Freehold Royalties Ltd. · TSX:FRU

Freehold Royalties — Investor Presentation (December 2012)

46 slides from Freehold Royalties's investor presentation, December 2012

  1. Slide 1: Investor Presentation December 2012

    Investor Presentation December 2012 Value beneath the surface

  2. Slide 2: Advisories

    Advisories TSX : FRU Forward-Looking Information This presentation offers management’s assessment of Freehold’s future plans and operations as at November 8, 2012, and contains forward-looking information pertaining to Freehold’s expected tax horizon, dividend policy and timing for paying dividends,

  3. Slide 3: Corporate Profile

    Corporate Profile TSX : FRU focused on oil and gas royalties FRU share price* $ per share 21.09 Annual dividend ($0.14 per month) $ per share 1.68 Dividend yield* percent 8 Shares outstanding (Sept. 30) million 66 Market capitalization* $ billion 1.4 Net debt to trailing funds from operations times

  4. Slide 4: What Sets Us Apart

    What Sets Us Apart TSX : FRU lower costs and large royalty capex than typical portfolio E&P company ROYALTY FOCUS high conservative dividend management, payout low risk profile 4

  5. Slide 5: The Royalty Advantage: Netbacks

    The Royalty Advantage: Netbacks TSX : FRU Working Interest Barrel Royalty Interest Barrel Operating netback* Operating netback* ~ 60% of gross revenue ~ 100%** of gross revenue A royalty interest offers the benefit of sharing in production revenue without the Royalties Paid Operating operational ris

  6. Slide 6: Total Return

    Total Return* TSX : FRU Cumulative dividends $149 $25.57 per share $36 $29 $10 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 YTD Freehold Royalties Ltd. S&P/TSX Oil and Gas Exploration & Production Index S&P/TSX Composite Index * From November 25, 1996 to November 30, 2012, assuming dividend re

  7. Slide 7: Top Royalty Payors/Operators

    Top Royalty Payors/Operators* TSX : FRU SABRE Energy Ltd. Arruga Resources Ltd. * Top 30 payors account for over 85% of royalty revenue for 2012 YTD. 7

  8. Slide 8: Royalty-Focused Production

    Royalty-Focused Production TSX : FRU boe/d 70% 10,000 8600 royalties 8,000 6,000 4,000 2,000 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012e Royalty Interest Production Working Interest Production * See advisory regarding forward-looking information. 8

  9. Slide 9: Harvesting Value from Royalties

    Harvesting Value from Royalties TSX : FRU 2.8 million gross acres* North Saskatchewan River Cardium Viking Royalty interests 93% Working interests 7% Oil resource plays Bakken, Mississippian Lower Shaunavon * Includes January and August 2012 acquisitions. 9

  10. Slide 10: FRU Mirrors Industry Activity

    FRU Mirrors Industry Activity TSX : FRU Number of wells Number of gross wells drilled by industry drilled on Freehold’s royalty lands at no cost to Freehold 30,000 1,000 25,000 800 20,000 600 15,000 400 10,000 5,000 Industry Drilling, WCSB 200 Drilling on our Royalty Lands 0 0 1997 1998 1999 2000 20

  11. Slide 11: Royalty Drilling Trends

    Royalty Drilling Trends TSX : FRU 20 53% Oil 57% Oil 44% Oil 58% Oil 85% Oil 88% Oil Equivalent 28% Hz 27% Hz 29% Hz 35% Hz 57% Hz 59% Hz Net Wells Drilled on Freehold’s Royalty Land 15 10 Oil Hz Oil Vert Gas Hz 5 Gas Vert Other D&A 0 2007 2008 2009 2010 2011 2012 YTD * 2012 year to date to Septembe

  12. Slide 12: Capex Requirements

    Capex Requirements TSX : FRU Capital Expenditures as a Percentage of Funds from Operations 150% 125% Sector average 104% 100% 75% 50% Freehold average 23% 25% 0% 2009 2010 2011 2012e 2013e Sector Average Freehold * See non-GAAP measures. 12

  13. Slide 13: Unleased Mineral Title Lands

    Unleased Mineral Title Lands TSX : FRU 100,000 gross acres and growing We own the rights in perpetuity We can choose to drill or lease out 13

  14. Slide 14: Investing Capital

    Investing Capital TSX : FRU 2013 budget 2013 Capital Allocation ($33 million)  $33 million  40 gross wells (13 net risked) Drilling on our title lands  Southeast Saskatchewan » Midale, Frobisher, Alida, Tilston and Bakken light oil  Lloydminster heavy oil Drilling and Completions - $24 million 

  15. Slide 15: Focused on Accretive Royalties Acquisitions

    Acquisition Strategy TSX : FRU Focused on Accretive Royalties Acquisitions Buy existing $650 million royalties since inception  MTLs and GORRS  90% royalties Manufacture  8,300 boe/d initial royalties production  Capital contribution  $78,000 per boe/d in return for a GORR average cost Equity f

  16. Slide 16: Conservative Capital Structure

    Conservative Capital Structure TSX : FRU Debt to Funds from Operations* $185 million (multiple) (WTI US$/bbl) 3.0 $120 available credit capacity 2.5 (at September 30, 2012) $100 2.0 $80 1.5 $60 1.0 $40 0.5 $20 0.0 $0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012e Se

  17. Slide 17: Stable, Attractive Dividend

    Stable, Attractive Dividend TSX : FRU Annual Dividend ($/share) $2.00 $1.68 $1.68 $1.68 $1.68 $1.40 $1.50 $1.00 $0.50 $0.00 2009 2010 2011 2012 2013e Eligible dividends for Canadian tax purposes. * See advisory regarding forward-looking information. 17

  18. Slide 18: Annual Guidance

    Annual Guidance* TSX : FRU Key Assumptions (as at November 8, 2012) 2012 2013 Daily production boe/d 8,600 8,400 WTI oil price US$/bbl 95.00 95.00 Western Canada Select (WCS) Cdn$/bbl 75.00 76.00 AECO natural gas price Cdn$/Mcf 2.25 3.25 Exchange rate Cdn$/US$ 1.00 1.00 Operating costs $/boe 4.80 5.

  19. Slide 19: Solid Investment

    Solid Investment TSX : FRU Low risk profile The Royalty Sustainable Advantage asset base Stable dividend

  20. Slide 20: Supplemental Information

    Supplemental Information Value beneath the surface

  21. Slide 21: 2012 YTD Total Return

    2012 YTD* Total Return TSX : FRU Progress 55.3% Twin Butte 43.5% Freehold FRU: 17.5% 17.5% Top Quartile Pacific Rubiales 17.2% Vermilion 16.5% Perpetual 6.0% Peyto 5.4% S&P/TSX Composite 5.1% ARC Resources 3.9% Cresent Point -7.7% PetroBakken -10.7% Baytex -18.6% Advantage -22.2% Trilogy -22.6% Bona

  22. Slide 22: Board of Directors

    Board of Directors TSX : FRU Nolan Blades Harry Campbell Peter Harrison Bill Ingram Arthur Korpach Michael Maher David Sandmeyer Rodger Tourigny 22

  23. Slide 23: Freehold Ownership

    Freehold Ownership TSX : FRU  90% Canadian held Investor Profile  Largest shareholder is CN Pension Trust Funds at 26% 46% Canadian Institutional 45% Canadian Retail 6% U.S./Foreign Retail 3% U.S. Institutional 23

  24. Slide 24: Professional Management

    Professional Management TSX : FRU CN P ENSION T RUST F UNDS Pension fund for employees of Canadian National Railway Rife Resources Management Ltd. Manages the assets of 100% owned by CN Pension Trust Funds Freehold and Canpar 100% owned by CN Pension Trust Funds 26% owned by CN Pension Trust Funds 2

  25. Slide 25: Our History

    Our History TSX : FRU • Established as Freehold Royalty Trust in 1996 • Converted to a corporation December 31, 2010 Wholly owned by CN Pension Trust Funds • Operating since 1979 • Operating since 1983 • Held royalty interest properties • Held working interest properties and (including Hudson’s Bay

  26. Slide 26: What is a Royalty?

    What is a Royalty? TSX : FRU A payment based on a percentage of gross production Crown Royalty  Mineral rights owned by the government  Leases auctioned at Crown land sales  Royalty rates set by the Crown Mineral Title Royalty  Minerals rights privately owned  Lease terms and royalty rate negot

  27. Slide 27: Benefits of Royalties

    Benefits of Royalties TSX : FRU • no exploration or lower drilling costs risk • no abandonment or reclamation liabilities • no Crown or third higher party royalties netback • no production or operating costs 27

  28. Slide 28: 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

  29. Slide 29: Land Holdings

    Land Holdings TSX : FRU 2.8 million gross acres(1) Land Profile  23% held in perpetuity (634,000 gross acres of mineral title and royalty assumption lands; 80% leased)  Undeveloped land(2) » 792,000 gross acres » Independently valued at $91 million 27,000 oil and gas wells Mineral title and royalt

  30. Slide 30: Reserves Profile

    Reserves Profile TSX : FRU Net Reserves Net Proved Plus Probable Reserves  14.2 MMboe proved » 62% oil and NGL » 6.5 year RLI  22.2 MMboe P+P » 63% oil and NGL » 9.1 year RLI 98% Light and medium crude oil - 24% Heavy crude oil - 34% of our proved reserves Natural gas liquids - 5% Natural gas - 37

  31. Slide 31: Production Profile

    Production Profile TSX : FRU Production Profile 2012 YTD average  8,628 boe/d  72% royalty production  64% oil and NGL Our oil-weighted production is currently unhedged Light and medium crude oil - 35% Heavy crude oil - 24% Natural gas liquids - 5% Natural gas - 36% 31

  32. Slide 32: Accretive Royalty Acquisitions

    Accretive Royalty Acquisitions TSX : FRU Initial Production Cost Acquired Year Area ($ millions) (boe/d) 1997 Alberta/Saskatchewan $ 22 700 2001 Southeast Saskatchewan 25 800 2005 Petrovera (CNRL) 352 3,750 2007 Alberta/Saskatchewan 90 680 1997–2009 Numerous small acquisitions 57 1,245 2010 Alberta,

  33. Slide 33: 2012 Royalty Acquisitions

    2012 Royalty Acquisitions TSX : FRU Alberta, Sask., B.C. Alberta, Sask.  January 17, 2012  August 31, 2012  $49.5 million  $10.8 million  250,000 gross acres  6,100 net acres  Reserves: 3.1 MMboe  Reserves: 0.3 MMboe  RLI: 15.9 years  RLI: 9.5 years  Production  Production » 530 boe/d »

  34. Slide 34: FRU Stock Price Tracks Oil Price

    FRU Stock Price Tracks Oil Price TSX : FRU WTI in US$* FRU in C$* $150 $30 $125 $25 $100 $20 $75 $15 $50 $10 $25 $5 $0 $0 2008 2009 2010 2011 2012 WTI Oil Price (US$) FRU Share Price (CDN$) * To October 31, 2012. 34

  35. Slide 35: Average Benchmark Oil Prices

    Average Benchmark Oil Prices TSX : FRU $150 $125 $100 $75 $50 $25 $0 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 WTI (US$/bbl) Edm. Par (Cdn$/bbl) WCS (Cdn$/bbl) To October 31, 2012. 35

  36. Slide 36: Average AECO Natural Gas Prices

    Average AECO Natural Gas Prices TSX : FRU $15 $12 $9 $6 $3 $0 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 AECO One Month Spot (Cdn$/Mcf) To October 31, 2012. 36

  37. Slide 37: Attractive Dividend

    Attractive Dividend TSX : FRU Dividend Selling Price ($/share) ($/boe) $3.00 $2.91 $80 $70 $2.50 $2.10 $60 $2.00 $1.92 $1.92 $50 $1.70 $1.73 $1.68 $1.68 $1.68 $1.56 $1.50 $1.40 $40 $1.32 $1.31 $1.10 $30 $1.00 $0.78 $0.65 $20 $0.50 $10 $0.13 $0.00 $0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

  38. Slide 38: Dividend Payout Ratio

    Dividend Payout Ratio* TSX : FRU 120 100 88% 85% 80 96% 92% 81% 65% 60 57% 60% 40 20 0 2009 2010 2011 YTD 2012* Cash flow from operating activities Column1 Dividends paid in cash Dividends paid in shares * Dividends as a percentage of cash flow from operating activities. 38

  39. Slide 39: 2012 YTD Results

    2012 YTD Results TSX : FRU Nine months ended September 30 2012 2011 Change Gross revenue $ millions 122.3 112.6 +9% Net income $ millions 32.9 39.2 -16% Cash flow from operating activities $ millions 99.9 85.8 +17% Dividends declared $ millions 81.8 75.4 +8% Per share $ 1.26 1.26 - Capital expenditu

  40. Slide 40: 2011 Results

    2011 Results TSX : FRU 2011 2010 Change Revenue, net of royalty expenses $ millions 157.9 138.2 +14% Net income $ millions 55.3 49.3 +12% Funds from operations* $ millions 128.2 107.0 +20% Dividends declared $ millions 101.0 98.1 +3% Per share $ 1.68 1.68 - Capital expenditures $ millions 25.6 18.1

  41. Slide 41: 2011 Operational Highlights

    2011 Operational Highlights TSX : FRU Focus on Royalties Percent Royalty Working Total From Interest Interest Company Royalties 000s gross Land holdings acres 2,568 179 2,747 93% Net reserves Mboe 17,322 4,867 22,189 78% Average production boe/d 5,578 1,898 7,476 75% Acquisitions $ millions 7.3 - 7.

  42. Slide 42: Production and Revenue

    Production and Revenue TSX : FRU 2012 Q3 2012 Q3 Production Revenue Oil & NGL - 67% Oil & NGL - 93% Natural gas - 33% Natural gas - 7% 42

  43. Slide 43: Revenue

    Revenue TSX : FRU $70 $60 $50 $40 $30 $20 $10 $0 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2010 2010 2011 2011 2011 2011 2012 2012 2012 Revenue, net of royalty expense ($ millions) Average selling price ($/boe) 43

  44. Slide 44: Strong Financial Position

    Strong Financial Position TSX : FRU Debt to Funds From Operations Multiple (times)* 2.5 $210 million credit facility 2.0 ($185 million available at September 30, 2012) 1.5 1.0 0.5 0.0 2008 2009 2010 2011 2012e Sector Average Freehold * See advisory regarding non-GAAP financial measures. 44

  45. Slide 45: 2012 Sensitivities

    2012 Sensitivities TSX : FRU Estimated Change in Funds From Change Operations Variable (+/-) ($ per share) WTI oil price US$1.00/bbl 0.02 Canadian/U.S. dollar exchange rate US$0.01 0.02 Light/heavy oil price differential Cdn$1.00/bbl 0.02 AECO natural gas price Cdn$0.25/Mcf 0.02 Interest rate 1% 0.0

  46. Slide 46: Investor Relations

    Investor Relations tf. 888.257.1873 t. 403.221.0891 w. freeholdroyalties.com Value beneath the surface

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