March Dividend Announcement
The Board of Directors has declared the March dividend of $0.14 per share, which will be paid on April 15, 2013 to shareholders of record on March 31, 2013. Including the April 15 payment, our 12-month trailing cash dividends total $1.68 per share. This dividend is designated as an eligible dividend for Canadian income tax purposes. Over the past 16 years, we have paid out over $1.1 billion to our shareholders.
2012 Fourth Quarter Highlights
Freehold delivered strong operational results in the fourth quarter of 2012. Robust production volumes drove increases in revenue and cash flow from operating activities despite lower average realized prices.
-- Average production for the fourth quarter was 22% higher than last year. Drilling activities, including flush production from newly completed horizontal wells, accounted for about two-thirds of the increase; prior period adjustments (650 boe per day versus 350 boe per day in fourth quarter last year) and acquisitions during 2012 accounted for the remainder.-- Dividends for the fourth quarter of 2012 totalled $0.42 per share, unchanged from last year.-- Average DRIP participation was 24% in the fourth quarter of 2012 (Q4 2011 - 40%), allowing us to retain $6.7 million (Q4 2011 - $10.2 million) in dividend payments by issuing shares from treasury.-- Net income of $13.4 million was 16% lower than last year, mainly as a result of increased depletion and depreciation expense, higher royalty expense, and higher operating expense due to a higher production base. Non-cash charges (excluding current income tax) included in net income amounted to $18.1 million (Q4 2011 - $22.3 million).-- Net capital expenditures on our working interest properties totalled $7.7 million in the fourth quarter (Q4 2011 - $10.9 million), the majority of which was incurred on horizontal drilling and multi-stage fracture well completions in southeast Saskatchewan.-- Long-term debt was $18.0 million at December 31, 2012, down $7.0 million from the third quarter as excess funds from operations were applied to debt repayment.
2012 Year-end Reserves and Land Highlights
Freehold's reserves data is presented on a net basis (our share of working interest properties minus royalties payable to others, plus royalties receivable on our royalty lands). Freehold is unique in that the majority of our assets are royalty interests. However, under National Instrument 51-101, royalty interests cannot be included under gross reserves. This causes our gross reserves to be lower than our net reserves and makes it difficult for investors to compare our reserves to others in our industry. We believe the most appropriate measure of reserves for Freehold is net reserves. Reserve values do not include potential reserve additions that may occur as a result of future drilling on most of our royalty lands.
-- Net proved plus probable reserves at December 31, 2012 totalled 24.4 MMboe, with reserves assigned to 22,589 wells. Net proved plus probable royalty interest reserves increased 10% year-over-year, and net proved plus probable working interest reserves increased 12%. Approximately 62% of our net reserves are in the proved category, and 93% of our net proved reserves are producing. On a boe basis, net reserves are 60% liquids (30% heavy oil, 24% light and medium oil, 6% natural gas liquids) and 40% natural gas.-- Net proved plus probable reserve additions totalled 5.3 MMboe (45% liquids). Drilling on our royalty lands added 1.0 MMboe (19%) of net proved plus probable reserves, development activities added 0.8 MMboe (15%), and acquisitions added 3.5 MMboe (66%). Based on this, we replaced approximately 167% of 2012 production.-- Freehold's finding costs are calculated based on net reserves. In 2012, finding and development costs for net proved plus probable reserves were $21.37 per boe, while acquisition costs were $17.47 per boe and the all- in finding, development and acquisition (FD&A) cost was $18.80 per boe (including changes in future development capital). Based on an operating netback of $45.09 per boe in 2012, these activities resulted in a recycle ratio of 2.4 times the capital invested, and a three-year average recycle ratio of 2.1.-- Our land holdings as at December 31, 2012 encompassed 3.0 million gross acres, up 9% from last year mainly as a result of acquisitions. Royalty interests comprised 94% of our acreage. Our undeveloped land was independently valued by Seaton-Jordan & Associates Ltd., at $80.2 million.