CALGARY, Alberta, Feb. 06, 2023 (GLOBE NEWSWIRE) — PrairieSky Royalty Ltd. (“PrairieSky” or the “Company“) (TSX: PSK) is pleased to announce its fourth quarter (“Q4 2022“) and year-end operating and financial results for the period ended December 31, 2022.
Fourth Quarter Highlights:
- Royalty production volumes averaged 25,914 BOE per day, a 27% increase over Q4 2021 and a 4% increase over Q3 2022, which included 12,166 barrels per day of oil royalty production.
- Quarterly revenues totaled $150.6 million, comprised of royalty production revenues of $144.8 million and other revenues of $5.8 million, including bonus consideration of $3.0 million.
- Quarterly funds from operations of $119.5 million ($0.50 per share basic and diluted) were 17% above Q4 2021 due to a combination of robust organic royalty production growth, acquisition royalty volumes and strong commodity pricing, and modestly behind Q3 2022 primarily as a result of a decline in WTI benchmark pricing and a wider heavy oil differential.
- Declared a fourth quarter dividend of $57.3 million ($0.24 per share), a 100% increase compared to Q3 2022, representing a quarterly payout ratio of 48%.
- Record annual funds from operations increased 86% year over year to $507.6 million ($2.13 per share basic and $2.12 per share diluted), driven by organic growth in oil royalty volumes, acquisition royalty volumes and strong commodity pricing.
- Record annual revenues of $643.3 million increased 109% over 2021, comprised of:
- Royalty production revenue of $615.7 million, up 111% over 2021; and
- Other revenue of $27.6 million, including $16.2 million of bonus consideration for entering into a record 228 new leasing arrangements with 119 separate counterparties which we anticipate will result in continued strong third-party drilling on these royalty lands in 2023.
- Royalty production volumes totaled 25,206 BOE per day, 27% higher than 2021 average royalty production volumes and comprised of 11,739 barrels per day of oil, 2,684 barrels per day of NGL and 64.7 MMcf per day of natural gas.
- Proved plus probable reserves totaled 66,719 MBOE with a before-tax net present value, discounted at 10%, of $1.94 billion, up 23% from December 31, 2021.
- Declared cumulative annual dividends of $143.3 million ($0.60 per share) representing an annual payout ratio of 28%.
- Net debt totaled $315.1 million at December 31, 2022, a decrease of 50% from December 31, 2021 net debt of $635.0 million, as excess funds from operations were used primarily to retire indebtedness incurred in connection with acquisitions completed during the second half of 2021.
- Ranked #51 of 15,061 companies (top 0.5%) in Sustainalytics global universe, maintaining a “Negligible Risk” ESG Risk Rating.
- Awarded AAA ESG Risk Rating from MSCI, a measurement of resilience to long-term, industry material ESG risks.
- Received A- score on the CDP Climate Change Survey in 2022, maintaining leadership status.
It was an exceptional year for PrairieSky with increased commodity prices, leasing and drilling activity all contributing to record annual oil royalty production volumes, revenues and funds from operations. Royalty production volumes reached 25,914 BOE per day in Q4 2022 bringing average royalty production for the year to 25,206 BOE per day, representing year over year organic production growth of 11% after excluding all acquisition royalty volumes. Oil royalty volumes averaged 12,166 barrels per day in Q4 2022, up 7% from Q3 2022 due to a number of new wells coming on production following an active Q3 2022 for third-party drilling and up 22% over Q4 2021 removing all acquisition royalty volumes. Annually, oil royalty volumes totaled 11,739 barrels per day, a 22% increase over 2021 after removing acquisition royalty volumes.
Third-party operators spud 248 wells on our Royalty Properties in Q4 2022 bringing 2022 spuds to 850 wells (2021 – 548 wells). This significant increase in activity was spread across our land base spanning from Northeast British Columbia to Southwest Manitoba. Drilling activity in the quarter was focused on oil plays with 210 wells spud, including 43 Clearwater oil wells across our 1.3 million acres of Clearwater acreage and 46 Viking oil wells primarily on fee leases in Saskatchewan. Management expects Q4 2022 spuds to provide organic growth in royalty production volumes into 2023. During Q4 2022, PrairieSky entered into 64 distinct leasing arrangements with 53 different counterparties for bonus consideration of $3.0 million. We achieved our highest level of leasing activity ever in 2022 having entered into 228 new leasing arrangements with 119 counterparties (2021: 139 new leasing arrangements with 85 counterparties), generating $16.2 million in bonus consideration. Leasing is a leading indicator of third-party field activity and we anticipate strong third-party drilling on our royalty lands in 2023.
PrairieSky generated quarterly funds from operations of $119.5 million or $0.50 per share (basic and diluted). With the 100% increase to our quarterly dividend announced in October 2022, the dividend declared to shareholders of record on December 30, 2022 totaled $57.3 million or $0.24 per share in the quarter resulting in a payout ratio of 48%. With record 2022 funds from operations of $507.6 million, PrairieSky’s annual payout ratio was 28% with excess funds from operations generated in the year used primarily to retire debt. Net debt decreased 50% to $315.1 million at December 31, 2022 from $635.0 million at December 31, 2021.
We were very pleased with the growth in organic volumes in 2022 and the level of activity across our land base. We look forward to another busy year in 2023 and will remain focused on our core strategies of leasing land, managing controllable costs and conducting royalty and land compliance activities. We would like to thank our shareholders for their support, and our staff for their continued hard work.
Andrew Phillips, President & CEO
Q4 2022 Financial Highlights
- Funds from operations totaled $119.5 million or $0.50 per share (basic and diluted) in Q4 2022, an increase of 17% over Q4 2021. The increase in funds from operations was driven by a combination of organic growth in royalty production volumes, acquisition royalty volumes and strong commodity pricing. Funds from operations decreased 3% from Q3 2022 primarily as a result of a decline in WTI benchmark pricing and a wider heavy oil differential.
- PrairieSky’s total royalty production volumes of 25,914 BOE per day generated royalty production revenue of $144.8 million in Q4 2022. A further breakdown is as follows:
- Oil royalty production volumes averaged 12,166 barrels per day, a 46% increase over Q4 2021. Excluding all acquisition royalty volumes, organic growth in oil royalty production totaled 22% over Q4 2021 inclusive of 95 barrels per day of royalty production from sliding scale royalties. Oil royalty volumes were 7% above Q3 2022 due to new wells on stream.
- Increased oil royalty production volumes combined with average WTI benchmark pricing of US$82.64 per barrel generated oil royalty revenue of $98.9 million in the quarter, a 61% increase over Q4 2021 when WTI benchmark pricing averaged US$77.19 per barrel and 8% below Q3 2022 when WTI benchmark pricing averaged US$91.68 per barrel. During Q4 2022, oil royalty revenue was negatively impacted by wider heavy oil differentials which averaged US$25.66 per barrel, 75% higher than Q4 2021 and 29% higher than Q3 2022. This impact was partially offset by a stronger US dollar relative to the Canadian dollar.
- Natural gas royalty production volumes averaged 66.4 MMcf per day in Q4 2022, 11% above Q4 2021. The increase in natural gas royalty production volumes is attributable to organic growth from new wells on stream (including solution gas from oil wells), acquisition royalty volumes, and compliance recoveries more than offsetting natural declines. Natural gas royalty production volumes were up slightly from Q3 2022 as incremental royalty production volumes from new wells on stream offset natural declines and estimates of the impact of cold weather freeze offs in December 2022.
- Natural gas royalty revenue totaled $32.4 million, a 46% increase over Q4 2021 due to higher natural gas royalty production volumes combined with stronger natural gas index pricing with daily AECO pricing averaging $5.11 per Mcf in the quarter and monthly AECO pricing averaging $5.58 per Mcf in the quarter. Q4 2022 natural gas revenue increased 34% over Q3 2022 due to stronger natural gas pricing as Q3 2022 daily AECO index pricing was negatively impacted by pipeline maintenance restricting volumes out of Western Canada.
- NGL royalty production volumes averaged 2,681 barrels per day, 32% above Q4 2021 due to new wells on stream and incremental acquisition royalty volumes offsetting natural declines. In addition, during Q4 2021, NGL royalty production volumes were negatively impacted by ethane volume curtailments which were not repeated in Q4 2022. NGL royalty production volumes were flat with Q3 2022 as new wells on stream offset natural declines.
- NGL royalty revenue totaled $13.5 million, an increase of 26% over Q4 2021 due to increased royalty production volumes and stronger benchmark pricing. NGL royalty revenue decreased 5% from Q3 2022 due to lower benchmark pricing.
- Other revenue totaled $5.8 million in Q4 2022 which included $3.0 million in bonus consideration earned on entering into a quarterly record 64 new leasing arrangements with 53 different counterparties. In addition, PrairieSky generated $2.1 million in lease rentals and $0.7 million in other income. Compliance recoveries totaled $2.1 million in Q4 2022.
- PrairieSky’s cash administrative expenses totaled $5.1 million or $2.14 per BOE, down 26% on a per BOE basis from Q4 2021.
- PrairieSky declared a fourth quarter dividend of $57.3 million ($0.24 per share), representing a 48% payout ratio. Remaining funds from operations were primarily allocated to reducing bank debt.
ANNUAL FINANCIAL HIGHLIGHTS
- PrairieSky generated record funds from operations of $507.6 million ($2.13 per share basic and $2.12 per common diluted) 86% above 2021, driven by strong benchmark commodity pricing, organic growth in royalty production and acquisition royalty volumes.
- Royalty production volumes averaged 25,206 BOE per day, a year over year increase of 27% (11% removing all royalty acquisition volumes). Oil royalty volumes averaged 11,739 barrels per day, 56% higher than Q4 2021 (22% removing all royalty acquisition volumes).
- Total revenues increased to a record $643.3 million, including $615.7 million of royalty production revenue and $27.6 million of other revenue. Other revenue included $16.2 million of bonus consideration earned on entering into an annual record 228 new leasing arrangements with 119 counterparties, up significantly from 139 new leases with 85 new counterparties in 2021.
- Compliance recoveries totalled $8.5 million for the year, a 102% increase over 2021.
- Cash administrative expenses totaled $25.5 million or $2.77 per BOE in line with 2021 cash administrative expense per BOE of $2.79.
- PrairieSky declared cumulative annual dividends of $143.3 million or $0.60 per share with a resulting annual payout ratio of 28%.
- At December 31, 2022, PrairieSky’s net debt totaled $315.1 million, a decrease of $319.9 million or 50% from December 31, 2021 net debt of $635.0 million.
ACTIVITY ON PRAIRIESKY’S ROYALTY PROPERTIES
It was another active quarter for third-party operators across PrairieSky’s royalty properties. There were 248 wells spud (85% oil) in the quarter which included 111 wells spud on our GORR acreage, 107 wells spud on our Fee Lands, and 30 unit wells spud. There were 210 oil wells spud which included 48 Mannville heavy and light oil wells including 2 wells on the Onion Lake thermal oil project, 46 Viking wells, 43 Clearwater wells, 29 Mississippian wells, 13 Cardium wells, 11 Bakken wells, and 20 additional oil wells spud in the Belly River, Charlie Lake, Doig, Duvernay, Jurassic, Nisku and Triassic formations. There were 38 natural gas wells spud in Q4 2022, including 20 shallow natural gas wells, 7 Montney wells, 4 Spirit River wells, 4 Mannville wells, 2 Mississippian wells and 1 Belly River well. PrairieSky’s average royalty rate for wells spud in Q4 2022 was 6.4% (Q4 2021 – 5.7%). A strong Q4 brings 2022 total spuds to 850 wells on PrairieSky’s royalty properties, an increase of 55% over 2021 spuds of 548 wells. The average royalty rate for wells spud in 2022 was 7.3% (2021 – 5.8%).
Strong commodity pricing drove increased capital spending by third-party operators across the Western Canadian Sedimentary Basin and on PrairieSky’s expansive royalty land base. Capital spending targeted oil plays, including those where PrairieSky has made strategic investments, with the most active plays being the Clearwater oil play, Viking light oil and the Mannville heavy oil plays in Western Saskatchewan. PrairieSky estimates that $1.5 billion (net capital – $84 million) in third-party capital was spent in 2022 drilling and completing wells on PrairieSky royalty properties, up from $783 million (net capital – $37 million) in 2021, representing a 127% increase in net capital spent on PrairieSky’s land base year over year.
2022 RESERVES INFORMATION
PrairieSky’s proved plus probable reserves totaled 66,719 MBOE at December 31, 2022 (December 31, 2021 – 66,250 MBOE) and include only developed assets (developed producing and developed non-producing properties) and do not include any future development capital on undeveloped lands. Proved plus probable reserves remained relatively flat year over year with a 4% increase in total proved reserves due to third-party drilling and improved recovery (6,841 MBOE), technical additions (2,082 MBOE), and economic factors (1,116 MBOE). At December 31, 2022, the before-tax net present value of total proved plus probable reserves, discounted at 10 per cent, increased 23% to $1.94 billion (2021 – $1.58 billion).
PrairieSky’s year end 2022 reserves were evaluated by independent reserves evaluators GLJ Ltd. 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.
GLOBAL SUSTAINABILITY RANKINGS
Once again PrairieSky has received industry leading scores from several globally recognized environmental, social and governance (“ESG”) rating agencies for 2022. These results demonstrate our carbon neutral status(1) and ongoing commitment to environmental stewardship, social responsibility, and strong corporate governance practices and are set forth below.
2022 ESG Rankings
|Rating Agency||PrairieSky Score/Ranking||Description of Score/Ranking|
|Sustainalytics ESG Risk (All Industries)||51 out of 15,061||Ranked in the top 0.5% of all companies in Sustainalytics global coverage universe(2) and maintained “Negligible Risk” ESG Risk Rating.|
|Sustainalytics ESG Risk (Oil and Gas Producers)||1 out of 271||Maintained top overall global(2) ranking and awarded Sustainalytics “2023 Industry Top-Rated Badge”.|
|MSCI ESG Risk Rating||AAA||Increased 2022 rating to AAA from AA in 2021, maintaining “Leader” status, denoting companies leading the industry in managing the most significant ESG risks and opportunities. Measurement of resilience to long-term, industry material ESG risks on a relative ranking from AAA to CCC.|
|CDP Climate Change 2022||A-||Maintained leadership status compared against the North American average of C and the global average of C.|
|ISS Environmental Quality Score||1||Denotes highest possible score (achieved in 2020, 2021 and 2022)|
|ISS Social Quality Score||1||Denotes highest possible score (achieved during 2021 and 2022)|
|S&P Corporate Sustainability Assessment (CSA)||Top Decile
|Improved year over year to 70 out of 100, achieving a top decile ranking.
PrairieSky was included as a member of The Sustainability Yearbook 2022 for corporate sustainability excellence.
|Globe and Mail Governance Rankings||Top Quartile
|Top quartile ranking (49 out of 226 companies in the S&P/TSX Composite Index) with an overall score of 86 out of 100. Survey assesses quality of governance practices.|
(1) Carbon neutral refers to PrairieSky’s Scope 1 and Scope 2 emissions which are net zero.
(2) PrairieSky’s ranking as of February 3, 2023.
2023 INVESTOR DAY
PrairieSky will be hosting an investor day on May 17, 2023, in Toronto, Ontario, where members of PrairieSky’s management and technical team will present details on the Company’s crude oil and natural gas plays. The investor day will be a live webcast starting at 9:00 a.m. EDT. Interested parties may participate in the webcast which will be available through PrairieSky’s investor center at www.prairiesky.com. A copy of materials will also be available on PrairieSky’s website at www.prairiesky.com. The webcast will be archived and accessible for replay after the event.
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 management’s discussion and analysis (“MD&A”) and audited annual consolidated financial statements and notes thereto for the fiscal period ended December 31, 2022 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)||December 31,
|Funds from Operations||119.5||123.5||101.8||507.6||273.4|
|Per Share – basic(1)||0.50||0.52||0.45||2.13||1.22|
|Per Share – diluted(1)||0.50||0.52||0.45||2.12||1.22|
|Per Share – basic and diluted(1)||0.28||0.32||0.19||1.33||0.55|
|Net debt at period end(3)||315.1||364.2||635.0||315.1||635.0|
|Common share repurchases||–||–||1.5||–||22.7|
|Shares outstanding at period end||238.9||238.8||238.8||238.9||238.8|
|Weighted average – basic||238.8||238.8||224.8||238.8||223.3|
|Weighted average – diluted||239.2||239.1||225.3||239.1||223.8|
Royalty Production Volumes
|Crude Oil (bbls/d)||12,166||11,376||8,311||11,739||7,541|
|Natural Gas (MMcf/d)||66.4||65.7||60.0||64.7||59.1|
|Royalty Production (BOE/d)(4)||25,914||24,986||20,340||25,206||19,827|
|Crude Oil ($/bbl)||88.36||102.80||80.13||102.88||69.38|
|Natural Gas ($/Mcf)||5.30||4.00||4.04||4.93||2.98|
|Operating Netback per BOE(5)||57.89||60.64||46.76||63.43||37.03|
|Funds from Operations per BOE||50.12||53.73||54.40||55.17||37.78|
|Oil Price Benchmarks|
|Western Texas Intermediate (WTI) (US$/bbl)||82.64||91.68||77.19||94.23||67.92|
|Edmonton Light Sweet ($/bbl)||110.04||116.88||93.30||120.07||80.23|
|Western Canadian Select (WCS) crude oil differential to WTI (US$/bbl)||(25.66||)||(19.86||)||(14.64||)||(18.22||)||(13.04||)|
|Natural Gas Price Benchmarks|
|AECO monthly index ($/Mcf)||5.58||5.81||4.94||5.56||3.56|
|AECO daily index ($/Mcf)||5.11||4.08||4.66||5.31||3.62|
|Foreign Exchange Rate (US$/CAD$)||0.7365||0.7662||0.7909||0.7683||0.7973|
|(1)||Net Earnings and Funds from Operations per Share are calculated using the weighted average number of basic and diluted common shares outstanding.|
|(2)||A dividend of $0.24 per share was declared on December 6, 2022. The dividend was paid on January 16, 2023 to shareholders of record as at December 30, 2022.|
|(3)||See Note 15 “Capital Management” in the interim condensed consolidated financial statements for the three months and years ended December 31, 2022 and 2021.|
|(4)||See “Conversions of Natural Gas to BOE”.|
|(5)||Operating Netback per BOE is defined under the Non-GAAP Measures and Ratios section of this press release.|
CONFERENCE CALL DETAILS
A conference call to discuss the results will be held for the investment community on Tuesday, February 7, 2023, beginning at 6:30 a.m. MDT (8:30 a.m. EDT). To participate in the conference call, you are asked to register at the link provided below. Details regarding the call will be provided to you upon registration.
Live call participants registration URL: