ENERGY TRUSTS / Freehold Royalty Trust Announces Third Quarter Results and
November Cash Distribution
CALGARY, Nov. 10 /CNW/ - Freehold Royalty Trust (''FRU.UN'') announces
its results for the third quarter ended September 30, 1998, and announces the
cash distribution for the month of November.
Three Months Ended Nine Months Ended
September 30 September 30
(unaudited) (unaudited) %
1998 1997 1998 1997 Change
OPERATING
Production
Crude oil and NGLs
(Bbls/d) 3,604 3,971 3,721 4,127 -10
Natural gas (Mmcf/d) 11.9 16.1 12.9 15.9 -19
Barrels of oil
equivalent (Boe/d) 4,795 5,585 5,014 5,721 -12
Potash (Tons/d) 15.5 14.6 17.0 11.7 +45
Average Prices ($/Bbl)
Crude oil and NGLs
($/Bbl) 13.43 18.48 12.02 19.43 -38
Natural gas ($/Mcf) 1.88 1.61 1.92 1.78 +8
Barrels of oil
equivalent ($/Boe) 14.76 17.80 13.86 18.98 -27
Potash ($/Ton) 154.22 108.52 143.75 109.47 +31
Financial
($000s except per
Trust Unit)
Revenues
Royalty income 4,045 5,224 12,272 17,621 -30
Working interest sales
(net of Royalties) 2,521 3,583 6,650 11,132 -40
Operating expenses 975 1,002 2,674 2,568 +4
------ ------ ------ ------
Working interest
income 1,546 2,581 3,976 8,564 -54
------ ------ ------ ------
5,591 7,805 16,248 26,185 -38
Funds generated from
operations 4,157 6,720 12,090 22,868 -47
Net income (1,745) 183 (6,518) 3,228 -302
Distributable income 4,179 6,751 13,203 22,484 -41
per Trust Unit 0.1575 0.25 0.50 0.85 -41
Financial Results
Revenues for the third quarter continued to be impacted by significantly
lower crude oil prices and lower production volumes. Third quarter revenues
of $5.6 million were 28 percent below the same quarter last year. Average
quarterly crude oil prices slumped to their lowest levels since 1986 with West
Texas Intermediate (WTI) oil prices averaging $14.15 U.S. for the quarter,
down 29 percent from last year.
Low oil prices had the compounding effect of causing lower royalty and
working interest production as operators shut-in some royalty properties
producing heavier grades of oil. As well, operators deferred development
plans on working interest properties producing heavier oil, pending higher oil
prices.
Total expenses for the quarter were 23 percent higher compared to a year
ago, primarily due to higher interest payments and increased general and
administrative expenses.
Distributable Income
The Trust distributed $4.2 million ($0.1575 per Trust Unit) during the
third quarter, bringing the nine month total to $13.2 million ($0.50 per Trust
Unit). The Trust has declared a cash distribution for the month of November,
1998 in the amount of five cents ($0.05 Cdn.) per Trust Unit. The payment
will be made on December 15, 1998 to Unitholders of record on November 30,
1998. In accordance with the Board of Director's policy, the monthly
distribution has been set at five cents ($0.05 Cdn.) per Trust Unit until
further notice. Record dates will be the last day of each month, and payment
dates will be the fifteenth day following month end.
The Trust has approved a new U.S. currency optional payment plan.
Unitholders may now receive their distribution cheques in U.S. funds. Contact
the Trust for further details.
Operations Review
Overall, production declined by 12 percent in the first nine months of
the year, compared to the same period of 1997. The decline in oil volumes is
due to reduced production of approximately 225 barrels per day from the Hayter
property, and the impact of shut-in heavy oil royalty production of
approximately 250 barrels per day since the first quarter of the year. The
Hayter volume reductions were expected to be offset by the additional drilling
of new wells which has now been delayed due to low oil prices. The reduction
in heavy oil royalty volumes is the direct result of operators shutting in
production in response to low prices. A large portion of the decline in gas
volumes (175 Boe/day) is attributed to one working interest gas well at
Progress in which our working interest was reduced at payout, and a high
working interest well at Hatton (75 Boe/day) which has not performed as
expected.
The Trust receives a small portion of its revenue from Potash royalties.
Potash production rose 45 percent to 17 tons per day, up from 11.7 tons per
day last year. Strong potash revenues are expected to continue through the
remainder of 1998 due to increases in international demand for the product.
Freehold's operating costs of $2.21 per Boe for the third quarter were up
from $1.95 per Boe for the third quarter of 1997 due to the timing of routine
annual turnarounds of working interest facilities. Year to date costs of
$1.95 per Boe are expected to be more representative of costs for the full
year. These operating costs are low by industry standards and exemplify the
advantage of the royalty production from which the Trust receives revenue
without the obligation for operating expenses.
Less Drilling on Royalty Lands
Lessees drilled 85 non-unit wells and 150 unitized wells (total of 225
wells) on Freehold's royalty lands during the first nine months of the year
with a 97 percent success rate. This activity level is down significantly
from last year's total as low oil prices have resulted in expenditure
reductions and program delays by Lessees. According to publicly available
production information to the end of August in Alberta and to the end of June
in Saskatchewan, 41 wells have contributed 70 barrels of new production to
Freehold during the month of August.
Working Interest Activity
During the third quarter, Freehold participated in the drilling of three
successful working interest wells, bringing the total number of wells drilled
this year to 27. A number of low-risk development wells at Hayter and Pembina
Cardium Unit No. 9 are planned for early 1999. Drilling at the Hayter
property has been deferred during 1998 because of low oil prices.
At the Chauvin and LaGlace gas properties, both located in Alberta,
additional combined production of approximately 50 barrels per day commenced
production late in the quarter and will add to fourth quarter production
levels.
Outlook
While the impact of lower world oil prices has affected our cash flow
significantly through the second and third quarters of 1998, there is some
reason for optimism looking forward. As we enter the winter period the demand
for natural gas is strong and prices are at levels well above last year. The
lower levels of drilling activity and the capacity limitations in the pipeline
delivery system should result in continued strong pricing for gas through the
next year. While oil prices continue to languish at long time lows, we have
seen relative strengthening in wellhead prices for heavy grades of crude. The
price differential between light and heavy crude has dropped below $4.00 per
barrel in the third quarter, versus a peak of $8.80 per barrel in December
1997. The combined impact of low oil prices and reduced drilling activity
have resulted in lower than forecast production from Freehold's properties.
Actual year to date production to the end of the third quarter averaged 5,014
Boe per day. With no price increase for oil, we expect to average 4,935 Boe
per day of production for the year, somewhat below our target of 5,200 Boe per
day.
We anticipate that acquisition opportunities will increase during the
next six to nine months as companies continue to review their assets and
divest non-core properties. We continue to focus our acquisition efforts on
royalty properties to increase the share of Freehold's revenue from royalty
ownership.
FREEHOLD ROYALTY TRUST
Combined Balance Sheets
SEPTEMBER 30, DECEMBER 31,
(STATED IN THOUSANDS OF DOLLARS) 1998 1997
-------------------------------------------------------------------------
(Unaudited)
Assets
Current assets:
Cash $ 69 $ 1,127
Accounts receivable 8,121 8,723
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8,190 9,850
Reclamation fund 360 228
Petroleum and natural gas interests,
net of accumulated depletion and
depreciation of $47,669
(1997 - $29,061) 244,684 261,706
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$ 253,234 $ 271,784
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Liabilities and Unitholders' Equity
Current liabilities:
Distribution payable to
unitholders $ 1,327 $ 6,598
Accounts payable and accrued
liabilites 2,719 3,482
Bank indebtedness 5,500 -
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9,546 10,080
Provision for future site restoration 360 228
Long-term debt 39,288 38,175
Unitholders' equity 204,040 223,301
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$ 253,234 $ 271,784
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FREEHOLD ROYALTY TRUST
Combined Statements of Unitholders' Equity
SEPTEMBER 30, DECEMBER 31,
(STATED IN THOUSANDS OF DOLLARS, 1998 1997
EXCEPT PER UNIT DATA) Units Dollars Units Dollars
-------------------------------------------------------------------------
(Unaudited)
Unitholders' equity, beginning
of period 26,488,000 $223,301 26,408,000 $248,464
Net income (loss) - (6,518) - 3,085
Distributions to unitholders - (13,203) - (29,081)
Trust Units issued in lieu of
management fee 60,000 460 80,000 833
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Unitholders' equity, end of
period 26,548,000 $204,040 26,488,000 $223,301
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FREEHOLD ROYALTY TRUST
Combined Statements of Income
(STATED IN THOUSANDS THREE MONTHS ENDED NINE MONTHS ENDED
OF DOLLARS EXCEPT PER SEPTEMBER 30, SEPTEMBER 30,
UNIT DATA 1998 1997 1998 1997
-------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues:
Royalty Income $ 4,045 $ 5,224 $ 12,272 $ 17,621
-------------------------------------------------------------------------
Working interest sales
(net of royalties) 2,521 3,583 6,650 11,132
Operating expenses 975 1,002 2,674 2,568
-------------------------------------------------------------------------
Working interest income 1,546 2,581 3,976 8,564
-------------------------------------------------------------------------
5,591 7,805 16,248 26,185
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Other expenses:
Administrative 540 431 1,674 1,365
Interest on long-term
debt 574 364 1,620 1,139
Capital taxes and other
interest 125 - 235 -
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1,239 795 3,529 2,504
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Income before depletion,
depreciation site recoveries
and management fee 4,352 7,010 12,719 23,681
Depletion and
depreciation 5,902 6,537 18,608 19,640
Site restoration 55 54 169 162
Management fee 140 236 460 651
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Net income (loss) $ (1,745) $ 183 $ (6,518) $ 3,228
-------------------------------------------------------------------------
Net income (loss) per
Unit $ (0.07) $ 0.01 $ (0.25) $ 0.12
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Combined Statements of Distributable Income
(STATED IN THOUSANDS THREE MONTHS ENDED NINE MONTHS ENDED
OF DOLLARS EXCEPT PER SEPTEMBER 30, SEPTEMBER 30,
UNIT DATA 1998 1997 1998 1997
-------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Income before depletion
depreciation, site
restoration and management
fee $ 4,352 $ 7,010 $ 12,719 $ 23,681
Add (deduct):
Site restoration fund
contributions (55) (54) (169) (162)
Capital expenditures (118) (205) (170) (1,035)
Use of working capital - - 823 -
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Distributable income $ 4,179 $ 6,751 $ 13,203 $ 22,484
-------------------------------------------------------------------------
Distributable income per
Trust Unit $ 0.16 $ 0.25 $ 0.50 $ 0.85
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FREEHOLD ROYALTY TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
THREE MONTHS ENDED NINE MONTHS ENDED
(STATED IN THOUSANDS SEPTEMBER 30, SEPTEMBER 30,
OF DOLLARS) 1998 1997 1998 1997
-------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Cash provided by
(used in):
Operating
Net income (loss) $ (1,745) $ 183 $ (6,518) $ 3,228
Item not involving
cash:
Depletion and
depreciation 5,902 6,537 18,608 19,640
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Funds generated from
operations 4,157 6,720 12,090 22,868
Changes in non-cash
operating working capital 323 (1,532) (161) (3,238)
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4,480 5,188 11,929 19,630
Financing:
Trust Units issued in
lieu of management fee 140 236 460 651
Bank indebtedness 225 - 5,500 -
Long-term debt - - 1,113 22,380
Distributions paid (4,377) (7,405) (18,474) (19,295)
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(4,012) (7,169) (11,401) 3,736
Investing:
Property and royalty
acquisitions - - - (22,330)
Development expenditures (474) (205) (1,586) (1,035)
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(474) (205) (1,586) (23,365)
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Increase (decrease) in cash (6) (2,186) (1,058) 1
Cash, beginning of period 75 2,498 1,127 311
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Cash, end of period $ 69 $ 312 $ 69 $ 312
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Tax Status of Distributions
Distributions paid to date have all been 100% tax deferred and are
considered a ''return of capital'' for income tax purposes. Such
distributions designated as ''return of capital'' by the Trust enable
Unitholders who are non-residents of Canada to receive such amounts exempt
from Canadian withholding tax. As a result, the Trust does NOT issue T3
slips, and will not issue T3's until a portion of the distribution is taxable.
It is estimated that distributions will be 100% tax deferred until
approximately the year 2001. A full statement regarding taxes and
distributions paid to date can be obtained by contacting the Trust.
Freehold Royalty Trust is a closed-end investment trust, which receives
and distributes royalty income from a diversified asset base of high quality
oil and gas properties. The Trust currently has 26.5 million Trust Units
outstanding and trades on the Toronto and Montreal stock exchanges under the
symbol ''FRU.UN''.
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