HIGH MARGINS, ZERO CAPITAL. Corporate Presentation October 2017

Transcription

1 HIGH MARGINS, ZERO CAPITAL Corporate Presentation October 2017

2 PrairieSky Royalty Snapshot 1 TSX : PSK $7.4 Billion Enterprise Value (1) Positive Working Capital, No Debt Annual Dividend $0.75 Per Common Share Million Shares Outstanding $44 Million NCIB 7.8 Million Acres of Fee Lands 6.7 Million Acres of GORR Lands 4 Provinces (1) Enterprise value based on million common shares outstanding as at September 30, 2017 and closing share price on the TSX of $31.93 on September 29, 2017, less PrairieSky s $102.0 million cash balance.

3 Introduction to PrairieSky Royalty million acres of Fee Lands dating back to Business model supports 1881 and 6.7 million acres of GORR lands (1) dividend payments Lands located throughout the heart of the oil and gas producing basins in Alberta, British Columbia, Saskatchewan and Manitoba License to ~13,000 km 2 of 3D seismic and ~45,000 km of 2D seismic Operating margin of 98% and operating netback of 86% (2) No debt Low risk revenue base No capital commitments, operating costs, abandonment liability or reclamation charges associated with working interest ownership Over 75% of royalty revenue received from Fee lands (3) Experienced team aligned with shareholder interests Management team with an understanding of the value of royalties Technical team with deep experience in Western Canada Focused staff, all of whom have invested in PrairieSky shares Directors and officers ownership of 2.5 million shares (1) Fee Lands refer to lands with Petroleum and/or Natural Gas rights and exclude 1.1 million acres of Coal Only rights. GORR lands include GRT and Crown Interest Lands (2) For the nine months ended September 30, Operating margin represents royalty revenue less production & mineral tax expense. Operating netback represents operating margin less G&A expense. (3) For the nine months ended September 30, 2017.

4 Shareholder Alignment 3 Board & Management invested $80 million in PSK Shares Pay for performance long-term incentives Shareholder Alignment All staff are shareholders, & maximize participation in Employee Stock Purchase Plan Decisions focused on core strategy and creating longterm shareholder value

5 Types of Royalties 4 The following figure outlines the royalty hierarchy. As you move down the royalty hierarchy, costs increase and duration decreases. Crown Royalties Fee Simple Mineral Title PrairieSky owns 7.8 million acres Gross Overriding Royalties PrairieSky owns 6.7 million acres Streams Net Profit Interest Volumetric Production Payment Working Interest

6 Royalty Advantage 5 Ownership in PrairieSky provides a long duration cash flow stream and the optionality associated with perpetual land title ownership. Exposure to: No exposure to: High margin cash flow streams Capital costs New discovery/exploration optionality Environmental liabilities Commodity price optionality Operations Secondary and tertiary recoveries Operating costs Shale opportunities Technological advancements Ownership in 12 million leasable, undeveloped acres

7 Recycling the Land Base 6 The perpetual nature of Fee Lands allows PrairieSky Royalty to continually recycle lands and grow its revenue base. PrairieSky leases lands by zone same aerial acreage can be leased separately for multiple zones End of Primary Term At the end of the primary lease term, any lands / rights not held by production revert back to PrairieSky Royalty PrairieSky Royalty can re-lease to third parties who plan to more actively exploit, explore and/or develop those opportunities License to ~13,000 km 2 of 3D seismic and ~45,000 km of 2D seismic New drilling and production technologies can be utilized to pursue previously underexploited zones HBP (1) Back to PrairieSky Back to PrairieSky HBP (1) PrairieSky Royalty sets lease terms to ensure the company remains competitive with adjacent Crown or freehold lands HBP (1) (1) Held by Production ( HBP )

8 Production History on our Fee Lands 7 Historical Gross Production on PSK Fee Lands 300,000 Cumulative production of 4.3 billion boe 250, , , ,000 50,000 - CD Avg Oil (bbl/d) CD Avg. Gas (Boe/d) Source: Accumap Additional royalty production is generated on GORR Lands (not included above).

9 PrairieSky Royalty Per Share Results 8 Production per Million Shares Acres per Million Shares (1) , , , , IPO Today (1) Acres per share based on number of common shares outstanding at September 30, 2017.

10 Total Shareholder Return Since IPO 9 PrairieSky has returned $623 million in dividends and $57 million in share buybacks to shareholders since IPO. Total shareholder return from IPO to September 30, 2017 is 26%. $US WTI/BBL & PSK $/share $ $ $90.00 $80.00 $70.00 $60.00 $50.00 $40.00 $30.00 $20.00 $10.00 $- WTI down 52% AECO down 61% $4.50 $4.25 $4.00 $3.75 $3.50 $3.25 $3.00 $2.75 $2.50 $2.25 $2.00 $1.75 $1.50 $1.25 $1.00 $0.75 $0.50 $0.25 $- AECO $/mcf WTI ($US/bbl) PSK ($/share) AECO ($/GJ) PrairieSky s current dividend is $ per month, $0.75 per year. The dividend is well below the current, trailing and forward Free Cash Flow yield.

11 Capital-Free Returns and Diversification 10 PrairieSky Royalty E&Ps Midstream Capital-Free Returns No capital investment required Future embedded royalties and cash flow through perpetual land ownership No environmental liabilities typically associated with working interests Technology increases recovery factors and opens up new resource opportunities Requires significant capital or acquisitions for growth Responsibility for environmental liabilities Technology increases recovery factors and opens up new resource opportunities Requires significant capital for growth Requires significant capital for maintenance Responsibility for environmental liabilities Stable/Diversified Asset 14.5 million acres, over 36,000 producing wells, approximately 340 payors / Generally concentrated in certain plays (operator/asset) Requires maintenance and facilities capital Contractual commitments (certainty of fees, volumes) Capital Structure Positive working capital, nil debt $102 million of cash at September 30, 2017 Moderate to high leverage Moderate to high leverage

12 High Quality Royalties = Optionality

13 Future Potential Optionality 12

14 Development of an Economic Resource Play - Saskatchewan Viking 13 Wells Drilled Before ,650 vertical wells drilled (in this map area) 36 horizontal wells drilled Horizontal lateral length 1 mile or 0.5 mile Drilling density 4 to 8 wells per section Most wells target vertical well development areas Wells Drilled as of January total horizontal wells drilled Horizontal lateral length mostly 0.5 miles Drilling Density 8 to 16 wells per section Development extends vertical pool boundaries Wells Drilled as of April ,100 total horizontal wells drilled Horizontal lateral length 0.5 to 1 mile Drilling density 16 to 28 wells per section Development is delineating new pool boundaries PrairieSky Inventory Based on: 16 wells per section in infill sections 8 wells per section in offset sections

15 Central Alberta Duvernay 14 Pembina / Thorsby Ferrier / Willesden Green Cygnet Over 1 million acres of royalty lands in an emerging shale resource play. Play and leasing has expanded beyond PrairieSky s 2017 Royalty Playbook development area. Crown land sales totaled $25 million in 2016 and $260 million year to date in HIGHLIGHTS Potential Over 600,000 for significant acres of lands royalty in an emerging production shale resource growth. play Duvernay PrairieSky s is in royalty early lands stages are situated of contributing next to high valued to Crown PrairieSky s land sales which revenues: have occurred in the past year Crown has collected $139.4million in lease bonuses including Collected $24 year to date in lease $114.8 million in the first 8 months of 2017 bonus revenue Recent bonus prices have been increasing with several Monthly production of ~$80,000 (55 boe/d), packages leasing for $1,100 to $2,100/acre up from ~$25,000 (20 boe/d) in 2016 from a Potential for significant royalty production growth handful of wells. Wimborne

16 Diversity in Top Payers 15 Top 10 payers represent 49% of product revenue, while the top 25 payers represent 73% of product revenue Exposure to various operators with diverse expertise ranging from private companies to Majors 12 months of Revenue by Top 25 Companies ($MM) Top 25 Payers Bonavista Energy Canadian Natural Resources Cona Resources Crescent Point Ember Resources Granite Oil KNOC Manitok Energy Pengrowth Energy Raging River Exploration TAQA North Tourmaline Oil Whitecap Resources Canbriam Energy Cardinal Energy Conoco Devon Encana Husky Energy Long Run Exploration NAL Resources Pine Cliff Energy Tamarack Valley Teine Energy Venturion Oil Revenue $MM

17 Other Revenues 16 PrairieSky generates significant other revenues through the leasing of Fee Lands, including Lease Rental Income and Bonus Consideration, and its Royalty Compliance analysis which focuses on capturing mispaid royalties through forensic accounting. $70.0 $60.0 $50.0 $ Millions $40.0 $30.0 $20.0 $10.0 $ YTD 2017 Lease Rental Income Bonus Consideration Other Income Compliance YTD 2017 is the 9 months ended September 30, Compliance revenue is recorded with Royalty Revenue in the financial statements.

18 Investing in Future Growth Opportunities 17 Year to date 2017, PrairieSky has re-invested certain of its cash lease bonus consideration into new emerging resource play opportunities. Cash Lease Bonus Consideration $33 million Emerging Resource Play Opportunities $27 million

19 10 Year Free Cash Flow Generation 18 Approximate Q production FX ($US / $CAD) AECO ($/Mcf) WTI ($/bbl) 10 Year Average Annual Production (boe/d) 22,000 26,000 28,000 30,000 32, Year Free Cash Flow (Billions) 0.75 $3.00 $45.00 $2.1 $2.4 $2.6 $2.8 $ $3.00 $50.00 $2.2 $2.6 $2.8 $3.0 $ $3.00 $55.00 $2.4 $2.8 $3.0 $3.2 $ $3.00 $60.00 $2.6 $3.0 $3.2 $3.5 $ $3.00 $65.00 $2.7 $3.1 $3.4 $3.7 $3.9

20 Capital Allocation 10 Year Return 19 Assumes $29.00 PSK share price 22,000 boe/d 26,000 boe/d 32,000 boe/d $45 WTI $55 WTI $65 WTI 10 Year Free Cash Flow $2.1 Billion $2.8 Billion $3.9 Billion Free Cash Flow allocated to Repurchase Shares Share Buybacks $10.40 per Share $14.90 per Share $24.70 per Share Return per share 36% 51% 85% CAGR 3.5% 4.7% 7.1% Share count reduction 30% 40% 57% Free cash flow yield - Year % 7.0% 17.1%

21 APPENDIX

22 Focus on Core Strategies Q3 & YTD Leasing Lands Managing Controllable Costs Lease issuance bonus consideration of $15.5 million in Q3 2017, $48.0 million YTD 2017 Active leasing YTD, which is a precursor to new exploration and development drilling and future royalty production YTD 2017 entered into 96 new leasing arrangements with 66 different counterparties Continued focus on reducing administrative expenses Cash administrative expenses of $3.14/boe YTD 2017, expected to be in low $3.00/boe range for 2017 PrairieSky has almost tripled its land base since IPO while maintaining headcount and continuing to reduce G&A per boe 535 wells spud on PrairieSky lands YTD 2017 Land & Royalty Compliance Accretive Acquisitions Collected $5.5 million in compliance recoveries in YTD 2017 Since IPO, collected more than $35.7 million in compliance recoveries Over 290 net sections of land returned to PSK inventory YTD 2017 PrairieSky pursues acquisitions that are accretive on a per share basis and match the quality and duration of its existing assets Acquired 4.0% GORR on Lindbergh and Muriel Lake SAGD project Acquired GORRs on emerging resource plays and other smaller acquisitions within existing cash flows

23 Financial Highlights 22 $millions, unless otherwise noted Three months ended September 30 Nine months ended September 30 Year ended December 31, Production Volumes Natural Gas (Mmcf/d) Crude Oil (bbls/d) 9,033 8,278 9,614 8,413 8,455 5,484 NGLs (bbls/d) 2,600 2,305 2,753 2,416 2,403 1,591 Total Production (boe/d) (1) 24,183 23,050 25,550 23,096 23,308 17,225 Financial Information Revenue Funds from Operations per Share (2) $0.28 $0.24 $0.88 $0.60 $0.88 $1.14 per BOE $30.02 $25.56 $29.98 $21.87 $23.47 $28.28 Net Earnings (Loss) per Share $0.08 $0.03 $0.34 $0.02 $0.09 $0.40 Working Capital Cash Balance (1) See Conversions of Natural Gas to boe. (2) A non-gaap measure which is defined under Non-GAAP Measures section in our MD&A. PrairieSky has no debt, no operating expenses, no mandatory capital expenditures and no environmental liabilities.

24 Leadership Team 23 Executive Team Board of Directors Andrew M. Phillips, President & CEO / Director Previously, President, CEO & Director of Home Quarter Resources (acquired by a public oil and gas company in 2014) Extensive experience in the oil & gas industry with past senior roles at Evolve Exploration, Profico Energy Management and Renaissance Energy Cameron M. Proctor, Chief Operating Officer Previously, EVP, Chief Legal Officer and Director of Sinopec Canada and prior thereto VP, General Counsel and Corporate Secretary of Daylight Energy Former lawyer with Blake, Cassels & Graydon LLP Pam Kazeil, VP Finance & Chief Financial Officer Previously, EVP and Chief Financial Officer of Sinopec Canada and prior thereto VP, Finance of Daylight Energy Formerly VP Finance of Sword Energy Ltd. and held increasingly senior roles at its predecessor, Thunder Energy Trust, including VP Finance and CFO Michelle Radomski, VP Land Previously, VP Land at Range Royalty Management Ltd. with over 30 years of experience in the oil & gas industry Past President of the Canadian Association of Petroleum Landmen James M. Estey, Chair of the Board Retired Chairman of UBS Securities Canada Inc., and has more than 30 years of experience in financial markets Chairman of Gibson Energy Inc. and a director of New Gold Inc. Margaret A. McKenzie Former Vice President, Finance and Chief Financial Officer of Range Royalty and prior thereto was Vice President, Finance and Chief Financial Officer of Profico Energy Management Ltd. Director of two private energy companies, Bonavista Energy Corporation, Encana Corporation, and Inter Pipeline Ltd. Sheldon Steeves Director of Enerplus Corporation and NuVista Energy Ltd Previously President & CEO of EchoEx; Executive Vice President & COO at Renaissance Energy Ltd. Grant A. Zawalsky Managing Partner of Burnet, Duckworth & Palmer LLP (Barristers and Solicitors) On the board of directors of NuVista Energy Ltd., Whitecap Resources Inc. and Zargon Oil & Gas Ltd., and is Corporate Secretary of ARC Resources Ltd., Bonavista Energy Corporation and RMP Energy Inc. Andrew M. Phillips, President & CEO / Director Senior leadership team offers unique expertise managing royalty assets, significant technical capabilities and broad, long-standing industry relationships.

25 Disclaimer & Cautionary Statements 24 Cautionary Statement on Forward Looking Information This presentation contains forward looking information and forward looking statements within the meaning of applicable securities laws, which may include, but are not limited to: statements with respect to future events or future performance; management s expectations regarding PrairieSky s growth and realization of future value from the Royalty Properties; results of operations of third parties active on the Royalty Properties; estimated future revenues; future dividends and share buybacks; production estimates; costs and revenue; future demand for and prices of commodities; business prospects; future application of EOR schemes and other secondary and tertiary recovery methods to improve recovery factors on the Royalty Properties; expectations regarding downspacing and infill drilling; expectations regarding continued improvement in technology and application of new drilling and completion techniques, including application of horizontal drilling in areas otherwise largely delineated with vertical wells; expectations regarding ongoing and continued activity levels on the Royalty Properties; estimated historical capital spent on the Royalty Properties and capital efficiencies related thereto, and future capital spend on the Royalty Properties; expectations regarding new discoveries and the contribution to the reserves, production and financial results of the Company; expectations regarding historical and future optimization efforts on certain plays and the resulting effect on declines in production; PrairieSky s ability to lease large amounts of land, and its corresponding ability to attract associated bonus consideration revenue and capital spent on the Royalty Properties; expectations that data from drilling activities will lead to exploitation of additional zones and substances that were not otherwise targeted; and expectations regarding the future development on the Company s Duvernay land position, including expectations that it will add significant growth to royalty revenue and production over time; and the prospectivity of lands that are not included in this presentation and the Company s expectations regarding the same. Such forward looking statements reflect management s current beliefs and are based on information currently available to management. Often, but not always, forward looking statements can be identified by the use of words such as plans, expects, is expected, budgets, scheduled, estimates, forecasts, predicts, projects, intends, targets, aims, anticipates or believes or variations (including negative variations) of such words and phrases or may be identified by statements to the effect that certain actions may, could, should, would, might or will be taken, occur or be achieved. Forward looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of PrairieSky to be materially different from any future results, performance or achievements expressed or implied by the forward looking statements. A number of factors could cause actual events or results to differ materially from any forward looking statement, including, without limitation: fluctuations in the prices of crude oil, natural gas and NGL that drive royalty revenue; changes in national, provincial and local government legislation and regulations, including permitting and licensing regimes and taxation policies and the enforcement thereof; regulatory and political or economic developments in any of the jurisdictions where properties in which PrairieSky holds a royalty interest are located; risks related to the operators of the properties in which PrairieSky holds a royalty interest, including changes in the ownership and control of such operators; influence of macroeconomic developments; business opportunities that become available to, or are pursued by PrairieSky; reduced access to debt and equity capital; litigation; title, permit or license disputes related to interests on any of the properties in which PrairieSky holds a royalty interest; excessive cost escalation as well as development, permitting, infrastructure, operating or technical difficulties on any of the properties in which PrairieSky holds a royalty interest; actual hydrocarbon content may differ from the reserves and resources contained in technical reports; rate and timing of production differences from resource estimates and other technical reports; risks and hazards associated with the business of exploration and development on any of the properties in which PrairieSky holds a royalty interest, including, but not limited to unusual or unexpected geological conditions, natural disasters, terrorism, civil unrest or a political change; and the integration of acquired assets. The statements contained in presentation are based upon assumptions management believes to be reasonable, including, without limitation: the ongoing operation of the properties in which PrairieSky holds a royalty interest by the owners or operators of such properties in a manner consistent with good oilfield practices and all applicable regulations; the availability of capital to such operators to further develop such properties; the accuracy of public statements and disclosures made by the operators on the Royalty Properties; no material adverse change in the market price of the commodities that underlie the asset portfolio; no material changes to existing tax treatment; no adverse development in respect of any significant property in which PrairieSky holds a royalty interest; the accuracy of publicly disclosed expectations for the development of underlying properties that are not yet in production; integration of acquired assets; the accuracy of assumptions and information used in PrairieSky s internal assessments of its Royalty Properties and the prospectivity thereof, including with respect to acquired assets; and the absence of any other factors that could cause actions, events or results to differ from those anticipated, estimated or intended. However, there can be no assurance that forward looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements and investors are cautioned that forward looking statements are not guarantees of future performance. PrairieSky cannot assure investors that actual results will be consistent with these forward looking statements. Accordingly, investors should not place undue reliance on forward looking statements due to the inherent uncertainty therein. For additional information with respect to risks, uncertainties and assumptions, please refer to the Risk Factors section of our most recent AIF filed with the Canadian securities regulatory authorities available at and on our website at The forward looking statements herein are made as of September 30, 2017 only and PrairieSky does not assume any obligation to update or revise them to reflect new information, estimates or opinions, future events or results or otherwise, except as required by applicable law. Cautionary Statement Regarding Future-Oriented Financial Information This presentation also contains future-oriented financial information and financial outlook information (collectively, "FOFI") about our prospective results, funds from operations, future development of the Royalty Properties, future drilling locations, future reserve additions and in each case values associated therewith, all of which are subject to the same assumptions, risk factors, limitations, and qualifications as set forth above. Readers 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 FOFI and forward-looking statements. PrairieSky s actual results, performance, realization or achievement of anticipated values could differ materially from those expressed in, or implied by, these forward-looking statements and FOFI, or if any of them do so, what benefits PrairieSky will derive therefrom. PrairieSky has included the forward-looking statements and FOFI in this presentation in order to provide readers with a more complete perspective on PrairieSky s future value proposition and future development potential and such information may not be appropriate for other purposes. PrairieSky disclaims any intention or obligation to update or revise any forward-looking statements or FOFI, whether as a result of new information, future events or otherwise, except as required by law.

26 Other Disclosure 25 NON-GAAP MEASURES Certain measures in this presentation do not have any standardized meaning as prescribed by IFRS and therefore, are considered non-gapp measures. These measures may not be comparable to similar measures presented by other issuers. These measures are commonly used in the oil and gas industry and by the Company to provide potential investors with additional information regarding the Company s liquidity and its ability to generate funds to finance its operations. Non-GAPP measures include Free Cash Flow which is defined as Funds from Operations, a GAAP measure used in PrairieSky Royalty s Management Discussion & Analysis and Interim Condensed Consolidated Financial Statements and notes thereto for the three and nine months ended September 30, 2017, which are available on SEDAR at or PrairieSky Royalty s website at CONVERSIONS OF NATURAL GAS TO 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. CURRENCY AND REFERENCES TO PRAIRIESKY ROYALTY All information included in this presentation is shown on a Canadian dollar basis. For convenience, references in this document to the Company, we, us, our, and its may, where applicable, refer only to PrairieSky Royalty.

27 26 Contact Information PrairieSky Royalty Ltd. 1700, Avenue SW Calgary, AB T2P 3N9 Telephone: investor.relations@prairiesky.com TSX: PSK