Embed Size (px)
Citation preview
CORPORATE PRESENTATION
APRIL 2020
1
PrairieSky Royalty Snapshot
(1) Based on 232.6 million common shares outstanding as at March 31, 2020 and closing share price on the TSX of $8.18 on April 17, 2020. Financial data in this corporate presentation is as at March 31, 2020 unless stated otherwise.
TSX
PSK$1.9 Billion Enterprise Value(1)
Quarterly Dividend
$0.06 Per Common Share Commencing Q2 2020
232.6 Million Shares Outstanding(1)
$50 Million NCIB
7.8 MillionAcres of Fee Lands
7.8 MillionAcres of GORR Lands
4Provinces
Balance Sheet
Strength
Balance Sheet Strength
PrairieSky has a unique business model and balance sheet, ideally suited to paying dividends.
2
$millionsMarch 31, 2020 December 31, 2019
ASSETS
Current Assets 35.0 37.9
Royalty Assets 662.6 682.5
Exploration and evaluation assets 1,356.2 1,368.1
Goodwill 631.0 631.0
Total Assets 2,684.8 2,719.5
LIABILITIES AND SHAREHOLDER’S LAIABILITES
Current Liabilities 40.2 41.0
Lease obligation 2.1 2.2
Share-based compensation 0.6 1.0
Deferred income taxes 197.7 189.6
Total Liabilities 240.6 233.8
Shareholders Equity 2,444.2 2,485.7
Total Liabilities & Shareholders’ Equity 2,684.8 2,719.5
PrairieSky has no long-term debt, no operating costs, no mandatory capital expenditures and no environmental liabilities.
3
Dominant Land Position
4
Introduction to PrairieSky Royalty
7.8 million acres of Fee Lands(1)
7.8 million acres of GORR Lands(1)
Lands located throughout the heart of the oil and gas producing basins in Alberta, British Columbia, Saskatchewan and Manitoba
License to ~13,000 km2 of 3D seismic covering 3.3 million acres, and ~46,000 km of 2D seismic
Business model supports dividend payments
Operating margin(2) of 97%Operating netback(2) of 88%
Strong balance sheet
Low risk revenue base
No capital commitments,operating costs, abandonment liabilitiesor reclamation charges associated withworking interest ownership
Over 62% of royalty production revenue received from Fee Lands(3)
Experienced team aligned with shareholder interests
Management team with an unparalleled understanding of the value of royalties
Technical team with deep experiencein Western Canada
Focused staff, all of whom have investedin PrairieSky shares
Directors and officers ownership of 2.5 million shares
(1) Fee Lands refer to lands with Petroleum and/or Natural Gas rights. GORR Lands include GRT and Crown Interest Lands.(2) For the three months ended March 31, 2020. Operating margin represents royalty revenue less production & mineral tax expense. Operating netback represents operating margin less
G&A expense.(3) For the three months ended March 31, 2020.
5
A Unique and Diversified Approach to Investing in Oil & Gas
Third PartyOperators
GeologyCommodity• 81% of product revenue derived
from liquids volumes(1)
• Liquids volumes make up approximately 52% of production(1)
• Production from over 30 formations from high risk, deep targets to low risk shallow oil and natural gas
• 330 lessees paying royalties on PrairieSky Royalty lands
• Operators on PrairieSky Royalty Fee Lands include Majors, Independents, Mid Cap and Small Cap producers
(1) For the three months ended March 31, 2020.
6
Royalty Advantage
Ownership in PrairieSky provides a long duration cash flow stream and the optionality associated with perpetual land title ownership.
Exposure to: No exposure to:High margin cash flow streams Capital costs
New discovery/exploration optionality Environmental liabilities
Commodity price optionality Operations
Secondary and tertiary recoveries Operating costs
Shale opportunities
Technological advancements
Ownership in 10 million leasable, undeveloped acres
7
Higher Margin, Lower Risk
(1) Excludes the impact of Other Revenues (lease rentals, bonus consideration, etc.) for the three months ended March 31, 2020.(2) Excluding acquisitions and net change in future development capital.(3) Operating margin is calculated as average realized price ($/boe), less Production & Mineral Tax expense ($/boe), divided by the
average realized price ($/boe). Amounts per boe for PrairieSky Royalty are for the three months ended March 31, 2020.
Margin Summary ($/BOE)
Illustrative Working Interest Operator PrairieSky Royalty
PrairieSky Royalty offers higher margins than conventional working interest production
Providing the same revenue per boe, a royalty barrel realizes significantly higher margins than working interest models
No abandonment or environmental liabilities
No capital spending requirements
Incurred by Working Interest
Operators
Operating Margin (Including F&D)
Revenue (52% Liquids Production)(1)
$24.35/boe
Operating / Transportation Costs
($10.25/BOE)
F&D(2)
($10.00/boe)
$0.45/boe 2% of Revenue
Operating Margin(3)
$23.71/BOE97%
of Revenue
Production & Mineral Tax($0.64/BOE)
No royalties payable to the Crown on Fee Lands
Royalties($3.65/BOE)
8
Recycling the Land Base
New drilling and production technologies can be utilized to pursue previously underexploited zones
The perpetual nature of Fee Lands allows PrairieSky Royalty to continually recycle lands and grow its revenue base.
PrairieSky leases lands by zone – same aerial acreage can be leased separately for multiple zones
At the end of the primary lease term, any lands/rights not held by production revert back to PrairieSky Royalty
PrairieSky Royalty can re-lease to third parties who plan to more actively exploit, explore and/or develop those opportunities
License to ~13,000 km2 of 3D seismic, covering over 3.3 million acres, and ~46,000 km of 2D seismic
(1) Held by Production (“HBP”)
PrairieSky Royalty sets lease terms to ensure the company remains competitive with adjacent Crown or freehold lands
9
Production History on our Fee Lands
Additional royalty production is generated on GORR Lands (not included above).
Historical Gross Production on PSK Fee Lands
Source: Accumap
Cumulative production of 4.4 billion BOE
-
50,000
100,000
150,000
200,000
250,000
300,000
CD Avg. Oil (bbl/d) CD Avg. Gas (Boe/d)
Reserves Replacement
Third-party capital on PrairieSky lands approximately replaces production annually.
In 2019, replaced 119% of oil royalty production volumes and 151% of NGL royalty production volumes.
10
Proved + Probable Reserves
(MBOE)
Annual Production
(MBOE)
Funds from Operations
(millions)
2015 46,653 6,199 $177.8
2016 47,423 8,531 $200.2
2017 49,234 9,221 $290.2
2018 47,482 8,526 $229.7
2019 45,835 7,941 $220.4
Funds from operations returned to shareholders as dividends and share repurchases or used to purchase additional royalty interests.
Long-term Optionality
PrairieSky’s basket of call options includes:
= Long-term liquids growth at no additional cost to PrairieSky.
11
SAGDLindbergh and Onion Lake projects have multiple phase expansion potentialNew leasing to integrated and independent SAGD specialists
Emerging Clearwater and Duvernay oil plays
Large scale CO2 sequestration and EOR projects
New pool discoveries and expansion of productive trends
Technological advancements
12
PrairieSky Royalty Per Share Metrics
(1)Acres per share based on number of common shares outstandingat March 31, 2020.
-
20
40
60
80
100
120
140
Production per Million Shares
-
20,000
40,000
60,000
80,000
IPO Today
Acres per Million Shares(1)
13
Revenues Generated from Royalty Properties
PrairieSky generates revenues through leasing its Fee Lands and its GORR Interests, which includes Royalty Production Revenue, Bonus Consideration and Lease Rental Income.
Compliance revenue is recorded with Royalty Production Revenue from Fee Lands and GORR Interests in the financial statements.
Royalty Compliance analysis focuses on capturing mispaid royalties through forensic accounting.
Over $55 million in compliance recoveries collected since IPO.
14
Returns to Shareholders
From IPO to March 31, 2020, PrairieSky has returned $1.1billion in dividends and $138million in share buybacks to shareholders
The dividend is below the current, trailing and forward Free Cash Flow yield.
PrairieSky pays a quarterly dividend of $0.06 per share.
High conversion of revenues to free cash flow for distribution to shareholders through all commodity price cycles
WTI down ~49%
AECO down~50%
15
Capital-Free Returns and Diversification
PrairieSky Royalty E&Ps Midstream
Capital-Free Returns No capital investment required
Future embedded royalties and cash flow through perpetual land ownership
No environmental liabilities typically associated with working interests
Technology increases recovery factors and opens up new resource opportunities
x Requires significant capital or acquisitions for growth
x Responsibility for environmental liabilities
Technology increases recovery factors and opens up new resource opportunities
x Requires significant capital for growth
x Requires significant capital for maintenance
x Responsibility for environmental liabilities
Stable/Diversified Asset 15.6 million acres, over 38,000 producing wells, approximately 330 payors
/ x Generally concentrated incertain plays (operator/asset)
x Requires maintenance and facilities capital
Contractual commitments (certainty of fees, volumes)
Capital Structure Minor working capital deficiency. No long-term debt.
x Moderate to high leverage x Moderate to high leverage
16
ESG Policies and Practices
Environmental regulations are best-in-class standards and reflect global leadership
Focus on Health and Safety, Human Rights and Community Partnerships
Technological Innovation and leading commitment to sustainability, driving rapid rate of change and continuous improvement.
All of PrairieSky’s royalty properties are in Canada which provides the following advantages:
PrairieSky has no field operations, facilities, or end of life decommissioning liabilities.
Third-party operators on the Royalty Properties have a contractual commitments to adhere to good operating practices and comply with all laws.
PrairieSky is undertaking further sustainability initiatives and continues to increase disclosure around ESG.
PrairieSky’s policies and practices are developed to provide the foundation for sustainability. They include:
Code of Business Conduct
Environment, Climate Change, Health & Safety Policy
Human Rights Policy
Board Diversity Policy
Whistleblower Policy
Please see our website for a full list of policies: www.prairiesky.com
Policies and Practices
17
ESG Policies and Practices
Received a B ranking from CDP in 2019, which is the management band defined as taking coordinated action on climate issues.
ESG Survey Results
Received AA ranking from MSCI in 2019.
GovernanceThe Globe and Mail, Report on Business Board Games - PrairieSky ranked in the top quartile of Canadian companies in 2019.
At PrairieSky, women make up:
75% of Managers, 50% of Senior Management and 29% of Independent Directors
We are committed to operating our business in an economically, socially, and environmentally responsible and sustainable manner for the benefit of shareholders and relevant stakeholders.
We conduct our business responsibly by:
• Incorporating sustainability factors into our strategy and actively managing risk
• Proactively taking steps to minimize our impact on the environment
• Emphasizing sustainability criteria through our business relationships and contractual arrangements
• Upholding the highest standards of governance and ethics
• Tying short-term and long-term Executive Compensation to measurable ESG performance criteria
Gender Diversity
18
Shareholder Alignment
Board & Management invested ~$80 million
in PSK Shares
Decisions focused on core strategy and
creating long-term shareholder value
ShareholderAlignment“Pay for performance”
long-term incentivesAll staff are shareholdersand maximize participation
in Employee Stock Purchase Plan
Spuds on PrairieSky Lands – Q1 2020
19
20
Quarterly Activity on PrairieSky Lands
*Wells on production for Q1 2020 will be reported in Q2 2020 when data is complete.LOR represents lessor interests on Fee Lands.RI - royalty interest
0
50
100
150
200
250
300
2017Q1
2017Q2
2017Q3
2017Q4
2018Q1
2018Q2
2018Q3
2018Q4
2019Q1
2019Q2
2019Q3
2019Q4
2020Q1
Wells Spud
LOR GORR UNIT
0%
2%
4%
6%
8%
10%
12%
0
50
100
150
200
250
300
2017Q1
2017Q2
2017Q3
2017Q4
2018Q1
2018Q2
2018Q3
2018Q4
2019Q1
2019Q2
2019Q3
2019Q4
2020Q1
Wells Spud
OIL GAS RI
0
50
100
150
200
250
300
2017Q1
2017Q2
2017Q3
2017Q4
2018Q1
2018Q2
2018Q3
2018Q4
2019Q1
2019Q2
2019Q3
2019Q4
2020Q1
Wells Rig Released
LOR GORR UNIT
0%2%4%6%8%10%12%
050
100150200250300
2017Q1
2017Q2
2017Q3
2017Q4
2018Q1
2018Q2
2018Q3
2018Q4
2019Q1
2019Q2
2019Q3
2019Q4
2020Q1
Wells Rig Released
OIL GAS RI
0
50
100
150
200
250
300
2017Q1
2017Q2
2017Q3
2017Q4
2018Q1
2018Q2
2018Q3
2018Q4
2019Q1
2019Q2
2019Q3
2019Q4
Wells on Production*
LOR GORR UNIT
0%
2%
4%
6%
8%
10%
12%
0
50
100
150
200
250
300
2017Q1
2017Q2
2017Q3
2017Q4
2018Q1
2018Q2
2018Q3
2018Q4
2019Q1
2019Q2
2019Q3
2019Q4
Wells On Production*
OIL GAS RI
10 Year Free Cash Flow Generation
21
FX($US / $CAD)
AECO($/Mcf)
WTI($/bbl)
10 Year Average Annual Production (boe/d)
18,000 20,000 22,000 24,000
10 Year Free Cash Flow (Billions)
% Annual Growth Rate ~-2.5% ~-1.0% Flat ~2%
0.73 $2.00 $30.00 $1.0 $1.1 $1.2 $1.3
0.73 $2.00 $40.00 $1.3 $1.5 $1.6 $1.7
0.73 $2.00 $50.00 $1.6 $1.8 $1.9 $2.0
0.73 $2.00 $60.00 $1.9 $2.1 $2.3 $2.4
0.73 $2.00 $70.00 $2.2 $2.4 $2.6 $2.8
2019 Average Royalty Production 21,757 BOE/d
22
Why PrairieSky?
• 7.8 million acres of Fee Lands
• 7.8 million acres of GORR LandsVast Land Base
• Management and directors with an unparalleled understanding of the royalty business and are invested alongside shareholdersExperienced Team
• Upside from resource play development on emerging including the East Shale Duvernay, Clearwater and multi-zonal Deep Basin plays
Resource Play Upside
• Approximately 330 lessees producing from over 30 geologic horizons• Exposure to both oil and natural gas prices
Diversification
• Technology, new pool discoveries, optimization of legacy production and secondary and tertiary recoveries all provide long-term option value
• Fee Simple land never expiresOptionality
• Conservative dividend payout ratio• No capital expenditures, operating costs, abandonment or environmental
liabilities• Strong balance sheet
Sustainability
• Trading at attractive FCF yield, no capital requirements to maintain current free cash flow generation
Attractive Free Cash Flow Yield
FINANCIALINFORMATION
24
Financial Highlights
$millions, unless otherwise noted
Q1 2020 Q4 2019 Q3 2019 Q2 2019 Q1 2019 Q4 2018
Year Ended December 31,
2019 2018
Production Volumes
Crude Oil (bbls/d) 8,582 8,884 8,011 8,740 8,904 9,163 8,633 9,004
NGLs (bbls/d) 2,945 2,819 2,334 2,690 2,586 2,676 2,607 2,463
Natural Gas (Mmcf/d) 63.8 63.0 61.0 65.2 63.1 70.0 63.1 71.3
Total Production (BOE/d)(1) 22,160 22,203 20,512 22,297 22,007 23,506 21,757 23,358
Financial Information
Royalty Production Revenue 49.1 63.4 51.9 63.1 66.5 42.4 244.9 248.0
Other Revenues 3.6 3.7 6.9 6.2 6.7 9.2 23.5 25.8
Total Revenues 52.7 67.1 58.8 69.3 73.2 51.6 268.4 273.8
Funds from Operations 46.5 55.8 48.8 58.0 57.8 48.5 220.4 229.7
per Share(2) $0.20 $0.24 $0.21 $0.25 $0.25 $0.21 $0.94 $0.98
per BOE $23.06 $27.32 $25.86 $28.59 $29.18 $22.43 27.75 $26.94
Net Earnings 8.6 24.3 16.7 44.0 26.4 6.0 111.4 79.4
per Share $0.04 $0.10 $0.07 $0.19 $0.11 $0.03 $0.48 $0.34
Working Capital at Period End (5.2) (3.1) (7.4) (2.1) (6.2) (10.4) (3.1) (10.4)
(1) See “Conversions of Natural Gas to boe”.(2) Per share calculation uses the weighted average (basic) number of shares outstanding.
PrairieSky has no long-term debt, no operating expenses, no mandatory capital expenditures and no environmental liabilities.
25
Top Payors
Exposure to various operators with diverse expertise ranging from private companies to Majors
12 months of Revenue by Top 25 Companies ($ millions)
Top25 Payors
Top 10 payors represent 51%of product revenue, while the Top 25 payors represent 71%of product revenue
APPENDICES
HIGH QUALITY ROYALTIES = OPTIONALITY
FUTURE OPTIONALITY
28
INDUSTRY CAPITAL ON PSK LANDS
Third-party operators invest capital on PrairieSky’s lands to develop and produce oil and natural gas.
29
2014 2015 2016 2017 2018 2019Industry Capital(1) (billions) $46.9 $31.6 $23.0 $28.7 $27.4 $20.1(1)
Gross Capital on PSK Lands(2)
(billions) $1.9 $1.1 $0.7 $1.1 $1.3 $1.1
% of Gross Capital on PSK Lands 4.1% 3.5% 3.2% 4.0% 4.7% 5%
% of Gross Capital Oil Plays 72% 52% 69% 73% 78% 74%
% of Gross Wells on Oil Plays 74% 73% 90% 89% 94% 94%
Net Capital(2) (millions) $176 $84 $68 $74 $75 $58
(1) Source: Arc Energy Charts (January 27, 2020). 2019 industry capital is currently an estimate. Represents total capital spent on conventional oil and natural gas in Canada.
(2) Includes capital spending on oil sands. Gross capital represents the capital investment by a third-party operator. Net capital represents the gross capital multiplied by the PSK net royalty interest.
30
Multi-Zone Potential
Exploration and development has taken place since the 1950s in the form of new pool discoveries as well as through redevelopment with evolving technology
1970’sHoadley Barrier
Glauc Gas
1980’sGlauc Gas, Banff,
Pekisko and Ellerslie Oil
1950’sHomeglen Rimbey
Leduc Oil
1960’sNordegg Natural
Gas
1990’sPekisko Oil, Leduc Oil
Infill, Glauc Oil
2000’sGlauc Oil and Gas,
first horizontal wells, CBM
Post 2010Glauc Oil and Gas,
multi-stage fracs, Leduc Infill
FutureDuvernay, Banff
horizontal, Nordegg, Ellerslie, Upper
Mannville
31
Saskatchewan Viking Continues to Attract Capital
Saskatchewan Viking remains a key play for many producers based on superior economics, short cycle times and low capital requirements
< $1 million to bring well on-stream and quick payouts
Wells produce > 50years
Over 10 Mmboe of oil in place per section
~100 miles
32
Development of an Economic Resource Play Saskatchewan Viking
Wells Drilled Before 20102,650 vertical wells drilled (in this map area)36 horizontal wells drilledHorizontal lateral length 1 mile or 0.5 mileDrilling density 4 to 8 wells per sectionMost wells target vertical well development areas
Wells Drilled as of January 2013800 total horizontal wells drilledHorizontal lateral length mostly 0.5 milesDrilling Density 8 to 16 wells per sectionDevelopment extends vertical pool boundaries
Wells Drilled as of March 20202,905 total horizontal wells drilledHorizontal lateral length 0.5 to 1.5 mileDrilling density 16 to 28 wells per sectionDevelopment is delineating new pool boundaries
PrairieSky Inventory Based on:
16 wellsper section in infill sections
8 wellsper section in offset sections
33
Central Alberta Duvernay
~900,000 acres of royalty landsin the oil and volatile oil window ofan emerging shale resource play.
Duvernay is in early stages of contributing to PrairieSky’s revenues:
Potential for significant royalty production growth.
Trailing 12-month production averaged royalty production of ~350 BOE/d,up from 20 BOE/din 2016.
34
Alberta Viking – Growth in Activity
Activity has grown in the Alberta Viking representing >25% of Viking activity from 2017-2020 versus 3% in 2016.
~240 miles
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
2014 2015 2016 2017 2018 2019 2020
Gro
ss O
il Pr
oduc
tion
(bbl
/d)
pre-2014 RR 2014 RR 2015 RR 2016 RR 2017 RR 2018 RR 2019 RR
35
Investing in Future Growth Opportunities
Over 850,000acres in Marten Hills, Godin, Nipisi and Ukalta(1)
areas.
An emerging capital efficient oil play, with scale and large OOIP reservoirs in the Clearwatergroup sands.
PrairieSky has re-invested its cash lease bonus consideration into new emerging oil resource play opportunities to provide liquids growth in the medium to long term.
(1)Ukalta not shown on map
36
Upper Montney Light Oil Exposure
GORR on ~90 sections of prospective Upper Montney light oil lands in Two Rivers region of British Columbia
PrairieSky will benefit from future development of play without capital expenditures, operating costs or abandonment and environmental liabilities
0 6 Miles
37
Enhanced Oil Recovery
Unit on single section of land first started producing in 1979
Production has increased dramatically with EOR scheme, delivering ~$65,000 per month in royalty revenue over the 12-month trailing period.
0 1Mile
0
200
400
600
800
1,000
1,200
1,400
1,600
1978 1983 1988 1993 1998 2003 2008 2013 2018
Gro
ss O
il Pr
oduc
tion
(bbl
/d)
38
Multi-Zoned, Prolific Spirit River Exposure
Horizontal drilling and improved completion techniques have resulted in improved drilling results
IPs, EURs and costs make the Spirit River competitivewith the Marcellus and Utica
Well capitalized operators
0 24 Miles
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Gro
ss P
rodu
ctio
n (b
oe/d
)
Pre-2011 RR 2011 RR 2012 RR 2013 RR 2014 RR
2015 RR 2016 RR 2017 RR 2018 RR 2019 RR
39
Legacy Production
Unit was discovered in 1956 and developed vertically until 1965
Placed under a partial waterflood in 2003
Operator has an inventory of
166 net wells, 93 are booked locations(1)
First horizontal well drilled in 2011, 51 drilled to date (35 in 2012)
(1) Inventory as of December 31, 2017, inventory not disclosed subsequently.
0
500
1,000
1,500
2,000
2,500
3,000
2000 2005 2010 2015 2020
Gro
ss P
rodu
ctio
n (b
oe/d
)
40
Technology
Unit started producing in the 1950s.
Horizontal, multi-stage fracture development started in ~2012 increasing production to levels not seen since the 1960s.
Increased horizontal drilling activity on a number of units across PrairieSky lands.
Provides significant development opportunity.
-
2,000
4,000
6,000
8,000
10,000
12,000
1960 1970 1980 1990 2000 2010 2020
Gro
ss O
il Pr
oduc
tion
(bbl
/d)
41
New Pool Discovery and Development
The pool encompasses 32 sections of Fee Land, currently under natural gas flood
Production began in early 2012 and reached peak production of over 4,000 bbls/d
Over $100 million in royalty production revenue on this pool since 2012
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2012 2013 2014 2015 2016 2017 2018 2019 2020
Gro
ss O
il Pr
oduc
tion
(bbl
/d)
UNDERSTANDINGROYALTIES
43
History of PrairieSky’s Fee Lands
1676King Charles II of England granted 948 million acres of mineral title land to the Hudson’s Bay Company, later ceded to the Dominion of Canada.
1958CPR creates Canadian Pacific Oil and Gas, to which all mineral title was conveyed.
1971PanCanadian Petroleum Limited (predecessor to PanCanadian Energy Corporation) created by the amalgamation of Canadian Pacific Oil and Gas And Central –Del Rio Oils.
2002Encana created through merger of PanCanadian Energy Corporation and Alberta Energy Company.
2014PrairieSky Royalty acquires fees simple mineral title lands from Encana and completes initial public offering.
1887Dominion of Canada stops granting mines and mineral rights as part of land sales –no more Fee lands are created.
PresentPrairieSky is the largest fee simple mineral title landowner in Western Canada, including 7.8 million acres of fee simple mineral title lands with petroleum and/or natural gas rights. These rights are held in perpetuity.
2014PrairieSky completes acquisition of Range Royalty Limited Partnership in December 2014, a best in class private royalty company with 3.5 million acres of royalty lands.
2015PrairieSky acquires substantially all of Canadian Natural Resources royalty assets, gaining unparalleled fee simple mineral title exposure in the Viking light oil play in Western Saskatchewan and royalty interests in multiple resource plays in the Deep Basin of Alberta and British Columbia.
1905CPR initiates irrigation projects, checkerboard selection abandoned in exchange for building a large irrigation system.
1881 25 million acres of Fee lands granted to the Canadian Pacific Railway (CPR) in consideration for completing the national railway.
CPR able to select lands from the odd numbered sections in a belt of land 24 miles wide on each side of the railway creating the checkerboard pattern still seen today.
44
Types of Royalties
The following figure outlines the royalty hierarchy. As you move down the royalty hierarchy, costs increase andduration decreases.
Crown Royalties
Fee Simple Mineral Title -PrairieSky owns 7.8 million acres
Gross Overriding Royalties -PrairieSky owns 7.8 million acres
Streams
Net Profit Interest
Volumetric Production Payment
Working Interest
45
Active Management of Land Base
PrairieSky actively manages its Fee Lands:
PrairieSky’s Seismic CoverageMeeting with operators and providing updates on available lands
Providing seismic to lessors and generating prospects internally
Posting prospects on PrairieSky’s website and advertising to industry
Proactively monitoring and managing producer commitments
License to ~13,000 km2 of 3D seismic over 3.3 million acres & ~46,000 km of 2D seismic
46
Leadership Team
Executive Team
Board of DirectorsJames M. Estey, Chair of the BoardCorporate Director, Retired Chairman of UBS Securities Canada Inc., and has more than 30 years of experience in financial marketsChairman of Gibson Energy Inc.
Andrew M. Phillips, President & CEO / Director
P. Jane Gavan President, Asset Management of Dream Unlimited Corp.More than 30 years of executive business and leadership experience, including acting as a senior legal advisor. Currently sits on the Board of Directors of Dream Unlimited Corp. and on the Board of Trustees of Dream Global REIT.
Margaret A. McKenzieCorporate Director, Former VP, Finance and Chief Financial Officer of Range Royalty and prior thereto was VP, Finance and Chief Financial Officer of Profico Energy Management Ltd.Director of Encana Corporation and Inter Pipeline Ltd.
Myron M. StadnykPresident and Director of ARC Resources Ltd. Prior to announcing his pending retirement, President and Chief Executive Officer of ARC Resources Ltd. Currently serves as a Governor of the Canadian Association of Petroleum Producers.
Sheldon SteevesCorporate Director, Previously President & CEO of EchoEx; Executive Vice President & COO at Renaissance Energy Ltd.Director of Enerplus Corporation and NuVista Energy Ltd.
Senior leadership team offers unique expertise managing royalty assets, significant technical capabilities and broad, long-standing industry relationships.
Andrew M. Phillips, President & CEO / DirectorPreviously, President, CEO & Director of Home Quarter Resources (acquired by a public oil and gas company in 2014)Extensive experience in the oil & gas industry with past senior roles at Evolve Exploration, Profico Energy Management and Renaissance Energy
Cameron M. Proctor, Chief Operating OfficerPreviously, EVP, Chief Legal Officer and Director of Sinopec Canada and prior thereto VP, General Counsel and Corporate Secretary of Daylight Energy Former lawyer with Blake, Cassels & Graydon LLP
Pamela Kazeil, VP Finance & Chief Financial OfficerPreviously, EVP and Chief Financial Officer of Sinopec Canada and prior thereto VP, Finance of Daylight Energy Formerly VP Finance of Sword Energy Ltd. and held increasingly senior roles at its predecessor, Thunder Energy Trust, including VP Finance and CFO
Robert RobottiFounder and Chief Investment Officer Robotti & Company Advisors, LLCOn the board of directors of Pulse Seismic Inc., Panhandle Oil and Gas Inc. and AMREP Corporation
Grant A. ZawalskyManaging Partner of Burnet, Duckworth & Palmer LLP (Barristers and Solicitors) On the board of directors of a number of private and public companies , including NuVista Energy Ltd. and Whitecap Resources Inc.
47
Disclaimer & Cautionary Statements
Cautionary Statement on Forward Looking InformationThis presentation contains “forward looking information” and “forward looking statements” within the meaning of applicable securities laws, which may include, but are not limited to: statements with respectto future events or future performance; management’s expectations regarding PrairieSky’s growth and realization of future value from the Royalty Properties; results of operations of third parties active onthe Royalty Properties; expectations that the number of wells reported as on production in the current quarter will increase in the following quarter when data is updated; estimated future revenues; futuredividends and share buybacks; production estimates; costs and revenue; future demand for and prices of commodities; business prospects; future application of EOR schemes and other secondary andtertiary recovery methods to improve recovery factors on the Royalty Properties; expectations regarding downspacing and infill drilling; expectations regarding continued improvement in technology andapplication of new drilling and completion techniques, including application of horizontal drilling in areas otherwise largely delineated with vertical wells; expectations regarding ongoing and continued activitylevels on the Royalty Properties; estimated historical capital spent on the Royalty Properties and capital efficiencies related thereto, and future capital spend on the Royalty Properties; expectationsregarding new discoveries and the contribution to the reserves, production and financial results of the Company; expectations regarding historical and future optimization efforts on certain plays and theresulting effect on declines in production; PrairieSky’s ability to lease large amounts of land, and its corresponding ability to attract associated bonus consideration revenue and capital spent on the RoyaltyProperties; expectations that data from drilling activities will lead to exploitation of additional zones and substances that were not otherwise targeted; and expectations regarding the future development onthe Company’s lands, including the Duvernay and Clearwater land positions, including expectations that they will add significant growth to royalty revenue and production over time; and the prospectivity oflands that are not included in this presentation and the Company’s expectations regarding the same. Such forward looking statements reflect management’s current beliefs and are based on informationcurrently available to management. Often, but not always, forward looking statements can be identified by the use of words such as “plans”, “expects”, “is expected”, “budgets”, “scheduled”, “estimates”,“forecasts”, “predicts”, “projects”, “intends”, “targets”, “aims”, “anticipates” or “believes” or variations (including negative variations) of such words and phrases or may be identified by statements to theeffect that certain actions “may”, “could”, “should”, “would”, “might” or “will” be taken, occur or be achieved. Forward looking statements involve known and unknown risks, uncertainties and other factors,which may cause the actual results, performance or achievements of PrairieSky to be materially different from any future results, performance or achievements expressed or implied by the forward-lookingstatements. A number of factors could cause actual events or results to differ materially from any forward looking statement, including, without limitation: fluctuations in the prices of crude oil, natural gasand NGL that drive royalty revenue; changes in national, provincial and local government legislation and regulations, including permitting and licensing regimes and taxation policies and the enforcementthereof; regulatory and political or economic developments in any of the jurisdictions where properties in which PrairieSky holds a royalty interest are located; risks related to the operators of the propertiesin which PrairieSky holds a royalty interest, including changes in the ownership and control of such operators; influence of macroeconomic developments; business opportunities that become available to,or are pursued by PrairieSky; reduced access to debt and equity capital; litigation; title, permit or license disputes related to interests on any of the properties in which PrairieSky holds a royalty interest;excessive cost escalation as well as development, permitting, infrastructure, operating or technical difficulties on any of the properties in which PrairieSky holds a royalty interest; actual hydrocarbon contentmay differ from the reserves and resources contained in technical reports; rate and timing of production differences from resource estimates and other technical reports; risks and hazards associated withthe business of exploration and development on any of the properties in which PrairieSky holds a royalty interest, including, but not limited to unusual or unexpected geological conditions, natural disasters,terrorism, civil unrest or a political change; and the integration of acquired assets. The statements contained in presentation are based upon assumptions management believes to be reasonable, including,without limitation: the ongoing operation of the properties in which PrairieSky holds a royalty interest by the owners or operators of such properties in a manner consistent with good oilfield practices and allapplicable regulations; the availability of capital to such operators to further develop such properties; the accuracy of public statements and disclosures made by the operators on the Royalty Properties; nomaterial adverse change in the market price of the commodities that underlie the asset portfolio; no material changes to existing tax treatment; no adverse development in respect of any significant propertyin which PrairieSky holds a royalty interest; the accuracy of publicly disclosed expectations for the development of underlying properties that are not yet in production; integration of acquired assets; theaccuracy of assumptions and information used in PrairieSky’s internal assessments of its Royalty Properties and the prospectivity thereof, including with respect to acquired assets; and the absence of anyother factors that could cause actions, events or results to differ from those anticipated, estimated or intended. However, there can be no assurance that forward-looking statements will prove to beaccurate, as actual results and future events could differ materially from those anticipated in such statements and investors are cautioned that forward looking statements are not guarantees of futureperformance. PrairieSky cannot assure investors that actual results will be consistent with these forward-looking statements. Accordingly, investors should not place undue reliance on forward lookingstatements due to the inherent uncertainty therein. For additional information with respect to risks, uncertainties and assumptions, please refer to the “Risk Factors” section of our most recent AIF filed withthe Canadian securities regulatory authorities available at www.sedar.com and on our website at www.prairiesky.com. The forward-looking statements herein are made as of March 31, 2020 only andPrairieSky does not assume any obligation to update or revise them to reflect new information, estimates or opinions, future events or results or otherwise, except as required by applicable law.
Cautionary Statement Regarding Future-Oriented Financial InformationThis presentation also contains future-oriented financial information and financial outlook information (collectively, "FOFI") about our prospective results, funds from operations, future development of theRoyalty Properties, future drilling locations, future reserve additions and in each case values associated therewith, all of which are subject to the same assumptions, risk factors, limitations, andqualifications as set forth above. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to beimprecise and, as such, undue reliance should not be placed on FOFI and forward-looking statements. PrairieSky’s actual results, performance, realization or achievement of anticipated values could differmaterially from those expressed in, or implied by, these forward-looking statements and FOFI, or if any of them do so, what benefits PrairieSky will derive therefrom. PrairieSky has included the forward-looking statements and FOFI in this presentation in order to provide readers with a more complete perspective on PrairieSky’s future value proposition and future development potential and suchinformation may not be appropriate for other purposes. PrairieSky disclaims any intention or obligation to update or revise any forward-looking statements or FOFI, whether as a result of new information,future events or otherwise, except as required by law.
48
Other Disclosure
NON-GAAP MEASURESCertain measures in this presentation do not have any standardized meaning as prescribed by IFRS and therefore, are considerednon-GAPP measures. These measures may not be comparable to similar measures presented by other issuers. These measuresare commonly used in the oil and gas industry and by the Company to provide potential investors with additional informationregarding the Company’s liquidity and its ability to generate funds to finance its operations. This presentation includes thefollowing Non-GAAP measures: 1) Free Cash Flow which is defined as Funds from Operations, a GAAP measure used inPrairieSky’s unaudited interim condensed consolidated financial statements for the three-months ended March 31, 2020; 2)Operating Netback which is defined in PrairieSky’s management discussion & analysis for the three-months ended March 31,2020; and 3) Operating Margin which is PrairieSky’s royalty revenue less production and mineral taxes. This measure is used todemonstrate the comparability between PrairieSky and production and exploration companies in the crude oil and natural gasindustry as it shows the revenue generation from field operations. Further information on Non-GAAP measures can be found inPrairieSky Royalty’s management discussion & analysis and unaudited interim condensed consolidated financial statements andnotes thereto for the three-month period ended March 31, 2020, which are available on SEDAR at www.sedar.com or PrairieSkyRoyalty’s website at www.prairiesky.com.
CONVERSIONS OF NATURAL GAS TO BOETo provide a single unit of production for analytical purposes, natural gas production and reserves volumes are convertedmathematically to equivalent barrels of oil (boe). We use the industry-accepted standard conversion of six thousand cubic feet ofnatural gas to one barrel of oil (6 Mcf = 1 bbl). The 6:1 boe ratio is based on an energy equivalency conversion method primarilyapplicable at the burner tip. It does not represent a value equivalency at the wellhead and is not based on either energy content orcurrent prices. While the boe ratio is useful for comparative measures and observing trends, it does not accurately reflectindividual product values and might be misleading, particularly if used in isolation. As well, given that the value ratio, based on thecurrent price of crude oil to natural gas, is significantly different from the 6:1 energy equivalency ratio, using a 6:1 conversion ratiomay be misleading as an indication of value.
CURRENCY AND REFERENCES TO PRAIRIESKY ROYALTYAll information included in this presentation is shown on a Canadian dollar basis.For convenience, references in this document to the “Company”, “we”, “us”, “our”, and “its” may, where applicable, refer only toPrairieSky Royalty.
PRAIRIESKY ROYALTY LTD.
1700, 350 – 7 Avenue SWCalgary, AB T2P 3N9
T 587.293.4000E [email protected]
CONTACT INFORMATION
WWW.PRAIRIESKY.COM
