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Freehold Royalties Ltd
Symbol FRU
Shares Issued 118,017,667
Close 2017-05-10 C$ 13.44
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Freehold earns $7.08-million in Q1

2017-05-10 16:29 ET - News Release

Mr. Tom Mullane reports


Freehold Royalties Ltd. has released first quarter results for the period ended March 31, 2017.

                  RESULTS AT A GLANCE 
                                                 Three months ended
                                                       March 31,
                                                   2017        2016 
Financial ($000s, except as noted)
Royalty and other revenue                       $41,091     $24,933
Net income (loss)                                 7,088      (8,590)
Per share, basic and diluted ($)                   0.06       (0.09)
Funds from operations                            32,069      15,500
Per share, basic ($)                               0.27        0.16
Operating income (1)                             37,084      20,292
Operating income from royalties (%)                  91          97
Dividends declared                               15,338      17,845
Per share ($) (2)                                  0.13        0.18

Average daily production (boe/d) (3)             12,753      11,974
Oil and NGL (%)                                      56          63
Average price realizations ($/boe) (3)            34.88       22.23
Operating netback ($/boe) (1) (3)                 32.31       18.62
                                                -------     -------
(1) A non-generally accepted accounting principle financial 
(2) Based on the number of shares issued and outstanding 
at each record date.
(3) Note the conversion of natural gas to barrels of oil 
equivalent (boe).        

President's message

Freehold achieved record production and solid cash flow results again this quarter, marking the 13th consecutive quarterly production increase and the third consecutive on a per-share basis. We are maintaining our 2017 production forecast between 11,300 and 11,800 barrels of oil equivalent per day after adjusting for the disposition of non-core working interest assets, aligning with our royalty focus.

After increasing our dividend by 25 per cent earlier this year, we are forecasting an adjusted payout ratio for 2017 of 62 per cent, safely at the lower end of our target adjusted payout range of 60 per cent to 80 per cent. As a leading royalty oil and gas corporation, Freehold has an objective of delivering growth and low-risk attractive returns to shareholders over the long term, which we have continued to provide in this reporting period.

Tom Mullane, president and chief executive officer

Subsequent events

With the company's continued emphasis on royalties, in April, 2017, Freehold sold all of its working interest assets located in southeast Saskatchewan for $29-million, including adjustments. Total production and operating income associated with these assets in 2016 were approximately 750 barrels of oil equivalent per day and $4.3-million, respectively. Related decommissioning liabilities removed as a result of this sale amounts to $4.8-million (over 300 gross wells plus related facilities). These dispositions reduce capital expenditure requirements and cash costs, further improving the company's risk profile.

With the objective to reduce cash costs, Freehold made the decision to reduce its credit facilities to $180-million (from $260-million). This decision aligns with keeping the company's net debt to funds from operations between 0.5 and 1.5 times. The company currently has over $110-million of unused capacity, and in addition, it has the ability to increase its credit facilities should it be needed.

First quarter 2017 highlights:

  • Freehold's production averaged a record 12,753 barrels of oil equivalent per day, a 7-per-cent improvement over first quarter 2016 and 1 per cent over fourth quarter 2016. Gains in production were largely driven by royalty acquisitions, drilling activity on the company's royalty lands and a strong quarter from the company's audit function (over 300 boe per day of prior-period adjustments).
  • Royalty production was up 13 per cent compared with first quarter 2016, averaging 10,701 boe per day. Royalty production increased 3 per cent on a per-share basis versus fourth quarter 2016.
  • Royalty interests accounted for 84 per cent of total production and contributed 91 per cent of operating income in first quarter 2017, reinforcing the company's royalty focus.
  • Wells drilled on the company's royalty lands totalled 150 (8.6 net) in the quarter, up from 85 (3.4 net) in first quarter 2016 and 125 (7.8 net) in the previous quarter.
  • In first quarter 2017, Freehold issued 25 new lease agreements with 11 companies, compared with nine issued in fourth quarter 2016 and two leases in first quarter 2016, highlighting the success of the company's recently created leasing team.
  • Freehold closed a $34-million acquisition of various gross overriding royalties and mineral title lands in the greater Dodsland area of Saskatchewan. Freehold acquired 32,000 acres of royalty lands with estimated production of 185 boe per day (91 per cent oil) at the time of closing.
  • Funds from operations totalled $32.1-million, an increase of 107 per cent compared with first quarter 2016 largely due to the increase in revenue. On a per-share basis, funds from operations were 27 cents per share in first quarter 2017 up from 16 cents per share in first quarter 2016.
  • Freehold generated $17.2-million in free cash flow (1), over and above the company's dividend, which the company applied to outstanding debt. At March 31, 2017, net debt totalled $76-million resulting in a ratio of net debt to 12-month trailing funds from operations of 0.7 time.
  • Cash costs (1) for the quarter totalled $7.66 per boe, down from $8.65 per boe in first quarter 2016. These costs are typically higher in the first quarter, and with the April, 2017, disposition of the company's southeast Saskatchewan working interest assets, the company expects cash costs to continue to trend downward, enhancing the company's netback.
  • Dividends declared for first quarter 2017 totalled 13 cents per share, up slightly from the previous quarter and down from 18 cents per share one year ago. In March, 2017, Freehold announced an increase to its monthly dividend from four cents to five cents per share.
  • Basic payout ratio (1) (dividends declared divided by funds from operations) for first quarter 2017 totalled 48 per cent while the adjusted payout ratio (1) ((cash dividends plus capital expenditures) divided by funds from operations) for the same period was 46 per cent.

(1) A non-generally accepted accounting principle financial measure.

Guidance update:

  • The company is maintaining its 2017 production range of 11,300 to 11,800 boe per day, after adjusting for the disposition of working interest volumes described in subsequent events.
  • Volumes are expected to be weighted approximately 55 per cent oil and natural gas liquids (NGL) and 45 per cent natural gas.
  • The company continues to improve its royalty focus with royalty production accounting for 87 per cent of forecasted 2017 production (up from 84 per cent) and 94 per cent of operating income (up from 91 per cent).
  • The company is maintaining its West Texas Intermediate (WTI) and Western Canadian Select (WCS) price assumptions at $52 (U.S.) per barrel and $49 (U.S.) per bbl and the company's AECO natural gas price assumption at $2.60.
  • Its operating costs forecast is revised downward to $2.50 per boe (from $3.25 per boe) as a result of the working interest property dispositions, which closed in April, 2017.
  • Based on the company's current five-cent monthly dividend level, the company expects its 2017 adjusted payout ratio ((cash dividends plus capital expenditures) divided by funds from operations) to be approximately 62 per cent.
  • The company forecasts year-end net debt to funds from operations of approximately 0.3 time based on the company's revised key operating assumptions.

Conference call details

A conference call to discuss financial and operational result for the period ended March 31, 2017, will be held for the investment community on May 11, 2017, beginning at 6 a.m. MT (8 a.m. ET). To participate in the conference call, approximately 10 minutes prior to the conference call, please dial 1-800-273-9672 (toll-free in North America).

Availability on SEDAR

Freehold's first quarter 2017 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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