directly responsible for the operations on our leased land – though we stri
Slide 18: Differentiated Emission Profile
Differentiated Emission Profile Freehold’s Scope 1 & 2 emissions are equivalent to an aircraft round trip flight from Calgary to London Achieved net zero emissions in 2021 & 2022 2021 Scope 1 & 2 Emissions Intensity (tonnes CO2e/mboe) 60 50 Freehold had 2021 Scope 1 & 40 2 emissions intensity of 0.1
Slide 19: Freehold Return Profile
Freehold Return Profile ~60% Dividend Payout Ratio RETURN OF Dividend of $0.09/share is the highest level since 2015; Over CAPITAL TO $160 million forecast to be returned to shareholders in 2023 SHAREHOLDERS Current dividend reflects ~60% dividend payout at US $80/bbl WTI for 2023 2023E FUNDS FROM L
Slide 20: Why Own Freehold
Why Own Freehold STRONG BALANCE QUALITY LONG HIGH MARGINS SUSTAINABLE SHEET, LOW RISK DURATION ASSETS, BUSINESS MULTI-YEAR UPSIDE High operating Increased dividend as 2022 net debt to trailing Positioned in the top margin provides Freehold part of Q2-2022 results in funds from operations 0.4x tier o
Slide 21: Supplemental Slides
Supplemental Slides Quality Assets • Sustainable Dividends FREEHOLDROYALTIES.COM | TSX FRU
Slide 22: Enhanced Scale
Enhanced Scale 5 yr. Avg. 5 yr. Avg. Record Revenue in $147 million $125 million Record Funds 2022 of $393 $393 $316 from Operations million of $316 million $190 +170% vs 5- year 209 +153% vs 5-year $152 $145 $121 $118 average $75 $141 $69 $73 average 2017 2018 2019 2020 2021 2022 2017 2018 2019 202
Slide 23: Enhanced Sustainability
Enhanced Sustainability US Price Uplift over Canada Eagle Ford 1,800 Over 12 Year US $28 US-Cdn Realized Price $27 38% Pricing Drilling Inventory Premium in US $20 ($/boe) ~7,450 Midland $19 Bakken More than 7,000 US 250 Undeveloped Locations 4,300 $15 $16 US Enhances Development Other Dividend Cove
Slide 24: The Royalty Advantage
The Royalty Advantage Freehold provides a lower risk/return proposition than traditional E&P’s FINANCIAL STRENGTH, DIVERSIFIED ENVIRONMENTAL, LOW RISK ROYALTY PORTFOLIO SOCIAL, GOVERNANCE Strong operating margins, Diversified North American Our approach to ESG is rooted in our enable lower breakeven
Slide 25: 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 The royalty model ~ 100% of gross revenue ~ >90% of gross revenue maintains a material netback a
Slide 26: Bigger, Better Freehold
Bigger, Better Freehold >$500MM OF US ASSETS ADDED OVER 2 YEARS SIGNIFICANT FFO GROWTH, SOLID BALANCE SHEET 16,000 50% $350 GROWTH Since Q2-2020 $300 14,000 12,000 $250 US Corporate Production (boe/d) 10,000 $200 FUNDS FROM OPERATIONS $ millions 8,000 $150 6,000 CANADA $100 4,000 NET DEBT $50 2,000
Slide 27: Balanced Returns
Balanced Returns FRU has maintained a balance between dividend growth, portfolio growth, debt reduction Dividend increased 6 times from $0.015 to $0.09/share over last eleven quarters Current dividend yield 7.6% DIVIDEND CHANGE Executed greater than $550 million in transactions since 2021 maintainin
Slide 28: Sustainable Through All Commodity Cycles
Sustainable Through All Commodity Cycles 120 Business planning on a long term WTI price of US$75/bbl 100 West Texas intermediate (US$/bbl) 80 60 40 20 Payout ratio approaches 100% below ~US$50/bbl WTI 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 WTI Crude Oil (US$/bbl) Futures Prici
Slide 29: Safe, Lower Risk Asset Base
Safe, Lower Risk Asset Base 2019 2020 2021 2022 Production (boe/d) 10,628 9,781 11,844 14,101 Acquisitions (millions) $49 $7 $377 $191 Royalty acres (millions) 6.7 6.3 6.2 6.4 US gross drilling unit acres (millions) - - 0.8 0.9 Tax pools (millions) $838 $775 $972 $1,010 Net debt/funds from operation
Slide 30: Diversity Amongst Payors
Diversity Amongst Payors Diversified Group of Well Capitalized Producers North American No payor represents Top 10 payors represent portfolio provides exposure > 15% of 12-months ~ 50% of 12-month to a broad group trailing revenue trailing revenue of oil and gas plays across Top 30 payors comprised
Slide 31: Strong Balance Sheet
Strong Balance Sheet 5.0x 4.5x Freehold exited Q1-2023 with net debt to trailing funds from 4.0x Net Debt to Funds from Operations operations of 0.4x 3.5x At current commodity price levels 3.0x and dividend level, Freehold has capacity to pay down debt or 2.5x pursue acquisitions with free funds ove
Slide 32: Industry Drilling vs. Freehold
Industry Drilling vs. Freehold We have seen strong upward momentum in 20,000 25 activity on Freehold’s royalty land along with the 18,000 broader Western Canadian Sedimentary portfolio 16,000 20 Approximately $4 bn in industry capital Gross Wells Western Canada 14,000 spent on Freehold lands in 2022
Slide 33: Long History of Returns
Long History of Returns Matching growth in dividend to growth in production and cash flow $3 From an Initial Public Offering of Dividend ($/share) $10/share in 1996, Freehold has paid $2 out $2.0 billion in dividends to its shareholders (~$34/share) $1 2022 dividend payout ratio 45%, below $0 the ou
Slide 34: Cash Costs
Cash Costs Freehold’s low cash costs enable increased returns for shareholders $7.00 $6.00 $5.00 Q1-2023 cash costs of $5.82/boe Cash Costs ($/boe) facilitate a strong corporate netback for Freehold $4.00 $3.00 Increase reflects higher interest charges and one time G&A costs $2.00 Freehold’s operati
Slide 35: Royalty Production History
Royalty Production History 16,000 15,041 15,500 14,724 14,500 14,005 13,676 14,219 14,000 13,453 12,000 10,946 11,137 11,265 10,311 10,149 10,315 10,618 Royalty Production (boe/d) 9,605 10,000 9,150 9,096 8,000 6,000 4,000 2,000 0 Q2-19 Q3-19 Q4-19 Q1-20 Q2-20 Q3-20 Q4-20 Q1-21 Q2-21 Q3-21 Q4-21 Q1-
Slide 36: 2022 Reserves
2022 Reserves PDP, 1P & 2P Reserves 1P & 2P reserve volumes up 12% & 9% 60 54.5 Year End Reserves (MMBOE) respectively on an absolute and per 49.8 share basis y/y 50 40 1P increased to 28.9 MMboe and 2P increased to 29.4 54.5 Mmboe 30 28.9 25.7 160% 1P reserve replacement and 190% on 2P 20 19.6 22.9
Slide 37: Disciplined Acquirer
Disciplined Acquirer Freehold will continue to look for opportunities that enhance the resiliency and durability of our portfolio across all commodity price cycles COST INITIAL PRODUCTION ACQUIRED YEAR AREA ($ millions) (boe/d) 2012 AB, SK and BC 60 600 2013 Numerous small acquisitions 10 30 2014 SK
Slide 38: 2023E Guidance
2023E Guidance 2023E ANNUAL AVERAGE Average production boe/d 14,500-15,500 Funds from operations million $250-$280 West Texas Intermediate crude oil US$/bbl $80.00 AECO natural gas Cdn$/mcf $3.00 NYMEX natural gas US$/mmbtu $3.00 Exchange rate US$/Cdn$ 0.75 TSX FRU SPRING 2023 | 38 Source | Company
Slide 39: Advisories
Advisories Forward-Looking Statements This presentation offers our assessment of Freehold’s future plans and operations as at May 10, 2023 and contains forward-looking information including, without limitation, Freehold's business plan; the expectation that production will ramp- up in the second hal
Slide 40: Advisories continued
Advisories continued Disclosure of Crude Oil and Natural Gas Information The reserves data set forth in the presentation (the "Reserves Data") is based upon evaluations by our independent qualified reserves evaluators, Trimble Engineering Associates Ltd. ("Trimble") and RSC Group, Inc. ("Ryder Scott
Slide 41: 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, dividend payout ratio and cash costs are useful supplemental measures for management and investors
Slide 42: Quality Assets • Sustainable Dividends
Quality Assets • Sustainable Dividends TF. 888.257.1873 T. 403.221.0833 W. freeholdroyalties.com FREEHOLDROYALTIES.COM | TSX FRU
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