PrairieSky Royalty Ltd. (PSK) Earnings Call Transcript & Summary

Sorry, what was the first question? That was a long second question. Tax, oh, yes, that's why I forgot. It's initially blacked out. Yes, yes, it's a bit of a badge of honor. I do not anticipate Spur doing any tax vehicles. We're kind of a year or 2 ahead of the industry. I mean it is what it is. And I think companies that try and do deals simply to avoid -- for tax avoidance is that's going to end up biting them significantly. So we're just -- it is what is a bit of a badge of honor. In terms of going public, you can see my throat is getting dry. I truly believe Spur has been able to achieve what it's been able to achieve by being private. I recognize we kind of went where the puck was going rather than everyone else chasing everything. I do acknowledge at some point, we will need to provide greater liquidity to shareholders. Currently, there seems to be no issue with that, that those seeking liquidity, both buying and selling, are able to go through the gray market. So I don't sense that's on the near-term horizon, but I'll never rule that out at some point. Thanks, everyone. I will be around at the end if any one had any other questions. Thanks, Andrew, for the opportunity to speak here.

All right. Well, that was a tougher business to follow. We're going to move into our next feature area, which is the Cenovus mineral title lands, which this one ties to the -- it ties to the Clearwater. Our acquisition of the Cenovus mineral title lands, the largest remaining mineral title position in Canada's heavy oil fairway was made just at the inflection of differentials and the development of a new technology to extract the resource more effectively. Our large data set of Clearwater wells indicated that this region could be exploited using multilateral wells. This zoomed-in map outlines the 1.1 million acre land base across the heavy oil fairway that PrairieSky owns. While under booked in the asset book today, the strong leasing and drilling activity should add significantly to our already large booked inventory. The Elk point region is characterized by good grain size and consolidated sands. This oil is typically in the range of 12 API crude with in-situ viscosities of 5,000 to 30,000 centipoise. So this is quite different than the Clearwater. In terms of the oil quality, it's a lot heavier crude, a lot more viscous. The difference here is we have very, very good grain size and consolidated sand. So what started to happen in CNRL was the first one to pioneer these techniques, bringing it further south. These heavier oil regions are very conducive to multilateral drilling. And we've seen now 4 different horizons, the Sparky, the Waseca, the upper Cummings and lower Cummings all successfully exploited with this technique. What's unique about this as well is Devon, Canada for 25 years drilled verticals through all these reservoirs and very low recovery factors, primary heavy oil. So we have this massive data set through this whole Cenovus package that we just recently bought that shows all of those vertical wells for the most part can be now drilled horizontally, and you can take the recovery factor from, in some cases, as low as 2% to 5% to 10%, 15% using the multilaterals. So early indications are that this will be a major growth area in volumes for PrairieSky, given the leasing and some of the new drilling results we've seen. And this is a good log, and this is important to understand all the different zones within this heavy oil stack. So there are 3 to 5 stacked pay sections within the Mannville heavy oil wedge in the Elk point region of Alberta. In some areas, up to 30 wells per section will be required to fully exploit this resource. We have seen up to 50,000 centipoise oil produced economically using multilaterals in the area, and that's basically bitumen somehow coming out of the reservoir. Significant growth in this asset is expected over the short, medium and long term, and we believe these will be some of the barrels that fill TransMountain over time. PrairieSky has almost no future wells booked to this area. This is significant as 4 separate zones have been successfully tested with projected EURs well over 100,000 barrels. Because our royalties here are 17.5%, our gearing to growth on the asset is material. Look for evidence of growth here on our average royalty rate over time. Our technical team has also worked out various heavy oil opportunities in the Provost region. This is another asset that was acquired with a heritage fee mineral title lands. This has resulted in numerous leasing arrangements and the successful discovery of Sparky oil accumulations. In addition, we've received $1.8 million in lease issuance bonus over the trailing year on this play alone for short-term leases. The continuous evolution of fluid systems and drilling techniques is unlocking multiple zones throughout the area. Spuds, as seen on the bottom right of the graph, continue to trend higher. The last bar, by the way, is lower, but that's just a single quarter. The logs on this slide highlight the oil pay in 3 separate Manville sands. Economic oil inventory per share has increased significantly with the Heritage acquisition. So that was the next section, we go through a number of other plays. And then we head into the financial section and the range of outcomes. We'll definitely get everyone out early. But this is a 15-minute break to reload your coffee and use the washroom. Thank you for being patient through that whole presentation and hope everyone doesn't just go out and buy Spur. [Break]

Okay, guys. We're ready to move on to the next section. Still a couple away from the most fun one, the financial section. So a little more technical. Just walk through some of the plays and how they progressed over the last 2 years and what they represent for future value for PrairieSky. We will start with the Duvernay. After seeing activity decline over COVID, the Duvernay is making a resurgence. A large operator on our play has plans to grow from 3,500 barrels per day to 50,000 and keep it flat there for 10 years. This is an important play for PrairieSky owners as there are large oil, gas and NGL reserves and it balances our portfolio as the oil is in the range of 40-degree API, some of the lightest in the basin. Decades of inventory remain on this light oil resource play. With higher intensity fracture simulations, we are seeing a significant improvement in type curves over the last year. Our lands on this play line in an area that has year-round surface access and numerous takeaway options for the produced hydrocarbons. And on to the Viking. The Viking light oil play continues to be a workhorse for the company at 10% of production. 500 wells were drilled on PrairieSky lands between 2021 and 2022, leaving decades of economic inventory remaining at no future cost to PrairieSky. Waterfloods are extending the life and increasing recovery factors in the shallow resource play. As Canadian dollar WTI still today trades over $100 per barrel, we expect an active back half of the year on this play. While type curves have decreased slightly this year, economics remain robust, and we received -- in 2022, we received $100 million in revenue from this single play. We have recently done some leasing on a new Viking play that could uncover an extension to an already sizable oil accumulation with a very reputable operator. On to the Montney. So production from the Montney on PrairieSky lands will likely double over the next 10 years. 18 wells were drilled in Q1 at a 3.6% royalty, and the majority of these wells will come on in Q3, Q4 of this year. Many of our investments in this play are very early stage, undeveloped land, similar to how we bought the Clearwater. So they do take time to develop. Over the past 5 years, these lands that we bought have been significantly derisked. The lands in the 2 rivers play where we bought, we spent about $12 million 5 years ago. We've now proven up 2 distinct zones, the Turbidite and the Upper Montney, and they both look very economic. They're overpressured and they sit just north of Tourmaline, [ Arkshell ], North of Peace River. So we think there'll be a major development at some point, and we'll see a big bump in numbers for our owners at some point there with no future capital. One of the things I like to do like we really think about what our undeveloped land is worth. And it's really hard to price optionality. It's really hard to price. 2,860 -- or 28,600 individual mile-by-mile parcels. So this is just one example. It's one of those one mile parcels. So this single section of land in Karr was acquired as part of our 2014 Range Royalty acquisition. No value or volumes were attributed to it at the time of the purchase and Seven Generations was the operator. The first license came this year, 8 years later. It does have wells surrounding it, as you can see on the map. When fully developed this section, we'll have $59 million of value to PrairieSky or 10% of the entire purchase price of Range Royalty. This is a great example of optionality and the importance of owning that undeveloped land piece. Other plays, which don't show up in the asset book, are also an important part of the value for the company. They represent considerable value to the company, but they're not assigned in the royalty playbook. To highlight the value of these unbook plays, we show a Charlie Lake well that generated almost $1 million in revenue in 2022 net to PrairieSky. 20 wells per year are drilled on these other plays. It can be as high as 25 to 30. It can be as low as 15. In summary, before I hand the next section over to Cam, the top wedge, which is not in our booked reserves, not in our playbook includes other plays, improvements in technology, new discoveries, secondary and tertiary recovery and significant step-outs. Cam?

Thanks, Andrew. We have named tags up here. I'm just going to put mine up here in case you need to read. I'm Cam Proctor, I'm the COO of the company. I've been with PrairieSky since the beginning in 2014, and I'm going to talk a little bit about ESG. So what I'll do is I'll walk through the company's philosophy, some of the performance from a ratings perspective. And then we'll get into talking about some of the opportunities that exist on the land from a carbon capture perspective, other minerals. And we will walk through some of what we talked about at the last Investor Day to give an update on where those things are at. Some of it's good, some of it's neutral. Some things just start moving along. Some things are going at a different pace. So -- okay. So our ESG approach is pretty simple. We run a very differentiated business with no environmental liabilities, no back-end obligations. We don't own any wellbores on any pipelines, any facilities. We're purely a royalty owner. So if you looked on the registry of operators in Alberta and look for a license liability rating or a license management rating, you wouldn't find us there because simply we don't operate anything in the field. So we're a very low environmental impact. Probably the top dark wedge is where we spend most of our time focusing. We focus on profit. And we do focus on governance and leadership as well as health and safety and engaging with shareholders. We do have many shareholders in the business who are very focused on this, and we're one of the only energy holdings in their portfolio, in some cases, the only energy holding and part of it is because of this profile that we have. So from a rating standpoint, not lot has changed over the last couple of years, still sitting at the top of the pile. And part of the reason for that is the way we -- we do our deals, the way we run our business and some of the factors I talked about previously. As you can see, we're ranked #1 in Sustainalytics universe. That's across all oil and gas producers and the #51 globally across around 15,000 companies. So very proud of that. And then on MSCI or AAA rated, which is the top. On S&P, we're 70 out of 100, which doesn't sound that impressive, but it's actually top decile. So very, very good ratings. Recently, we -- one of our peers asked me, how do you get there? How do you get to AAA? How do you get to sort of #1 in Sustainalytics? And there's a few factors. One of which is we have a really supportive Board, who focused on this very early. Jim was very early on in the company saw that this was an aspect of our business that was very differentiated. I encourage us to spend time on it, and we did. The biggest reason, frankly, is Pam. Pam does a lot of work on this. We started doing it 9 years ago. For those of you who fill these things out or look at these things, some of the time lines on them are pretty odd. It's usually December 31 or July 30. So it's a summertime program or it's over the Christmas holidays. So I want to recognize Pam. Pam does an immense amount of work on this, and we started on it very early. So proud of the accomplishments, and we're committed to continuing to see improvement in the business over time. It does feel a little disingenuous that I'm the one giving this presentation on ESG. Pam does a lot of work on it. So thanks for the applause on that for Pam. Just a note on some global ESG rankings. This is from Scotia recently. I know so many of you know Brian. I know Jason is here today from Scotia. I want to recognize that we were recently published in one of their notes and reports as being one of the top-rated ESG companies globally in energy and other sectors as well. So that's just for your reference. Okay. So we'll get into a little bit of the other minerals side of the business. This is a deal that we talked about a couple of years ago at [indiscernible]. So this transaction is unique for a couple of different perspectives. It's an in-situ gasification transaction where the leases are cut for a single zone for coal and also natural gas. And so the process is to basically do a gasification process below the surface, bring that syngas to surface, process it into methanol and hydrogen with a cogeneration aspect and then reinject the flue gas and the CO2 downhole. So where we get paid on this is we've received bonus. We will receive royalties in the future. What's a little bit unique from PrairieSky's perspective, it was the first deal where we structure something to take royalty on different commodities down the value chain. So we have the option to take the royalty on methanol or hydrogen. We actually have an opportunity to take a royalty on the power as well as generated, but we have a carbon credit royalty as well. So this is the first proof-of-concept deal that we did, and we've duplicated in a few other different scenarios along the way. The project is advanced from where we talked about it last time. They've drilled 2 test wells, and you can see them in the stars there. We've received $10 million in federal funding and they've raised around $20 million in third-party capital towards running the commercial plant. So I know Maria and Mike introduced themselves at the beginning. If you have any questions about this, I'd encourage you to talk to them after. They did a field tour to the asset with the management team a couple of years ago where they had [indiscernible] on site doing carbon injection to prove up that there was going to be bonding with the coal seams below the surface, and it was very successful. So they are moving ahead towards commercialization of this, which we would expect an FID on it within the next year or so. Okay, now it is exciting, hydrogen and CCUS. We talked a little bit about this at the last Investor Day. We have 3 deals on hydrogen, and this is focused on SMR, so steam methane reforming. So turning natural gas, combined with water and then reinjecting the carbon dioxide downhole. These deals have not advanced much in the last 2 years. And part of the reason for that is -- the current situation with CCUS in the province is somewhat opaque as it relates to these areas outside of Edmonton where most of the emissions are, and we'll get to that in a moment. So we've received bonus on these transactions. They're coming up to term. We expect that some of them will be extended, although not all of them. But certainly, as the CCUS picture in Southern Alberta becomes a little bit clearer, we expect these deals will progress. But it may be, as Andrew referred to in that wedge about 2029 playbook, we might be talking about this more honestly at that point in time. Okay. Now we'll talk about Meadowbrook a little bit, and we do get some questions about this from time to time. So just for context, the Alberta government, the way they're managing CCUS is they run an initial process in the province to award tenures in and around the high emissions area around Edmonton. So out of the dozens and dozens of applications, they granted 6 original tenures. And we were one of -- the recipient of one of the first 6. so I'm going to talk about Meadowbrook. They ran a second process about a year later to grant tenures in different parts of the province. And we are also successful getting a hub awarded in that process as well. We've since elected to remove ourselves from that project for a variety of different reasons. Primarily, we don't see it being worth a lot of near-term effort. But one of the biggest reasons is it's in and around Drumheller, which is an area where we're seeing a lot of mineral exploration right now. And so we're a little bit concerned about conflicts between injecting carbon dioxide below the surface and potential extraction of future minerals. So we're not picking sides necessarily right yet, but our focus is definitely on the leasing for mineral extraction. So this is Meadowbrook. This is just a little bit north of Edmonton. And so we're an 18% partner in this project currently. We do have an option to drop down to what looks more like a royalty interest. It's a single-digit profit interest, where we can take profit or loss, but we don't actually have to contribute any capital. So what we have contributed is we've contributed seismic. We've contributed 10-year leases for the Cooking Lake, Leduc, and then we're expanding this project to an additional zone to give an optionality. It's currently scoped to be somewhere between 3 million to 5 million tonnes per annum for a 25-year period, but it could get scaled up. So why we like this project? Location, and Jane will appreciate this thing from the real estate side, location is everything. So this is a map of the emissions in and around the Meadowbrook area. And just for context, this is very, very deep. This is a deep reservoir. Some of you would have seen that Baytex recently made a Clearwater as discovery in and around here in Morinville. This will in no way interfere with that. This is way down deep. So 3 million tonnes per annum. And as you can see on the 2 graphs, and I apologize for the -- these came right from our application and the graphics aren't that clear. But within 100-kilometer radius, you can see significant emissions, over 35 million tonnes per annum. So basically, we're in an area where we have deep reservoir that can take the carbon dioxide, and we have a lot of emitters. So that's the perfect scenario for this project. There are some other projects in and around here. But what's different here is that there's not a lot of interference with oil and gas. And there's very few old, abandoned wellbores in and around the zone that could be tampered with. So this is why we like this area. So we're going to be focused on the power producers. We're going to be focused on petrochemical producers. Ultimately, what do we need to get this thing going? So it can be developed in phases. Right now, the partnership and the partners on the site are listed Bison, Enerflex and the Indian Resources Council. We're focused on getting an emitter in the project, preferably an emitter who can bring sizable emissions, but also partner with us on a transportation solution. So we'll need a little bit of pipe that can be tied into the ACTL, or it can be tied in directly to emissions in the area. So right now, we have our evaluation permit. That's for 5 years where we've conducted a community and stakeholder engagement in the area. We're drilling the first test well here this year. So after that, we'll adjust our front-end engineering design protocols. We'll do some monitoring and verification. And then based on that, we'll go for regulatory approvals next year and hopefully get an FID at the end of 2024. Now if we have a large emitter, that could look like a bigger FID with more capital being spent. If we don't get that big emitter, then we've talked to multiple smaller emitters, and we can do it on a smaller scale to start. So that's Meadowbrook. If you have any questions about that, I'd be happy to take them at the end. Okay. We'll get into helium and lithium here a little bit. So we talked a bit about this at the last Investor Day. This is a sizable deal that we did down in the Lethbridge area. And on helium, we'll talk about 3 distinct deals. These aren't all the deals we've done. This is just a subset of some transactions we've done recently. So the one in Lethbridge started out as a big exploratory block, 4.2% for helium and then standard royalty rates on the natural gas. What's interesting about this is they are drilling quite deep for this. And so we're going to get all the data that goes through those zones in areas where there hasn't been a lot of exploration over recent years.

That's the most exciting part.

It is, yes.

They drill verticals and it's -- you only find helium in a deeper-seated structures because from the decay of radioactive materials, which is the very basement. So we're going to get the whole stack. So they're going to find 2 oil pools in a gas pool probably if they do.

Well, Ian, in fact, this operator who -- their first exploration well is outside of this block, but they actually found an oil pool along the way. So -- and of course, as you can see from the blocks, we own everything surface to basement here, petroleum and natural gas. So this deal is advanced. It's advanced to further delineate and sort of taper down the box. We did receive between $600,000 and $700,000 in bonus on this transaction. No wells to date, but they are planning on drilling well this year. So that will validate part of it. But then really what we're looking at is further extension bonus on this transaction. Okay. So we'll talk about the Med Hat area as well, which is now seeing some interest in helium as well as Provost, which is the next slide. Probably what's most interesting about this is the royalty rate on the first deal went from 4.25%, which is the Crown equivalent. We're seeing enough demand that we're seeing the royalty rates creep up here. So while there's no real production and the exploration wells are still being sort of drilled, we are able to take the royalty rate up because there is competition in this area. So we're excited to see what happens there. There is a well planned here for next month. So hopefully, in 2 years, we'll have something more to talk about on this. But it's encouraging to see that this idea is stepping out into different geologic zones. Same can be said for Provost. So this is a very well-worn oil and gas area, lots of infrastructure, lots of surface access, very early stage. But we are excited about this transaction, not only because of the higher royalty rates we're going to get, but we are getting some wells drilled in this over the near-term as well. And what I should mention as well is we have seismic over this entire area. So to the extent that we don't own all the land and the seismic is granted, we get an overriding royalty on any Crown that this operator purchases. And that's consistent across all of these types of transactions. So it's typically 2.5% for helium and then a 5% royalty on any natural gas. Okay. We'll move over to lithium. We're just going to talk about a small piece of the lithium. There's a lot of different lithium ideas floating around in Alberta and Saskatchewan, but we're going to talk about grounded lithium specifically. Many of you have heard of E3. That's a company that we do business with. It's a company that we are working out a partnership with. They have a joint venture with Imperial. That's an idea that's focused more on developing their own technology and taking lithium brines from old oil wells and refining them. It's a really interesting project, and obviously, it could be impactful for us over time. But there are some challenges, and there's some reasons why we really like this. On E3, they're spending a lot of capital developing their own technology, whereas on grounded lithium, they've just gone to the best-in-class direct lithium extraction technology. And so from a capital allocation perspective, more of the money is going into the ground as opposed to developing the technology. So this is Saskatchewan, which, as I think most people in this room know, is a great jurisdiction to do business in. We're very proud to have a massive land position there and being partnering with great companies. So we've leased a very big block of land down in the Kindersley area for lithium extraction. And this is, again, to Andrew's point, very deep. So all the drilling that's done here, will go down to the deep row, which is the Leduc analog in Saskatchewan. They've drilled 2 test wells in this area and both of which were on PrairieSky lands, both of which are very successful. So success on this play looks like commercial concentrations of lithium. So between 70 and 90 milligrams per liter and consistent flow rates. And so each of the 2 test wells continue to flow at between 3,000 and 4,000 barrels of water a day, so you can extract the lithium and commercial concentrations. We also get a royalty on any Crown land that's picked up in here as well. But it's still very early stage, although it's very successful at the original test stage. What we like about this as well is its pure exploration. And so whereas in some of the old oil well lithium brine strategies, you do get cross contamination. There's no cross-contamination here. So you're getting a pure product, which means lower cost. So what does this look like going forward? Well, they have a 24-oil plan in place. It's going to be drilling 24 wells over the next 1.5 years to 2 years. And then they'll make the regulatory applications. They're trying to get a commercial operation up and running by 2026. So when we do this next book in 2025, hopefully, we'll have an FID on that project. They've done a resource assessment. They've -- it's very -- there's a lot of assumptions in it, but around 4.2 million tonnes of inferred lithium resource just across our lands. So it's a really interesting project. And of those 24 wells, they're going to be drilled, 12 of which will be on PrairieSky lands. So exciting going forward. And we had this slide in last time, I think some people found it helpful to see what else is in the bundle of rights. There's a lot of things. There are some other things that aren't on this table. But I think, as you know, we collect potash royalties is anecdotally after we did the Heritage transaction at the end of 2021. We got an unsolicited offer from someone else saying we'd like to buy all your potash royalties that you just bought, which, of course, we wouldn't do. So those have increased significantly with pricing over the last 1.5 years. And we expect that Nutrien will expand the Rocanville project at some point in time, which should see additional growth. And we've also leased for shale. We've leased for a new limestone quarry in Manitoba. So this is, again, one of the reasons why you like to own minerals and on the optionality. So with that, I'll turn it back to Andrew.

Okay. So the final 2 sections to provide a brief financial update and then look at range of outcomes for the business over the next 3-, 5- and 10-year period. So the first slide, this is our oil production and some of the major constituents of it. So we thought we'd just like last Investor Day, walk through these major contributing plays to PrairieSky and just kind of directionally where we see these growing. This slide here shows where our industry-leading production per share growth came from over the last 2 years. We -- the majority of the peers in Canada and the U.S., we were 300% to 400% higher than they were in organic growth. So very good year, very good years over the last 2 years. The next 10 years, we expect the Viking to remain flat, the Mannville oil to grow substantially, thermal volumes to grow by 50%, the Clearwater to grow by 200% to 300% depending on pricing. And units and other plays to stay flat. The Duvernay will also grow substantially, but it's a small -- but it's from a small base, so it did not make this list, probably makes the list on the next one. And then probably the other piece is to talk about natural gas. So natural gas represents 40% of our production, but only 20% of our revenue today. A full 1/3 of our natural gas production now comes from solution gas, and growth is therefore a derivative of tight oil drilling. With new offtake options from the basin and infrastructure buildouts, we expect our natural gas portfolio to grow over the next 10 years. We -- as many of you in this room would know, we're kind of permabears on natural gas, just given the very, very efficient finding costs across all of North America and every price response -- every price signal we get, we get an almost instantaneous supply response. Last year was one of the most staggering things I've ever seen. You had exceptional pricing in the front half of the year, and you added 5 Bcf from 1 play in the Haynesville. So we just believe that gas will be capped for probably the next decade at certain levels, and we'd never sell our gas royalties. It's pure optionality, and we do think they grow, but we're more bullish on the oil side -- the low-cost oil side. So not only do we not pay operating costs, transportation costs, finding costs and abandonment costs, our business is also sheltered from inflation, which has been a big topic in the oil and gas business over the last 6 months. Low-cost wins when it comes to energy, and PrairieSky is the ultimate low-cost producer. Other revenues are another differentiator for our business. Recurring lease rentals, lease bonus revenue, show how the lands can be recycled through the various cycles. Since our IPO, 1 million acres have expired and come back to the company in inventory. We have leased over that same period of time, 1.5 million acres. So I can't tell you exactly what the next 10 years looks like, but it probably looks like another 1.5 million acres of new lands leased. And what's unique about that 10 million unleased, undeveloped acres and a variety of different zones, it's -- any new discovery opens up another full stratigraphic layer that you can then lease on. So there's new things being discovered every day, there's new technologies trying to exploit existing resources that are known to be there, and we'll be capturing those over time. Both production and mineral taxes and cash G&A per barrel have come down since our May 29, 2014, IPO. We always look for efficiencies that can be achieved in our business. As our production continues to grow and our administration expenses stay flat per barrel number should improve over time. On the bank debt, the first bank debt slide, Pam gave me was blank. So I was like, okay, perfect. We'll just say it's a 0 next year, but she did finally fill it up. So PrairieSky has a $725 million bank facility with an accordion feature to take it to $800 million. In 2021, we financed just under $800 million of the $1 billion in M&A we executed on with this facility. First time we've view significant debt in the company. The entire debt will be repaid in full next year, probably enough on that. Taxes, the last fun part about being profitable. PrairieSky has always been a taxable business since IPO. We paid $86.5 million in cash tax in 2022. And again, it's an unfortunate consequence of generating strong cash flows and spending very little. In 2023, the first $155 million pretax cash flow will be sheltered. The remainder will be statutory tax rate of 23.5%. So for your models, that's what it looks like. And then we'll grind that $155 million off the Royalty balance and it will be even lower next year. So now the fun part, the valuations and returns to shareholders. So discipline is required when managing a business. Cash and liquidity provide optionality. In 9 years, we have acquired in the lows and been active leasing in the strong cycles. It's easy to get caught up in the short-term gloom or euphoria. One of our strengths is zigging when others zag. We can probably have a moment of silence while looking at this graph. Picture kind of says it all up and to the right. This is near-term leasing activity. This is obviously a precursor to drilling in the future, but very, very active. Our leasing teams have been very, very active. So give them credit and industry is very interested in adding inventory right now. Roll-up strategies and MLPs must buy throughout all cycles. In frothy times, we lease land and save up for the next downturn. Note the red dots on this current graph, more spuds and higher average royalties. That higher average royalties on more spuds will be a theme going forward. Once again, a map of WTI and when PrairieSky timed its acquisitions and buybacks. All acquisitions are measured against buying back stock in a terminally growing business. This instills discipline. I should also note that despite the drop in WTI, CAD dollar WTI still trades over 100 because of the weak Canadian dollar. So we are in a frothy time right now. Land leasing remains our core priority. As inventory concerns continue to plague the industry, PrairieSky's land bank for future growth. And a big part of the reason people like Franco-Nevada, Wheaton Precious Metals, the royalty companies in general is all the call options that are inherent within the business. It's not just the strong high-margin cash flow stream. It's the call options you get, and you get them for free and they don't expire. So call options that don't expire a tremendous value. This optionality within our business comes in many forms. Every 10 years, there's a new play discovered or a new technology to exploit already known reserves. As perpetual fee title owners, we already own these reserves. So the big question is, what do you pay for decades of inventory, an option on all new technological advancements, new discoveries, and the largest land position in North America's lowest cost play? The answer is you can buy it for half price. Between 2016 and 2020, Texas Pacific Land Trust, or TPL, their ticker on the New York Stock Exchange, grew faster than PrairieSky. Over the last 2 years, we have grown faster organically. In addition, we traded half the multiple of Wheaton Precious Metals and Franco-Nevada with less jurisdiction risk and a stronger organic growth profile. Our returns screened very well on Bloomberg, but there is an important add back to get to the crack value. The DD&A number that we report in our financials is industries number, not ours. So in 2022, if you add back the $145 million of depletion, depreciation and amortization, our return on equity is 16%; return on assets, 13%; and our return on capital employed is 17%. The XEG has outperformed PrairieSky over 9 years. Given our superior business model, competitive growth rates, inflation protection, balance sheet, capital and liability free model, we should outperform over the long-term. So then a few comparators. A lot of people compare us to E&P companies, but it's -- they're totally different businesses, and it's doesn't really work when you walked through the graph. So we've got ourselves and midstream companies here. So pipeline and midstream businesses share many strong attributes with PrairieSky. The main differences are maintenance and growth capital as well as balance sheet. PrairieSky at a lower multiple, lower risk, better balance sheet and projected dividend growth that is stronger offers investors the same long-duration cash flow stream. If the REITs on this page paid their debt down to 0 to reach PrairieSky's 2024 leverage profile, it would take 15 years using their 2023 free funds flow. Over that same period of time, if PrairieSky used its free funds flow to buy back shares and the shares stayed at $22, we cancel 120% of our shares outstanding. Flip to the next one. And now to focus on our returns instead of picking on others. The following table sets out our free cash flow after tax, after G&A over the next 10 years. And what we've done in this chart that Pam built, and Pam has 100 models always running that we update all the time with a variety of price sensitivities, but a variety of drilling activity sensitivities as well. But what we did here is keep it simple. We used $50 to $100 oil in the grid and slightly negative to slightly positive growth rates. As we did 2 years ago, let's flip to the next one here. We provide a range of outcomes for the business over the next 10 years. To simplify this, we assume all of the free cash flow cancel shares. And the stock stays at $22.65 per share, which is where it traded a couple of days ago when we finally printed this book. So before we show you the final outcomes, probably good to go back and show you what we showed you 2 years ago from the exact same range of outcomes. So this is what we presented to you 2 years ago, pretty much the same day. We gave 4 ranges of outcomes the black bar, the orange bar, the blue and the green on the bottom. Our returns are on the orange dot. So a top quartile results since our last Investor Day. Now to the projected returns for the future from today. So what we've done here is take the chart from a few back and just plot that on this graph to find out what those potential returns would look like in that situation where you take all the free cash flow with -- by the way, below what we expect in terms of growth rates. And this time, we just have 3 scenarios: the blue one, the low one that takes you to $32 a share at the end of the period; $59 per share on the orange line; and then the black line takes you to $124 per share. So the low scenario with declining production and $60 WTI, a mid-scenario with today's price and no growth, and a modest growth scenario and $80 oil in block. Now we're well aware that there are a number of other scenarios, both higher and lower that could occur on this chart. If a lower scenario unfolds, we'll have $1 billion in liquidity to take advantage of it. If a higher than $80 WTI environment happens, we'll lease more land and return more money to you in dividends. So again, when you really synthesize this business down, it's a very simple business. We don't know exactly what the free cash flow we'll generate over the next 10 years is, but it looks somewhere in the range of $4.5 billion plus. And the big magic will be how we return that to you. Now we talked about that high return on invested capital project that we did. When we can find things that have a higher return than our existing business, then that would be a wonderful place to spend some of the excess free cash flow. But again, it is the ultimate dividend-paying type of business, and we'll continue to work hard to lease land and compound it over time. I guess, one thing to finish off with, we really appreciate our shareholder base. They typically share similar time horizons as management. This allows us to build a more durable business and have patience to execute on opportunities at the right times. So I'd just like to thank everyone for coming here. I know we probably got you out of here a little early, and we can open up to questions for anyone in the room. We'll even take comments.

You guys talked about ROIC and the payout of the Spur deal. I'd be curious what those numbers look like for C&Q Range Royalties, Onion Lake, Lindbergh? You might not have them off the top of your head, but just order of magnitude would be interesting.

Yes. So it's a good question. Probably the worst one, to answer your question, would be Lindbergh, and it would be kind of mid-single digit, Aaron. And that was a result of, we projected the next phase of that thermal project to happen by now, and it hasn't. So that brought what we thought would be the conservative even at the time, IRR down lower. CNRL was exceptional and part of the reason was we bought CNRL at $55 oil. We projected lower drilling activity. There were a number of new discoveries on the lands. We got very active in 2016. So that one's -- we don't brag about that one out loud because that was almost a merger, but that one worked out very, very well for us. And Range Royalty has also had above what we anticipated for returns. But it is -- the M&A is the riskiest thing you can do, and that's one of the reasons why we have such stringent criteria to evaluate these opportunities because if you look at our business, we have the best business. We own 73% of all of Canada's fee mineral title lands. You can't replicate that. And there's smart geologists and engineers working all across the basin, finding new things and new ways to make things work better. And we're a natural collector of those great ideas.

Looking to reduce our debt to 0, it's pretty modest right now $300 million not only giving back to shareholders. You should read the question.

Sure. Yes, so the question was, why are you looking to pay your debt down to 0? It's very modest as it is today and then you can return more money to shareholders. I think when we look at this -- if you look at even what Franco-Nevada did, everyone thinks that happened overnight, but it was pre being bought by Newmont, then they IPO-ed it after like was probably 40 years of working on that business. Whenever you have cash, you have optionality and an opportunity arises, and you're one of the only ones who can do it and you can do it well below intrinsic value, you can get a higher IRR. So we're pretty conservative people. My last E&P had $100 million unused bank line and $10 million cash when we sold. And I just think it always provides optionality. And Jim, the road to hell is paved with debt. So we're just not that people. It's not in our nature. And I think we'll sacrifice better total returns for better risk-adjusted returns in this model. Could you use your line of credit to buy it maybe to simulate it? Just an option. Mitch?

I'm just curious what the market for the other 27% looks like?

Yes. So it would be -- so a couple of ways. So the majority of our fee mineral title land came from CN and CP Rail. And that was -- those are the big grants in exchange for linking the West Coast with the East Coast. And that was the big mineral title piece, and that's what we've captured. There are other companies own small fractions of it from the old Amaco days when they sold off properties, those kind of things. The remainder are mostly farmers and individual landowners who own a quarter section or a half section. And what happened in the very early days is if you showed up here as a settler and you cleared the land and built a structure, you got the mineral rights. So what's happening now is, in the U.S., it's really far along. So it would be like the tenth family now. And so there's -- it's very scrappy, like you can buy a 118 centrist and you don't control it, whereas here, it's still pretty well put together. You just got to talk to the hands all over and say, who wants to sell their [ 1 cent ]. And so we're always working on that. We don't really talk about it, but we're buying fee mineral title every day. And there's a few you feel bad. Like there is one, we saw Duvernay play coming right towards it. And this old lady wanted to sell or fee. And we said, this is what we're willing to pay for it, but there's a shale play coming. And we think this is going to be worth way more than it is 5 years from now. It's not going to get drilled in the near-term. But that's why we're buying it, and we just wanted you to know that. And she said, "I still want to sell, I'm getting a new truck." So that's fine. As long as we're open about it, she's not going to feel bad. She'll drive by that in a brand-new F-250.

Mike Dunn with Stifel FirstEnergy. Andrew, maybe I'm sure my ignorance here, I'm not sure, but you have 1.3 million acres of Clearwater lands. Are those predominantly already all leased out to operators? Or is there some you've held back that you're still doing deals with? I've got a second question.

Yes. So it's a 2-part answer to that. So a lot of the Crown lands that we bought in that oil sands region from Marten Hills all the way up to [indiscernible] Cadotte, those would all be spoken for because what we found is we want to partner with an exceptional operator that's well capitalized that knows how to execute, and we'll probably do a better job of everything along the way, including infrastructure, cost structure, the waterfloods, the polymer floods. So those are all spoken for. What's changed is the -- if you go back to one of the slides I showed with the Heritage acquisition, the old Cenovus mineral title lands, those same type of plays and similar EURs are creeping onto our 17.5% fee. And so there is -- there are a number of opportunities for -- you may not want to call it Clearwater, it's Mannville effectively, but they're using Clearwater drilling techniques, Clearwater fluid systems and finding a way to get that primary heavy oil that Devon Canada drilled hundreds and hundreds of verticals. So it's all proven up. You just got to find out if it works. And so I think that's an area where that's unleased. And we're -- a lot of the leasing we're doing right now is for that. We haven't -- I think we had 10 startups lease from us over the last 3 months. I don't -- I can't even remember 10 start-ups in 2018, 2017, the entire year.

That's not necessarily in that 1.3 number.

A lot of that fee line, so.

And your second question?

Yes. I don't know if it's in the documents today, but I think in your April slide deck, you mentioned some further opportunities for thermal projects on your lands. Now I took that to mean, is that small-scale SAGD like what's in Saskatchewan? Or maybe can you just put some more -- talk a bit about -- more about those opportunities?

For sure. So I think the one place that the industry has found to have very successful small-scale SAGD projects has been on Saskatchewan side. And I know Cenovus, when they bought Husky, did a full review of the assets, and said, these are actually very competitive. They make sense. And we had prior to them selling done a number of deals, 10-year deals with Husky. Their commitments were to shoot seismic and evaluate the lands and then ultimately drill a test well. I think that's about 5 years into the deal now. So they've got to get active on some of those, but they're proven thick hydrocarbon packages, and we're pretty comfortable that SAGD is going to work. I don't know what the SOR looks like, don't know what the capital looks like in this inflationary environment, but we've done a number of those. The other one was a company that just sold Serafina. So Serafina sold to Waterous's, Strathcona. And we had a number of projects with him as well where we've done the leasing on our lands for that. So what's neat about that is we talked about the one section in the Montney out of 28,600 you own as a shareholder. Well, there's one single section in Saskatchewan, if you do SAGD on it, it could be like a 6,000 barrel a day producing zone. So we really like that. It's big capital. That's the issue. But I think there'll be more of those in Saskatchewan going forward.

Maybe this one is for Cam. I'm going to ask you to speculate a little bit. You talked about the opportunities on hydrogen, helium, lithium, CCUS. If you looked out 5 years or 10 years from now, what could we expect that to generate in revenue?

Bill Coskey. I can't tell you, Aaron. I could tell you that we're going to generate a lot more lease issuance bonus, we are taking lease issuance bonus on those deals. It's going to be a function of how fast the capital is deployed and obviously, pricing. I think that we'll probably see more revenue on the lithium side than we will on the helium. Obviously, the focus of our business is hydrocarbon development. But to the extent that we can take this, call it, dormant inventory and try and bring PV forward on it, that's really the mandate of this effort. So what will it look like? I can't tell you. But we'll be smart about it. We'll make sure we get our fair share of what's going to be developed, both from a lease issuance bonus and also royalty revenue bonus going forward, and try and encourage those developments in the future.

And I'm particularly interested in the helium because you've got the biggest reserves of helium in the world are -- they're supposed to be in Texas, but the truth is they're in Belarussia and Russia, who's no longer exporting them. And so there's a huge shortage. And to clean a microchip, build an MRI machine, you need helium, second smallest element on the periodic table. So it's very, very expensive to transport because it can sneak through just about any valve. But again, I do think Canada has the technology and expertise to do it. We have the fifth largest helium reserves in the world. So there's definitely -- and we're sitting beside the biggest user of it, the $22 trillion a year economy rights and plus all these are in other Southern Alberta or Southern Saskatchewan. So there's some opportunities there. But as Cam mentioned, we get lease bonus, we got lease rentals, we get data, we get wells drilled through other zones that might produce hydrocarbons, so there's no risk to us. So it could be really small, but it could be meaningful over time. Our royalty.

Yes. And Aaron would know this, but just for some other people, that is a 0 cost to us. So any dollar of revenue is a great return.

Just looking over to 2024, as you sort of extinguish the debt or project to extinguish the debt here, how are you thinking about the return of capital mechanism? You've obviously made a pretty compelling case here for buying your stock in the IRR on that? I know you're obviously very focused on M&A and the IRR hurdles there. You addressed the dividend in November. You've talked previously about prefunding the buyback with the leverage you took on the previous transaction. So as we extinguish that debt, how are you reevaluating these return on capital mechanisms?

Yes, it's a good question. I think when we look at, we look it wholesomely, and when things are always changing, so you want to really understand what your opportunity set looks like and what the future business looks like. And it's a very -- the answer to your question is very different. If we saw oil drop to $30 when we're getting closer to that February dividend decision for the upcoming year or if it was at $100. So -- but again, I think our payout ratio is low, we will have our debt at 0 by next year, and it will just give us a number of different opportunities. And lot of companies, including Devon successfully laid out a very stringent return of capital profile. They got a bit more cost of capital, their multiple went up, people liked it. But then all of a sudden, it boxes you in, and you can't do anything else other than what you promise them. So we just don't like to do that. We want to have ultimate flexibility and there could be other things that we can't think of right now that will create opportunities. And -- but I do think just a very simple answer to your question is, as we head into February, debts getting closer to 0. There's probably room for a nice dividend increase. How nice is the -- you have to talk to Board members in this room, but which will still leave excess capital for buybacks, et cetera. Great. Well, thank you, everyone, very much for coming. Hope your spouses enjoy reading the Royalty Asset book as much as you do. And we look forward to seeing you in 2 years.