TMX Equicom On-The-Radar June 12, 2013

Transcription

1 Advisories Forward-Looking Information This presentation offers management s assessment of Freehold s future plans and operations and contains forward-looking information pertaining to Freehold s expected tax horizon, dividend policy and timing for paying dividends, tax treatment of dividends, future business strategy, and assumptions regarding commodity prices, production, capital spending plans, costs, year-end debt, DRIP participation, taxes payable, and shares outstanding. The key assumptions used in the preparation of this presentation are footnoted on the accompanying slides. Risks and uncertainties that could significantly affect these forwardlooking statements are outlined in our Annual Information Form, which is filed on sedar.com. Forwardlooking information is provided to facilitate a better understanding of our business and prospects but should not be unduly relied upon as actual results could differ materially. We assume no obligation to update or revise these forward-looking statements except as required by law. Additional GAAP Measures and Non-GAAP Financial Measures Within this presentation and identified where applicable, references are made to terms commonly used as key performance indicators in the oil and gas industry, which we believe are useful supplemental measures for management and investors to analyze operating performance, financial leverage, and liquidity. 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 Canadian generally accepted accounting principles (GAAP) and therefore may not be comparable with the calculations of similar measures for other entities. Additional information is provided in our most recent annual and quarterly reports, which are filed on Barrels of Oil Equivalent (boe) ratio: 6 Mcf = 1 barrel 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, 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. Note: All dollar amounts in this presentation are in Canadian dollars, except where noted. 2 1

2 Corporate Profile focused on oil and gas royalties 2013e production (1) (70% royalty production) boe per day 8,700 Annual dividend ($0.14 per month) $ per share 1.68 Current dividend yield (2) percent 7 Market capitalization (2)(3) $ billion 1.6 Net debt to funds from operations (4) times 0.5 (1) Per guidance dated May 15, (2) Based on FRU closing share price of $23.82 on May 31, (3) Based on 66,665,712 shares outstanding as at May 15, (4) Based on net debt of $55.5 million as at March 31, 2013 and 12 month trailing funds from operations of $102.1 million. 3 What Sets Us Apart large royalty portfolio Royalty Focus lower costs & capex than typical E&P company high dividend payout conservative management, low risk profile 4 2

3 Investment Performance* Cumulative dividends declared* per share $26.41 ($1.2 billion in dividends) $175 $ YTD Freehold Royalties Ltd. S&P/TSX Oil and Gas Exploration & Production Index S&P/TSX Composite Index $38 $30 * From November 25, 1996 to May 31, 2013, with dividend reinvestment. 5 Freehold Ownership 90% Canadian CN Pension Trust Funds 26% Canadian Retail 44% Canadian Institutions 20% U.S./Other 10% 6 3

4 Our History Established as Freehold Royalty Trust in 1996 Converted to a corporation December 31, 2010 Wholly owned by CN Pension Trust Funds Operating since 1979 Held royalty interest properties (including Hudson s Bay lands) and minor working interests that were acquired by Freehold in 1996 Private royalty holding company Operating since 1983 Held working interest properties and minor royalty interests that were acquired by Freehold in 1996 Private oil and gas company 7 Proud Owner of Legacy Lands Mineral titles are held in perpetuity The 8s and 26s Historic land grant to the Hudson s Bay Company (HBC) in 1670 by the King of England HBC surrendered land to Canada in 1870 in exchange for cash and 1/20th of lands (Section 8 and ¾ of Section 26) in western Canada (HB Lands) A portion of the HB Lands were purchased by Canpar in 1979 Producing HB Lands were purchased from Canpar by Freehold in 1996; Canpar retained the deep rights 8 4

5 Royalty-Focused Production 70% royalties 9,067 boe/d 10,000 8,000 6,000 4,000 2, Q1 Royalty Interest Production Working Interest Production 0 9 Top Royalty Payors/Operators * CanEra Energy Corp. SABRE Energy Ltd. * Top 30 payors account for over 80% of royalty revenue on a trailing 12 month basis. 10 5

6 Development Opportunities 3 million gross acres Cardium Heavy Oil North Saskatchewan River Royalty interests 94% Working interests 6% Oil resource plays Viking Bakken, Mississippian 11 FRU Mirrors Industry Activity Wells drilled by industry 30,000 Over 9,000 wells drilled on Freehold s royalty lands Gross wells drilled on Freehold s royalty lands 150 1,000 25, ,000 15,000 10, ,000 0 Industry Drilling, WCSB Drilling on our Royalty Lands New Reserves per Well Reserves per Well Added (Mboe)

7 Capex Requirements Capital Expenditures as a Percentage of Funds from Operations 150% Sector average 101% 125% 100% 75% Freehold average 22% 50% 25% e 0% Sector Average Freehold * See non-gaap measures Capital Allocation* 40 (13 net) wells Southeast Saskatchewan 50% $30 million Lloydminster Heavy Oil 25% Cardium Light Oil 25% * Per guidance dated May 15,

8 Acquisition Strategy Focused on Royalties Buy existing royalties Development funding Capital contribution in return for a royalty Accretive Acquisitions $650 million since inception 90% royalties Equity financings in 2001, 2005, 2009, and First Quarter Results Q1 Actual 2013 Annual Guidance* Production boe/d 9,067 8,700 Capital $ millions DRIP participation $ millions 4 28 Cash taxes payable: 2012 tax year 2013 instalments $ millions $ millions Long-term debt $ millions * See advisory regarding forward-looking information. 16 8

9 FRU Stock Price Tracks Oil Price % oil and NGL production WTI in US$ FRU in C$ % unhedged WTI Oil Price (US$) FRU Share Price (CDN$) To May 31, Average Benchmark Oil Prices $120 $110 $100 $90 $80 $70 $60 Jan-10 Jan-11 Jan-12 Jan-13 To May 31, WTI (US$/bbl) WCS (Cdn$/bbl) $

10 Average AECO Natural Gas Prices $6.00 $5.00 $4.00 $3.00 $2.00 Jan-10 Jan-11 Jan-12 Jan-13 $1.00 AECO One Month Spot (Cdn$/Mcf) To May 31, Strong Financial Position* $163 million available credit capacity (at March 31, 2013) Debt to Funds from Operations* (multiple) e Sector Average Freehold * See advisory regarding non-gaap financial measures

11 Stable, Attractive Dividend* Annual Dividend ($/share) $1.68 $1.68 $1.68 $1.68 $ e Eligible dividends for Canadian tax purposes. * See advisory regarding forward-looking information. 21 Solid Investment Low risk profile The Royalty Advantage Sustainable asset base Stable dividend 22 11

12 Supplemental Information Land Holdings* 3.0 million gross acres 21% held in perpetuity (630,000 gross acres of mineral title and royalty assumption lands; 80% leased) 833,000 gross acres undeveloped Undeveloped land independently valued at $80.2 million 30,000 oil and gas wells 94% royalties Land Profile Mineral title lands - 21% Gross overriding royalties - 73% Working interest properties - 6% * As at December 31,

13 Reserves Profile* Net Reserves 15.1 MMboe proved» 57% oil and NGL» 5.9 year RLI 24.4 MMboe P+P» 60% oil and NGL» 8.5 year RLI Net Proved Plus Probable Reserves 93% of our proved reserves are producing Light and medium crude oil - 24% Heavy crude oil - 30% Natural gas liquids - 6% Natural gas - 40% * As at December 31, Production Profile Q average 9,067 boe/d 71% royalty production 65% oil and NGL 2013 forecast* 8,700 boe/d Production Profile Our oil-weighted production is currently unhedged Light and medium crude oil - 34% Heavy crude oil - 26% Natural gas liquids - 5% Natural gas - 35% * 2013 forecast per guidance dated May 15,

14 Board of Directors Nolan Blades Harry Campbell Peter Harrison Arthur Korpach Tom Mullane David Sandmeyer Rodger Tourigny Aidan Walsh 27 The Manager CN PENSION TRUST FUNDS Pension fund for employees of Canadian National Railway 100% ownership 100% ownership Manager of the assets 26% ownership 28 14

15 What is a Royalty? A payment based on a percentage of gross production Crown Royalty Mineral rights owned by the government (Crown) Leases auctioned at Crown land sales Royalty rates set by the Crown Held by the Crown in perpetuity Mineral Title Royalty Minerals rights privately owned Lease terms and royalty rate negotiated Held by the private owner in perpetuity Gross Overriding Royalty (GORR) A contractual royalty interest created out of a working interest Expires upon termination of the lease 29 Benefits of Royalties lower risk no exploration or drilling costs no abandonment or reclamation liabilities higher netback no Crown or third party royalties no production or operating costs 30 15

16 The Royalty Advantage: Netbacks A Working Interest Barrel Operating netback* ~ 60% of gross revenue A Royalty Interest Barrel Operating netback* ~ 100%** of gross revenue * Non-GAAP measure. See slide 39. ** Excludes freehold mineral taxes payable to the Crown. Royalties Paid (15%) Operating Costs (25%) Operating Netback (60% of gross revenue) Operating Netback (100% of gross revenue) Illustration does not factor in capital costs on working interest properties Operational Highlights Focus on Royalties Royalty Interest Working Interest Total Company Royalty Percent Net reserves Mboe 19,017 5,408 24,425 78% Average production boe/d 6,263 2,587 8,850 71% Acquisitions (1) $ millions % Royalty expense (2) $ per boe % Operating expense $ per boe % (1) Includes undeveloped land. (2) Royalty expense includes both Crown charges and royalty payments to third parties

17 Royalty Drilling Trends* 20 53% Oil 35% Hz 57% Oil 32% Hz 44% Oil 30% Hz 58% Oil 37% Hz 85% Oil 59% Hz 92% Oil 66% Hz 86% Oil 68% Hz Oil Hz Oil Vert Gas Hz Gas Vert Other D&A Q * Equivalent net wells drilled on Freehold s royalty land. 33 Accretive Acquisitions Initial Production Year Area Cost ($ millions) Acquired (boe/d) 1997 Alberta/Saskatchewan $ Southeast Saskatchewan Petrovera (CNRL) 352 3, Alberta/Saskatchewan Alberta, Sask. and B.C Northwest Alberta Alberta, Sask. and B.C Numerous small acquisitions 59 1,200 Total: $653 8,300 Equity financings in 2001 ($30M), 2005 ($260M), 2009 ($110M), and 2012 ($68M)

18 2012 Acquisitions Alberta, Sask., B.C. January 17, 2012 $49.3 million 250,000 gross acres Production» 530 boe/d» Mostly natural gas Alberta, Sask. August 31, 2012 $10.9 million 6,100 net acres Production» 90 boe/d» 75% liquids future development potential 35 Average Benchmark Oil Prices $150 $125 $100 $75 $50 $ $0 WTI (US$/bbl) Edm. Par (Cdn$/bbl) WCS (Cdn$/bbl) To May 31,

19 Average AECO Natural Gas Prices $15 $12 $9 $6 $ $0 AECO One Month Spot (Cdn$/Mcf) To May 31, Strong Financial Position Debt to Funds from Operations* (multiple) $163 million available credit capacity (at March 31, 2013) (WTI US$/bbl) $120 $ $ $ $ $ e $0 Sector Average Freehold Avg. WTI Oil Price * See advisory regarding non-gaap financial measures

20 Attractive Dividend Dividend ($/share) $3.00 $2.91 Selling Price ($/boe) $80 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 $2.10 $1.92 $1.92 $1.70 $1.73 $1.68 $1.68 $1.68 $1.56 $1.40 $1.32 $1.31 $1.10 $0.78 $0.65 $ $70 $60 $50 $40 $30 $20 $10 $0 Annual Dividend ($/share) Freehold's Average Selling Price ($/boe) Eligible dividend for Canadian tax purposes. 39 Performance Since Corporate Conversion % % 75-23% 50 Dec 2010 Jun 2011 Dec 2011 Jun 2012 Dec 2012 Jun 2013 FRU S&P/TSX Composite S&P/TSX Oil & Gas E&P To May 31,

21 Freehold Relative Performance 2013 Year to Date* Total Return Advantage Peyto Enerplus ARC Resources Bonavista Trilogy Pengrowth Perpetual Freehold FRU: 9.6% S&P/TSX Composite Crescent Point Vermilion Penn West Pacific Rubiales -4.8% Baytex -5.7% Lightstream -8.5% Twin Butte -9.7% Zargon -24.6% 2.9% 2.8% 2.5% 0.5% 19.7% 12.7% 11.7% 11.3% 10.4% 9.6% 29.5% 36.1% 40.6% To May 31, Source: BMO Capital Markets. 41 Annual Guidance * Key Assumptions (as at May 15, 2013) 2013 Daily production boe/d 8,700 WTI oil price US$/bbl Western Canada Select (WCS) Cdn$/bbl AECO natural gas price Cdn$/Mcf 3.50 Exchange rate Cdn$/US$ 0.98 Operating costs $/boe 5.00 G&A costs $/boe 2.60 Capital expenditures $ millions 30 Dividends paid in shares (assumes average 25% DRIP participation) $ millions 28 Long-term debt at year end $ millions 44 Estimated cash taxes payable in 2013 for 2012 tax year $ millions 23 Estimated cash taxes payable for 2013 tax year (instalments) $ millions 25 Weighted average shares outstanding millions 67 * See advisory regarding forward-looking information

22 2013 Sensitivities Variable Change (+/-) Estimated Change in Funds From Operations ($ per share) WTI oil price US$1.00/bbl 0.02 Canadian/U.S. dollar exchange rate US$ Edmonton Par/WCS differential Cdn$1.00/bbl 0.02 AECO natural gas price Cdn$0.25/Mcf 0.02 Interest rate 1% 0.01 Oil and NGL production 100 bbls/d 0.03 Natural gas production 1,000 Mcf/d 0.01 * See advisory regarding forward-looking information. 43 Investor Relations tf t w. freeholdroyalties.com 22