CALGARY, Alberta – PrairieSky Royalty Ltd. (“PrairieSky” or the “Company“) (TSX: PSK) is pleased to announce its third quarter (“Q3 2020“) operating and financial results for the period ended September 30, 2020.
|Third Quarter 2020 Highlights:|
|•||Revenues increased 54% to $43.5 million, comprised of royalty production revenues of $38.4 million and other revenues
of $5.1 million, compared to Q2 2020.
|•||Funds from Operations increased 78% quarter over quarter to $37.9 million ($0.16 per common share basic and diluted).|
|•||Royalty production averaged 18,745 BOE per day (48% liquids) with oil production increasing 9% from Q2 2020.|
|•||Repurchased and cancelled 8.9 million common shares under the normal course issuer bid (“NCIB“), representing 4% of
the issued and outstanding shares.
|•||Declared a third quarter dividend of $13.4 million ($0.06 per common share), representing a payout ratio of 35%.|
PrairieSky’s Q3 2020 results demonstrate the resiliency of our high margin, low cost royalty model with funds from operations of $37.9 million, an increase of 78% compared to Q2 2020. Our diversified portfolio of royalty assets, numerous ongoing secondary and tertiary recovery schemes, and the early stage nature of the Clearwater and Duvernay oil plays will provide PrairieSky owners with long-term growth as capital returns to Western Canada, without the need for future acquisitions or equity issuances. We continue to review only those acquisition opportunities that have the potential to improve our business per share and enhance our existing high-quality portfolio of royalty assets. In Q3 2020, PrairieSky accelerated the NCIB, acquiring and cancelling 8.9 million common shares for $81.8 million, representing approximately 4% of the outstanding common shares. Share purchases were funded from cash flows above the quarterly dividend, and by drawing down on PrairieSky’s available credit facility, which PrairieSky expects to pay down in less than nine months. There are now 223.3 million common shares outstanding.
Exploration and development activity improved throughout the quarter, with 18 rigs working in Western Canada at the beginning of Q3 2020 and increasing to 73 rigs at September 30, 2020. There were 44 wells spud (93% oil) on PrairieSky lands during the quarter with a focus on Viking, Bakken and Leduc units (18 wells), as well as 12 new Viking wells and six new wells in the Clearwater oil play. In addition, three Spirit River natural gas wells were spud in Q3 2020. Rig counts have continued to increase in the early stages of Q4 2020, with approximately 85 rigs currently working in Western Canada.
PrairieSky’s Q3 2020 total royalty production volumes increased modestly to 18,745 BOE per day, generating royalty production revenue of $38.4 million, an increase of 53% compared to Q2 2020. Oil royalty production volumes averaged 6,572 barrels per day, an increase of 9% over Q2 2020 oil royalty production volumes of 6,035 barrels per day as producers started to bring previously shut-in production back on throughout the quarter. Oil royalty revenue totaled $24.8 million, an 85% increase over Q2 2020 primarily due to improved production, more stable average West Texas Intermediate (“WTI“) benchmark pricing and narrowed Canadian light and heavy oil differentials. Natural gas royalty production volumes averaged 58.2 MMcf per day (Q2 2020 – 60.3 MMcf per day) and generated $8.7 million of royalty revenue, an increase of 14% compared to Q2 2020 due to stronger average AECO index benchmark pricing through the quarter. NGL royalty revenue totaled $4.9 million, an increase of 20% compared to Q2 2020 primarily as a result of improved pricing, partially offset by a modest 4% decrease in production volumes to 2,473 barrels per day in Q3 2020.
Other revenue improved in Q3 2020, totaling $5.1 million (Q2 2020 – $3.1 million) comprised of $1.2 million of lease rentals, $2.1 million in other income and $1.8 million in bonus consideration. During the quarter, PrairieSky entered into 15 new leases with 15 different counterparties on both oil and natural gas plays across Alberta and Saskatchewan.
Cash administrative expenses totaled $3.5 million or $2.03 per BOE in the quarter. We are committed to managing controllable costs in our business and expect cash administrative expenses to remain well below $3.00 per BOE in 2020. PrairieSky’s staff continued their focus on ensuring timely and accurate royalty payments, collecting compliance recoveries totaling $1.0 million in the quarter bringing year to date compliance recoveries to $5.0 million.
As we look towards 2021, our organization is working hard on the third PrairieSky Royalty Playbook ahead of our Investor Day in May, as well as our fourth annual ESG report. We expect both of these documents to highlight the unique attributes of our long duration, capital free, high margin business model, which was recently recognized by Sustainalytics as the #1 ranked company in their Oil and Gas ESG Risk Ratings.
The health and safety of our employees and community are our priority and we continue to monitor the situation related to COVID-19 and follow the advice of public health officials. While the majority of the staff have returned to the office environment under stringent health and safety protocols, we continue to support staff who are working remotely away from the office. Our investment in technology and systems over a number of years has allowed us to effectively manage a hybrid workforce through the COVID-19 pandemic without interruption while ensuring the safety and well-being of our staff. We appreciate the continued efforts of our team and we want to thank our shareholders for their ongoing support. 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
FINANCIAL AND OPERATIONAL INFORMATION
The following table summarizes select 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 MD&A and unaudited interim condensed Consolidated Financial Statements and notes thereto for the fiscal period ended September 30, 2020 is available on SEDAR at www.sedar.com and PrairieSky’s website at www.prairiesky.com.
|Three months ended
|Nine months ended
|(millions, except per share or as otherwise noted)||2020||2019||2020||2019|
|Funds from Operations||37.9||48.8||105.7||164.6|
|Per Share – basic and diluted(1)||0.16||0.21||0.46||0.70|
|Per Share – basic and diluted(1)||0.04||0.07||0.08||0.37|
|Common share repurchases||81.8||4.2||90.9||16.2|
|Acquisitions, including non-cash consideration||–||5.2||6.7||7.8|
|Working Capital (Deficiency) at period end||(66.2||)||(7.4||)||(66.2||)||(7.4||)|
|Shares outstanding at period end||223.3||233.3||223.3||233.3|
|Weighted average – basic||229.8||233.4||231.7||233.7|
|Weighted average – diluted||230.2||233.8||232.2||234.1|
Royalty Production Volumes
|Crude Oil (bbls/d)||6,572||8,011||7,061||8,548|
|Natural Gas (MMcf/d)||58.2||61.0||60.7||63.1|
|Royalty Production (BOE/d)(3)||18,745||20,512||19,845||21,601|
|Crude Oil ($/bbl)||$||41.11||$||59.04||$||36.82||$||60.79|
|Natural Gas ($/Mcf)||1.62||0.72||1.52||1.14|
|Operating Netback per BOE(4)||$||19.54||$||23.31||$||17.90||$||26.73|
|Funds from Operations per BOE||$||21.98||$||25.86||$||19.44||$||27.91|
|Oil Price Benchmarks|
|Western Texas Intermediate (WTI) (US$/bbl)||$||40.93||$||56.50||$||38.32||$||57.07|
|Edmonton Light Sweet ($/bbl)||$||49.80||$||68.48||$||43.70||$||69.62|
|Western Canadian Select (WCS) crude oil
differential to WTI (US$/bbl)
|Foreign Exchange Rate (US$/CAD$)||0.7511||0.7564||0.7393||0.7525|
|Natural Gas Price Benchmarks|
|AECO monthly index ($/Mcf)||$||2.15||$||1.05||$||2.07||$||1.39|
|AECO daily index ($/Mcf)||$||2.27||$||0.89||$||2.10||$||1.52|
(1) Net Earnings and Funds from Operations per Common Share are calculated using the weighted average number of basic and diluted common shares outstanding.
(2) A dividend of $0.06 per common share was declared on September 9, 2020. The dividend was paid on October 15, 2020 to shareholders of record as at September 30, 2020.
(3) See “Conversions of Natural Gas to BOE”.
(4) Operating Netback per BOE is defined under the Non-GAAP Measures section in the MD&A.
CONFERENCE CALL DETAILS
A conference call to discuss the results will be held for the investment community on Tuesday, October 27, 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 free in North America)|
|(612) 979-9882 (International)|
|Conference ID: 3539308|