Release Date: November 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Freehold Royalties Ltd (FRHLF, Financial) reported a 3% increase in liquids production compared to Q3 2023, highlighting growth in their core operations.
- The company boasts an attractive dividend yield of just under 8%, supported by a strategic oil-focused portfolio.
- Realized pricing for their oil was significantly higher than Canadian peers, driven by their Texas production in the Permian and Eagle Ford basins.
- Freehold Royalties Ltd (FRHLF) reduced net debt by $12 million, maintaining a strong balance sheet with a net debt to funds from operations ratio of 0.8x.
- The company has a diversified exposure to pricing markets across North America, which supports strong netbacks and cash flows.
Negative Points
- Gas production in Canada was impacted by weak AECO pricing, leading to production curtailments and deferred drilling activity.
- Despite strong oil production, the weak gas prices had a negligible impact on cash flow, indicating a reliance on oil for financial performance.
- The U.S. drilling activity remained relatively flat, with some operators like Marathon being less active in Q3.
- The company faces potential challenges from M&A activity, which could temper growth as acquirers slow down target activity.
- Freehold Royalties Ltd (FRHLF) is cautious about future drilling activity, which is largely dependent on overall commodity pricing.
Q & A Highlights
Q: Some of your top royalty payers have completed acquisitions recently. Have you observed any trends in activity post-consolidation, and have you incorporated any slowdown in activity into your outlook?
A: Robert King, Chief Operating Officer, explained that in the U.S., Exxon has increased its activity on Freehold's lands post-acquisition, now representing 5% of production. In Canada, consolidation has led to new players bringing innovative approaches, particularly in Southeast Saskatchewan, which is seeing modest organic growth.
Q: Wells drilled in Canada were up considerably. Can you discuss indications from operators for this trend to continue and comment on U.S. basin activity?
A: Robert King noted that Canadian drilling, particularly in Clearwater and Mannville, was up due to leasing programs. Future activity will depend on commodity pricing. In the U.S., activity was stable, with Marathon being less active in Q3, but Conoco's acquisition might change this.
Q: Can you provide color on U.S. investment opportunities and how you plan to build that portfolio?
A: Robert King highlighted the significant opportunity in Texas due to its privately owned mineral titles. Freehold is focusing on a grassroots approach, buying mineral titles acre by acre in strategic areas. David Hendry, CFO, added that the company is comfortable with its current debt levels and prioritizes accretive opportunities over share buybacks.
Q: How do you view Permian growth over the coming year?
A: Robert King stated that in a $75 oil price environment, Permian assets are expected to grow in the mid-single digits. However, growth rates could decrease with lower commodity prices, reflecting the capital discipline of quality operators in the region.
Q: What is your personal investment in Freehold stock?
A: David Spyker, CEO, disclosed that he owns 180,000 shares of Freehold stock, which is his only stock holding, demonstrating his confidence in the company's future.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
