Freehold Royalties (FRU) Q3 2024 earnings summary

Executive summary

• Q3-2024 featured strong oil-weighted production growth, with total production averaging 14,608 boe/d and U.S. production near record levels at 5,533 boe/d, offsetting Canadian declines.

• Net income for Q3-2024 was $25.0 million, down 41% year-over-year, as lower commodity prices and higher debt offset U.S. asset growth.

• The company maintains a high-margin, oil-focused business model with an 85% operating margin YTD 2024 and a nearly 8% dividend yield.

• U.S. acquisitions and robust drilling activity contributed to diversified North American growth and premium realized pricing.

• Investor Day and updated asset book scheduled for December 3, 2024.

Financial highlights

• Q3-2024 funds from operations were C$56 million, down from C$65 million in Q3-2023.

• Netback was C$47.78/boe in Q3-2024, down 14% year-over-year.

• Net debt at quarter-end was C$187 million, representing 0.8x trailing funds from operations.

• Dividend payout ratio was 73% in Q3-2024, with $41 million paid and an annualized yield near 8%.

• Royalty and other revenue for Q3-2024 was $73.9 million, down 12% year-over-year due to lower realized prices.

Outlook and guidance

• 2024 production guidance is 14,700–15,700 boe/d, weighted 64% oil/NGLs and 36% natural gas.

• WTI crude oil price assumption for 2024 is US$75/bbl; AECO natural gas C$1.50/mcf.

• Dividend expected to remain sustainable even at materially lower commodity prices.

• U.S. inventory of 503 gross drilled and uncompleted wells and 387 permitted wells supports continued activity into 2025.

• Management anticipates continued robust drilling activity in both Canada and the U.S., subject to commodity pricing.