PrairieSky Announces 2022 Third Quarter Results and 100% Increase to Dividend

CALGARY, Alberta, Oct. 24, 2022 (GLOBE NEWSWIRE) — PrairieSky Royalty Ltd. (“PrairieSky” or the “Company“) (TSX: PSK) is pleased to announce its third quarter results for the three-month period ended September 30, 2022 (“Q3 2022”) and a 100% increase in its quarterly dividend to $0.24 per common share ($0.96 per common share annualized).

Third Quarter Highlights:

• Quarterly revenues totaled $154.7 million, comprised of royalty production revenues of $146.0 million and other revenues of $8.7 million, including bonus consideration of $5.9 million.
• Quarterly funds from operations of $123.5 million ($0.52 per common share basic and diluted) were 87% above Q3 2021 due to a combination of robust organic royalty production growth, acquisition royalty volumes and strong commodity pricing, but trailed Q2 2022 by 23% primarily as a result of a decline in benchmark commodity prices.
• Royalty production volumes averaged 24,986 BOE per day, comprised of 11,376 barrels per day of oil, 2,660 barrels per day of NGL and 65.7 MMcf per day of natural gas.
• Declared a third quarter dividend of $28.7 million ($0.12 per common share), representing a payout ratio of 23%.
• Net debt totaled $364.2 million at the end of Q3 2022, a decrease of 43% or $270.8 million from December 31, 2021 as excess funds from operations were primarily used to retire indebtedness incurred in connection with acquisitions completed during the second half of 2021.
• PrairieSky’s Board of Directors has approved a 100% quarterly dividend increase to $0.24 per common share ($0.96 per common share annualized) effective for the December 30, 2022 record date.

President’s Message

It was an exceptionally busy quarter across PrairieSky’s royalty properties as third-party operators spud 286 wells on our lands, a 134% increase compared to Q2 2022 (122 spuds) and a 48% increase compared to Q3 2021 (193 spuds). This material increase in activity was spread across a number of plays spanning from northeast British Columbia to southwest Manitoba. Drilling activity was focused on oil plays with 268 wells spud, including 107 Viking oil wells primarily on fee leases in Saskatchewan and Alberta, and 48 Clearwater oil wells across our 1.3-million-acre Clearwater footprint. Management expects the escalating drilling and field activity throughout 2022 and specifically in Q3 2022 to provide organic growth in royalty production volumes in the fourth quarter of 2022 and into 2023. In addition, during Q3 2022 we entered into 58 distinct leasing arrangements with 46 different counterparties for bonus revenue of $5.9 million, the highest level of quarterly leasing activity and bonus in several years, which we anticipate will contribute to strong third-party drilling for the balance of 2022 and 2023.

Throughout the first nine months of 2022, PrairieSky has generated organic growth across our land base with royalty volumes increasing by approximately 1,100 BOE per day (5%) from Q1 2022 to Q3 2022. Annual spring breakup conditions and the seasonal reduction in field activity (122 spuds in Q2 2022) impacted Q3 2022 royalty production which declined 4% to 24,986 BOE per day with oil royalty production volumes averaging 11,376 barrels per day. Oil royalty production volumes have increased 20% over Q3 2021, excluding all acquisition royalty volumes, but lagged Q2 2022 by 7% as seasonal road bans impacted transportation of certain oil volumes and new wells came on later in Q3 2022. PrairieSky’s Clearwater production continues to grow organically, averaging approximately 1,600 BOE per day in Q3 2022, an increase of 78% compared to Q3 2021 average production of approximately 900 BOE per day. PrairieSky is the largest owner of Clearwater royalty lands with 1.3 million acres and we expect this low-cost play will provide significant royalty production growth and new exploration opportunities for PrairieSky through all commodity cycles. Natural gas production volumes increased 13% over Q3 2021 and remained steady relative to Q2 2022 at 65.7 MMcf per day, generating $83.9 million in revenue year to date which has been sufficient to cover substantially all dividends declared by PrairieSky in 2022.

PrairieSky generated quarterly funds from operations of $123.5 million or $0.52 per common share (basic and diluted) and declared dividends of $28.7 million or $0.12 per common share to shareholders of record on September 30, 2022 with a resulting payout ratio of 23%. With strong quarterly funds from operations over the first nine months of 2022, PrairieSky’s net debt has decreased 43% to $364.2 million from $635.0 million at December 31, 2021.

PrairieSky’s Board of Directors has approved a 100% increase in the quarterly dividend, doubling the annual dividend to $0.96 per common share, effective for the December 30, 2022 record date. This decision was based on a number of factors including organic oil royalty production growth over the past year, strong leasing and drilling activity tailwinds and net debt decreasing at a faster pace than internally forecasted. Following the 100% dividend increase, PrairieSky expects to maintain a low payout ratio, leaving room for incremental dividend increases on an annual basis and the ability to retire debt over the next several quarters, while maintaining balance sheet flexibility to opportunistically acquire complementary royalty assets or use the normal course issuer bid to repurchase and cancel common shares. PrairieSky remains disciplined in its approach to acquisitions and focused on only adding assets that enhance the value per common share over the near, medium and long term.

With strong commodity pricing for all products, PrairieSky is focused on its core strategies of leasing land, managing controllable costs and royalty and land compliance activities. With leasing transactions at a record high and third-party operators actively drilling, PrairieSky is well positioned to continue to see sustainable organic royalty production growth across the portfolio. We would like to thank our shareholders for their support, and our staff for their continued hard work.

Andrew Phillips, President & CEO

Q3 2022 Financial Highlights

• Funds from operations of $123.5 million or $0.52 per common share (basic and diluted) increased 87% over Q3 2021. The increase in funds from operations was driven by a combination of organic growth in royalty production, acquisition royalty volumes and strong commodity pricing. Funds from operations decreased 23% from Q2 2022 primarily as a result of the decrease in benchmark oil and natural gas prices.
• Royalty production revenue totalled $146.0 million generated from total royalty production volumes of 24,986 BOE per day. A further breakdown is as follows:
  • Oil royalty production volumes averaged 11,376 barrels per day, a 51% increase over Q3 2021. Excluding all acquisition royalty volumes, organic growth in oil royalty production totaled 20% over Q3 2021 inclusive of 219 barrels per day of royalty production from sliding scale royalties. Oil royalty volumes were 7% below Q2 2022 following seasonal breakup when fewer new wells come on production and road bans restrict the transportation and marketing of certain oil volumes.
  • Strong oil royalty production volumes and average WTI pricing of US$91.68 per barrel combined to generate oil royalty revenue of $107.6 million in the quarter, a 114% increase over Q3 2021 and 21% below Q2 2022 when WTI pricing averaged US$108.57 per barrel.
  • Natural gas royalty production volumes totaled 65.7 MMcf per day, 13% above Q3 2021. The increase in natural gas royalty production volumes is attributable to acquisition volumes, organic growth from new wells on stream, including solution gas from oil wells, and compliance recoveries more than offsetting natural declines. Natural gas royalty production volumes remained flat with Q2 2022 as incremental royalty production volumes from new wells on stream offset natural declines.
  • Natural gas royalty revenue totaled $24.2 million, a 55% increase over Q3 2021 primarily due to stronger natural gas index pricing with daily AECO averaging $4.08 per Mcf in the quarter and monthly AECO pricing averaging $5.81 per Mcf in the quarter. Natural gas pricing was stronger than Q3 2021 but down from Q2 2022 due to pipeline maintenance restricting volumes out of Western Canada negatively impacting benchmark pricing and resulting in a 34% decrease in natural gas revenue quarter over quarter.
  • NGL royalty production volumes averaged 2,660 barrels per day, 2% above Q3 2021 due to new wells on stream and incremental acquisition royalty volumes offsetting natural declines. NGL royalty production volumes decreased 4% from Q2 2022 as fewer new wells came on production following seasonal breakup.
  • NGL royalty revenue totaled $14.2 million, a 41% increase over Q3 2021 due to increased royalty production volumes and stronger benchmark pricing. NGL royalty revenue decreased 20% from Q2 2022 primarily due to lower benchmark pricing.
• Other revenue totaled $8.7 million in Q3 2022 which included $1.6 million of lease rentals and $5.9 million in bonus consideration generated from 58 new leasing arrangements with 46 different counterparties. Year to date bonus consideration of $13.2 million is triple the amount earned in the first 9 months of 2021. In addition, PrairieSky generated $1.2 million in other income which included $0.7 million of Potash royalty revenue. Compliance recoveries totaled $3.3 million in Q3 2022.
• Cash administrative expenses totaled $4.9 million or $2.13 per BOE, down 9% on a per BOE basis from Q3 2021. PrairieSky expects cash administrative expense per BOE to remain below $3.00 per BOE for 2022.
• PrairieSky declared a third quarter dividend of $28.7 million ($0.12 per common share), representing a 23% payout ratio. Remaining funds from operations were primarily allocated to reducing bank debt.
• At September 30, 2022, PrairieSky’s net debt balance totaled $364.2 million, a decrease of $270.8 million from December 31, 2021.

ACTIVITY ON PRAIRIESKY’S ROYALTY PROPERTIES

Third-party operators were active across PrairieSky’s royalty properties during Q3 2022. There were 286 wells spud (94% oil) in the quarter, including 146 wells spud on our Fee Lands, 122 wells spud on our GORR acreage and 18 unit wells spud. It was particularly active on our Viking and Clearwater oil plays with 107 and 48 wells spud, respectively. In addition, there were 49 Mannville heavy and light oil wells including 8 wells on the Onion Lake thermal oil project, 16 Mississippian wells, 14 Bakken wells, 11 Cardium wells and 23 additional oil wells spud in the Belly River, Charlie Lake, Doig, Devonian and Jurassic formations. There were 18 natural gas wells spud in Q3 2022, including 5 Spirit River, 4 Mannville, 4 Mississippian, 3 Montney and 2 Cardium wells. PrairieSky’s average royalty rate for wells spud in Q3 2022 was 8.9% (Q3 2021 – 6.7%). In the nine months ended September 30, 2022, third-party operators have spud 602 wells on PrairieSky’s royalty lands, an increase of 58% over the same period in 2021.

QUARTERLY DIVIDEND INCREASED 100% TO $0.24 PER SHARE ($0.96 PER SHARE ANNUALIZED)

PrairieSky is pleased to announce a 100% increase in its quarterly dividend raising it to $0.24 per common share (annualized dividend of $0.96 per common share) effective for the December 30, 2022 record date. The Board of Directors considered a number of factors in determining the increase to its dividend level, including current and projected activity levels on PrairieSky’s royalty lands, the current commodity price environment, the continued high margin and diversified cash flow from operating activities, debt levels, and the net earnings of the Company. Following the 100% dividend increase, PrairieSky expects to maintain a low payout ratio, leaving room for incremental dividend increases on an annual basis.

FINANCIAL AND OPERATIONAL INFORMATION