PrairieSky Announces 2023 Third Quarter Results ($PREKF)
[Previously: Canadian Oil Earnings, PrairieSky Royalty Ltd. Reports Q2 2022 Earnings, and PrairieSky Royalty Ltd. Reports Q1 2022 Earnings.]
The market capitalization of PrairieSky (at US$17.80 per share for the U.S. ADR) is $4.25 billion and the enterprise value (with $195 million of net debt) is $4.4 billion.
Net earnings were $40 million for the third quarter of 2023 (compared with $55 million the prior year) and earnings plus DD&A were $67 million (compared with $83 million the prior year). That's a "cash generation" yield of 6% on the current enterprise value.
The average realized price for crude oil this quarter was $67.55/bbl compared with $75/bbl the prior year.
Royalty production volumes averaged 25,469 BOE per day, an increase of 8% over Q2 2023 and 2% over Q3 2022. Quarterly oil royalty production averaged 12,084 barrels per day, a 4% decrease from Q2 2023 and a 6% increase over Q3 2022.
With the cash generated from operations this quarter, the company spent $11 million on property acquisitions, $42 million on dividends (4% dividend yield), and $4 million on debt repayment.
One odd thing disclosed was a "$13.3 million termination payment related to a leadership change in the quarter".
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https://www.prairiesky.com/prairiesky-announces-leadership-change/
CALGARY, Alberta, Aug. 14, 2023 (GLOBE NEWSWIRE) — PrairieSky Royalty Ltd. (TSX: PSK) (“PrairieSky” or the “Company”) today announced the departure of Cameron Proctor, Chief Operating Officer, from the Company.
“I want to extend my gratitude to Cam for his leadership and contributions to PrairieSky throughout his nine years at the Company,” said Andrew Phillips, President & Chief Executive Officer. “Cam was instrumental in executing our strategy and has been committed to the Company’s success. We wish him all the best in his future endeavors.”
Sounds like the dude got fired now that you factor in the buyout.
Highlights from conference call:
* PrairieSky achieved its highest total production in the third quarter since our IPO at 25,469 BOE per day. This included 12,084 barrels per day of crude oil royalties, up 6% from the same quarter in 2022. Natural gas volumes were positively impacted by the return of shut-in volumes from wildfires and a significant well padded Wembley placed on production. 246 spuds occurred on PrairieSky lands over Q3 at an average royalty rate of 7.1%.
*Leasing activity remains very strong as it has for the last two years, and we entered into 46 new leasing arrangements with 40 different counterparties. Leasing was spread across the entire basin with a focus on oil. Our team executed on $15.6 million in acquisitions throughout the quarter, focused on the Mannville stack play in the heavy oil fairway. These lands will see immediate activity and provide strong returns, allowing us to compound at a faster rate.
*PrairieSky will review its capital allocation priorities in February and make its decision on the dividend at that time. Using strip pricing will be in a net cash position in 18 months. After achieving 22% oil growth in 2022 and 6% year-to-date, we are confident that our strong organic growth rates will continue in this pricing environment.
Questions about capital allocation:
Jamie Kubik
Okay. Great. And then in your remarks, did talk about looking at the dividend in 2024, can you just talk about capital allocation, how you're thinking about the NCIB and what you would need to see for a potential dividend increase, just things around that nature, Andrew and Pam?
Andrew Phillips
You bet. So right now, the dividend is $229 million annually or $0.96 per share per year. We obviously are seeing organic growth in the business. And -- when we look into February, there's a good opportunity, I think, for a dividend increase. But I think we look out over the next 10 years, we should be able to increase it annually more ratably alongside the growth of the business and still have a lot of excess free cash flow.
So given that the business will be in a debt pre-position within the next 18 months, I think it's reasonable to expect a dividend increase, but we'll evaluate it in February when we look at strip pricing, connectivity levels on the land and the opportunity set in front of us.
Jamie Kubik
Okay. Thanks. And maybe last one for me. Can you just talk about the M&A environment? You PrairieSky has been fairly quiet on this side over the last a little while. Can you talk about how you're viewing M&A opportunities and things of that nature?
Andrew Phillips
Yes, you bet. I think the interesting thing is that $90 crude, we're typically fairly inactive. Almost all the M&A we've done over the last decade has been in kind of $40 to $60 price environment. So we're typically inactive on the larger assets at this part of the cycle. Where we've been fortunate is unlike a few other times when there was really good pricing like 2014 or 2017, we've been able to find these kind of large undeveloped land packages that have significant IRRs for the company and long-term resource potential on the new Mannville stack play, which is very similar to the Clearwater in terms of IPs and resource in place. So we've been fortunate that we've been able to have a significant land position in that play. Land prices have gone up almost five-fold since we even over the last year and almost 20-fold since we first started acquiring land in there.
So we may be priced out of that play completely now, but we've got a very large land position that will give us decades of drilling inventory. So we're quite pleased with that. It looks like that it will be a significant growth place similar to the Clearwater and so again, with the strong organic growth rates within the business. It's challenging to find something that's growing at a faster pace than your existing business. So for now, we're quite comfortable with the portfolio we have, and we'll continue to focus on land leasing at this higher part of the cycle.
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