PrairieSky Royalty Ltd.
TSX : PSK

PrairieSky Royalty Ltd.

February 23, 2015 16:37 ET

PrairieSky Royalty Announces 2014 Fourth Quarter and Year End Results; Maintains Dividend

(All figures are in Canadian dollars)

CALGARY, ALBERTA--(Marketwired - Feb. 23, 2015) - PrairieSky Royalty Ltd. ("PrairieSky" or the "Company") (TSX:PSK) is pleased to announce its operating and financial results for the fourth quarter of 2014 and the 219 day period from commencement of operations on May 27, 2014 to December 31, 2014. In addition, PrairieSky announces that it will maintain its current dividend level of $1.30 per share per annum.

Highlights:

  • Acquired Range Royalty on December 19, 2014, adding 3.5 million acres of high quality royalty lands and associated production in some of Western Canada's most economic resource plays

  • Built $69.0 million of positive working capital in the first 219 days of operations, with no bank debt at December 31, 2014

  • Reported average fourth quarter production of 17,280 boe/d, with average production of 16,249boe/d over the first 219 days of operations

  • Recorded fourth quarter Funds From Operations of $59.0 million, and $158.7 million over the first 219 days of operations

  • Captured compliance revenue of $3.8 million in Q4, and $12.6 million over the first 219 days of operations

PRESIDENT'S MESSAGE

Since the Company's successful IPO in late May 2014, we have actively marketed our Fee Lands and have seen significant leasing interest and increased drilling commitments on the acreage, with $7.1 million in lease issuance bonuses collected in the first 219 days of operations. In addition, drilling activity increased on the land base with spud activity up 64% in the fourth quarter of 2014 versus the fourth quarter of 2013. For the full year 2014, we estimate that approximately $508 million of third party capital was spent drilling and completing new wells on PrairieSky's lands (excluding Range Royalty lands), representing an increase of approximately 35% over estimated 2013 capital spending.

In late December 2014, PrairieSky completed the acquisition of Range Royalty, a leading private oil and natural gas royalty company. This acquisition added approximately 3.5 million acres of complimentary royalty lands, including a strategic footprint in the Viking light oil play in western Saskatchewan, and exposure to royalty interests in the Wilrich and the Duvernay in west central Alberta. We estimate that approximately $320 million of third party capital was spent drilling and completing new wells on the Range Royalty lands in 2014.

During the 2014 fiscal period, we captured compliance revenue of $12.6 million. Compliance revenue will fluctuate but our continued focus on ensuring accurate and timely royalty payments is expected to result in incremental collections in 2015.

The Company is committed to maintaining a strong balance sheet and remains focused on adding value for our shareholders through all commodity cycles. While the current downturn in commodity prices has presented challenges for industry generally, our low cost structure and high margin royalty production continues to deliver strong funds flow with no capital requirements. Given PrairieSky's strong financial position, the Board of Directors has maintained the current dividend level at $1.30 per share (annualized).

I look forward to an active and successful 2015.

DIVIDEND MAINTAINED AT $1.30 PER SHARE

PrairieSky will maintain its current dividend level of $1.30 per share per annum. The Board of Directors considers a number of factors in determining the dividend level, including current and projected activity levels on PrairieSky's royalty lands, the current commodity price environment and the working capital balance and earnings of the Company. The next regularly scheduled dividend review will be in February 2016.

FOURTH QUARTER HIGHLIGHTS:

  • Completed the $625 million acquisition of Range Royalty LP, adding 3.5 million acres of high quality royalty lands with exposure to multiple resource plays across Western Canada including the Viking light oil play in western Saskatchewan, the Wilrich and the Duvernay in west central Alberta.
  • Quarterly production of 17,280 boe/d (35% crude oil, 8% NGLs and 57% natural gas).
  • Funds from Operations of $59.0 million or $0.44 per share (basic and diluted).
  • Declared dividends of $43.2 million or $0.3174 per share
  • Collected compliance revenue of $3.8 million.
  • As at December 31, 2014 working capital was $69.0 million, including cash and cash equivalents of $63.1 million, and nil debt.

2014 HIGHLIGHTS (MAY 27, 2014 TO DECEMBER 31, 2014):

  • Recorded production volumes of 16,249boe/d (40% crude oil, 9% NGLs and 51% natural gas).
  • Funds from Operations of $158.7 million or $2.04 per share (basic and diluted).
  • Declared dividends of $98.3 million or $0.74 per share.
  • Collected compliance revenue of $12.6 million.
  • Received $7.1 million in lease issuance bonuses from new leasing activity.

FINANCIAL AND OPERATIONAL INFORMATION

The following table summarizes selected operational and financial information of the Corporation 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 Audited Financial Statements and Notes for the fiscal period ended December 31, 2014 is available on SEDAR at www.sedar.com and PrairieSky's website at www.prairiesky.com.

($ millions, unless otherwise noted) Q2 2014 Q3 2014 Q4 2014 For the period
May 27, 2014 to
December 31,
2014
Revenues $ 37.7 $ 91.4 $ 69.6 $ 198.7
Funds from Operations(1) 31.0 68.7 59.0 158.7
Per Share - basic and diluted(2) 0.66 0.53 0.44 2.04
Adjusted Per Share - basic and diluted(1) 0.24 0.53 0.44 1.22
Net Earnings and Comprehensive Income 24.4 61.2 50.7 136.3
Per Share - basic and diluted(2) 0.52 0.47 0.38 1.75
Adjusted Per Share - basic and diluted(1) 0.19 0.47 0.38 1.05
Dividends(3) 13.8 41.3 43.2 98.3
Per Share 0.1058 0.3174 0.3174 0.7406
Total Assets 339.7 380.0 1,120.1 1,120.1
Shares Outstanding
Weighted average - basic 47.1 130.0 132.5 77.9
Weighted average - diluted 47.3 130.1 132.6 78.0
Production Volumes
Natural Gas (MMcf/d) 42.9 44.1 58.6 50.0
Crude Oil (bbls/d) 6,931 6,599 6,069 6,429
NGL (bbls/d) 1,582 1,493 1,444 1,487
Total (BOE/d)(4) 15,664 15,448 17,280 16,249
Realized Pricing
Natural Gas ($/Mcf) $ 4.51 $ 4.94 $ 3.68 $ 4.26
Crude Oil ($/bbl) 98.50 88.58 67.41 81.90
NGL ($/bbl) 63.55 70.94 36.70 55.71
Total ($/BOE)(4) $ 62.35 $ 58.80 $ 39.24 $ 50.62
Natural Gas Price Benchmarks
AECO ($/Mcf) $ 4.68 $ 4.22 $ 4.01 $ 4.30
Oil Price Benchmarks
West Texas Intermediate (WTI) (US$/bbl) 102.98 97.44 73.39 89.84
Edmonton Light Sweet ($/bbl) 104.53 98.11 75.23 92.63
(1) A Non-GAAP measure, which is defined under the Non-GAAP Measures section in this 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 from January 1, 2014 to December 31, 2014 after giving effect to stock options.
(3) A dividend of $0.1058 per Common Share was declared on December 15, 2014. The dividend was paid on January 15, 2015 to shareholders of record as at December 31, 2014.
(4) See "Conversions of Natural Gas to BOE".

2014 RESERVES INFORMATION

PrairieSky's year end 2014 reserves were evaluated by independent reserves evaluator GLJ Petroleum Consultants Ltd. ("GLJ"). The evaluation of the Royalty Properties was done in accordance with the definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook and National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities. PrairieSky's reserves information is included in the Company's Annual Information Form which is available on SEDAR at www.sedar.com and PrairieSky's website at www.prairiesky.com.

CONFERENCE CALL DETAILS

A conference call to discuss the financial and operational results for the period ended December 31, 2014 will be held for the investment community on Tuesday, February 24th, 2015 beginning at 6:00 a.m. MST (8:00 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) or (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, the payment of future dividends and the dividend level, estimates regarding 2014 and 2013 capital spending levels on the PrairieSky and Range Royalty lands, and expected incremental collection of royalty compliance revenues in 2015.

In addition, statements relating to "reserves" and the future net revenue associated with such reserves are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and can be profitably produced in the future.

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 Annual Information Form for the period ended December 31, 2014. 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 the acquisition of the royalty business from Encana. These risks and uncertainties include risks relating to the potential for disputes to arise with Encana, limited ability to recover indemnification from Encana under the Purchase and Sale Agreement and certain other agreements. The foregoing and other risks are described in more detail in PrairieSky's final prospectus dated May 22, 2014 under "Risk Factors" and in our MD&A and Annual Information Form for the period ended December 31, 2014 under the heading "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). We use 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.

Contact Information

  • PrairieSky Royalty Ltd.
    Investor Relations
    (587) 293-4000

    PrairieSky Royalty Ltd.
    Andrew Phillips
    President & Chief Executive Officer
    (587) 293-4005

    PrairieSky Royalty Ltd.
    Cristina Lopez
    VP, Corporate Development
    (587) 293-4085
    www.prairiesky.com