Freehold Royalties Ltd. Announces 2014 Second Quarter Results

FOR: Freehold Royalties Ltd. 
AUGUST 7, 2014 
Freehold Royalties Ltd. Announces 2014 Second Quarter Results 
CALGARY, ALBERTA--(Marketwired - Aug. 7, 2014) - Freehold Royalties Ltd.
(Freehold) (TSX:FRU) announced second quarter results for the period ended June
30, 2014. 
RESULTS AT A                                                                
Three Months Ended            Six Months Ended        
June 30                      June 30            
---------------------------- -----------------------------
FINANCIAL ($000s,                                                           
 except as noted)       2014      2013  Change       2014      2013  Change 
Gross revenue         54,676    44,109      24%   103,876    84,746      23%
Net income            19,598    14,292      37%    37,452    24,785      51%
  Per share, basic                                                           
and diluted ($)      0.29      0.21      38%      0.55      0.37      49%
Funds from                                                                  
 operations (1)       37,319    30,115      24%    68,112    53,932      26%
  Per share ($)                                                              
(1)                  0.55      0.45      22%      1.00      0.81      23%
Operating income                                                            
 (1)                  47,801    37,898      26%    91,596    73,248      25%
  Net operating                                                              
income from                                                               
royalties (%)          77        74       4%        77        74       4%
Acquisition and                                                             
 joint venture                                                              
 expenditures        109,044       658       -    110,928       658       - 
 expenditures          6,284     3,313      90%    17,390    18,227      -5%
Dividends declared    28,711    28,019       2%    57,287    55,916       2%
  Per share ($)                                                              
(2)                  0.42      0.42       0%      0.84      0.84       0%
Long-term debt,                                                             
 period end (3)                                                             
 (6)                 172,000    55,000     213%   172,000    55,000     213%
 period end (000s)    68,520    66,874       2%    68,520    66,874       2%
Average shares                                                              
 (000s) (4)           68,296    66,649       2%    68,131    66,512       2%
Average daily                                                               
 (boe/d) (5)           8,810     8,714       1%     8,716     8,889      -2%
Average price                                                               
 ($/boe) (5)           67.45     54.66      23%     65.12     51.84      26%
Operating netback                                                           
 ($/boe) (1) (5)       59.62     47.80      25%     58.05     45.53      27%
(1) See Additional GAAP Measures and Non-GAAP Financial Measures.           
(2) Based on the number of shares issued and outstanding at each record      
(3) Net debt as at June 30, 2014 was $160.1 million, up $111.5 million from  
$48.6 million at March 31, 2014. As of August 7, 2014 net debt was $141  
(4) Weighted average number of shares outstanding during the period, basic. 
(5) See Conversion of Natural Gas to Barrels of Oil Equivalent (boe).       
(6) On May 2, 2014, Freehold acquired mineral title and royalty interests on 
certain producing and non-producing lands for $107.6 million, after      
closing adjustments.                                                     
August Dividend Announcement 
The Board of Directors has declared the August dividend of $0.14 per share,
will be paid on September 15, 2014 to shareholders of record on August 31,
2014. The dividend is designated as an eligible dividend for Canadian income
tax purposes. Including the September 15, 2014 payment, the 12-month trailing
cash dividends total $1.68/share. 
2014 Second Quarter Highlights 
--  Driven by commodity strength, funds from operations totalled $37.3 
million ($0.55/share) for the quarter, representing a 22% improvement 
(on a per share basis) versus both Q2-2013 and Q1-2014. Royalty 
production represented 77% of total operating income through the second 
--  Net income of $19.6 million ($0.29/share) represented a 37% improvement 
from Q2-2013. 
--  Closed an acquisition of mineral title and royalty interests on certain 
producing and non-producing lands in southeast Saskatchewan and Manitoba 
for approximately $107.6 million including adjustments. Production 
associated with these assets averaged approximately 470 boe/d through 
2013. The transaction was funded through Freehold's existing credit 
--  Production for the quarter averaged 8,810 boe/d; this represented a 1% 
increase over Q2-2013 and a 2% gain when compared to Q1-2014. Compared 
to Q2-2013, oil and NGL production was up 11%, while natural gas volumes 
declined 14%. The increase in oil and NGL volumes was primarily 
associated with Freehold's southeast 
Saskatchewan acquisition which closed on May 2, 2014. 
--  Overall, royalty production represented approximately 74% of total 
volumes through the second quarter. 
--  Working interest production declined by 8% versus Q2-2013, primarily 
associated with reduced or delayed activity by our working interest 
partners, due to corporate takeovers. 
--  The second quarter included positive prior period adjustments to 
production of approximately 200 boe/d (70% oil) partially the result of 
our ongoing audit program. 
--  Dividends for the second quarter of 2014 totalled $0.42 per share, 
unchanged from the prior year. 
--  Average participation in our DRIP was 26% (Q2-2013 - 25%). Cash retained 
totalled $7.6 million for the quarter and $15.2 million for the first 
six months of 2014. 
--  Net capital expenditures on our working interest properties totalled 
$6.3 million over the quarter, with the majority invested on our mineral 
title lands. 
--  At June 30, 2014, net debt totalled $160.1 million, up $111.5 million 
from $48.6 million at March 31, 2014. The increase in our debt levels 
was primarily associated with acquisition activity. 
--  Net debt as of the second quarter 2014 implied a 1.2 times trailing 
funds from operations and net debt obligations represented approximately 
35% of total capitalization.  
Second Quarter Acquisition 
On May 2, 2014, Freehold acquired mineral title and royalty interests on
certain producing and non-producing lands in southeast Saskatchewan and
Manitoba for $107.6 million (after 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. 
Acquisition Highlights: 
--  2013 average production of 470 boe/d (99% oil weighted), from over 400 
producing wells. 
--  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.  
Subsequent Events 
Joint Venture 
On July 16, 2014, Freehold closed a $120 million strategic joint venture with a
Canadian based company in the East Edson area of Alberta (the "Joint
Venture" or "JV"). The Joint Venture is effective July 1, 2014
and will encompass a multi-year commitment by both parties to develop the JV
Partner's East Edson acreage. 
--  Freehold assumes a priority share of production through the creation of 
a gross overriding royalty (GORR). Royalty production anticipated by 
Freehold with this Joint Venture is forecasted at approximately 5.6 
mmcf/d of sales natural gas plus associated liquids (82% natural gas) 
through 2014. Total royalty production from the Joint Venture is 
forecast to remain flat from 2014 to year-end 2022, declining 10% per 
year thereafter. 
--  Under the Joint Venture, Freehold assumes no operating costs (outside of 
transport fees), no royalty deductions and no abandonment liabilities. 
Freehold will receive "priority" royalty volumes. 
--  As part of its $120 million capital commitment, Freehold will acquire a 
50% royalty interest on current production within the JV area (Producing 
Royalty) for $50 million and will have a capital commitment of $70 
million (approximately 14 net Wilrich horizontal wells) pursuant to a 
Farmout and Royalty Agreement (Drilling 
Royalty). Once Freehold's share of the existing royalty production 
declines below 5.6 mmcf/d, volumes from new wells are added pursuant to 
the Drilling Royalty to maintain Freehold's production at a cap rate of 
5.6 mmcf/d plus associated liquids for 8.5 years. The $70 million 
capital commitment pursuant to the Drilling Royalty was paid by Freehold 
at closing and will be held in escrow until such time as the capital is 
required for the drilling program. The Joint Venture comes with 
associated Canadian Oil and Gas Property Expense (COGPE) and drilling 
program tax pools. 
--  The JV Partner has agreed to spend $60 million (approximately 11 net 
Wilrich horizontal wells) in additional drilling over the life of the 
agreement over and above Freehold's capital. The JV Partner has also 
committed to construct a new 30 mmcf/d gas plant or expand existing 
processing infrastructure within the JV Area. 
--  Freehold considers this Joint Venture as offering a low risk, attractive 
return for Freehold, showcasing the 
Company's flexibility in creating value for its shareholders as well as 
presenting an attractive non-dilutive method of funding energy industry 
development drilling.  
Equity Offering 
In conjunction with the Joint Venture, Freehold closed a bought deal financing,
issuing 4,900,000 common shares at a price of $26.90 per share for gross
proceeds of approximately $131.8 million, which included the partial exercise
of the over-allotment option granted to the underwriters. 
Concurrent with the closing of the bought deal offering, the pension trust
funds for employees of Canadian National Railway Company (CN Pension Trust
Funds) purchased approximately $15 million (557,621 common shares) of Freehold,
at $26.90 on a non-brokered private placement basis. 
The aggregate gross proceeds raised by Freehold pursuant to the bought deal
offering and the investment by the CN Pension Trust Funds totaled approximately
$146.8 million. Freehold used a portion of the net proceeds from the bought
deal offering and investment by the CN Pension Trust Funds to fund its
commitments pursuant to the Joint Venture and used the remainder to pay down a
portion of outstanding indebtedness. 
Royalty Acquisition 
Subsequent to June 30, 2014, Freehold also acquired certain royalty interests
in southeast Saskatchewan for approximately $6.9 million, including
adjustments. In this acquisition Freehold purchased a 1.8% royalty on 21.2
sections of land, netting 22 boe/d of high netback royalty volumes. In
addition, Freehold sees further upside within the area through accelerated
development of the Midale and Bakken which is expected to keep acquired
production volumes flat through the next five to eight years. 
Guidance Update 
The table below summarizes our key operating assumptions for 2014, updated to
reflect actual statistics for the first six months of 2014 and our current
expectations for the remainder of the year. 
The updated guidance reflects the Joint Venture and the $6.9 million southeast
Saskatchewan royalty acquisition described above. 
--  Through 2014, we are forecasting WTI to average $99.00/bbl, up slightly 
from our previous guidance forecast, and AECO to average $4.25/mcf, down 
--  Reducing leverage associated with our recent equity raise, we are 
forecasting 2014 year-end net debt of approximately $131 million. This 
is down slightly from our last update ($137 million) accounting for the 
issue of shares, and the acquisition activity subsequent to quarter-end.
--  We have increased our 2014 production forecast to 9,500 boe/d 
(previously 9,100 boe/d). The increase in our guidance is associated 
with our recent Joint Venture. Volumes are expected to be weighted 
approximately 62% oil and natural gas liquids (NGL's) and 38% natural 
gas for the remainder of 2014. We continue to maintain our royalty focus 
with royalty production accounting for 73% of forecasted 2014 production 
(previously 69% of 2014 volumes). 
--  We have decreased our 2014 tax expense assumption, reflecting increased 
tax pools resulting from the Joint Venture. 
--  The increase in our weighted average shares outstanding accounts for our 
latest share offering which closed July 16, 2014.  
Guidance Dated          
Aug. 7,    May 14,    Mar. 6,
2014 Annual Average                               2014       2014       2013
Daily production                      boe/d      9,500      9,100      8,700
WTI oil price                       US$/bbl      99.00      98.00      97.00
Western Canada Select (WCS)        Cdn$/bbl      85.00      85.00      83.00
AECO natural gas price             Cdn$/Mcf       4.25       4.50       4.50
Exchange rate                      Cdn$/US$       0.92       0.90       0.90
Operating costs                       $/boe       6.00       6.00       6.00
General and administrative                                                  
 costs (1)                            $/boe       2.60       2.60       2.60
Capital expenditures             $ millions         35         35         35
Dividends paid in shares                                                    
 (DRIP) (2)                      $ millions         31         29         29
Long-term debt at year end       $ millions        131        137         38
Current income tax expense (3)   $ millions         28         33         32
Weighted average shares                                                     
 outstanding                       millions         71         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 second 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 and on our website. 
Forward-looking Statements 
This news release offers our assessment of Freehold's future plans and
operations as at August 7, 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, acquisitions and 
the Joint Venture; 
--  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. 
Freehold Royalties Ltd.
Matt Donohue
Manager, Investor Relations
403.221.0833 or Toll Free:  1.888.257.1873
INDUSTRY:  Energy and Utilities - Oil and Gas  
-0- Aug/07/2014 23:21 GMT
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