Pairiesky Royalty Stock

Ladies and gentlemen, thank you for standing by. Welcome to the PrairieSky Royalty Ltd. announces their Second Quarter 2026 Financial Results. [Operator Instructions] Please be advised that today's conference is being recorded.

I would like now to turn your conference over to Andrew Phillips, President and Chief Executive Officer. Please go ahead.

Thank you very much, operator, and good morning, and thank you for dialing into the PrairieSky Q2 2026 Conference Call.

On the call from PrairieSky are Dan Bertram, Pam Kazeil, Mike Murphy and myself, Andrew Phillips.

Before we begin, there are certain forward-looking information and statements in our commentary today, so I would ask listeners and investors to review the forward-looking statements qualifier in our press release and MD&A, which can be found on our website.

Oil production increased 7% from Q1 this year. Stronger activity levels across the basin drove the increase. Strong spud activity on our lands throughout the quarter is encouraging for the balance of the year. With the $0.71 and over USD 70 WTI crude, we are close to $100 per barrel for Canadian light oil.

In 2019, pre-COVID, we had 234 million shares fully diluted outstanding with average annual royalty production of 8,633 barrels per day of oil and 46 million barrels of reserves.

Today, we have 232.4 million shares outstanding with average oil production of 14,740 barrels per day and 64 million barrels of reserves. We will be net cash by this time next year. Numerous newly formed oil companies have been founded over the past year. This quarter, we entered into 57 leases with 46 distinct operators.

We continue to pursue leasing agreements with qualified well-capitalized companies. PrairieSky expects another busy summer of both leasing and drilling activity with 215 rigs active in the field today, up from 170 a year ago. Wet field conditions have hindered operations in Eastern Alberta heavy oil region, delaying some completion and drilling activity. I will turn the call over to Mike to discuss activity on our lands.

Thanks, Andrew. Duvernay activity remained strong in Q2 with 51 spuds year-to-date compared to 55 in all of 2025. The first West Shale Basin Duvernay wells from this year's programs were brought on production late in Q2, which should positively impact Q3 royalty oil production.

Expanded third-party capital programs in the Duvernay and continued completion activities over the summer should position PrairieSky for meaningful light oil growth through the remainder of the year. Multilateral activity continues to expand on PrairieSky lands with 137 spuds year-to-date relative to 100 over the same period last year.

Beyond the Clearwater and Mannville stack, we also saw multilateral spuds in the Charlie Lake, Ellerslie, Bakken and Southeast PSK Mississippian in Q2.

In the Clearwater, we now estimate 60% of our royalty oil volumes are under waterflood support with declines in the mid-teens, contributing to our highly sustainable production base. Finally, thermal volumes from a new pad at Lindbergh began ramping up in Q2, which should support growth in our second half royalty oil production.

A new South pad is currently drilling at Lindbergh, setting the asset up for incremental growth in 2027 and beyond. I'll now turn it over to Pam to discuss the financials.

Thank you, Mike. Good morning, everyone. PrairieSky delivered strong second quarter results in cash flow production and leasing activity.

Total production reached a record 27,479 BOE per day, an increase of 4% as compared to Q2 2025, driven by liquids growth with oil volumes up 3% and NGL volumes up 15%. The Clearwater provided our largest increase, up 27% over Q2 2025, and the Mannville stack was up 19%.

NGL royalty production growth of 15% over Q2 2025 was driven by the Montney and the West Shale Basin Duvernay. With U.S. dollar WTI averaging $92.80 in the quarter, our realized price rose to an average of $109.87 per barrel and NGL pricing averaged $55.30 per barrel.

Liquids production generated 93% of our total production revenue, which totaled $167.1 million in the quarter. In aggregate, other revenues added $10.9 million to cash flow, including $6.4 million in bonus consideration. Year-to-date bonus consideration of $18.7 million is 39% ahead of year-to-date 2025.

Once again, this quarter, leasing was most active in the Duvernay light oil and Mannville heavy oil plays. We view leasing as a leading indicator of future development and anticipate operators will be active across these plays throughout 2026 and beyond.

Funds from operations were $133.1 million or $0.57 per share, up 38% from Q2 2025. PrairieSky declared dividends of $61.6 million during the quarter with a corresponding payout ratio of 46%. Excess cash flow was allocated to minor acquisitions totaling $1.8 million and debt reduction of $71.1 million in the quarter. At June 30, net debt totaled $186.6 million. PrairieSky also declared its third quarter dividend of $0.265 per common share for shareholders of record on September 29, 2026. With that, I'll turn it back to the moderator to begin the Q&A.

[Operator Instructions] and the first question is going to come from Jeremy McCrea with BMO Capital Markets.

I can't help but notice there's a lot more activity in this quarter versus Q2 of last year. And obviously, the commodity price is probably driving some of that.

But I'm trying to get a sense of if you were to exclude the higher commodity price, would this activity still have been as robust? I'm just trying to get a sense of what we could expect going forward. Is it the higher activity driven more by the commodity price or just more driven by the opportunity of some of the land base that you have here?

I think it's a combination of things, Jeremy. Thanks for the question. When you think about just multilateral drilling and just kind of sequential improvements in technology, but also in Canada, with the weak Canadian FX, you're still 1000 for light. So I think it's a combination of those things.

So we do expect that to continue just given it is still quite a robust commodity environment. But there's even things like the Viking that had a bit of a resurgence. And when you simply think about it, a Viking well is $1.1 million and the most recent wells are getting about 55,000 barrels of light oil and a Duvernay well is $11 million, and it's 550,000 barrels of condensate.

So it's 10x price for 10x the volumes. And so the Viking competes quite well with even really good plays like the Duvernay. So I think you're starting to see operators with better balance sheets and more capital available to drill a little bit more of some of their inventory that sits within their cover.

And a bit of a follow-up question here, too. So when you look at your Viking activity, how much of that came up and I would say it surprised us. Is there any other plays that could surprise us here for the back half of the year heading into 2027 that maybe we're not thinking enough about?

Yes, it's a good question. I think the one thing we have seen is just very focused drilling over the last 10 years. So the Viking had a massive push in 2016, '17, '18.

And then you see the Duvernay today, a lot of the Eastern Alberta heavy oil plays. But what's starting to happen today is just with the robust economics, everything from Southeast Saskatchewan to some conventional oil in Western Saskatchewan, all throughout the province in Eastern Alberta.

People are testing these multilaterals in different ways. And even there's some intermediate-sized companies in Eastern Alberta working on sparky water floods, et cetera, that have shown really good response. So I think just kind of higher basin-wide activity. So you have the plays that we're expecting, which are kind of the 3 core growth plays for us, the Clearwater, the Mannville stack and the Duvernay. But then all of a sudden, you have kind of a resurgence in drilling across the basin on the more conventional plays, I guess, I'd say.

[Operator Instructions] At this time, I'm showing no further questions. I will now turn the call back to Andrew for closing remarks.

Thanks, everyone, who dialed in early, and I hope everyone has a great summer. Thank you.

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

Good day, and thank you for standing by. Welcome to the PrairieSky Royalty Limited First Quarter 2026 Financial Results Conference Call. [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, Andrew Phillips, President and CEO. Please go ahead.

Thank you, Daniel. Good morning, and thank you for dialing into the PSK Q1 2026 Conference Call. On the call from PSK are Pam Kazeil, Dan Bertram, Mike Murphy and myself, Andrew Phillips. Before we begin, there is certain forward-looking information and statements in our commentary today, so I'd ask listeners and investors to review the forward-looking statements qualifier in our press release and MD&A, which can be found on our website. Funds from operations totaled $94.9 million, an 11% increase from Q1 2025, resulting from higher production and stronger bonus consideration.

Total production grew 4% from Q1 of 2025 with oil production showing 2% growth year-over-year. Condensate and pentane production reported as part of the NGL stream remains at record highs for PrairieSky at approximately 35% of the NGL stream. Elevated bonus consideration was a result of 48 new leasing arrangements with 37 distinct oil and gas companies. Given the lower rig count year-over-year, we are pleased with the 201 spuds on PrairieSky lands versus the 200 in prior years -- prior year. With the increased pricing for oil and a continued weak Canadian dollar, we are observing early indications of higher planned activity levels post breakup.

Based on strip pricing, we're anticipating a material reduction in debt levels by the end of 2026. A number of our recent leasing arrangements are for exploration rather than pure development, which is a positive trend. Rising capital cycles can help unlock the vast optionality inherent in an 18.6 million acre land base. In addition to this, more operators in the Clearwater are exploring for oil up and downhole where they already have an existing producing horizon. We expect this will unlock numerous new developments over the next 10 years.

With the current development inventory on land, we can replace the approximate 9.5 million barrels of royalty production on our lands for 61 years. New discoveries have the potential to unlock more inventory. I will now turn the call to Mike to further discuss activity on our lands.

Thanks, Andrew. The first quarter saw a record number of Duvernay wells spud at 26, including 20 in the West Shale Basin. First West Shale completions from this program are currently underway with new wells expected to be on production starting in mid-May and driving light oil growth through the back half of the year.

Similar to 2025, we expect the Duvernay to be our fastest-growing play in 2026 based on budgeted activity levels. Multilateral activity continues to grow on PrairieSky lands with 66 spuds in Q1 '26 relative to 41 in the first quarter of last year. In the Clearwater, expanding waterflood development continues to promote a highly sustainable production base and positively impacting corporate decline rates. With depth and quality of inventory in the play, we anticipate outsized Clearwater growth to continue for years to come.

In the Mannville Stack, oil production was estimated at greater than 1,000 barrels a day in Q1, given the strong winter drilling activity. Finally, our thermal volumes are positioned for near-term growth with a new 8-well pair pad at Lindbergh currently steaming with oil volumes expected to ramp to a peak rate of approximately 260 barrels a day at the PrairieSky. I'll now turn it over to Pam to discuss the financials.

Thank you, Mike. Good morning, everyone. PrairieSky's first quarter production increased by 4% compared to Q1 2025, reflecting 2% growth in oil royalty volumes and 6% growth in NGL production. Oil growth was led by the Clearwater play, where production rose approximately 20% year-over-year and the Duvernay, where oil royalty volumes increased by approximately 75% from Q1 2025.

NGL growth was driven primarily by activity in the Duvernay and Montney plays. Higher production combined with strong benchmark pricing resulted in royalty revenue of $118.5 million for the quarter. Other revenues totaled $15.3 million, supported by another strong quarter of leasing activity. Lease bonus consideration reached $12.3 million, more than double the level recorded in Q1 last year, with the majority of activity concentrated in the Duvernay play and the Mannville heavy oil play.

We continue to view leasing activity as a leading indicator of future development and anticipate that operators will be active across these plays throughout 2026 and beyond. Funds from operations were $94.9 million or $0.41 per share, representing a strong start to the year. PrairieSky declared dividends of $61.6 million during the quarter, corresponding to a payout ratio of 65%. Excess cash flow was allocated to acquisitions totaling $4.2 million, share repurchases under our NCIB of $8.3 million, which canceled 269,000 shares and a debt reduction of $6 million.

We ended the quarter with net debt of $257.7 million. PrairieSky also declared its second quarter dividend of $0.265 per common share for shareholders of record on June 30, 2026. With that, I'll turn it back to the moderator to begin the Q&A.

[Operator Instructions] Our first question comes from Jamie Kubik with CIBC.

Just a quick question on oil volumes for the quarter. Obviously, good volumes out of the key plays for PrairieSky. But can you talk about some of the plays that perhaps didn't perform as well in the quarter that led to the slight volume decline quarter-over-quarter?

Yes, you bet, Jamie. The big one when you look from Q1 of last year to Q1 of this year was the 200-barrel net decline net to us from the Lindbergh thermal project, and that's more of a transitory item. So if you added that back, you'd kind of be in line with all of our quarters for the last 16 quarters. And in addition, you had a little slower Q4 just on the more conventional assets and saw modest declines there, but we're still expecting the kind of mid-single-digit number on average throughout the year on the oil side.

And then last one for me. Can you just talk a little bit more on the bonus consideration that you saw in the quarter? Is that repeatable? And should we think about activity on that side of things with respect to what was leased?

Yes. The bonus consideration is definitely a bright spot. I don't think there was one larger bonus there with respect to a smaller Duvernay lease. Just given the pricing that's come up so substantially in that area, we were able to command a higher price for that. But I think overall, the entire portfolio of assets saw pretty strong leasing right from Southeast Saskatchewan, where there's really short cycle times, and we're expecting a bit of an uptick in activity all the way through to Western Alberta.

So it's definitely a positive sign to see more activity from producers and people increasing their inventory there. But to answer your question on the repeatability, probably that would be a higher one. I think that was the highest one we've had in 15 quarters or something like that. So that was great. We're very pleased with that. And activity on the leasing side does remain robust, but that was a higher-than-anticipated number for the following quarters for the balance of the year.

[Operator Instructions] Our next question comes from Aaron Bilkoski with TD Cowen.

So I have another question about your lease issuance bonuses, but more on the structure of them. If I remember some point in the past, you started offering some flexibility to your counterparties. You offered lower upfront bonuses in exchange for multiyear reoccurring cash payments. I think the idea was to leave more cash with the producers to spend so you could generate royalty revenue from that faster. I guess my question is, are you still using this type of structure on the lease issuance bonuses?

Yes. It's a good question, Aaron. And I think for the right play, like typically for the longer-term leases, we'll enter into agreements like that. We've done that with some of the small-scale site deleasing in Saskatchewan, whereby they get up to a 7- to 9-year lease depending on where it is. And they have to have a minimum amount of activity and then pay a recurring bonus after 3 years and then another 3 years.

We've also done some agreements like that in the Duvernay. So we are expecting a meaningful Duvernay payment in the back half of the year. But again, for most conventional leasing, a lot of the leases that we entered into -- in the previous quarter were shorter-term leases, people with near-term drilling activity plans and just onetime bonus payments. But the great thing about the very short-term ones is if they don't get to it in the 1-year time, we'll typically be able to re-lease those lands right away to either that operator or a competing operator in the area.

Andrew, on the shorter-term leases, are there capital or activity commitments associated with that? Or you just put a short-term lease on it and if they don't drill, you get it back?

Exactly the latter. And I think there's a bit of a balance. Like if you're going to hold our lands for a longer period of time, we'd like to see some activity committed and/or back-end bonus payments if you want to retain the lands. But with these shorter-term leases, it's effectively a drilling commitment. If you have a 1-year lease, you've almost -- by the time you survey the well, get the well license, get it drilled, get it on production, you almost need that year just to do that. So typically, we view a 1-year lease and in some areas, a 2-year lease as a drilling commitment to a certain extent, but we do not ask for drilling commitments on those shorter-term leases.

I'm showing no further questions at this time. I would now like to turn it back to Andrew Phillips for closing remarks.

Thank you to all our shareholders very much for your support, and I hope everyone has a great rest of your week.

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

Good day, and thank you for standing by. Welcome to PrairieSky Royalty Limited Fourth Quarter and Year-End 2025 Financial Results Conference Call. [Operator Instructions] Please note that today's conference is being recorded.

I will now hand the conference over to your speaker host, sir Andrew Phillips, President and CEO. Please go ahead, sir.

Thank you, operator, and good morning, everyone, and thank you for dialing into the PrairieSky Year-End 2025 Conference Call. On the call from PSK are Pam Kazeil, CFO; Dan Bertram, CCO; and Mike Murphy, VP of Geosciences and Capital Markets; as well as myself, Andrew Phillips.

Before we begin, there are certain forward-looking information and statements in our commentary today, so I would ask listeners and investors to review the forward-looking statements qualifier in our press release and MD&A, which can be found on our website.

2025 was a successful year for PSK on all fronts. We achieved 6% oil growth over the year, reaching a record 13,940 royalty oil barrels per day. We expect further records in 2026. Our PDP reserves grew alongside our oil production at over 7% year-over-year. Leasing activity remained robust. The company entered into 189 lease arrangements with 90 distinct counterparties. Leasing continues this year at a similar pace.

On the capital allocation front, we executed on $100 million of acquisitions with excellent projected returns. In addition, we canceled 2.6% of the outstanding shares of PrairieSky while paying $243.4 million in dividends. Looking into 2026, the team will continue to focus on leasing our leading undeveloped land base to qualified counterparties across the basin. Over the year, numerous discoveries and pool extensions were found across our extensive portfolio with decades of remaining inventory on some of North America's most economic plays.

With 98% operating margins and unmatched duration, we're in a position to provide strong returns to our owners in the coming years. We're pleased to announce a 2% increase to our annual dividend to $1.06 per share per year, and our first quarterly dividend will be $0.265 effective March 31, 2026. I will now turn the call over to Mike to further discuss activity on our lands.

Thanks, Andrew. 2025 drilling activity was strong for PrairieSky with an estimate of $2 billion of gross third-party capital spent on our lands. This represents an estimated 8.3% of total industry conventional CapEx in the basin, and this is up from 6.9% in 2024. Activity was especially strong in our key oil growth place, including Clearwater spuds up 9% year-over-year, Mannville Stack up 11% and Duvernay up 67%. Multi-laterals continue to drive increased productivity per well with 80 multi-lad spud in Q4 and 285 spot in all 2025, representing 40% of all drilling activity on PSK lands up from 36% in 2024.

We now estimate half of our Clearwater volumes are under waterflood support, providing for a highly sustainable low decline production base. Improved recovery contributed to a 42% increase in Clearwater 2P reserve volumes year-over-year. Clearwater royalty oil production has grown at a compound annual growth rate of 20% since 2022, and we expect double-digit growth from the play again in 2026.

In the Duvernay, royalty production increased 90% year-over-year with growth primarily attributed to activity in the West Shale Basin with sizable third-party operator budgets in this part of the play this year, we expect the Duvernay to once again represent the fastest-growing play for PrairieSky in 2026.

I'll pass it over to Pam to discuss the financials.

Thank you, Mike. Good morning, everyone. PrairieSky's 2025 oil royalty production reached a record annual average of 13,940 barrels per day, a 6% increase over 2024 with Q4 volumes averaging 13,750 barrels per day.

Growth in oil royalty production was focused in the Clearwater, Mannville Stack and Duvernay oil plays, which now represents 29% of our oil royalty production up from 25% in the prior year. We also achieved 17% growth in NGL royalty production in Q4, with production averaging 2,915 barrels per day. This growth was driven by Duvernay and Montney volumes and positively impacted our NGL realized pricing as pentanes and condensate made up approximately 35% or over 1,000 barrels per day of these volumes.

With a strong fourth quarter, NGL royalty production grew 5% year-over-year. Total royalty production was 64% liquids for the year. Royalty revenue totaled $102.9 million in the quarter and $441.7 million for the year, which was 94% liquid. Other revenues added an incremental $8.8 million in the quarter and $36.5 million for the year, driven by bonus consideration of $22.6 million.

During the quarter, PrairieSky settled the deferred share units for directors who retired last year of $7.2 million. Directors had until December 15, 2025, to exercise their DSUs. Funds from operations totaled $80.5 million or $0.35 per share in the quarter and $353 million or $1.50 per share for 2025.

Looking forward, PrairieSky's 2026 annual pricing sensitivities, which are all net of G&A and taxes are as follows. A $5 per barrel change in U.S. dollar WTI would increase or decrease funds from operations approximately $24.5 million. A $1 U.S. change in the light or heavy oil differentials will increase or decrease funds from operations approximately $5.5 million. A $0.25 per McF change in AECO would increase or decrease funds from operations, approximately $4 million and a $0.01 change in the U.S. to Canadian FX rate would increase or decrease funds from operations of approximately $4 million.

Entering 2026, we have tax pools of $1.18 billion to shelter future taxability at approximately 10% per year. This means that in 2026, the first $118 million of cash flow is tax-free with incremental cash flow tax at 23.5%. We prepared a 2025 U.S. tax information and our 2025 dividends will be a 44% return of capital for U.S. investors. This information can be found on our website.

We will now turn it over to the moderator to proceed with the Q&A.

[Operator Instructions] And our first question coming from the line of Michael Harvey with RBC Capital Markets.

Yes, sure. Just a couple of quick ones. First on the West Hale Duvernay, volumes almost doubled this year. It looks like this year, you could be in a position where you kind of get broadly similar growth percentage-wise numbers. Just wondering if you would generally agree with that or take another view.

And then second, on the return of capital program, maybe just remind us the philosophy on the buyback. How sensitive is it to your share price? Or is it just more of a sweep if there's looking to be excess cash at the end of a particular quarter?

Thanks for the questions. Yes, on the Duvernay, we don't obviously provide specific guidance for plays or guidance in general, but there will be strong growth associated with the Duvernay. I think one of the things you'll see is a little bit more volatility in terms of the actual production volumes given that like in Q3, we got substantial pad that came on and we had a big bump in our volumes.

But I think overall, over the years, you'll get some significant growth out of that. I don't know that it will be just under 100% growth this year, but it will be very strong growth. And it really depends on when those volumes actually come on with whether -- how they're staggered throughout the year. And then on the return of capital, we obviously have the dividend, which we increased a couple of percent -- and then on the buyback, we will buy back stock this year. We have a buyback in place currently.

And when we think about the business and we look at kind of terminal values, et cetera, we come to a share price that's a multiple of our current share price. So we believe there's good value anywhere in these ranges. So we will be occupying back shares when we come out of blackout.

Our next question coming from the line of Jamie Kubik with CIBC.

Can you just talk a little bit about the trend that we saw in the quarter with respect to oil volumes checking back a little bit and how we should think about the profile for PrairieSky in 2026. And then lastly, can you just talk a little bit about the average royalty rate being drilled in the profile right now and what that might mean for 2026 and onwards?

Yes. You bet, Jamie. On the first question on the trending again, you saw that big pad come on in Q3. So we had a substantial spike in our volumes. And so we're well ahead of our own internal estimates and analyst estimates.

And then, of course, those wells come on with a very high decline. So you saw the declines in Q4. We have a number of new pads coming on throughout the year in 2026. So you will see those kind of a little more volatility, I guess, in the volumes. But I think on average, we'll see similar growth rates.

So on the trending, I guess, that's just one thing to expect. In the past, if you go back 3 years, you've seen very ratable growth, mostly due to very kind of predictable pads coming on throughout the Clearwater and the Mannville Stack and very predictable volumes. And then with the Duvernay adding to that and being a big part of the growth, you get these very substantial volume spikes and then some substantial declines, of course, that come alongside with it. So I think you'll see volatility. But in the end, it's a good news story because it will smooth out over the year. And then the second question. Sorry, what was the second question?

Oh, yes. Yes, on the average royalty rate is down like 0.2%, I think, on the well spud in Q4. We do expect some volatility in that as well. But as pretty usual, I think it will kind of average north of 6% throughout the year. We just don't know exactly how that will come on, and it depends on the seasonality of drilling and where those wells are drilled. But some of the longer laterals you're seeing in the Duvernay, they're slightly lower.

But again, we have a high royalty rate there. So those should come on slightly higher royalties. And then the Viking, of course, in Q3 will add to that when they're mostly 17.5% royalties. But again, I think you expect a similar average royalty rates to 2025.

Perfect. And could you also talk a little bit about the outlook perhaps that you might have for the Mannville Stack and the Basal Quartz for 2026? Obviously, good growth in Duvernay and Clearwater in 2025. Can you just talk a little bit about maybe what has you excited in the Mannville Stack and Basal Quartz?

Yes, you bet. So in the Mannville Stack, we were about 200 net royalty barrels in 2022. That's grown all the way to just under 1,000 net royalty barrels. We are seeing very robust programs throughout that area from a number of privates, including the lineup in Caltex Trilogy as well as Canadian Natural Resources has licensed a number of wells on our lands that haven't come on yet. So we are expecting pretty strong growth in the Mannville throughout the year. I don't know exactly what that number looks like, but it will be substantial

And then the Basal Quartz for the first time we ended it as a segregated play in our corporate presentation. And you can see that volume has been roughly flat. We have done a number of acquisitions, just given the really high-quality operators that we're dealing with there, as well as the robust economics. And just given the gas processing plant that they've acquired throughout the area. They have a lot of access capacity now and has a very strong program coming out of breakup. So we're expecting some pretty strong growth from that play as well.

It will certainly be in the double digits, but I don't know exactly what that will look like, and that's a light oil play with liquid search gas. So that's a play that we think will show growth over the next 5 years.

I'm showing no further questions here at this time. I will now turn the call back over to Mr. Andrew Phillips for any closing remarks.

Thank you very much, everyone, for dialing into the PrairieSky Year-End and Conference Call. And please feel free to call Pam, Mike or myself with any questions you have, and have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.

Ladies and gentlemen, thank you for standing by. Welcome to PrairieSky Royalty Limited announces their third quarter 2025 Financial results. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Andrew Phillips, President and Chief Executive Officer. Sir, please go ahead.

Thank you, and good morning, everyone, and thanks for dialing into our Q3 2025 earnings call. On the call from PrairieSky are Pam Kazeil, CFO; Dan Bertram, CCO; and Mike Murphy, VP, Geosciences and Capital Markets; as well as myself, Andrew Phillips.

Before we begin, there are certain forward-looking information and statements in our commentary today, so I'd ask listeners and investors to review the forward-looking statements qualified in our press release and MD&A, which can be found on our website.

Q3 royalty volumes grew 11% from Q3 2024 to 14,127 barrels per day. This growth was achieved through Duvernay drilling with royalty production volumes more than doubling since Q3 2024 and Clearwater activity with volumes reaching over 2,500 barrels per day. It was a busy quarter in the Clearwater play with a record 57 wells spud on our royalty acreage. Mannville stack royalty production volumes were down in the quarter following spring breakup, but year-to-date growth remained strong at 13%, and we expect further growth through the back half of the year.

Operators were busy in this play with 20 wells spud in the quarter. Successful water and polymer floods continue to bring declines lower, allowing for further growth and higher recovery factors. Leasing activity remained robust, and we entered into 44 new leases with 37 separate counterparties. On the A&D front, we successfully closed $9.9 million of acquisitions over the quarter. The largest asset included over 50,000 acres of fee mineral title in the heart of the heavy oil fairway in Saskatchewan.

These lands are only 30% leased and numerous opportunities have been identified on the land. We have reduced the share count from 239 million shares to under 233 million shares over the year. We now all own a larger portion of Canada's largest mineral title portfolio. We also welcome Ian Dundas to our Board of Directors effective January 1, 2026. He brings broad knowledge and experience in the oil and natural gas business as well as a North American perspective.

I'll now turn the call over to Mike to discuss the activity on our lands.

Thanks, Andrew. An increasing proportion of multilateral wells being drilled on PrairieSky land continues to have a positive impact on royalty oil production growth. We saw a record number of multilateral wells spud in Q3 focused in the Clearwater and Mannville stack with multilaterals accounting for 40% of all spuds year-to-date, which is up from 36% last year. We now estimate 40% of our Clearwater volumes to be under waterflood support, which is up from our estimate of 33% at our Investor Day in May.

In the Duvernay, we've had 46 wells spud year-to-date, including 26 in the West Shale Basin. This activity has driven year-to-date Duvernay royalty production growth of 87% relative to the same period in 2024, with Q3 volumes estimated at close to 1,500 BOEs per day. Given the recent improvement in capital efficiencies in the West Shale Duvernay, we expect an increased allocation of third-party capital to the play in 2026.

I'll now pass it over to Pam to discuss the financials.

Thank you, Mike. Good morning, everyone. As Andrew noted, oil royalty production averaged 14,127 barrels per day in Q3 2025. This was one of our strongest third quarters on record with only modest oil production declines following spring breakup when third-party activity across the basin and on our properties generally slows. Oil production in the quarter represented 11% growth over Q3 2024 and 7% growth year-to-date and generated revenue of $97.8 million in the quarter. NGL royalty production of 2,210 barrels per day added $7.4 million of revenue and natural gas royalty volumes averaged 56.1 million a day, adding revenue of $2.5 million.

Other revenues totaled $7.1 million and included bonus consideration of $4.8 million, bringing year-to-date bonus consideration to $18.3 million from entering into 143 new leases with 77 different counterparties. PrairieSky generated funds from operations of $90 million or $0.38 per share. We declared dividends of $60.5 million or $0.26 per share with a resulting payout ratio of 67%. Excess funds from operations were used to acquire incremental royalty interest totaling $9.9 million, primarily targeting Mannville and Duvernay oil. And we repurchased and canceled $66.5 million of stock. PrairieSky exited the quarter with net debt of $281.7 million.

We'll now turn it over to the moderator to proceed with the Q&A.

[Operator Instructions] And the first question comes from Patrick O'Rourke with ATB Capital Markets.

Just wondering, thinking about sort of the leading-edge indicators here, in particular, well spuds. I know they were down year-over-year, but there's been sort of a changing nature to the wells that are being spud. You talked about more multilateral, more Duvernay. I'm wondering if there's any other nuance you could provide i.e., like capital deployment or lateral meters that sort of would push us in sort of an indication of where things are going from a production perspective on the oil side here.

Yes. No, Patrick, thanks for the question. I think one of the unique things that's kind of happening is the Mannville stack play, for example, is quite new. And people this year, year-over-year, have really kind of dialed in which fluid systems to use. They've gone to bigger hole diameter, 7-inch hole instead of 5-inch hole. But the other thing that's changed over the last 2 years is if you go back 2 years, almost every spud was about 6,000 to 8,000 meters of total drilling.

Today, some of them are 16,000. So you've almost got double the meterage per well on some of these wells. So again, I think some of those efficiency gains can't -- we can't see the same step change in 2026 and 2027. But I think you're seeing a lot more productivity per well now because of those dynamics. And then in the Duvernay, of course, the wells are coming in quite significantly above our type curves, and that's also kind of helped from capital deployment on an individual spud basis as well.

Okay. Great. And then second question here, just thinking about capital allocation, free capital allocation and balance sheet management. Debt went up slightly in the quarter. You are buying back shares now. Maybe you could give us a little bit of insight in terms of what the core focus on the free cash flow profile. I know previously, you wanted to take the debt down to 0. Now you're buying back shares. And then, of course, you have the dividend policy. So how you're thinking about allocating free cash flow from here out through '26 and into 2027?

Yes, it's a good question. I think this year, we're really happy that we were able to cancel just over 2.5% of the shares outstanding. We've also found a few acquisitions that are kind of in the high teens IRRs. So that's great as well. I think the -- again, on top of the dividend, we have still a significant wedge of incremental cash flow, even though oil over the last 3 years has gone from $94 to $58 and gas is virtually at 0. We still have roughly $100 million of excess free cash flow a year. So we just thought with the growth we've seen in the business and the strong free cash flow yield is a great opportunity to cancel shares. We're happy with the amount we've canceled this year.

So again, the debt repayment should continue through the back half of the year. And we'll just be flexible over the next few years to see what the world brings us in terms of pricing and activity levels. But I do think if you go back to 2022, if you had another couple of years of that, we'd be in a net cash position today, and you will build cash and pay down debt very quickly in some kind of modest price recovery. So we'll be flexible with that capital allocation depending on what we see in 2026, but we should start repaying debt today.

And the next question will come from Jeremy McCrea with BMO Capital Markets.

This is just a follow-up on Patrick's question here, a little bit more on activity levels. Are you seeing when you talk to these operators in the Clearwater, in the Mannville, are they talking about maybe slowing down their activity here just given where oil prices are? Are they still happy and still want to grow at 10%? I'm just trying to get a better sense of how these private operators, I think, for the most part, are looking into next year? And then more importantly, are you able to give a bit of sense of are we seeing more operators drilling these Mannvilles? Or is it one company who's still increasing their activity just -- and that's why we're seeing the increase in activity?

Yes. Thanks for the question, Jeremy. On Spur's front, they're our largest operator and one of our most active drillers. They're -- again, they're net cash and still growing in the 20% range, and they're paying out wells very quickly. So even in this kind of depressed price environment, we expect activity to continue throughout the rest of this year and into 2026. And then in the Clearwater play, we have seen another larger operator, Canadian Natural start to license wells on our land. So there is a new -- and a lot of that production hasn't kind of come through yet, but they do have a significant amount of well licenses and rigs active in the area. So that would be -- it's not a new operator for us, but it's -- they weren't active over the past 18 months.

And then Caltex Trilogy, another private operator, they've -- they're running 3 rigs right now. And I think just given the success they've had and the efficiency gains we've seen, they should continue that activity through the next year. But again, in general, I think, obviously, oil price is in a pretty challenging position. So we're very happy with the growth rates we've seen in the business, just given oil subdued and rig count has gone from 220 a year ago to about 200 today. We've just captured a better share of that and seen pretty significant efficiency gains.

Okay. And then maybe just quickly on the M&A, I see that you picked up some bit of land here. Is there more opportunities like that just given where commodity prices are falling? Or do you think these were just kind of one-off situations here?

Yes, we hope so, and we always try and capture these opportunities in the $60 crude range or lower. And this was a fee mineral title position that goes back a long time. It was kind of old Fletcher Challenge Petroleum fee in Saskatchewan, 8s and 26s. And one of the interesting things is a little bit is in the kind of Viking area in Southern Saskatchewan and then the remainder of it is in kind of Western Saskatchewan in the heavy oil belt. There's a lot of SAGD opportunities being developed in those areas as well as some interesting new primary technologies. And so I think we should be able to capture some really good value out of that acreage. It's only about 30% leased. And there are other smaller opportunities we're always targeting, and those are lands we've been trying to buy for about 10 years. So we're quite happy to be able to execute on that.

[Operator Instructions] The next question comes from Jamie Kubik with CIBC.

Just a little bit more of the same, I suppose. But can you talk about licensing and drilling activity in the Duvernay at current oil pricing? Do you expect it to moderate from here? Do you think operators have improved economics in that play to a lower breakeven price that you see activity maintained? Just some additional color just given the growth that you did put up in the quarter on that side would be great.

Yes. You bet, Jamie. And I think Paramount, the Southern operator has gotten that cash. So I don't imagine their plans would be changed. And then Baytex to the North had a very small program in the year prior. So we're talking about growth off a very low level. So I think that should probably even grow into 2026. And then Spartan Delta, I wouldn't want to speak for their capital budget for next year, but they're in a very good position financially. So I think they do have the ability to continue with their strong growth rates.

And given some of the efficiency gains that people have seen and as they move to more pad drilling, they should be able to grind costs down slightly lower. We expect pretty reasonable activity. And I think the one benefit on that play is it's a light oil play. So it's a $4, $5 discount to MSW. And with the weak Canadian dollar, you're still getting a pretty good oil price on the light oil side. So we do expect activity to even potentially grow next year given the dynamics of those 3 operators.

Great. And then another question on capital allocation. Just with oil prices retreating here a bit, we have seen PrairieSky historically become more active at sub-$60 a barrel WTI with respect to acquisitions. Should we think about acquisitions as being more likely in the current environment? Do you slow down the buyback? How do you weigh dividend increases? Just can you talk about that mix, Andrew?

Yes, you bet. I mean I think when you look out into next year, there's room for a modest dividend increase without even increasing the capital outlay just given the over 6 million shares we've canceled. On the capital allocation front, just the dynamics of it are unchanged for us. And I think if we can find high-quality assets that have better growth rates than our current company and we can buy them at high IRRs at a low oil price, that's something we're always keen on doing. So we're actively looking at a number of smaller opportunities right now.

And I think we were really happy with the $10 million of acquisition we did in the quarter. Q1, of course, we closed the $50 million Petro-Canada fee, which has worked out exceptionally well. We've had a lot of success in the compliance opportunities there and some new leasing. So again, I think this is the kind of market where we try and either buy back stock at what we believe is a really good defined IRR and/or make acquisitions. So we'll continue to look at those. And hopefully, we're successful with them. And when pricing recovers again, we'll be happy that we executed on these opportunities.

I show no further questions at this time. I would now like to turn the call back to Andrew for closing remarks.

Thank you all again for dialing into the Q3 conference call. And please call Pam, Mike or myself if you have any further questions, and I hope everyone has a great day.

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