Freehold earnings 15 cents per unit in Q1
Freehold Royalty Trust FRU
Shares issued 30,129,236 May 1 close $10.17
Wed 1 May 2002 News Release
Mr. David Sandmeyer reports
FREEHOLD ROYALTY TRUST ANNOUNCES FIRST QUARTER 2002
Freehold Royalty Trust has posted its financial and operating results for
the first quarter ended March 31, 2002.
First quarter highlights included:
production up 6 per cent to 6,046 barrels of oil equivalent (boe) per day;
average price realizations down 36 per cent to $23.35 per boe;
declared distributions of $7.2-million (24 cents per trust unit); and
monthly distribution increased to 10 cents per trust unit; declared extra
distribution for May of four cents per trust unit.
Freehold's monthly distribution rate is being increased from eight cents
per trust unit to 10 cents per trust unit effective with the May
distribution payable on June 15, 2002, to unitholders of record on May 31,
2002. Following a review of first quarter results, the board of directors
has declared an extra distribution of four cents per trust unit payable on
June 15, 2002, to unitholders of record on May 31, 2002. Combined, the
regular monthly distribution for May (10 cents) and the extra distribution
(four cents) to be paid on June 15, 2002, will total 14 cents per trust
unit. Including the above distributions, the trailing 12-month distribution
paid is $1.29 per trust unit, representing a 13-per-cent cash-on-cash yield
at current trust unit prices. Since inception in November, 1996, the trust
has distributed a total of $6 per trust unit.
Management's discussion and analysis
Results of operations
Production
Average daily production for the first quarter of 2002 increased 6 per
cent. Production from royalty properties rose 16 per cent, primarily as a
result of acquisitions completed during 2001. Working interest production
declined 12 per cent, mainly attributable to lack of development drilling
at Hayter in 2001.
PRODUCTION HIGHLIGHTS
Three months ended March 31
2002 2001
Royalty lands
Oil (bbl/d) 2,758 2,040
NGL (bbl/d) 222 250
Natural gas
(mcf/d) 7,337 7,961
Oil equivalent
(boe/d) 4,202 3,617
Working interest
lands
Oil (bbl/d) 1,273 1,469
NGL (bbl/d) 58 68
Natural gas
(mcf/d) 3,075 3,326
Oil equivalent
(boe/d) 1,844 2,092
Total Trust (boe/d) 6,046 5,709
Potash (tonnes/d) 7.7 8.7
PRICING
Freehold's average natural gas price decreased by a dramatic 69 per cent
from $10.12 per thousand cubic feet in the first quarter of 2001 to $3.11
per thousand cubic feet in the first quarter of 2002. During this period,
Benchmark West Texas Intermediate (WTI) oil prices averaged $21.61 (U.S.)
per barrel, down 25 per cent from $28.72 (U.S.). However, the light/heavy
oil price differential, an important factor for Freehold, narrowed to $7.35
(Canadian) per barrel from $17.11 (Canadian) per barrel, which resulted in
an 11-per-cent increase in Freehold's oil price to $25.61 (Canadian) for
the first quarter of 2002. The lower natural gas price more than offset the
improvement in the light/heavy oil price differential, resulting in
Freehold's overall price realization declining 36 per cent to $23.35
(Canadian) per barrel of oil equivalent.
AVERAGE PRICES
Three months ended March 31
2002 2001
Oil ($/bbl) 25.61 23.17
NGL ($/bbl) 19.91 43.80
Natural gas
($/mcf) 3.11 10.12
Oil equivalent
($/boe) 23.35 36.70
Potash ($/tonne) 147.91 158.34
REVENUE
Gross revenue for the first quarter declined 32 per cent, as lower realized
prices more than offset increased revenue from higher production volumes.
Potash revenues for the quarter totalled $103,000, down 17 per cent on
lower volumes and prices.
ROYALTIES
Royalty expense on working interest properties totalled 94 cents per boe
for the first quarter, down 63 per cent. As Freehold is a mineral title
owner on most of its production, no royalties are paid to others on the
trust's share of production from royalty lands. (Freehold receives the
royalty from other companies.)
Operating expenses
Operating expenses averaged $1.91 per boe in the first quarter, down 10 per
cent. Lower expenses reflect a higher proportion of royalty production and
lower electrical costs compared with the first quarter last year. Freehold
does not incur operating expenses on its royalty lands.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the first quarter of 2002 rose 39
per cent on a boe basis, due to additional administration costs as a result
of acquisitions completed during 2001, and a timing difference related to
certain expense categories that were recorded in the actual period that
they were incurred.
MANAGEMENT FEES
The manager of the trust receives its management fee in trust units. For
the first quarter of 2002, the manager received 22,500 trust units, with an
ascribed value of $231,000. The issuance of 3.3 million trust units in May
of 2001 resulted in a pro rata increase in the management fee, in
accordance with the management contract.
NETBACKS
Freehold's operating netback for the first quarter was $20.75 per boe, down
36 per cent. The decline is attributable to lower commodity prices,
partially offset by lower operating and royalty expenses.
RECLAMATION FUND
To finance Freehold's continuing environmental obligations on working
interest lands, quarterly cash payments are made to a reclamation fund. For
the first quarter of 2002, a total of $60,000 (first quarter 2001 --
$60,000) was paid into the reclamation account and $29,000 in site
restoration expense (first quarter 2001 -- $56,000) was paid from the fund.
No reclamation expenses are incurred on the royalty lands. The balance in
the fund at the end of the quarter was $915,000.
UNITHOLDER TAXATION
Cash distributions received in 2001 were 38 per cent taxable to unitholders
as other income and 62 per cent were tax deferred (return of capital).
Freehold estimates that 50 per cent to 55 per cent of distributions will be
taxable to unitholders in 2002.
NET INCOME, CASH FLOW AND DISTRIBUTABLE INCOME
Net income fell 56 per cent to $4.5-million versus $10.4-million in the
first quarter of 2001. Funds generated from operations (cash flow) declined
34 per cent. The decline in net income and cash flow reflects lower
commodity prices, which overshadowed the increase in production volumes. As
a result, Freehold distributed $7.2-million (24 cents per trust unit) to
unitholders in the first quarter of 2002, down 40 per cent on a per-unit
basis from last year. Royalty lands provided 90 per cent of distributable
income for the quarter.
LIQUIDITY AND CAPITAL RESOURCES
Interest expenses declined 60 per cent to $238,000, reflecting lower
interest rates combined with a $5-million reduction in long-term debt since
the first quarter of 2001. As at March 31, 2002, long-term debt was
$33-million, unchanged from year-end. Working capital at the end of the
quarter totalled $6.4-million, resulting in net debt obligations of
$26.6-million. The ratio of net debt to trailing cash flow of 0.6:1
continues to reflect the trust's healthy financial condition.
CAPITAL EXPENDITURES
The trust anticipates a modest $2.4-million capital program in 2002. In the
first quarter, capital expenditures totalled $560,000, down from
$1.1-million a year ago. All capital expenditures related to working
interest properties and were financed entirely from cash flow.
DEVELOPMENT ACTIVITIES
ROYALTY LANDS
Industry operators drilled 224 (2.5 net) wells on Freehold royalty lands in
the first quarter, at no cost to the trust. The trust has royalty interests
in more than 15,000 producing wells throughout Western Canada.
WORKING INTEREST PROPERTIES
Freehold has working interests in 72 properties that in total produced
1,844 boe/d in the first quarter. Two properties (Hayter and Pembina
Cardium Unit No. 9) accounted for approximately 40 per cent of these
volumes. Production from working interest properties declined 12 per cent
in the first quarter, largely due to the lack of development activity at
Hayter last year, pending sale of the operator's interest in the property.
Rife Resources Ltd. (the manager of Freehold) has taken over as operator,
and development drilling will commence early in the third quarter of 2002.
Freehold owns 48.5 per cent of the mineral title as well as a 23.5-per-cent
working interest at Hayter.
At Pembina Cardium Unit No. 9, where Freehold has a 0.6-per-cent royalty
interest and a 9.9-per-cent working interest, an active infill drilling
program is nearing completion. Over the past two years, a total of 33 (3.3
net) wells have been drilled, including 5 (0.5 net) wells in the first
quarter of 2002. Two locations remain to be drilled this year. Production
at Pembina increased 22 per cent in the first quarter, due to the success
of this infill drilling program.
Outlook
In Freehold's fourth quarter report, it estimated that cash distributions
for 2002 would total $1 per trust unit, based on certain assumptions
relating to volumes and prices. Since February, commodity prices have risen
and continue to demonstrate strength, however, global events provide
continued uncertainty. Improved realizations have enabled the trust to
increase the regular monthly distribution to 10 cents per trust unit and
declare an extra distribution of four cents per trust unit for the month of
May. In light of the current outlook for commodity prices, Freehold is
revising its distribution estimate for 2002.
Freehold will evaluate its distribution outlook throughout the year and
provide additional guidance as warranted. The regular monthly distribution
is currently fixed at 10 cents per trust unit. As in the past, a portion of
any excess income available for distribution will be directed toward
repayment of long-term debt and/or working capital improvement, and extra
distributions may be declared from time to time at the discretion of the
board of directors. Freehold reiterates that significant changes in
production rates or commodity prices (positive or negative) will result in
adjustments to the distribution level. Freehold is particularly vulnerable
to swings in the light/heavy oil price differential, as approximately 35
per cent of its total boe production is heavy oil.
Over the past five years, Freehold's strategy has remained consistent,
regardless of commodity price cycles. The trust's low-cost structure
continues to provide superior netbacks and returns to unitholders. As
evidenced by Freehold's first quarter results, the new properties acquired
in 2001 have been strong contributors to the performance of the trust. Our
goals in 2002 are to pursue opportunities to add high-quality assets to the
trust, striving to achieve the highest level of distributable income for
unitholders.
WARNING: The company relies upon litigation protection for
"forward-looking" statements.
CONSOLIDATED STATEMENT OF INCOME
Three months ended March 31
(thousands of dollars)
2002 2001
Revenue
Royalty income
and working
interest sales $ 12,844 $ 19,001
Royalty expense
(net of ARC) (513) (1,301)
-------- --------
12,331 17,700
-------- --------
Other expenses
Operating 1,038 1,089
General and
administrative 911 614
Interest on
long-term debt 236 591
Other interest 2 7
Capital taxes and
other expenses 34 9
-------- --------
2,221 2,310
-------- --------
Funds generated
from operations 10,110 15,390
Depletion and
depreciation 5,279 4,767
Provision for
future site
restoration 80 91
Management fee 231 178
-------- --------
Net income $ 4,520 $ 10,354
======== ========
Net income per
trust unit,
basic and diluted $ 0.15 $ 0.39
(c) Copyright 2002 Canjex Publishing Ltd. stockwatch.com |
