CALGARY, Alberta, July 20, 2020 (GLOBE NEWSWIRE) — PrairieSky Royalty Ltd. (“PrairieSky” or the “Company“) (TSX: PSK) is pleased to announce its second quarter (“Q2 2020“) operating and financial results for the period ended June 30, 2020.
PRESIDENT’S MESSAGE
PrairieSky’s diversified oil and gas royalty portfolio generated funds from operations of $21.3 million for the second quarter of 2020, demonstrating the sustainability of our high margin, low cost business model in a challenging macro environment. In Q2 2020, PrairieSky used funds from operations to declare dividends of $13.9 million, repurchase and cancel 470,000 common shares for $4.1 million, and acquire additional high-quality royalty interests, primarily focused in British Columbia, for $6.2 million. The acquired royalty interests are complementary to PrairieSky’s existing assets in the area and include significant undeveloped land with future multi-zonal drilling potential. We remained committed to our strategy of financial discipline by maintaining a strong balance sheet with no long-term debt and a minor working capital deficiency of $8.7 million as at June 30, 2020.During Q2 2020, the global economy was significantly impacted by large scale restrictions aimed at containing the spread of the novel coronavirus (“COVID-19”). Global consumption of and demand for hydrocarbons declined significantly, causing global energy industry participants to experience unprecedented volatility and instability in benchmark commodity prices as well as concerns over access to storage and marketing arrangements more broadly. In conjunction with the annual slowdown in activity due to spring breakup, producers and operators across Western Canada responded to low pricing and concerns over future market access by shutting in production and minimizing exploration and development activity. During Q2 2020, producers on PrairieSky lands shut-in approximately 30 per cent of PrairieSky’s net oil production volumes in response to volatile crude oil pricing with shut-ins peaking in May at over 40%, primarily led by private producers. As prices have started to recover modestly, some volumes have been brought back on production and we expect additional volumes to be brought back on in Q3 2020, although the timing thereof remains unclear and new drilling activity remains limited with only 18 rigs working in Western Canada on June 30, 2020.PrairieSky received royalty production volumes of 18,671 BOE per day in Q2 2020, down 16% from both Q1 2020 and Q2 2019. Q2 2020 royalty production volumes generated revenue of $25.1 million, a decrease of 49% compared to Q1 2020 and 60% compared to Q2 2019 due primarily to significantly lower pricing as discussed throughout this press release and PrairieSky’s Q2 2020 financial statements and associated Management’s Discussion & Analysis (“MD&A”). During Q2 2020, oil royalty production volumes averaged 6,035 barrels per day (Q1 2020 – 8,582 barrels per day, Q2 2019 – 8,740 barrels per day). Oil royalty production volumes generated $13.4 million of royalty revenue down from Q1 2020 oil royalty revenue of $33.0 million due to lower royalty production volumes and a 40% decrease in average West Texas Intermediate (“WTI“) benchmark pricing, partially offset by narrowed Canadian light and heavy oil differentials, and down from Q2 2019 oil royalty revenue of $52.1 million due to lower royalty production volumes and a 53% decrease in WTI. During Q2 2020, natural gas royalty production volumes averaged 60.3 MMcf per day (Q1 2020 – 63.8 MMcf per day, Q2 2019 – 65.2 MMcf per day) and generated $7.6 million of royalty revenue compared to Q1 2020 natural gas royalty revenue of $9.1 million and $4.5 million in Q2 2019 as AECO monthly index benchmark pricing decreased 11% from Q1 2020 and increased 63% from Q2 2019 due to changes in the NGTL system Temporary Service Protocol. NGL royalty revenue for Q2 2020 totaled $4.1 million, generated from average royalty production volumes of 2,586 barrels per day, a decrease from both Q1 2020 NGL royalty revenue of $7.0 million from average NGL royalty production volumes of 2,945 barrels per day and Q2 2019 NGL royalty revenue of $6.5 million from average NGL royalty production volumes of 2,690 barrels per day. The decline in NGL royalty revenue from Q1 2020 and Q2 2019 was primarily due to lower benchmark pricing.Other revenue in the quarter totaled $3.1 million (Q1 2020 – $3.6 million, Q2 2019 – $6.2 million), comprised of $2.2 million of lease rentals, $0.2 million in other income, and $0.7 million in bonus consideration from entering into 19 new leases with 17 different counterparties. Leasing was focused on crude oil targets across a number of plays in both Alberta and Saskatchewan.We continue to manage controllable costs in our business and cash administrative expenses totaled $4.0 million and $2.35 per BOE in the quarter. PrairieSky’s staff continued their focus on ensuring timely and accurate royalty payments, collecting compliance recoveries totaling $2.2 million in the quarter.At PrairieSky, we focus a great deal on the sustainability of our business model, which includes identifying opportunities for continuous improvement which benefit stakeholders over the long term. Environmental, social and governance principles are an integral part of our corporate strategy and we were pleased to issue our Annual Responsibility Report during the quarter which can be found at https://www.prairiesky.com/responsibility/our-approach/. Our website also includes more detailed information on Company sustainability performance year over year, rankings in leading surveys such as CDP and MSCI, as well as independent third-party assurance on key performance indicators and greenhouse gas emissions.We continue to focus our efforts on improving PrairieSky’s business, on a per share basis, through all market conditions. During this challenging and unprecedented time, we continue to be disciplined and focused on our strategy, which includes prioritizing the health and safety of our employees and our community. We transitioned our workforce to work remotely in March with minimal disruption, and as restrictions have eased through June, a portion of our team has returned to the office. We continue to monitor the situation related to COVID-19 and will follow the advice of public health officials in supporting our employees, their families, our business partners, and our broader community. We appreciate the continued efforts of our team and we want to thank our shareholders for their ongoing 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 & CEOANNUAL RESPONSIBILITY REPORT
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