Freehold Royalties Aktie

Well, good afternoon, everybody. Can everybody hear me? Coming through? I would load up on some food and drink because we have 2 hours of riveting slide show for you, and you don't want to get weak at the knees because it's good stuff.

Welcome. I would like to thank everybody for attending today's Freehold's Annual General Meeting. My name is Marvin Romanow, and I'm the Chair of Freehold's Board of Directors. Do I do the slides, Todd?

Sure, yes.

So hello, first button. I am always impressed when things work. Thank you. So this year, Freehold is celebrating our 30th anniversary. There has been a tremendous amount of growth and progress over the years that I want to share with you today. In 1996, we began with 5,600 barrels a day oil equivalent of production and completed an initial public offering -- equity offering at $10 a share.

And you folks may not know, but one of the founders, Peter Harrison, is right in the room here, who was with CN Pension Fund. So although he has great gray hair, he's not the granddaddy of the company. He's just the dad of the company. So well done, Peter, for what you and your colleagues have started.

In 2025, our production averaged 16,300 barrels of oil equivalent per day, providing an annual compounded growth rate on production of 4%. Over that time period, we have returned CAD 2.4 billion in dividends to our shareholders. So this represents a cumulative of $37 per share of dividends on a $10 investment 30 years ago. And if you add that to our current share price, the total value delivered to shareholders is $54 a share when you add those 2 numbers.

So over 30 years, you've got to take into account the time value of money. So financially, this represents a 12.5% annual compounded return on investment over 30 years that we have been a publicly traded company. So 4% growth rate has delivered a dividend and stock value growth of 12.5%. That's pretty, pretty good.

This next chart shows how we have performed compared to our North American royalty peers over the past 10 years because we worry about absolute performance, but we worry about relative performance because we are in the commodity business. And so in addition to our absolute stellar returns, we have outperformed our peers in both Canada and the United States. And over the last few years, we have shifted our focus to a portfolio of liquids-weighted North American royalties. This has allowed us to enhance our positioning through having royalty interest ownership in the top Canadian oil and gas basins, and more recently, the top U.S. oil and gas basins.

Our growth over the last 5 years has been driven primarily by our U.S. expansion, but we haven't forgotten Canada. There in the U.S., we have established royalty ownership positions in the world-class basins such as the Eagle Ford and Permian. And probably this next comment I'm going to make is probably the most germane one about our asset base. And the primary strategic driver behind this movement into the U.S. is the vastly superior well performance and well productivities and the resource density, the resource density compared to other investable basins.

So there's an old saying in our industry, if you want to look for oil, look at an oil well first. So primary recovery factors in the Permian these days are somewhere between 6% and 10%. So that basin will be alive and well, well beyond the tenure of many of those people in the room. And I won't digress too much, but I started in this industry working southeast Saskatchewan and working some of the heavy oil fields, moving on to international operations. But 30 years ago, people believed some of those basins were dead. And today, we see even more opportunities in southeast Saskatchewan that is still alive and kicking and doing well.

So David will talk more about resource density and well productivities in his presentation, and this has delivered higher production, higher volumes, higher revenues, higher cash flows on an absolute basis, but more importantly, on a per share basis. This underpins the business we have today. This portfolio enhancement work we have sold -- with this portfolio enhancement, we have sold our capital-intensive lower-netback working interest production. So we're pretty close to a 99.99% pure royalty play, and we have reduced our cost structure. We have added premium-priced high-netback light oil and gas production from the Eagle Ford and the Permian Basins of Texas, and you'll see our price realizations.

But one little example of that, if you look back to 2018, a year with similar crude oil and natural gas prices as we just had in 2025, comparing those 2 years, we generated 40% more funds from operations per share in 2025 than we did in 2018. The bottom line is we have moved and upgraded and have superior barrels in our portfolio.

So beyond just a solid track record of production growth, we obviously have focused on shareholder returns. And one marker that I want to highlight for you is that for every $100 of cash flow that the company has taken in since 1996, $56 of that has gone back to you, the shareholders, in the form of dividends while reinvesting the other $44 into managing growth in our business. And as you're all aware, when you file your tax return, that qualifies for the Canadian dividend tax credit, which makes your after-tax returns even more stellar than if you would have invested in the bond. And as noted earlier, that's a total of $2.4 billion to our shareholders.

We had another milestone in 2025. We ended our long-standing management agreement with CN Investment Division, the owner of Rife Resources and the founder of Freehold. This agreement has been in place since 1996, and it served our organizations really well. It supported the development of all of the companies within that consortium. And I, on behalf of the Board, would like to take this opportunity to thank the executive and employees for the incredible amount of work to successfully unwind and separate 30 years of shared operations. That was a very labor-intensive and challenging task, but it was done without losing a heartbeat.

This work has positioned us as we continue to build and optimize our assets. And despite the termination of this management agreement, CN did not change their holdings in Freehold. And as a result of this termination -- and they still hold 16% of the outstanding shares of the company, and they have been a very supportive and thoughtful and value-added long-term shareholder.

So on behalf of the Board, I'm pleased to say that our performance reflects a consistent record of success. Since our beginning in 1996, the company has been built thoroughly, thoughtfully, deliberately with a clear emphasis on keeping that long-term ball and sustainable value in mind. And Dave Spyker, who's sitting right here, who many of you know as our CEO, who's done a stellar job, will share more details with you.

So I'm going to move into the more formal part of the meeting and have this very riveting slide for you to look at. Today's meeting marks the 39th AGM for Freehold, and we take great pride in the business that has been built. The sustainability in our business stands out when considering that we have always paid a monthly dividend every month for the last 30 years. That really is a very rare accomplishment in our industry.

I'd also like to advise you that this meeting is being webcast. All references today are in Canadian dollars unless they're noted otherwise. And for those attending the AGM for the first time or those new to Freehold, I would like to now take this opportunity to introduce our executive team, and I'm going to ask them to stand when you are introduced.

Dave Spyker, our President and CEO; Lisa Farstad, our Vice President of Corporate Services; Susan Nagy, our Vice President of Business Development, Commercial; and Colin Strem, our Vice President of Business Development, Technical. And as we previously disclosed, Shaina Morihira, Freehold's Vice President of Finance and Chief Financial Officer, left the company last month. And I'd like to really thank her for her service and leadership during this time at -- her time at Freehold and her commitment to ensure a smooth transition of responsibilities going forward. And in the interim, Paul Slack. Paul, can you stand up? Thank you, Paul, has been appointed to be Interim Chief Financial Officer while the company completes the CFO search.

I'd now like to move to introducing our Board of Directors standing for election today. And would you please stand as your name is called? Gary Bugeaud, Maureen Howe, Douglas Kay, Kimberley Lynch Proctor; Valerie Mitchell; myself, Marvin Romanow, Mathieu Roy, did I get that last name pronounced and correct? Very good. David Spyker, who is the President and CEO, he is the only guy who gets to stand twice; and Aidan Walsh.

I would also like to introduce representatives from KPMG, our auditors, Heather Steinley, and Megan Wainman. Very good.

So now we'll start the formal part of the meeting. And to make best use of our time, we have prearranged with certain shareholders attending to move and second resolutions, which we will consider in a single motion today, and they are set out in the notice of meeting. Other than the election of Directors, all matters to be considered will be put forward by a single motion. However, shareholders will be able to vote on each of the matters separately by ballot. If you have already sent in your proxy, your vote has already been counted and you do not need to vote at this meeting.

We also ask you that if you have questions during this formal part of the meeting, you only refer to the matters set out in the notice of meeting. Following the formal part of the meeting, David Spyker, as I said, will be making this presentation to update you on our business results, our strategies and our future. And both he and I and other of the management team, and in fact, the Board will be happy to answer any additional questions you may have.

The meeting will now come to order. I am Chairman of Freehold and will act as Chairman of the meeting. Lyne McDonald over there. Lyne McDonald, Freehold's Corporate Secretary, will act as Secretary of the meeting and representatives of Computershare Trust Company of Canada, they're at the back of the room here, will act as scrutineers.

I have received a declaration as to the mailing of the notice of Annual Meeting of Shareholders, information circular, proxy, instrument of proxy and the annual report to shareholders. I direct that this declaration, together with copies of these documents that were mailed to shareholders, be kept by the Secretary with the minutes of the meeting.

A quorum for a meeting of shareholders is 25% or greater of the outstanding common shares present in person or by proxy. We're well past that and the scrutineers have confirmed that. The interim scrutineer report also indicates that a significant majority of the shares voted have voted in favor of each of the matters to be considered at today's meeting, including the election of each of the director nominees.

I now declare the meeting to be regularly called and properly constituted for the transaction of business. We will conduct each vote by way of ballot other than termination of the meeting. I understand that the scrutineers have collected all of the ballots. And if you have a ballot, please provide it to the scrutineers now.

This is how I get to 2 hours. I wait about 20 minutes for this one. Okay. The annual financial report to shareholders, which includes the financial statements of the corporation for the fiscal year ended December 31, 2025, and the auditor's report for the same period was mailed to those shareholders who requested it. There are extra copies of the report available today. They were at the front when you walked into the room. And if you want one, someone will go get one for you. There are also -- these reports are also available on Freehold's website as well as on SEDAR+ website.

Our first matter to consider is the nomination and election of the directors of Freehold. In accordance with Freehold's advance notice bylaw, the only individuals entitled to be nominated as directors at this meeting are the persons named as nominees in the information circular. This includes CN's nominees pursuant to its nominee agreement with Freehold.

Therefore, as directed by the Board and in accordance with the notice of meeting and the information circular, Gary Bugeaud, Maureen Howe, Douglas Kay, Kimberley Lynch Proctor, Valerie Mitchell, Marvin Romanow, Mathieu Roy, David Spyker and Aidan Walsh are hereby nominated as directors of Freehold Royalties to hold office until the next annual election of directors or until their successors are elected or appointed, subject to the provisions of the Business Corporations Act and the bylaws of the company. Is there any discussion or question from any registered shareholder or proxy holder?

Guys are a quiet bunch. I declare that those nominated are duly elected directors of Freehold. Particulars of the vote cast on the election of directors will be available via a news release after the meeting. I now ask for a motion to approve the 2 remaining items of business set forth in Freehold's notice of Annual Meeting and Management Information Circular.

Mr. Chairman, I move that the firm of KPMG LLP chartered accountants be appointed auditors of Freehold until the next annual meeting or until their successors are appointed and that the resolution set forth in Freehold's information circular regarding Freehold's approach to executive compensation be approved and adopted.

Mr. Chairman, I second the motion.

Is there any discussion or question from any registered shareholder or proxy holder? I have been advised by the scrutineers that each of the matters considered today have been approved by the requisite majorities. I direct that the scrutineers' report be annexed to the minutes of this meeting as a schedule. The results of the votes will be made available in a news release to be issued by Freehold and in a report of voting results to be posted on SEDAR+. Unless there are any questions from the floor, I would be happy to entertain a motion that the meeting be terminated.

Mr. Chairman, I move this meeting to be terminated.

Mr. Chairman, I second the motion.

All in favor, signify by raising your hand. Okay. The motion is carried. I declare the formal portion of this meeting terminated. David Spyker will now provide an update on Freehold's activities. And he and I and other members of management and directors will be available to answer questions as they are posed. Thank you very much. Thank you for attending today.

Okay. I'm not going to be wanting to stand behind the podium a little bit. So I'm just going to start off with a slide here. It's a bit of a warm-up slide. I think everybody here knows the story. But really for Freehold Royalties, we are a pure-play royalty company. So that means we have no capital costs, no operating costs, no abandonment costs. And we're a little bit different from the other royalty players that you can invest in, both in the U.S. and Canada.

We have a differentiated North American portfolio. So we have assets across the U.S. and assets across Canada. And we think that's important, because really we position ourselves in all the premier basins across North America. And as Marvin talked about, we've been a consistently strong capital allocator, paying our -- in TSX, the leading 6% dividend yield on the energy sector. And that's a monthly dividend at $0.09 a share per month.

So I just want to talk a little bit about our 2025 results. And so 2025, we had just under 16,300 BOE a day of production. So that was a 9% growth over 2024 or about a 1% per share growth. And 45% of our production came out of the U.S. and about 53% of our revenue. So you can see that we're pretty balanced across both sides of the border. We've been intentionally building our business to be a crude oil and liquids-weighted business. And with that, we've had 12% growth in liquids year-over-year, and liquids content right now is just over 10,700 BOE a day. And so the liquids contributes 90% of the revenue of the company and is a big part of our business strategy going forward.

If we look at funds from operations, that was $235 million. So it's about a 6% decrease FFO per share year-over-year, and that was driven primarily by the 8% decrease in realized pricing, with WTI quite soft in 2025. On the dividend side, we retained -- maintained the dividend throughout last year at $1.08 a share paid monthly, and that equated to a 75% payout ratio. And as Marvin alluded to, the other 25% of that revenue was put toward building the business, and we paid down a little bit of debt.

So kind of want to talk about that 30 years of being in business and really the last 10 years have been really kind of fine-tuning the portfolio. You can see as we kind of came out of 2016 and into COVID, the business was not growing. On a total production per share basis, we were in a pretty precipitous decline. And at that time, we decided that we're going to pivot the business outside of Canada. We thought that we could be more competitive in the North American business platform, and we started investing in the U.S. And you can see along with that, we've restored the production per share growth. And again, we've really been focused on rebuilding the liquids production per share as being the primary driver of our business.

And along with that, we've really stocked the shelves on oil reserves. So you can see on the chart on the right-hand side that focus on building oil reserves, NGL reserves. Our gas portfolio, we have not been growing that side of the business, and that's where we're really driving our business going forward.

And so if we look at where we are today, like I say, about half production, half the revenue are the U.S. Our big focus areas are going to be in the Permian, and that would be the Midland and Delaware subbasins of the Permian and the Eagle Ford. And the Permian would drive about 4,400 barrels a day of production, Eagle Ford about 2,500 barrels a day. And again, if we think of that liquids-weighted theme, the U.S. portfolio is about 75% liquids weighted. So we really have exposure to light oil pricing essentially in the Gulf of Mexico.

With that growth, we've just shown from 2022 to 2025 and the focus. So we've had explosive growth. And a lot of that is on the back of very strategic acquisition work. So we've grown that part of the portfolio 220% since 2022. On the Canadian side, that's a well-established assets. These are the seed assets that we got in 1996 and we've built over the years. We haven't invested as much in Canada over the last 5 years compared to the U.S. side. But we're -- the plays that we're quite active in and the kind of the green plays on here really are oil-weighted plays. And as you move a little bit west in Canada, we get into the Cardium, we get into the Deep Basin. We have a Montney position in Northeast BC. Those tend to be a little bit more of the gassy-weighted plays.

And so in Canada, I didn't show the slide here, but we're about 50% oil and NGL. So this gas component, even though it doesn't generate as much revenue, is about half of our Canadian volumes. Over the past little bit, where we've seen the capital investment is in these oil plays, tend to be in that Clearwater heavy oil, Mannville heavy oil and the light oil in southeast Saskatchewan. And so with that, we've been able to grow that heavy oil component about 30% over the last few years. We're just not seeing -- with current gas pricing in Canada and an outlook of gas pricing in Canada, we're just not seeing capital being attracted to the western part of the portfolio.

So one of the big shifts that we've made over the past 5 or 6 years is really changing the underlying payers that we have in our portfolio. And so today, over 75% of our revenue comes from the payers that you see on this list here. And if we start at the top, these integrated global-scale companies, Exxon, Oxy, ConocoPhillips, they're almost 1/3 of our revenue. And when those guys are thinking of capital allocation, they're not really worried about what the daily oil price is. They're executing that same capital program at $50 oil or $80 oil. It takes them a long time to start shifting a view on how they invest. And so just think of that as just underpinning sustainable production stream that is really driven by these big players.

Then we move down. About 8% of our revenue comes from what we call kind of scale operators in North America, the Canadian Natural Resources in Canada, U.S., Diamondback, EOG, Devon, some names that we're all familiar with here. They're $50 billion type market cap companies, specialists in their -- in a broader area. And again, very resilient capital allocation programs, probably a little bit more flexible than this top level here.

And then as we move down into the specialist guys in Canada like a Whitecap that's really active on our southeast Saskatchewan or Tamarack Valley who's driving a lot of our Clearwater growth activity, a Tourmaline that's operating for us in the Deep Basin or into some of these pure-play independents or private operators, these are the guys that can really move capital quickly.

And so as we're seeing oil prices at the $100 oil mark right now and full year strip at around high-80s, we're starting to see licensing activity pick up from this group of people that tend to be pretty quick. In Canada, it tends to be short-cycle projects that they can bring production on and capitalize on the high oil price. These bigger guys, they're still thinking. These types of projects in the U.S. tend to be on stream time about 12 months to 18 months, these big pads that they're drilling 20, 25 wells a pad. And so they need to be confident that next year's oil price, they're happy with, and then they'll start mobilizing capital.

So each of them are starting to talk about that, and we think that that will happen at these commodity prices. I think -- I don't want to get lost on what Marvin talked about, about the 4% annual production growth since 1996 because we get a lot of questions from shareholders, what is going to be your growth rate going forward? And one of the challenges that we have as a company is that we don't control the pace of drilling activity on our lands, the timing of that, where people are drilling. And our job is to really stock the shelves with high-quality inventory that's going to attract capital and continue to grow.

But if we look at 30 years, we've a pretty darn good track record of growing at 4% every year. And that's even through times when we got rid of this lower-margin working interest production as we shifted our portfolio into the U.S. And so I'm pretty confident that as we think about the business going forward, 4% annual production growth isn't going to be unreasonable.

It's not going to be every year. Some years, you're going to get 0. Some years, you might get 8%. But if you look at these tranches of time periods, I'm pretty confident we can achieve that. We've demonstrated that for 30 years. And through a combination of organic growth initiatives and transaction-led initiatives that we'll be able to accomplish that.

This is a super busy slide, but I think it's an important slide, and I want to spend a little bit of time here because this is what we've really been doing, and this is stocking the shelves of opportunity set. So when we say we don't know when some of this stuff is going to happen, we do know for sure that we're in all the right places. And so if we talk about secondary recovery projects, that's what's getting a lot of press right now is some of the waterflood activity that's going on in the Clearwater and moving that over into these Mannville heavy oil plays.

And so our big payers that are quite active in the Clearwater would be a Tamarack Valley and a Rubellite. And so we're getting the benefit of these reserve additions and this production decline, moderating production growth associated with that activity. People don't really think about this light oil secondary recovery in, say, the Permian, for example. But there's been a number of enhanced oil recovery projects, particularly in the Permian right now. There are CO2 floods, where early-stage results are a 45% improvement in recovery factor.

And so when Marvin talked about oil recoveries projected to be less than 10%, a lot of these big-scale operators like the Exxon and Conoco are talking about doubling that. So you've got a basin that's producing 6 million barrels a day of oil. It's been producing for 100 years. You can double recovery factor. And we're seeing field trials of that across the Permian.

Exploration and delineation. We don't have a huge Montney and Duvernay exposure in Canada. So we've got Northeast BC Montney that tends to be of a dryer gas. So we're not seeing capital attracted there. We've got some positioning in the Duvernay. But our equivalent to that would be this Barnett and Woodford in the Permian. So it's a bit of a deeper zone that's just starting to attract a lot of attention right now, 50,000 barrels a day in the last 12 months, just growing production, and we have good exposure to that. So that's our kind of Duvernay equivalent and it sits in the -- down here in the Permian Basin.

And what we're seeing what started in the Clearwater is these kind of multilateral drilling that's moved into the Mannville heavy oil, and it's moved into southeast Saskatchewan light oil. And so we're certainly seeing the benefit of that. And so again, like Marvin talked about, the southeast Saskatchewan has been around for a long time, but technology just keeps reinventing ways to get more oil out of that.

Production base optimization, that's another big one. Particularly in the Eagle Ford, operators are seeing a lot of opportunity to go back into wells that were completed back in 2010, kind of early stages of frac design in horizontal wells in the Eagle Ford and go refrac those existing wells and get darn near the equivalent of a new well just from a refrac. And so these are all things that we didn't pay for when we bought the U.S., but we could see the resource there, and we just knew that it's going to be a matter of time before people get that out.

I think we're just on the verge of this AI-assisted exploitation drilling, pressure pumping designs. And we -- how that's showing up is just in capital efficiencies in the basins, both in U.S. and Canada. So people can get more with less capital. And so we're seeing rig counts decline a little bit, but we're not seeing productivity decline. They're drilling 4-mile wells instead of 1-mile or 2-mile wells. And so even though we're seeing rig counts decline, we're not seeing the production decline.

Novel technology just continues to go. Everyone says don't bet against the American petroleum engineer time over time. And what we're seeing is the surfactant treatments. So people are using surfactants to complete their wells, getting a 15% uplift in productivity and reserves. And same with using different proppants in their frac design. Exxon is using this petroleum coke product, some ceramics. And again, very similar 15% increase in recovery. So all these things are just unlocking these massive resources in the portfolio.

I can say we haven't been focused on natural gas, but we do have a lot of natural gas optionality in our Deep Basin positioning in our Montney and Northeast BC. The Permian itself is the fastest-growing natural gas basin in North America. The only thing that's holding it back is they can't build pipe fast enough. And unlike Canada, they are building pipe, but they just can't keep up with the demand. So as we think through that, you can see why we've been so intentional about investing in certain basins across North America because we really are stocking the shelf with future opportunities.

One of the reasons that we went out of just a pure Canada business is that if we look at the landscape as far as where we could invest, where we could build the business, there wasn't a lot of deal flow in Canada. And so this chart here, the gray bars show the mineral and royalty transactions in Canada. And you can see it's not very much. In 2021, PrairieSky bought Heritage assets for around $1 billion, and there was a couple of other bigger transactions in that year. In some of these other years, those were assets that were dropped down from Tourmaline into Topaz, so not assets that we would be able to have access to.

And so you take those big deals out, there's not a lot of transactions available, $400 million a year over the last 10 years with those big transactions in. What we're comparing the blue bars here is the U.S. royalty transactions. And we've only put small-scale royalty transactions, so anything that was done for less than $250 million. And those transactions, those small-scale transactions were about $1.4 billion a year. If I was to put all the transactions on here, the scale would make Canada kind of imperceivable. But -- so what that has done is it's opened up the ability to invest our free cash flow and build the portfolio in a pretty open minerals space in the U.S.

I don't think that we're always going to compete -- be able to compete for these bigger packages. And so what we've done over the last 18 months is put together what we call this ground game team in the U.S. And so this team is really looking to buy undeveloped lands from individual owners, farmers, original landowners, homeowners. And because of the extensive mineral title that's in the Permian, we can do that. So we've kind of given our BD team this hunting license to go and hunt for these types of deals.

And it provides the ability for a paced capital allocation. We can toggle at any time. We can add this really high-quality inventory that may have less certain development timelines because we're not buying current production, but we're buying on lands in the Permian that hasn't even had a horizontal well drilled on it yet. So you think about the quality of that inventory, and those undrilled sections just represent opportunities for future growth in the business. They tend to be under the high-quality operators like an Exxon or Diamondback, Conoco, Oxy. And it is a quite attractive return on capital.

So we've deployed about $60 million in the last 18 months to do that. And what I've shown on here is the land base that we've built with our bigger packages. And these yellow lands are these ground game deals that we're buying kind of in the core of both the Delaware and the Midland Basin, and so just sneakily building this bespoke portfolio. Through this work, we've added about 1,200 gross future drilling locations and people say, well, how many net locations is that, how many net wells is that to you? And I go, well, it's 2.5 and people go, oh. But 2.5, if you think about that, if all those wells came on at once, that's 2,000 barrels a day of annual production. So these are high deliverability wells, and 2.5 net wells is pretty darn good in this light oil, high netback area.

We also get lots of questions like has the U.S. done what you thought it was? And I'll be the first to admit, we kind of stumbled a bit out of the gate when we first entered into the U.S. and we thought we might get a little bit more growth out of it than actually materialized. We were buying right during the time of COVID, and we were modeling our models based on the same amount of drilling activity pre-COVID as post-COVID. That didn't materialize. And so we didn't get the production growth. But what we've got is just the stability of a production platform.

So in those early years, 2021, '22 and '23, we invested $565 million to kickstart that U.S. portfolio. So at the end of December, Paul tells me we've got $533 million of revenue of that $565 million investment. So that will have paid out in this quarter, or if not this quarter, May of this year. It's imminent. And it's still over 4,500 barrels a day of production. So it still represents more than 25% of the production that we have in the company. So spectacular investments.

We have -- the team has done a lot of work to really tune of how they evaluate, how we model the acquisition work. So we took our lessons from those first few years. And if we look at the work that we've done in 2024, the other essentially $435 million of investment, this is what we modeled, what we expected we would get out of that, about 2,200 barrels a day of -- or BOE a day of production. And this is where we're sitting, so above that. So we've really been able to tune our acquisition parameters, learn from those early modeling results, spectacular results, known results, and we expect very similar payback kind of 5 to 6 years on these investments.

And so where does that lead us today? So because of the oil-weighted portfolio, because we have no OpEx, because in the U.S., we get a 19% better oil price. It's light oil. It's close to the Gulf Coast markets. It's -- we have more liquids in it. So it's a 34% overall premium to it. We're at the top of the heap when it comes to cash flow per BOE. And that's just the oil-weighted North American nature of our portfolio.

And what that does is allow us to pay the dividend that each of you receive every month. And so the yield is attractive. We're well covered down to $50 a barrel oil price, although I don't even hear anyone talking about that right now. But -- and I think it's important, just this multi-decade inventory that we've built. That slide that we spent all the time on really talks about the opportunity set that we've got in the pantry and the confidence that we can continue to build the business. And so today, you can get your 6% dividend yield that I think can participate in a pretty exciting story going forward.

And I'm just going to put this up there. I'm not going to repeat it. But yes, I'd love to take any questions that anybody has.

[Indiscernible]

Well, right now in southeast Saskatchewan, there's waterfloods. And then we do have royalty exposure to the miscible floods that the Weyburn -- with the Weyburn Unit that Whitecap is operating. And so those are the 2 big ones right now for EOR in southeast Saskatchewan. Probably I would call the big news in southeast Saskatchewan is this multilateral drilling technology. And so that in itself is probably the biggest new technology in southeast Saskatchewan that we're seeing operators using right now.

Am I on?

Yes. Well, there you go.

Okay. So up in the -- well, probably not the Duvernay, but the Montney more where the reservoir is a little better, is there any talk amongst people you know about maybe doing some sort of pressure maintenance to help with recovery of liquids in those reservoirs?

Well, the issue with the Montney is it tends to be a shale as well. And so when we talk about EOR schemes in the Permian and the shale, you'd be talking about a very similar thing in most of the unconventional Montney. So it's not something that you could waterflood. There is a smaller part of conventional, but... .

Yes.

Yes, and we've heard people talk about gas injection as a potential EOR scheme. It's very -- it'd be very similar to what the view would be in the Permian, where you've got a tight rock reservoir, can't put water in, but -- whether it's CO2 or gas injection to enhance recovery. In the Permian, they're not trying to inject it in a well and get it out at a neighboring well. It tends to be a huff and puff scheme.

So they'll inject it at a high pressure into the wellbore, and they'll turn around after injecting CO2 for typically 6 to 8 weeks. And they'll put it on production for 6 months, and then they'll do that again. And that -- kind of 6 cycles is what gives them this 45% increase. So parts of the Montney would be -- you could do that in as well, but it's early-stage type technology.

Shell and Ovintiv have moved back into Canada. Does that mean that we should be focusing in Canada now?

Just going to go back to this slide a little bit. So if we think of Canada, there's -- there tends to be mineral title in Canada as you move kind of from west for -- so that anywhere east of Highway 2 and you move eastward, you can buy mineral title. And most of that mineral title has been acquired by companies like ourselves, a PrairieSky, a Heritage, an Exxon.

And so to build the business in Canada, you really have to become a royalty financier. So you're going to offer somebody, I'm going to give you $20 million to drill some wells in exchange for a royalty on those wells. And as we see consolidation in the industry, and a lot of these bigger companies are controlling some of these bigger resource plays like a Montney, we'll use that as an example, companies like Ovintiv or CNRL or Shell aren't looking for royalty financing. They're well financed. They can execute their capital programs.

And so as a royalty player, we tend to get squeezed out of those parts of the basin, which you can't buy mineral title lands. They're Crown lands. They're owned by the Crown. And the only way to get exposure is through a royalty financing. And so when we looked at that, say, yes, I'd love to have a little bit more Montney exposure, a little bit more Duvernay exposure, but it's hard to get. And so we looked at that 5 years ago and said, we're better off. We can go compete in the U.S. where we can buy this mineral title and we can build the portfolio that we want there. So it's just more the availability of opportunity.

David, commodity prices have changed recently. And looking to be contango, basis differentials are shrinking. How is that affecting your strategy going forward?

Yes. I think that we went through a period last year where the strategy was -- availability of transactions was quite slow. So we really focused on building this bespoke portfolio with our ground game. Today, we started the year with not much for transactions, but I'll tell you, with oil at $100, everybody wants to sell assets. And so in any dialogue that we had in Canada on a royalty financing side has essentially gone away with commodity price. But in the U.S., there's just a lot more opportunity coming to surface.

And so we have the opportunity to invest beyond this ground game, but we are seeing a lot of these ground game opportunities, more of them available. And we are starting to see larger asset suites come available, greater than $150 million plus some of these marketed packages that have been sitting on the sidelines for quite some time. So from an opportunity set, we're certainly seeing a lot more opportunities. I think the challenge is there's a lot of capital sitting on the sidelines as well, looking to invest in the mineral space, particularly in the U.S.

So I think it's going to be pretty competitively bid, but our team has done just a really good job of identifying where we can buy these undeveloped spacing units. And so that's where I think that we're going to see a lot of our effort. I'm not sure we're going to be able to spend all the free cash flow that we have. And so it's a bit of a balance between paying down the debt with the windfall of cash that we would get at $100 oil and continue to be very strategic on how we place capital in some of this U.S. ground game.

David, just on debt, what's your target level? You're at 1.2x right now. Is it going to be a 1? Is it going to be a 0. How much -- what's the right magic number for debt?

I don't think there's a magic number on debt. I think that the debt that we're at, we're comfortable with at current debt. And so -- but we will take the opportunity to chip away at it here in this environment. And so when we think of our ideal business, it's a 60% payout ratio long term. It's debt that's probably less than 1 or maybe 0.8x at a longer-term price of $65 or something like that. And so we think that we've got some flexibility to move within those parameters and still execute several aspects of our business right now.

But David, what's your plan versus the surplus this year you've got. Dividends versus share buybacks, where do you sit? [indiscernible] instead of share buyback?

No, I think right now, while we're seeing opportunities, it's more on the M&A front. So I would say first call on capital is dividends. Second call is accretive, high-return M&A. Third call will be debt repayment. And then if we can't find anywhere to invest and we're ripping away at our debt, then maybe there's an opportunity to do some share buybacks, but that would be the kind of the order of priorities that we think about.

Well, excellent. I thank everyone for their time today for coming out and for engaging and having some good questions and some good dialogue. And we'll stick around for a while if anyone has questions and like to follow up more on.

Good day, and thank you for standing by. Welcome to the Freehold Royalties First Quarter 2026 Webcast. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, David Spyker, President and CEO. Please go ahead.

Yes. Good morning, everyone, and thank you for joining us today. On the call with me is Paul Slack, our Interim CFO; and Todd McBride, our Manager of Investor Relations. For those that don't know Paul, he's been with our organization for the past 6 years as our Controller and has been in the industry for 30 years.

So before we get started, please be advised that certain statements on this call are considered as forward-looking information, and we caution the listener to review the advisory on forward-looking statements in the news release and MD&A found on our website.

So in the first quarter of this year, we achieved production of 15,533 BOE a day with a liquids weighting of 65%. The oil and gas portion of our portfolio contributed 90% of our total revenue as our liquids-focused strategy continues to drive our business and will be the key in this current elevated oil price environment.

As we outlined in our conference call in March, our Q1 production reflects lower drilling activities in the latter half of 2025 when oil prices were sitting below $60 a barrel WTI.

We did have some seasonal impact of the winter storm that swept through the Southern U.S. in late January and resulted in approximately 300 barrels a day of production downtime in January or, in the quarter, is about 100 BOE a day on average.

Activity levels in the first quarter were focused on our oil-weighted assets in both Canada and the U.S. We saw continued strong activity levels in our heavy oil plays, the Clearwater and Mannville, in addition to very active programs in the Viking and Southeast Saskatchewan Light Oil with new drilling in these 2 light oil plays contributing over 225 barrels a day as we exited Q1.

On the U.S. side, drilling was focused in the Permian and continues to be led by some of our top operators in ExxonMobil, Occidental, and Diamondback. Activity in the Eagle Ford tends to be a bit more seasonal, and we see permitting and drilling activity just being initiated by ConocoPhillips, and production associated with this field activity will start to show up in the back half of this year.

In this current oil price environment, where we have a $100 a barrel oil this morning and balance of year strip pricing in the mid- to upper 80s a barrel, we are starting to see licensing activity pick up in the Clearwater, Southeast Saskatchewan, Viking, as well as some of our liquids-rich gassier areas in certain parts of the Deep Basin and West Central Alberta Glauconite. We would expect to see drilling activity in these areas after spring breakup and this activity would contribute to our 2026 exit volumes.

Looking ahead in the U.S., permitting and drilling activity has not seen a significant uptick yet. However, we are seeing all available frac spreads and service rigs activated to focus on bringing forward wells that have already been drilled and are awaiting completion.

Given the volatility in the oil price and no clear direction yet on the duration of its price strength, operators are still developing their capital deployment strategies. All these tailwinds are positive for the industry, and we expect the incremental production adds from any additional activity would show up in the latter half of 2026 and into 2027. Therefore, we are reiterating our 2026 production guidance at this time of 15,500 to 16,300 BOE a day annual production.

In the quarter, we generated $59 million of funds from operations or $0.36 per share at oil price of $72 a barrel WTI in the first quarter. With this funds flow, we paid $44 million in dividends to our shareholders, and we invested $19 million in oil-focused mineral title lands in undeveloped drilling areas in the core of the Permian Basin. These lands are in early stages of development with mineral title lands held in perpetuity and are in areas that have significant undeveloped resource. Our net debt settled a little higher as a result of these investments this quarter.

Our North American portfolio remains very well balanced with 55% of our production coming out of Canada and 45% out of the U.S. The U.S. represents a slightly smaller share of production, but it does deliver a disproportionately higher revenue component accounting for 51% of our total revenue this quarter. This is driven by the premium pricing and higher liquids weighting that we have in our U.S. assets.

In the first quarter, U.S. royalty volumes realized a 31% pricing premium compared to our Canadian production. Beyond the quality of the strong market access of our U.S. oil, our U.S. natural gas also received a 58% premium over Canadian gas price due to the proximity to the U.S. Gulf Coast LNG facilities and significantly more egress options than we have in Canada.

So as we think through our capital allocation priorities in this current price environment, after a monthly dividend, we look to be -- have a bit of a balance of debt repayment along with strategic acquisitions that enhance our portfolio. We continue to see high-quality opportunities to acquire this undeveloped mineral title lands in the core of the Permian, and our focus has been on these types of deals.

In the first quarter of this year, we invested $19 million in what we call these ground game style deals, adding over 200 drilling locations to our inventory under premier operators, ExxonMobil, Diamondback, Occidental, ConocoPhillips and Double Eagle.

Lastly, through our NCIB, we have the option of share buybacks. So this year marks our 30th year as a public company. And over the past 30 years, our production has grown at a 4% compounded annual growth rate, and we've maintained a monthly dividend throughout. Our portfolio offers investors exposure to the premier oil and natural gas basins across North America, including our growing heavy oil segment in Northern Alberta, a lighter oil plays in Southeast Saskatchewan, and exposure to Gulf Coast pricing with our Eagle Ford assets and our growing light oil and natural gas production from the Permian.

We invite you all to join us at our Annual General Meeting at 3:00 p.m. Calgary Time this afternoon. It will be held at the Eighth Avenue Place Conference Centre and at Suite 400,525 8th Ave Southwest, Calgary. More details, including a link to the webcast of our AGM can be found on our website at freeholdroyalties.com.

So with that, we're pleased to take any questions.

[Operator Instructions] And our first question will come from the line of Jamie Kubik of CIBC.

I just had a question with respect to the U.S. drilling activity in the quarter. It looked like it was down considerably year-on-year. Can you just talk about some of the nuances there and how you think that unfolds over the balance of the year?

Yes. Jamie, I think that's really more a reflection of trailing $60 WTI coming out of the last quarter and that plays into the first quarter of this year. Going forward, we are seeing an increase in permitting activity. And U.S. is a little bit different than Canada. And if you think of that, onstream time typically taking 12 to 18 months to go from permitting to drilling a pad. And so, what we are seeing is U.S. guys probably taking a little bit more time to decide how they're going to place their capital in this environment, because that drilling isn't going to capture $100 oil price that we see today. So they want to make sure that as they ramp up their programs, they're happy with what really is going to become 2027 pricing will impact those volumes.

So in Canada, you will see a little bit of quicker ramp-up. There's quicker cycle times. But in the U.S., I think we're just starting to see that activity ramp-up as a little bit more confidence in what late year pricing looks like and going into next year.

[Operator Instructions] And I would now like to turn the call back to Dave for closing remarks.

Excellent. Well, thanks, everyone, for joining today. And like I say, if you can make it over to the AGM this afternoon, we'd love to see you there. And thanks, and have a good day. Take care.

And this concludes today's program. Thank you for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Freehold Royalties Fourth Quarter 2025 Webcast. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, David Spyker, President and CEO. Please go ahead.

Good morning, everyone, and thank you for joining us today. On the call with me is Shaina Morihira, our CFO; and Todd McBride, our Manager of Investor Relations.

Before we get started, please be advised that certain statements on this call are considered as forward-looking information, and we caution the listener to review the advisory on forward-looking statements in the news release and MD&A found on our website.

So in 2025, we achieved our fifth consecutive year of record annual production, delivering 16,294 BOE a day from our North American royalty portfolio. Over this 5-year period, we have grown our liquids weighting from 55% to 66%. This high-value liquids production component contributed 90% of our total revenue in 2025. Our 2025 oil and natural gas liquids production was 10,730 BOE a day, an increase of 12% from 2024.

Our North American portfolio is very well balanced with 55% of our production coming from Canada and the other 45% from the U.S. As our U.S. portfolio benefits from premium pricing and a higher liquids weighting, the U.S. accounted for 53% of our revenue. During 2025, our U.S. royalty volumes received a 35% pricing premium compared to our Canadian production.

Our U.S. natural gas received an 80% premium over our Canadian natural gas price due to the proximity to U.S. Gulf Coast LNG facilities and significantly more egress options than in Canada. In 2025, we generated $235 million of funds from operations or $1.43 per share. With this funds flow, we paid $177 million in dividends to our shareholders.

We reduced our long-term debt by $18 million, and we invested $38 million in oil-focused royalty interest assets comprised of mineral title land in undeveloped drilling areas in the core of the Permian Basin and gross overriding royalty interest in Canada. These lands are all in early stages of development with mineral title lands held in perpetuity and are in areas that have significant undeveloped resource and drilling inventory.

Activity levels, particularly in the second half of 2025, were affected by lower commodity prices and generally cautious capital deployment as broader macroeconomic headwinds and uncertainty and outcomes of geopolitical tensions led to some operators to slow their activity. We were also impacted by continued multiyear weakness in Canadian natural gas prices, which has reduced the gas-directed drilling on our Canadian royalty lands.

We expect production to average between 15,500 and 16,300 BOE a day in 2026. This outlook reflects the slowdown in activity experienced in 2025, the continued weakness in Canadian natural gas prices, and the potential production impacts of the late January winter storm in the Southern United States, all of which are expected to moderate volumes in the first half of 2026.

However, we expect to ramp up in the second half of the year, supported by existing well licenses and permits, active drilling -- active current drilling programs and an inventory of drilled but uncompleted wells. To be clear, our guidance range does not consider the impacts of the recent geopolitical events in the Middle East, and we recognize the potential for a significant oil supply response if oil prices remain elevated.

Although our message is muted to start off 2026, we are excited about the resource expansion that is occurring in our core operating areas. In the Permian, operators are deploying surfactants to improve inflow characteristics and are using lightweight proppant to enhance frac stimulations. None of these initiatives existed even a few years ago, and now they are having a material impact to production type curves.

Our average production type curve in the U.S. has shown a 10% year-over-year improvement as operators continue to perfect their craft. We are also seeing more activity targeting the deeper formations that underlie the Permian, namely the Barnett and Woodford formations. This has been one of the drivers of our record levels of leasing in 2025. We had $8 million total in lease bonus revenue, which was up from $3 million in the previous year.

In November, we've had our first 4-well pad permitted on one of these new leases targeting this Barnett Shale. In Diamondback's Q4 earnings call, they estimate they have 900 Barnett drill locations, just gives you an idea of the scope of this opportunity set. We see several other operators also targeting the Barnett, including Ovintiv, who announced they will be drilling their first well in 2026.

Sometimes it's easy to forget that it was only 15 years ago that a successful combination of horizontal well drilling with multistage fracturing would grow the Permian to over 5 million barrels per day of oil, the equivalent of adding another Canada. So today, longer lateral lengths and drilling efficiencies are driving costs down across the industry and operators are consistently talking about the capital efficiency gains they realize year after year while continually recovering more oil for less dollars.

This longer lateral length theme is also showing up in the Eagle Ford, where ConocoPhillips will be drilling over 20 3-mile wells on our royalty lands in 2026. So those 3-mile wells will be double that of what the historical average drill length has been. They're also pursuing a refrac program this year. So targeting wells completed prior to 2016 that were understimulated when initially drilled. Freehold has a royalty interest in approximately 500 wells that would be refrac candidates.

So we're super excited to see how these major operators will further enhance efficiency and productivity with these improvements expected to be quickly adopted by industry. For Freehold, having high-quality assets in these premier basins places us in an excellent position to benefit from these tailwinds. On the Canadian side of our portfolio, capital continues to be directed toward our oil-weighted assets in heavy oil, both the Clearwater and Mannville stack and in Southeast Saskatchewan targeting light oil.

In Q1 of this year, we've seen a return of Viking light oil drilling activity, which was absent for the last half of 2025. And on the natural gas side, Ovintiv has licensed 23 Montney wells on our Northeast BC royalty lands. In Canada, overall, our average well performance improved by approximately 35% year-over-year as operators are targeting premium acreage and optimizing well design.

So our portfolio offers investors exposure in the premier oil and natural gas basins across North America, including our growing heavy oil segment in Northern Alberta, the lighter oil plays in Southeast Saskatchewan, exposure to Gulf Coast pricing with our Eagle Ford assets and growing light oil and natural gas production from the Permian. Industry innovation continues to deepen our portfolio as we continue to benefit from operators' ingenuity.

We are looking ahead to another strong year for Freehold as we continue to deliver long-term value for our shareholders. Before closing 2025, I would like to thank our staff for their tremendous efforts in successfully transitioning from the long-standing management agreement with RICE Management to becoming a fully independent Freehold.

And with that, we're pleased to take your questions.

[Operator Instructions] And our first question comes from Patrick O'Rourke of ATB Cormark.

I guess just going to the guidance here, you've talked about a little bit of a lower first half, higher second half. Maybe to unpack that a little bit, sort of how the cadence of production growth looks and then where you expect exit volumes to be and sort of the pad specifically that you're watching that give you confidence there?

Yes. Patrick, I think we're thinking about it internally here, you kind of think the lower end of guidance for the first half of the year and the higher end of guidance for the second half of the year. And what that's driven by is just the slower drilling activity coming out of last year takes a bit to regain that momentum.

Of course, we're dealing with spring breakup in Canada, which is always a bit slower time for a Canadian side. But what we're really looking at to support the back half volumes is some of the big pad activity that we've got under Diamondback and Exxon in the Permian. Also, those 3-mile wells and those refracs that we're talking about in the Eagle Ford, the insight that we're getting from Conoco is that production will be coming on in the second half of the year.

And in Canada, the -- we've got the Montney drilling that Ovintiv is doing that we see coming on in the back half of the year as well as we have some exposure under Spartan Delta in the Duvernay that we expect to come on in the back half of the year as well. So we've got clear line of sight to those back half year volumes.

And like I said before, that's based on our view coming out of 2025 and does not take into account any potential increase in pace of capital deployment in this current price environment.

Okay. And I think that's probably a great segue into my second question here. And I guess, as you think about the environment we're in, and it's very volatile, and I think this is all speculative as well.

But to the extent that you see potentially an acceleration of production from your underlying royalties and stronger pricing. If cash flow outstrips your current expectations on the somewhat conservative deck that you've used, can you sort of lay out where your free cash flow priorities would lie for any of that excess cash flow?

Patrick, it's Shaina. I can answer that question. I mean, I think what you said at this point, it is fairly speculative. We're kind of 12 days into this elevated pricing environment. So we're not getting too attached to it yet. But if we start to be in a period of longer, higher pricing, we would certainly look to obviously continue to pay our dividend, and that would obviously bring down our payout ratio a bit.

And then for any incremental cash flow, we would look to offset and apply that to the balance sheet. We'll continue to be patient in terms of looking at acquisition opportunities. I think if you're in a period of elevated commodity prices, there could be a bit of a larger gap between buyers and sellers. So we'll remain disciplined around that. But yes, I think it's too early to tell how long this higher pricing environment will last.

I guess if I could just quickly follow up. The one thing I didn't hear is any sort of context around the potential for any share buybacks. And I just wonder if you get to a target debt level, if that would come into play at all.

Yes. So I don't think we put out publicly that we have a target debt level that would initiate share buybacks. We have a target of being below 1.5x. And we'll continue to look at share buybacks. Obviously, we have the NCIB in place.

But as we've mentioned previously, I think if we've got alternatives in terms of reinvesting in the business and continuing to acquire those undeveloped acres in the Permian or even within Canada, that's where we would look to deploy capital. We see the benefit investing long term in the business.

And our next question comes from Jamie Kubik of CIBC.

Can you offer a bit more color on the production profile of the Canadian portfolio and the trend you've seen over recent quarters? And can you also maybe comment a little bit on the activity that you're seeing on the Canadian side to start 2026 and maybe contrast that to what you saw at the beginning of 2025?

Yes. So on the Canadian side, Jamie, we can break it down in a couple of different ways, kind of walk through some of our core operating areas. We just start with the Viking. We mentioned that one earlier. What we saw was that Viking capital went away after Q1 last year. And so that was an area of production decline in the portfolio. And we see in Q1 activity back again.

But I think that's generally operated by time as a PrivateCo, and we're seeing kind of Q1 activity levels from them and then a bit of a tapering off of activity for the rest of the year. In the Clearwater, I'll Clearwater and Mannville heavy together. Those 2 areas have provided consistent growth for us over the past couple of years, and we see that continuing this year with that part of the portfolio growing.

On the Southeast Saskatchewan, again, we're seeing that growing. It's been growing year-over-year as operators are testing out multi- technology in a number of different ways in Southeast Saskatchewan with some pretty encouraging results. And so we see capital continuing to be directed there. Some of the other plays that will be a little bit more gassy for us would be the Deep Basin and Cardium.

And the Deep Basin, we're seeing that come off, just a function of gas prices. That decline in Deep Basin has been ongoing for the last 3 years. And since we had the weakness in gas pricing starting in 2023. And so we would expect that to continue. If we do get some stronger oil pricing, we may see that come back a little bit because there's some liquids there that can be quite attractive, both in the Deep Basin and in the Cardium.

Probably another bright spot that we can talk about in Canada right now is kind of the Mannville section, we call kind of west of Highway 2, that kind of Garrington Caroline up into that Ferrier area, where operators like TAQA and Whitecap, Pine Cliff has been drilling some wells. Tourmaline have been active in there, targeting Mannville sands.

There's a number of different in there, whether it's [ Glauconite ], Ellerslie. And so we've seen some pretty interesting results there. And then finally, yes, with our Montney position under Ovintiv in Northeast BC, they drilled 3 wells last year. They've got 23 wells licensed this year. And those are high-impact wells in our portfolio. So that's where we -- that's how we see Canada right now shaping up in a bit of a kind of play-by-play breakdown.

Okay. And maybe just to ask a specific, but given the Montney wells would be impactful, like are those assumed at a 5% royalty rate or lower on Freehold's acreage? Or can you talk a little bit?

3.5% royalty -- so it's a meaningful number on 20 million a day well.

Okay. And then maybe just quickly, and apologies if this is in your presentation somewhere, but can you talk about maybe the guidance split between Canada and the U.S. on what you would expect from a production basis in 2026?

Yes. I think how we're thinking of the U.S. that the U.S. would be -- I would say we're probably seeing throughout the year if we go from quarter end to quarter end of this year, that's probably seeing 5% to 7% production growth. And so the decline is coming out of Canada a little bit.

So those volumes -- those Montney volumes really show up in Canada late in the year is how we're modeling it right now, whereas the drilling of the big pads in the U.S. are really starting to show up kind of middle of Q3 and growing into year-end.

Okay. Maybe last question for me is you set your budget at $65, and I know you mentioned this a little bit already, you set your budget at $65 a barrel WTI. Obviously, we're much higher than that right now.

Freehold hasn't historically hedged. Would you look to layer in hedges in 2026 to capture some upside on oil pricing? And maybe second part of the question is where would you put incremental free cash flow if prices do materialize above where you budgeted?

Yes. We've not been a hedger and aren't considering that at this time. Just if we look at the call on capital in our structure, it's not required to execute a capital program and our balance sheet is in good shape. But first call on incremental capital, as Shaina mentioned, would be against the balance sheet.

So just target paying down debt. I think we do continue to see opportunities on both sides of the border, and it will be interesting to see how that transpires in a higher price environment. But we see lots of opportunity to continue buying -- placing free cash flow into buying this mineral title in the core of the Permian, where you've got kind of 5,000 feet of opportunity. And so definitely continue on that as well.

[Operator Instructions] I show no further questions at this time. I'd like to turn it back to David Spyker for closing remarks.

Yes, I appreciate everyone's participation in the call today. So some good questions. And yes, we're super excited about the business, and we're looking forward to talking to you next at the AGM in May. Thank you very much.

This concludes today's conference call. Thank you for participating, and you may now disconnect.

Good day, and thank you for standing by. Welcome to the Freehold Royalties Third Quarter 2025 Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, David Spyker, President and CEO. Please go ahead.

Good morning, everyone, and thank you for joining us today. On the call with me is Rob King, our COO; Shaina Morihira, our CFO; and Todd McBride, our Manager of Investor Relations.

So before we get started, I just want to advise everyone that certain statements on this call are considered as forward-looking information, and we caution the listener to review the advisory on forward-looking statements in the news release and MD&A found on our website.

So for the quarter, we achieved production of 16,054 BOE a day with a liquids weighting of 65%. This represents a production increase of 10% from Q3 2024, reflecting the contribution from our Permian Basin acquisition in late 2024, in addition to continued drilling activity across our asset base.

With the acquisition work, we have shifted to a much more balanced portfolio where 45% of our production in the first 9 months of 2025 is from the U.S., now representing 53% of our revenue. This is a material shift from the first 9 months of 2024, where 36% of our production was in the U.S.

This balanced approach allows us to take advantage of stronger U.S. pricing with a realized oil price of $93.25 a barrel for the first 9 months of the year compared to $79.03 a barrel for our Canadian oil.

It is a similar story on the natural gas side, where U.S. realized pricing was $2.72 an Mcf over the same period, twice that of our Canadian gas price of $1.34 an Mcf. So with a liquids-weighted North American portfolio, we're delivering best-in-class operating margins.

In Canada, our heavy oil production grew 13% compared to the same quarter last year as producers continue to actively develop our lands in the Mannville heavy oil and Clearwater plays. Drilling activity in Canada picked up after spring breakup with 83 wells drilled this quarter.

In addition to the heavy oil drilling, we are seeing an uptick in drilling activity related to the Belly River, Cardium and the light oil and liquids-rich Mannville section in Western Alberta. A number of our operators are having success in these plays with horizontal drilling applications.

On the gas side, we see production down 6% compared to the third quarter of 2024, as the weaker gas pricing in Canada, it was $0.63 an Mcf AECO in the third quarter has kept gas-directed drilling rigs on the sidelines. As we head into winter with a stronger Canadian gas price outlook, we are seeing licensing activity and drilling activity pick up.

Drilling activity on our U.S. lands continues to be concentrated in the Permian Basin with 92% of the quarter's activity focused there. Activity has been steady year-over-year as our large investment-grade payers such as ExxonMobil continue to execute their capital programs. ExxonMobil plans to grow their Permian production from about 1.6 million oil equivalent barrels daily to 2.3 million by 2030.

Given Freehold's mineral title position in the Permian, this would reflect approximately 800 BOE per day growth from our ExxonMobil-operated lands, which is approximately a 20% increase from our current overall Permian production levels.

This quarter, we have 4 large well pads, 63 gross wells in total on those 4 pads drilled in the Permian and all currently in various stages of completion. These large pads are operated by investment-grade operators and are a good reminder of the scale and scope of drilling and completion operations in the Permian.

In the Eagle Ford Basin, as we've seen in previous years, production was lower quarter-over-quarter due to timing of drilling activity from our largest payer, ConocoPhillips.

Exciting things that is going on in the U.S. right now is that we're seeing considerable infrastructure build-out underway to improve gas takeaway capacity out of the Permian Basin to feed the rapidly expanding Gulf Coast LNG export capacity and data center growth.

Gas production from the Permian is growing at a faster pace than any other U.S. basin with the next phase of pipeline expansion expected to be in service late next year. Freehold has 11 million cubic feet a day of gas production in the U.S. and is well positioned to participate in the ramp-up of gas required to feed LNG demand and the data center power requirements.

In support of the strong leasing activity we've seen year-to-date, particularly in the U.S., we just had a 4-well pad permitted on one of those leases, targeting the deeper Barnett Shale in the Permian, as operators continue to look to unlock the multiple reservoir benches in this resource-rich basin.

Both sides of the border, we're seeing operators focusing on optimizing well placement in the reservoir, advancing drilling efficiencies and lateral lengths and enhancing completion designs. We continue to see a shift to longer horizontal wells in the U.S. with our average horizontal well length increasing 12% year-over-year.

In 2025, almost 40% of the wells drilled on Freehold's lands in the Midland Basin are 3 miles or longer compared to only 30% in 2024. These continued improvements in accessing the reservoir have resulted in a 15% improvement on average production rates when compared to last year's averages. Similarly, in Canada, average well performance is up 25% compared to 2024 across our lands.

So turning to our financial results. We generated $59 million of funds from operations in Q3 2025 or $0.36 a share. With this funds flow, we paid $44 million in dividends to our shareholders, we reduced our long-term debt by $9 million and we invested $5.8 million in acquisitions focused on purchasing undeveloped lands in the Permian Basin and select Western Canadian operating areas.

Freehold continues to advance its ground game strategy of acquiring mineral title lands in the U.S. ahead of the drill bit. This approach enables us to acquire lands that are held in perpetuity in areas that have significant undeveloped resource and drilling inventory.

On the Canadian side, we continue to partner with talented technical teams to fund their drilling programs in exchange for a royalty and a drilling commitment.

So our portfolio offers investors exposure to the premier oil and gas basins across North America, including our growing heavy oil segment in Northern Alberta, the lighter oil plays in Southeast Saskatchewan, exposure to Gulf Coast pricing with our Eagle Ford assets and the growing light oil and natural gas production contribution from the Permian.

Our U.S. portfolio is driving 33% higher pricing when compared to our Canadian asset base, benefiting from light sweet oil production, close to markets and strong U.S. natural gas pricing supported by the aforementioned LNG build-out and growing demand for natural gas-fired power generation to feed data centers.

We continue to deliver a monthly dividend of $0.09 per share with a payout ratio of 72% through the first 9 months of 2025 and sustainable to prolonged USD 50 WTI price levels.

So with that, we're pleased to take your questions. Thank you.

[Operator Instructions] And I have a question. Our first question will be coming from Jamie Kubik of CIBC.

I just had a couple of questions for you on the U.S. business. It looked like net drilling was down year-on-year despite the increase in asset heft, I suppose, after the acquisition that you completed last year. Can you just talk about some of the nuances in that? And then can you also talk about the NGL volumes in the U.S., what you're seeing on that side? It looked like a pretty big number again this quarter.

Jamie, it's Rob here. I'll answer the first part, and Shaina will answer the second part. So on our U.S. drilling in Q3, I think a lot of it was probably more related to our Eagle Ford asset. When we look at our Permian drilling, which was clearly the key focus of our acquisition activity in 2024, that we've sort of certainly seen the expectation in the drilling results sort of in line with, say, what our expectations were.

On the Eagle Ford side, that's probably more of a timing issue that we've observed with our key payer in the Eagle Ford being ConocoPhillips in that activity that we expected to see in Q3 looks like it's been pushed into Q4.

And then on the NGL question, Shaina will touch on that.

It's Shaina. So just a little more color around the NGL volumes that we are seeing. So we have seen an increase in the NGL yields that we're recognizing on some of those 2024 acquisitions. The challenge is the timing of when we get recognized by some of our operators for those assets. So there is a bit of a lag in the U.S. compared to what we would see here in Canada.

So we did have some adjustments that came through tied to those higher NGL yields. We're not expecting that to continue going forward, as we trued up a lot of those balances in the third quarter.

Okay. And then maybe a bit of a different question here. But can you just talk about the capacity increase in your credit facility? What you look to do with the increased capacity, and how you're thinking about capital allocation here?

Sure. So I can take that one, Jamie. So yes, we did increase our existing credit facility to $500 million from $450 million, just to provide greater financial flexibility. We still plan to live within cash flow, but I think having that extra capacity makes sense for Freehold. We also extended the credit facility by a year to a tenure to November of 2028. So I feel that it gives us options, and as I said, that additional kind of financial flexibility going forward.

Okay. And then maybe last one from me is just on the NCIB. I didn't see any activity from Freehold in the quarter. How are you thinking about that capital allocation option going ahead?

Sure. I could take that one as well. So I think, first and foremost, we are -- we remain committed to our current dividend. And so we see that as being sustainable kind of through a prolonged USD 50-barrel environment. So with the lower commodity prices, we have increased our payout ratio, so sitting around 72% year-to-date. So that does exceed our target dividend payout ratio of 60%.

However, we still believe kind of under mid-cycle pricing, 60% remains competitive. So in terms of alternate uses of capital for the available funds from operations, we continue to be excited about our Permian ground game and other Canadian opportunities where we can get kind of high-teen, low-20 return. So in terms of the NCIB, it continues to remain in place as an option, but it is a tool available to us, not something we've initiated on at this point.

And I'm showing no further questions at this time. I would like to turn the call back to Dave for closing remarks.

Okay. Well, thank you all for joining our call today and allowing us to share with you our enthusiasm for business and all the things that we have going on in our business today. So thanks again, and have a good weekend.

And this concludes today's program. Thank you for participating. You may now disconnect.

Good morning, ladies and gentlemen, and welcome to the Q2 results conference call. I would now like to turn the meeting over to Mr. David Spyker. Please go ahead.

Good morning, everyone, and thank you for joining us today. On the call with me from Freehold are Rob King, our COO; Shaina Morihira, our CFO; and Todd McBride, our Manager of IR. Shaina joined our team as CFO in June of this year, and we look forward to working together and having the opportunity to introduce her to you, our shareholders, over the coming months. So we delivered a strong second quarter, reflecting the resiliency of our North American portfolio despite the uncertainty and caution associated with the constant headlines that are driving volatility in both markets and commodity prices. During the quarter, we achieved production of 16,584 BOE a day with a liquid weighting of 67%, both new high watermarks for Freehold as we continue to build and evolve our portfolio.

This 9% production growth from the second quarter of last year reflects our strategic acquisitions over the past 12 months, which have expanded and strengthened our U.S. positioning, particularly in the Permian Basin. As in Canada, operators in the U.S. continue to drive higher production levels while minimizing rig time and associated costs. During the quarter, we had several prolific wells come online, producing at rates double that of the performance of historical offsetting wells. These high productivity wells were key contributors to the production levels achieved this quarter and a reminder of the ongoing advancements in well drilling and completion strategies despite there being over 100,000 horizontal wells drilled to date in Texas.

Specific to this example, we had 31 new wells drilled on six distinct drilling pads across the Permian and Eagle Ford basins. And these wells are brought on with initial production rates, IP30s of over 73,000 BOE a day. Freehold's average net royalty interest across these 31 wells was 1.1%, more than twice that of Freehold's average U.S. royalty interest. And as such, the combination of outstanding well results and a higher royalty interest was particularly impactful. For those of you that can see on the screen, we've included a graph that illustrates how these Permian and Eagle Ford wells compared to other world-class unconventional resource plays in North America, such as the Montney and Duvernay in Canada.

The production performance curves are very similar. And in general, the Permian and Eagle Ford wells have a much higher oil weighting with Eagle Ford being similar to the Duvernay and the Permian being oilier than most unconventional Canadian plays. Growth drilling activity in the quarter in the U.S. remained consistent with the prior quarter and increased almost 10% year-over-year. We ended the quarter with approximately 4.6 net activity wells, and these are wells that have been permitted as they call it in the U.S. or licensed as we refer to it in Canada, plus wells that have been drilled but yet not completed. So recall that we need about 4 net activity wells to maintain our U.S. production.

So at 4.6 net wells, we're well ahead of that pace. We have seen a slowdown in drilling rig activity in both the Permian and Eagle Ford basins. Both are down about 10% year-to-date compared to last year. This has been offset by an improvement in drilling efficiencies as total meters drilled in the horizontal section of the wellbore or the pay interval is the same as last year despite the lower rig count. Our largest payers in the U.S. accounting for approximately 60% of Freehold's U.S. revenue are ConocoPhillips and ExxonMobil. Both of these companies have maintained a similar market share of drilling rigs in the Midland and Eagle Ford basins, as shown on the left-hand chart, respectively, over the past 3 years.

The benefit of exposure to these large investment-grade companies is that they approach capital programs with a longer-term view, maximizing program efficiencies and reducing activity level volatility. In Canada, we saw a seasonal slowdown in drilling activity during spring break up, while licensing activity remains strong with a similar number of licenses in the first half of 2025 as through the same time period in 2024. We view this as a positive tailwind for the second half activity. Our key Canadian oil plays grew by 10% compared to the second quarter of last year.

These key oil plays are the Mannville and Clearwater heavy oil and in Southeast Saskatchewan light oil. These three plays now make up approximately 30% of our Canadian production. So moving on to financial performance. We had another strong quarter of bonus and leasing activity, driving a combined $5.8 million in revenue for the first half of 2025. This increased leasing activity reflects continued operator interest in leasing our Canadian mineral title lands as well as leasing activity on our expanded U.S. mineral title portfolio. Funds from operations were $57 million in the quarter or $0.35 per share.

Benchmark oil pricing was 11% lower than the previous quarter, dropping almost $8 a barrel to approximately $64 a barrel, the lowest level since the first quarter of 2021. By comparison, however, in that first quarter of 2021 or just over 4 years ago, our funds from operations were $0.25 a share. At $0.35 a share today, this marks a 40% increase in FFO per share at a similar WTI oil benchmark price. This improvement reflects our initiatives to build our production through the acquisition of high-quality assets in the U.S. that deliver premium-priced light oil barrels in basins with multi-decade drilling inventories.

We paid $44 million in dividends to our shareholders in the second quarter, and we invested $12 million to acquire undeveloped mineral title lands in the U.S. These land acquisitions are in the core activity areas of both the Midland and Delaware Basins of the Permian, where operators are prioritizing development, leveraging the ability to develop these lands with the most recent drilling and completion efficiencies, thus optimizing production performance and reserve recoveries as we referred to earlier.

Over 90% of the drilling permits on Freehold's Midland Basin lands this year have been on undeveloped acreage, and we expect to realize returns in the high teens, low 20s percentage range from these investments. We continued to maintain the strength of our balance sheet with net debt of $271 million at the end of the second quarter, representing a 1.1x trailing net debt to funds from operations. So with that, we're pleased to take your questions.

[Operator Instructions] We have a first question on the telephone lines. It is from Patrick O'Rourke from ATB Capital Markets. I'm sorry, Mr. Patrick O'Rourke has hung up. I will skip to the next question from Kevin Fisk from Scotiabank.

Freehold had strong liquids production in Q2. Can you walk us through your outlook for liquids production for the rest of the year?

Yes. Thanks, Kevin. I'll turn that over to Rob here.

Yes, so Q2 had very strong NGL volume growth, it's almost on the U.S. side, almost 30% kind of quarter-over-quarter. Some of that was reflective of a prior period adjustment where we got some additional liquids volumes in Q1, but there's also additional liquids and frankly, some additional oil clearly from those six pads, 31 wells that Dave talked about.

I think where we continue to see liquids growth in both our Canadian assets, as Dave talked about, about 30% of our Canadian volumes are coming from Southeast Sask, Mannville heavy and Clearwater, where sort of a disproportionate amount of the licensing and leasing activity has been taking place on our lands. And then similarly, on the U.S. side, where, again, those 4.5, 4.6 net activity wells that Dave talked about, most of that is concentrated within our Midland and Eagle Ford position, which those liquids weightings tend to be in the 70%, 80-plus percent range.

The next question is from Josef Schachter from Schachter Energy Research.

First question for me is the Canadian number of wells down by 20 to 45 versus 65. And it looks like nothing was going on in the Viking, very little in the Cardium. Is it that because of the higher gas weighting there? And given the commodity price that drilling there was slower? How do you see those two areas moving in terms of activity into the end of the year?

Yes, it's Dave here. I can handle that. On the Cardium, we definitely see that Cardium, despite it being a bit of an oilier type of play, still needs stronger gas pricing to make those economics go around. And so over the last couple of years with the weaker AECO pricing, we have seen activity levels come off in the Cardium. And so that's just a simple matter of well economics. On the Viking side, that has been a play that typically is a bit more seasonal. We see a lot of drilling activity in the Viking that comes on in -- starts in late December and contributes to our Q1 production volumes.

And there, we've had relatively consistent activity on that play. But again, we don't see it as a play that's going to represent growth in the portfolio. It's been a very strong performer for us over the last 10 years. But if we look at other plays in the portfolio that are attracting capital such as the ones that both Rob and I had talked to earlier, that's where we see the growth coming from. Viking, we see that more of a kind of a flat production profile going forward.

Super. Second question for me. The Belly River is getting a lot of attention from medium guys, but even companies like Tourmaline are talking about 700, 800 BOEs a day, mostly liquids. Do you guys have a lot of exposure in the Belly River?

Yes, we have a reasonable amount of exposure, and we are the benefit right now of some of that Belly River drilling, some of the leasing in the second quarter of this year was in the Belly River. And so we expect that area to continue to attract capital and be a growth area for us. I think like you pointed out, it's emerging. It's just starting to come into the limelight. But certainly, it's been active.

Last one for me. How do you see the M&A side? Is it from the activity and number of deals you're looking at, is it in your -- possible in terms of a deal of some significance, material deal for you guys before year-end?

I think right now, where we're focusing on, Josef, is on what we call the ground game or acquiring these undeveloped mineral title lands in the U.S. When we're getting high teens, low to mid-20s returns on that, it's a pretty efficient way to build the portfolio. And you pair that with the fact that the -- where we're seeing all the drilling is on these undrilled spacing units. And again, for as long as the Permian has been around, it's quite amazing how many undrilled lands there are that we're targeting. From a bigger scale perspective, we're not seeing the same level of opportunity that we've seen in prior years. I think that we're hearing that there are some bigger packages that are going to be marketed potentially later this year and into next year. But we don't have a sense of what those look like yet or what the scale and scope would be.

Congratulations on a good growth quarter.

The next question is from Patrick O'Rourke from ATB Capital Markets.

Apologies for before, the call seemed to drop on me. And I apologize if this has already been asked because I was off for a moment there. But just sort of walking through some of the variability in the net royalty rates in the U.S. that you guys have seen and thinking about how that relates to the 2.2 DUCs and the 2.4 permitted but not yet drilled wells. Can you maybe provide a little bit of color on sort of the concentration and the nature of those DUCs that you have outstanding right now?

Yes. I mean there -- I don't have the exact NRI percentage in terms of what makes up those, but they're pretty well distributed, I would say. As mentioned, our average net royalty interest in the U.S. is about 0.5%. And I think that would be -- in fact, that's baked into that 4.6 calculation or a number of net activity wells that was represented there.

Okay. And then just in terms of balance sheet capital management and the dividend here sort of towards the upper end of the payout range. Is it still reasonable to expect that dividend growth accompanies the outlook for M&A going forward here?

Patrick, it's Shaina. Thanks for the question. I think at this point, we're quite comfortable with our 60% payout ratio and the $0.09 per month. I think we'll continue to evaluate that as we look forward with any type of M&A, but I think we're at a good competitive level at this point.

There are no further questions registered at this time. I will turn the call back to Mr. Spyker.

Okay. Thanks, everyone, for joining us this morning, and I look forward to catching up again next quarter. Thank you.

Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.