ENP Newswire -
Release date- 08082014 -
August Dividend Announcement
The Board of Directors has declared the August dividend of
2014 Second Quarter Highlights
Driven by commodity strength, funds from operations totalled
Net income of
Closed an acquisition of mineral title and royalty interests on certain producing and non-producing lands in southeast
Production for the quarter averaged 8,810 boe/d; this represented a 1% increase over Q2-2013 and a 2% gain when compared to Q1-2014. Compared to Q2-2013, oil and NGL production was up 11%, while natural gas volumes declined 14%. The increase in oil and NGL volumes was primarily associated with Freehold's southeast
Overall, royalty production represented approximately 74% of total volumes through the second quarter.
Working interest production declined by 8% versus Q2-2013, primarily associated with reduced or delayed activity by our working interest partners, due to corporate takeovers.
The second quarter included positive prior period adjustments to production of approximately 200 boe/d (70% oil) partially the result of our ongoing audit program.
Dividends for the second quarter of 2014 totalled
Average participation in our DRIP was 26% (Q2-2013 - 25%). Cash retained totalled
Net capital expenditures on our working interest properties totalled
Net debt as of the second quarter 2014 implied a 1.2 times trailing funds from operations and net debt obligations represented approximately 35% of total capitalization.
Second Quarter Acquisition
2013 average production of 470 boe/d (99% oil weighted), from over 400 producing wells.
Revenue is derived from a combination of Lessor Royalties and Non-Convertible Overriding Royalties, offering Freehold enhanced netbacks.
2013 operating income of
Increased land exposure comprised of 71,700 acres of Mineral Title Lands.
Proved plus probable reserves of approximately 1.5 million boe, based on an independent engineering report prepared by
Freehold assumes a priority share of production through the creation of a gross overriding royalty (GORR). Royalty production anticipated by Freehold with this Joint Venture is forecasted at approximately 5.6 mmcf/d of sales natural gas plus associated liquids (82% natural gas) through 2014. Total royalty production from the Joint Venture is forecast to remain flat from 2014 to year-end 2022, declining 10% per year thereafter.
Under the Joint Venture, Freehold assumes no operating costs (outside of transport fees), no royalty deductions and no abandonment liabilities. Freehold will receive 'priority' royalty volumes.
As part of its
Once Freehold's share of the existing royalty production declines below 5.6 mmcf/d, volumes from new wells are added pursuant to the Drilling Royalty to maintain Freehold's production at a cap rate of 5.6 mmcf/d plus associated liquids for 8.5 years.
The JV Partner has agreed to spend
Freehold considers this Joint Venture as offering a low risk, attractive return for Freehold, showcasing the Company's flexibility in creating value for its shareholders as well as presenting an attractive non-dilutive method of funding energy industry development drilling.
In conjunction with the Joint Venture, Freehold closed a bought deal financing, issuing 4,900,000 common shares at a price of
Concurrent with the closing of the bought deal offering, the pension trust funds for employees of
The aggregate gross proceeds raised by Freehold pursuant to the bought deal offering and the investment by the CN Pension Trust Funds totaled approximately
The updated guidance reflects the Joint Venture and the
Through 2014, we are forecasting WTI to average
Reducing leverage associated with our recent equity raise, we are forecasting 2014 year-end net debt of approximately
We have increased our 2014 production forecast to 9,500 boe/d (previously 9,100 boe/d). The increase in our guidance is associated with our recent Joint Venture. Volumes are expected to be weighted approximately 62% oil and natural gas liquids (NGL's) and 38% natural gas for the remainder of 2014. We continue to maintain our royalty focus with royalty production accounting for 73% of forecasted 2014 production (previously 69% of 2014 volumes).
We have decreased our 2014 tax expense assumption, reflecting increased tax pools resulting from the Joint Venture.
The increase in our weighted average shares outstanding accounts for our latest share offering which closed
Recognizing the cyclical nature of the oil and gas industry, we continue to closely monitor commodity prices and industry trends for signs of deteriorating market conditions. We caution that it is inherently difficult to predict activity levels on our royalty lands since we have no operational control. As well, significant changes (positive or negative) in commodity prices (including Canadian oil price differentials), foreign exchange rates, or production rates may result in adjustments to the dividend rate.
Based on our current guidance and commodity price assumptions, and assuming no significant changes in the current business environment, we expect to maintain the current monthly dividend rate through 2014, subject to the Board's quarterly review and approval.
Availability on SEDAR
Freehold's 2014 second quarter interim unaudited condensed consolidated financial statements and accompanying Management's Discussion and Analysis (MD&A) are being filed today with Canadian securities regulators and will be available at www.sedar.com and on our website.
This news release offers our assessment of Freehold's future plans and operations as at
our outlook for commodity prices including supply and demand factors relating to crude oil, heavy oil, and natural gas;
light/heavy oil price differentials;
changing economic conditions;
foreign exchange rates;
industry drilling, development and licensing activity on our royalty lands, and the potential impact of horizontal drilling on production and reserves;
development of working interest properties;
participation in the DRIP and our use of cash preserved through the DRIP;
estimated capital budget and expenditures and the timing thereof;
estimated operating and general and administrative expenses;
long-term debt at year end;
average production and contribution from royalty lands, acquisitions and the Joint Venture;
key operating assumptions;
amounts and rates of income taxes and timing of payment thereof and
maintaining our monthly dividend rate through 2014 and our dividend policy.
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, 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.
Risks are described in more detail in our Annual Information Form.
With respect to forward-looking statements contained in this news release, we have made assumptions regarding, among other things, future oil and gas prices, future capital expenditure levels, future production levels, future exchange rates, future tax rates, future participation rates in the DRIP and use of cash retained through the DRIP, future legislation, the cost of developing and producing our assets, our ability and the ability of our lessees to obtain equipment in a timely manner to carry out development activities, our ability to market our oil and natural gas successfully to current and new customers, our expectation for the consumption of crude oil and natural gas, our expectation for industry drilling levels, our ability to obtain financing on acceptable terms, and our ability to add production and reserves through development and acquisition activities.
You are cautioned that the assumptions used in the preparation of such information, 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 achievement 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. The forward-looking information contained in this document is expressly qualified by this cautionary statement. Our policy for updating forward-looking statements is to update our key operating assumptions quarterly and, except as required by law, we do not undertake to update any other forward-looking statements.
You are further cautioned that the preparation of financial statements in accordance with IFRS requires management to make certain judgments and estimates that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates may change, having either a positive or negative effect on net income, as further information becomes available and as the economic environment changes.
Conversion of Natural Gas to Barrels of Oil Equivalent (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.
Additional GAAP Measures
This news release contains the term 'funds from operations', which does not have a standardized meaning prescribed by GAAP and therefore may not be comparable with the calculations of similar measures for other entities. Funds from operations, as presented, is not intended to represent operating cash flow or operating profits for the period nor should it be viewed as an alternative to net income or other measures of financial performance calculated in accordance with GAAP.
We consider funds from operations to be a key measure of operating performance as it demonstrates Freehold's ability to generate the necessary funds to fund capital expenditures, sustain dividends, and repay debt. We believe that such a measure provides a useful assessment of Freehold's operations on a continuing basis by eliminating certain non-cash charges.
It is also used by research analysts to value and compare oil and gas companies, and it is frequently included in their published research when providing investment recommendations. Funds from operations per share is calculated based on the weighted average number of shares outstanding consistent with the calculation of net income per share.
Non-GAAP Financial Measures
Within this news release, references are made to terms commonly used as key performance indicators in the oil and natural gas industry. We believe that operating income, operating netback, and net debt to funds from operations are useful supplemental measures for management and investors to analyze operating performance, financial leverage, and liquidity, and we use these terms to facilitate the understanding and comparability of our results of operations and financial position.
However, these terms do not have any standardized meanings prescribed by GAAP and therefore may not be comparable with the calculations of similar measures for other entities.
Operating income, which is calculated as gross revenue less royalties and operating expenses, represents the cash margin for product sold. Operating netback, which is calculated as average unit sales price less royalties and operating expenses, represents the cash margin for product sold, calculated on a per boe basis. Net debt to funds from operations is calculated as net debt (total debt less working capital) as a proportion of funds from operations for the previous twelve months.
In addition, we refer to various per boe figures, such as revenues and costs, also considered non-GAAP measures, which provide meaningful information on our operational performance. We derive per boe figures by dividing the relevant revenue or cost figure by the total volume of oil and natural gas production during the period, with natural gas converted to equivalent barrels of oil as described above.
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