CALGARY, Alberta – PrairieSky Royalty Ltd. (“PrairieSky” or the “Company“) (TSX: PSK) is pleased to announce its fourth quarter (“Q4 2019“) and 2019 year-end operating and financial results for the period ended December 31, 2019. In addition, PrairieSky’s Board of Directors has confirmed the annual dividend of $0.78 per share for the upcoming year.
Fourth Quarter 2019 Highlights:
- Funds from Operations totaled $55.8 million ($0.24 per common share basic and diluted).
- Revenues totaled $67.1 million, comprised of royalty production revenues of $63.4 million and other revenues of $3.7 million.
- Royalty production averaged 22,203 BOE per day (53% liquids up from 50% in Q3 2019), an overall increase of 8%. Oil production and NGL production increased 11% and 21%, respectively, bringing total liquids volumes to 11,703 bbls/d compared to Q3 2019 liquids volumes of 10,345 bbls/d.
- Operating netback of $28.88 per BOE, an increase of 24% from $23.31 per BOE in Q3 2019.
- Dividends declared in the fourth quarter of $45.4 million ($0.1950 per share), representing a payout ratio of 81%.
- Common share repurchases of $2.8 million under the normal course issuer bid (“NCIB“) representing a payout ratio of 86% when combined with the dividend.
- Funds from Operations totaled $220.4 million ($0.94 per common share basic and diluted).
- Revenues totaled $268.4 million, comprised of royalty production revenues of $244.9 million and other revenues of $23.5 million.
- Royalty production averaged 21,757 BOE per day (52% liquids up from 49% in 2018).
- Operating netback of $27.28 per BOE, an increase of 4% from $26.14 per BOE in 2018.
- Cash administrative expenses of $2.68 per BOE, 14% below 2018 cash administrative expenses of $3.10 per BOE.
- Dividends declared in the year of $182.1 million ($0.78 per share), representing a payout ratio of 83%.
- Common share repurchases of $19.0 million under the NCIB representing a payout ratio of 91% when combined with the dividend.
PrairieSky’s high margin, low cost business continued to deliver strong financial results, generating $55.8 million of funds from operations during Q4 2019 and $220.4 million for the year. PrairieSky declared dividends of $45.4 million and cancelled 0.2 million common shares for $2.8 million in Q4 2019 and declared $182.1 million in dividends and cancelled 1.1 million common shares for $19.0 million for the full year. During 2019, PrairieSky increased its position in the emerging Clearwater oil play bringing its total acreage to over 850,000 acres in the last two years. PrairieSky has maintained a strong balance sheet since inception, with a minor working capital deficiency of $3.1 million at December 31, 2019 and no long-term debt.
In 2019, an estimated $1.1 billion (net – $58 million) in third-party capital was spent drilling and completing wells on PrairieSky lands as compared to $1.3 billion (net – $75 million) in 2018. This represents approximately 5% of total Canadian conventional capital expenditures. Capital spending on PrairieSky lands targeted plays where PrairieSky has made strategic investments over several years and is also a reflection of active leasing on PrairieSky’s vast inventory of undeveloped land.
PrairieSky’s proved plus probable reserves totaled 45,835 MBOE at December 31, 2019 (December 31, 2018 – 47,482 MBOE). During the year, third-party capital on PrairieSky lands replaced 121% of 2019 oil royalty production volumes and 151% of 2019 NGL royalty production volumes, increasing year-end proved plus probable oil reserves by 4% and NGL reserves by 8%. Natural gas proved plus probable reserves decreased to 140,881 MMcf at December 31, 2019, from 157,676 MMcf at December 31, 2018, due to limited third-party natural gas drilling activity. PrairieSky’s reserves include only developed assets (developed producing and developed non-producing properties) and does not include any future development capital on undeveloped land.
Royalty production volumes for 2019 totaled 21,757 BOE per day, as compared to 2018 royalty production volumes of 23,358 BOE per day. Fourth quarter royalty production volumes increased 8% to 22,203 BOE per day from 20,512 BOE per day in Q3 2019, as third-party drilling and field activity on PrairieSky lands increased in the second half of the year.
Q4 2019 revenue totaled $67.1 million, which included royalty production revenue of $63.4 million. Average oil royalty production volumes of 8,884 barrels per day increased 11% from 8,011 barrels per day in Q3 2019, generating revenue of $46.9 million (Q3 2019 – $43.4 million). Q4 2019 oil royalty production volumes were positively impacted by increased drilling activity across our land base including the Viking light oil play in both Saskatchewan and Alberta. Increased production volumes were partially offset by a lower realized price due to wider differentials for Canadian light and heavy oil. Average NGL royalty production volumes of 2,819 barrels per day were up 21% from Q3 2019 NGL royalty production volumes of 2,334 barrels per day due to new Montney wells in the Pipestone area. NGL royalty production revenue totaled $6.7 million, up from Q3 2019 NGL royalty production revenue of $4.4 million, as a result of higher average royalty production volumes combined with improved NGL pricing which averaged $25.92 per barrel, up 28% from Q3 2019 due to additional plant condensate volumes. Average natural gas production volumes of 63.0 MMcf per day, were up 3% from Q3 2019 natural gas royalty production volumes of 61.0 MMcf per day, contributing $9.8 million of revenue, up 139% from $4.1 million in Q3 2019. This increase was due primarily to the significant increase in AECO pricing during the quarter as well as increased production from new Montney wells on stream in the Pipestone area.
For 2019, revenue totaled $268.4 million (2018 – $273.8 million) which included royalty production revenue of $244.9 million (2018 – $248.0 million). Crude oil revenue was $188.7 million in 2019, up from $184.7 million in 2018 as lower average West Texas Intermediate (“WTI”) index pricing was offset by narrowed Canadian light and heavy oil differentials. Crude oil royalty production volumes averaged 8,633 barrels per day (2018 – 9,004 barrels per day), due to lower activity across Western Canada and as a result of takeaway capacity constraints and mandated oil production curtailments in Alberta. NGL revenue totaled $26.7 million (2018 – $31.2 million) as lower average realized pricing was partially offset by increased NGL production which totaled 2,607 barrels per day, up 6% from 2,463 barrels per day in 2018. The production increase was primarily due to increased Montney royalty production. Liquids revenue represented 88% of total royalty production revenue in 2019, consistent with 87% in 2018. Natural gas prices in Western Canada remain challenged in 2019 and exploration and development activity limited. Natural gas revenue for the year totaled $29.5 million from 63.1 MMcf per day of royalty production compared to 2018 natural gas revenue of $32.1 million from 71.3 MMcf per day of royalty production as significantly improved AECO index pricing in Q4 2019 partially offset lower royalty production volumes.
PrairieSky entered 33 leasing arrangements with 31 different counterparties in Q4 2019, earning bonus consideration of $1.4 million. During 2019, PrairieSky entered into 127 leasing arrangements with 80 different counterparties and earned bonus consideration of $12.1 million. Throughout the year, leasing activity was focused on crude oil targets across a number of plays and areas.
Drilling activity was down year over year across Western Canada. There were 150 wells (99% oil) spud on PrairieSky lands in Q4 2019, as compared to 202 wells (89% oil) spud in Q4 2018. There were 50 wells spud on Fee Lands (Q4 2018 – 77 wells), 67 wells spud on GORR lands (Q4 2018 – 57 wells) and 33 wells spud on unitized lands (Q4 2018 – 68 wells). The average net royalty rate of wells spud in the quarter was approximately 6.0% as compared to 8.1% in Q3 2019 and 6.0% in Q4 2018. Activity was focused on the Viking light oil play in both Saskatchewan and Alberta where 81 wells were spud in Q4 2019. In addition, there were 21 Clearwater oil wells, 8 Duvernay oil wells, 14 Mannville heavy oil wells, and 24 other wells spud in Q4 2019, targeting a number of different plays including the Cardium, Mannville and Mississippian. There were 2 natural gas wells spud in Q4 2019. In 2019, there were 661 wells (95% oil) spud on PrairieSky lands as compared to 810 wells in 2018 (93% oil).
PrairieSky continues to focus on efficiencies, costs, and optimizing technology across our business. Cash administrative expenses totaled $4.1 million or $2.01 per BOE in the quarter and $21.3 million or $2.68 per BOE for the year, the lowest since PrairieSky’s inception. PrairieSky’s staff continued their focus on ensuring timely and accurate royalty payments, collecting compliance recoveries totaling $1.6 million in Q4 2019 bringing total 2019 compliance recoveries to $7.2 million.
Thank you to our shareholders for their ongoing support as well as our staff for their dedication and 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
ANNUAL DIVIDEND MAINTAINED AT $0.78 PER SHARE
PrairieSky will maintain its current dividend level at $0.78 per common share in 2020. 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, the working capital balance and earnings of the Company.
PrairieSky’s NCIB started on May 13, 2019, and expires on May 12, 2020. During 2019, PrairieSky purchased and cancelled 1.1 million common shares at an average price of $17.58 at an aggregate cost of $19.0 million, funded entirely from funds from operations. PrairieSky expects to apply to the TSX to renew the NCIB for an additional year, in accordance with TSX rules. Future amounts to be allocated to the NCIB will be announced in conjunction with application to the TSX prior to expiration of the existing NCIB.
FINANCIAL AND OPERATIONAL INFORMATION
The following table summarizes selected operational and financial information of the Company for the periods noted. All dollar amounts are stated in Canadian dollars unless otherwise noted.
A full version of PrairieSky’s Management’s Discussion and Analysis (“MD&A“) and Audited Consolidated Financial Statements and notes thereto for the fiscal period ended December 31, 2019 is available on SEDAR at www.sedar.com and PrairieSky’s website at www.prairiesky.com.
|Three months ended
|(millions, except per share or as otherwise noted)||2019||2018||2019||2018|
|Funds from Operations||55.8||48.5||220.4||229.7|
|Per Share – basic and diluted(1)||0.24||0.21||0.94||0.98|
|Net Earnings and Comprehensive Income||24.3||6.0||111.4||79.4|
|Per Share – basic and diluted(1)||0.10||0.03||0.48||0.34|
|Acquisitions, including non-cash consideration||3.4||13.7||11.2||58.6|
|Working Capital (Deficiency) at period end||(3.1||)||(10.4||)||(3.1||)||(10.4||)|
|Shares outstanding at period end||233.1||234.2||233.1||234.2|
|Weighted average – basic||233.2||234.4||233.6||235.1|
|Weighted average – diluted||233.6||234.7||234.0||235.4|
Royalty Production Volumes
|Crude Oil (bbls/d)||8,884||9,163||8,633||9,004|
|Natural Gas (MMcf/d)||63.0||70.0||63.1||71.3|
|Crude Oil ($/bbl)||$||57.29||$||33.17||$||59.88||$||56.18|
|Natural Gas ($/Mcf)||1.70||1.35||1.28||1.23|
|Operating Netback per BOE(4)||$||28.88||$||17.07||$||27.28||$||26.14|
|Funds from Operations per BOE||$||27.32||$||22.43||$||27.75||$||26.94|
|Oil Price Benchmarks|
|Western Texas Intermediate (WTI) (US$/bbl)||$||56.96||$||58.81||$||57.03||$||64.98|
|Edmonton Light Sweet ($/bbl)||$||68.10||$||42.71||$||69.22||$||69.35|
|Western Canadian Select (WCS) crude oil
differential to WTI (US$/bbl)
|Foreign Exchange Rate (US$/CAD$)||0.7575||0.7557||0.7537||0.7715|
|Natural Gas Price Benchmarks|
|AECO monthly index ($/Mcf)||$||2.31||$||1.90||$||1.62||$||1.52|
|AECO daily index ($/Mcf)||$||2.47||$||1.59||$||1.76||$||1.51|
(1) Net Earnings and Comprehensive Income and Funds from Operations per Common Share are calculated using the weighted average number of common shares outstanding.
(2) A dividend of $0.065 per common share was declared on December 10, 2019. The dividend was paid on January 15, 2020 to shareholders of record as at December 31, 2019.
(3) See “Conversions of Natural Gas to BOE”.
(4) A non-GAAP measure which is defined under the Non-GAAP Measures section in the MD&A.
2019 RESERVES INFORMATION
PrairieSky’s year end 2019 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 11, 2020 beginning at 6:30 a.m. MDT (8:30 a.m. EDT). To participate in the conference call, approximately 10 minutes prior to the conference call, please dial:
(844) 657-2668 (toll in free in North America)
(612 979-9882 (International)