NEWS RELEASE TRANSMITTED BY Marketwired
FOR: Freehold Royalties Ltd.
TSX SYMBOL: FRU
MAY 14, 2014
Freehold Royalties Ltd. Announces 2014 First Quarter Results
CALGARY, ALBERTA--(Marketwired - May 14, 2014) - Freehold Royalties Ltd.
(Freehold) (TSX:FRU) announced first quarter results for the period ended March
RESULTS AT A GLANCE
Three Months Ended
FINANCIAL ($000s, except as noted) 2014 2013 Change
Gross revenue 49,200 40,637 21%
Net income 17,854 10,493 70%
Per share, basic and diluted ($) 0.26 0.16 63%
Funds from operations (1) 30,793 23,817 29%
Per share ($) (1) 0.45 0.36 25%
Operating income (1) 43,795 35,350 24%
Net operating income from royalties (%) 77 74 4%
Capital expenditures (not including
acquisitions) 11,106 14,914 -26%
Property and royalty acquisitions (2) 1,884 - -
Dividends declared 28,576 27,897 2%
Per share ($) (3) 0.42 0.42 0%
Long-term debt, period end (4) 49,000 47,000 4%
Shares outstanding, period end (000s) 68,157 66,522 2%
Average shares outstanding (000s) (5) 67,965 66,375 2%
Average daily production (boe/d) (6) 8,623 9,067 -5%
Average price realizations ($/boe) (6) 62.72 49.09 28%
Operating netback ($/boe) (1) (6) 56.43 43.32 30%
(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 March 31, 2014 was $48.6 million, up $3.2 million from $45.4
million at December 31, 2013.
(5) Weighted average number of shares outstanding during the period, basic.
(6) See Conversion of Natural Gas to Barrels of Oil Equivalent (boe).
May Dividend Announcement
The Board of Directors has declared the May dividend of $0.14 per share, will
be paid on June 16, 2014 to shareholders of record on May 31, 2014. The
dividend is designated as an eligible dividend for Canadian income tax
purposes. Including the June 16, 2014 payment, the 12-month trailing cash
dividends total $1.68/share.
2014 First Quarter Highlights
-- Average production for the first quarter declined 5% while average price
realizations increased 28%, resulting in a 21% increase in gross revenue
compared to the first quarter of 2013.
-- Compared to the first quarter of 2013, oil and NGL production was down
10%, while natural gas volumes improved 5%. The first quarter included
positive prior period adjustments to production of 380 boe/d (90%
natural gas) mainly the result of our ongoing audit program.
-- Royalty production was down 2% compared to the first quarter of 2013,
averaging 6,351 boe/d. Total royalty barrels accounted for 74% of
production, versus 71% in the first quarter of 2013.
-- Working interest production was down 13% when compared to the same
period last year. The reduction in volumes was primarily driven by lower
spending levels associated with non-operated drilling, temporary shut- ins, along with the end of flush production from a number of locations
brought on in the fourth quarter 2013.
-- Funds from operations totalled $30.8 million in the first quarter, up
29% from the same period last year, mainly due to higher realized
pricing. We remain primarily a liquids producer with 62% of our volumes
weighted to liquids production.
-- Net income of $17.9 million, represented a 70% improvement from the
first quarter of 2013.
-- In total, royalty interests accounted for 69% of gross revenue through
the first three months of 2014, but contributed 77% of operating income.
-- Dividends for the first quarter of 2014 totalled $0.42 per share,
unchanged from the prior year.
-- Average participation in our DRIP was 27% (Q1 2013 - 16%). Cash retained
totalled $7.6 million (first three months of 2014) and continues to fund
our capital program.
-- Net capital expenditures on our working interest properties totalled
$11.1 million over the quarter versus our forecast of $14.0 million,
with the majority invested on our mineral title lands.
-- At March 31, 2014, net debt totalled $48.6 million, up $3.2 million from
$45.4 million at December 31, 2013.
-- Net debt as of the first quarter 2014 implied a 0.4 times trailing funds
from operations and net debt obligations represented approximately 14%
of total capitalization.
-- During the quarter, Freehold acquired working interest participation
rights in three wells in Ferrier, Alberta. As at March 31, 2014, $1.8
million has been spent. The total expected expenditure for all three
wells is $4.2 million. Upon each well paying out, Freehold's working
interest will convert to an overriding royalty.
Second Quarter Acquisition
On May 2, 2014, Freehold acquired royalty interests on certain producing and
non-producing lands in southeast Saskatchewan and Manitoba for $111 million,
prior to normal closing adjustments. Total proceeds associated with the
purchase and sale agreement were funded through Freehold's existing bank
credit facilities. The acquisition further added to Freehold's land
position within southeast Saskatchewan while enhancing Freehold's
near-term growth profile.
-- 2013 average production of 470 boe/d (99% oil weighted), from over 400
-- Revenue is derived from a combination of Lessor Royalties and Non- Convertible Overriding Royalties, offering Freehold enhanced netbacks.
-- 2013 operating income of $15.0 million.
-- Increased land exposure comprised of 71,700 acres of Mineral Title
-- Proved plus probable reserves of approximately 1.5 million boe, based on
an independent engineering report prepared by Trimble Engineering
Associates Ltd. as of December 31, 2013.
The table below summaries our key operating assumptions for 2014, updated to
reflect actual statistics for the first three months and our current
expectations for the remainder of the year. We note that subsequent to Q1,
Freehold closed a purchase and sale agreement to acquire additional royalty
barrels and mineral title lands in Saskatchewan and Manitoba for total proceeds
of $111 million, prior to normal closing adjustments. The updated guidance
reflects this transaction.
-- Through 2014, we are now forecasting WTI and WCS prices to average
$98.00/bbl and $85.00/bbl respectively, up slightly from our previous
-- Adding debt associated with our recent royalty transaction, we are now
forecasting 2014 year-end net debt of approximately $137 million. This
is down slightly from our initial guidance range ($140-$145 million)
accounting for higher than forecast revenues.
-- We have made no changes to our 2014 production forecast (9,100 boe/d) as
stated April 14, 2014. Volumes are expected to be weighted approximately
64% oil and natural gas liquids (NGL's) and 36% natural gas. We continue
to maintain our royalty focus with royalty production accounting for 69%
of forecasted 2014 production.
-- We have increased our 2014 tax expense assumption, accounting for
-- Our capital spending budget remains at $35 million.
2014 Annual Average May 14, 2014 Mar. 6, 2014
Daily production boe/d 9,100 8,700
WTI oil price US$/bbl 98.00 97.00
Western Canada Select (WCS) Cdn$/bbl 85.00 83.00
AECO natural gas price Cdn$/Mcf 4.50 4.50
Exchange rate Cdn$/US$ 0.90 0.90
Operating costs $/boe 6.00 6.00
General and administrative costs (1) $/boe 2.60 2.60
Capital expenditures $ millions 35 35
Dividends paid in shares (DRIP) (2) $ millions 29 29
Long-term debt at year end $ millions 137 38
Current income tax expense (3) $ millions 33 32
Weighted average shares outstanding millions 68 68
(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'
(3) Corporate tax estimates will vary depending on commodity prices and other
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.
Availability on SEDAR
Freehold's 2014 first quarter interim unaudited condensed consolidated
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.
This news release offers our assessment of Freehold's future plans and
operations as at May 14, 2014, 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, and the potential impact of horizontal drilling on production and
-- development of working interest properties;
-- participation in the DRIP and our use of cash preserved through the
-- estimated capital budget and expenditures and the timing thereof;
-- estimated operating and general and administrative expenses;
-- long-term debt at year end;
-- average production and contribution from royalty lands;
-- key operating assumptions;
-- amounts and rates of income taxes and timing of payment thereof; and
-- maintaining our monthly dividend rate through 2014 and our dividend
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 income, operating netback, and net debt to funds from operations are
useful supplemental measures for management and investors to analyze operating
performance, financial leverage, and liquidity, and we use these terms to
facilitate the understanding and comparability of our results of operations and
financial position. However, these terms do not have any standardized meanings
prescribed by GAAP and therefore may not be comparable with the calculations of
similar measures for other entities.
Operating income, which is calculated as gross revenue less royalties and
operating expenses, represents the cash margin for product sold. 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. Net debt to funds from operations is calculated as net debt
(total debt less working capital) as a proportion of funds from operations for
the previous twelve months. In addition, we refer to various per boe figures,
such as revenues and costs, 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.
FOR FURTHER INFORMATION PLEASE CONTACT:
Freehold Royalties Ltd.
Manager, Investor Relations
403.221.0833 or Toll Free: 1.888.257.1873
INDUSTRY: Energy and Utilities - Oil and Gas
-0- May/14/2014 20:45 GMT
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