Investor Presentation October 2013. TSX : FRU Advisories Note: All dollar amounts in this...
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Transcript of Investor Presentation October 2013. TSX : FRU Advisories Note: All dollar amounts in this...
Investor PresentationOctober 2013
TSX : FRUAdvisories
Note: All dollar amounts in this presentation are in Canadian dollars, except where noted.
Forward-Looking InformationThis 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 forward-looking statements are outlined in our Annual Information Form, which is filed on sedar.com. Forward-looking 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 MeasuresWithin 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 www.sedar.com.
Barrels of Oil Equivalent (boe) ratio: 6 Mcf = 1 barrelThe 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.
2
TSX : FRUCorporate Profile
2013e production(1) (71% royalty production)
boe per day8,800
Annual dividend ($0.14 per month)
$ per share1.68
Current dividend yield(2)
percent7
Market capitalization(2)(3)
$ billion1.6
Net debt to funds from operations(4)
times0.5
(1) Per guidance dated August 8, 2013.(2) Based on FRU closing share price of $23.78 on September 30, 2013.(3) Based on 67.3 million shares outstanding as at September 30, 2013.(4) Based on net debt of $50.6 million as at June 30, 2013 and 12 months trailing funds from
operations of $111.7 million.
focused on oil and gas royalties
3
TSX : FRUAnnual Guidance*
Key Assumptions (as at August 8, 2013) 2013
Daily production boe/d 8,800
WTI oil price US$/bbl 96.00
Western Canada Select (WCS) Cdn$/bbl 75.00
AECO natural gas price Cdn$/Mcf 3.00
Exchange rate Cdn$/US$ 0.98
Operating costs $/boe 5.30
G&A costs $/boe 2.60
Capital expenditures $ millions 32
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 22
Estimated cash taxes payable for 2013 tax year (instalments) $ millions 24
Weighted average shares outstanding millions 67
* See advisory regarding forward-looking information. 4
TSX : FRUOur History
• Operating since 1979
• Private royalty holding company
• Held royalty interest properties (including Hudson’s Bay lands) and minor working interests that were acquired by Freehold in 1996
• Operating since 1983
• Private oil and gas company
• Held working interest properties and minor royalty interests that were acquired by Freehold in 1996
• Established as Freehold Royalty Trust in 1996
• Converted to a corporation December 31, 2010
Wholly owned byCN Pension Trust
Funds
5
TSX : FRUProud Owner of Legacy Lands
Mineral titles are held in perpetuity
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)
The 8s and 26s
A portion of the HB Lands were purchased by Canpar in 1979 Producing HB Lands were purchased from Canpar by Freehold in
1996.
6
TSX : FRUInvestment Performance*
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 YTD
$178
$37 $33
Freehold Royalties Ltd.
S&P/TSX Oil and Gas Exploration & Production Index
S&P/TSX Composite Index
* From November 25, 1996 to September 30th, 2013, with dividend reinvestment. 7
Cumulative dividends declared
$26.83 per share
($1.2 billion in dividends)
TSX : FRUFreehold Ownership
67,326,013 shares outstanding (September 30th, 2013)
Insider holdings CN Pension Trust Funds – 18,038,942 (26.8%)
» Rife: 4,183,861 (6.2%) (included in above number for CNID)
Institutional (57%)
Retail (43%)
Canadian (90%)
U.S/Foreign (10%)
8
TSX : FRUBusiness Overview
9
• We’re a simple story, we primarily collect royalties from E&P producers that drill on our lands….at no cost to us.
• We have next to no leverage, very low cash costs with spending generally in-line with our cash flow, creating enhanced dividend sustainability.
• We’re a “defensive” option in a down market and given we don’t hedge, participate in a rising commodity environment.
• Operationally, we participate in ~15 net wells per year and focus on making accretive acquisitions to add to our respective royalty interest.
TSX : FRUWhy Own Freehold?
10
conservative management, low risk profile
large royalty portfolio
high dividend payout
low costs & predictable growth modelRoyalt
yFocus
TSX : FRU
CardiumHeavy
Oil
Bakken,Mississippian
Development Opportunities
North Saskatchewan River
3milliongross acres
Viking
11
Royalty interests 94%
Working interests 6%
Oil resource plays
TSX : FRUThe Royalty Advantage: Netbacks
Illustration does not factor in capital costs on working interest properties.
* Non-GAAP measure. See slide 39.
** Excludes freehold mineral taxes payable to the Crown.
A Working Interest BarrelOperating netback*
~ 60% of gross revenue
A Royalty Interest BarrelOperating netback*
~ 100%** of gross revenue
OperatingNetback(60% ofgross
revenue)
OperatingNetback(100% of
grossrevenue)
Royalties Paid(15%)
Operating Costs(25%)
12
TSX : FRU The Royalty Advantage: Peers
13
NVA
BNP
TOU
PEY
BIR
TBE
PGF
ERF
ARX
PWT
BTE
ZAR
WCP
BNE
FRU
CPG
LEG
LTS
PRY
VET
$0.00 $10.00 $20.00 $30.00 $40.00 $50.00 $60.00 $70.00
PEY
TOU
FRU
BIR
BNP
ARX
ERF
WCP
CPG
BNE
NVA
VET
LTS
BTE
LEG
PGF
PWT
ZAR
PRY
TBE
$0.00 $5.00 $10.00 $15.00 $20.00 $25.00
2013 YTD Avg. Operating Netback ($/boe)2013 YTD Avg. Operating Costs ($/boe)
• FRU’s liquids weighting and low cost model drive top decile economics.
TSX : FRURoyalty-Focused Production
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 H1
0
2,000
4,000
6,000
8,000
10,000
Royalty Interest Production Working Interest Production
boe/d
8,88970%royalties
14
TSX : FRU
15
Gross Revenue (%)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 6mo
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Royalty Interest Production Working Interest Production
%
TSX : FRUTop Royalty Payors/Operators*
* Top 30 payors account for over 80% of royalty revenue on a trailing 12 month basis.
CanEra Energy Corp.
16
TSX : FRUWhy Own Freehold?
17
conservative management, low risk profile
large royalty portfolio
high dividend payout
low costs & predictable growth modelRoyalt
yFocus
TSX : FRU
$32 million
2013 Capital Allocation*
* Per guidance dated August 8, 2013.
47 (16 net) wells
Southeast Saskatchewan
50%
Lloydminster Heavy Oil
25%
CardiumLight Oil
25%
18
TSX : FRUCapex Requirements
2009 2010 2011 2012 2013e0%
25%
50%
75%
100%
125%
150%Capital Expenditures as a Percentage
of Funds from Operations
Sector Average Freehold
* See non-GAAP measures.
Sector average 101%
Freehold average 22%
19
TSX : FRUFRU Mirrors Industry Activity
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120
5,000
10,000
15,000
20,000
25,000
30,000
0
200
400
600
800
1,000
Industry Drilling, WCSB Drilling on our Royalty Lands
Wells drilled by industry
Gross wells drilled on Freehold’s royalty lands
20
Over 9,000 wells drilled on Freehold’s royalty lands
Reserves per Well Added (Mboe)
New Reserves per Well0
200
400
600
800
1000
1200
0
50
100
150150
50
100
TSX : FRURoyalty Drilling Trends*
21
2007 2008 2009 2010 2011 2012 H1 20130
5
10
15
20
Oil HzOil VertGas HzGas VertOtherD&A
53% Oil35% Hz
57% Oil32% Hz
44% Oil30% Hz
58% Oil37% Hz
85% Oil59% Hz
92% Oil 66% Hz
86% Oil60% Hz
* Equivalent net wells drilled on Freehold’s royalty land.
TSX : FRUAcquisition Strategy
Focused on Royalties
Accretive Acquisition
s
Equity financings in 2001, 2005, 2009, and 2012.
Buy existing royalties
Development funding Capital contribution
in return for a royalty
$650 million since inception 90% royalties
22
TSX : FRUAccretive Acquisitions
Equity financings in 2001 ($30M), 2005 ($260M), 2009 ($110M), and 2012 ($68M).
Year AreaCost
($ millions)
Initial ProductionAcquired
(boe/d)
1997 Alberta/Saskatchewan $22 700
2001 Southeast Saskatchewan 25 800
2005 Petrovera (CNRL) 352 3,800
2007 Alberta/Saskatchewan 90 700
2010 Alberta, Sask. and B.C. 38 400
2011 Northwest Alberta 7 100
2012 Alberta, Sask. and B.C. 60 600
1997–2012 Numerous small acquisitions 59 1,200
Total:$
6538,300
23
TSX : FRUWhy Own Freehold?
24
conservative management, low risk profile
large royalty portfolio
sustainable dividend payout
low costs & predictable growth modelRoyalt
yFocus
TSX : FRUStable, Attractive Dividend*
2009 2010 2011 2012 2013e
$1.40
$1.68 $1.68 $1.68 $1.68
Annual Dividend($/share)
Eligible dividends for Canadian tax purposes.
* See advisory regarding forward-looking information. 25
TSX : FRUStrong Financial Position
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013e
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Debt to Funds from Operations*
Sector Average Freehold
(multiple)
* See advisory regarding non-GAAP financial measures.
$155 millionavailable credit capacity
(at June 30, 2013)
26
TSX : FRUAvailable Dry Powder
Annual Dividend($/share)
27
• FRU maintains significant dry powder.
• Our D/CF and credit facility utilization remain well positioned.
• We see our dividend as sustainable within the current commodity environment.
TSX : FRUFRU Stock Price Tracks Oil Price
Jan/2008 Jan/2009 Jan/2010 Jan/2011 Jan/2012 Jan/2013 -
25.00
50.00
75.00
100.00
125.00
150.00
-
5.00
10.00
15.00
20.00
25.00
30.00
WTI Oil Price (US$) FRU Share Price (CDN$)
WTI in US$ FRU in C$
To September 30, 2013.
100%unhedged
63%oil and NGL production
28
TSX : FRUWhy Own Freehold?
29
conservative management, low risk profile
large royalty portfolio
high dividend payout
low costs & capex and predictable growth modelRoyalt
yFocus
TSX : FRUThe Manager
CN PENSION TRUST FUNDSPension fund for employees of Canadian National Railway
100% ownership
27% ownership
100% ownership Manager of the assets
30
TSX : FRUBoard of Directors
Nolan Blades Harry Campbell Peter Harrison Arthur Korpach
Tom Mullane David Sandmeyer Rodger Tourigny Aidan Walsh
31
TSX : FRU2013 YTD Relative Performance*
Lightstream
Perpetual
Twin Butte
Zargon
Bonavista
Trilogy
Baytex
S&P/TSX Composite
Penn West
Freehold
Vermilion
Crescent Point
Surge
ARC
Advantage
Pengrowth
Enerplus
Peyto
Whitecap
-22.0%
-12.7%
-12.0%
-7.9%
-7.5%
-3.1%
2.0%
2.5%
8.9%
11.9%
12.3%
13.2%
13.5%
14.7%
24.5%
30.2%
34.1%
39.4%
40.5%
FRU: 11.9%
* Year to date to September 30th, 2013.
Freehold
32
40.5%
TSX : FRUPerformance Since Corporate Conversion
33To September 30, 2013.
Dec 2010 Dec 2011 Dec 2012 Dec 201350
75
100
125
150
FRU S&P/TSX Composite S&P/TSX Oil & Gas E&P
+43.5%
+1.6%
-23.0%
TSX : FRU2013 First Half Results
34* See advisory regarding forward-looking information.
2013
H1 Actual
AnnualGuidance*
Production boe/d 8,889 8,800
Capital $ millions 18 32
DRIP participation $ millions 12 28
Cash taxes payable: 2012 tax year 2013 instalments
$ millions
$ millions
2212
2224
Long-term debt $ millions 55 44
Supplemental Information
TSX : FRULand 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
Land Profile
Mineral title lands - 21%
Gross overriding royalties - 73%
Working interest properties - 6%94%
royalties* As at December 31, 2012. 36
TSX : FRUReserves 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
Light and medium crude oil - 24%
Heavy crude oil - 30%
Natural gas liquids - 6%
Natural gas - 40%
93% of our proved reserves
are producing
* As at December 31, 2012. 37
TSX : FRUProduction Profile
H1 2013 average 8,889 boe/d 71% royalty production 63% oil and NGL
2013 forecast* 8,800 boe/d
Our oil-weighted production is currently
unhedged
Production Profile
Light and medium crude oil - 33%Heavy crude oil - 25%Natural gas liquids - 5%Natural gas - 37%
38* 2013 forecast per guidance dated August 8, 2013.
TSX : FRUWhat 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
39
TSX : FRU2012 Operational Highlights
RoyaltyInterest
WorkingInterest
TotalCompany
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 60 - 60 100%
Royalty expense(2) $ per boe 0.07 6.68 2.00 2%
Operating expense $ per boe - 16.47 4.82 0%
(1) Includes undeveloped land.(2) Royalty expense includes both Crown charges and royalty payments to third parties.
Focus on Royalties
40
TSX : FRUAttractive Dividend
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$0
$10
$20
$30
$40
$50
$60
$70
$80
$0.13
$1.10
$0.65 $0.78
$1.32
$1.56
$1.31
$1.70 $1.73
$1.92
$2.10
$1.92
$2.91
$1.40
$1.68 $1.68 $1.68
Annual Dividend ($/share) Freehold's Average Selling Price ($/boe)
Dividend ($/share)
Selling Price($/boe)
Eligible dividend for Canadian tax purposes. 41
TSX : FRU2012 Acquisitions
Alberta, Sask. August 31, 2012 $10.9 million 6,100 net acres Production
» 90 boe/d
» 75% liquids
future development potential
Alberta, Sask., B.C. January 17, 2012 $49.3 million 250,000 gross acres Production
» 530 boe/d
» Mostly natural gas
42
TSX : FRU2013 Sensitivities
VariableChange
(+/-)
Estimated Change in
Funds From Operations
($ per share)
WTI oil price US$1.00/bbl 0.02
Canadian/U.S. dollar exchange rate US$0.01 0.02
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 Relationstoll free. 888.257.1873telephone. 403.221.0833website. freeholdroyalties.com