Freehold Royalties Ltd. Announces 2013 Third Quarter Results

Freehold Royalties Ltd. Announces 2013 Third Quarter Results 
CALGARY, ALBERTA -- (Marketwired) -- 11/14/13 -- Freehold Royalties
Ltd. (Freehold) (TSX:FRU) announces third quarter results for the
period ended September 30, 2013. 


 
RESULTS AT A GLANCE                                                         
                                                                            
                                 Three Months Ended     Nine Months Ended   
                                    September 30           September 30     
                                --------------------- ----------------------
FINANCIAL ($000s, except as                                                 
 noted)                            2013   2012 Change    2013    2012 Change
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Gross revenue                    51,545 41,811    23% 136,291 122,340    11%
Net income                       18,961 11,975    58%  43,746  32,897    33%
  Per share, basic and diluted                                              
   ($)                             0.28   0.18    56%    0.66    0.51    29%
Funds from operations (1)        36,407 26,272    39%  90,339  72,407    25%
  Per share ($) (1)                0.54   0.40    35%    1.35    1.12    21%
Capital expenditures              5,725  9,160   -38%  23,952  29,003   -17%
Property and royalty                                                        
 acquisitions (2)                 2,542 10,789   -76%   3,200  60,609   -95%
Dividends declared               28,206 27,616     2%  84,122  81,781     3%
  Per share ($) (3)                0.42   0.42     0%    1.26    1.26     0%
Long-term debt, period end (4)   49,000 25,000    96%  49,000  25,000    96%
Shares outstanding, period end                                              
 (000s)                          67,326 65,879     2%  67,326  65,879     2%
Average shares outstanding                                                  
 (000s) (5)                      67,078 65,677     2%  66,703  64,473     3%
OPERATING                                                                   
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Average daily production (boe/d)                                            
 (6)                              8,699  8,654     1%   8,825   8,628     2%
Average price realizations                                                  
 ($/boe) (6)                      63.74  51.71    23%   55.79   50.80    10%
Operating netback ($/boe) (1)(6)  55.79  45.59    22%   48.93   45.28     8%
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1.  See Additional GAAP Measures and Non-GAAP Financial Measures. 
2.  Net of adjustments. 
3.  Based on the number of shares issued and outstanding at each record
    date. 
4.  Net debt as at September 30, 2013 was $41.7 million, down $8.9 million
    from $50.6 million at June 30, 2013. 
5.  Weighted average number of shares outstanding during the period, basic. 
6.  See Conversion of Natural Gas to Barrels of Oil Equivalent (boe). 

 
November Dividend Announcement 
The Board of Directors has declared the November dividend of $0.14
per share, will be paid on December 16, 2013 to shareholders of
record on November 30, 2013. The dividend is designated as an
eligible dividend for Canadian income tax purposes. Including the
December 16, 2013 payment, the twelve-month trailing cash dividends
total $1.68/share. 
2013 Third Quarter Highlights 


 
--  Average production for the third quarter rose 1%, and average price
    realizations climbed 23%, resulting in a 23% increase in gross revenue
    compared to the third quarter of 2012. 
--  Compared to the third quarter of 2012, oil and NGL production declined
    2% in the quarter, while natural gas volumes improved 5%. The third
    quarter included positive prior period adjustments to royalty production
    of approximately 200 boe/d, mainly due to our ongoing audit program. 
--  Royalty production was flat compared to the third quarter of 2012,
    averaging 5,863 boe/d (accounting for 67% of production), while working
    interest production gained 1%. 
--  Funds from operations totalled $36.4 million in the third quarter, up
    39% from the same period last year, mainly due to higher realized
    liquids pricing. Net income of $19.0 million, represented a 58%
    improvement from the third quarter of 2012. 
--  Dividends for the third quarter of 2013 totalled $0.42 per share,
    unchanged from the prior year. 
--  Average participation in our DRIP was 32% (Q3 2012 - 25%). Cash retained
    totalled $20.3 million (first nine months of 2013) and continues to fund
    our capital program. 
--  Net capital expenditures on our working interest properties totalled
    $5.7 million over the quarter ($24.0 million for the year to date), with
    the majority invested on our mineral title lands. 
--  In September, we closed an acquisition in southeast Alberta for $2.3
    million, including adjustments, weighted 78% royalty interest and 22%
    working interest. This transaction will result in additions to
    production of 36 boe/d, weighted 48% to oil. 
--  At September 30th, 2013, long term debt totalled $49.0 million, down
    from $55.0 million at June 30, 2013. 
--  Net debt as of the third quarter 2013 implied 0.3 times trailing funds
    from operations and net debt obligations represented approximately 12%
    of total capitalization. 

 
Guidance Update 
The table below summarizes our key operating assumptions for 2013,
updated to reflect actual statistics for the first nine months and
our current expectations for the remainder of the year. The changes
reflect the following factors: 


 
--  Through 2013, we are now forecasting WTI prices to average $98.00/bbl
    and AECO $3.25/mcf, up slightly from our previous guidance forecast with
    the Cdn$/US$ exchange rate dropping to $0.97. 
--  Due to $2.5 million of acquisition activity in the third quarter and an
    additional $6.1 million in October, long term debt is expected to
    increase to $53 million. 
--  We have made no changes to our 2013 production forecast (8,800 boe/d).
    Volumes for 2013 are expected to be weighted approximately 64% oil and
    natural gas liquids (NGL) and 36% natural gas, similar to our current
    product mix. We continue to maintain our royalty focus with royalty
    production accounting for 70% of forecasted 2013 production. 
--  Accounting for increased well servicing and power costs we have
    increased our assumption for operating costs from $5.30 to $5.60/boe. 
--  We are maintaining our 2013 capital budget at $32 million. Capital
    investment in the fourth quarter is expected to total $8 million, with
    the majority of the focus centred on development activities in southeast
    Saskatchewan. 
 
KEY OPERATING ASSUMPTIONS (1)                                               
                                                     Guidance Dated         
                                            --------------------------------
2013 Annual Average                         Nov. 14, Aug. 8, May 15, Mar. 7,
                                                2013    2013    2013    2013
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Daily production                       boe/d   8,800   8,800   8,700   8,500
WTI oil price                    
    US$/bbl   98.00   96.00   93.00   95.00
Western Canada Select (WCS)         Cdn$/bbl   75.00   75.00   69.00   71.00
AECO natural gas price              Cdn$/Mcf    3.25    3.00    3.50    3.10
Exchange rate                       Cdn$/US$    0.97    0.98    0.98    1.00
Operating costs                        $/boe    5.60    5.30    5.00    5.00
General and administrative costs                                            
 (2)                                   $/boe    2.60    2.60    2.60    2.60
Capital expenditures              $ millions      32      32      30      30
Dividends paid in shares (DRIP)                                             
 (3)                              $ millions      28      28      28      28
Long-term debt at year end        $ millions      53      44      44      48
Cash taxes payable in 2013 for                                              
 2012 tax year (4)                $ millions      22      22      23      23
Cash taxes payable for 2013 tax                                             
 year (instalments) (4)           $ millions      24      24      25      25
Weighted average shares                                                     
 outstanding                        millions      67      67      67      67
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1.  For a sensitivity analysis of the potential impact of key variables on
    funds from operations per share, see page 5 of our 2012 Annual MD&A. 
2.  Excludes share based and other compensation. 
3.  Assumes an average 25% participation rate in Freehold's dividend
    reinvestment plan, which is subject to change at the participants'
    discretion. 
4.  Corporate tax estimates will vary depending on commodity prices and
    other factors. 

 
2014 Outlook 
For 2014, the Board has approved a capital budget of $30 million. Our
focus will continue to centre on oil development within our mineral
title lands and includes approximately 49 gross (16 net risked)
wells. Our spending will be comprised of approximately one-half to be
deployed in southeast Saskatchewan (light oil), with the remaining
balance allocated to our opportunity base in both the Lloydminster
area (heavy oil) and Western Alberta (Cardium oil) plays. We maintain
that capital may be adjusted as the year progresses, depending on the
operating environment and individual well results. 
Based on this level of capital investment, anticipated drilling
activity by lessees on our royalty lands, and normal production
declines (and excluding any potential acquisitions), we expect 2014
production to average approximately 8,600 boe/d. Volumes will be
comprised of approximately 62% oil and NGL's and 38% natural gas. We
continue to maintain our royalty focus with royalty production
expected to account for approximately 70% of forecasted 2014
production. 
After paying a large lump sum ($46 million) associated with a
previous two years tax burden in 2013, we expect our tax liability to
normalize through 2014, at approximately 20% of pre-tax cash flow. 


 
                                                              Guidance Dated
2014 Annual Average                                            Nov. 14, 2013
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Daily production                                       boe/d           8,600
WTI oil price                                        US$/bbl           95.00
Western Canada Select (WCS)                         Cdn$/bbl           75.00
AECO natural gas price                              Cdn$/Mcf            3.50
Exchange rate                                       Cdn$/US$            0.95
Operating costs                                        $/boe            5.60
General and administrative costs (1)                   $/boe            2.60
Capital expenditures                              $ millions              30
Dividends paid in shares (DRIP) (2)               $ millions              29
Long-term debt at year end                        $ millions              57
Cash taxes payable for 2014 tax year                                        
 (instalments) (3)                                $ millions              25
Weighted average shares outstanding                 millions              68
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1.  Excludes share based and other compensation. 
2.  Assumes an average 25% participation rate in Freehold's dividend
    reinvestment plan, which is subject to change at the participants'
    discretion. 
3.  Corporate tax estimates will vary depending on commodity prices and
    other factors. 

 
Recognizing the cyclical nature of the oil and gas industry, we
continue to closely monitor commodity prices and industry trends for
signs of deteriorating market conditions. We caution that it is
inherently difficult to predict activity levels on our royalty lands
since we have no operational control. As well, significant changes
(positive or negative) in commodity prices (including Canadian oil
price differentials), foreign exchange rates, or production rates may
result in adjustments to the dividend rate. 
Based on our current guidance and commodity price assumptions, and
assuming no significant changes in the current business environment,
we expect to maintain the current monthly dividend rate through 2014,
subject to the Board's quarterly review and approval. 
Fourth Quarter Acquisitions 
In October we completed two transactions involving the acquisition of
royalty interests in east central Alberta for a total consideration
of $6.1 million, including adjustments. These transactions will
result in additions to production totaling 59 boe/d weighted 67% oil
and NGL's and 33% gas. 
Availability on SEDAR 
Freehold's 2013 third quarter interim unaudited financial statements
and accompanying Management's Discussion and Analysis (MD&A) are
being filed today with Canadian securities regulators and will be
available at www.sedar.com and on our website. 
Forward-looking Statements 
This news release offers our assessment of Freehold's future plans
and operations as at November 14, 2013, and contains forward-looking
statements that we believe allow readers to better understand our
business and prospects. These forward-looking statements include our
expectations for the following: 


 
--  our outlook for commodity prices including supply and demand factors
    relating to crude oil, heavy oil, and natural gas; 
--  light/heavy oil price differentials; 
--  changing economic conditions; 
--  foreign exchange rates; 
--  industry drilling, development and licensing activity on our royalty
    lands, our exposure in emerging resource plays, and the potential impact
    of horizontal drilling on production and reserves; 
--  development of working interest properties; 
--  participation in the DRIP and our use of cash preserved through the
    DRIP; 
--  estimated capital budget and expenditures and the timing thereof; 
--  estimated operating expenses; 
--  long-term debt at year end; 
--  average production and contribution from royalty lands; 
--  key operating assumptions; 
--  amoun
ts and rates of income taxes and timing of payment thereof; and 
--  maintaining our monthly dividend rate through 2014 and our dividend
    policy. 

 
By their nature, forward-looking statements are subject to numerous
risks and uncertainties, some of which are beyond our control,
including the impact of general economic conditions, industry
conditions, volatility of commodity prices, currency fluctuations,
imprecision of reserve estimates, royalties, environmental risks,
taxation, regulation, changes in tax or other legislation,
competition from other industry participants, the lack of
availability of qualified personnel or management, stock market
volatility, and our ability to access sufficient capital from
internal and external sources. Risks are described in more detail in
our Annual Information Form. 
With respect to forward-looking statements contained in this news
release, we have made assumptions regarding, among other things,
future oil and gas prices, future capital expenditure levels, future
production levels, future exchange rates, future tax rates, future
participation rates in the DRIP and use of cash retained through the
DRIP, future legislation, the cost of developing and producing our
assets, our ability and the ability of our lessees to obtain
equipment in a timely manner to carry out development activities, our
ability to market our oil and natural gas successfully to current and
new customers, our expectation for the consumption of crude oil and
natural gas, our expectation for industry drilling levels, our
ability to obtain financing on acceptable terms, and our ability to
add production and reserves through development and acquisition
activities. The key operating assumptions with respect to the
forward-looking statements referred to above are detailed in the body
of this news release. 
You are cautioned that the assumptions used in the preparation of
such information, although considered reasonable at the time of
preparation, may prove to be imprecise and, as such, undue reliance
should not be placed on forward-looking statements. Our actual
results, performance, or achievement could differ materially from
those expressed in, or implied by, these forward-looking statements.
We can give no assurance that any of the events anticipated will
transpire or occur, or if any of them do, what benefits we will
derive from them. The forward-looking information contained in this
document is expressly qualified by this cautionary statement. Our
policy for updating forward-looking statements is to update our key
operating assumptions quarterly and, except as required by law, we do
not undertake to update any other forward-looking statements. 
You are further cautioned that the preparation of financial
statements in accordance with IFRS requires management to make
certain judgments and estimates that affect the reported amounts of
assets, liabilities, revenues, and expenses. These estimates may
change, having either a positive or negative effect on net income, as
further information becomes available and as the economic environment
changes. 
Conversion of Natural Gas To Barrels of Oil Equivalent (BOE) 
To provide a single unit of production for analytical purposes,
natural gas production and reserves volumes are converted
mathematically to equivalent barrels of oil (boe). We use the
industry-accepted standard conversion of six thousand cubic feet of
natural gas to one barrel of oil (6 Mcf = 1 bbl). The 6:1 boe ratio
is based on an energy equivalency conversion method primarily
applicable at the burner tip. It does not represent a value
equivalency at the wellhead and is not based on either energy content
or current prices. While the boe ratio is useful for comparative
measures and observing trends, it does not accurately reflect
individual product values and might be misleading, particularly if
used in isolation. As well, given that the value ratio, based on the
current price of crude oil to natural gas, is significantly different
from the 6:1 energy equivalency ratio, using a 6:1 conversion ratio
may be misleading as an indication of value. 
Additional GAAP Measures 
This news release contains the term "funds from operations", which
does not have a standardized meaning prescribed by GAAP and therefore
may not be comparable with the calculations of similar measures for
other entities. Funds from operations, as presented, is not intended
to represent operating cash flow or operating profits for the period
nor should it be viewed as an alternative to net income or other
measures of financial performance calculated in accordance with GAAP.
We consider funds from operations to be a key measure of operating
performance as it demonstrates Freehold's ability to generate the
necessary funds to fund capital expenditures, sustain dividends, and
repay debt. We believe that such a measure provides a useful
assessment of Freehold's operations on a continuing basis by
eliminating certain non-cash charges. It is also used by research
analysts to value and compare oil and gas companies, and it is
frequently included in their published research when providing
investment recommendations. Funds from operations per share is
calculated based on the weighted average number of shares outstanding
consistent with the calculation of net income per share. 
Non-GAAP Financial Measures 
Within this news release, references are made to terms commonly used
as key performance indicators in the oil and natural gas industry. We
believe that operating netback is a useful supplemental measure for
management and investors to analyze operating performance. We use
this term to facilitate the understanding and comparability of our
results of operations. However, this term does not have any
standardized meaning prescribed by GAAP and therefore may not be
comparable with the calculations of similar measures for other
entities. 
Operating netback, which is calculated as average unit sales price
less royalties and operating expenses, represents the cash margin for
product sold, calculated on a per boe basis. In addition, we refer to
various per boe figures also considered non-GAAP measures, which
provide meaningful information on our operational performance. We
derive per boe figures by dividing the relevant revenue or cost
figure by the total volume of oil and natural gas production during
the period, with natural gas converted to equivalent barrels of oil
as described above.
Contacts:
Freehold Royalties Ltd.
Matt Donohue
Manager, Investor Relations
403.221.0833 or Toll Free 1.888.257.1873
403.221.0888 (FAX)
mdonohue@rife.com
www.freeholdroyalties.com
 
 
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