CALGARY, Alberta, April 22, 2019 (GLOBE NEWSWIRE) — PrairieSky Royalty Ltd. (“PrairieSky” or the “Company“) (TSX: PSK) is pleased to announce its first quarter (“Q1 2019“) operating and financial results for the period ended March 31, 2019.
PRESIDENT’S MESSAGE
| First Quarter 2019 Highlights: | ||
| • | Total revenues of $73.2 million, up 42% from $51.6 million in Q4 2018, comprised of royalty production revenues of $66.5 million and other revenues of $6.7 million for the first quarter. | |
| • | Funds from Operations of $57.8 million ($0.25 per common share), up 19% from Q4 2018 funds from operations of $48.5 million ($0.21 per common share). | |
| • | Average royalty production of 22,007 BOE per day (52% liquids), a decline of 6.9 MMcf per day (1,150 BOE) of natural gas and a modest reduction in overall liquids volumes from Q4 2018. | |
| • | Operating netback of $29.49 per BOE, up 73% from $17.07 per BOE in Q4 2018. | |
| • | Dividends declared in the first quarter of $45.6 million ($0.195 per share), representing a payout ratio of 79% and common share repurchases of $6.3 million under the normal course issuer bid (“NCIB“), representing an all-in payout ratio of 90%. | |
Continued stability in PrairieSky’s oil and NGL royalty production volumes (up 3% from Q1 2018), in spite of lower capital expenditures in Western Canada and production curtailments, provided strong funds from operations of $57.8 million for Q1 2019, up from both Q1 2018 and Q4 2018. Cash flow was used to pay $45.6 million in dividends (79% payout ratio), $6.3 million was used to cancel 331,440 million shares, and the remaining $5.9 million was used to reduce our working capital deficiency by 40% to $6.2 million and for minor land fund purchases.
Royalty production revenue improved during the quarter as higher realized commodity prices offset reduced overall production volumes, which were a result of curtailments, shut-ins and weather-related downtime given the extreme cold in Western Canada through most of Q1 2019. Prices for crude oil improved in Q1 2019 as Canadian heavy and light oil differentials narrowed significantly following the Alberta government’s crude oil production curtailment announcement in December 2018. Oil royalty volumes of 8,904 bbls per day contributed $46.3 million of royalty revenue in Q1 2019, an increase of 65% ($18.3 million) from Q4 2018 oil royalty revenue of $28.0 million on oil volumes of 9,163 bbls per day. The slightly lower oil royalty production volumes were a result of the impact of curtailments, a measured approach by producers in both bringing back shut in volumes and putting new wells on stream and lower industry capital spending. Both crude oil royalty production and realized pricing increased from Q1 2018 crude oil volumes of 8,731 bbls per day and revenue of $44.3 million.
Natural gas royalty revenue of $11.1 million was up 26% from $8.8 million in Q4 2018, and up 5% from Q1 2018 royalty revenue of $10.6 million as improved AECO pricing more than offset natural gas production volumes that were 10% lower than Q4 2018 and 15% lower compared to Q1 2018. Natural gas royalty production volumes of 63.1 MMcf per day were negatively impacted by the extended extreme cold in February and March, which caused freeze-offs and other weather-related downtime, as well as limited natural gas drilling activity in 2018. NGL royalty production volumes of 2,586 bbls per day in Q1 2019 were in line with Q4 2018 royalty volumes of 2,676 bbls per day and contributed $9.1 million of royalty revenue, an increase of 63% over Q4 2018 NGL royalty revenues of $5.6 million. NGL royalty production increased 8% from Q1 2018 NGL royalty volumes of 2,388 bbls per day while NGL royalty revenue remained relatively flat with Q1 2018 NGL royalty revenue of $9.2 million.
Other revenue in the quarter totaled $6.7 million, an increase of 76% from Q1 2018, and included $2.3 million of lease rentals, $2.4 million in other income, and $2.0 million in bonus consideration from entering 27 new leases with 24 different counterparties. Leasing was focused on crude oil targets across a number of plays in both Alberta and Saskatchewan.
There were 209 wells (93% oil) spud on PrairieSky lands during the quarter which was slightly ahead of Q1 2018 when 198 wells (93% oil) were spud. There were 70 wells spud on Fee Lands (Q1 2018 – 79 wells), 73 wells spud on GORR lands (Q1 2018 – 91 wells) and 66 wells spud on unitized lands (Q1 2018 – 28 wells). The average royalty rate of wells spud in the quarter was approximately 5.8%, down from Q1 2018 when the average net royalty rate was 7.1%. This is primarily due to increased drilling on numerous oil units where PrairieSky has a royalty interest. Wells spud included 110 Viking wells in Alberta and Saskatchewan, 15 Clearwater wells, and 12 East Shale Duvernay wells. Other heavy and light oil activity targeted a number of different plays including the Mannville and Mississippian. In addition, 8 natural gas wells were spud in the liquids rich Montney, including 3 wells in the Pipestone area.
PrairieSky’s cash administrative expenses totaled $3.84 per BOE in the quarter and included the annual long-term incentive settlement for all employees. PrairieSky anticipates cash administrative expenses for the year will be below $3.00 per boe. PrairieSky’s staff continued their focus on ensuring timely and accurate royalty payments, collecting compliance recoveries totaling $1.8 million in the quarter.
PrairieSky intends to apply to the Toronto Stock Exchange (“TSX“) to renew its NCIB for an additional one-year period. Subject to regulatory approval, PrairieSky intends to purchase, from time to time, up to 2.7 million of its currently issued and outstanding common shares (representing approximately 1.2% of the common shares issued and outstanding as of April 22, 2019) over a period of twelve months. Any common shares that are purchased under the NCIB will be cancelled upon their purchase by PrairieSky. Management believes a normal course issuer bid provides an opportunity to use excess cash resources to reduce PrairieSky’s share count over time, representing an investment in PrairieSky’s high quality asset base and enhancing value for remaining shareholders. Since instituting the normal course issuer bid in 2016 to March 31, 2019, PrairieSky has purchased and cancelled an aggregate of 4.5 million common shares at a weighted average price per share of $26.71.
PrairieSky will be holding an investor day at 9:00 a.m. EDT on May 23, 2019 at the Fairmont Royal York in Toronto, Ontario. Management and our technical team will be presenting an update on our crude oil and natural gas plays and issuing our 2019 Royalty Playbook.
Thank you to our shareholders for your continued support. We look forward to seeing many of you at our investor day. Thank you as well to staff, we appreciate your focused and dedicated 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
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 unaudited interim condensed financial statements and notes thereto for the fiscal period ended March 31, 2019 is available on SEDAR at www.sedar.com and PrairieSky’s website at www.prairiesky.com.
FINANCIAL RESULTS
| (millions, except per share or as otherwise noted) | Three months ended March 31 |
|||||||
| 2019 | 2018 | |||||||
| FINANCIAL | ||||||||
| Revenues | $ | 73.2 | $ | 67.9 | ||||
| Funds from Operations | 57.8 | 51.8 | ||||||
| Per Share – basic and diluted(1)(2) | 0.25 | 0.22 | ||||||
| Net Earnings and Comprehensive Income | 26.4 | 19.8 | ||||||
| Per Share – basic and diluted(2) | 0.11 | 0.08 | ||||||
| Dividends declared(3) | 45.6 | 44.7 | ||||||
| Per Share | 0.1950 | 0.1900 | ||||||
| Acquisitions, including non-cash consideration | 1.6 | 21.2 | ||||||
| Working Capital at period end | (6.2 | ) | 17.3 | |||||
| Shares Outstanding (millions) | ||||||||
| Shares outstanding at period end | 233.9 | 235.5 | ||||||
| Weighted average – basic | 234.0 | 235.7 | ||||||
| Weighted average – diluted | 234.2 | 236.1 | ||||||
| OPERATIONAL Royalty Production Volumes |
||||||||
| Crude Oil (bbls/d) | 8,904 | 8,731 | ||||||
| NGL (bbls/d) | 2,586 | 2,388 | ||||||
| Natural Gas (MMcf/d) | 63.1 | 74.5 | ||||||
| Total (BOE/d)(4) | 22,007 | 23,536 | ||||||
| Realized Pricing | ||||||||
| Crude Oil ($/bbl) | $ | 57.75 | $ | 56.35 | ||||
| NGL ($/bbl) | 39.00 | 42.83 | ||||||
| Natural Gas ($/Mcf) | 1.97 | 1.58 | ||||||
| Total ($/BOE)(4) | $ | 33.58 | $ | 30.26 | ||||
| Operating Netback per BOE(1) | $ | 29.49 | $ | 27.00 | ||||
| Funds from Operations per BOE | $ | 29.18 | $ | 24.45 | ||||
| Natural Gas Price Benchmarks | ||||||||
| AECO monthly index ($/Mcf) | $ | 1.94 | $ | 1.82 | ||||
| AECO daily index ($/Mcf) | $ | 2.62 | $ | 2.07 | ||||
| Foreign Exchange Rate (US$/CAD$) | 0.7535 | 0.7905 | ||||||
| Oil Price Benchmarks | ||||||||
| WTI (US$/bbl) | $ | 54.55 | $ | 62.74 | ||||
| Edmonton Light Sweet ($/bbl) | $ | 66.53 | $ | 71.77 | ||||
| Western Canadian Select (WCS) crude oil differential to WTI (US$/bbl) | $ | (12.28 | ) | $ | (24.28 | ) | ||
(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 March 7, 2019. The dividend was paid on April 15, 2019 to shareholders of record as at March 29, 2019.
(4) See “Conversions of Natural Gas to BOE”.