Freehold Royalties Ltd. (Freehold) (TSX:FRU) announced first quarter results for the period ended March 31, 2017.
Freehold achieved record production and solid cash flow results again this quarter, marking the 13th consecutive quarterly production increase and the third consecutive on a per share basis. We are maintaining our 2017 production forecast between 11,300 - 11,800 boe/d after adjusting for the disposition of non-core working interest assets (see Subsequent Events), aligning with our royalty focus.
After increasing our dividend by 25% earlier this year, we are forecasting an adjusted payout ratio for 2017 of 62%, safely at the lower end of our target adjusted payout range of 60%-80%. As a leading royalty oil and gas corporation, Freehold's objective is to deliver growth and low risk attractive returns to shareholders over the long term which we have continued to provide in this reporting period.
Tom Mullane, President and CEO
With our continued emphasis on royalties, in April 2017 Freehold sold all of its working interest assets located in southeast Saskatchewan for $29 million, including adjustments. Total production and operating income associated with these assets in 2016 was approximately 750 boe/d and $4.3 million respectively. Related decommissioning liabilities removed as a result of this sale amounts to $4.8 million (over 300 gross wells plus related facilities). These dispositions reduce capital expenditure requirements and cash costs, further improving our risk profile.
With the objective to reduce cash costs, Freehold made the decision to reduce its credit facilities to $180 million (from $260 million). This decision aligns with keeping our net debt to funds from operations between 0.5-1.5 times. We currently have over $110 million of unused capacity and in addition, we have the ability to increase our credit facilities should it be needed.
2017 First Quarter Highlights
Sustained Momentum on our Lands
Including drilling associated with acquisitions, 150 (8.6 net) wells were drilled on our royalty lands during Q1-2017, a 153% increase versus 2016 (on a net basis). The first quarter continued a resurgence in activity on our land as 275 gross (16.4 net) locations have been drilled over the past two quarters, representing a 134% increase over the same period one year ago (on a net basis).
Activity through the quarter was focused in the greater Dodsland area with the operator drilling 17 gross wells. We also had continued drilling in southwest Saskatchewan (Shaunavon formation), southeast Saskatchewan (Bakken, Mississippian), the Deep Basin (Montney and other liquids rich bearing zones) and central Alberta (Viking).
We are maintaining our 2017 production range of 11,300-11,800 boe/d, after adjusting for the disposition of working interest volumes described in Subsequent Events.
Based on our current guidance and commodity price assumptions, and assuming no significant changes in the current business environment, we expect to maintain the current monthly dividend rate through the next quarter. We will continue to evaluate the commodity price environment and adjust the dividend levels as necessary (subject to the quarterly review and approval of our Board of Directors).
Conference Call Details
A conference call to discuss financial and operational result for the period ended March 31, 2017 will be held for the investment community on Thursday, May 11, 2017 beginning at 6:00 am MT (8:00 am ET). To participate in the conference call, approximately 10 minutes prior to the conference call, please dial 1-800-273-9672 (toll-free in North America).
SOURCE: Freehold Royalties Ltd.
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