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PrairieSky Royalty Ltd.

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PrairieSky Announces 2016 Fourth Quarter and Year End Results and Dividend Increase

CALGARY, ALBERTA--(Marketwired - Feb. 27, 2017) - PrairieSky Royalty Ltd. ("PrairieSky" or the "Company") (TSK:PSK) is pleased to announce its fourth quarter and year end operating and financial results for the period ended December 31, 2016. In addition, PrairieSky's Board of Directors has approved a dividend increase of $0.03 per share per annum (4%) and allocated $44.0 million to extend PrairieSky's normal course issuer bid ("NCIB") from May 2, 2017 to May 1, 2018. The dividend increase to $0.75 per share per annum ($0.0625 per share per month) will be effective for the March 2017 dividend payable on April 17, 2017. 

2016 Fourth Quarter and Full Year Highlights:

  • Reported average fourth quarter royalty production of 23,978 BOE per day (46% liquids), with average royalty production of 23,308 BOE per day (47% liquids) for the year ended December 31, 2016.
  • Recorded fourth quarter Funds from Operations of $61.8 million ($0.27 per common share) and $200.2 million for the year ended December 31, 2016 ($0.88 per common share).
  • Reduced cash administrative expenses across the business to $2.22 per BOE for the fourth quarter 2016, down from $2.45 per BOE for the third quarter of 2016 and $3.94 per BOE for the fourth quarter 2015.
  • Dividends declared in the fourth quarter of $41.1 million ($0.18 per share) resulting in a payout ratio of 67%.
  • Completed four separate acquisition transactions in the fourth quarter, funded entirely from cash on hand, for aggregate consideration of $117.3 million and representing approximately 460 BOE per day (83% liquids) of high quality royalty production and over 100,000 acres of mineral title and royalty lands including a 3.95% gross overriding royalty interest at Onion Lake, Saskatchewan which provides exposure to a long life heavy and thermal oil project including future phases.
  • Maintained a strong balance sheet with $44.2 million of positive working capital and nil debt as of December 31, 2016.
  • Subsequent to year-end, completed an acquisition for a 4% gross overriding royalty on current and future phases of the Lindbergh SAGD thermal oil project as well as seismic over certain lands in British Columbia and Alberta for total cash consideration of $250 million.

PRESIDENT'S MESSAGE

PrairieSky is committed to adding value for shareholders through all commodity cycles. Throughout a very challenging year for the Canadian oil and gas industry, PrairieSky remained focused on its strategy of delivering strong, risk adjusted returns to its shareholders through the leasing of undeveloped land, managing controllable costs in our business, and pursuing acquisitions which are accretive on a per share basis and match the quality and duration of PrairieSky's existing business. 

During 2016, PrairieSky actively marketed our fee title lands and saw significant leasing interest on the acreage, earning $12.4 million in lease issuance bonus and entering into over 110 leasing arrangements with over 70 different counterparties. This leasing activity is a precursor to future drilling activity on new and existing plays. During the fourth quarter of 2016, approximately 140 wells were spud on PrairieSky lands bringing the annual total to over 500 wells as compared to over 650 wells spud in 2015. For the full year 2016, we estimate that approximately $630 million of third party capital was spent drilling and completing new wells on PrairieSky's lands, representing a decrease of approximately 32% from estimated 2015 capital spending of approximately $923 million. Drilling and licensing activity was focused on the Viking light oil play in western Saskatchewan, as well as light oil plays in the Mannville in central Alberta, the Bakken in southern Alberta and Saskatchewan, and multiple liquids rich resource play targets in the Deep Basin including the Montney and Spirit River formations.

During the fourth quarter, PrairieSky generated funds from operations of $61.8 million, of which $41.1 million was used to pay dividends of $0.18 per common share (67% payout ratio) and $9.9 million was used to acquire 327,000 common shares under PrairieSky's NCIB with excess cash flow added to the balance sheet. At December 31, 2016, PrairieSky maintained a strong balance sheet with $44.2 million of positive working capital, including $34.0 million of cash on hand, and no debt.

PrairieSky remains committed to paying dividends and reducing the share count using internally generated free cash flow. PrairieSky is pleased to increase the dividend by $0.03 per common share annually to $0.75 per common share. The dividend will be paid out of internally generated free cash flow, assuming current strip pricing, while using excess cash flow to repurchase common shares and add cash to the balance sheet.

Since inception, PrairieSky has remained focused on cost control, creating efficiencies and investing in technologies which benefit the business over the long term. Quarter over quarter cash G&A was down by 9% to $2.22 per BOE in the fourth quarter of 2016 from $2.45 per BOE in third quarter of 2016. Year over year, PrairieSky's cash G&A decreased to $2.78 per BOE in 2016 from $3.72 per BOE in 2015. PrairieSky's staff continued their focus on ensuring timely and accurate royalty payments, collecting $8.3 million in royalty compliance recoveries in 2016.

During Q4 2016, PrairieSky deployed $117.3 million in acquisition capital, representing approximately 460 BOE per day (83% liquids) of high quality royalty production and over 100,000 acres of mineral title and royalty lands. In the two largest transactions, the Company acquired a combined 3.95% royalty interest at Onion Lake, Saskatchewan representing exposure to a long life heavy and thermal oil project, including future phases. Subsequent to year-end, PrairieSky closed its $250 million acquisition of a 4% gross overriding royalty on current and future phases on the Lindbergh SAGD thermal oil project, as well as seismic over certain lands in British Columbia and Alberta. PrairieSky continues to see quality acquisition opportunities including small and medium sized potential transactions, and will remain selective and disciplined in our evaluation of new royalty opportunities.

I would like to thank our shareholders for their continued support. Please contact Pam Kazeil, our Chief Financial Officer, at 587-293-4089 or myself at 587-293-4005 with any questions.

Andrew Phillips, President & CEO

DIVIDEND INCREASED TO $0.75 PER SHARE; $44.0 MILLION ALLOCATED TO NCIB

PrairieSky will increase its current dividend level to $0.75 per common share, effective for the March 31, 2017 record date payable on April 17, 2017. The Board of Directors considers a number of factors in determining the dividend level, including current and projected activity levels on PrairieSky's royalty lands, the current commodity price environment and the working capital balance and earnings of the Company.

PrairieSky's Board has also authorized Management to apply to the Toronto Stock Exchange to extend its NCIB for an additional one year period commencing on May 2, 2017 and has allocated $44.0 million to repurchase common shares under the NCIB from May 2, 2017 to May 1, 2018. PrairieSky's current NCIB allows PrairieSky to purchase for cancellation up to 1,600,000 common shares until May 1, 2017. From commencement of the NCIB on May 2, 2016 to December 31, 2016, PrairieSky has purchased and cancelled 960,000 common shares at an average price of $27.04 and an aggregate cost of $26.0, funded entirely from free cash flow.

FINANCIAL AND OPERATIONAL INFORMATION

The following table summarizes selected operational and financial information of the Company for the periods noted. All dollar amounts are stated in Canadian dollars unless otherwise noted.

A full version of PrairieSky's Management's Discussion and Analysis ("MD&A") and Audited Financial Statements and notes thereto for the fiscal period ended December 31, 2016 is available on SEDAR at www.sedar.com and PrairieSky's website at www.prairiesky.com.

FINANCIAL RESULTS

         
($ Millions, unless otherwise noted) Three
months
ended
December 31,
2016
Three
months
ended
December 31,
2015
Year
ended
December 31,
2016
Year
ended
December 31,
2015
FINANCIAL                
Revenues $ 67.9 $ 44.8 $ 224.2 $ 215.0
                 
Funds from Operations(1)   61.8   60.0   200.2   177.8
  Per Share - basic and diluted(2)   0.27   0.36   0.88   1.14
                 
Net Earnings and Comprehensive Income   16.1   8.0   20.0   63.0
  Per Share - basic and diluted(2)   0.07   0.05   0.09   0.40
                 
Dividends declared(3)   41.1   58.6   186.7   206.5
  Per Share   0.1800   0.3250   0.8167   1.3000
                 
Acquisitions including non-cash consideration   112.2   1,463.2   144.8   1,525.1
Working Capital at period end   44.2   210.3   44.2   210.3
                 
Shares Outstanding (millions)                
  Shares outstanding at period end   228.0   228.2   228.0   228.2
  Weighted average - basic   228.2   168.2   228.6   155.7
  Weighted average - diluted   228.5   168.4   228.8   156.0
                 
OPERATIONAL
Royalty Production Volumes
               
  Natural Gas (MMcf/d)   78.2   62.2   74.7   60.9
  Crude Oil (bbls/d)   8,583   5,432   8,455   5,484
  NGL (bbls/d)   2,362   1,852   2,403   1,591
Total (BOE/d)(4)   23,978   17,651   23,308   17,225
                 
Realized Pricing                
  Natural Gas ($/Mcf) $ 2.27 $ 2.45 $ 1.65 $ 2.67
  Crude Oil ($/bbl)   52.09   40.74   44.22   47.80
  NGL ($/bbl)   24.14   22.65   22.01   23.01
Total ($/BOE)(4) $ 28.47 $ 23.59 $ 23.61 $ 26.80
                 
Operating Netback per BOE(1) $ 23.16 $ 18.29 $ 19.17 $ 21.14
                 
Funds from Operations per BOE(1) $ 28.01 $ 36.95 $ 23.47 $ 28.28
                 
Natural Gas Price Benchmarks                
  AECO ($/Mcf) $ 2.82 $ 2.65 $ 2.09 $ 2.75
                 
Foreign Exchange Rate (US$/CAD$)   0.7496   0.7489   0.7548   0.7820
                 
Oil Price Benchmarks                
  West Texas Intermediate (WTI) (US$/bbl) $ 48.64 $ 41.71 $ 42.99 $ 48.61
  Edmonton Light Sweet ($/bbl) $ 59.95 $ 52.16 $ 52.82 $ 56.97
(1) A non-GAAP measure which is defined under the Non-GAAP Measures section in the MD&A.
(2) Net Earnings and Comprehensive Income and Funds from Operations per Common Share are calculated using the weighted average number of Common Shares outstanding.
(3) A dividend of $0.06 per Common Share was declared on December 15, 2016. The dividend was paid on January 16, 2017 to shareholders of record as at December 30, 2016.
(4) See "Conversions of Natural Gas to BOE".

2016 RESERVES INFORMATION

PrairieSky's year end 2016 reserves were evaluated by independent reserves evaluators GLJ Petroleum Consultants Ltd. ("GLJ"). The evaluation of the Royalty Properties was done in accordance with the definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook and National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities. PrairieSky's reserves information is included in the Company's Annual Information Form which is available on SEDAR at www.sedar.com and PrairieSky's website at www.prairiesky.com.

CONFERENCE CALL DETAILS

A conference call to discuss the results will be held for the investment community on Tuesday, February 28, 2017 beginning at 6:30 a.m. MT (8:30 a.m. ET). To participate in the conference call, approximately 10 minutes prior to the conference call, please dial:

(866) 413-7174 (toll free in North America)
(647) 427-2293 (International)

FORWARD-LOOKING STATEMENTS

This press release includes certain statements regarding PrairieSky's future plans and operations and contains forward-looking statements that we believe allow readers to better understand our business and prospects. The use of any of the words "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends", "strategy" and similar expressions are intended to identify forward-looking information or statements. Forward-looking statements contained in this press release include our expectations with respect to PrairieSky's business and growth strategy, additional land leasing activities, land leasing activities being a precursor to future drilling activity, and renewal of the NCIB and application to the TSX in respect of the same.

With respect to forward-looking statements contained in this press release, we have made several assumptions including those described in detail in our MD&A and the Annual Information Form for the period ended December 31, 2016. Readers and investors are cautioned that the assumptions used in the preparation of such forward-looking information and statements, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. Our actual results, performance, or achievements could differ materially from those expressed in, or implied by, these forward-looking statements. We can give no assurance that any of the events anticipated will transpire or occur, or if any of them do, what benefits we will derive from them.

By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond our control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, lack of pipeline capacity, currency fluctuations, imprecision of reserve estimates, royalties, environmental risks, taxation, regulation, changes in tax or other legislation, competition from other industry participants, the lack of availability of qualified personnel or management, stock market volatility, political and geopolitical instability and our ability to access sufficient capital from internal and external sources. In addition, PrairieSky is subject to numerous risks and uncertainties in relation to acquisitions. These risks and uncertainties include risks relating to the potential for disputes to arise with counterparties, and limited ability to recover indemnification under certain agreements. The foregoing and other risks are described in more detail in PrairieSky's MD&A, and the Annual Information Form for the period ended December 31, 2016 under the headings "Risk Management" and "Risk Factors", respectively, each of which is available at www.sedar.com.

Further, any forward-looking statement is made only as of the date of this press release, and PrairieSky undertakes no obligation to update or revise any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events, except as required by applicable securities laws. New factors emerge from time to time, and it is not possible for PrairieSky to predict all of these factors or to assess in advance the impact of each such factor on PrairieSky's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

The forward-looking information contained in this document is expressly qualified by this cautionary statement.

CONVERSIONS OF NATURAL GAS TO BOE

To provide a single unit of production for analytical purposes, natural gas production and reserves volumes are converted mathematically to equivalent barrels of oil (BOE). PrairieSky uses the industry-accepted standard conversion of six thousand cubic feet of natural gas to one barrel of oil (6 Mcf = 1 bbl). The 6:1 BOE ratio is based on an energy equivalency conversion method primarily applicable at the burner tip. It does not represent a value equivalency at the wellhead and is not based on either energy content or current prices. While the BOE ratio is useful for comparative measures and observing trends, it does not accurately reflect individual product values and might be misleading, particularly if used in isolation. As well, given that the value ratio, based on the current price of crude oil to natural gas, is significantly different from the 6:1 energy equivalency ratio, using a 6:1 conversion ratio may be misleading as an indication of value.

NON-GAAP MEASURES

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

Payout ratio is a non-GAAP measure not included in PrairieSky's MD&A. PrairieSky defines payout ratio as cash dividends paid and/or declared and not yet paid divided by funds from operations. This measure provides an understanding of PrairieSky's ability to provide the cash flow necessary to fund future dividends to shareholders.

ABOUT PRAIRIESKY ROYALTY LTD.

PrairieSky is a royalty-focused company, generating royalty revenues as petroleum and natural gas are produced from its properties. PrairieSky has a diverse portfolio of properties that have a long history of generating free cash flow and that represent the largest and most concentrated independently-owned fee simple mineral title position in Canada. PrairieSky's common shares trade on the Toronto Stock Exchange under the symbol PSK.

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

Pam Kazeil
Vice President, Finance & Chief Financial Officer
PrairieSky Royalty Ltd.
587-293-4089

Investor Relations
(587) 293-4000
www.prairiesky.com

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