TSX:FRU - Post Discussion
Post by
retiredcf on Dec 11, 2023 1:24pm
RBC
December 11, 2023
Freehold Royalties Ltd.
Acquires Permian royalty assets for C$112 million
TSX: FRU | CAD 13.15 | Outperform | Price Target CAD 19.00
Sentiment: Positive
Freehold acquired C$112 million worth of Permian royalty assets (123,000 gross acres), focused in Midland and Delaware basins. Management expects the acquisition will add 600 boe/d to 2024E royalty volumes, generating FFO of ~$15 million (~7.5x acquisition multiple). The transaction includes more than 2,000 future drilling locations, bringing Freehold's total US inventory to over 10,000 gross locations. Overall, we view the acquisition favourably as it aligns with the company's US expansion strategy with development backstopped by strong counterparties, namely Exxon Mobil and Pioneer Natural Resources.
Details:
Transaction details. Freehold acquired 123,000 gross acres (2,670 net acres) in the Midland/Delaware basins, with net acreage weighted 76%/24% between the two basins, for C$112 million; over 40% of net royalty acres acquired are undeveloped. The transaction will add 600 boe/d (85% liquids) in 2024E, generating FFO of $15 million; transaction metrics map to $186,667/boe/ d and ~7.5x 2024E FFO at strip. The deal adds over 2,000 locations for future development, lifting the company's total proforma US inventory to over 10,000 gross locations (17 years of drilling based on 2022 levels). The transaction will be funded through Freehold's existing credit facility and is expected to close in January 2024.
Focused on growing the US portfolio. Freehold has increased its total Permian acreage by over 40% to 0.5 million gross acres, now representing ~57% of Freehold's total US acreage. Management highlighted that this acquisition firmly positions Freehold in Martin County in Texas, which captures some of the thickest reservoir stacked pay reservoir in the basin (up to ten benches available). Future development on these assets is underpinned by key players such as Exxon Mobil and Pioneer Natural Resources, Marathon Oil, Endeavor Energy Resources LP, and Diamondback Energy; Exxon and Pioneer now rank as top five payors for Freehold and account for over 25% of future gross US locations.
Guidance update expected with Q4/23 results. Management plans to provide 2024 guidance, inclusive of the acquisition, on February 28th after market close, with Q4/23 results; RBC's pre-deal estimates incorporate 2024E royalty volumes of 15,218 boe/d
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