Mr. David Spyker reports

FREEHOLD ROYALTIES LTD. ANNOUNCES 2020 RESULTS AND INCREASES 2021 DIVIDEND AND PRODUCTION GUIDANCE

Freehold Royalties Ltd. has released its fourth quarter and annual results for the period ended Dec. 31, 2020.

President's message

Two thousand twenty was a significant year for Freehold, one in which we undertook a number of key initiatives to underpin the long-term sustainability of our business and reinforce Freehold's identity as a lower risk income vehicle for our shareholders. This was accomplished despite the challenging backdrop of COVID-19 and the sharp decline in oil prices.

Our team worked hard to identify acquisition opportunities in the bottom of the price cycle and in November we announced the acquisition of a diversified United States royalty package that solidified our position as the only publicly traded North American-focused oil and gas royalty company. This transaction added a growing production stream to our portfolio and broadens the opportunity set in front of us to further enhance our portfolio.

In April, we completed a divestment of the majority of our remaining working interest assets, allowing for increased focus on our core royalty business and driving our cash costs down to the lowest level in our 24-year history.

Our 2020 royalty production was very resilient to the commodity price volatility, declining only 6 per cent year over year despite the slowdown in Western Canada drilling activity and the production shut-ins that occurred in response to the pricing lows in the second quarter.

The initiatives we have taken to position our portfolio "in front of the drill bit" was rewarded in 2020 as drilling activity ramped up in the second half of the year. In the fourth quarter, we had more wells drilled on our royalty lands than we had in Q4 2019 and we see continued strong drilling activity into 2021.

The groundwork we have set in 2020 has positioned us for an exciting 2021 as we return to growth, projecting a 10- to 15-per-cent increase in royalty production year over year. The improved economic conditions are very positive for our industry. Reflecting our strong belief in our business model, our healthy balance sheet, the improving commodity price stability and our commitment to return value to our shareholders, we will revise our dividend upward by 50 per cent from two cents per share to three cents per share starting with our April dividend payment.

We want to thank our employees and shareholders for their patience and support as we navigated 2020. We see an exciting year ahead for Freehold and its shareholders.

David M. Spyker

President and chief executive officer

Dividend announcement

With an improved outlook for commodity prices and a strengthened business model, Freehold's board of directors has approved increasing the monthly dividend from two cents to three cents per share, or 36 cents per share annualized. The three-cent-per-share dividend will commence on April 15, 2021, and will be paid to shareholders of record on March 31, 2021. The dividend is designated as an eligible dividend for Canadian income tax purposes.

Projected 2021 payouts are below the company's stated dividend policy levels, which outlines a 60-per-cent to 80-per-cent payout ratio over the long term based on forward-looking funds from operations. The dividend increase announced today is at a measured pace as, although the commodity price outlook has improved substantially, there is still risk as the supply-demand balance for oil continues to be tenuous. The company also sees meaningful, high-quality acquisition opportunities across North America and Freehold feels it would be prudent to retain financial flexibility to pursue these as the company works to continually enhance its portfolio positioning and business strength.

Subsequent event

U.S. royalty acquisition

On Jan. 5, 2021, Freehold closed the acquisition of U.S. royalty properties for $58-million (U.S.) ($74-million) net of customary adjustments financed by $60.7-million of proceeds from an equity financing and utilization of Freehold's credit facilities. The acquisition included 400,000 gross drilling unit acres of mineral title and overriding royalty interests across 12 basins in eight states; predominantly weighted toward the Permian and Eagle Ford basins. Two thousand twenty-one production associated with the acquired assets is forecast at 1,250 boe/d (barrels of oil equivalent per day). The acquired assets are well capitalized having seen approximately 1.5 per cent of all Lower-48 E&P (exploration and production) capital spending over the past five years.

Freehold also closed two additional U.S. royalty transactions subsequent to year-end, complementing its positions in the Bakken and Permian basins. Total consideration associated with these transactions was approximately $4.7-million and the assets are estimated to add 75 boe/d to 2021 average production.

Fourth quarter highlights

• Dividends declared for Q4 2020 totalled five cents per share, up 11 per cent from Q3 2020 with the December increase to two cents per share. The company's payout ratio totalled 24 per cent for the quarter and 54 per cent for the year.
• With decreasing volatility in oil prices and strength in operations, on Nov. 10, 2020, Freehold announced a 33-per-cent increase to the monthly dividend to two cents per share (annualized 24 cents per share). The first payment at the revised dividend level was paid to shareholders on record as of Dec. 31, 2020, on Jan. 15, 2021.
• Funds from operations for Q4 2020 totalled $22.1-million, an increase of 11 per cent from Q3 2020. On a per-share basis, funds from operations totalled 19 cents per share in Q4 2020, a 12-per-cent increase from the 17 cents per share in Q3 2020.
• At Dec. 31, 2020, net debt totalled $65.8-million, down from $81.7-million in Q3 2020, implying a net-debt-to-12-month trailing funds from operations ratio of 0.9 time. The decrease in net debt over the previous quarter reflected excess free cash flow over and above the company's dividend and acquisition capital in Q4 2020.
• Cash costs for the quarter totalled $4.11/boe, up from $3.70/boe in Q3 2020 but down from $5.10/boe achieved during the same period last year. The decrease year over year reflects reduced debt levels and lower interest charges, the disposition of working interest properties, and lower G&A (general and administrative) costs.
• Q4 2020 net income totalled $400,000, flat versus Q3 2020.
• Freehold's total royalty production averaged 9,563 boe/d, up 5 per cent versus the previous quarter.
• Royalty oil production, which has higher operating netbacks and returns, averaged 5,225 boe/d in Q4 2020, increasing 4 per cent when compared with the previous quarter, as wells returned from being shut-in.
• Wells drilled on the company's royalty lands totalled 111 (4.9 net) in the quarter, up on a net measure versus 186 (4.5 net) drilled during the same period in 2019.

2020 highlights

• Dividends declared for 2020 totalled $35.3-million (30 cents per share), down 53 per cent versus 2019 when Freehold declared dividends of $74.7-million (63 cents per share). The company's dividend payout ratio for 2020 totalled 54 per cent.
• Royalty and other revenue totalled $90.0-million in 2020, down 36 per cent from the previous year as weakness in crude oil prices impacted revenue and production volumes. Total royalty revenue comprised 79 per cent oil and natural gas liquids (NGLs) as the company maintained its crude oil and liquids focus.
• Funds from operations in 2020 totalled $72.9-million or 61 cents per share, down 38 per cent from $118.1-million or $1.00 per share in 2019.
• Freehold exited 2020 with long-term debt of $93-million, implying debt to trailing funds from operations of 1.3 times. This compares with $109-million in long-term debt as of year-end 2019 with a 0.9 ratio. Despite lower funds from operations causing an increase in this ratio, the absolute decrease in leverage reflected funds from operations exceeding dividend obligations.
• Freehold completed $3.3-million in royalty acquisitions in 2020. Much of the focus was associated with smaller tuck-in deals building on Freehold's position in North Dakota. Subsequent to year-end, Freehold completed its first material U.S. royalty transaction as previously discussed.
• Two thousand twenty royalty production averaged 9,605 boe/d, a 6-per-cent decrease versus the previous year as reduced third party royalty drilling additions and shut-in production negatively impacted volumes. Since late Q2 2020, however, royalty production has displayed steady growth into year-end, as producers have increased capital toward third party drilling and shut-in volumes have come back on line.
• Oil and NGLs volumes represented 55 per cent of 2020 royalty production, down slightly from 56 per cent in 2019 as weakness in crude oil prices during the year resulted in shut-in production which was estimated to have an annual impact of 365 boe/d.
• In total, 372 (13.6 net) wells were drilled on the company's royalty lands in 2020, a 35-per-cent and 42-per-cent decrease on a gross and net measure respectively, versus 2019. Despite the reduction in drilling year over year, Freehold saw a ramp-up in activity during Q4 2020 with 111 gross (4.9 net) wells drilled on its royalty lands, a 9-per-cent improvement on a net measure versus the same quarter in 2019. The company saw a broadening of producers drilling on its royalty lands over the fourth quarter with capital focused on southeast Saskatchewan, the Viking, the Cardium in northwest Alberta and the Sparky in central Alberta driving much of drilling activity for the period.
• Proved plus probable net reserves (1) totalled 29.4 MMboe (million barrels of oil equivalent) as at Dec. 31, 2020, down from 31.7 MMboe as at Dec. 31, 2019. The slight decrease year over year reflected working interest dispositions and production despite additions from tuck-in acquisitions in North Dakota, drilling additions and continuing evaluation of the company's undeveloped properties.

(1) A detailed review of Freehold's reserve information, including a summary of the evaluation of Freehold's reserves and associated future net revenues as prepared by Trimble Engineering Associates Ltd., Freehold's independent reserves evaluator effective as at Dec. 31, 2020, is provided in the annual information form (AIF). A copy of the AIF can be found on Freehold's website or on SEDAR.

Q4 drilling ahead of 2019 levels

In total, 372 (13.6 net) wells were drilled on the company's royalty lands in 2020, a 35-per-cent decline on a net measure versus 2019. The company saw reduced drilling activity associated with an overall reduction in North America drilling. Freehold's royalty land base, however, continued to outperform activity levels across Western Canada and North Dakota.

In 2020, approximately 49 per cent of gross wells on the company's royalty lands targeted prospects in Saskatchewan, 40 per cent in Alberta and 11 per cent in Manitoba. Producers continue to remain focused on oil prospects within Freehold's land base with 87 per cent of prospects drilled during the year, targeting oil and liquids with 80 per cent of net wells drilled targeting gross overriding royalty (GORR) prospects with the remaining 20 per cent drilled on Freehold's mineral title lands. The Viking in southwest Saskatchewan, Clearwater in central Alberta, Cardium in northwest Alberta and Sparky in central Alberta continue to be key areas of focus, with the company's top royalty payors remaining well capitalized.

In Q4 2020, Freehold saw 111 gross (4.9 net) wells drilled on its royalty lands which was more than double Q3 2020 activity and a 9-per-cent improvement versus the same quarter in 2019. Looking forward, the company believes there remains strong momentum both within its Canadian and U.S. portfolios that is expected to drive strong third party drilling and production additions into 2021. The acquisition of U.S. royalty production and royalty lands subsequent to 2020 is expected to further diversify the company's royalty lands, bringing added sustainability to its portfolio and dividend.

2021 guidance

The following table summarizes the company's key operating assumptions for 2021.

• With the resurgence in drilling activity on Freehold's lands, the company is increasing its 2021 guidance and assuming an average royalty production range of 10,500 boe/d to 11,000 boe/d. Royalty volumes are expected to be weighted approximately 55 per cent oil and NGLs and 45 per cent natural gas.
• The company is assuming WTI (West Texas Intermediate) and Edmonton Light Sweet oil price assumptions of $50.00 (U.S.)/bbl and $58.00/bbl respectively, and AECO at $2.75/mcf (thousand cubic feet).

Conference call details

A conference call to discuss financial and operational results for the period ended Dec. 31, 2020, will be held for the investment community on Friday, March 5, 2021, beginning at 7 a.m. MT (9 a.m. ET). To participate in the conference call, approximately 10 minutes prior to the conference call, please dial 1-866-696-5910 (toll-free in North America) participant passcode is 5856352 followed by the pound key.

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