Mr. David Spyker reports

FREEHOLD ROYALTIES ANNOUNCES SECOND QUARTER RESULTS

Freehold Royalties Ltd. has released second quarter results for the period ended June 30, 2023.

President's message

Freehold continues to see strong third-party development on the Company's lands, with the quality of its North American royalty portfolio driving this performance. Production volumes for the second quarter showed continued strength at 14,667 boe/d, comparable quarter over quarter, notwithstanding wildfire impacts of approximately 225 boe/d. Canadian volumes were highlighted by growth in the Viking and Clearwater as well as a resurgence in activity in southeast Saskatchewan and Mannville heavy oil. Year to date record gross levels of drilling activity across our North American portfolio and near record leasing on our Canadian lands will provide continued momentum through the second half of 2023 and into 2024.

In the U.S., volumes were consistent versus the previous quarter with the expectation that production will strengthen into the second half of 2023, delivering modest organic growth. We continue to realize a significant pricing premium associated with our U.S. production relative to Canada, with the difference almost 40 per cent for the quarter. In addition, well type curves and reserve additions continue to perform in-line with expectations as the quality of the underlying resource and payors developing Freehold's assets provide enhanced sustainability to future returns for our investors.

Highlights included:

• $74-million in revenue; $150-million through the first half of 2023;
• $53-million in funds from operations ($0.35/share); $112-million for the first half of 2023;
• $41-million in dividends paid ($0.27/share); 13 per cent increase over the same period in 2022;
• Average production of 14,667 boe/d (9,800 boe/d in Canada and 4,867 boe/d in the U.S.);
• 179 gross wells drilled, 55 wells in Canada and 124 wells in the U.S.; record activity for the first half of 2023;
• $54.05/boe average realized price ($66.52/boe in the U.S. and $47.86/boe in Canada); and
• 67 new leases signed with 16 counterparties generating approximately $1-million in bonus revenues.

Drilling activity over the first six months of 2023 has been one of the most active in Freehold's history, with strength on both sides of the border. For the quarter, we saw the benefits of diversification as seasonal slow-down in Canada due to spring break-up was offset with strong drilling on Freehold's U.S. royalty lands. Q2-2023 had greater than 60 per cent of drilling targeting prospects in the Eagle Ford and Permian Basins, where Freehold maintains material exposure to investment grade payors, along with providing some of the lowest breakeven prices in North America. On the leasing front, our Canadian portfolio saw near record levels with 67 agreements signed in the quarter, and 83 agreements to date.

Freehold's payout remains well funded at current commodity prices, as well as at prices much lower than current strip pricing, with the diversification and quality of payors throughout our North American portfolio providing enhanced sustainability to Freehold's return profile.

Looking forward, we remain excited about the long-term outlook for Freehold. We continue to strengthen Freehold's asset base, balance sheet and the long-term sustainability of our business.

David M. Spyker, President and Chief Executive Officer

Dividend Announcement

The Board of Directors of Freehold has declared a monthly dividend of $0.09 per share to be paid on September 15, 2023, to shareholders of record on August 31, 2023. The dividend is designated as an eligible dividend for Canadian income tax purposes.

Second Quarter Highlights

WTI prices averaged US$73.78/bbl for Q2-2023, 32 per cent lower than Q2-2022 and down 3 per cent from the previous quarter.

Royalty and other revenue totalled $73.7-million, down 32 per cent from Q2-2022 and 4 per cent versus the previous quarter. The revenue decrease was driven primarily by a lower commodity price environment.

Funds from operations totalled $53-million ($0.35/share), this compares to $83.8-million ($0.56/share) in Q2-2022 and $58.6-million ($0.39/share) in the previous quarter. These decreases were driven by lower commodity pricing and higher interest rate charges.

Average production of 14,667 boe/d in Q2-2023, represented an increase of 9 per cent over Q2-2022 and consistent versus Q1-2023. Volumes were impacted by Canadian wildfires for a short period over the quarter with a subsequent return of operations to near full capacity.

Q2-2023 Canadian oil and gas royalty volumes were consistent versus Q1-2023, averaging 9,800 boe/d. Producer shut-ins related to wildfires had an estimated impact of 225 boe/d or 2 per cent of Canadian volumes. Despite this impact, volumes remained flat versus the previous quarter as robust activity across our Canadian portfolio through the first six months of 2023 offset the short-term impact. We continue to see a revitalization of our lands in southeast Saskatchewan and in the Mannville heavy oil plays from junior private payors with mandates to grow production.

U.S. oil and gas royalty production averaged 4,867 boe/d, consistent compared to Q1-2023 and up 29 per cent when compared to the same period in 2022. Volumes were in-line with expectations as broad activity offset declines from earlier flush production. Q2-2023 volumes in Freehold's Howard County (Midland Basin) assets were modestly impacted by steeper than expected declines due to offsetting frac operations and several high impact wells that were delayed to Q3-2023. Rig activity, set a high-water mark for our U.S. portfolio at 31 rigs on our lands in April, with current rig activity in-line with average 2022 levels.

Realized price of $54.05/boe was down 38 per cent versus Q2-2022 and 5 per cent versus the previous quarter. Freehold continues to benefit from the advancement of its North American strategy with more favourable U.S. realized pricing of $66.52/boe, 39 per cent higher than what we realized in Canada ($47.86/boe) for the period.

Recorded a netback of $46.07/boe, down 42 per cent versus Q2-2022 and 9 per cent versus the previous quarter, driven by lower commodity prices and higher interest rates.

Near record quarter of leasing activity with 67 agreements signed with 16 counterparties, including six drilling commitments and lease bonus of approximately $1-million.

Dividends declared for Q2-2023 totaled $40.7-million ($0.27 per share), up 13 per cent versus the same period in 2022 when Freehold declared dividends of $36.2-million ($0.24 per share). Freehold's dividend payout ratio for Q2-2023 was 77 per cent, versus 43 per cent during the same period in 2022. Given the high margin nature of royalties, along with our higher oil weighting and strong price realizations, Freehold's dividend remains sustainable at oil and natural gas prices materially below current commodity price levels.

Income tax deposits of $24.4-million were reclassified to non-current at June 30, 2023 due to the expected timeline for appealing assessments with the Canada Revenue Agency. Freehold continues to receive legal advice that its tax returns were filed correctly and as such, expects to be successful in challenging the assessments.

Long-term debt was reduced by $7.1-million to $152-million at quarter-end. Net debt of $130.8-million at the end of Q2-2023 represented 0.5 times trailing funds from operations. Net debt was up from $127.9-million at year-end 2022 reflecting the reclassification of $24.4-million of income tax deposits from current to non-current assets.

Cash costs for the quarter totalled $7.19/boe, down 14 per cent versus the same period in 2022. This decrease was driven by a lower annual share-based compensation payout.

Drilling and Leasing Activity

During the first six months of 2023, 528 gross (9.5 net) wells were drilled on Freehold's North American royalty lands, representing the highest level of drilling activity in Freehold's 26-year history on a gross measure. For the quarter, 179 gross (1.8 net) wells were drilled on Freehold's royalty lands with producers continuing to target oil prospects, with 89 per cent of wells drilled targeting oil and liquids.

Of the 179 gross wells drilled on Freehold's royalty lands over the quarter, 40 per cent of the drilling occurred in the Permian, 21 per cent was focused in the Eagle Ford, 11 per cent in southeast Saskatchewan, and 6 per cent in the Cardium with the remainder balanced between plays in both Canada and the U.S. By geography, approximately 15 per cent of gross wells on Freehold's royalty lands targeted prospects in Alberta, 17 per cent in Saskatchewan and 60 per cent in Texas with the balance distributed across other regions.

Of the gross wells drilled, approximately 16 per cent were drilled on Freehold's gross overriding royalty prospects in Canada, 15 per cent were on mineral title prospects in Canada and 69 per cent were drilled on Freehold's U.S. royalty acreage, with 76 per cent of these U.S. gross wells drilled on Freehold's mineral title.

Canada

In Q2-2023, Freehold had 55 gross (1.4 net) locations drilled within our Canadian portfolio compared to 76 gross (2.3 net) locations during Q2-2022. Drilling on our Canadian lands over the first six months of 2023 reached 230 gross locations (8.3 net), up 5 per cent and 2 per cent respectively on a gross and net measure when compared to the same period in 2022.

With spring break-up occurring in Q2-2023, drilling was down sequentially with a strong ramp-up in the second half of the quarter. Drilling in Canada was led by the Cardium, where 12 gross wells were spud in Q2-2023. In addition, we saw a growing level of activity in southeast Saskatchewan where operators targeted the Mississippian and Bakken formations. Our royalty lands in southeast Saskatchewan are continuing to see a resurgence of activity as smaller public and private operators pursue growth objectives within their respective portfolios.

We have also benefitted from significant leasing throughout our Canadian portfolio in 2023, with nearly half of the 83 new leases signed to date for the Mississippian in southeast Saskatchewan. As a result of improvements in heavy oil drilling technology we have also seen a significant increase in the amount of leases targeting Mannville heavy oil.

United States

Overall, 124 gross wells were drilled on our U.S. royalty lands in Q2-2023, which compares to 148 gross wells during Q2-2022 and 174 gross locations during the previous quarter.

In the U.S., operators focused drilling on light oil prospects in the Permian and Eagle Ford with 88 per cent of activity within these basins. In total, Freehold had 73 gross locations targeting prospects in the Permian and 38 gross locations in the Eagle Ford over the quarter. We also saw activity associated with the Marcellus, Piceance and Haynesville plays. Development of Freehold's U.S. lands was led by a diverse group of investment grade public companies and growth oriented public and private operators.

H2-2023 volumes are expected to be positively impacted by several multi-well pads in the Permian (Midland Basin) that are in the process of being completed and we expect to be on production starting in the second half of 2023.

Although Freehold's U.S. net well additions were lower than in Canada, U.S. wells are significantly more prolific as they generally come on production at approximately ten times that of an average Canadian well in our portfolio. However, a U.S. well can take upwards of six to nine months from initial license to first production, compared to three to four months in Canada, on average.

2023 Guidance

Freehold is maintaining its 2023 guidance after incorporating actual results for the first six months of 2023. The following table summarizes our key operating assumptions for 2023 with production expected to be weighted approximately 62 per cent oil and NGL's and 38 per cent natural gas.

Conference Call Details

A webcast to discuss financial and operational results for the period ended June 30, 2023, will be held for the investment community on Monday July 31, 2023, beginning at 9:00 AM MDT (11:00 AM EDT).

A live audio webcast will be accessible through the link below and on Freehold's website under "Events & Presentations" on Freehold's website at www.freeholdroyalties.com. To participate in the conference call, you are asked to register at the link provided below.

Live Audio Webcast URL: https://edge.media-server.com/mmc/p/rsmnsh2k

A dial-in option is also available and can be accessed by dialing 1-800-898-3989 (toll-free in North America) participant passcode is 2023064#.

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