Mr. David Spyker reports

FREEHOLD ROYALTIES ANNOUNCES FIRST QUARTER RESULTS

Freehold Royalties Ltd. has released its first quarter results for the period ended March 31, 2024.

Highlights:

• $74-million in revenue;
• $54-million in funds from operations (36 cents per share) (1);
• $41-million in dividends paid (27 cents per share);
• 14,714 barrels of oil equivalent per day (boe/d) total production (63 per cent oil and NGL (natural gas liquid) and 37 per cent natural gas);
• 9,593 boe/d in Canada (56 per cent oil and NGL and 44 per cent natural gas);
• 5,121 boe/d in the United States (78 per cent oil and NGL and 22 per cent natural gas);
• Average realized price of $54.81 per barrel of oil equivalent (boe) ($69.19 per boe in the U.S. and $47.13 per boe in Canada).

President's message

Our North American portfolio continues to attract drilling activity with 300 gross (6.4 net) wells drilled on our royalty lands in Q1 2024, a 15-per-cent increase over the previous quarter. Leasing of our mineral title lands continues to be active with 20 new leases signed this quarter in Canada, continuing the momentum from the record 122 leases signed in 2023.

With our oil weighted portfolio and the premium pricing received on our U.S. assets ($69.19 per boe in the U.S., compared with $47.13 per boe in Canada), we achieved top tier realized pricing of $54.81 per boe. Weaker natural gas pricing and wider Canadian light oil differentials resulted in 5 per cent lower realized pricing than the previous quarter.

Production for the quarter of 14,714 boe/d was impacted by severe weather-related events in Canada and in the Eagle Ford and Bakken basins in the U.S.

Canadian production of 9,593 boe/d was relatively unchanged from Q4 2023 despite the outages associated with the extreme cold snap in January, as robust production additions from new drills contributed meaningful volumes in the quarter.

In the U.S., Midland production was up 18 per cent quarter over quarter and Delaware was up 59 per cent, due in part to the previously announced acquisitions that contributed approximately 400 boe/d in the quarter, in line with expectations. These production additions offset the volumes lost to severe weather in January.

Our portfolio showed a strong recovery from these unplanned outages with the second half of the quarter above 15,000 boe/d. We reiterate our full year guidance of 14,700 to 15,700 boe/d.

Following the closing of the Permian acquisitions in January, Freehold exited the quarter with net debt of $211-million or 0.9 times trailing funds from operations. Our high-margin, oil-weighted portfolio enables us to provide consistent and sustainable returns to our shareholders while retaining optionality to fund future growth initiatives.

David M. Spyker, president and chief executive officer

Dividend announcement

The board of directors of Freehold has declared a monthly dividend of nine cents per share, to be paid on June 17, 2024, to shareholders of record on May 31, 2024. The dividend is designated as an eligible dividend for Canadian income tax purposes.

First quarter highlights:

• Royalty and other revenue totalled $74.3-million, down 7 per cent versus the previous quarter, reflecting 23 per cent lower natural gas prices and 8 per cent lower Edmonton Light sweet crude pricing as differentials widened in Q1 2024.
• Freehold's corporate realized price was $54.81 per boe. Freehold continues to benefit from leverage to crude oil and NGL (90 per cent of first quarter revenue) and North American exposure with more favourable U.S. realized pricing of $69.19 per boe, 47 per cent higher than the realized price in Canada ($47.13 per boe) for Q1 2024.
• Freehold recorded a netback (1) of $46.62 per boe during the period, down 11 per cent versus the previous quarter, reflecting higher interest costs from incremental borrowings for the U.S. acquisitions, along with share-based compensation payouts to non-management directors and the payout of Freehold's short-term incentive program to employees, which occurs in the first quarter.
• Funds from operations totalled $54.4-million (36 cents per share) (1).
• Dividends declared for Q1 2024 totalled $40.7-million (27 cents per share). Freehold's dividend payout ratio (1) for Q1 2024 was 75 per cent, reflecting lower natural gas and Canadian light oil prices and slightly higher cash costs. Freehold's dividend remains sustainable at oil and natural gas prices materially below current commodity price levels.
• Average production of 14,714 boe/d in Q1 2024 was relatively unchanged versus the previous quarter, with oil and NGL production representing 63 per cent of total corporate production.
• Freehold closed two transactions acquiring high-quality Permian mineral title and royalty assets located in the Midland and Delaware basins in Texas and New Mexico for $116.2-million, after customary adjustments. Production associated with these acquisitions is forecast to average 600 boe/d in 2024, increasing Freehold's Permian production by 30 per cent and the company's U.S. production by 12 per cent.
• Net debt (1) (2) of $210.5-million at the end of Q1 2024 increased by $109.6-million from the previous quarter and reflected 0.9 times trailing funds from operations during the period. The increase versus the previous quarter reflected acquisitions completed during the period.

(1) Non-GAAP (generally accepted accounting principles) measures.

(2) The Dec. 31, 2023, net debt balance has been restated due to the retrospective adoption of IAS 1 (International Accounting Standards) (see note 2 in the March 31, 2024, unaudited condensed consolidated financial statements).

Drilling and leasing activity

In total, 300 gross wells were drilled on Freehold's royalty lands in Q1 2024, a 15-per-cent increase over the previous quarter. The increase quarter over quarter reflects strength in crude oil prices and the high-quality location of Freehold's acreage in the most active basins across North America.

On a gross measure, 99 per cent of prospects drilled during the quarter targeted oil. Approximately 44 per cent of wells drilled in the quarter were in Canada (80 per cent on Freehold's gross overriding lands and 20 per cent targeted mineral title prospects) and 56 per cent targeted Freehold's U.S. royalty acreage (67 per cent drilled on mineral title lands).

Canada

During Q1 2024, 132 gross wells were drilled on Freehold's Canadian lands, a 10-per-cent increase over the previous quarter and a 55-per-cent increase on a net basis. Top focus areas were oil weighted plays in the Viking, Cardium, Clearwater and Mississippian. Additionally, there was an increase in heavy oil drilling in the Mannville stack in both Alberta and Saskatchewan, the result of recent leasing activity.

During Q1 2024, Freehold entered into 20 new leases with 12 counterparties. The majority of this new leasing focus was in southeastern Saskatchewan and the Mannville stack. Approximately 75 per cent of 2024 leasing activity has been associated with private and public junior companies.

United States

During Q1 2024, 168 gross wells were drilled on Freehold's U.S. royalty lands, an 18-per-cent increase over the previous quarter. Approximately 73 per cent of total drilling occurred in the Permian and 27 per cent in the Eagle Ford. 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.

Board of director changes at the annual meeting of shareholders

Peter Harrison will not be standing for re-election and will retire from Freehold's board of directors. Mr. Harrison is a founder of Freehold and has been a Freehold board member since its initial public offering in 1996, and has been instrumental in the growth and success of the company. The company thanks Mr. Harrison for his years of service and contribution to Freehold.

Kimberly Lynch Proctor will be standing for election to the Freehold board. Ms. Lynch Proctor is an independent businesswoman and an experienced tax lawyer, accountant and executive with over 25 years of industry experience.

Mathieu Roy will also be standing for election to the Freehold board. Mr. Roy is currently managing director, real assets, at CN Investment Division. He has over 20 years of experience in capital markets, including 16 years at CN Investment Division.

Sylvia Barnes will not be standing for re-election to the Freehold board. The company thanks Ms. Barnes for the many contributions she has made to the company.

Annual meeting of shareholders

Freehold's annual meeting of shareholders will be conducted in person and via live audio webcast at 3 p.m. MT on Tuesday, May 7, 2024, at the Calgary Petroleum Club. Further details are available on the company's website.

Conference call details

A webcast to discuss financial and operational results for the period ended March 31, 2024, will be held for the investment community on Tuesday, May 7, 2024, beginning at 7 a.m. MT (9 a.m. ET).

A live audio webcast will be accessible on Freehold's website under events and presentations.

To participate in the conference call, you are asked to register on-line.

A dial-in option is also available and can be accessed by dialling 1-800-952-5114 (toll-free in North America). The participant passcode is 4155008 followed by the pound key.

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