Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Production averaged 15,221 BOE a day, a 3% increase over the prior quarter.
- Oil production saw a 7% increase, averaging 7,899 barrels a day.
- Funds from operations for the quarter totaled $60 million, an 11% increase over the prior quarter.
- Net debt was reduced by $12 million while closing three tuck-in acquisitions for a combined $7.3 million.
- Drilling activity was strong with 274 wells drilled across North America, with 75% targeting oil prospects in Texas.
Negative Points
- Natural gas benchmark pricing was weak through the quarter.
- The payout ratio for the quarter was 68%, which may be considered high by some investors.
- The time between well permitting and completion in the US can range from 6 to 12 months, causing potential delays.
- Despite strong leasing activity, the company faces challenges in revitalizing older wells with current best practices.
- The company is heavily reliant on oil and NGLs, which represent over 95% of its revenue, making it vulnerable to oil price fluctuations.
Q & A Highlights
Highlights of Freehold Royalties Ltd (FRHLF, Financial) Q2 2024 Earnings Call
Q: Now that you have had these Permian assets for a couple of years and have a sense of the pace of drilling and completion times, how do you think about the cadence of production additions through 2025? Do you anticipate any other high-rate, high-productivity Permian pads coming online in any particular quarter?
A: Thanks, Aaron. It's Rob here. In Q2, we had about one net well drilled, the highest level of drilling activity on our US assets. We also had 1.4 net permits, the highest level of permitting activity since owning these assets. The time between permitting and completion in the US ranges from 6 to 12 months, unlike Canada where it’s measured in weeks. This strong inventory suggests a positive outlook for 2025.
Q: Can you provide more details on the drilling activity and its impact on production growth?
A: Drilling activity was strong with 274 wells drilled across North America, 75% targeting oil prospects in Texas. Our US assets saw a 24% increase in gross drilling over the previous quarter, the highest level of quarterly drilling on Freehold's royalty lands. This activity is unlocking value, particularly in the Permian Basin and Eagle Ford.
Q: How did the extreme weather in Q1 2024 impact your operations and recovery in Q2?
A: The extreme weather in Q1 2024 impacted our operations, but we saw a recovery in Q2 with US assets growing 9% to 5,599 BOE a day. Increased drilling activity in Eagle Ford and Permian assets contributed to this recovery.
Q: What are the financial highlights for Q2 2024?
A: Funds from operations totaled $60 million or $0.40 per share, an 11% increase over the prior quarter. This funded our $0.09 per month dividend, resulting in a 68% payout ratio. We reduced net debt by $12 million while closing three tuck-in acquisitions for $7.3 million.
Q: Can you elaborate on the leasing activity and its significance?
A: Over the last 18 months, we signed 157 leases, comparable to the total leases signed in 2020, 2021, and 2022 combined. This leasing strength is reflected in our licensing activity, with 2024 year-to-date licensing at similar levels to full-year licensing in 2022 and 2023. The most active areas for leasing have been Southeast Saskatchewan and the Mannville Stack.
Q: How is the natural gas benchmark pricing affecting your portfolio?
A: Natural gas benchmark pricing was weak through the quarter. However, our oil-weighted premium-priced North American portfolio, with oil and NGLs representing over 95% of our revenue, led to a top-tier realized price of $59.74 per BOE.
Q: What are the future prospects for your US portfolio?
A: We are encouraged by the drilling and rig activity, with gross drilling up 24% over the previous quarter. This represents the highest level of quarterly drilling on Freehold's royalty lands. We have a robust inventory of drilled uncompleted wells and permanent wells, providing confidence in the outlook for the remainder of 2024 and into 2025.
Q: What are the key indicators of your business transformation?
A: Leading indicators such as leasing activity, licensing activity, and drilling activity are all very positive. We are excited about the quality of our business, resulting from a multiyear transformation into a uniquely North American energy royalty company.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
