Mr. Matt Donohue reports
FREEHOLD ROYALTIES LTD. ANNOUNCES 2016 SECOND QUARTER RESULTS AND SUSPENSION OF DRIP
Freehold Royalties Ltd. has released second quarter results for the period ended June 30, 2016.
RESULTS AT A GLANCE
Three months ended Six months ended
June 30, June 30,
except as noted) 2016 2015 2016 2015
Gross revenue $32,219 $38,004 $57,152 $65,755
Net income (loss) (2,249) 3,919 (10,839) 25,536
Per share, basic and
diluted ($) (0. 02) 0.04 (0.11) 0.31
Funds from operations 24,142 28,730 39,642 50,668
Per share, basic ($) 0.23 0.32 0.39 0.62
Operating income (1) 28,011 32,733 48,303 55,365
from royalties (%) 91 85 94 84
Acquisitions 162,211 342,310 162,430 410,680
Capital expenditures 753 2,750 2,837 8,719
Dividends declared 13,380 24,459 31,225 44,788
Per share ($) (2) 0.12 0.27 0.30 0.54
Net debt obligations
(1) 98,191 146,992 98,191 146,992
production (boe/d) 12,041 10,617 12,006 10,338
realizations ($/boe) 28.48 38.63 25.37 34.36
($/boe) (1) (3) 25.57 33.88 25.11 29.58
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(1) A non-generally accepted accounting principle financial
(2) Based on the number of shares issued and outstanding at each
(3) A conversion of natural gas to barrels of oil equivalent.
The board of directors has declared a dividend of four cents per share, to be paid on Sept. 15, 2016, to shareholders of record on Aug. 31, 2016. The dividend is designated as an eligible dividend for Canadian income tax purposes.
Dividend reinvestment plan suspension
Effective with the August dividend, the board has approved the suspension of the company's dividend reinvestment plan (DRIP) pending further notice. As of Sept. 15, 2016, shareholders who were enrolled in the DRIP will receive the regular monthly cash dividend of four cents per share. Participants in the DRIP will still receive shares in lieu of the monthly cash dividend to be paid on Aug. 15, 2016, to shareholders of record as at July 31, 2016.
Second quarter 2016 highlights:
- Freehold's production averaged a record 12,041 barrels of oil equivalent per day in second quarter 2016. Gains
in production were the result of acquisition activity (see news release
dated May 25, 2016) and a strong quarter from the company's audit function
(largely responsible for 475 boe per day of prior-period adjustments for second quarter
- Funds from operations totalled $24.1-million (23 cents per share) in second quarter 2016, up
55 per cent from first quarter 2016. Royalties accounted for 91 per cent of operating income,
reinforcing the company's royalty focus.
- Freehold acquired royalty production and fee lands from certain
affiliates of Husky Energy Inc. for $162-million. Freehold's royalty acreage now totals 5.9 million acres (73-per-cent
- After a review of company's prospect inventory, including the upside from the
Husky transaction, the company estimates that it has greater than 10 years of
free drilling on its royalty lands.
- In second quarter 2016, Freehold issued 15 leases, with the majority of the interest
focused on Freehold's southeast Saskatchewan royalty lands.
- Basic payout ratio (dividends declared and funds from operations) for second quarter
2016 totalled 55 per cent while the adjusted payout ratio (cash dividends plus
capital expenditures and funds from operations) for the same period was 50 per cent.
- At June 30, 2016, net debt obligations totalled $98.2-million, down $51.0-million from $149.2-million at March 31, 2016. This implies a ratio of net debt
to 12-month trailing funds from operations of 1.1 times (0.9 times
including the pro forma effects of acquisitions).
The attached key operating assumptions table summarizes the company's key operating assumptions for 2016, updated to reflect actual statistics for the first six months and the company's current expectations for the rest of the year.
- The company has increased its production guidance from 11,400 barrels of oil equivalent per day to 11,700
boe per day, reflecting lower-than-expected decline within the company's royalty
production and positive prior-period adjustments. Volumes are expected
to be weighted approximately 59 per cent oil and natural gas liquids and
41 per cent natural gas. It continues to maintain its royalty focus with royalty
production accounting for 80 per cent of forecasted 2016 production and 93 per cent of
- The company has revised upward its 2016 AECO natural gas price assumption from
$1.80 per thousand cubic feet to $2 per thousand cubic feet.
- Increased expected royalty production, which has no operating costs, has
resulted in a downward revision to the company's operating costs from $4 per boe to
$3.75 per boe.
- The company's general and administrative costs have been reduced from $2.50 per boe to $2.40 per boe, reflecting
the increased production guidance.
- Freehold's board has approved the suspension of the DRIP pending further
notice, resulting in estimates for the company's dividends paid in shares for the
full year decreasing from $8-million to $5-million.
- The company's capital spending budget remains at $7-million. A large percentage of
the company's capital expenditure program is non-operated, and the activity level
is difficult to predict.
- Weighted-average shares outstanding have increased from 109 million to
110 million due to the full exercise of the overallotment option
relating to the company's May, 2016, financing.
- Based on the announced DRIP suspension and changes to certain operating
assumptions, the company forecasts its 2016 basic payout ratio to be approximately
74 per cent (previously 82 per cent).
- The company forecasts year-end net debt to funds from operations of approximately
1.1 times based on its revised key operating assumptions (excluding the
pro forma effects of acquisitions).
KEY OPERATING ASSUMPTIONS
Aug. 4, May 11, March 3, Nov. 12,
Annual 2016 average 2016 2016 2016 2015
Daily production boe/d 11,700 11,400 9,800 9,800
WTI oil price U.S.$/bbl $40.00 $40.00 $35.00 $50.00
Western Canadian Select (WCS) Cdn$/bbl 34.00 34.00 31.00 47.00
AECO natural gas price Cdn$/Mcf 2. 00 1.80 2.00 2.75
Exchange rate Cdn$/U.S.$ 0.76 0.77 0.72 0.76
Operating costs $/boe 3.75 4.00 4.75 5.00
General and administrative
costs (1) $/boe 2.40 2.50 2.65 2.85
Capital expenditures $ millions 7 7 7 15
Dividends paid in shares
(DRIP) $ millions 5 8 8 13
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(1) Excludes share-based and other compensation.
Recognizing the cyclical nature of the oil and gas industry, the company continues to closely monitor commodity prices and industry trends for signs of changing market conditions. The company cautions that it is inherently difficult to predict activity levels on its royalty lands since it has no operational control. As well, significant changes (positive or negative) in commodity prices (including Canadian oil price differentials), foreign exchange rates or production rates may result in adjustments to the dividend rate.
Based on the company's current guidance and commodity price assumptions, and assuming no significant changes in the current business environment, the company expects to maintain the monthly dividend rate through the next quarter. It will continue to evaluate the commodity price environment and adjust the dividend levels as necessary (subject to the quarterly review and approval of the company's board of directors).
Availability on SEDAR
Freehold's second quarter 2016 interim unaudited condensed consolidated financial statements and accompanying management's discussion and analysis are being filed today with Canadian securities regulators and will be available at SEDAR and on the company's website.
We seek Safe Harbor.
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