Release Date: October 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- PrairieSky Royalty Ltd (PREKF, Financial) achieved a 5% organic growth in oil volumes over Q3 2023, with a year-to-date growth of 6%.
- The company signed 54 new leases with 41 different counterparties, indicating robust leasing activity.
- Waterflood activity in the Clearwater region has shown positive results, improving recovery factors and lowering declines.
- Multilateral wells accounted for 38% of drilling activity, up from 33% in Q3 2023, indicating increased efficiency and productivity.
- Net debt decreased by 33% from year-end, reflecting strong financial management and reduced leverage.
Negative Points
- Natural gas and NGL volumes declined due to weak natural gas pricing, with approximately two million cubic feet per day of natural gas and 80 barrels per day of NGLs shut in.
- Funds from operations were slightly below Q3 2023, indicating a potential challenge in maintaining financial performance.
- The payout ratio for dividends was 65%, which may limit the company's ability to reinvest in growth opportunities.
- Natural gas represented only 2% of volumes in the quarter, highlighting a reliance on oil and potential vulnerability to oil price fluctuations.
- The company faces uncertainty regarding the timing of improved natural gas pricing, which affects future cash flow projections.
Q & A Highlights
Q: Can you speak to any trends or changes in leasing activity this quarter?
A: The leasing activity was broadly spread, including light oil leasing in Manitoba, Duvernay leases in the East Shale Basin, and various Mannville leases across Alberta and Saskatchewan. In Saskatchewan, new ideas are being tested, particularly in the heavy oil Mannville region.
Q: Could you provide an update on volumes under secondary recovery, such as waterflood?
A: Over 25% of our Clearwater oil is under secondary recovery, likely higher now. We expect more barrels to be under water or polymer flood by next year, with positive results from nine different patterns tested. This is crucial for us due to the production volume and low declines.
Q: What are your expectations for natural gas volumes and pricing in the medium to long term?
A: Although natural gas represented only 2% of our volumes this quarter, we have a significant natural gas resource base. In a normalized price environment, we could see low to mid-single-digit growth in natural gas volumes. One-third of our natural gas volumes are associated gas, driven by oil economics, and likely to grow.
Q: Can you discuss your Duvernay position and expectations for the next one to five years?
A: We expect significant growth in the Duvernay, potentially reaching 4,000 to 6,000 net royalty barrels over a 10-year period. The play offers high API crude, enhancing netbacks. Recent IP 90s are around 1,500 barrels per day, with variations depending on drilling location.
Q: What are the top growth areas for PrairieSky in the coming years?
A: The top growth areas are the Duvernay, Clearwater, and Mannville stack. The Duvernay is expected to grow significantly, Clearwater is on a trajectory to grow to over 3,000 barrels per day, and the Mannville stack has potential to return to previous production levels.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
