Freehold Royalties Ltd. · TSX:FRU
Freehold Royalties — Investor Day (December 2021)
62 slides from Freehold Royalties's investor day presentation, Dec 8, 2021
Slide 1: Investor Day 2021
Investor Day 2021 freeholdroyalties.com TSX FRU Quality Assets • Sustainable Dividends
Slide 2: Agenda
Agenda Time Presenter Focus 1:00pm David Spyker Opening Remarks US Update: Why US? Difference to Canada, Play 1:20pm Rob King, Tom Plumridge Overview, Land Overview & Play Economics Canada Update: Strategic Update, Historical Drilling, 1:45pm Susan Nagy Plays of Interest and Royalty Optimization Fin
Slide 3: The New Freehold
The New Freehold Energizing the future Refreshed and Repositioned restructured to capture leadership the future team Integration of Strengthened ESG business to framework deliver long into term value to everything shareholders we do Investor Day 2021 | 3
Slide 4: Leadership Team
Leadership Team New Team Focused on Shareholder Returns David Spyker David Hendry Rob King Lisa Farstad Bob Lamond Ian Hantke President & CEO VP Finance & CFO VP Business VP Corporate VP Asset VP Diversified Development Services Development Royalties Responsible for Provides strong Spearheads Leads
Slide 5: Not The Same Old Freehold
Not The Same Old Freehold 2022E Increasing Production Bringing Revenues to Time to All Record Levels Highs 14,300 boe/d 2018 ▪ 2022E production forecast to be ~14,300 boe/d, higher than 11,400 boe/d any period in Freehold’s history 2012 ▪ Organic drilling and bespoke royalty optimization efforts are
Slide 6: Sustainable Production Base & Dividend
Sustainable Production Base & Dividend Improving Royalty Netbacks YTD 2021 Realized Price ▪ US transactions have added higher value barrels OneMap Acq. Pricing ▪ Realized price improves materially with recently Sep-2021 Acq. Pricing completed US acquisitions C$40/boe C$50/boe C$60/boe 2022E ~$250mm
Slide 7: North American Portfolio Overview
North American Portfolio Overview 6.2 mm gross royalty acres 2022E production ~9,400 boe/d ▪ Over the last 12-months, Freehold has grown its US portfolio from 200 boe/d to 4,900 boe/d in 2022E ▪ Entered the US in 2019 with transactions in North Dakota ▪ North American portfolio provides diversity to
Slide 8: Improved Activity and Diversification
Improved Activity ▪ US barrels improve Freehold’s North American Production Growth (2018 Exit Baseline) 1.2 sustainability across a broad commodity price range 1 ▪ A diverse North American portfolio with over 350 operators provides further 0.8 diversification and reduces 2018 Exit 2021E Exit concent
Slide 9: Improved Economics
Improved Economics Freehold’s business remains robust across a broad price range Post Dividend ~$30mm 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 10: Multi-Year Changes to Portfolio
Multi-Year Changes to Portfolio Freehold’s Evolution 2022E Production Breakdown ▪ Canadian portfolio has been energized with Eagle Ford (20%) a return of 3rd party capital with production Permian (10%) growth to largely offset declines Bakken (2%) ▪ Build-out of the US portfolio adds improved Viking
Slide 11: 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 ▪ 75% of directors are independent acquisition candid
Slide 12: Scope 1 Emission Intensity
Improving Performance Top 5 US payors represent ~70% of Investment in the US has improved Freehold’s environmental profile total US production Top 5 CAN payors represent ~40% of Top Operator Intensities ▪ Top payors within both the US and Canada total CAN production 0.06 remain leaders in the develo
Slide 13: Returns Focused Freehold
Returns Focused Freehold Revenue 2022E ~$250 million 2022E Dividend ~$110 million Dividend Increases Acquisitions Debt Repayment Have increased our monthly ~50% of funds flow available to Q3-2021 net debt to funds from dividend the past five quarters pursue value enhancing operations of 0.5x from $0
Slide 14: Indexed Share Price Performance
Royalty Peer Performance Since announcing its first large US acquisition, Freehold has outperformed peers 250 Indexed Share Price Performance 200 150 100 50 Nov-2020 Nov-2021 Royalty Peer A Royalty Peer B Royalty Peer C Royalty Peer D Royalty Peer E Royalty Peer F Royalty Peer G FRU Investor Day 202
Slide 15: North American Advantage
Freehold Royalties Ltd. North American Advantage freeholdroyalties.com TSX FRU Quality Assets • Sustainable Dividends
Slide 16: US Growth Wedge
US Growth Wedge US expansion has introduced organic growth into Freehold’s return proposition Freehold Production per Share ▪ Different from what Freehold has been able to 10% achieve in the past ▪ US royalty assets positioned to achieve multi- year organic growth, underpinned by 0% DUCs/Permits and
Slide 17: Portfolio Overview
Portfolio Overview Clearwater Deep Basin 400 boe/d 1,800 boe/d 5% of CAD 20% of CAD Viking 1,500 boe/d ▪ Expanded North American asset base Cardium 15% of CAD 1,000 boe/d provides investors with improved 10% of CAD S.E. Sask realized pricing, netbacks and Mannville Oil 1,000 boe/d growth potential 1
Slide 18: 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) 9,400 4,900 14,300 Top 6 areas ~70% 2022E Production (%) 65% 35% 100% 60% 60% Natural gas (%) 46% 30% 40% % Inv.
Slide 19: US Asset Overview
US Asset Overview Rob King VP Business Development Tom Plumridge Senior US Geologist freeholdroyalties.com TSX FRU Quality Assets • Sustainable Dividends
Slide 20: Overview of US Portfolio
Overview of US Portfolio Production forecasts for 2022 Marathon (52%) ▪ 2021E production of 2,100 boe/d (68% liquids) Pioneer (6%) ConocoPhillips (4%) ▪ Growth to 4,900 boe/d in 2022E (70% liquids) ~4,900 Exxon Mobil (4%) ▪ Portfolio represents ~35% and ~40% of total boe/d EOG Res. (4%) Petro-Hunt (
Slide 21: 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 22: 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 23: US Royalty Market
US Royalty Market A more fragmented market than Canada, providing more and better opportunities Minerals Market Breakdown ▪ ~US$680 billion market with <3% in publicly traded US mineral and royalty companies (excludes value Other Minerals: 97% from over-riding royalty interests) ▪ Highly fragmented
Slide 24: US Royalty M&A Market
US Royalty M&A Market US Royalty M&A Market almost 6x larger than Canada over last 5 years ▪ Over last 5 years, ~US$12 bn of Royalty Transactions in Canada vs. US royalty transactions in the US US$3bln 26x compared to ~US$2 bn in Canada 14x – Almost 700 deals in the US compares to ~60 in Canada US$2
Slide 25: North American Royalty Transactions
North American Royalty Transactions Freehold has been able to add high quality assets at lower relative valuations Funds Flow Multiple 16x Canada Deals US Deals ▪ Over the past year Freehold has been Freehold Deals 12x able to take advantage of the 2020 commodity price challenges 8x 4x ▪ Compared to
Slide 26: Significant US Royalty Asset Deal Flow
Significant US Royalty Asset Deal Flow Adj. $/NRA $40k Bubble size represents aggregate ▪ The US has seen a transaction value significant number of $35k large mineral deals over the past 5 years $30k ▪ Number of owners who expected to market their $25k assets in 2020/2021 postponed their plans, OneM
Slide 27: US Expansion – a Measured Approach
US Expansion – a Measured Approach Acres Value Realized Purchase Gross % Min. 2021E 2022E CF Prod. Acquisition Core Future Liquids Pricing (C$mm) Acres Title (boe/d) (boe/d) Mult. (C$k/boe/d) /Tier 1 Dev. (C$/boe) Pre-2021 & North $13 65,000 100% 95% 42% 160 175 6.0x $74 75% $56 Tuck-Ins Dakota Jan-
Slide 28: Segmenting US Production & Future Development
Segmenting US Production & Future Development Production and future development dominated by the Eagle Ford & Permian Net Future N. Dakota Delaware Midland Eagle Ford Haynesville Other Total ▪ Freehold estimates ~5,800 Locations Bakken gross (~31 net) drilling Pre-2021 & Tuck Ins 5% 5% locations on
Slide 29: US Portfolio: Net Wells Differences US vs Canada
US Portfolio How ‘Net Wells’ are different between the US and Canada ▪ An average US well in Freehold’s portfolio FRU Lands - Average Wells has significantly higher productivity than 1,400 an average Canadian well 12-month Cumulative Production 1,200 ▪ 12 month adds to Freehold’s production Canadian
Slide 30: US vs. Canada Pricing
US vs. Canada Pricing ▪ Canadian crude, particularly Western ▪ US commodities, particularly products from key Canadian Select (WCS), has experienced basins close to the Gulf Coast (Permian and Eagle much more volatility throughout the years Ford) have benefited from higher pricing due to ease relati
Slide 31: Review of Freehold's January 2021 Acquisition
Review of Freehold’s January 2021 Acquisition Transformative acquisition established Freehold as a North American company ▪ US$58mm transaction announced in Cumulative Volumes (mboe) Cumulative Cashflow (CAD) 300 $30mm Nov. 2020, completed in Jan. 2021 ▪ 2021E production of 1,150 boe/d (62% 200 $20m
Slide 32: US Basins – a Technical Approach
US Basins – a Technical Approach Breaking down classifications between Core, Tier 1 & Tier 2 N. Dakota Bakken ▪ Freehold has reviewed and interpreted the reservoir potential of the major US basins Appalachia to identify the highest quality opportunities DJ ▪ The basins are categorized to identify th
Slide 33: Reservoir Classification Methodology
Reservoir Classification Methodology Delaware and Midland Basins ▪ Both the Midland and Delaware basins are found within the larger Permian Freehold Lands basin Permian Core & Tier 1 ▪ The classification methodology between the Delaware and Midland are similar ▪ In the Permian, the Core and Tier 1 r
Slide 34: Reservoir Classification Methodology Delaware
Reservoir Classification Methodology Delaware The Delaware basin is over 4,000ft thick in its core, with 12 prospective zones HZ Well Count Productive Intervals 280 Upper Avalon 350 Middle Avalon ▪ Core Delaware prospective zones Montney ~1,100 ft can support up to 50 horizontal 280 Lower Avalon wel
Slide 35: Reservoir Classification Methodology Delaware Basin
Reservoir Classification Methodology Delaware Basin 2,400 Average Production (boe/d) 2,000 ▪ Determination of the Reservoir Tiers leverages multiple mapping and analysis tools including 1,600 ▪ A combination of depth, thickness, oil volume 1,200 and pressure defines the core region of the Delaware 8
Slide 36: Reservoir Classification Methodology Eagle Ford Basin
Reservoir Classification Methodology Eagle Ford Basin ▪ With fewer economic zones present, the Freehold Lands approach in non-Permian basins varies Eagle Ford Core & Tier 1 slightly ▪ In the Eagle Ford (and N. Dakota 20 miles Bakken), the Core region correlates with – The lowest break-even economics
Slide 37: Reservoir Classification Methodology Eagle Ford Basin
Reservoir Classification Methodology Eagle Ford Basin 2,400 ▪ There is a significant change in productivity and Average Production (boe/d) 2,000 economics when comparing Core to Tier 1 & 2 – This same principle applies when looking at the North 1,600 Dakota Bakken 1,200 ▪ Determination of the Reserv
Slide 38: Canadian Overview
Canadian Overview Susan Nagy Director, Business Development freeholdroyalties.com TSX FRU Quality Assets • Sustainable Dividends
Slide 39: Canadian Overview
Canadian Overview Cardium (11%) A well balanced and sustainable portfolio Clearwater (3%) Deep Basin (16%) ~9,400 ▪ Canadian assets remain core to boe/d Mannville Oil (13%) Freehold, representing 65% of 2022E S.E. Sask (12%) production, and 60% of 2022E funds Viking (15%) from operations Other (30%)
Slide 40: Canadian Drilling Activity
Canadian Drilling Activity 2018 to YTD 2021 W6 W5 W4 W3 25% 718mm ▪ In Western Canada, most acreage is WCSB owned by the provincial Crown 3% acres governments, with the remainder held Montney 72% by private individuals, public/private corporations (Mineral Title), and to a lesser extent, the Federal
Slide 41: Historical Drilling in Canada
Historical Drilling in Canada Crown vs. Mineral Title Wells Drilled by Play post-2018 8,000 100% ▪ Drilling on Crown lands dominate in the ‘hottest plays’, capturing over 60% of all 6,000 75% drilling in the WCSB Wells drilled ▪ Activity driven by drilling 4,000 50% economics and the strength of ope
Slide 42: Freehold's Canadian Portfolio
Freehold’s Canadian Portfolio A well-performing mix of Mineral Title and GORR acreage ▪ Targeted GORR acquisitions have positioned Freehold ahead of the drill bit which Acreage Breakdown has resulted in increased activity across the land base ▪ Mineral title lands concentrated in active areas contin
Slide 43: Historical Canadian Drilling Results
Historical Canadian Drilling Results Drilling (gross wells) YTD-2021 2020 2019 3rd party spending split Teine Energy 38 77 108 relatively evenly between Alberta and Saskatchewan Tamarack Valley 31 15 n/a Bonterra Energy 30 17 19 2019 Drilling Surge Energy 30 26 26 Deep 2020 Drilling Tourmaline Oil 1
Slide 44: Viking Dodsland
Viking Dodsland 12 years of inventory, with steady production Freehold Viking Drilling Activity ▪ Initial entrance in 2015 with 8.5% 50% GORR across 76,000 acres ▪ 12+ years of remaining inventory – 916 gross future drilling locations, with 25% 756 gross booked at year end 2020 Freehold Lands – Aver
Slide 45: Clearwater
Clearwater 160,000 acres of exposure to the top growth areas in Canada 2018 2021 ▪ Initial entrance in 2018 with a GORR Nipisi & 2018 2019 Figure Total/ Ukalta Craigend Average across 109,000 acres in the Nipisi and Jarvie Lake Nipisi Jarvie areas for $12 million Deal size $12.0 $1.3 $1.3 $7.9 $22.5
Slide 46: Royalty Optimization Results
Royalty Optimization Results New Royalty Optimization Wells 400 120 ▪ Target high net royalty, +24 wells (Q4-2021) consolidated lands under 350 105 well capitalized operators that are seeing below 300 90 Production (boe/d) Gross Well Count average development or otherwise sterilized as a 250 75 resu
Slide 47: Finance and Integration
Finance and Integration David Hendry Chief Financial Officer freeholdroyalties.com TSX FRU Quality Assets • Sustainable Dividends
Slide 48: Lower Risk Leverage Strategy
Lower Risk Leverage Strategy Responsible leverage use with plenty of available dry powder ▪ Freehold targets a lower risk leverage profile Trailing 12-Month Net Debt to Funds from Operations with net debt to funds from operations <1.5x 2 ▪ Expanded credit facility to $300 million with a further $75
Slide 49: Corporate Income Tax
Corporate Income Tax With stronger prices and volumes, comes improved cash flow and income tax ▪ Tax pools added in 2021 totalled approximately $385 million, with ~$40 million deductible against earnings in 2022 ▪ Freehold expects to pay income tax both in the US and Canada in 2022 due to growing US
Slide 50: Integration of Acquired Assets
Integration of Acquired Assets Freehold has the resources and processes in place to integrate acquired US interests ▪ Measured entrance into the US allowed Freehold to build its understanding, systems and processes to manage royalty assets in the US, prior to full expansion Dedicated Extensive inter
Slide 51: Audit and Compliance
Audit and Compliance Freehold’s dedicated Audit and Compliance function adds significant value $81mm ▪ Freehold has dedicated Audit/Compliance Audit has incremental professionals who ensure that all royalties due added value to Freehold are identified and collected. This 400 boe/d maximizes the valu
Slide 52: Closing Remarks
Closing Remarks David Spyker President and Chief Executive Officer freeholdroyalties.com TSX FRU Quality Assets • Sustainable Dividends
Slide 53: 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 five ▪ Q3-2021 net debt to ▪ Positioned in the top tier operating margin provides times in last 12 months trailing funds from oil
Slide 54: What's Next for Freehold
What’s Next for Freehold Diversifying our suite of assets Continue to ▪ Evaluated a number of potash deals in 2021 and expect to remain active build our in growing our portfolio into 2022 knowledge ▪ Completed lease agreements prospective for helium in 2021 around non- oil and gas ▪ Given the nature
Slide 55: Continued Strategy Execution
Continued Strategy Execution We remain committed to executing our North American strategy Continue to maintain Bigger, better Acquisition environment low-risk identity. Freehold. Royalty remains robust, Sustainable debt, portfolio positioned to improved portfolio dividend levels enables generate rec
Slide 56: Questions
Questions freeholdroyalties.com TSX FRU Quality Assets • Sustainable Dividends
Slide 57: Advisories
Advisories Forward-Looking Statements This presentation offers our assessment of Freehold’s future plans and operations as at December 8, 2021 and contains forward-looking information including, without limitation, forward-looking information with regards to the expectation that Freehold's revenue p
Slide 58: Advisories continued
Advisories continued Forward-Looking Statements continued You are further cautioned that the preparation of financial statements in accordance with International Financial Reporting Standards requires management to make certain judgments and estimates that affect the reported amounts of assets, liab
Slide 59: 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 payout ratio, free funds flow from operations and cash costs are useful supplemental measures for managemen
Slide 60: Advisories continued
Advisories continued Light and Natural Heavy Natural BOE Medium Gas Crude Oil Gas (boe/d) Crude Oil Liquids (bbl/d) (mmcf/d) (bbl/d) (bbl/d) 2022 Aggregate Forecast Production 14,300 5,800 1,100 34.8 1,600 2022 Forecast Canadian Production 9,400 3,300 1,100 25.8 700 2022 Forecast US Production 4,900
Slide 61: Advisories continued
Advisories continued Production Profiles and Economics In this presentation, Freehold has presented certain production profiles or type curves associated with Core Wells, Tier 1 Wells and Tier 2 Wells in both the Delaware Basin and Eagle Ford Basin. Such production profiles include the associated ul
Slide 62: Investor Relations
Investor Relations tf. 888.257.1873 t. 403.221.0833 w. freeholdroyalties.com freeholdroyalties.com TSX FRU Quality Assets • Sustainable Dividends