PrairieSky Royalty Ltd.
TSX : PSK

PrairieSky Royalty Ltd.

October 25, 2016 16:01 ET

PrairieSky Announces Third Quarter 2016 Results

CALGARY, ALBERTA--(Marketwired - Oct. 25, 2016) - PrairieSky Royalty Ltd. ("PrairieSky" or the "Company") (TSK:PSK) is pleased to announce its third quarter operating and financial results for the period ended September 30, 2016.

2016 Third Quarter Highlights:

  • Average production of 23,050 BOE per day, 46% liquids
  • Revenues of $59.3 million, including product revenues of $52.2 million and $5.6 million in lease issuance bonus consideration
  • Funds from Operations of $54.2 million or $0.24 per share
  • Cash administrative expenses of $2.45 per BOE, down 11% from Q2 2016 and 28% from Q3 2015
  • Maintained a strong balance sheet with $168.1 million of positive working capital and nil debt as of September 30, 2016
  • Dividends declared in the quarter of $41.1 million ($0.18 per share) resulting in a payout ratio of 76%

PRESIDENT'S MESSAGE

Q3 2016 was a strong quarter with PrairieSky focusing on its core strategy of leasing mineral title lands to crude oil and natural gas producers. During Q3 2016, PrairieSky entered into 29 leasing arrangements with 26 different counterparties across our extensive land base, collecting $5.6 million in lease issuance bonus consideration. For the nine month period ended September 30, 2016, PrairieSky entered into over 80 leasing arrangements with 57 different counterparties, establishing the foundation for future drilling activity on existing plays, as well as exploration targets with new discovery potential. During the quarter, over 200 wells were spud on PrairieSky lands, an increase from approximately 80 wells in Q2 2016 and approximately 100 wells in Q1 2016. Drilling and licensing activity was focused on the Viking light oil play in western Saskatchewan, as well as light oil plays in the Mannville in central Alberta, the Bakken in southern Alberta and Saskatchewan, and multiple liquids rich resource play targets in the Deep Basin including the Montney, Spirit River and Duvernay formations.

PrairieSky's ongoing cost optimization efforts were reflected in a quarter over quarter cash G&A reduction to $2.45 per BOE, down 11% from Q2 2016 and 28% from Q3 2015. In addition, PrairieSky's staff continued their focus on ensuring timely and accurate royalty payments, having collected $4.9 million in royalty compliance recoveries year to date.

Consistent with its long term strategy, PrairieSky continued to identify and execute on opportunities to expand its land and royalty portfolio to new and emerging plays. During Q3 2016, PrairieSky deployed $4.8 million in acquisition capital, acquiring royalty interests combined with a significant land position in two emerging heavy oil plays in Alberta, and consolidating a 100% working interest in certain seismic assets in Central Alberta. PrairieSky continues 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 remains committed to paying dividends and reducing the share count using internally generated free cash flow, while continuing to add cash on the balance sheet. During the quarter PrairieSky generated excess funds from operations after paying dividends of $41.1 million (Q3 2016 - $0.18 per common share) and approximately $10.1 million to acquire 390,500 common shares under PrairieSky's Normal Course Issuer Bid. PrairieSky maintained a strong balance sheet with $168.1 million of positive working capital, including $159.4 million of cash on hand at September 30, 2016.

I would like to thank our owners for their continued support. Please contact Pam Kazeil, our Chief Financial Officer, or myself 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 September 30, 2016 is available on SEDAR at www.sedar.com and PrairieSky's website at www.prairiesky.com.

FINANCIAL RESULTS

($ Millions, unless otherwise noted) Q3 2016 Q3 2015 YTD 2016 YTD 2015
FINANCIAL
Revenues $ 59.3 $ 44.0 $ 156.3 $ 170.2
Funds from Operations(1) 54.2 36.5 138.4 117.8
Per Share - basic(2) 0.24 0.23 0.61 0.78
Per Share - diluted(2) 0.24 0.23 0.60 0.78
Net Earnings (Loss) and Comprehensive Income (Loss) 7.9 14.1 3.9 55.0
Per Share - basic and diluted(2) 0.03 0.09 0.02 0.36
Dividends declared(3) 41.1 50.8 145.6 147.9
Per Share 0.1800 0.3250 0.6367 0.9750
Acquisitions including non-cash consideration 5.0 5.2 32.6 61.9
Working Capital 168.1 203.4 168.1 203.4
Shares Outstanding 228.4 156.3 228.4 156.3
Weighted average - basic 228.6 155.6 228.7 151.5
Weighted average - diluted 228.8 156.0 228.9 151.9
OPERATIONAL
Production Volumes
Natural Gas (MMcf/d) 74.8 59.5 73.6 60.5
Crude Oil (bbls/d) 8,278 4,800 8,413 5,502
NGL (bbls/d) 2,305 1,309 2,416 1,503
Total (BOE/d)(4) 23,050 16,026 23,096 17,088
Realized Pricing
Natural Gas ($/Mcf) $ 1.84 $ 2.76 $ 1.43 $ 2.75
Crude Oil ($/bbl) 45.79 54.38 41.52 50.14
NGL ($/bbl) 22.21 25.10 21.31 23.16
Total ($/BOE)(4) $ 24.62 $ 28.55 $ 21.90 $ 27.91
Operating Cash Flow Netback(1) $ 20.43 $ 23.80 $ 17.76 $ 22.13
Funds from Operations per BOE(1) $ 25.56 $ 24.76 $ 21.87 $ 25.25
Natural Gas Price Benchmarks
AECO ($/Mcf) $ 2.20 $ 2.75 $ 1.85 $ 2.79
Oil Price Benchmarks
West Texas Intermediate (WTI) (US$/bbl) $ 45.33 $ 46.94 $ 41.10 $ 50.92
Edmonton Light Sweet ($/bbl) $ 54.14 $ 57.95 $ 50.44 $ 58.58
(1) A non-GAAP measure which is defined under the Non-GAAP Measures section in the MD&A.
(2) Net Earnings (Loss) and Comprehensive Income (Loss) 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 September 15, 2016. The dividend was paid on October 17, 2016 to shareholders of record as at September 30, 2016.
(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 Wednesday, October 26, 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:

(866) 413-7174 (toll free in North America)

(647) 427-2293 (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, and potential business development and acquisition opportunities.

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. 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 BOE

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.

NON-GAAP MEASURES

Certain measures in this document and PrairieSky's MD&A do not have any standardized meaning as prescribed by International Financial Reporting Standards ("IFRS") and, therefore, are considered non-GAAP measures. Non-GAAP measures are commonly used in the oil and gas industry and by PrairieSky to provide potential investors with additional information regarding the Company's liquidity and its ability to generate funds to conduct its business. Further information can be found in the Non-GAAP Measures section of PrairieSky's MD&A, including a reconciliation of Cash from Operating Activities to Funds from Operations.

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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