U.S. Markets open in 1 hr 39 mins

Edited Transcript of PSK.TO earnings conference call or presentation 25-Apr-17 12:30pm GMT

Thomson Reuters StreetEvents

Q1 2017 PrairieSky Royalty Ltd Earnings Call

Calgary Apr 25, 2017 (Thomson StreetEvents) -- Edited Transcript of PrairieSky Royalty Ltd earnings conference call or presentation Tuesday, April 25, 2017 at 12:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Andrew M. Phillips

PrairieSky Royalty Ltd. - CEO, President and Non-Independent Director

* Pamela P. Kazeil

PrairieSky Royalty Ltd. - CFO and VP of Finance

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning. My name is Chris, and I will be your conference operator today. At this time, I would like to welcome everyone to the PrairieSky Royalty announces their first quarter 2017 financial results conference call. (Operator Instructions) Thank you.

Andrew Phillips, President and Chief Executive Officer, you may begin your conference.

--------------------------------------------------------------------------------

Andrew M. Phillips, PrairieSky Royalty Ltd. - CEO, President and Non-Independent Director [2]

--------------------------------------------------------------------------------

Thank you, Chris. Good morning, and thank you for dialing into the PrairieSky Royalty Q1 2017 Earnings Call. On the call from PrairieSky are Pam Kazeil, Chief Financial Officer; Cam Proctor, Chief Operating Officer; and myself, CEO, Andrew Phillips. Before I turn the call over to Pam to walk through the financials, I will provide an operational update.

Average royalty production for the quarter totaled 26,812 barrels. The increase from Q4 2016 volumes of 23,979 barrels is from the full contribution of the 1,000 barrels of thermal oil royalty production from Onion Lake and Lindbergh as well as organic additions from an active Q3, Q4 2016 drilling program on PrairieSky lands.

More important than total production, production per share increased to 113 barrels per 1 million shares from just over 100 barrels per 1 million shares in 2016. In addition, production was 49% oil and liquids in Q1, up from 46% in 2016 and 40% at the time of the IPO. On a cautionary note, the organic volume guided in Q1 will have a significantly higher decline than our existing base production.

Our free cash flow for the quarter totaled $67 million. Of this total, $43 million was paid in dividend, $10 million used to cancel shares and the remaining $14 million built on the balance sheet. This resulted in our positive working capital building to just under $100 million.

On the cost front, cash G&A was $3.32 a barrel, up from $2.22 a barrel in the previous quarter. This is a result of the partial vesting of LTI grants from 2015 and '16 for all 65 employees. The 2014 IPO grant will [ click back ] in Q2, following which we expect this trend to go back to low $3 per barrel in the second half of the year. Our goal remains to bring long-term cash G&A per barrel to the low $2 range on a sustained basis. This will be achieved by finding further efficiencies in the business as well as organic production growth.

The total diluted and outstanding at PrairieSky, including employees, executives and board are less than 1% of the shares outstanding.

Acquisitions for the quarter, not including Lindbergh, totaled $4.6 million. We now have a 1% gross overriding royalty on 46 sections of undeveloped Montney acreage directly offsetting PETRONAS and Shell in northeast British Columbia. PrairieSky also acquired land on a title of resource opportunity under one of our land fund arrangement.

The compliance group at PrairieSky collected $2 million over the quarter and continues to return land to our inventory for future leasing. Organic leasing, the most important part of our business, remained strong with 36 new leasing arrangements with 33 different operators. One trend observed over the quarter was more leasing in the deeper [ West 4 ] and [ West 5 ] areas of Alberta with emphasis on the Manville liquids-rich gas and light-oil plays as well as further Duvernay leasing. 185 wells were spud on our lands in Q1, up from 100 in Q1 of 2016 and 140 in Q4 of 2016. This activity increase is consistent with increases in overall industry activity in rig count.

We look forward to issuing playbook on May 24 in Toronto at the Royal York hotel. In attendance will be 9 individuals from PrairieSky, including 3 directors. So it will be a unique opportunity to learn a little more about the assets, future cash flow generation of the business, strategy and those that work hard at implementing it.

I will now turn the call over to Pam to discuss the financial results.

--------------------------------------------------------------------------------

Pamela P. Kazeil, PrairieSky Royalty Ltd. - CFO and VP of Finance [3]

--------------------------------------------------------------------------------

Thank you, Andrew. Good morning, everyone. PrairieSky generated funds from operations of $67.3 million or $0.28 per share in the first quarter. This is up 9% from Q4 2016 funds from operations due to increased production, improved NGL pricing and higher lease bonus consideration in the period. Average daily production for the quarter was 26,812 BOE per day. Production was comprised of natural gas volumes of 81.6 million a day, oil volumes at 10,214 barrels a day and NGL volumes of 2,998 barrels a day.

Production volumes were up during the quarter as a result of active drilling at PrairieSky lands combined with the addition of a full quarter of thermal oil royalties at Lindbergh and Onion Lake. PrairieSky production volumes included 1,788 BOE a day from compliance activity and 926 BOE a day of other prior period adjustments related to new wells on stream and better well performance.

Q1 2017 product revenue totaled $73.5 million, which was 77% liquids. Product revenue was positively impacted by increased production and improved NGL pricing in the quarter. The compliance group identified and collected $2 million in missed or incorrect payments. These compliance amounts are included in product revenue. Other revenue for the quarter was $6.8 million, which included lease rental income of $2.5 million and bonus consideration of $3 million related to entering into 36 new leases with 33 different counterparties in the period.

Administrative expenses in the quarter totaled $5.6 million or $2.32 per BOE. Cash administrative costs were $8 million or $3.32 per BOE due to the long-term incentive payments in the quarter. In 2017, PrairieSky expect the cash G&A to be in the low $3 per BOE range.

PrairieSky declared dividends of $43.2 million in the quarter, with a resulting payout ratio of 64%. Under the normal course issuer bid, PrairieSky repurchased 335,200 common shares for $10.1 million. Since instituting the normal course issuer bid in May 2016, PrairieSky has repurchased over 1.3 million common shares for approximately $38 million. PrairieSky intends to extend its normal course issuer bid and allocate up to $44 million over the next 12 months to repurchasing [ canceled ] shares.

At March 31, 2017, PrairieSky had positive working capital of $97.6 million, including cash of $92.4 million and no debt.

We will now turn it over to the moderator to proceed with the Q&A.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) There are no questions at this time. I will turn the call to our presenters.

--------------------------------------------------------------------------------

Andrew M. Phillips, PrairieSky Royalty Ltd. - CEO, President and Non-Independent Director [2]

--------------------------------------------------------------------------------

Thank you all very much for calling in and your continued support as shareholders. And if you have any further questions, please call Pam or myself at (587) 293-4005. Thank you.

--------------------------------------------------------------------------------

Operator [3]

--------------------------------------------------------------------------------

This concludes today's conference call. You may now disconnect.