Freehold Royalties Ltd. (FRU) Earnings Call Transcript & Summary

Good afternoon, everyone, and thank you for joining us today in our 2021 Investor Day. My name is Dave Spyker, and I'm the President and CEO of Freehold Royalties. Really looking forward today to tell you about the things that we've been doing in the last 1.5 years to really change our portfolio and really get focused on the future. What we're going to handle today is we'll do the presentation . And at the end of the presentation, we'll take questions. So please send that into the link on the Zoom call or some of you, you can call the number on the -- on our website as far as asking questions over the phone. So we'll proceed on that basis, and we'll answer questions at the end. So what we really want to talk about today is how we've really been energizing the future of Freehold. And with that, we've got a refreshed and restructured leadership team. We want to introduce them to you today. We're repositioned to capture the future. And when we talk future, it's not just the future in oil and gas, it's the future of the energy industry and how there -- is there an opportunity for us to position ourselves in the transition that's taking place. We've been in business for 25 years. How do we make sure that over the next 25 years that we're positioned to be just as successful. We spent a lot of work in the last year on integrating ESG framework into our business. We want to share the work that we've been doing with you today in advance of a published report early in the new year. We really want to drive home how we strengthened our business. We like to think that we're much more resilient. We're much more durable to the volatility in the pricing that we're seeing. I mean, the last couple of weeks have been very volatile. The -- but at the same time, we hear people talking about prices of $80 to $100 next year. So how do we position ourselves to be successful no matter what the pricing that we're dealing with? So today, we've got Dave Hendry and Rob King, our VP, Finance and CFO and our VP of Business Development that are going to be taking part in the presentation. Both Rob and Dave have been with us since late 2019 and have really been instrumental in rolling out the new strategy and incorporating it into our business. With us -- Lisa, Bob and Ian are with us today, they're not going to be presenting, and I'll just bring them up on the stage and just introduce them so that you know who they are. Come on up. Thank you very much. So yes, we'll start with Lisa. So Lisa is our VP of Corporate Services. And Lisa has really been key in leading a lot of the innovation and analytics that we have in the company, really driving a culture of high performance and really a collaborative workplace. And with that, we've been able to attract top talent into our business. And really, the people make all the difference in how our business is run and the ideas that we generate. So thank you very much, Lisa, for all that hard work. Bob Lamond, is our VP of Asset Development. Bob is our geology guru. So Bob's had excellent exposure in all the key basins across North America. He's really been helpful with us to make sure that we're positioned in the right basins and the best geology of the core operators. We're going to talk about that a lot in the presentation. Involved with his experience, specifically on the U.S. side, he's really been instrumental in helping us get oriented and get started in the U.S. Ian Hantke. He is a new face to the team. Ian is going to join us as our VP of Diversified Royalties in January of this year. And what we want to do with a diversified royalties position is really draw our focus on how do we participate again in this energy transition? Are there opportunities for us to participate in a lower carbon future. And so Ian is not new to the organization. He's new to the leadership team. He's been working with the business development group positioning ourselves in the U.S. So he's got a lot of experience building something from scratch. And we're looking forward to having him on board and really driving this new part of our position going forward. So thank you very much, everyone. We've got a lot of bench strength in our organization. Some of them are going to -- who are going to be presenting today. So we've got Susan Nagy, who's going to join us, and she's our Director of Business Development. We've got Tom Plumridge. He's our senior U.S. geologist. He's going to talk about some of the work we're doing on the U.S. side. And many of you may be familiar with Matt Donahue, but I'd like to thank Matt. He's not presenting today, but he's really done a lot of work behind the scenes, putting the presentation material together and getting us ready for today. So thank you very much, Matt. So number one point I want to drive home is that we're not the same old freehold, okay? So what we've done in the last 1.5 years, we really stepped back and said, what do we have to do to position ourselves going forward? Historically, we haven't been able to consistently grow organically with the existing asset base that we have in Canada. And we wanted to make sure that how do we position ourselves that we don't have to do transactions every year to continue to add production to stabilize our portfolio. Where do we position ourselves so that the drilling is going to come regardless of the price cycle that we're in? So with that, with the work that we've done on the acquisition side and most has been focused in the U.S. over the past year, the $400 million of transactions that we've done. But we've also really focused on what we like to call reenergizing our portfolio, and that's some of the work that we're doing on our existing lands to really bespoke royalty optimization agreements with our operators with our developers to ensure that our lands are getting fairly developed. And where we see, where is that taking us into 2022, we're looking at 14,300 BOE a day of production. So that's the midpoint of the guidance that we published in Q3 and a significant growth over where we've been historically. It's not just about one data point that we want to talk about. The big difference, is how do we get back to this organic growth so that we can grow our portfolio without having to do additional acquisition work. Right now, where we structured and position ourselves, we see that we've got organic growth for the next several years. And what does that mean? We don't have to do another deal. So we can be very patient. We can be -- look for the exact type of opportunities that fit the portfolio and where we want to augment it. We can be very patient on our bid strategy. And we've known from our history over the past year of the opportunity set that's available in the U.S. that we can be patient. If we don't get a deal this bid level, we can wait till next time around. And so that's a game changer for us. One of the beauties and the simplicity of the royalty business is that we can do this acquisition work without having to add a lot of staff, expand our footprint, get a bigger building or anything like that. So we've been able to add the 0.8 million acres of land this year, kind of 5,000 royalty wellbores, 5,000 BOE a day of production without really changing the manpower levels that we had. We've add about 5 people in key positions. It really as it relates to mineral land and royalty accounting, so they can integrate these new assets into our business, set up our records and make sure that we're getting paid for volumes. With that, with the increased production, with exiting the working interest business, we've really been able to get focused and drive our cash costs down from where they've been historically that kind of $5, low $5 range to where we are now in that sub $4 a BOE range. And that extra $1 of BOE, it adds up, we can return that to our shareholders. One of the advantages of our Southward March into the U.S. with a broader North American portfolio. As we get closer to the Gulf Coast, we have much more exposure to better pricing. This slide here is just going to illustrate some of the work that we've done with the one map acquisition. Now this is the one that closed in early October this year. It was in the Permian basin. And then the September '21 acquisition, that was the Eagle Ford transaction that closed in late September. And on those assets, you can see that our netback pricing is in that is in $55 to $60 a BOE range. If we compare that to our realized pricing on the balance of our portfolio, our existing portfolio year-to-date over the same time frame, it's a 50% improvement. So again, not only are we getting more barrels, but we're getting better, higher-quality barrels. When you add all that together, more production, lower cash costs, a better industry pricing, in general, pricing is very good right now, better U.S. pricing, it brings the revenues to all-time highs. Right now, we're projecting $250 million in that range for 2022, based on the guidance that we provided with our Q3 report on pricing and on production. That's significantly higher than we've had historically, and it's really given us a lot more horsepower to run our business. So we can pay out 50% to 60% dividend and yet still have ample funds flow to run our business, and that means paying down the debt, further acquisitions, continuing to our measured approach of managing our dividend. And finally, the shareholders see the results of all this work. We've increased our dividend 5x since late 2020 up to our current level of $0.72 a share annually. And so as commodity prices have strengthened, as our businesses strengthen, as we have better confidence in the predictability of our asset base, we can move that dividend level up accordingly to the benefit of all stakeholders. So we just take a step back and look at where we are in the U.S. and kind of how we've got there from our 25 years of history in Canada, the look back that we started to do. It was about 5 years ago that we put together a U.S. team that we wanted to just really understand the U.S., where are the best basins. I'm going to say this again. We are the best rocks, best geology and how do we position ourselves to participate in that. We did our first transaction in 2019. We stepped down into North Dakota, with the transaction. And that allowed us to, one, prove we could do a deal in the U.S. It allowed us to set up the land systems that we needed. It allowed us to establish key contacts on the land due diligence on legal due diligence side and allowed us to set up a U.S. subsidiary, so we could run our business, show that we could do that and really get that operating experience. We brought in kind of a ramped up business development team in early 2020, led by Rob King. And with that, we got really active on the U.S. side. We had a lot of irons in the fire, COVID hit, kind of retreated, continued to work opportunities. And as we saw the environment starting to improve and when we say starting to improve, we're talking $45 oil, we were able to execute a transaction in a multi-basin U.S. deal, and that really signaled the start for us of our North American mandate. Since that time, we've done 3 other transactions, adding approximately 3,200 BOE a day. And most of those were done in Q3 or announced in Q3 closed in late Q3 first week of Q4. And we talk about how we want to evolve our business. I think one of the key things are -- is how do we make sure that no matter whether the oil is $40 or whether oil is $100 that we're attracting capital and we've got an active portfolio where we've got volumes producing where we've got revenue coming in. And this chart here shows the key basins across North America on the bottom here and then the half cycle breakeven price on the axis. And what we wanted to do is how do we load up our portfolio so that we've got assets that can be developed at prices in that kind of mid-$40s BOE, WTI price and below. And so what we've done -- We've added to the Clearwater position that we initially established in 2018. We've added into the Permian, Midland, Delaware, Haynesville, we've added Haynesville gas, Eagle Ford oil expanded our U.S. Bakken position. And you can see on this graph that by doing that, we're much more weighted on to the left-hand side where that we think is going to attract capital. Our older portfolio was much more weighted on this right-hand side, we're much more susceptible to swings in pricing as to whether our lands would attract capital or not. Just a good example here of -- is thought up here is really indexing U.S. and Canadian oil production as well as Permian oil production. And we've just gone back to 2018. You can see the general growth -- pandemic that came upon us. And then if we look on the U.S., which is the blue line, we have not recovered to pre-pandemic production levels. However, if you look at the Permian, which is this orange line, it has almost recovered. And it just really shows the strength of that Permian Basin. I saw a report from Enverus earlier this week that suggested that 95% of the production recovery in the U.S. is going to be driven by the Permian Basin. And I think we see that playing out in the historical data so far. So I think it's really where the rubber meets the road and we talk about resiliency and durability. So these charts here, if we start in the middle chart, this payout ratio. So at our $0.72, a share annualized dividend payout. You're down to $40 WTI pricing, we're at about 75% payout ratio. So we talk about our target payout ratio being in the 60% to 80% range and our kind of operating range in that 60%, we can still red line in a $40 environment, is still be below the upper end of our payout ratio. Over and above that, we're going to still generate somewhere in that $30 million of funds flow after paying dividend that we can either use to continue to do acquisition work or we can continue to already to manage our already pristine balance sheet. So down to USD 40, we can still get to a debt to trailing funds from operations of 0.5x. We've shown the other end of the spectrum at $90 for fun. And I think that all businesses make a lot of sense at $90 WTI, and that's not the takeaway from this slide. The key takeaway here is how bulletproof we are at $40 WTI. And we're pretty confident we're going to be operating somewhere in this range going forward, but we've got support all the way down to and we're greening all the way up to $90. So it's excellent in how our portfolio has changed. So yes, just to highlight a couple of things. And this is -- our mandate is really to be the premier North American focused oil and gas royalty company in the near term here. And so how we've done that. We don't compare 2020. That's a bit of a teeter year because everybody's production was down. But our 3-year average royalty production was in that mid 10,000 BOE a day range. Kind of what we're looking at now is about a 35% uptick on that in that mid 14,000 BOE a day range next year. We talked a little bit about the working interest production. It's a different business than the royalty business. It's a different skill set. It's a different mindset. We exited that and really focusing on pure royalties. We've already talked a little bit about the U.S. production weighting. We really balanced our portfolio across North America to take advantage of several key attributes in the U.S. that we really liked. This is a busy slide. We've got a lot going on, but it's an important slide. We talk about ESG. I just want to highlight a couple of things that we've been focusing on this past year. On the environmental side, we've really been focusing on who we align with, who we're buying royalty acreage under to make sure that we align with a view on how sustainable development looks like on their asset base. We've had some pretty good opportunities. We weren't so keen on the operator of. And on the U.S. side, and we said, no, this doesn't really fit. We can be patient. On what we can directly control, our Scope 1 and 2 emissions, we'll achieve net zero based on the purchase of carbon offsets. We talked a little bit about diversifying our portfolio. How do we participate in some of the low carbon opportunities that we're seeing and the fact that we're putting dedicated resources to that with a new VP in January. On the social side, a lot of focus on ED&I, equity, diversion and inclusion. It's super important. Equity, diversion and inclusion is not just diversity of gender or ethnic diversity. It's really supporting diversity of thought. And we -- what we've learned is that we can come up with the best answer by looking at things from so many different perspectives, and we really value that within our organization. The community support side, another big push this last year. We really saw the impact that COVID-19 and a lot of the mental health issues that played out because of that. And we really wanted to support that. And so we did, focusing on a number of initiatives, and we're going to continue to roll that strategy going forward and really being part of our community and understanding where that community needs support and how we can help out. On the governance side, is tied to our ED&I theme, we will achieve 30% gender diversity on our board by 2025. On the compensation side, we're set up so that our performance, our pay or compensation is really linked to results. If we don't deliver results, we don't make too much money. And that's the way it should be. And it's not only financial results that we want to achieve but we also want to link to have it linked to our ESG performance so that our aspirations on the ESG side are also linked to how we get paid and how we execute. Just spend a real quick minute on this slide. And this is what we talked about just making sure that our acquisition work is aligned with best-in-class operators. Those that have a view of ESG sustainability the same as we have. In the U.S., we were aligned with Pioneer, Marathon, EOG, Occidental, Conoco. I mean these are big names, and they represent 70% of our U.S. production. They think the same way we do. On the Canadian side, Tourmaline, Whitecap, Crescent Point, Tamarack, CNRL, I mean these are the [indiscernible] in Canada, and we're proud to have them as joint partners and operators on our lands. So just to distill this and kind of take everything in and back up a little bit. Revenue, again, what we see for 2022 on the revenue side is about $250 million in that range using the guidance that we released with our Q3 results. Dividend at $0.72 a share annually equates to $110 million. And then with the funds after that, right now, our focus is on debt repayment. So in Q4, we're really focused on integrating essentially the $300 million worth of deals that we completed primarily in Q3, getting them into our business systems, into our files and incorporating them into the workflow. So essentially, pencils down on any acquisition work in and likely into the better part of Q1 and just really focus on debt repayment and making sure that our balance sheet is pristine. On the acquisition side, we still see a number of opportunities. Rob is going to talk about kind of the opportunity set that presents itself in the U.S. and also in Canada, there's some opportunities that we think are quite compelling. So we're going to continue to work on those in Q1 and see if we can bring those into the portfolio to really enhance our asset base. And again, on the dividend side, we'll look at that on -- in early March as part of our year-end and Q4 results as we have every quarter end, and we'll see if it makes sense, again, to continue that measured approach back up to that 60% payout ratio. Right now, based on our modeling and the price deck that we've been using, we're saying we're at about 50% payout ratio in 2022 roughly as we've got it modeled right now. So we do have a little bit of room to go if we think that business conditions are right. We can't really talk about the things that we've been doing without making sure that it's resonating with our shareholders and market participants. And we think it has. What we've got on this slide is just index share performance going back to November 2020 of our Canadian and U.S. public royalty peers. We picked November 2020 because that's when we did the USD 58 million multi-basin acquisition and really signaled our strategy to be a North American royalty company. Since that time, all companies have done well. As royalty companies, we've all got a very unique business models. We all do a really good job of running our business, but we're all just a little bit unique. Here, clearly, with the commodity price uplift, high tide has floated our boats. But we like to point to is that we have, in general, done a very good job about pacing our peers. And we think that the North American strategy, the repositioning of our portfolio has really resonated well. So I want to spend just a little bit of time here and talk about the decision last year about issuing equity in a $45 price environment. In an environment that everyone's share price was ways off their 52-week highs. But like we talked about, we looked at our business and said, we can't consistently with our asset base, generate year-over-year per share growth. And that in itself wasn't sustainable. So to tighten up our business model to have a compelling investment story to our shareholders, we had to change. We had to reposition. And with that, we went to the market twice in the last 12 months to be able to fund that repositioning, the restructuring of our portfolio. And we think it's going to pay dividends, pardon the pun. We've got production per share growth in 2021 and continue to project that into 2022. And we're confident with the financial health and the flexibility that we have, that we're going to be able to continue to grow our asset base and continue to add value for our shareholders. So just briefly before we kind of get into the nitty gritty of the portfolio that the rest of the team is going to talk about. Just to remind everybody that our Canadian portfolio, we put that together over the last 25 years. It's a very good opportunity set across the Western Canadian Sedimentary Basin. Years and years of performance. We understand it well. We've got excellent exposure to light oil in Southeast Saskatchewan, the Viking, the Cardium. We've got good heavy oil exposure in Mannville and Clearwater, and we've got good gas exposure in Deep Basin and Spirit River areas. For 2022, we expect that portfolio to generate about 65% of our production. And we see that in this price environment, being fairly flat. We're not getting a lot of growth, maybe just a bit of decline on that portfolio. And that's how we see Canada playing out. On the U.S. side, it's very different. I mean this portfolio has been put together essentially in the last year and has been very, very targeted. We're targeting specific best-in-class assets in the Delaware or the Midland, the Eagle Ford and Haynesville. And these are areas that we think are going to continue to attract capital and really be the growth engine for our portfolio. So between the 2 of them, we see organic growth over the next several years. U.S. is going to represent about 35% of our production next year and 40% of our revenue. Remember, we get a little bit better pricing in the U.S., and that's why it's not equally weighted revenue to production. And just finally, a couple of other things to point out on the Canadian side. 25 years across a wide swath of Western Canada. The top 6 areas generate about 70% of our production, very targeted kind of rifle shot U.S. approach. Top 4 areas represent 90% really dominated by the Eagle Ford that we acquired in late September. I think it's also important to note when we talk about our portfolio that Q4 is going to be the first quarter that we actually get to showcase all the work that we've done. All the deals have closed, they've been integrated into our production. You see them in our cash flow. We're going to have a new reserve report that captures the $400 million worth of work that we've done in the past year. I'm not going to spend a lot of time on this. I think there's lots of information here that people can pick apart. But really, on the U.S. side, you can see dominated by bigger companies. Those are generally the companies that control the best-in-class assets, the best rock. We're aligned with them, generally much more public versus the kind of even 50-50 split in Canada. And I just want to draw your attention to the number of rigs that we have on our lands, 25 in total right now, 18 in the U.S., 7 in Canada. Those are record high numbers Freehold. And again, it just talks about how our portfolio has shifted. We've energized Canada, and we repositioned ourselves into the U.S. So I'm now going to turn it over to Rob King, and he's going to talk a little bit more about the U.S. assets. Thank you.

Thanks, Dave. So good afternoon. I'm Rob King, I'm the VP of Business Development for Freehold. I'm going to spend the next 20, 25 minutes or so talking about our U.S. assets. And our U.S. BD team is made up of about half a dozen professionals. And over the last 5 years, this group is focused only on the U.S. market. In that time, we've looked at over 200 acquisition opportunities. That's about $13 billion of value. And we've completed 13 of those deals, which is just a little over CAD 400 million of transaction value. And the common thread across those 13 deals is really only adding assets that make our portfolio better. And what does better mean? It means that we're positioning our assets ahead of the drill bit. It means that we're looking for assets that have a significant opportunity set. It means that we're looking for assets that enhance our sustainability with an improvement to the quality of the royalty assets and to the royalty payers. And next year, our U.S. assets will produce just under 5,000 barrels a day, and it's really dominated with the Eagle Ford under Marathon. And in the Midland and Delaware basins of the Permian with Pioneer, Conoco, EOG and Exxon. Between those 3 basins, that's almost 90% of our U.S. exposure. We have a very focused footprint. We have almost 800,000 gross acres in the U.S. Over 80% is mineral title and it's diversified across over 100 royalty payers. Going to spend time on the next 2 slides just giving some background as to what -- how the U.S. compares to the Canadian market. And this page looks on the left-hand side, the mineral title composition. And Canada in the gray, federal and provincial crown government has about 75% of the mineral title. It's the inverse in the U.S., where private individuals, companies, et cetera, control 70% of that mineral title. And so that really leads to just significantly more opportunity. And when you also look at that -- is amplified when you look at the future upside and remaining drilling inventory. And this is using industry data from Enverus and Wood Mackenzie, and you can just see the size of the prize of the Permian and of the Eagle Ford is truly significant. The U.S. is a much larger market on capital spending and on production as well. As a royalty company, we only generate cash flow when there's development on our lands. And so we're really following the capital. And the U.S. over the last 10 years has seen 8x the amount of capital spending that we've seen in Canada. And that leads to more production as well, 3x the oil production, 5x the gas production. The U.S. royalty market itself is a really fragmented market. It's unlike Canada, which is a much more concentrated market amongst just a handful of players. In the U.S., the 8 public companies control less than 3% of the overall royalty market. And so the scale of the opportunity of acquisitions we can look at is truly massive, private individuals, family offices, private equity, provide significant sources of potential deals. And the dialogue we're having with marketers and private equity sponsors suggest that 2022 will be a very active year for opportunities. And really all the work that we've done in 2021 allow us to be even more focused on what we're adding to the portfolio. Freehold is going to be a very focused buyer in a buyer's market. Looking at the royalty M&A market. Over the last 5 years, we've seen almost 6x the number of transactions on a dollar basis and over 10x on a number of transactions basis. And we've been able to add very high-quality assets to our portfolio at attractive valuations, both when compared to deals in Canada as well as in the U.S. And there's really 4 factors that we point to in terms of why we've been able to add these transactions into our portfolio at these attractive valuations. We talked about the buyer -- or the size of the U.S. royalty market and the significant M&A opportunities there. The buyer dynamics, there are a lot of competitors in the U.S. What's interesting is that most of them are pursuing a very specific strategy. So it does lead to relatively focused competition on any particular asset package. On a cost of capital basis, freehold's relative valuation is very favorable compared to our U.S. peers. And we are often competing against private equity-backed mineral companies and their cost of capital is often in the mid- to high teens. The last point on lack of capital availability. Our U.S. peers tend to have a payout ratio over 80%. So they just have less free cash flow that they're able to direct towards acquisition activity. And we have seen over the last several years a more challenged access to equity market. And when that equity is available, it has come with a double-digit discount to place that equity. Another way of looking at U.S. deal flow. This is over a longer 5-year time period in a publication from Barclays. And the size of the bubbles on the chart is the size of the deal. And the vertical axis is adjusted dollar per net royalty acres. And what it's adjusting for is the value of the production. So what we're trying to get at is just what the development value is worth. So it's a really busy chart, but there's 3 interesting takeaways. One, you're going to see the extent of the activity. There's obviously a lot of bubbles on this page. The second is just how active Freehold has been in 2021. And the third is looking at how Freeholds metrics compare to the prior deals. And when we look at the orange dotted line, which is the average of the Gulf Coast, Eagle Ford transactions. Our Eagle Ford deal is certainly competitively priced. Same thing when we look at the Permian in Green and in the multi-basin in red. We wanted to show sort of how we've built our portfolio over those 13 acquisitions we've done over the last several years. So I wanted to walk through. The first line starts with our pre-21 acquisitions, and we're largely in North Dakota. And it also, we added to the -- a few additional North Dakota opportunities in '21 as well. So that's included in the first line. The first very significant acquisition, as Dave talked about, we announced in November, closed in January was our multi-basin transaction. And that added 400,000 gross acres, which is actually about half of our overall portfolio. And that transaction gave us about 90% of it focused on mineral title. About 40% of those acres are in core and Tier 1. And that's an important aspect that Tom Plumridge will talk about later. That really almost directs everything how we look at acquisition opportunities in terms of where the lands fit within a core and Tier 1 perspective. And one interesting comment on this transaction is that we had exposure to 12 basins, but we only underwrote development value to 5 core basins. And so 1/3 of the acreage of that 400,000 is outside of those 5 core. The last point on this transaction is the production growth. We do sort of see 30% production growth from the 21 to 22 years. In our Q2 results, we included a small tuck-in transaction that gave us additional exposure in the Midland, Delaware and Eagle Ford basins. And then in the one map transaction that we closed at the beginning of October, this gave us a much more focused exposure to Pioneer in core Midland. And the other piece of this brought to us was a lot of development value. Almost 80% is weighted to development. And you can see that in the production growth. We're seeing significant production growth and we expect that to extend beyond '22 as well. The next transaction is the Eagle Ford transaction. We announced and closed in September. And this was certainly more weighted 50-50 development and near-term value. And the other aspect to it is just the fact that this was unlike our other deals was our first large GORR transaction that we undertook. And I think it's important to put that in a bit of context. This was an existing GORR that was established when the original joint operating agreement was signed with the working interest parties. So this GORR has always been on this asset. So it's always been considered as part of the operators' economics. And it actually includes several advantageous features that are less commonly seen on GORRs, such as an area of mutual interest and reacquisition protection. The other important thing to note is GORRs in the U.S. are like they are in Canada, they are recognized as an interest in land in the courts. So overall, our U.S. portfolio has almost 800,000 acres of gross land. It's over 80% mineral title. Almost 75% is in core or Tier 1. It's balanced with about 45% PDP near-term value, 55% development value, and we expect double-digit production growth into 2022 from our U.S. assets. A bit more on how we've built our U.S. portfolio. This table provides the building blocks by acquisition and by basin between future development on the top table and production on the bottom table. We see almost 6,000 gross locations on our lands, and that's over 15 years of future development activity. And that development is very focused in the Permian under Pioneer and in the Eagle Ford under Marathon. The other aspect I wanted to highlight was you'll sort of see in the other column that we don't have -- we haven't any -- no values subscribed to that area. But so far in 2021, we've already seen 7% of the gross wells that have been drilled on our lands outside of our 5 core areas that we've listed here. So this really does speak to the conservatism in our approach, and it also speaks to the strength and optionality of royalty assets. We thought it was quite important to highlight the differences in what gross and net is versus Canada and the U.S. And you would have seen the drilling activity in our Q3 results, where we talked about 84 gross wells in the U.S. or 0.5% of a net or 0.6% of average royalty percentage . We've learned in the U.S., you're always dealing with decimals. And it's 1 where when you sort of compare what an average net well brings to the portfolio, this type curve chart looks at our average U.S. asset in green versus our average Canadian well in blue. And on a 12-month basis, a net well in the U.S. adds almost 800 barrels a day. That compares to 70 barrels a day in Canada. So if you wanted to compare a U.S. net well to a Canadian net well, you need to use a 10x to 11x multiple. We also want to talk about the pricing. Dave talked about at the outset as well. Adding U.S. assets has definitely given us exposure to top-tier basins with better and more defined growth and the addition of U.S. assets be a significant improvement to our realized pricing. U.S. pricing on a BOE basis is almost 30% higher in the U.S. on our U.S. assets versus our Canadian assets. And there's really 2 reasons for that. One, our U.S. assets are 70% liquids versus 55% in Canada. And the second is 90% of our U.S. production is in the Eagle Ford and in the Permian, which attracts Gulf Coast pricing and significantly tighter discounts. So our first significant U.S. transaction actually celebrated its first birthday 2 weeks ago. And certainly with benefit of hindsight at an opportune time, given that the oil price was in the $45 WTI environment, NYMEX had a 2 handle to it. And we've really seen production and drilling activity very much in line with our expectations. And because of that increase in commodity price, the cash flows are almost 2x higher than what our initial expectations were in November of 2020. And so that really feeds into the fact that we were thinking this transaction would give us an internal rate of return of in the mid-teens, and this transaction looks like it's going to be more in the mid-20s. So it's been a great add to our portfolio. I now want to invite my partner, Tom Plumridge, to come up and talk. He's one of our rockstar geologists on our U.S. team. and he'll provide some insight into how we've developed our technical understanding of the U.S. It's -- I think on a core tenet for us is knowing where the best rocks are is really the most important aspect of what we focus on. Commodity prices change, operators change, technology changes, but the geology is what it is. It's why we are so focused on defining what is core and buying core lands to ensure we are ahead of the drill bit.

Thanks, Rob. Welcome, everyone. So as Rob mentioned, my name is Tom Plumridge, and I'm the senior U.S. geologist working on Freehold's U.S. acquisitions team. This is the first time I've worn a tie in probably 2 to 3 years. So I'm happy to share that all of you all. I also have a team alongside me of another geologist, 2 exploit engineers and 2 senior land negotiators. Together, the 6 of us have really developed on building out a strategy within the U.S. Now to kind of rewind this a bit. I first started looking at U.S. deals with freehold in 2017. And that was focused initially up in North Dakota, way up here in the Bakken. Part of that strategy was because of our familiarity with the Bakken and from Canada as well as a familiarity with something as simple as the land system, township range sections. We developed a strategy, we developed an idea of what are the best resources for data, where do we talk to the regulators, how do we get in touch with operators. We built that strategy over a number of years with COVID-19 really acting as the catalyst for us. Our team took advantage. When we were all sheltering in place, working from home, doing Zoom calls, the team took that time where nothing was really going on to really flesh out our strategy in basins that we saw had less volatility with the commodity price changes that we are seeing. And that led us to Texas, looking at the Delaware, the Midland, Eagle Ford and Haynesville. These were areas we had started to high grade and realized just seem to have a little bit more to them than we've seen anywhere else in North America. And it was with that technical that we started to develop a massive data set. We declined 20,000 horizontal wells within these 5 key basins. We looked at 24,000 well logs and did subsurface mapping on individual zones throughout all these areas. And that led us to have up to 270 type curve regions, 200-plus of which are sitting within Texas. And from that, we developed our core Tier 1 and Tier 2 regions that have really been the guiding light for us essentially to determine where the assets we want to pick up and how do we have that measured and disciplined approach in acquisitions in these areas. So moving to the first region and probably the one that's going to get the most focus on it in terms of go-forward production growth in the U.S. and in North America is the Permian Basin. I'm not going to go into too much detail as to what it is, but I will note that our focus is on the unconventional basins of the Delaware Basin located to the west and the Midland Basin located to the east. When we look at these basins, the methodology that we employ to try and determine what's core, what's Tier 1, really comes down to 2 main things. It's lowest breakeven economics, and it's where we have 3 or more zones, reservoirs benches, all of those can be used interchangeably , but that are commercially developed. Our focused effort and our delineation of this has really driven our ability to acquire up to 75% of all our land within this area located in those core and Tier 1 areas. The Tier 2 region, while present and acknowledged, and we do look at the upside potential, we don't typically underwrite value to as we don't see that as lowest risk versus what we see in core Tier 1. And as a little aside to kind of highlight the incredible performance we see in Tier 1 assets within Midland Basin as an example. Just recently, as we're looking at our activity on our lands, we are paying attention to our one map assets we picked up closed in October. In Glasscock County here, there's an operator called CrownQuest. They are a large private operator. They had a 17 well pads that they just brought on production with initial production rates of 3,300 to 4,500 BOE a day, and that's 75% to 90% oil. Those are some of the best wells in that county. And what's really encouraging is just offsetting that, we have additional mineral acreage that we picked up in that acquisition, where CrownQuest has 3 rigs drilling upwards of 30 wells. This just speaks to the strength that we have within our Tier 1 and core assets within the Permian Basin. But today, I want to focus on the Delaware. This one presents itself as probably the most unique basin in North America. And part of the reason why you might ask is why is it so unique is probably because it's taller than me on the screen, but also because it happens to be probably the most massive reservoir stacked pay potential onshore North America. 4,250 feet of prospective zones and benches coming from the bottom, deepest Wolfcamp C to the top of the upper Avalon . This equates to roughly 4 Montneys, and I mean full Montney sections, upper, middle and lower stacked on top of each other. Now freehold, when we look at the Delaware Basin, we really underwrite to the 5 most commercially developed zones. And what do I mean by that? If we look at horizontal well count here, this relates to the number of wells producing horizontal wellbores drilled in each of those zones. What's clear to see is that freehold is going to be focused on Wolfcamp B 1,400 locations. Wolfcamp A, 5,700 PDP locations drilled in it and so on. But that doesn't take away from the fact that we still have tremendous development in other zones, Bone Springs third carbonate 520 that we don't necessarily underwrite to, but are recognized as being economically produced throughout this region. That leads to 12 prospective zones and up to 50 horizontal wells per section. It's mind boggling the thickness of the Midland Basin -- or sorry, the Delaware Basin. Now moving into why we look at core Tier 1 and Tier 2 in the Delaware Basin and how we rank those internally. The truth is there's not a whole lot of productivity difference between those. So what we really focus in on, like I said, is number zones present to split those. And when we look at ultimate recoveries, this comes to my point where there's not a lot of difference. We don't see a whole lot of delta in terms of the total reserves value in wells located within Tier 1 to Tier 2 and core. But it comes down to the number of wells per section, we believe could be drilled within a given zone. In the core, we see higher productivity initially. So that does lend itself to a lower average breakeven. But with the EURs being similar, we're more concerned about the number of wells per section we can get in there. And that's why we think the Delaware Basin is truly a unique and tremendous opportunity remaining to be tapped into there. Switching gears a bit to the Eagle Ford. So the Eagle Ford Basin, we do approach it a bit differently. It is a lot thinner than the Delaware and the Midland basins. So while we still look at things like lowest breakeven economics in the zones of interest, we spend more time paying attention to what is the productivity, what is the oil and gas ratios in these wells? What is the geotechnical like fractures and porosity telling us? That is something we really hone in on through the Eagle Ford trend and has allowed us to kind of really define what we believe is a robust Tier 1 and core area where we have some of the best rock in the Eagle Ford. And due to that definition, we've targeted acquisitions so that 85% of our acreage within the Eagle Ford is located in this core and Tier 1 region. And what I really want to spend a little bit of time looking at though is this blob right here that we see. That represents our September Eagle Ford acquisition. We believe this asset located within this country here, which is Karnes, and you may have heard of that, is in the core of core Eagle Ford where the breakevens on that asset are challenging those that we see in the Delaware and Midland Basins. Coming back to a little bit more, again, how do we break down that core Tier 1, Tier 2, First thing that stands out, productivity wise, there is a step change as we move through those different tiers. That's reflective of both, yes, the productivity, but also the product mix that we see within core Tier 1 and Tier 2. We want to pay attention to purchase assets in the Eagle Ford that tend to be that oil to volatile oil range, that really defines our core. The other thing that defines core within here is the number of zones a little bit. Part of that is because we see potential in not just the Lower Eagle Ford, which is the dominant zone that's drilled throughout the entire Eagle Ford trend, but we see potential in things like the Upper Eagle Ford or the Austin Chalk. And that's actually a unique thing to know. So coming back to that September acquisition we did in the Eagle Ford, one of the things was we really only looked at the Lower Eagle Ford as what's providing that development value, but we did take a look at what is the ultimate potential here. And that's where we see something like the Austin Chalk and Upper Eagle Ford infill drilling taking place. And I might add that the Austin Chalk infill drilling in certain areas, when it comes through, they are some of the best wells in North America, completely hands down. So in conclusion, really for how our technical team looks at these assets. We are really excited about the technical we've done to date that has allowed us to have this measured disciplined approach, like Rob has mentioned, like Dave has mentioned, in finding the best assets in the best basins. With that, we think that we're set up for looking forward into 2022, which we do anticipate to be very busy to be something that we can bring a lot of good deals forward, present a lot to management and hopefully bring some tremendous value to the shareholders in the future. So I'm going to now pass it off to Susan Nagy. She's our Director of Business Development. And she's going to showcase some of the awesome stuff in Canada that we've had going on.

All right. Thank you, Tom. Tough to follow up that energy and enthusiasm. But anyways, good afternoon, everyone. My name is Susan Nagy. I have been with Freehold for -- since 2007. So I've had the pleasure of watching the evolution unfold in front of me over the past 10 years, and it truly has been remarkable. While most of you are more familiar with the Canadian side of our business, I am excited to have this opportunity to showcase what's been happening across our 6.2 million acre portfolio and highlight some of the key initiatives that we've been working on. While we've had some really great results and momentum in 2021 with their U.S. expansion, our Canadian assets remain core to the business, representing 65% of production and 60% of revenue within the freehold portfolio. As you can see from the map on the pie chart, we have a vast and diversified land based -- we have a vast and diversified position across the entire Western Canadian Sedimentary Basin with exposure to all major plays with approximately $850 million a year of industry capital deployed on our lines at no cost to us. This established position and our familiarity of these areas and the operators that produce within them underpins our stable base production and the confidence to forecast predictable future development on our lands. We have completed approximately $1 billion of targeted acquisitions in Canada over the past 10 years to complement our vision of building a sustainable business supported by high-quality, stable base production with exposure to participate in emerging growth areas. Our dedicated Canadian BD team represented across all disciplines of geology, engineering and land and more fully supported by our land administration, compliance and audit team as well as royalty accounting, oversees the management of our Canadian portfolio with the strategic mandates to harvest value from this extensive land base by working closely and collaboratively with our industry partners in attracting capital to our lands. This next slide is meant to provide an overview of the subsurface ownership picture in Canada, which is the exact inverse to what we just saw on the U.S. side with the vast majority of mineral rights owned by the provincial crown with approximately 1/4 owned by individuals and corporate entities. Freehold's mineral title position covers approximately 1 million acres. This position was amassed over a 25-year period from our inception in 1996 via the consolidation of legacy positions owned by companies such as Marathon, Lightstream, Penn West and Husky. While mineral title ownership is considered the gold standard in any royalty company's portfolio for several reasons, such as the perpetuity ownership, access to the entire stratigraphic resource from surface to basements, the ability to negotiate lease terms. It is only the best in so far as it is prospective and located in areas where there is activity occurring. As they say in real estate, it's all about location, location, location. Looking at the drilling activity that has occurred on freehold mineral title lands over the past few years, it is clear to see that activity is focused in the Southeast Saskatchewan area, the Viking fairway around Saskatchewan, Alberta border and into Central Alberta, where we have exposure to both the Cardium and Mannville place. These areas have seen consistent historical developments and will continue to be core areas of focus for many Canadian producers. Now if we look at the balance of mineral title ownership across Western Canada and the corresponding drilling activity concentrated on it, further reaffirms that Freehold's mineral title position is advantageously positioned in the prime resource fairways, as mentioned previously. As you move north and west across the province of Alberta, most notably North of Lloydminster, and west of the West by Meridian, you will see that the green becomes fairly sparse. Layering on the activity that is concentrated on Crown lands in Western Canada, it is very obvious to see the majority of drilling activity in Canada is located on Crown Lands. This is where gross overriding royalties or GORRs. have become key vehicles for royalty companies to position themselves in place such as the Clearwater, the Spirit River and the Montney in the more gassy regions of the province where mineral title ownership is not available. Building off the theme of the previous slide, you will see that the 7 hottest plays in Western Canada capture about 60% of all drilling that has occurred over the past 4 years and is heavily concentrated on Crown Land represented by the dark blue bars on the chart. Based on this, we see the crown as being one of, if not our largest competitor in attracting capital to our lands. We have done an extensive review of the provincial royalty frameworks across all major plays in both Alberta and Saskatchewan to understand how royalties factor into operators in determining where they deploy capital and how we need to position ourselves to participate in that investment. On average, the royalty over the life of a well on Crown lands in Alberta is approximately 7% and in Saskatchewan is 3%. Compare that to the standard royalty rates on mineral title leases typically issued at double-digit levels. This is not to say that we are reducing our lease rates to the same levels as the crown as there are other factors that go into determining capital allocation by an operator with something that we are certainly mindful of and open and transparent on negotiating terms with our partners. As we saw in the previous slide, Freehold is well positioned to participate in the continued development within these hottest plays by way of our mineral title footprint as well as the targeted GORR acquisitions that we've completed in the Viking, the Cardium, Clearwater and Spirit River areas. So the first few slides were more macro focused on how freehold sits in relation to the broader industry picture. These next few slides will be more inward focused, providing a more detailed overview of our assets. Historically, Freehold's mineral title lands have contributed a meaningful portion of the gross drilling across our portfolio. In the past couple of years, as we have grown our portfolio with targeted or acquisitions, we have seen the pendulum swing to a higher percentage of gross activity on our core lands. In lower commodity environments, as we witnessed in 2020 and the early part of 2021, we saw operators retreat to the most economic opportunities within their portfolio, which, in most cases, was concentrated on Crown lands given the more favorable royalty framework as mentioned on the previous slide. Even though our mineral title on a total gross acreage basis represents only 60% and has accounted for approximately 30% of gross drilling activity over the past 8 years. Given the higher net interest contribution and being located in areas with lighter oil plays, such as the Viking, the Cardium and Southeast Saskatchewan, seeing generally higher realized pricing. This asset continues to punch above its weight class in terms of overall production and funds flow contribution within our portfolio as demonstrated in the middle and bottom pie charts. As previously mentioned throughout this presentation, the freehold land base has the benefit of a diversified footprint across virtually all basins within Western Canada, effectively making us an ETF on the Canadian oil and gas industry, both in terms of overall resource as well as exposure to over 200 producers where, on average, we are seeing annual spending by industry at about 7% of total spending on our lands. You will see from the map activity over the past 3 years continues to be concentrated in the legacy areas such as Southeast and Southwest Saskatchewan, Viking and the Cardium, all underpinned by well-capitalized producers. We have seen a noticeable uptick in the emerging growth areas of the Clearwater and Deep Basin, demonstrated by Tamarack Valley and Tourmaline being 2 of our top 5 gross drillers so far this year. In terms of our diversified payer list, our most significant revenue contributions come from private producers, notably in [ Teine and Tundra ], who have responded favorably through the volatile commodity environment. We have also seen a strong rebound in activity amongst intermediate producers as commodity prices and financial flexibility have improved. Since our acquisition of the asset in 2015, the Viking Dodsland area continues to be a key asset within our portfolio. The core Viking play on the Saskatchewan side both some of the best economics in Western Canada with breakevens around $35 WTI and very attractive rate of returns afforded to the operators. With Teine's acquisition of the property from Penn West in 2017, production has remained sustainable at north of 1,000 net BOE a day for the past 4 years, and we continue to see significant running room on the lens with over 900 remaining locations identified, of which over 80% have been booked by our independent reserve evaluator. Given the nature of the asset being concentrated exclusively under time and this being a significant asset within their portfolio, we have established a very collaborative relationship with them to create a true win-win approach in the near and long-term development of the lands. Through our royalty optimization efforts, we have worked closely with Teine in setting yearly development targets, which has resulted in increasing our market share of their overall annual budget, as shown in green on the bar chart. With the past 2 years, we have seen 100% of their Q4 budget deployed exclusively on our lands. Historically, this asset has been developed with half mile horizontal wells, which has now evolved to one mile wells, resulting in increased capital efficiency for the operator. Over the past 18 months, Teine has been testing some new longer-reach 1.5-mile wells on our line base, targeting less depleted areas within the reservoir that have seen some spectacular early results, and we are excited to see how this new drilling strategy may be applied across the asset base. Even though on a relative basis, the Clearwater makes up a small portion of our overall portfolio, it is an area where we have spent significant time over the past few years and believe it is an asset that will provide a meaningful contribution to future production and overall sustainability of our business. Freehold entered the Clearwater play in 2018, aligning with the junior start-up, acquiring a royalty interest across 200 sections of land, offsetting some promising early activity in the Nipisi and Jarvie areas. The purchase price went entirely to funding the initial round of drilling, which helped delineate the land base and led to the acquisition of the property by Tamarack Valley in late 2020. With the $80 million drilling commitment associated with Tamarack's acquisition of the asset dedicated entirely to our royalty lands, we have seen an exponential increase to both the near- and longer-term development pace of the asset, which is reflected in the Clearwater net production graph on the slide, where we are forecasting production to be 3x higher by 2025 than what we had originally evaluated in our acquisition model. We further augmented our Clearwater position with 3 additional acquisitions, 2 of which were with the now Clearwater focused Rubellite Energy in the Ukalta and Figure Lake areas, where we expect to see meaningful activity focused on our royalty lands. Our royalty optimization strategy is a proactive initiative with a focus on working collaboratively with our partners to attract capital to lands that are otherwise underdeveloped or sterilized in part due to punitive royalty rates that cannot compete with other opportunities within an operator's portfolio. The team identifies consolidated high net royalty lands under well-capitalized operators in areas that are seeing activity and completes a full technical and economic review, including how our lands up against other inventory within an operates portfolio. And we work with that operator to structure arrangements that are often tied to multi-well commitments over a multiyear time period to accelerate the development of our lands and maximize value. As Rob mentioned in one of his earlier slides, we only make money if wells get drilled on our lands. And to the extent that we are able to influence development, we feel that as being good stewards of our assets. These arrangements are always tied to performance. If wells do not get drilled, the royalty incentives are not earned and the agreements are terminated. Our royalty optimization strategy is still in early days, but we are expecting these efforts to result in more than 100 gross wells being drilled on our high interest royalty lands by the end of this year, with peak production addition forecasted to add 350 BOED by Q2 2022. With that, I'd like to pass it on to David Hendry to talk about the exciting topics of leverage, tax, integration, compliance and audit. Thank you very much.

Thank you, Susan. Good afternoon, everyone. I'm Dave Hendry, the Chief Financial Officer. I want to start off by talking a little bit about capital structure and leverage. So it's freehold strategy to deliver a meaningful dividend from a lower-risk investment. And so as part of that, it means targeting a net debt to funds flow from operations leverage ratio below 1.5x. So what that does is that provides flexibility for variations in commodity prices that we're all too familiar with as well as capacity to execute further incremental deals. Now to support this, in September, we expanded our credit facility to $300 million plus an additional $75 million upsize feature. And more recently, we just filed a shelf short-form equity shelf prospectus that provides execution flexibility. This prospectus is about being prepared. We don't have any expectations of utilizing it in the foreseeable future. But with these components in place, we're set up well to continue to grow the company and continue to add shareholder value. So talking a little bit about corporate income taxes. With a strong drilling activity on our lands, with those incremental accretive acquisitions over '21 that we've completed, plus a constructive commodity price environment for '22, it all adds up to a significant increased expectation of revenue. And with that comes the expectation of being taxable both in Canada and in the United States. But we have a healthy position of tax pools. We have over $770 million of tax pools entering 2021 plus over the course of this year, largely through acquisitions, we've added a further $385 million of tax pools. For example, like these additional tax pools we added should offset roughly about $40 million of earnings in 2022. So these tax pools plus the -- these tax pools set us up well to manage our earnings going forward. Now related to acquisitions, I want to talk a little bit about the effort level. It doesn't stop when we closed the acquisition. There is a fair bit of effort that's required to integrate these assets into our business. And we've got the experience for doing it. We've done lots of significant acquisitions in Canada, plus our measured entry into the United States gave us a good understanding of how to do business there. And with that, we've put in place the people, the processes and the systems in order to integrate the assets we have acquired over 2021. And that includes setting up a dedicated integration U.S. team of and administration people and compliance professionals that are focusing on that integration. And one of the things we're focusing on is quickly getting our interest recognized on our lands because what this means is it means that royalty revenue goes directly to us as quickly as possible. And we've made really good progress in this. For example, for the deals that we closed in the first 8 months of the year, over 95% of our interest have already been recognized. And additionally, we've made really good progress on the deals that we have just recently announced as well. But the effort doesn't stop there. Once we get our assets integrated, then our focus is about stewardship of these assets. And this is about protecting our value, but also about maximizing the value of our royalty interests. And so we've got an active audit and compliance function that focuses is making sure that our royalties are fully paid as well as making sure they're paid promptly. And these activities have paid nice dividends. It is $80 million of incremental value because of this since inception, and that's meaningful. If you take a look about how much of that's associated with today's volumes, that's 400 barrels a day, and that's quite significant. In addition to looking at those audit activities, we also look for drainage of our lands on offset wells. And then we utilize the terms within our lease agreements in order to encourage drilling on our lands. With the issuance of offset notices, we've had 225 wells drilled on our lands related to this topic, which has added almost $70 million of value. And those wells as they continue to produce that value continues to grow to grow. So that sets us up well and just shows that the value chain continues even after we acquire these assets. So with that, I'd like to move it over to Dave Spyker for his closing remarks.

Excellent. Thanks, Dave. See, I think if we've got to take questions, please make sure that get the questions into us and we'll leave some time here at the end. I'm going to speed date these slides a little bit just to make sure that we have ample time to take questions. I think just the biggest point here on Freehold is high margins. 97% operating margin. So that means that the value that we get, the netback that we get, it's not being eroded by operating costs or royalties, et cetera, that an E&P company would have. We're sustainable. We've talked about the dividend, how many times, we've increased it. We've shown you that chart that we can operate down into that $40 range. We've got a strong balance sheet. Dave just covered that off that your Q3 net debt to trailing funds from operation is 0.5x. We've got the ability to continue to do acquisition work with that strong balance sheet. And we really focused on really restructuring and repositioning our assets over the past 1.5 years to really make us much more durable going forward. So what's next? You want to continue to build our knowledge around non-oil and gas royalties. We've been able to execute some potash deals in 2021 to augment the potash royalty position we already have. We've been able to complete some lease agreements, prospective for helium in 2021. We've heard a lot about that in the news and some of the work that's been going on in Western Canada to advance that. We expect further opportunities. We talk about lithium. We talk about some of the work that's being done on the geothermal side and the hydrogen side. We think that with our land base, we can participate in that. We talked about Ian Hantke, promoting him to VP of Diversified Royalties and really looking to see where we can diversify our portfolio into emerging energy themes over the next several years. This isn't a next year thing. It's going to take us a while to get -- understand where the opportunities are and how we can participate and how it makes sure it competes with the oil and gas components of our portfolio. So with that, we're going to continue executing our strategy. We're bigger, we're better. We moved up market cap. We're patient. We're opportunistic on acquisitions. We've got the ability to do that, something that we didn't have before. We've got a low-risk identity, strong balance sheet, sustainable dividend levels, ability to support the shareholders and how they participate in the execution of our business strategy. We've got a lot of near-term catalysts with the rebalancing of the energy index, we're back in the index, and we'll start trading in the energy index in the new year. And we've got -- we think our valuation remains very compelling. And we believe that for market participants, it still is a very attractive entry point. We talked about why we still strongly believe in what we have going forward and the opportunity set before us. So certainly open to questions and like to engage everybody in dialogue this afternoon. All right.

We have a question from Luke Davis at RBC Capital. How much do you expect the U.S. to contribute to corporate production over the next 3 to 5 years? Can you frame this in both an organic and M&A inclusive scenario? Maybe, Rob, I'll have you come up and handle that question. You've been working the portfolio significantly on the U.S. side.

Thanks, Dave. So I think if you think right now, U.S. is about 35% of our 2022 production. And I think the expectation is on the Canadian side, we're going to be able to largely maintain that production level over the next number of years. So I think it's going to, over time, organically, probably go certainly north of 35%, it could get up to 50% over the next 3 to 5 years organically. And the M&A is obviously a different part of the equation. I think the way that we've so far set ourselves up for '22 is that we can be really choosy and picky on acquisition opportunities. We've done the hard work in '21, acquiring $400 million of acquisitions that are going to provide us organic growth, single-digit percentage organic growth over the next several years. So it is one we're going to -- I would anticipate more M&A activity in the U.S. But it's not to say we would not be looking in Canada. I think the -- both markets are certainly core to us, and we'll be looking to add great opportunities in either.

Thanks, Rob. Next question from Aaron at TD Securities. You outlined using around 50% of cash flow for future acquisitions. Presumably, you see great value in your stock. So with our new and improved asset base, how do you weigh acquisitions versus buying back shares? I'll maybe answer that question. And really, how we look at buying back shares is in our view, I know this is simply put. But if we thought we had the perfect portfolio, we buy back shares. But we see opportunities that exist across North America that we can add to our portfolio and continue to enhance it. So when we see that those opportunity set dries up, I think that at that point, we would start looking at buying back shares, and that would make more sense for us. But right now, with the opportunity set in front of us, that's not in the cards as one of our top ways of distributing value back to shareholders. Another question from Aaron. The metrics of your recent U.S. acquisitions have been helped by commodity price tailwinds. Going forward, would you look to derisk acquisition economics by hedging a portion of volumes associated with M&A. Maybe, Dave, I'll have you handle that question as far as managing our risk on our balance sheet.

When we take a look at acquisitions, obviously, we're looking at returns. But in general, what you find out is that the forward curve on oil tend to be declining. And therefore, at this point, we haven't seen any acquisitions that would warrant having a hedge put in place to it. But it's something we would consider for the right transaction.

Thanks, Dave. Next question from a private investor, a plans to bring back the DRIP. Dave, do you want to handle that one, too. I can handle that. No. But I think many of our shareholders reinvest their cash dividends in freehold shares and have really been rewarded for in both the rising share price and increasing dividend. So even without reinvesting it at a discount to the share price. So again, that's something that we've looked at. But when we look at how our investors are managing their dividends, we don't think that the DRIP is appropriate for us right now. A question from Travis at National Bank. You've been more active on dividend hikes than most others, with the payout ratio below the stated 60% to 80%, how should we think about near-term catalysts around the dividend going forward? I'll answer that, Travis. I think we talked about the opportunity that we see in front of us right now. And so we think that the current dividend level, like I mentioned, is about 50% payout ratio, we want to get into Q1 and really incorporate all the acquisition work into our Q4 numbers. So we've got our own estimates of where we feel production is, where we feel our netback is, what our revenue is going to be. But we want to see how that plays out into Q4, through that up and then we'll relook at dividends in early March. We do want to move towards that 60% range. That's the guided range. We don't talk a lot about the 80%. Like I say, that's there. In the case of red line in a lower commodity price environment, we don't have to adjust on the fly. So it's going to be a measured move on the dividend side just with everything that we've got going on. Second question for Travis. So appreciating growth in Canada falls well shy of the U.S. portfolio. The Clearwater is a top quartile Canadian play that you have exposure to. Can you remind us on your royalty interest across the play and which operators you have exposure to? Rob or Susan, do you want to handle that?

Yes. Because I'm trying to remember the exact percentages, to be honest. I mean the operators are a little more clear in terms of it's under Tamarack now. It was under a private operator before Tamarack acquired that position about a year ago and under Rubellite on our Figure Lake and our Ukalta positions. In terms of the exposure there, it's about a little over a 4% position on the average royalty interest across the 4 acquisitions that we've made. You have about 160,000 acres, and we've -- it's about $22 million of capital that we've invested into that play. As Susan noted, when we would look at how we modeled those 4 acquisitions, we had anticipated production in both the 200-barrel a day level by 2025. But with Tamarack acquiring the position that they did and the capital commitment that they put towards those lands we're now seeing that north of 600 by 2025. So it's been -- it's a smaller position for us, but it's been a pretty attractive growth area, nonetheless.

Thanks, Rob. So next question from Arthur at Peters & Co. How conservative is your guidance? Why do you assume Canada remains flat in this commodity price environment? It's a good question, Arthur. Really, we've looked back historically at the asset base. And we also think that people are still going to be conservative. We see the volatility in commodity prices. We just -- we witnessed that in the past month or so. So we don't view that people are going to be out there developing lands at the same pace as they have historically, if we go back, say, 10 years. We also see that on the public side, shareholders of the public E&P companies are demanding a lot more capital discipline and not growth at all costs. And so when you factor those in, we just want to be a little bit more conservative and say that we don't think that Canada is going to have a huge growth profile. We may be surprised and have some growth. But we think that with the capital constraint that a lot of drillers are showing that it's -- we prefer to be conservative in our modeling. A private investor. Are you considering a listing on a major U.S. exchange? Do you want to handle that one?

Yes, sure thing. That's -- that would be a very important decision. But at this time, for what we're looking for, for the company, we're not looking at listing on one of the U.S. exchange.

Thanks, Dave. Luke from RBC again. What are the top 3 plays in Canada, you would like to increase exposure to? How much M&A opportunity do you see going forward? Rob, I'm going to bring you back up on that one. Rob is getting his notes.

I'm getting note, Luke. These are good questions. In terms of the top 3 plays, like probably the biggest one that we have a more modest exposure to in our portfolio would be in the Montney. That's something -- as Susan said, there's not a lot of mineral title as you go West 5. So it certainly would be more of a GORR opportunity there, but it is just given the amount of capital that's going into the Montney and the growth prospects that we see, I think we'd love to have some more Spirit River Deep Basin. We've had some great optimization work that we've done with one of the Deep Basin players in the last year or so, and we'd love to find a way to add more to that. I mean Clearwater is a fantastic play. I think part of it is we like the valuations that we've been able to get on our Clearwater positions. That's when we sort of see what's being paid right now for Clearwater, it's not sure if that's as great of a fit for us, but we -- that certainly is a fantastic play that we would love to get more. I might add another one. Charlie Lake is something that we really like as well. Certainly a more focused position, and some of our competitors have a pretty enviable position under that play. So that's a few of the Canadian players and how much M&A opportunity do we see going forward? I think if you kind of go back on the U.S. side, that's where we see a significant amount of M&A opportunities. It's one where a lot of the dialogue we had with the private equity sponsors over the last year, it was that anticipated going to market in '20 and then again in '21, and that did not materialize. So there's a lot of backup expectation of a product coming to market in the U.S. And I think as we said, we're going to be really focused in terms of what we're looking to add into our portfolio in '22 and beyond.

Thanks, Rob. So at the beginning of the presentation -- is from Jeremy at Raymond James Beginning of the presentation, you mentioned being part of energy transition. And what kind of opportunities are you considering? So on that -- what we're looking at there is the broader spectrum from balance of minerals opportunities, did that be the lithium, the helium. The opportunity set that would exist within the mineral title lands that we have in Western Canada. We're looking at power opportunities, whether it be solar or wind opportunities. We're looking at whether it makes sense on the biofuel side. So it's really quite a broad spectrum, Jeremy. And where we're just really getting our feet wet, trying to understand where we can position ourselves to participate. It's very early days. Another question. What impact will inclusion on the TSX Composite Index have on freehold? I think what that does is there's a lot of investors of firms that can't participate in the company unless they're listed on one of the exchanges. So we see somewhere in the $6 million to $7 million shares of incremental demand that would be available. So we see that when we're out in late December, that's going to be a positive catalyst for stock liquidity with significant demand behind getting listed. Another question, $250 million in revenue. What is your forecast for taxability going into the new year? Dave, can you maybe help me out with that one?

Yes. So I would call it about in the range of sort of that mid-teens percentage of funds flow from operation is where you forecast the tax liability for 2022.

Excellent. Thanks, Dave. Well, it looks like that's all the questions and kind of right on time here. So really thank everyone for participating today, and thank everyone that we're able to participate in the presentation itself. Like I said, we've got a lot of good things on the go, really happy about the work that we've been able to do over the last year and really looking forward to 2022. So thank you all, and thank you for your participation. Take care.