Freehold Royalties Ltd T.FRU

Alternate Symbol(s): FRHLF

Freehold Royalties Ltd. is a Canada-based royalty company. The Company manages non-government portfolios of oil and natural gas royalties in Canada with an expanding land base in the United States. Its primary focus is to acquire and actively manage royalties, while providing a lower risk income vehicle for its shareholders. Its total land holdings encompass approximately 6.2 million gross acres in Canada. It has royalty interests in more than 19,000 producing wells and almost 400 units spanning five provinces and eight states and receives royalty income from over 360 industry operators throughout North America. It has two geographical segments: Canada, which includes exploration and evaluation assets and the petroleum and natural gas interests in Western Canada, and US includes petroleum and natural gas interests primarily held in the Permian (Midland and Delaware), Eagle Ford, Haynesville and Bakken basins largely located in the states of Texas, Louisiana, and North Dakota.

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Freehold Royalties Ltd

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Post by retiredcfon Jun 07, 2023 10:20am

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Post# 35484276

RBC

June 6, 2023

Freehold Royalties Ltd.

Highlights from the RBC Capital Markets Global Energy, Power and Infrastructure Conference

TSX: FRU | CAD 14.22 | Outperform | Price Target CAD 20.00

Sentiment: Neutral

Our view: We hosted Freehold Royalties at the 2023 Global Energy, Power, and Infrastructure Conference with David Spyker (President and CEO), Rob King (COO), and Matt Donohue (Manager, Investor Relations & Capital Markets) presenting. Management continues to emphasize a focus on improving operational sustainability and pursuing accretive M&A, balancing this with return of capital via the base dividend. We reiterate our Outperform rating and $20/share target price.

Details:

Balancing return of capital, debt reduction, and potential M&A. Freehold has prioritized a sustainable dividend targeting a 60% payout ratio at US$75/bbl WTI with the current dividend covered down to US$50/bbl. Management prefers to remain at the lower end of its target payout range with excess cash flow allocated to debt reduction and potential M&A. Freehold reviews its base dividend ($1.08/share) quarterly, though the team anticipates future dividend increases are likely to be tied to M&A.
Actively evaluating deals. Management remains focused on US M&A opportunities given higher relative capital investment, a larger opportunity set, mineral title land availability, and improved productivity/realized pricing relative to Canada. That said, the company noted elevated valuations with many competitors having transacted at implied returns trailing Freehold's hurdle rate. Management also noted some interest in gas opportunities in the US. In Canada, recent producer dispositions of non-core assets have opened the door for new acquirers to evaluate royalty financing.
Updates on the US, Canada. Freehold's US growth strategy continues to pay dividends with volumes sitting at roughly 5,000 boe/d; the US is often more choppy in delivering quarterly production growth given larger drilling programs, batching of wells, and timing from licence to production. The US is now 60-70% weighted to large investment grade payors on a revenue basis. Freehold noted production remains at roughly 10,000 boe/d in Canada, with the Clearwater and Spirit River gas expected to support modest growth in the coming years. Management provided a brief update on Alberta wildfires, noting roughly 20% of Canadian production was impacted to some degree through May 2023.
Focused on ESG. Freehold remains a net zero emitter by way of carbon credit purchases, but the company has also highlighted over 60% of its top 20 royalty payors have defined scope 1 & 2 reduction targets. The company released its latest sustainability report in January 2023 (note here).