Scotia less bullish, $16 targetI hold FRU entirely for the dividend. Fantastic at 7.92% based on my cost. Any share appreciation is simply gravy. Not looking for home runs here, just consistent income with some expectation of small share appreciation over time.<br /> <br /> <section class="grey_header" style="box-sizing: border-box; background-color: rgb(250, 251, 253); padding: 15px 0px 0px 13px; border-bottom: 1px solid rgb(230, 230, 230); margin-top: 123px; color: rgb(0, 0, 0); font-family: ScotiaBank, Arial, sans-serif; font-size: 16px;"> <h1 style="box-sizing: border-box; margin-top: 0px; margin-bottom: 0.5rem; line-height: 1.2; font-size: 1.312rem; color: rgb(83, 60, 94);"> Freehold Royalties Ltd.</h1> <ul class="grey_header_financials d-flex flex-wrap" style="box-sizing: border-box; margin: 0px; padding-right: 0px; padding-left: 0px; display: flex !important; flex-wrap: wrap !important;"> <li class="price" style="box-sizing: border-box; margin-bottom: 1.5rem; line-height: 1.5rem; padding: 0px 15px 15px 0px; display: block;"> <span style="box-sizing: border-box; font-weight: bolder;">FRU-T: </span>C$13.84</li> <li class="target" style="box-sizing: border-box; margin-bottom: 1.5rem; line-height: 1.5rem; padding: 0px 15px 15px 0px; margin-left: auto; display: block;"> <span style="box-sizing: border-box; font-weight: bolder;">Target: </span>C$16.00</li> <li class="rating" style="box-sizing: border-box; margin-bottom: 1.5rem; line-height: 1.5rem; border-right: none; border-bottom: none; border-left: none; border-image: initial; width: 489.667px; border-top: 1px solid rgb(186, 177, 191); padding: 15px 0px; display: block;"> <span style="box-sizing: border-box; font-weight: bolder;">Rating: </span>Sector Perform</li> </ul> </section> <section class="main_content container" style="box-sizing: border-box; width: 502.667px; padding: 15px; margin: 0px; max-width: 100%; color: rgb(0, 0, 0); font-family: ScotiaBank, Arial, sans-serif; font-size: 16px;"> <div class="row" style="box-sizing: border-box; display: flex; flex-wrap: wrap; margin-right: -15px; margin-left: -15px;"> <div class="col-xl-8" style="box-sizing: border-box; position: relative; width: 502.667px; padding-right: 15px; padding-left: 15px;"> <div class="title" style="box-sizing: border-box;"> <h1 style="box-sizing: border-box; margin-top: 0px; margin-bottom: 0.5rem; line-height: 1.5; font-size: 1.25rem; padding-top: 10px;"> Q3 CFPS in Line; Lower Y/Y Leasing Activity</h1> </div> <div class="our_take" id="ourtake" style="box-sizing: border-box; line-height: 1.6;"> <div class="bm-element" data-bm-element="$elementId" style="box-sizing: border-box;"> <div class="row" style="box-sizing: border-box; display: flex; flex-wrap: wrap; margin-right: -15px; margin-left: -15px;"> <div class="col-md-12 bm-component" data-bm-component="171377cb-bc2b-4a74-878c-b506a00e00d8" id="bm_comp_id_171377cb-bc2b-4a74-878c-b506a00e00d8" style="box-sizing: border-box; position: relative; width: 502.667px; padding-right: 15px; padding-left: 15px;"> <div style="box-sizing: border-box;"> <p style="box-sizing: border-box; margin-top: 0px; margin-bottom: 1.5rem; line-height: 1.5rem;"> <span style="box-sizing: border-box; font-weight: bolder;">OUR TAKE: Modest Negative.</span> FRU’s Q3 CFPS was in line with consensus while total royalty production and liquids production were modestly weaker than expected. Weaker royalty revenues were offset by lower-than-forecasted cash taxes. Canadian production has been impacted by ~250 boe/d of shut-ins due to low gas prices, but 2024 production guidance is unchanged at 14.7-15.7 mboe/d. Leasing activity has dropped by 50% y/y.</p> </div> </div> </div> </div> </div> <div class="key_points" id="keypoints" style="box-sizing: border-box; line-height: 1.6;"> <p style="box-sizing: border-box; margin-top: 0px; margin-bottom: 1.5rem; line-height: 1.5rem;"> <span style="box-sizing: border-box; font-weight: bolder;">KEY POINTS</span></p> <div class="bm-element" data-bm-element="$elementId" style="box-sizing: border-box;"> <div class="row" style="box-sizing: border-box; display: flex; flex-wrap: wrap; margin-right: -15px; margin-left: -15px;"> <div class="col-md-12 bm-component" data-bm-component="94994be9-5870-4f49-8743-9ce32d2c1e91" id="bm_comp_id_94994be9-5870-4f49-8743-9ce32d2c1e91" style="box-sizing: border-box; position: relative; width: 502.667px; padding-right: 15px; padding-left: 15px;"> <div style="box-sizing: border-box;"> <p style="box-sizing: border-box; margin-top: 0px; margin-bottom: 1.5rem; line-height: 1.5rem;"> <span style="box-sizing: border-box; font-weight: bolder;">Q3 CFPS in line.</span> FRU’s Q3 CFPS of $0.37 was consistent with the Street’s expectations. Note that Q3 royalty revenue was lower than expected due to weaker production. Lower revenues were offset by lower-than-expected cash taxes. Total production and liquids production of 14.6 mboe/d and 9.4 mbbl/d, respectively, were 1% and 2% lower than consensus. Management noted their US production of 5.5 mboe/d was similar to Q2/24 levels despite declines from several multi-well pads that were put on production in Q2/24. Canadian Q3/24 production of 9.1 mboe/d declined 6% q/q due to lower natural gas weighted drilling and the shut-in of ~250 boe/d. FRU’s 2024 production guidance is unchanged at 14.7-15.7 mboe/d.</p> </div> </div> </div> <div class="row" style="box-sizing: border-box; display: flex; flex-wrap: wrap; margin-right: -15px; margin-left: -15px;"> <div class="col-md-12 bm-component" data-bm-component="3e1e268c-0d52-4e17-87ad-91b034828824" id="bm_comp_id_3e1e268c-0d52-4e17-87ad-91b034828824" style="box-sizing: border-box; position: relative; width: 502.667px; padding-right: 15px; padding-left: 15px;"> <div style="box-sizing: border-box;"> <p style="box-sizing: border-box; margin-top: 0px; margin-bottom: 1.5rem; line-height: 1.5rem;"> <span style="box-sizing: border-box; font-weight: bolder;">Y/Y increase in US drilling activity.</span> In the US, 182 gross wells were drilled during Q3/24 compared to 135 wells in Q3/23 (+35%; Exhibit 1). 70% of FRU’s US wells were drilled in the Permian with the Eagle Ford accounting for the remainder. Eagle Ford and Permian oil rig counts continue to trend below 2023 levels (Exhibits 3 and 4).</p> </div> </div> </div> <div class="row" style="box-sizing: border-box; display: flex; flex-wrap: wrap; margin-right: -15px; margin-left: -15px;"> <div class="col-md-12 bm-component" data-bm-component="f1641075-dcde-4420-96a6-0c0de6a6a877" id="bm_comp_id_f1641075-dcde-4420-96a6-0c0de6a6a877" style="box-sizing: border-box; position: relative; width: 502.667px; padding-right: 15px; padding-left: 15px;"> <div style="box-sizing: border-box;"> <p style="box-sizing: border-box; margin-top: 0px; margin-bottom: 1.5rem; line-height: 1.5rem;"> <span style="box-sizing: border-box; font-weight: bolder;">Canadian drilling activity increased on a net basis.</span> In Canada, 96 gross wells were drilled in Q3/24, which is a decrease of 17% y/y. However, net well activity increased 41% due to higher royalty rates in the Mannville Stack and Clearwater. Management noted that Q3/24 had the highest level of heavy oil drilling on FRU’s lands over the past several years. Most of the activity on FRU’s lands were focused on the Mannville Stack (29 wells), SE Saskatchewan (24 wells), and Clearwater (20 wells).</p> </div> </div> </div> <div class="row" style="box-sizing: border-box; display: flex; flex-wrap: wrap; margin-right: -15px; margin-left: -15px;"> <div class="col-md-12 bm-component" data-bm-component="61623283-bc63-4dc2-8a62-c67c0930402f" id="bm_comp_id_61623283-bc63-4dc2-8a62-c67c0930402f" style="box-sizing: border-box; position: relative; width: 502.667px; padding-right: 15px; padding-left: 15px;"> <div style="box-sizing: border-box;"> <p style="box-sizing: border-box; margin-top: 0px; margin-bottom: 1.5rem; line-height: 1.5rem;"> <span style="box-sizing: border-box; font-weight: bolder;">Leasing activity drops Y/Y.</span> FRU noted they entered into 12 new leases in Q3/24 compared to 24 new leases in Q3/23 (-50%; Exhibit 2). Most of the new leases were focused on SE Saskatchewan, the Mannville Stack, and the Cardium.</p> </div> </div> </div> </div> </div> </div> </div> </section> <br />