OPPORTUNITY
KNOCKS THE ROYALTY ADVANTAGE
WINTER 2016
Corporate Profile
TSX : FRU
focused on oil and gas royalties 2016E production
(84% royalty production)
2016E operating income from royalties 2016E annualized dividend(1)(2)($0.04 per month) Current dividend yield(2)(3) Market capitalization(2)(3) Net debt to funds from operations(4)
1) 2) 3) 4)
Based Based Based Based
on on on on
current dividend rate FRU closing share price of $12.65 on September 30, 2016 117.9 million shares outstanding as at September 30, 2016 net debt of $87 million as at September 30, 2016, excluding proforma effects of acquisitions, trailing funds from operations
12,000 boe/d 94% $0.48/share 3.8% $1.5 billion 1.0x
2
Investment Performance(1) Long track record delivering value; cumulative dividends declared per share
$30.35
($1.5 billion in dividends)
$110
$40 $32 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Freehold Royalties Ltd. S&P/TSX Oil and Gas Exploration & Production Index S&P/TSX Composite Index 1)
From November 25, 1996 to December 31, 2010 reflects distributions paid on trust units of Freehold Royalty Trust, with distribution reinvestment, and from January 1, 2011 to the present reflects dividends paid on common shares of Freehold, with dividend reinvestment.
3
Return on Capital Employed(1) 30% 25% 20% 15%
10% 5% 0%
Annual ROCE 1)
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
-5%
3-year trailing
Return on capital employed (ROCE) is calculated as net income (loss) before interest and taxes divided by total assets less current liabilities.
4
Q3-2016 Highlights 10th consecutive quarter of sequential production growth with volumes averaging 12,281 boe/d After paying our dividend, generated $10 million in free cash flow despite the prevailing commodity environment Continue to see a ramp-up in free drilling activity in core areas of SE Saskatchewan and Viking Dodsland Exited the quarter with D/CF of 1.0x trailing funds from operations Increased 2016E production guidance from 11,700 to 12,000 boe/d
5
2017 Guidance 2017 Annual Average
November 8th, 2016
Daily production (boe/d)
11,000
WTI oil price U.S./bbl
$50.00
Western Canadian Select $/bbl
$46.00
AECO $/mcf
$3.00
Exchange rate CN$/US$
$0.75
Operating costs ($/boe)
$3.25
G&A ($/boe)
$2.65
Capital expenditures (mm)
$6.0
* General and Administrative costs do not include share based and other compensation
6
Why Own Freehold Attractive yield
3-4% yield
Torque to upside in oil prices
$10/bbl USD change in WTI ($40 to $50/bbl) increases our free cash flow by ~40%
Sustainability
Low cash costs, low corporate decline (10 years of free drilling based on historical activity levels. 7
Royalty Focused Cash Flow YTD 93% of Operating Income From Royalties
Gross Overriding Royalties
43%
9% Production Volume Royalties
41%
Mineral Title Royalties
7% Working Interest 8
2016 Free Cash Flow Sensitivities Monthly Free Cash Flow Per Share
$0.14
$0.12
Funds From Operations Free Cash Flow Capital Spending
$0.10
$0.08
Free cash flow available for dividend; even at depressed prices
$0.06
$0.04
$0.02
$0.00 $30/bbl WTI
$40/bbl WTI
$50/bbl WTI
*Identical assumptions to Freehold’s November 8, 2016 guidance other than oil prices *Free cash flow per share=Funds From Operations Per Share – Capital Spending Per Share
$60/bbl WTI
9
Free Cash Flow Illustration 1100 1000
Royalty Free Cash Flow (2016-2021) $9.00 per share
900
$mm
800 $7.00 per share
700 600 $5.00 per share
500 400
300
$3.00 per share
200 30
40 50 West Texas Intermediate $/bbl
Free Cash Flow assumes flat royalty production per share, $2.35 G&A costs and $1.00/boe interest charges.
60
10
Royalties=Strong Operating Margins $35
$30
Operating Margin ($/boe) Royalties ($/boe)
$ per boe
$25
$20
$15
Op costs ($/boe)
86% Operating Margin Q3/2016
Freehold realizes significantly higher margins than traditional E&P’s
$10
$5
$0 11
Disciplined Acquirer Year
Area
Cost ($ millions)
2005
Petrovera (CNRL)
352
3,800
2007
AB/SK
90
700
2010
AB, SK and BC
38
400
2011
NW AB
7
100
2012
AB, SK and BC
60
600
2013
Numerous small acquisitions
10
30
2014
SK/MB/AB
248
1,500
2015
SK/AB/BC
410
2,100
2016 YTD
SK/AB
162
1,700
$1,378
10,930
Total:
Initial Production Acquired (boe/d)
Our acquired assets continue to generate significant free cash flow. 12
3-Year Track Record 2014
2015
2016E
Production (boe/d)
9,180
10,945
12,000
Heavy oil as a % of production
24%
20%
18%
Royalties as a % of operating income
78%
87%
94%
Royalty acres (mm)
3.0
3.7
5.9
Tax pools (mm)
$473
$966
>$1,000
Net debt/funds from operations
1.0x
1.4x
0.8x
Acquisitions (mm)
$248
$410
$163 13
Per Share Metrics Royalty production (boe/d) per million shares 100
Royalty acres per million shares 50,000
90
80
40,000
70
60
30,000
50
40
20,000
30
20
10,000
10 0
0
2012
2013
2014
2015
2016E
2012
2013
2014
2015
2016E
14
Per Share Metrics Accumulated dividends per share
Funds from operations per share
$32
$2.00
$30 $1.50
$28
$26
$1.00
$24 $0.50 $22
$20
2012
2013
2014
2015
$0.00 2012
2013
2014
2015
15
Royalty Drilling Trends
* Includes wells drilled from January 1st on our acquisition lands
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Quality Long Life Asset Base +10 years of future drilling potential(3) 130+ Locations Belly River, Mannville, Pekisko, Devonian
Royalty drilled locations on Freehold land holdings Jan 2014 – current (1) Freehold Royalties Ltd. land holdings
Widely Diversified Portfolio
550+ Locations
Mannville Heavy Oil Play
3100+ Locations
(2)
950+ Locations
Viking Light Oil Play
400+ Locations
Deep Basin Resource Plays Cardium, Glauconite, Falher, Wilrich, Montney Duvernay
760+ Locations
Mississippian and Bakken Light Oil Plays
190+ Locations
Shaunavon Light Oil Play
130+ Locations Glauconite, Ellerslie, Sunburst, Cantaur
1. Average 2005 to 2014 royalty well count excluding unit lands is 287 wells per year. 2. Future locations based on internal reservoir trend mapping as well as proximity to current industry activity. Reserve report recognizes ~40% of the locations. 3. Additional inventory growth expected as FRU technical teams identify offset activity for new pool extensions, downspacing on resource plays etc.
17
Diversified Royalty Payors
1.
Diversified group of payors: Top 30 account for over 80% of royalty revenue on a trailing 12 month basis.
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Long Term Value Creation
Maintain conservatism through balance sheet and dividend policy
Focused collection of royalty payments through strong audit function
Growth through acquisitions, free drilling, creation of royalties and lease outs
19
Near Term Priorities
Continue to pursue acquisitions
Allocate a high portion of free cash flow to our shareholders
Be proactive in leasing out our mineral title land position
20
Why Own Freehold
attractive yield
long track record of generating strong returns
conservatively managed with a strong balance sheet
torque to oil upside
positioned in the highest netback plays
>10yrs of free drilling on our royalty lands 21
Supplemental Information
2016 Guidance 2016 Annual Average
Nov 8, 2016
Aug 4, 2016
May 11, 2016
Mar 3, 2016
Daily production (boe/d)
12,000
11,700
11,400
9,800
WTI oil price U.S./bbl
$43.00
$40.00
$40.00
$35.00
Western Canadian Select $/bbl
$38.00
$34.00
$34.00
$31.00
AECO $/mcf
$2.10
$2.00
$1.80
$2.00
Exchange rate CN$/US$
$0.76
$0.76
$0.77
$0.72
Operating costs ($/boe)
$3.75
$3.75
$4.00
$4.75
G&A ($/boe)
$2.35
$2.40
$2.50
$2.65
* General and Administrative costs do not include share based and other compensation
Strong upward production guidance trend, strong downward cost guidance trend 23
Husky Acquisition On May 25, 2016 Freehold acquired a diverse package of royalty assets and fee lands for $165 million.
Deal highlights: 1.
Accretive to Freehold; at time of deal increasing annualized 2016E production and operating income by 1,700 boe/d and $11.4 million, respectively
2.
Adds a diverse royalty portfolio of long life, low decline assets (17% decline/year)
3.
Significantly enhances Freehold’s existing royalty land base increasing total royalty land holdings by 74% to 5.9 million acres
4.
Further strengthens Freehold’s position in Saskatchewan both in SE (Mississippian) and SW (Shaunavon oil play)
5.
Reliable, proven payors (Apache, Crescent Point, Canadian Natural, Shell, etc.)
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Strong Overlap with Existing Royalties
Grande Prairie Multi-Zone Targets Shaunavon Oil Play
Mississippian / Bakken Oil Plays
Further complements our existing suite of assets 25
Managing Royalties for more than 30 years CN P ENSION T RUST F UNDS Pension fund for employees of Canadian National Railway
100% ownership
100% ownership
Manager of the assets
21%(1) ownership
1)
Based on 117.8 million shares outstanding as at September 30, 2016
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Dividend History Selling Price ($/boe)
Dividend ($/share) $3.00
$80
$2.91
$70
$2.50
$60
$2.10
$1.92
$2.00
$1.92
$1.70 $1.73
$50
$1.68 $1.68 $1.68 $1.68 $1.68
$1.56
$1.50
$1.32
$40
$1.40
$1.31
$1.10
$1.00
$1.00
$0.78
$30 $20
$0.65
$0.50
$10 $0.13
Annual Dividend ($/share)
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
$0 1996
$0.00
Freehold's Average Selling Price ($/boe) 27
Strong Financial Position Net Debt to Funds from Operations
~$160 million
(multiple) 5.0
available credit capacity
4.5
(at September 30, 2016)
4.0 3.5 3.0 2.5
2.0 1.5 1.0
Sector Average
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
0.0
1997
0.5
Freehold 28
FRU Stock Price Tracks Oil Price WTI in US$ 150.00
125.00
59%
FRU in C$ 30.00
oil and NGL production
25.00
100.00
20.00
75.00
15.00
50.00
25.00
100%
10.00
unhedged
5.00
-
-
WTI Oil Price (US$)
FRU Share Price (CDN$) 29
Proud Owner of Legacy Lands
Mineral titles are held in perpetuity
The 8s and 26s
Historic land grant to the Hudson’s Bay Company (HBC) in 1670 by the King of England HBC surrendered land to Canada in 1870 in exchange for cash and 1/20th of lands (Section 8 and ¾ of Section 26) in western Canada (HB Lands) A portion of the HB Lands were purchased by Canpar in 1979 Producing HB Lands were purchased from Canpar by Freehold in 1996
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Advisories Forward-Looking Information This presentation offers our assessment of Freehold’s future plans and operations as at November 8, 2016 and contains forward-looking information including, expectation of Freehold’s 2016 average daily production, expected percentage of 2016 operating income from royalties, expected annualized dividend, Freehold's 2016 exit net debt to funds from operations, expectation of Freehold’s 2017 average daily production, expected 2017 and 2016 operating costs per boe, expected 2017 and 2016 general and administrative expense per boe, expected 2017 capital expenditures, expectation of 10 years of free drilling on royalty lands, expectation of annual declines on current production (including declines from Husky assets), expected sensitivities of free cash flow to changes in commodity prices, expectations of heavy oil as a percentage of production, expectations of royalty production and royalty acres on a per share basis, expected long term value creation strategy and near term priorities and expected future drilling locations. This forward-looking information is provided to allow readers to better understand our business and prospects and may not be suitable for other purposes. By its nature, forward-looking information is subject to numerous risks and uncertainties, some of which are beyond our control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, taxation, royalties, stock market volatility, our ability to access sufficient capital from internal and external sources, counterparties to transactions to satisfy their contractual obligations, third parties' ability and willingness to continue development of lands in which Freehold has an interest as expected, and risks inherent in the oil and gas industry. In addition, the paying of dividends is subject to the discretion of the board of directors of Freehold and is subject to a number of factors. As such future dividends are unlikely to reflect the past dividends paid on the common shares. Risks are described in more detail in Freehold's annual information form for the year ended December 31, 2015 which is available under Freehold's profile on SEDAR at www.sedar.com You are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking information. We can give no assurance that any of the events anticipated will transpire or occur, or if any of them do, what benefits we will derive from them. The forward-looking information contained herein is expressly qualified by this cautionary statement. To the extent any guidance or forward looking statements herein constitute a financial outlook, they are included herein to provide readers with an understanding of management's plans and assumptions for budgeting purposes and readers are cautioned that the information may not be appropriate for other purposes. Our policy for updating forward-looking statements is to update our key operating assumptions quarterly and, except as required by law, we do not undertake to update any other forward-looking statements. You are further cautioned that the preparation of financial statements in accordance with International Financial Reporting Standards requires management to make certain judgments and estimates that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates may change, having either a positive or negative effect on net income, as further information becomes available and as the economic environment changes.
All dollar amounts in this presentation are in Canadian dollars, except where noted.
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Advisories cont. Non-GAAP Financial Measures Within this presentation, references are made to terms commonly used as key performance indicators in the oil and natural gas industry. We believe that operating income, net debt to funds from operations, operating margin, free cash flow and return on capital employed are useful supplemental measures for management and investors to analyze operating performance, financial leverage, and liquidity, and we use these terms to facilitate the understanding and comparability of our results of operations and financial position. However, these terms do not have any standardized meanings prescribed by Canadian generally accepted accounting principles ("GAAP") and therefore may not be comparable with the calculations of similar measures for other entities. Operating income which is calculated as gross revenue less royalties and operating expenses, represents the cash margin for product sold. Operating margin represents the operating netback versus our realized price. Net debt obligations is long-term debt less working capital (current assets less current liabilities). Net debt to funds from operations is calculated as net debt as a proportion of funds from operations for the previous twelve months. Free cash flow is a measure used by dividend paying companies to provide an estimate of how much cash might be available for the payment of dividends. Free cash flow is calculated by subtracting capital spending from funds from operations. Return on capital employed (“ROCE”) is a financial ratio that measures a company’s profitability and is calculated as net income (loss) before interest and taxes divided by total assets less current liabilities. In addition, this presentation refers to various per boe figures, such as revenues and costs, also considered non-GAAP measures, which provide meaningful information on Freehold's operational performance. Per boe figures are derived by dividing the relevant revenue or cost figure by the total volume of oil and natural gas production during the period, with natural gas converted to equivalent barrels of oil as described above. See Freehold's most recent management's discussion and analysis, which available on SEDAR at www.sedar.com, for more details on Freehold's use of Non-GAAP Financial Measures.
Drilling Locations This presentation discloses drilling locations in three categories: (i) proved locations; (ii) probable locations; and (iii) unbooked locations. Proved locations and probable locations are derived from the independent reserves evaluation of Freehold's reserves as at December 31, 2015 prepared by Trimble Engineering Associates Ltd. and account for drilling locations that have associated proved and/or probable reserves, as applicable. Unbooked locations are internal estimates based on Freehold's prospective acreage and an assumption as to the number of wells that can be drilled per section based on industry practice and internal review. Unbooked locations have been identified by management as an estimation of our multi-year drilling activities based on evaluation of applicable geologic, seismic, engineering, production, pricing assumptions and reserves information. There is no certainty that all unbooked drilling locations will be drilled and if drilled there is no certainty that such locations will result in additional oil and gas reserves, resource or production.
All dollar amounts in this presentation are in Canadian dollars, except where noted.
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Advisories cont. Drilling Locations cont. The drilling locations on which wells are drilled will ultimately depend upon the availability of capital, regulatory approvals, seasonal restrictions, oil and natural gas prices, costs, actual drilling results, additional reservoir information that is obtained and other factors. While the majority of Freehold's unbooked locations are extensions or infills of the drilling patterns already recognized by the independent evaluator, other unbooked drilling locations are farther away from existing wells where management has less information about the characteristics of the reservoir and therefore there is more uncertainty whether wells will be drilled in such locations and if drilled there is more uncertainty that such wells will result in additional oil and gas reserves, resources or production. Barrels of Oil Equivalent (boe) ratio: 6 Mcf = 1 barrel. The 6:1 boe ratio is based on an energy equivalency conversion method primarily applicable at the burner tip. It does not represent a value equivalency and is not based on either energy content or current prices. While the boe ratio is useful for comparative measures, it does not accurately reflect individual product values and might be misleading, particularly if used insolation. As well, given the value ratio, based on the current price of crude oil to natural gas, is significantly different from the 6:1 energy equivalency ratio, using a 6:1 conversion ratio may be misleading as an indication of value.
All dollar amounts in this presentation are in Canadian dollars, except where noted.
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Investor Relations toll free 888.257.1873 telephone 403.221.0833 website freeholdroyalties.com