Quarterly / Earnings Reports | Second Quarter (2Q) Update | Financial Results | Capital Markets | Capital Expenditure

Freehold Royalties Lowers Expected Capex by $5 MM

Share Print Bookmark    |    Thursday,August 06,2015

Freehold Royalties Ltd. has announced second quarter results for the period ended June 30, 2015.

2015 Second Quarter Highlights

• Freehold's production averaged a record 10,617 boe/d over the quarter, a 21% improvement versus Q2-2014 and 6% higher when compared to Q1-2015. Growth in production was largely driven by success in executing our acquisition strategy, with over $340 million in transactions closed during the period.
• Royalty production was up 24% compared to Q2-2014, averaging 8,039 boe/d. Total royalty barrels accounted for 76% of production and 73% of gross revenue in Q2-2015; however they contributed 85% of operating income.
• Working interest production was up 11% when compared to the same period last year but down 11% versus Q1-2015. The increase in volumes was primarily driven by the corporate acquisition of Anderson Energy Ltd. while the reduction quarter over quarter reflected a combination of reduced spending within our working interest program and temporary non-operated facility issues.
• Average price realizations decreased 43%, resulting in a 30% decrease in gross revenue compared to Q2-2014, offset partially by the increase in production volumes.
• Net capital expenditures on our working interest properties totalled $2.8 million over the quarter, below our forecast. Weakness in commodity prices has resulted in a slow-down in activity for all E&P producers within Western Canada.
• At June 30, 2015, net debt totalled $147 million, down $52 million from $199 million at March 31, 2015, primarily the result of closing our equity financing. This implies a net debt to 12-months trailing funds from operations ratio of 1.2 times (excluding the proforma effects of acquisitions).
• Freehold completed an acquisition from Penn West Petroleum Ltd. of two royalty packages totalling an estimated 1,400 boe/d (over 80% liquids) of 2015 average net royalty production for $318 million, prior to normal closing adjustments.
• The Penn West transactions were funded by a $373 million public equity financing (20.7 million common shares at $18.00 per share) and a $33 million private placement (1.8 million common shares at $18.00 per share) to CN Pension Trust Funds (see Related Party Transactions in our Management's Discussion and Analysis (MD&A) for the three and six months ended June 30, 2015). The aggregate gross proceeds raised was $406 million and net proceeds after underwriters' fees was $390 million.
• strong>Freehold closed an acquisition of a new royalty with Manitok Energy Ltd. for total consideration of $25 million. The transaction is expected to add 140 bbl/d of new light oil royalty production for the next eight years, declining at 10% per year thereafter.

Guidance Update

• Reflecting lower spending on our royalty lands and delayed working interest capital spending (majority of which are non-operated), we have revised our 2015 production forecast to 10,400 boe/d (previously 10,800 boe/d). Volumes are expected to be weighted approximately 61% oil and natural gas liquids (NGLs) and 39% natural gas. We continue to maintain our royalty focus with royalty production accounting for 75% of forecasted 2015 production and 85% of operating income.
• Continuing negative momentum in the commodity environment for oil has resulted in a downward revision to our price assumptions. Through 2015, we are now forecasting WTI and WCS prices to average US$51.00/bbl and $48.00/bbl, respectively (previously US$60.00/bbl and $56.00/bbl). Our AECO natural gas price assumption has been revised upward slightly to $2.85/mcf (previously $2.75/mcf).
• Our capital spending budget has been reduced from $25 million to $20 million reflecting the weaker commodity outlook. A large percentage of our capital expenditures program is non-operated and the exact capital is difficult to predict. We expect to have additional information on the spending of our partners as we move through the year.
• We have revised the estimated DRIP participation from 25% to 18% reflecting trends through the first half of 2015.