Freehold Royalties Ltd (FRHLF) Q1 2025 Earnings Call Highlights: Record Production and ...

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Thu, May 15, 2025, 1:12 AM 4 min read

Production: 16,248 BOE/day in Q1, highest since inception in 1996.
Funds from Operations: $16 million in the quarter, or $0.42 per share.
Realized Pricing: $49.25 BOE in Canada, $72.64 BOE in the US.
Leasing Revenue: $3.9 million from new leases in Canada and the US.
Drilling Activity: Up 12% from Q4 2024 levels, with increased activity in US land base.
Heavy Oil Production: Up 19% from Q1 a year ago.
Gas Production: 25 million cubic feet/day or 4,100 BOE/day of Canadian gas exposure.
Dividend Payout Ratio: Targeting 60% payout ratio.
Dividend Coverage: Sustainable at approximately $50/barrel WTI.

Warning! GuruFocus has detected 7 Warning Signs with FER.

Release Date: May 14, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Freehold Royalties Ltd (FRHLF) terminated its management agreement with Rife, simplifying governance and streamlining decision-making.
The company achieved its highest production level since inception, with 16,248 BOE per day in Q1.
Freehold Royalties Ltd (FRHLF) introduced a Normal Course Issuer Bid (NCIB) to provide flexibility in capital returns through share buybacks.
The company reported a significant premium on US production pricing compared to Canada, driven by higher oil weighting and lower transportation costs.
Freehold Royalties Ltd (FRHLF) experienced robust leasing activity in Q1, setting a new high watermark for US mineral title lands leasing revenue.

Negative Points

There was a softening in wells drilled in Canada, particularly in the Viking area, compared to Q1 2024.
The company anticipates episodic lease bonus revenue, indicating potential variability in future leasing income.
Market volatility, influenced by external factors like geopolitical events, could impact future financial performance.
The company is exposed to commodity price fluctuations, with a breakeven oil price of $50 per barrel WTI needed to cover costs and dividends.
Despite strong licensing, there is uncertainty regarding operator activity levels post-breakup season in Canada.

Q & A Highlights

Q: Is this the first time that Freehold will have a Normal Course Issuer Bid (NCIB), and how are you planning to use it to optimize shareholder value? A: David Hendry, CFO, explained that this is indeed the first time Freehold has implemented an NCIB. It is currently in the process of being approved and is not yet active. The NCIB will provide optionality to realize shareholder value, and it will be used tactically when it makes sense, serving as an additional tool to benefit shareholders.

Q: Are the lease bonus results in the US repeatable, and how should we think about these cohorts? A: Robert King, COO, noted that in Q1, Freehold signed 11 leases on US assets, primarily in the Permian, with significant revenue from a private E&P focusing on the Barnett formation. While the $3.3 million revenue is significant, future results may be episodic. However, with 80% of their US land being mineral rights, there is substantial opportunity for growth.

Q: How should we think about the cost structure following the termination of the management agreement with Rife? A: David Spyker, CEO, stated that the cost impact is not material. The cost structure remains largely unchanged, with a minor one-time cost associated with separating infrastructure. The termination allows Freehold to have a dedicated staff focused solely on the company, which is seen as a positive step forward.

Q: How should we think about the current wells being drilled in the Permian going forward? A: Robert King, COO, explained that the bulk of drilling in the Permian is still in the middle eight benches of their Midland assets. There is increased drilling in the deeper Barnett formation, which has shown significant success. Freehold's targeted acquisition strategy in the Permian has resulted in a land base where one-third has not yet had horizontal drilling, indicating significant future potential.

Q: How much exposure does Freehold have to multilateral drilling in the Western Canada inventory Basin? A: David Spyker, CEO, highlighted that Freehold has significant exposure to multilateral drilling in heavy oil areas like Clearwater and Mannville Stack, as well as in Southeast Saskatchewan. The introduction of a royalty incentive for multilateral drilling in Saskatchewan has led to increased activity, with nearly 40% of wells drilled on Freehold's lands being multilaterals in 2024, almost doubling from previous years.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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