Mr. Andrew Phillips reports

PRAIRIESKY ANNOUNCES FOURTH QUARTER AND YEAR-END RESULTS FOR 2023, INCLUDING RECORD OIL ROYALTY PRODUCTION, STRONG LEASING ACTIVITY AND INCREASED ANNUAL DIVIDEND

PrairieSky Royalty Ltd. has released its fourth quarter (Q4 2023) and year-end operating and financial results for the periods ended Dec. 31, 2023. PrairieSky is also pleased to announce a 4-per-cent increase in its annual dividend to $1.00 per common share (25 cents per common share quarterly).

Fourth quarter highlights:

• Quarterly average royalty production volumes of 25,608 boe (barrels of oil equivalent) per day, which included record oil royalty production volumes of 12,844 barrels (bbl) per day.
• Quarterly revenues totalled $136.6-million, composed of royalty production revenues of $122-million and other revenues of $14.6-million, including bonus consideration of $11.2-million, the highest quarterly bonus earned since 2017.
• Quarterly funds from operations of $111.1-million (46 cents per share basic and diluted) generated primarily from robust organic oil royalty production growth and strong bonus consideration earned on active third party leasing.
• Completed acquisitions of producing and non-producing royalty interests, as well as incremental seismic data, for aggregate cash consideration of $22.2-million.
• Declared a fourth-quarter dividend of $57.3-million (24 cents per share), representing a 52-per-cent quarterly payout ratio.

Annual highlights:

• Royalty production volumes averaged 24,857 boe per day, flat with 2022 annual average royalty production volumes, and composed of 59.5 MMcf (million cubic feet) per day of natural gas, 2,502 barrels per day of natural gas liquids (NGL) and a record 12,438 barrels per day of oil.
• Annual revenues totalled $513.2-million, composed of:
  • Royalty production revenue of $474.6-million, a decrease of 23 per cent from 2022, primarily due to lower benchmark commodity prices; and
  • Other revenue of $38.6-million, including $26-million of bonus consideration earned on entering into 202 new leasing arrangements with 110 separate counterparties.
• Annual funds from operations totalled $382.5-million ($1.60 per share basic and diluted), driven by organic production growth in oil royalty volumes, combined with strong bonus consideration earned on active leasing to third party operators.
• Proved plus probable reserves totalled 65,762 Mboe (million barrels of oil equivalent) with a before-tax net present value (NPV), discounted at 10 per cent, of $1.84-billion, a decrease of 5 per cent from Dec. 31, 2022, primarily due to lower near-term natural gas and NGL commodity price assumptions.
• Declared cumulative annual dividends of $229.2-million (96 cents per share), representing an annual payout ratio of 60 per cent.
• At Dec. 31, 2023, net debt totalled $222.1-million, a decrease of 30 per cent from Dec. 31, 2022, net debt of $315.1-million, as excess funds from operations after payment of the dividend and royalty acquisitions were used to retire bank debt.

Dividend increase:

• PrairieSky is pleased to announce a 4-per-cent increase in its annual dividend to $1.00 per common share, to be paid on a quarterly basis (25 cents per common share quarterly), effective for the March 29, 2024, record date.

Sustainability highlights:

• Maintained negligible risk ESG (environmental, social and governance) risk rating and received "2024 ESG Global 50 Top-Rated Badge," awarded to the top 50 ranked companies in Sustainalytics ESG Risk Ratings universe, which covers more than 14,000 companies across 42 industries.
• Maintained AAA ESG risk rating from MSCI, measuring resilience to long-term, industry-material ESG risks.
• Included in the S&P's Global Sustainability Yearbook 2024, based on top 15 per cent performance in the S&P's Global 2023 Corporate Sustainability Assessment, which evaluated over 9,400 companies globally.

Leadership update:

• PrairieSky is pleased to announce the appointment of Michael Murphy as vice-president, geosciences and capital markets. Mr. Murphy is a professional geologist with 19 years of experience in the oil and gas industry, and equity research.

President's message

"An active fourth quarter of leasing activity capped off another strong year in 2023. PrairieSky entered into 50 leasing arrangements in the quarter, earning bonus consideration of $11.2-million, primarily from leasing of Duvernay rights, the highest quarterly bonus consideration earned since 2017. Annual bonus consideration totalled $26-million, the highest annual bonus consideration earned since 2017, with PrairieSky entering into 202 leasing arrangements with 110 different counterparties. In both 2022 and 2023, leasing activity was focused on oil targets, which has resulted in strong organic oil growth on PrairieSky's royalty properties. PrairieSky averaged a record 12,844 barrels per day of oil royalty production in the quarter, which was 6 per cent above Q4 2022. Annually, average oil royalty volumes reached a record 12,438 barrels per day, 6 per cent above 2022. With the incremental Duvernay leasing, we anticipate long-term light oil royalty production growth to complement the growth in heavy oil from PrairieSky's Clearwater and Mannville Stack oil plays.

"Total royalty production averaged 25,608 boe per day in the fourth quarter, generating royalty production revenue of $122-million which, combined with $11.2-million of bonus consideration, $2.9-million of lease rentals and $0.5-million of other revenues, drove Q4 2023 funds from operations of $111.1-million. Annually, total royalty production averaged 24,857 boe per day, generating $474.6-million in royalty production revenue. Funds from operations totalled $382.5-million for 2023, generated primarily on strong oil royalty production revenue which made up 79 per cent of royalty production revenue, combined with $26-million in bonus consideration. PrairieSky's annual 2023 dividend was $229.2-million, or 96 cents per common share, resulting in an annual payout ratio of 60 per cent. PrairieSky executed on $58.4-million in acquisitions and directed the remainder of funds from operations to retiring bank debt. At Dec. 31, 2023, PrairieSky's net debt totalled $222.1-million, a decrease of 30 per cent from $315.1-million at Dec. 31, 2022. Management believes PrairieSky's business model is uniquely suited to provide sustainable returns to shareholders through all commodity price cycles and we are pleased to announce a 4-per-cent dividend increase, effective for the March 29, 2024, record date.

"During Q4 2023, PrairieSky added incremental royalty acreage through $22.2-million in acquisitions, which included undeveloped lands in the Mannville Stack oil play. We have focused our acquisition strategy since 2016 on entering early-stage plays, such as the Clearwater and Mannville Stack. This strategy has driven strong oil royalty production growth and we anticipate these acquisitions will continue to provide strong returns on invested capital. In addition to early-stage opportunities, PrairieSky acquired approximately 67,000 acres of producing and non-producing royalty acreage in central Alberta for $14-million, before customary closing adjustments, which closed on Dec. 6, 2023. The acquisition included royalty production volumes of 90 boe per day (72 per cent liquids) and seismic covering the acquired assets.

"It was an active fourth quarter on our royalty properties, with 197 wells spud, composed of 184 oil wells, 12 natural gas wells and one helium well. Drilling activity in the quarter spanned from northeastern British Columbia to southwestern Manitoba, and was focused on oil plays, including 44 Clearwater oil wells across our 1.4 million acres of Clearwater acreage, 48 Mannville Stack oil wells and 33 Viking oil wells primarily on fee leases in Saskatchewan. With the level of third party drilling activity and new leasing, management expects oil royalty production volumes to maintain momentum into 2024. In 2023, there were 805 wells spud, down from 850 wells in 2022. PrairieSky estimates that $2-billion ($112-million net) in third party capital was spent in 2023 drilling and completing wells on PrairieSky's royalty properties, up from $1.5-billion ($84-million net) in 2022. Capital spending by third party operators targeted oil plays, including those where PrairieSky has made strategic investments, with the most active plays being the Clearwater oil play, Mannville Stack heavy oil play and the Viking oil play.

"We were very pleased with the level of organic growth in oil royalty volumes we have achieved over the last two years and the level of activity across our land base. We anticipate 2024 will continue to be active and we will remain disciplined, focusing on our core strategies of leasing land, managing controllable costs, and conducting royalty and land-compliance activities. We are pleased to welcome Michael to our team and look forward to working with him to meet our corporate objectives. We would like to thank our shareholders for their support, and our staff for their continued hard work," said Andrew Phillips, president and chief executive officer.

Q4 2023 financial highlights:

• PrairieSky generated funds from operations of $111.1-million, or 46 cents per share (basic and diluted), in Q4 2023, an increase of 18 per cent over Q3 2023 and 7 per cent below Q4 2022. The increase in funds from operations over Q3 2023 was driven by a combination of organic growth in oil royalty production volumes and increased bonus consideration earned on new leasing activity. These positive impacts were more than offset by lower WTI (West Texas Intermediate) and AECO (Alberta Energy Company) benchmark pricing as compared with Q4 2022.
• PrairieSky's royalty production volumes totalled 25,608 boe per day (boepd) and generated royalty production revenue of $122-million in Q4 2023. A further breakdown is as follows:
  • PrairieSky achieved record oil royalty production volumes of 12,844 barrels per day, a 6-per-cent increase over both Q3 2023 and Q4 2022, as royalty production from new wells on stream more than offset natural declines. Oil royalty production volumes included 24 barrels per day related to acquisitions in the quarter.
  • Oil royalty production revenue totalled $98.4-million, a decrease of 4 per cent from Q3 2023, as higher royalty production volumes were offset by weaker WTI benchmark pricing, and wider light and heavy oil differentials. Oil royalty production revenue was lower than Q4 2022 due to lower WTI benchmark pricing and a wider light oil differential, partially offset by stronger royalty production volumes, a narrowed heavy oil differential and a weaker Canadian dollar relative to the United States dollar.
  • Natural gas royalty production volumes averaged 60.4 MMcf per day in Q4 2023, a 6-per-cent decrease from Q3 2023 and 9 per cent from Q4 2022 as new wells on stream were offset by natural declines.
  • Natural gas royalty revenue totalled $12.2-million, a 5-per-cent increase over Q3 2023 due to certain royalty volumes being sold at higher Sumas pricing. Natural gas royalty revenue decreased 62 per cent from Q4 2022 when daily AECO pricing averaged $5.11 per mcf, and monthly AECO pricing averaged $5.58 per mcf, which was more than 50 per cent above Q4 2023 AECO pricing.
  • NGL royalty production volumes averaged 2,697 barrels per day, flat with both Q3 2023 and Q4 2022, as new wells on stream offset natural declines.
  • NGL royalty revenue totalled $11.4-million, down 12 per cent from Q3 2023 and 16 per cent from Q4 2022, due to lower benchmark pricing.
• PrairieSky generated $11.2-million in bonus consideration in Q4 2023, the highest quarterly bonus consideration earned since 2017, which was earned on entering into 50 new leasing arrangements with 43 different counterparties. PrairieSky earned an incremental $2.9-million in lease rentals and $500,000 in other revenue in the quarter. Compliance recoveries totalled $2-million in Q4 2023.
• Cash administrative expenses totalled $5.6-million, or $2.38 per boe, in line with Q4 2022.
• PrairieSky declared a dividend of $57.3-million (24 cents per share) during Q4 2023, representing a 52-per-cent payout ratio. Remaining funds from operations were allocated to acquisitions and to retiring bank debt.
• During Q4 2023, PrairieSky acquired undeveloped lands in the Mannville Stack, as well as incremental producing and non-producing royalty interests, and seismic, for cash consideration of $22.2-million.

Annual financial highlights:

• PrairieSky generated annual funds from operations of $382.5-million ($1.60 per share basic and diluted), 25 per cent below 2022, as record oil royalty production volumes and strong bonus consideration were more than offset by the negative impacts of lower benchmark commodity pricing.
• Royalty production volumes averaged 24,857 boe per day, flat year-over-year, as increased oil royalty production volumes were offset by lower natural gas royalty volumes, which were negatively impacted during the year due to facility maintenance downtime and forest-fire-related shut-ins. Average oil royalty production volumes reached a record 12,438 barrels per day, 6 per cent higher than 2022.
• PrairieSky achieved total revenues of $513.2-million, composed of $474.6-million of royalty production revenue and $38.6-million of other revenue. Other revenue included $26-million of bonus consideration, the highest annual amount since 2017, earned on entering into 202 new leasing arrangements with 110 counterparties. Compliance recoveries totalled $6.6-million for the year.
• Administrative expenses totalled $45-million, or $4.96 per boe, below 2022 administrative expenses of $48.8-million, or $5.30 per boe. Cash administrative expenses totalled $47.9-million, or $5.28 per boe higher than 2022 cash administrative expense, primarily due to share-based compensation payments, including a termination payment related to a leadership change and a director retirement.
• During 2023, PrairieSky completed acquisitions of fee mineral title and GORR (gross overriding royalty) interests primarily targeting Mannville Stack heavy oil for $58.4-million. Annually, acquisitions added 35 boe per day to royalty production volumes.
• PrairieSky declared cumulative annual dividends of $229.2-million, or 96 cents per share, with a resulting annual payout ratio of 60 per cent.
• At Dec. 31, 2023, PrairieSky's net debt totalled $222.1-million, a decrease of $93-million, or 30 per cent, from Dec. 31, 2022, net debt of $315.1-million.

Activity on PrairieSky's royalty properties

Third party drilling activity remained strong in Q4 2023 with 197 wells spud on PrairieSky's royalty properties, consisting of 95 wells spud on fee lands, 93 wells spud on GORR acreage and nine unit wells spud. Activity was focused on oil targets, with 184 wells spud, which included 48 Mannville Stack oil wells, 44 Clearwater oil wells, 33 Viking oil wells, 17 Mannville oil wells, 13 Cardium oil wells, 11 Mississippian oil wells, six Duvernay oil wells, and 12 additional oil wells spud in the Bakken, Belly River, Charlie Lake, Jurassic and Nisku formations. There were 12 natural gas wells spud in Q4 2023, including five Montney natural gas wells, seven Mannville and Spirit River wells, and one helium well. PrairieSky's average royalty rate for wells spud in Q4 2023 was 7.2 per cent (Q4 2022 -- 6.4 per cent). Spuds on PrairieSky's royalty properties in 2023 totalled 805 wells, as compared with 850 wells in 2022. The average royalty rate for wells spud in 2023 was 7.2 per cent (2022 -- 7.3 per cent).

For 2023, PrairieSky estimates that $2-billion ($112-million net) in third party capital was spent drilling and completing wells on PrairieSky royalty properties, up from $1.5-billion ($84-million net capital) in 2022, representing a 33-per-cent increase in net capital spent on PrairieSky's land base year-over-year. The increase was primarily a result of inflation in the service sector.

Annual dividend increased 4 per cent to $1.00 per share

PrairieSky is pleased to announce a 4-per-cent increase in its annual dividend to $1.00 per common share in 2024, to be paid on a quarterly basis, effective for the March 29, 2024, record date. In determining changes to the dividend level, the board of directors considers a number of factors, including current and projected activity levels on PrairieSky's royalty lands, the current commodity price environment, the working capital and bank debt balance, and net earnings of the company.

Two thousand twenty-three reserves information

PrairieSky's proved plus probable reserves totalled 65,762 Mboe at Dec. 31, 2023 (Dec. 31, 2022 -- 66,719 Mboe), and include only developed assets (developed producing and developed non-producing properties) and do not include any future development capital on undeveloped lands. Proved plus probable reserves remained relatively flat with 2022, with year-over-year changes composed of additions related to third party drilling and improved recovery (7,111 Mboe), technical additions (971 Mboe), acquisitions (14 Mboe) and economic factors (19 Mboe), less 2023 royalty production volumes of 9,072 Mboe. At Dec. 31, 2023, the before-tax net present value of total proved plus probable reserves, discounted at 10 per cent, decreased 5 per cent to $1.84-billion (2022 -- $1.94-billion), primarily as a result of lower near-term natural gas and NGL commodity price assumptions.

PrairieSky's year-end 2023 reserves were evaluated by independent reserves evaluators GLJ Ltd. The evaluation of PrairieSky's royalty properties was done in accordance with the definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook and National Instrument 51-101 -- Standards of Disclosure for Oil and Gas Activities. PrairieSky's reserves information is included in the company's annual information form, which is available on SEDAR+ and PrairieSky's website.

Global sustainability rankings

Once again, PrairieSky has received industry-leading scores from several globally recognized environmental, social and governance rating agencies for 2023. These results demonstrate the company's carbon-neutral status and continuing commitment to environmental stewardship, social responsibility and strong corporate governance practices, and are set forth in the associated table.

Financial and operational information

The associated table summarizes select operational and financial information of the company for the periods noted.

A full version of PrairieSky's management's discussion and analysis (MD&A), and annual audited consolidated financial statements and notes thereto, for the fiscal period ended Dec. 31, 2023, are 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, Feb. 13, 2024, 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.

About PrairieSky Royalty Ltd.

PrairieSky is a royalty company, generating royalty production revenues as petroleum and natural gas are produced from its properties. PrairieSky has a diverse portfolio of properties that have a long history of generating funds from operations and that represent the largest and most consolidated independently owned fee simple mineral title position in Canada. PrairieSky's common shares trade on the Toronto Stock Exchange under the symbol PSK.

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