Freehold Royalties Ltd (FRHLF) Q2 2025 Earnings Call Highlights: Strategic Growth Amidst Market ...

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5 days ago

Release Date: July 31, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Freehold Royalties Ltd (FRHLF) achieved a 9% production growth from the second quarter of last year, reflecting strategic acquisitions that expanded their US positioning.
The company reported strong liquids production in Q2, with a liquid weighting of 67% and significant contributions from high productivity wells.
Funds from operations were $57 million in the quarter, marking a 40% increase in FFO per share compared to a similar WTI oil benchmark price four years ago.
Freehold Royalties Ltd (FRHLF) maintained a strong balance sheet with net debt of $271 million, representing a 1.1 times trailing net debt to funds from operations.
The company paid $44 million in dividends to shareholders and invested $12 million in acquiring undeveloped mineral title lands in the US, indicating a focus on growth and shareholder returns.
Negative Points
Benchmark oil pricing was 11% lower than the previous quarter, dropping almost $8 a barrel to approximately $64 US a barrel, impacting revenue.
There was a slowdown in drilling rig activity in both the Permian and Eagleford basins, with both down about 10% year-to-date compared to last year.
The Canadian Cardium play requires stronger gas pricing to be economically viable, leading to reduced activity levels.
The Viking play is not expected to represent growth in the portfolio, with a flat production profile anticipated going forward.
The company is not seeing the same level of M&A opportunities as in prior years, which could limit growth through acquisitions.
Q & A Highlights
Warning! GuruFocus has detected 6 Warning Sign with FRHLF.
Q: Freehold had strong liquids production in Q2. Can you walk us through your outlook for liquids production for the rest of the year? A: (Rob King, COO) Q2 saw significant NGL volume growth, particularly in the US, with a 30% increase quarter-over-quarter. This was partly due to a prior period adjustment and additional liquids from new wells. We expect continued liquids growth from both Canadian and US assets, with high liquids weightings in the Midland and Eagleford positions.
Q: The Canadian number of wells is down, particularly in the Viking and Cardium areas. Is this due to higher gas weighting and commodity prices? How do you see activity in these areas moving forward? A: (David Spiker, CEO) The Cardium requires stronger gas pricing for economic viability, leading to reduced activity. The Viking is more seasonal, with consistent activity but not expected to drive growth. We see growth coming from other areas in our portfolio.
Q: Do you have exposure in the Belly River, which is gaining attention for its liquid production? A: (David Spiker, CEO) Yes, we have reasonable exposure in the Belly River. Some leasing in Q2 was in this area, and we expect it to continue attracting capital and be a growth area for us.
Q: How do you see the M&A landscape, and is there potential for a significant deal before year-end? A: (David Spiker, CEO) We're focusing on acquiring undeveloped mineral title lands in the US, which offer high returns. While there are potential larger packages being marketed, we don't have details yet on their scale or scope.
Q: Regarding the balance sheet and dividend, is it reasonable to expect dividend growth alongside M&A outlook? A: (Shayna Morihara, CFO) We're comfortable with our 60% payout ratio and $0.09 per month dividend. We'll continue to evaluate this with any M&A activity, but we believe we're at a competitive level currently.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.