Mr. Andrew Phillips reports

PRAIRIESKY ANNOUNCES 2022 THIRD QUARTER RESULTS AND 100% INCREASE TO DIVIDEND

PrairieSky Royalty Ltd. has released its third quarter results for the three-month period ended Sept. 30, 2022 (Q3 2022), and has increased its quarterly dividend by 100 per cent to 24 cents per common share (96 cents per common share annualized).

Third quarter highlights:

• Quarterly revenues totalled $154.7-million, comprising royalty production revenues of $146.0-million and other revenues of $8.7-million, including bonus consideration of $5.9-million.
• Quarterly funds from operations of $123.5-million (52 cents per common share basic and diluted) were 87 per cent above Q3 2021 due to a combination of robust organic royalty production growth, acquisition royalty volumes and strong commodity pricing, but trailed Q2 2022 by 23 per cent primarily as a result of a decline in benchmark commodity prices.
• Royalty production volumes averaged 24,986 BOE (barrels of oil equivalent) per day, comprising 11,376 barrels per day of oil, 2,660 barrels per day of NGL (natural gas liquids) and 65.7 MMcf (million cubic feet) per day of natural gas.
• Declared a third quarter dividend of $28.7-million (12 cents per common share), representing a payout ratio of 23 per cent.
• Net debt totalled $364.2-million at the end of Q3 2022, a decrease of 43 per cent or $270.8-million from Dec. 31, 2021, as excess funds from operations were primarily used to retire indebtedness incurred in connection with acquisitions completed during the second half of 2021.
• PrairieSky's board of directors has approved a 100-per-cent quarterly dividend increase to 24 cents per common share (96 cents per common share annualized) effective for the Dec. 30, 2022, record date.

President's message

It was an exceptionally busy quarter across PrairieSky's royalty properties as third party operators spudded 286 wells on our lands, a 134-per-cent increase compared with Q2 2022 (122 spuds) and a 48-per-cent increase compared with Q3 2021 (193 spuds). This material increase in activity was spread across a number of plays spanning from northeast British Columbia to southwest Manitoba. Drilling activity was focused on oil plays with 268 wells spudded, including 107 Viking oil wells primarily on fee leases in Saskatchewan and Alberta, and 48 Clearwater oil wells across our 1.3-million-acre Clearwater footprint. Management expects the escalating drilling and field activity throughout 2022 and specifically in Q3 2022 to provide organic growth in royalty production volumes in the fourth quarter of 2022 and into 2023. In addition, during Q3 2022 we entered into 58 distinct leasing arrangements with 46 different counterparties for bonus revenue of $5.9-million, the highest level of quarterly leasing activity and bonus in several years, which we anticipate will contribute to strong third party drilling for the balance of 2022 and 2023.

Throughout the first nine months of 2022, PrairieSky has generated organic growth across our land base with royalty volumes increasing by approximately 1,100 BOE per day (5 per cent) from Q1 2022 to Q3 2022. Annual spring breakup conditions and the seasonal reduction in field activity (122 spuds in Q2 2022) impacted Q3 2022 royalty production which declined 4 per cent to 24,986 BOE per day with oil royalty production volumes averaging 11,376 barrels per day. Oil royalty production volumes have increased 20 per cent over Q3 2021, excluding all acquisition royalty volumes, but lagged Q2 2022 by 7 per cent as seasonal road bans impacted transportation of certain oil volumes and new wells came on later in Q3 2022. PrairieSky's Clearwater production continues to grow organically, averaging approximately 1,600 BOE per day in Q3 2022, an increase of 78 per cent compared with Q3 2021 average production of approximately 900 BOE per day. PrairieSky is the largest owner of Clearwater royalty lands with 1.3 million acres and we expect this low-cost play will provide significant royalty production growth and new exploration opportunities for PrairieSky through all commodity cycles. Natural gas production volumes increased 13 per cent over Q3 2021 and remained steady relative to Q2 2022 at 65.7 MMcf per day, generating $83.9-million in revenue year to date which has been sufficient to cover substantially all dividends declared by PrairieSky in 2022.

PrairieSky generated quarterly funds from operations of $123.5-million or 52 cents per common share (basic and diluted) and declared dividends of $28.7-million or 12 cents per common share to shareholders of record on Sept. 30, 2022, with a resulting payout ratio of 23 per cent. With strong quarterly funds from operations over the first nine months of 2022, PrairieSky's net debt has decreased 43 per cent to $364.2-million from $635.0-million at Dec. 31, 2021.

PrairieSky's board of directors has approved a 100-per-cent increase in the quarterly dividend, doubling the annual dividend to 96 cents per common share, effective for the Dec. 30, 2022, record date. This decision was based on a number of factors including organic oil royalty production growth over the past year, strong leasing and drilling activity tailwinds, and net debt decreasing at a faster pace than internally forecasted. Following the 100-per-cent dividend increase, PrairieSky expects to maintain a low payout ratio, leaving room for incremental dividend increases on an annual basis and the ability to retire debt over the next several quarters, while maintaining balance sheet flexibility to opportunistically acquire complementary royalty assets or use the normal course issuer bid to repurchase and cancel common shares. PrairieSky remains disciplined in its approach to acquisitions and focused on only adding assets that enhance the value per common share over the near, medium and long term.

With strong commodity pricing for all products, PrairieSky is focused on its core strategies of leasing land, managing controllable costs, and royalty and land compliance activities. With leasing transactions at a record high and third party operators actively drilling, PrairieSky is well positioned to continue to see sustainable organic royalty production growth across the portfolio. We would like to thank our shareholders for their support, and our staff for their continued hard work.

Andrew Phillips, president and CEO

Q3 2022 financial highlights

• Funds from operations of $123.5-million or 52 cents per common share (basic and diluted) increased 87 per cent over Q3 2021. The increase in funds from operations was driven by a combination of organic growth in royalty production, acquisition royalty volumes and strong commodity pricing. Funds from operations decreased 23 per cent from Q2 2022 primarily as a result of the decrease in benchmark oil and natural gas prices.
• Royalty production revenue totalled $146.0-million generated from total royalty production volumes of 24,986 BOE per day. A further breakdown is as follows:
  • Oil royalty production volumes averaged 11,376 barrels per day, a 51-per-cent increase over Q3 2021. Excluding all acquisition royalty volumes, organic growth in oil royalty production totalled 20 per cent over Q3 2021 inclusive of 219 barrels per day of royalty production from sliding scale royalties. Oil royalty volumes were 7 per cent below Q2 2022 following seasonal breakup when fewer new wells come on production and road bans restrict the transportation and marketing of certain oil volumes.
  • Strong oil royalty production volumes and average WTI (West Texas Intermediate) pricing of $91.68 (U.S.) per barrel combined to generate oil royalty revenue of $107.6-million in the quarter, a 114-per-cent increase over Q3 2021 and 21 per cent below Q2 2022 when WTI pricing averaged $108.57 (U.S.) per barrel.
  • Natural gas royalty production volumes totalled 65.7 MMcf per day, 13 per cent above Q3 2021. The increase in natural gas royalty production volumes is attributable to acquisition volumes, organic growth from new wells on stream, including solution gas from oil wells and compliance recoveries more than offsetting natural declines. Natural gas royalty production volumes remained flat with Q2 2022 as incremental royalty production volumes from new wells on stream offset natural declines.
  • Natural gas royalty revenue totalled $24.2-million, a 55-per-cent increase over Q3 2021 primarily due to stronger natural gas index pricing with daily AECO averaging $4.08 per Mcf in the quarter and monthly AECO pricing averaging $5.81 per Mcf in the quarter. Natural gas pricing was stronger than Q3 2021 but down from Q2 2022 due to pipeline maintenance restricting volumes out of Western Canada negatively impacting benchmark pricing and resulting in a 34-per-cent decrease in natural gas revenue quarter over quarter.
  • NGL royalty production volumes averaged 2,660 barrels per day, 2 per cent above Q3 2021 due to new wells on stream and incremental acquisition royalty volumes offsetting natural declines. NGL royalty production volumes decreased 4 per cent from Q2 2022 as fewer new wells came on production following seasonal breakup.
  • NGL royalty revenue totalled $14.2-million, a 41-per-cent increase over Q3 2021 due to increased royalty production volumes and stronger benchmark pricing. NGL royalty revenue decreased 20 per cent from Q2 2022 primarily due to lower benchmark pricing.
• Other revenue totalled $8.7-million in Q3 2022 which included $1.6-million of lease rentals and $5.9-million in bonus consideration generated from 58 new leasing arrangements with 46 different counterparties. Year-to-date bonus consideration of $13.2-million is triple the amount earned in the first nine months of 2021. In addition, PrairieSky generated $1.2-million in other income which included $700,000 of potash royalty revenue. Compliance recoveries totalled $3.3-million in Q3 2022.
• Cash administrative expenses totalled $4.9-million or $2.13 per BOE, down 9 per cent on a per BOE basis from Q3 2021. PrairieSky expects cash administrative expense per BOE to remain below $3.00 per BOE for 2022.
• PrairieSky declared a third quarter dividend of $28.7-million (12 cents per common share), representing a 23-per-cent payout ratio. Remaining funds from operations were primarily allocated to reducing bank debt.
• At Sept. 30, 2022, PrairieSky's net debt balance totalled $364.2-million, a decrease of $270.8-million from Dec. 31, 2021.

Activity on PrairieSky's royalty properties

Third party operators were active across PrairieSky's royalty properties during Q3 2022. There were 286 wells spudded (94 per cent oil) in the quarter, including 146 wells spudded on the company's fee lands, 122 wells spudded on the company's GORR acreage and 18 unit wells spudded. It was particularly active on the company's Viking and Clearwater oil plays with 107 and 48 wells spudded, respectively. In addition, there were 49 Mannville heavy and light oil wells including eight wells on the Onion Lake thermal oil project, 16 Mississippian wells, 14 Bakken wells, 11 Cardium wells and 23 additional oil wells spudded in the Belly River, Charlie Lake, Doig, Devonian and Jurassic formations. There were 18 natural gas wells spudded in Q3 2022, including five Spirit River, four Mannville, four Mississippian, three Montney and two Cardium wells. PrairieSky's average royalty rate for wells spudded in Q3 2022 was 8.9 per cent (Q3 2021 -- 6.7 per cent). In the nine months ended Sept. 30, 2022, third party operators have spudded 602 wells on PrairieSky's royalty lands, an increase of 58 per cent over the same period in 2021.

Quarterly dividend increased 100 per cent to 24 cents per share (96 cents per share annualized)

PrairieSky is pleased to announce a 100-per-cent increase in its quarterly dividend raising it to 24 cents per common share (annualized dividend of 96 cents per common share) effective for the Dec. 30, 2022, record date. The board of directors considered a number of factors in determining the increase to its dividend level, including current and projected activity levels on PrairieSky's royalty lands, the current commodity price environment, the continued high-margin and diversified cash flow from operating activities, debt levels, and the net earnings of the company. Following the 100-per-cent dividend increase, PrairieSky expects to maintain a low payout ratio, leaving room for incremental dividend increases on an annual basis.

Financial and operational information

The attached table summarizes select operational and financial information of the company for the periods noted. All dollar amounts are stated in Canadian dollars unless otherwise noted.

A full version of PrairieSky's management's discussion and analysis (MD&A) and unaudited interim condensed consolidated financial statements and notes thereto for the fiscal period ended Sept. 30, 2022, is available on SEDAR and PrairieSky's website.

Conference call details

A conference call to discuss the results will be held for the investment community on Tuesday, Oct. 25, 2022, beginning at 6:30 a.m. MT (8:30 a.m. ET). To participate in the conference call, you are asked to register on-line. Details regarding the call will be provided to you upon registration.

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