CALGARY, Alberta, Feb. 11, 2019 (GLOBE NEWSWIRE) — PrairieSky Royalty Ltd. (“PrairieSky” or the “Company“) (TSX: PSK) is pleased to announce its fourth quarter (“Q4 2018”) and year-end operating and financial results for the period ended December 31, 2018. In addition, PrairieSky’s Board of Directors has confirmed the annual dividend of $0.78 per share for the upcoming year.
Fourth Quarter 2018 Highlights:
- Average royalty production of 23,506 BOE per day included 3% liquids growth, with overall royalty production consistent with 2018 third quarter (“Q3 2018”) volumes of 23,438 BOE per day.
- Funds from Operations of $48.5 million ($0.21 per share basic and diluted), a decrease from Q3 2018 primarily due to the impact of dramatically wider differentials on realized pricing for Canadian crude oil.
- Declared dividends of $45.7 million ($0.1950 per share) in Q4 2018, representing a dividend payout ratio of 94%.
2018 Annual Highlights:
- Average royalty production of 23,358 BOE per day was down from average royalty production in 2017 of 25,259 BOE per day.
- Funds from Operations of $229.7 million ($0.98 per share basic and diluted), a decrease from 2017 primarily due to challenged natural gas pricing and the impact of wider differentials on realized pricing for Canadian crude oil.
- Declared dividends of $182.1 million ($0.7750 per share), representing a payout ratio of 79% and common share repurchases of $45.7 million under the normal course issuer bid (“NCIB”), returning a total of $227.8 million to shareholders (an all-in payout ratio of 99%).
PrairieSky saw modest liquids growth in Q4 2018 and improved leasing activity, which contributed to a strong quarter in which the business generated $48.5 million in funds from operations despite a turbulent commodity price environment for Canadian crude oil and natural gas and significantly wider differentials for all grades of Canadian crude oil. The wide differentials seen in Q4 2018 have narrowed during the first part of 2019. Annual funds from operations for 2018 were $229.7 million, which represented a 79% dividend payout ratio, and a 99% payout ratio for 2018 including the repurchase of 1.8 million shares under the NCIB for $45.7 million.
Funds from operations were primarily generated from royalty production revenue which totaled $42.4 million for Q4 2018, down from $71.4 million in Q3 2018. Declines in West Texas Intermediate (“WTI”) and significantly wider light and heavy oil differentials negatively impacted crude oil revenue which was down to $28.0 million in Q4 2018 versus $55.4 million in Q3 2018. Crude oil royalty production volumes of 9,163 barrels per day were up from 9,018 barrels per day in Q3 2018, as the negative impacts of lower benchmark pricing on crude oil sliding scale production volumes (down approximately 280 barrels per day) and shut-ins due to low pricing of medium-heavy oil production volumes (approximately 100 barrels per day) were offset by production growth in the Duvernay and Cardium. NGL revenue totaled $5.6 million which was down from $8.6 million in Q3 2018. Lower realized pricing was partially offset by increased NGL production which totaled 2,676 barrels per day, up from 2,503 barrels per day in Q3 2018. Liquids revenue represented 79% of total royalty production revenue in Q4 2018. Natural gas prices in Western Canada continue to be challenged and exploration and development activity limited. Natural gas revenue in Q4 2018 totaled $8.8 million (Q3 2018 – $7.4 million) from 70.0 MMcf per day (Q3 2018 – 71.5 MMcf per day) of royalty production.
With the Alberta government’s announcement in December 2018 curtailing an estimated 325,000 barrels a day of crude oil production effective January 1, 2019, light and heavy oil differentials narrowed which is expected to improve PrairieSky’s realized commodity prices in 2019 compared to Q4 2018. PrairieSky expects crude oil volumes to be impacted by approximately 200 barrels per day in the first quarter of 2019 as third-party operators on our royalty properties meet their production curtailment requirements.
Leasing activity was strong in Q4 2018, with PrairieSky entering into 41 leasing arrangements with 35 different counterparties, earning bonus consideration of $6.4 million. Q4 2018 was the strongest quarter for leasing activity during the fiscal year. For 2018, PrairieSky entered into 131 leasing arrangements with 83 different counterparties and earned bonus consideration of $16.5 million. Throughout 2018, leasing activity was focused on crude oil targets across a number of plays and areas.
There were 202 wells (89% oil) spud on PrairieSky lands during the quarter including 77 wells spud on Fee Lands, 57 wells spud on gross overriding royalty lands and 68 wells spud on unitized lands. Activity included 113 Viking wells in Alberta and Saskatchewan, as well as 15 Mannville light and heavy oil wells, 10 Duvernay oil wells, 7 Clearwater oil wells and 12 Montney natural gas wells. In 2018, 810 wells (2017 – 735 wells) were spud with 755 wells spud targeting crude oil. Natural gas drilling remained modest during 2018 with 55 wells spud. Drilling activity during 2018 was focused on the Viking light oil play in Western Saskatchewan and Eastern Alberta, light and heavy oil plays in Central Alberta such as the Duvernay, Clearwater and Mannville and liquids rich resource plays, including the Montney and Spirit River, in the Deep Basin and Northeast British Columbia. We estimate that approximately $1.3 billion (2017 – $1.1 billion) in third-party capital was spent drilling and completing wells on PrairieSky lands which includes approximately $46 million (2017 – $170 million) of capital spent on our thermal oil projects. Net capital for the year is estimated to be $75 million (2017 – $74 million) or 5.9% (2017 – 6.7%). Net capital as a percentage of gross capital decreased in 2018 compared to 2017 gross capital due to significant capital investments on lower percentage gross overriding royalty lands, including recent land fund arrangements, thermal oil projects and units, as well as operators drilling longer horizontal wells across both Crown and Fee Lands.
During the quarter, PrairieSky acquired additional producing and non-producing royalty interests for $13.7 million. PrairieSky selectively acquired royalty interests in producing properties in Southeast Saskatchewan which added approximately 45 barrels per day of oil. In addition, PrairieSky acquired non-producing royalty interests across a number of plays through its land fund arrangements, including incremental lands in the emerging Clearwater oil play bringing PrairieSky’s land holdings to approximately 780,000 acres. Acquisitions in 2018 totaled $58.6 million. Acquisitions were paid from cash on hand as well as a minor amount of bank debt. At December 31, 2018, PrairieSky had $5.8 million of bank debt which it expects will be repaid in 2019.
PrairieSky continues to focus on cost control in its business. Cash administrative expenses totaled $4.4 million or $2.03 per BOE in Q4 2018 and $26.4 million or $3.10 per BOE for the year ended December 31, 2018. PrairieSky’s staff maintained their focus on ensuring timely and accurate royalty payments, collecting $1.5 million on historical royalty compliance issues in Q4 2018, bringing 2018 compliance collections to $9.2 million. These recoveries will fluctuate quarter to quarter, but our team continues to focus on collections and anticipates further collections in 2019.
I would like to thank our shareholders for their continued support as well as our dedicated staff for their efforts. Please contact Pam Kazeil, our Chief Financial Officer, at 587-293-4089 or myself at 587-293-4005 with any questions.
Andrew Phillips, President & CEO
DIVIDEND MAINTAINED AT $0.78 PER SHARE
PrairieSky will maintain its current dividend level at $0.78 per common share through 2019. The Board of Directors considers a number of factors in determining the dividend level, including current and projected activity levels on PrairieSky’s royalty lands, the current commodity price environment and the working capital balance and earnings of the Company.
PrairieSky’s NCIB started on May 4, 2018 and expires on May 3, 2019. During 2018, PrairieSky purchased and cancelled 1,804,480 common shares at an average price of $25.31 and an aggregate cost of $45.7 million, funded entirely from funds from operations. Future amounts to be allocated to the NCIB will be announced prior to expiration of the current NCIB in 2019.
FINANCIAL AND OPERATIONAL INFORMATION
The following table summarizes selected operational and financial information of the Company for the periods noted. All dollar amounts are stated in Canadian dollars unless otherwise noted.
A full version of PrairieSky’s Management’s Discussion and Analysis (“MD&A“) and Audited Annual Consolidated Financial Statements and notes thereto as at and for the year ended December 31, 2018 is available on SEDAR at www.sedar.com and PrairieSky’s website at www.prairiesky.com.
|($ Millions, unless otherwise noted)||Three months ended
|Funds from Operations||48.5||81.1||229.7||290.2|
|Per Share – basic and diluted (1)(2)||0.21||0.34||0.98||1.23|
|Net Earnings and Comprehensive Income||6.0||39.9||79.4||120.6|
|Per Share – basic and diluted(2)||0.03||0.17||0.34||0.51|
|Acquisitions, including non-cash consideration||13.7||80.8||58.6||380.5|
|Working Capital at period end||(10.4||)||45.7||(10.4||)||45.7|
|Shares Outstanding (millions)|
|Shares outstanding at period end||234.2||236.0||234.2||236.0|
|Weighted average – basic||234.4||236.2||235.1||236.5|
|Weighted average – diluted||234.7||236.5||235.4||236.7|
Royalty Production Volumes
|Crude Oil (bbls/d)||9,163||9,419||9,004||9,565|
|Natural Gas (MMcf/d)||70.0||75.2||71.3||78.1|
|Crude Oil ($/bbl)||$||33.17||$||58.35||$||56.18||$||52.99|
|Natural Gas ($/Mcf)||1.35||1.56||1.23||1.81|
|Operating Netback per BOE(1)||$||17.07||$||27.22||$||26.14||$||24.92|
|Funds from Operations per BOE||$||22.43||$||36.12||$||26.94||$||31.48|
|Natural Gas Price Benchmarks|
|AECO monthly index ($/Mcf)||$||1.90||$||1.96||$||1.52||$||2.43|
|AECO daily index ($/Mcf)||$||1.59||$||1.65||$||1.51||$||2.19|
|Foreign Exchange Rate (US$/CAD$)||0.7557||0.7865||0.7715||0.7703|
|Oil Price Benchmarks|
|Edmonton Light Sweet ($/bbl)||$||42.71||$||66.70||$||69.35||$||63.32|
|Western Canadian Select (WCS) crude oil differential to WTI (US$/bbl)||$||(39.43)||$||(12.46)||$||(26.29)||$||(12.02)|
|(1)||A non-GAAP measure which is defined under the Non-GAAP Measures section in the MD&A.|
|(2)||Net Earnings and Comprehensive Income and Funds from Operations per Common Share are calculated using the weighted average number of common shares outstanding.|
|(3)||A dividend of $0.065 per common share was declared on December 11, 2018. The dividend was paid on January 15, 2019 to shareholders of record as at December 31, 2018.|
|(4)||See “Conversions of Natural Gas to BOE”.|
2018 RESERVES INFORMATION
PrairieSky’s year end 2018 reserves were evaluated by independent reserves evaluators GLJ Petroleum Consultants Ltd. (“GLJ”). The evaluation of PrairieSky’s royalty properties was done in accordance with the definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook and National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities. PrairieSky’s reserves information is included in the Company’s Annual Information Form which is available on SEDAR at www.sedar.com and PrairieSky’s website at www.prairiesky.com.
CONFERENCE CALL DETAILS
A conference call to discuss the results will be held for the investment community on Tuesday, February 12, 2019 beginning at 6:30 a.m. MT (8:30 a.m. ET). To participate in the conference call, approximately 10 minutes prior to the conference call, please dial:
|(844) 657-2668 (toll free in North America)|
|(612) 979-9882 (International)|