Freehold Royalties Ltd. Announces 2014 First Quarter Results
CALGARY, ALBERTA -- (Marketwired) -- 05/14/14 -- Freehold Royalties
Ltd. (Freehold) (TSX: FRU) announced first quarter results for the
period ended March 31, 2014.
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
(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,
(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
-- 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 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.
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
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
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.
Freehold Royalties Ltd.
Manager, Investor Relations
403.221.0833 or Toll Free: 1.888.257.1873
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