PrairieSky Royalty Ltd.
TSX : PSK

PrairieSky Royalty Ltd.

April 26, 2016 16:14 ET

PrairieSky Announces First Quarter 2016 Results and Initiation of a Normal Course Issuer Bid

CALGARY, ALBERTA--(Marketwired - April 26, 2016) -

PrairieSky Royalty Ltd. ("PrairieSky" or the "Company") (TSX:PSK) is pleased to announce its first quarter operating and financial results for the period ended March 31, 2016 and initiation of a normal course issuer bid.

2016 First Quarter Highlights:

  • Average production of 23,081 BOE per day, 49% liquids

  • Funds from Operations of $41.4 million or $0.18 per share, basic and diluted

  • Revenues of $48.9 million including $43.2 million of Royalty Revenue and a Funds from Operations per BOE of $19.71

  • Leased land for new and existing plays, collecting $1.8 million in lease issuance bonus consideration

  • Maintained a strong balance sheet with $201.3 million of positive working capital, including $182.7 million of cash on hand and nil debt as of March 31, 2016

PRESIDENT'S MESSAGE

PrairieSky continues to execute on its strategy of delivering strong, risk adjusted returns to its shareholders through the leasing of undeveloped land while focusing on cost controls in our business. Despite the challenging commodity price environment, it was an active quarter on PrairieSky's land base with over 100 wells spud or rig released, primarily focused on the Viking light oil play in Western Saskatchewan and the multi-zone Deep Basin fairway of Alberta and British Columbia. In addition, we continue to see leasing interest from new and existing lessees with recent leasing activity from 21 different producers on our fee lands during the quarter. Our large undeveloped land position, low cost structure and high margin royalty production continues to deliver strong funds flow and growth opportunities with no capital requirements.

PrairieSky has maintained a strong balance sheet with $201.3 million of positive working capital, and no debt, as of March 31, 2016. During the quarter, PrairieSky suspended its Dividend Reinvestment Plan ("DRIP") and Stock Dividend Program ("SDP") and set its annual dividend at $0.72 per share per annum, in each case effective for the March 2016 dividend payable on April 15, 2016. This adjustment reflects PrairieSky's commitment to paying dividends out of internally generated free cash flow, without the dilution of the DRIP/SDP, while continuing to add cash on the balance sheet.

PrairieSky completed an additional $2.7 million of complementary acquisitions during Q1 2016 using cash on hand, adding additional fee title lands and gross overriding royalty interests to its portfolio. We continue to see quality acquisition opportunities including small and medium sized potential transactions, and will remain selective and disciplined in our evaluation of new royalty opportunities.

PrairieSky is pleased to announce that the board of directors has authorized management to apply for and initiate a normal course issuer bid ("NCIB"), subject to regulatory approval of the Toronto Stock Exchange ("TSX"). PrairieSky currently intends to allocate up to $40 million over the next 12 months (approximately $3.3 million per month), net of regular monthly dividend payments, to repurchase common shares. PrairieSky has an unparalleled royalty land position in Canada with over 14.7 million acres, including over 7.7 million acres of fee simple mineral title. Management believes a normal course issuer bid provides an opportunity to use excess cash resources to reduce PrairieSky's share count over time, representing an investment in PrairieSky's high quality asset base and enhancing value for remaining shareholders.

Andrew Phillips, President & CEO

FINANCIAL AND OPERATIONAL INFORMATION

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

FINANCIAL RESULTS

($ Millions, except per share or as otherwise noted) Three months ended March 31, 2016 Three months ended March 31, 2015
FINANCIAL
Revenues $ 48.9 $ 54.4
Funds from Operations(1) 41.4 37.7
Per Share - basic and diluted (2) 0.18 0.25
Net Earnings and Comprehensive Income 1.7 16.8
Per Share - basic and diluted(2) 0.01 0.11
Dividends declared(3) 63.3 48.5
Per Share 0.2767 0.3250
Acquisitions including non-cash consideration 2.7 4.5
Working Capital 201.3 56.9
Shares Outstanding 229.0 149.3
Weighted average - basic 228.6 149.3
Weighted average - diluted 228.8 149.3
OPERATIONAL
Production Volumes
Natural Gas (MMcf/d) 70.7 62.5
Crude Oil (bbls/d) 8,748 5,968
NGL (bbls/d) 2,550 1,666
Total (BOE/d)(4) 23,081 18,051
Realized Pricing
Natural Gas ($/Mcf) $ 1.80 $ 2.96
Crude Oil ($/bbl) 34.16 43.34
NGL ($/bbl) 19.09 24.26
Total ($/BOE)(4) $ 20.56 $ 26.83
Operating Netback per BOE(1) $ 15.66 $ 20.85
Funds from Operations per BOE(1) $ 19.71 $ 23.20
Natural Gas Price Benchmarks
AECO ($/Mcf) $ 2.11 $ 2.95
Oil Price Benchmarks
West Texas Intermediate (WTI) (US$/bbl) 32.34 48.40
Edmonton Light Sweet ($/bbl) 42.18 51.09
(1) A Non-GAAP measure which is defined under the Non-GAAP Measures section in PrairieSky's 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 $0.06 per common share was declared on March 17, 2016. The dividend was paid on April 15, 2016 to shareholders of record as at March 31, 2016.
(4) See "Conversions of Natural Gas to BOE".

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 March 31, 2016 is available on SEDAR at www.sedar.com and PrairieSky's website at www.prairiesky.com.

NORMAL COURSE ISSUER BID

PrairieSky intends to apply for and initiate a NCIB to repurchase up to $40 million of common shares (approximately $3.3 million per month) over the next 12 months. The NCIB has been approved by the Company's board of directors; however, it is subject to acceptance by the TSX and, if accepted, will be made in accordance with the applicable rules and policies of the TSX and applicable securities laws. Under the NCIB, common shares may be repurchased in open market transactions on the TSX, and/or other Canadian exchanges, or by such other means as may be permitted by the TSX and applicable securities laws. The price that PrairieSky will pay for common shares in open market transactions will be the market price at the time of purchase. Common shares acquired under the NCIB will be cancelled.

PrairieSky will file a Notice to Make a NCIB to purchase up to 1,600,000 currently issued and outstanding common shares, representing approximately 1% of the public float of 151,509,248 common shares. In accordance with the rules of the TSX governing normal course issuer bids, the total number of common shares the Company is permitted to purchase is subject to a daily purchase limit of 243,509 common shares, representing 25% of the average daily trading volume of common shares on the TSX calculated for the six-month period ended March 31, 2016, provided, however, that the Company may make one block purchase per calendar week which exceeds the daily repurchase restriction. The NCIB is expected to commence shortly after regulatory approvals are obtained. Common shares may be repurchased under the program over a period of up to one year. The Company has not bought back any of its securities since inception.

PrairieSky will be entering into an automatic purchase plan with its broker in order to facilitate purchases of its common shares. The automatic purchase plan allows for purchases by the Company of its common share at any time, including, without limitation, when the Company would ordinarily not be permitted to make purchases due to regulatory restriction or self-imposed blackout periods. Purchases will be made by PrairieSky's broker based upon the parameters prescribed by the TSX and the terms of the parties' written agreement.

PrairieSky believes establishing the NCIB as part of its capital management strategy is in the best interests of the Company and represents an attractive opportunity to use cash resources, net of regular dividend payments, to reduce PrairieSky's share count over time and thereby enhance the value of the shares held by remaining shareholders. The Board currently intends to evaluate the NCIB, and the level of purchases thereunder, on an annual basis in conjunction with PrairieSky's annual dividend review. The next regularly scheduled dividend review will be in February 2017.

While PrairieSky currently intends to only use $40 million to effect NCIB purchases over the next 12 months, the Company's board of directors may consider, from time to time, applying to the TSX to increase the amount of NCIB purchases. Decisions regarding increases to the NCIB will be based on market conditions, share price, best use of funds from operations, and other factors including other options to expand our portfolio of royalty assets.

CONFERENCE CALL DETAILS

A conference call to discuss the results will be held for the investment community on Wednesday, April 27, 2016 beginning at 6:30 a.m. MT (8:30 a.m. ET). To participate in the conference call, approximately 10 minutes prior to the conference call, please dial:

(877) 291-4570 (toll-free in North America)
(647) 788-4919 (Toronto & International)

FORWARD-LOOKING STATEMENTS

This press release includes certain statements regarding PrairieSky's future plans and operations and contains forward-looking statements that we believe allow readers to better understand our business and prospects. The use of any of the words "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends", "strategy" and similar expressions are intended to identify forward-looking information or statements. Forward-looking statements contained in this press release include our expectations with respect to PrairieSky's business and growth strategy, additional land leasing activities, potential business development and acquisition opportunities and PrairieSky's initiation of a normal course issuer bid and the volume and value of repurchases under the normal course issuer bid.

With respect to forward-looking statements contained in this press release, we have made several assumptions including those described in detail in our MD&A and the Annual Information Form for the period ended December 31, 2015. Readers and investors are cautioned that the assumptions used in the preparation of such forward-looking information and statements, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. Our actual results, performance, or achievements could differ materially from those expressed in, or implied by, these forward-looking statements. We can give no assurance that any of the events anticipated will transpire or occur, or if any of them do, what benefits we will derive from them.

By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond our control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, lack of pipeline capacity, currency fluctuations, imprecision of reserve estimates, royalties, environmental risks, taxation, regulation, changes in tax or other legislation, competition from other industry participants, the lack of availability of qualified personnel or management, stock market volatility, and our ability to access sufficient capital from internal and external sources. In addition, PrairieSky is subject to numerous risks and uncertainties in relation to acquisitions. These risks and uncertainties include risks relating to the potential for disputes to arise with counterparties, and limited ability to recover indemnification under certain agreements. PrairieSky is subject to numerous risks and uncertainties in relation to its initiation of a normal course issuer bid. These risks and uncertainties include risks relating to failure to obtain TSX and other required approvals in connection with the normal course issuer bid and failure to execute the volume and/or value of purchases as described under the normal course issuer bid. The foregoing and other risks are described in more detail in PrairieSky's MD&A, and the Annual Information Form for the period ended December 31, 2015 under the headings "Risk Management" and "Risk Factors", respectively, each of which is available at www.sedar.com.

Further, any forward-looking statement is made only as of the date of this press release, and PrairieSky undertakes no obligation to update or revise any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events, except as required by applicable securities laws. New factors emerge from time to time, and it is not possible for PrairieSky to predict all of these factors or to assess in advance the impact of each such factor on PrairieSky's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

The forward-looking information contained in this document is expressly qualified by this cautionary statement.

CONVERSIONS OF NATURAL GAS TO BARRELS OF OIL EQUIVALENT

To provide a single unit of production for analytical purposes, natural gas production and reserves volumes are converted mathematically to equivalent barrels of oil (BOE). PrairieSky uses the industry-accepted standard conversion of six thousand cubic feet of natural gas to one barrel of oil (6 Mcf = 1 bbl). The 6:1 BOE ratio is based on an energy equivalency conversion method primarily applicable at the burner tip. It does not represent a value equivalency at the wellhead and is not based on either energy content or current prices. While the BOE ratio is useful for comparative measures and observing trends, it does not accurately reflect individual product values and might be misleading, particularly if used in isolation. As well, given that the value ratio, based on the current price of crude oil to natural gas, is significantly different from the 6:1 energy equivalency ratio, using a 6:1 conversion ratio may be misleading as an indication of value.

ABOUT PRAIRIESKY ROYALTY LTD.

PrairieSky is a royalty-focused company, generating royalty revenues as petroleum and natural gas are produced from its properties. PrairieSky has a diverse portfolio of properties that have a long history of generating free cash flow and that represent the largest and most concentrated independently-owned fee simple mineral title position in Canada. PrairieSky's common shares trade on the Toronto Stock Exchange under the symbol PSK.

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