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1. Company Snapshot

1.a. Company Description

Freehold Royalties Ltd., an oil and gas royalty company, owns working interests in oil, natural gas, natural gas liquids, and potash properties in Western Canada and the United States.The company holds approximately 6.2 million gross acres of land in Canada and 0.8 million gross drilling unit acres in the United States.It has royalty interests in approximately 15,000 producing wells and receives royalty from approximately 350 industry operators in North America.


The company was founded in 1996 and is headquartered in Calgary, Canada.

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1.b. Last Insights on FRU

Freehold Royalties' recent performance was positively driven by a 4% quarter-over-quarter and 13% year-over-year increase in total crude oil and natural gas liquids production, reaching 11,047 bbls/d. The company's strategic positioning in the North American energy royalty market, with approximately 6.1 million gross acres in Canada, provides a solid foundation for growth. Additionally, the declaration of a dividend of $0.09 per common share, designated as "eligible dividends" for Canadian income tax purposes, underscores the company's commitment to shareholder returns.

1.c. Company Highlights

2. Earnings Beat with Strong Production Growth

The company reported earnings per share (EPS) of $0.21, beating analyst estimates of $0.16. Funds from operations came in at $59 million or $0.36 a share, enabling the company to pay $44 million in dividends to shareholders, reduce long-term debt by $9 million, and invest $5.8 million in acquisitions. Revenue growth is expected to be 1.8% next year, according to analyst estimates.

Publication Date: Nov -21

📋 Highlights
  • Production Growth:: Achieved 16,054 BOE/day in Q3 2025, a 10% increase from Q3 2024, driven by the Permian Basin acquisition and expanded drilling activities.
  • U.S. Revenue Contribution:: U.S. production accounts for 53% of revenue, generating 33% higher pricing than Canadian assets due to light sweet oil and strong natural gas markets.
  • Canadian Heavy Oil Expansion:: Canadian heavy oil production rose 13% YoY, with 83 wells drilled post-spring breakup, offset by 6% lower gas production due to weak pricing.
  • Permian Infrastructure Development:: 63 gross wells across 4 pads in the Permian Basin, alongside infrastructure to boost gas takeaway capacity for Gulf Coast LNG and data center demand.
  • Financial Performance:: Generated $59M in funds from operations ($0.36/share), paid $44M in dividends (72% payout ratio), and reduced debt by $9M, while expanding credit facility to $500M by 2028.

Operational Highlights

Production reached 16,054 BOE a day with a liquids weighting of 65%, a 10% increase from Q3 2024, driven by the Permian Basin acquisition and continued drilling activity across the asset base. The U.S. production, now representing 53% of revenue, is driving 33% higher pricing compared to the Canadian asset base, benefiting from light sweet oil production and strong U.S. natural gas pricing.

Segment Performance

In Canada, heavy oil production grew 13% compared to the same quarter last year, while gas production was down 6% due to weaker gas pricing. In the Permian Basin, the company has 4 large well pads with 63 gross wells drilled and is investing in infrastructure to improve gas takeaway capacity. As the company mentioned, "we continue to advance our ground game strategy of acquiring mineral title lands in the U.S. ahead of the drill bit."

Valuation and Dividend Sustainability

With a P/E Ratio of 20.35 and a Dividend Yield of 7.27%, the stock appears to be reasonably valued. The company's commitment to its current dividend is seen as sustainable through a prolonged USD 50-barrel environment. The payout ratio is 72% through the first 9 months of 2025, and the company plans to live within cash flow. The increased credit facility to $500 million provides greater financial flexibility.

Outlook and Financial Flexibility

The company has extended its credit facility by a year to November 2028, providing a stable financial foundation. The Normal Course Issuer Bid (NCIB) remains in place as an option, but it is not currently being utilized. With a Net Debt / EBITDA ratio of 1.05 and an ROIC of 10.08%, the company's financial health and return on investment are satisfactory.

3. NewsRoom

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Freehold Royalties Declares Dividend for October 2025

Oct -15

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Freehold Royalties' (TSE:FRU) Dividend Will Be CA$0.09

Aug -17

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EnerCom Announces Andrew Rapp, Senior Advisor in the U.S. Department of Energy, as Keynote Speaker on August 18th at EnerCom's 30th Anniversary Energy Investment Conference

Aug -06

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Energy Transition Meets Emerging Tech on August 20th at EnerCom's 30th Anniversary Energy Investment Conference

Jul -31

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Freehold Royalties Posts Lower Profit, Revenue, FFO for Second Quarter

Jul -30

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Freehold Royalties Announces Second Quarter 2025 Results

Jul -30

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Nuclear Energy Newcomers Electrify Final Day of EnerCom's 30th Anniversary Energy Investment Conference

Jul -23

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Undiscovered Canadian Gems with Promising Potential This July 2025

Jul -22

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4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (2.59%)

6. Segments

Oil

Expected Growth: 2.5%

Freehold Royalties Ltd.'s 2.5% growth in oil segment is driven by increasing global energy demand, improved operational efficiency, and strategic acquisitions. Additionally, favorable oil prices, growing production volumes, and a strong balance sheet support the company's growth momentum.

Natural Gas

Expected Growth: 2.8%

Freehold Royalties Ltd.'s 2.8% growth in Natural Gas is driven by increasing demand from power generation and industrial sectors, coupled with rising production from shale plays in North America. Additionally, improved drilling efficiencies and cost reductions have enhanced profitability, supporting the company's growth momentum.

Natural Gas Liquid

Expected Growth: 3.2%

Freehold Royalties Ltd.'s 3.2% growth in Natural Gas Liquid (NGL) is driven by increasing demand from petrochemicals and liquefied natural gas (LNG) exports, coupled with improved drilling economics and enhanced oil recovery techniques in North American shale plays.

Bonus Consideration and Lease Rentals

Expected Growth: 2.2%

Bonus Consideration and Lease Rentals from Freehold Royalties Ltd. growth of 2.2% driven by increasing oil and gas production, rising commodity prices, and strategic acquisitions. Additionally, the company's diversified royalty portfolio and low operating costs contribute to its growth momentum.

Potash

Expected Growth: 2.9%

Potash growth driven by increasing global demand for fertilizers, driven by population growth and food security concerns. Freehold Royalties Ltd.'s strong asset base, low-cost operations, and strategic partnerships also contribute to its 2.9% growth. Additionally, government initiatives to promote sustainable agriculture and rising crop prices further support potash demand.

7. Detailed Products

Royalty Generation

Freehold Royalties Ltd. generates royalties from its portfolio of oil and gas properties, providing a steady stream of revenue.

Mineral Title Management

The company manages a vast portfolio of mineral titles, ensuring maximum value extraction for its stakeholders.

Land and Lease Management

Freehold Royalties Ltd. provides comprehensive land and lease management services, ensuring efficient operations and compliance.

Data Analytics and Insights

The company offers advanced data analytics and insights to help stakeholders make informed decisions in the oil and gas industry.

Consulting and Advisory Services

Freehold Royalties Ltd. provides expert consulting and advisory services to help clients navigate the oil and gas industry.

8. Freehold Royalties Ltd.'s Porter Forces

Forces Ranking

Threat Of Substitutes

The threat of substitutes for Freehold Royalties Ltd. is medium, as there are some alternatives available in the market, but they are not very attractive to customers.

Bargaining Power Of Customers

The bargaining power of customers for Freehold Royalties Ltd. is low, as customers have limited options and the company has a strong brand presence.

Bargaining Power Of Suppliers

The bargaining power of suppliers for Freehold Royalties Ltd. is medium, as the company has some negotiating power, but suppliers also have some bargaining power.

Threat Of New Entrants

The threat of new entrants for Freehold Royalties Ltd. is high, as the industry has low barriers to entry and new companies can easily enter the market.

Intensity Of Rivalry

The intensity of rivalry for Freehold Royalties Ltd. is high, as the industry is highly competitive and companies are constantly competing for market share.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 11.88%
Debt Cost 10.79%
Equity Weight 88.12%
Equity Cost 13.95%
WACC 13.57%
Leverage 13.49%

11. Quality Control: Freehold Royalties Ltd. passed 4 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

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Parex Resources

A-Score: 7.6/10

Value: 8.6

Growth: 6.2

Quality: 7.0

Yield: 10.0

Momentum: 8.5

Volatility: 5.3

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Cardinal Energy

A-Score: 7.1/10

Value: 6.8

Growth: 4.2

Quality: 6.9

Yield: 10.0

Momentum: 6.5

Volatility: 8.0

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Kiwetinohk Energy

A-Score: 6.9/10

Value: 7.9

Growth: 9.1

Quality: 6.9

Yield: 0.0

Momentum: 9.5

Volatility: 8.3

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Freehold Royalties

A-Score: 6.9/10

Value: 5.1

Growth: 5.4

Quality: 7.2

Yield: 9.0

Momentum: 5.0

Volatility: 9.7

1-Year Total Return ->

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MorningStar Partners

A-Score: 6.4/10

Value: 6.4

Growth: 6.6

Quality: 4.8

Yield: 10.0

Momentum: 5.5

Volatility: 5.3

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VAALCO Energy

A-Score: 5.7/10

Value: 8.1

Growth: 6.7

Quality: 5.9

Yield: 8.0

Momentum: 1.0

Volatility: 4.7

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

15.24$

Current Price

15.24$

Potential

-0.00%

Expected Cash-Flows