Freehold Royalties Q2 Earnings Call Highlights

Key Points

• Strong quarterly results: Freehold Royalties reported C$78 million in Q2 funds from operations, up 30% sequentially, as higher commodity prices lifted revenue. The company returned C$44 million to shareholders through dividends and reduced net debt to C$251 million.
• Production guidance maintained: Quarterly production averaged 15,622 BOE per day, with liquids representing 66% of volumes. Freehold kept its 2026 guidance at 15,500–16,300 BOE per day, supported by a 35% increase in drilling activity and expected production growth later in the year.
• Growth and capital allocation remain priorities: The company expanded its royalty portfolio through Permian Basin acquisitions while balancing further purchases, debt reduction, dividends and potential share buybacks. Improved Permian gas takeaway capacity also eased pricing and production constraints late in the quarter.

Freehold Royalties TSE: FRU reported second-quarter 2026 funds from operations of C$78 million as stronger commodity prices and rising drilling activity supported results, while the company maintained its full-year production guidance.

Production averaged 15,622 barrels of oil equivalent per day during the quarter, with liquids accounting for 66% of volumes. President and Chief Executive Officer David Spyker said production was in line with expectations previously outlined for the year, reflecting more moderate drilling activity through the second half of 2025 when commodity prices were lower.

Spyker said drilling activity has since improved and is expected to support production growth in the latter half of 2026. The company maintained 2026 production guidance of 15,500 to 16,300 BOE per day.

Higher Pricing Lifts Revenue and Cash Flow

Royalty and other revenue totaled C$100 million in the second quarter, up 29% from the first quarter, primarily due to stronger realized commodity prices, according to Chief Financial Officer Brad Monaco. Freehold realized C$122 per barrel for crude oil during the quarter, while its average realized price across oil, natural gas liquids and natural gas exceeded C$69 per BOE, compared with about C$55 per BOE in the prior quarter.

Funds from operations rose 30% sequentially to C$78 million, or C$0.47 per share. The company returned C$44 million to shareholders through dividends, representing a 57% payout ratio.

Cash costs averaged roughly C$6.50 per BOE, improving from C$7.02 per BOE in the first quarter and C$7.38 per BOE in the second quarter of 2025. Monaco said the cost structure remains a key advantage of Freehold’s royalty business model.

Freehold reduced net debt by C$24 million during the quarter to C$251 million. Its net debt-to-trailing-funds-from-operations ratio improved to 1.0 times.

Drilling Activity Increased Across Portfolio

The company reported a 35% increase in drilling activity from the first quarter, with 300 gross wells drilled on Freehold lands during the second quarter, compared with 223 wells in the prior quarter. On a net basis, Freehold added 1.8 wells in Canada and 0.9 wells in the United States.

Freehold’s production mix remained geographically diversified, with Canada representing about 54% of second-quarter production and the U.S. accounting for 46%. Spyker said the U.S. portion, while smaller by production volume, generated higher revenue and realized pricing and remained an important contributor to cash flow.

In Canada, 74 wells were drilled despite spring breakup conditions. Activity was concentrated in oil-focused areas including the Clearwater, southeast Saskatchewan and Mannville heavy-oil regions. Spyker said operational improvements involving longer laterals, completion optimization, reservoir targeting and secondary recovery schemes have helped improve well performance by about 30% and expanded drilling inventory on the company’s land base.

Freehold entered into 45 new Canadian leases, largely in southeast Saskatchewan. The company expects several operators’ planned drilling programs to begin contributing production in late 2026 and into 2027.

In the U.S., 226 gross wells were drilled on Freehold lands, with approximately 82% of activity occurring in the Permian Basin. Spyker said operators have been employing longer laterals, surfactants and lightweight proppants to improve productivity. Midland Basin spuds on Freehold acreage averaged three miles during the quarter, about 10% longer than a year earlier.

During the question-and-answer session, Spyker said Freehold’s well productivity was higher year over year in both countries, rising about 30% in Canada and 15% in the U.S. He also pointed to activity and leasing in the Barnett Formation, where drilling activity has begun after increased permitting and leasing efforts.

Permian Gas Constraints Eased Late in Quarter

Freehold said natural-gas pricing and production in the Permian were negatively affected during the quarter by takeaway constraints at the Waha Hub, the primary point for transporting gas out of the basin. Widening differentials to NYMEX resulted in negative gas pricing for much of the second quarter.

However, Spyker said added compression on the Gulf Coast Express expansion and the start-up of the first phase of the Hugh Brinson Pipeline in late June added a combined approximately 2 billion cubic feet per day of takeaway capacity. The additional capacity moved Permian gas pricing into positive territory late in the quarter and eased immediate production constraints, he said.

An additional 4.5 billion cubic feet per day of egress capacity is expected to come online by the first quarter of next year, according to Spyker, potentially providing producers with more flexibility to manage associated gas volumes.

Capital Allocation Remains in Focus

Freehold invested approximately C$9 million in acquisitions during the quarter. Year to date, the company has invested about C$29 million in mineral title and royalty interests in the Permian Basin, adding 12,500 acres in Texas and New Mexico, including acreage in Loving, Martin, Midland and Lee counties.

Monaco said Freehold is focused on acquiring high-quality undeveloped acreage that can contribute to future production growth as operators develop the lands. He added that the company is balancing acquisitions, debt reduction and shareholder returns as it evaluates capital allocation.

While Freehold’s dividend payout ratio fell below 60% in the second quarter, Monaco said the company would likely want to see that performance continue for several quarters before changing its outlook for shareholder distributions. He said potential dividend growth, share buybacks under its normal course issuer bid and acquisitions are all part of the company’s developing capital-allocation framework.

About Freehold Royalties (TSE:FRU)

Freehold Royalties Ltd is in acquiring and managing Oil and Gas royalties. It operates in two segments: Canada, which includes exploration and evaluation assets and the petroleum and natural gas interests in Western Canada; and the United States, which includes petroleum and natural gas interests held in the Permian (Midland and Delaware), Eagle Ford, Haynesville and Bakken basins primarily located in the states of Texas, Louisiana, and North Dakota. The majority of its revenue is generated from Canada Segment.

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