Transcript www.freeholdroyalties.com

Investor Presentation
October 2013
Advisories
TSX : FRU
Forward-Looking Information
This presentation offers management’s assessment of Freehold’s future plans and operations and contains
forward-looking information pertaining to Freehold’s expected tax horizon, dividend policy and timing for
paying dividends, tax treatment of dividends, future business strategy, and assumptions regarding
commodity prices, production, capital spending plans, costs, year-end debt, DRIP participation, taxes
payable, and shares outstanding. The key assumptions used in the preparation of this presentation are
footnoted on the accompanying slides. Risks and uncertainties that could significantly affect these forwardlooking statements are outlined in our Annual Information Form, which is filed on sedar.com. Forwardlooking information is provided to facilitate a better understanding of our business and prospects but should
not be unduly relied upon as actual results could differ materially. We assume no obligation to update or
revise these forward-looking statements except as required by law.
Additional GAAP Measures and Non-GAAP Financial Measures
Within this presentation and identified where applicable, references are made to terms commonly used as
key performance indicators in the oil and gas industry, which we believe are useful supplemental measures
for management and investors to analyze operating performance, financial leverage, and liquidity. 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. Additional information is provided in our most recent annual and quarterly
reports, which are filed on www.sedar.com.
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 at the wellhead 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 in isolation. As well, given that 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.
Note: All dollar amounts in this presentation are in Canadian dollars, except where noted.
2
Corporate Profile
TSX : FRU
focused on oil and gas royalties
2013e production(1) (71% royalty production)
boe per day 8,800
Annual dividend ($0.14 per month)
$ per share
1.68
Current dividend yield(2)
percent
7
Market capitalization(2)(3)
$ billion
1.6
times
0.5
Net debt to funds from operations(4)
(1)
(2)
(3)
(4)
Per guidance dated August 8, 2013.
Based on FRU closing share price of $23.78 on September 30, 2013.
Based on 67.3 million shares outstanding as at September 30, 2013.
Based on net debt of $50.6 million as at June 30, 2013 and 12 months trailing funds from
operations of $111.7 million.
3
Annual Guidance*
Key Assumptions
TSX : FRU
2013
(as at August 8, 2013)
boe/d
8,800
US$/bbl
96.00
Western Canada Select (WCS)
Cdn$/bbl
75.00
AECO natural gas price
Cdn$/Mcf
3.00
Cdn$/US$
0.98
Operating costs
$/boe
5.30
G&A costs
$/boe
2.60
Capital expenditures
$ millions
32
Dividends paid in shares (assumes average 25% DRIP participation)
$ millions
28
Long-term debt at year end
$ millions
44
Estimated cash taxes payable in 2013 for 2012 tax year
$ millions
22
Estimated cash taxes payable for 2013 tax year (instalments)
$ millions
24
millions
67
Daily production
WTI oil price
Exchange rate
Weighted average shares outstanding
* See advisory regarding forward-looking information.
4
Our History
TSX : FRU
• Established as Freehold Royalty Trust in 1996
• Converted to a corporation December 31, 2010
Wholly owned by
CN Pension Trust Funds
• Operating since 1979
• Operating since 1983
• Private royalty holding company
• Private oil and gas company
• Held royalty interest properties
(including Hudson’s Bay lands) and
minor working interests that were
acquired by Freehold in 1996
• Held working interest properties and
minor royalty interests that were
acquired by Freehold in 1996
5
Proud Owner of Legacy Lands
 Mineral titles are held in
perpetuity
TSX : FRU
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.
6
Investment Performance*
TSX : FRU
Cumulative dividends declared
$26.83 per share
$178
($1.2 billion in dividends)
$37
$33
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
YTD
Freehold Royalties Ltd.
S&P/TSX Oil and Gas Exploration & Production Index
S&P/TSX Composite Index
* From November 25, 1996 to September 30th, 2013, with dividend reinvestment.
7
Freehold Ownership
TSX : FRU
67,326,013 shares outstanding (September 30th, 2013)
Insider holdings
 CN Pension Trust Funds – 18,038,942 (26.8%)
» Rife: 4,183,861 (6.2%) (included in above number for CNID)
Institutional (57%)
Canadian (90%)
Retail (43%)
U.S/Foreign (10%)
8
Business Overview
TSX : FRU
• We’re a simple story, we primarily collect royalties from
E&P producers that drill on our lands….at no cost to us.
• We have next to no leverage, very low cash costs with
spending generally in-line with our cash flow, creating
enhanced dividend sustainability.
• We’re a “defensive” option in a down market and given we
don’t hedge, participate in a rising commodity
environment.
• Operationally, we participate in ~15 net wells per year and
focus on making accretive acquisitions to add to our
respective royalty interest.
9
Why Own Freehold?
TSX : FRU
large royalty portfolio
Royalty
Focus
low costs & predictable
growth model
high dividend payout
conservative management,
low risk profile
10
Development Opportunities
TSX : FRU
3
million
gross acres
Cardium
Royalty interests 94%
Heavy
Oil
North Saskatchewan River
Viking
Working interests 6%
Oil resource plays
Bakken,
Mississippian
11
The Royalty Advantage: Netbacks
A Working Interest Barrel
Operating netback*
~ 60% of gross revenue
Royalties Paid
(15%)
Operating Costs
(25%)
Operating
Netback
(60% of
gross
revenue)
TSX : FRU
A Royalty Interest Barrel
Operating netback*
~ 100%** of gross revenue
Operating
Netback
(100% of
gross
revenue)
* Non-GAAP measure.
See slide 39.
** Excludes freehold
mineral taxes payable
to the Crown.
Illustration does not factor in capital costs on working interest properties.
12
The Royalty Advantage: Peers
TSX : FRU
• FRU’s liquids weighting and low cost model drive top decile
economics.
2013 YTD Avg. Operating Costs ($/boe)
TBE
VET
PRY
LTS
LEG
CPG
FRU
BNE
WCP
ZAR
BTE
PWT
ARX
ERF
PGF
TBE
BIR
PEY
TOU
BNP
NVA
PRY
ZAR
PWT
PGF
LEG
BTE
LTS
VET
NVA
BNE
CPG
WCP
ERF
ARX
BNP
BIR
FRU
TOU
PEY
$0.00
2013 YTD Avg. Operating Netback ($/boe)
$5.00
$10.00
$15.00
$20.00
$25.00
$0.00
$20.00
$40.00
$60.00
$80.00
13
Royalty-Focused Production
70%
TSX : FRU
boe/d
10,000
8,889
royalties
8,000
6,000
4,000
2,000
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
H1
Royalty Interest Production
Working Interest Production
14
Gross Revenue (%)
TSX : FRU
%
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
6mo
Royalty Interest Production
Working Interest Production
15
Top Royalty Payors/Operators*
TSX : FRU
CanEra Energy Corp.
* Top 30 payors account for over 80% of royalty revenue on a trailing 12 month basis.
16
Why Own Freehold?
TSX : FRU
large royalty portfolio
Royalty
Focus
low costs & predictable
growth model
high dividend payout
conservative management,
low risk profile
17
2013 Capital Allocation*
TSX : FRU
 47 (16 net) wells
$32 million
Southeast
Saskatchewan
50%
Lloydminster
Heavy Oil
25%
Cardium
Light Oil
25%
* Per guidance dated August 8, 2013.
18
Capex Requirements
TSX : FRU
Capital Expenditures as a Percentage
of Funds from Operations
150%
125%
Sector average 101%
100%
75%
50%
Freehold average 22%
25%
0%
2009
2010
2011
Sector Average
* See non-GAAP measures.
2012
2013e
Freehold
19
FRU Mirrors Industry Activity
Wells drilled by
industry
30,000
Over
9,000
TSX : FRU
wells
drilled on Freehold’s royalty lands
Gross wells drilled
on Freehold’s
royalty lands
150
25,000
1,000
800
20,000
100
600
15,000
400
10,000
5,000
0
50
200
Industry Drilling, WCSB
Drilling on our Royalty Lands
New Reserves per Well
Reserves per Well
Added (Mboe)
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
0
20
Royalty Drilling Trends*
20
53% Oil
35% Hz
57% Oil
32% Hz
44% Oil
30% Hz
58% Oil
37% Hz
85% Oil
59% Hz
TSX : FRU
92% Oil
66% Hz
86% Oil
60% Hz
15
Oil Hz
Oil Vert
Gas Hz
10
Gas Vert
Other
D&A
5
0
2007
2008
2009
2010
2011
* Equivalent net wells drilled on Freehold’s royalty land.
2012
H1 2013
21
Acquisition Strategy
Focused on
Royalties
Buy existing
royalties
Development
funding
TSX : FRU
Accretive
Acquisitions
$650 million
since inception
 90% royalties
 Capital contribution
in return for a royalty
Equity financings in 2001, 2005, 2009, and 2012.
22
Accretive Acquisitions
Year
TSX : FRU
Cost
Area
($ millions)
1997
Alberta/Saskatchewan
2001
Southeast Saskatchewan
2005
Petrovera (CNRL)
2007
(boe/d)
22
700
25
800
352
3,800
Alberta/Saskatchewan
90
700
2010
Alberta, Sask. and B.C.
38
400
2011
Northwest Alberta
7
100
2012
Alberta, Sask. and B.C.
60
600
Numerous small acquisitions
59
1,200
1997–2012
Total:
$
Initial
Production
Acquired
$653
8,300
Equity financings in 2001 ($30M), 2005 ($260M), 2009 ($110M), and 2012 ($68M).
23
Why Own Freehold?
TSX : FRU
large royalty portfolio
Royalty
Focus
low costs & predictable
growth model
sustainable dividend
payout
conservative management,
low risk profile
24
Stable, Attractive Dividend*
TSX : FRU
Annual Dividend
($/share)
$1.68
$1.68
$1.68
$1.68
2010
2011
2012
2013e
$1.40
2009
Eligible dividends for Canadian tax purposes.
* See advisory regarding forward-looking information.
25
Strong Financial Position
TSX : FRU
Debt to Funds from Operations*
(multiple)
3.0
2.5
$155 million
available credit capacity
(at June 30, 2013)
2.0
1.5
1.0
0.5
0.0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013e
Sector Average
* See advisory regarding non-GAAP financial measures.
Freehold
26
Available Dry Powder
TSX : FRU
• FRU maintains
significant dry powder.
• Our D/CF and credit
facility utilization remain
well positioned.
• We see our dividend as
sustainable within the
current commodity
environment.
27
FRU Stock Price Tracks Oil Price
63%
WTI in US$
150.00
TSX : FRU
FRU in C$
30.00
oil and NGL
production
125.00
25.00
100.00
20.00
75.00
15.00
50.00
100%
25.00
unhedged
Jan/2008
10.00
5.00
-
Jan/2009
Jan/2010
WTI Oil Price (US$)
To September 30, 2013.
Jan/2011
Jan/2012
Jan/2013
FRU Share Price (CDN$)
28
Why Own Freehold?
TSX : FRU
large royalty portfolio
Royalty
Focus
low costs & capex and
predictable growth model
high dividend payout
conservative management,
low risk profile
29
The Manager
TSX : FRU
CN P ENSION T RUST F UNDS
Pension fund for employees of
Canadian National Railway
100% ownership
100% ownership
Manager of
the assets
27% ownership
30
Board of Directors
TSX : FRU
Nolan Blades
Harry Campbell
Peter Harrison
Arthur Korpach
Tom Mullane
David Sandmeyer
Rodger Tourigny
Aidan Walsh
31
2013 YTD Relative Performance*
TSX : FRU
40.5%
Whitecap
Peyto
39.4%
Enerplus
34.1%
Pengrowth
30.2%
Advantage
24.5%
ARC
14.7%
Surge
13.5%
Crescent Point
13.2%
Vermilion
Freehold
Freehold
12.3%
FRU: 11.9%
11.9%
Penn West
8.9%
S&P/TSX Composite
2.5%
Baytex
2.0%
Trilogy
-3.1%
Bonavista
-7.5%
Zargon
-7.9%
Twin Butte
-12.0%
Perpetual
Lightstream
-12.7%
-22.0%
* Year to date to September 30th, 2013.
32
Performance Since Corporate Conversion
150
TSX : FRU
+43.5%
125
+1.6%
100
-23.0%
75
50
Dec 2010
FRU
Dec 2011
S&P/TSX Composite
To September 30, 2013.
Dec 2012
Dec 2013
S&P/TSX Oil & Gas E&P
33
2013 First Half Results
TSX : FRU
2013
Production
boe/d
H1
Actual
Annual
Guidance*
8,889
8,800
Capital
$ millions
18
32
DRIP participation
$ millions
12
28
Cash taxes payable:
2012 tax year
2013 instalments
$ millions
$ millions
22
12
22
24
Long-term debt
$ millions
55
44
* See advisory regarding forward-looking information.
34
Supplemental Information
Land Holdings*
3.0 million gross acres
TSX : FRU
Land Profile
 21% held in perpetuity
(630,000 gross acres of
mineral title and royalty
assumption lands; 80% leased)
 833,000 gross acres
undeveloped
 Undeveloped land
independently valued at
$80.2 million
30,000 oil and gas wells
94%
royalties
* As at December 31, 2012.
Mineral title lands - 21%
Gross overriding royalties - 73%
Working interest properties - 6%
36
Reserves Profile*
Net Reserves
TSX : FRU
Net Proved Plus Probable
Reserves
 15.1 MMboe proved
» 57% oil and NGL
» 5.9 year RLI
 24.4 MMboe P+P
» 60% oil and NGL
» 8.5 year RLI
93%
of our proved reserves
are producing
Light and medium crude oil - 24%
Heavy crude oil - 30%
Natural gas liquids - 6%
Natural gas - 40%
* As at December 31, 2012.
37
Production Profile
H1 2013 average
TSX : FRU
Production Profile
 8,889 boe/d
 71% royalty production
 63% oil and NGL
2013 forecast*
 8,800 boe/d
Our oil-weighted
production is currently
unhedged
Light and medium crude oil - 33%
Heavy crude oil - 25%
Natural gas liquids - 5%
Natural gas - 37%
* 2013 forecast per guidance dated August 8, 2013.
38
What is a Royalty?
TSX : FRU
A payment based on a percentage of gross production
Crown Royalty




Mineral rights owned by the government (Crown)
Leases auctioned at Crown land sales
Royalty rates set by the Crown
Held by the Crown in perpetuity
Mineral Title Royalty
 Minerals rights privately owned
 Lease terms and royalty rate negotiated
 Held by the private owner in perpetuity
Gross Overriding Royalty (GORR)
 A contractual royalty interest created out of a working interest
 Expires upon termination of the lease
39
2012 Operational Highlights
TSX : FRU
Focus on Royalties
Royalty
Interest
Working
Interest
Total
Company
Royalty
Percent
Net reserves
Mboe
19,017
5,408
24,425
78%
Average production
boe/d
6,263
2,587
8,850
71%
Acquisitions(1)
$ millions
60
-
60
100%
Royalty expense(2)
$ per boe
0.07
6.68
2.00
2%
Operating expense
$ per boe
-
16.47
4.82
0%
(1) Includes undeveloped land.
(2) Royalty expense includes both Crown charges and royalty payments to third parties.
40
Attractive Dividend
TSX : FRU
Selling Price
($/boe)
Dividend
($/share)
$2.91
$3.00
$80
$70
$2.50
$60
$2.10
$1.92
$2.00
$1.92
$1.70 $1.73
$1.68 $1.68 $1.68
$1.56
$1.50
$1.32
$1.40
$1.31
$1.10
$50
$40
$30
$1.00
$0.78
$20
$0.65
$0.50
$10
$0.13
$0.00
$0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Annual Dividend ($/share)
Freehold's Average Selling Price ($/boe)
Eligible dividend for Canadian tax purposes.
41
2012 Acquisitions
Alberta, Sask., B.C.
TSX : FRU
Alberta, Sask.
 January 17, 2012
 August 31, 2012
 $49.3 million
 $10.9 million
 250,000 gross acres
 6,100 net acres
 Production
 Production
» 530 boe/d
» 90 boe/d
» Mostly natural gas
» 75% liquids
future development potential
42
2013 Sensitivities
TSX : FRU
Change
(+/-)
Estimated
Change in
Funds From
Operations
($ per share)
US$1.00/bbl
0.02
US$0.01
0.02
Edmonton Par/WCS differential
Cdn$1.00/bbl
0.02
AECO natural gas price
Cdn$0.25/Mcf
0.02
1%
0.01
Oil and NGL production
100 bbls/d
0.03
Natural gas production
1,000 Mcf/d
0.01
Variable
WTI oil price
Canadian/U.S. dollar exchange rate
Interest rate
* See advisory regarding forward-looking information.
43
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telephone.
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website.
freeholdroyalties.com