PrairieSky Announces 2019 Second Quarter Results

July 22, 2019 Globe Newswire

CALGARY, Alberta, July 22, 2019 (GLOBE NEWSWIRE) — PrairieSky Royalty Ltd. (“PrairieSky” or the “Company“) (TSX: PSK) is pleased to announce its second quarter (“Q2 2019“) operating and financial results for the period ended June 30, 2019.

PRESIDENT’S MESSAGE

Second Quarter 2019 Highlights:

Funds from Operations totaled $58.0 million ($0.25 per common share basic and $0.24 per common share diluted), consistent with Q1 2019 funds from operations of $57.8 million ($0.25 per common share basic and diluted).
Revenues totaled $69.3 million, comprised of royalty production revenues of $63.1 million and other revenues of $6.2 million for the second quarter.
Royalty production averaged 22,297 BOE per day (51% liquids), up 290 BOE per day from Q1 2019.
Operating netback of $27.21 per BOE, down from $29.49 per BOE in Q1 2019.
Dividends declared in the second quarter of $45.6 million ($0.1950 per share), representing a payout ratio of 79%, and common share repurchases of $5.7 million under the normal course issuer bid (“NCIB“).

PrairieSky’s high margin, low cost royalty structure continued to deliver stable cash flow during Q2 2019 generating $58.0 million which was consistent with Q1 2019 cash flow of $57.8 million. Cash flow was used to pay $45.6 million in dividends, cancel 0.4 million common shares for $5.7 million, with the remaining $6.7 million being used for minor royalty acquisitions and to reduce our working capital deficiency by 66% from March 31, 2019, to $2.1 million as at June 30, 2019.

Spring break-up, a challenging commodity price environment and Alberta production curtailments contributed to lower capital expenditures than in the prior year across Western Canada. Royalty production volumes of 22,297 BOE per day increased by 290 BOE per day from Q1 2019 as total oil and NGL royalty production remained stable and natural gas production increased. Royalty production revenue totaled $63.1 million in the quarter. Average oil royalty production volumes of 8,740 bbls per day, down 164 bbls per day from Q1 2019, generated revenue of $52.1 million, an increase of 13% from Q1 2019 due to stronger average WTI pricing and narrowed average differentials for both light and heavy oil. Average NGL royalty production volumes of 2,690 bbls per day, up 104 bbls per day from Q1 2019, were offset by lower NGL benchmark pricing resulting in $6.5 million of royalty production revenue, a decline of 29% from Q1 2019. Average natural gas production volumes of 65.2 MMcf per day, up 2.1 MMcf per day from Q1 2019, generated $4.5 million of revenue, down 59% from Q1 2019 due to lower benchmark pricing.

Other revenue added $6.2 million of cash flow during the quarter with $1.5 million generated in lease rentals, $0.4 million generated from other income, and $4.3 million generated from bonus consideration. PrairieSky entered into 42 new leasing transactions with 37 different counterparties during the quarter, a substantial increase compared to Q1 2019. Leasing continued to be focused on crude oil targets across Alberta and Saskatchewan.

There were 112 wells (88% oil) spud on PrairieSky lands, down from 168 wells (96% oil) spud in Q2 2018. There were 50 wells spud on Fee Lands (Q2 2018 – 46 wells), 50 wells spud on GORR lands (Q2 2018 – 78 wells) and 12 wells spud on unitized lands (Q2 2018 – 44 wells).

The average net royalty rate of wells spud in the quarter was approximately 9.2%, up from Q1 2019 and Q2 2018 when the average net royalty rate was approximately 6%. This is primarily due to a higher percentage of activity on Fee Lands. Activity levels were focused on the Viking play in both Saskatchewan and Alberta with 75 wells being spud in Q2 2019. In addition, there were 4 Montney oil wells, 3 Duvernay oil wells, 1 Clearwater oil well and 16 other heavy and light oil wells spud in Q2 2019, targeting a number of different plays including the Mannville and Mississippian. There were 13 natural gas wells spud in the quarter, including 9 in the liquids rich Montney in the Pipestone area. After reviewing the budgets of our top drillers, we anticipate that over the next 12 months, close to 10% of drilling activity will be focused on the Clearwater oil play that was acquired less than two years ago.

PrairieSky remains focused on cost control in its business. Cash administrative expenses totaled $2.41 per BOE in the quarter, lower by 37% compared to Q1 2019 and 15% compared to Q2 2018. PrairieSky anticipates cash administrative expenses for the year will be below $3.00 per BOE. PrairieSky’s staff continued their focus on ensuring timely and accurate royalty payments, collecting compliance recoveries totaling $2.0 million in the quarter bringing year to date compliance recoveries to $3.8 million. During the quarter, the Alberta provincial government announced a reduction of the corporate tax rate to 11% effective July 1, 2019, and further reductions of 1% per year effective January 1, 2020, 2021 and 2022 to bring the rate to 8%. This change reduced the deferred tax liability by $24.4 million and will positively impact future cash flows.

I would like to thank our shareholders for your continued support and our dedicated staff for their continued efforts. Please contact Pam Kazeil, our Chief Financial Officer, at 587-293-4089 or myself at 587-293-4005 with any questions.

Andrew Phillips, President & CEO

FINANCIAL AND OPERATIONAL INFORMATION

The following table summarizes selected operational and financial information of the Company for the periods noted. All dollar amounts are stated in Canadian dollars unless otherwise noted.

A full version of PrairieSky’s Management’s Discussion and Analysis (“MD&A“) and unaudited interim condensed financial statements and notes thereto for the fiscal period ended June 30, 2019 is available on SEDAR at www.sedar.com and PrairieSky’s website at www.prairiesky.com.

FINANCIAL RESULTS

	Three months ended June 30,						Six months ended June 30 ,
(millions, except per share or as otherwise noted)		2019			2018			2019			2018
FINANCIAL
Revenues	$	69.3		$	76.2		$	142.5		$	144.1

Funds from Operations		58.0			62.4			115.8			114.2
Per Share – basic⁽¹⁾⁽²⁾		0.25			0.27			0.50			0.48
Per Share – diluted⁽¹⁾⁽²⁾		0.24			0.26			0.49			0.48

Net Earnings and Comprehensive Income		44.0			25.1			70.4			44.9
Per Share – basic and diluted⁽²⁾		0.19			0.11			0.30			0.19

Dividends declared⁽³⁾		45.6			45.9			91.2			90.6
Per Share		0.1950			0.1950			0.3900			0.3850

Acquisitions		1.0			4.2			2.6			25.4
Working Capital (Deficiency) at period end		(2.1	)		21.1			(2.1	)		21.1

Shares Outstanding (millions)
Shares outstanding at period end		233.5			235.2			233.5			235.2
Weighted average – basic		233.7			235.4			233.9			235.5
Weighted average – diluted		234.0			235.7			234.1			235.8

OPERATIONAL Royalty Production Volumes
Crude Oil (bbls/d)		8,740			9,098			8,822			8,916
NGL (bbls/d)		2,690			2,279			2,638			2,333
Natural Gas (MMcf/d)		65.2			69.4			64.2			71.9
Total (BOE/d)⁽⁴⁾		22,297			22,944			22,160			23,232

Realized Pricing
Crude Oil ($/bbl)	$	65.48		$	68.92		$	61.60		$	62.80
NGL ($/bbl)		26.64			37.44			32.67			40.18
Natural Gas ($/Mcf)		0.74			0.83			1.34			1.22
Total ($/BOE)⁽⁴⁾	$	31.10		$	33.57		$	32.31		$	31.91

Operating Netback per BOE⁽¹⁾	$	27.21		$	30.22		$	28.32		$	28.61

Funds from Operations per BOE	$	28.59		$	29.89		$	28.87		$	27.16

Natural Gas Price Benchmarks
AECO monthly index ($/Mcf)	$	1.17		$	1.03		$	1.56		$	1.44
AECO daily index ($/Mcf)	$	1.04		$	1.19		$	1.83		$	1.63

Foreign Exchange Rate (US$/CAD$)		0.7476			0.7717			0.7505			0.7811

Oil Price Benchmarks
WTI (US$/bbl)	$	59.56		$	67.31		$	57.05		$	65.03
Edmonton Light Sweet ($/bbl)	$	73.73		$	77.79		$	70.13		$	74.78
Western Canadian Select (WCS) crude oil differential to WTI (US$/bbl)	$	(10.67	)	$	(19.27	)	$	(11.48	)	$	(21.77	)

(1) A non-GAAP measure which is defined under the Non-GAAP Measures section in the MD&A.
(2) Net Earnings and Comprehensive Income and Funds from Operations per Common Share are calculated using the weighted average number of common shares outstanding.
(3) A dividend of $0.065 per common share was declared on June 10, 2019. The dividend was paid on July 15, 2019 to shareholders of record as at June 28, 2019.
(4) See “Conversions of Natural Gas to BOE”.

CONFERENCE CALL DETAILS

A conference call to discuss the results will be held for the investment community on Tuesday, July 23, 2019 beginning at 6:30 a.m. MDT (8:30 a.m. EDT). To participate in the conference call, approximately 10 minutes prior to the conference call, please dial: