PrairieSky Royalty TSE: PSK reported higher funds from operations and increased production in the first quarter of 2026, supported by stronger commodity pricing and a notable increase in leasing bonus consideration, according to management’s discussion on the company’s quarterly conference call.
Funds from operations rise on higher production and leasing
President and CEO Andrew Phillips said funds from operations totaled CAD 94.9 million, up 11% from the first quarter of 2025, “resulting from higher production and stronger bonus consideration.” He added that total production increased 4% year-over-year, while oil production rose 2%.
CFO Pamela Kazeil said higher production and “strong benchmark pricing” drove royalty revenue of CAD 118.5 million in the quarter. She also reported CAD 15.3 million of other revenue, which she said was supported by “another strong quarter of leasing activity.”
Lease bonus consideration was CAD 12.3 million, which Kazeil said was “more than double” the level recorded in the first quarter of last year, with most activity concentrated in the Duvernay play and the Mannville heavy oil play.
Activity levels and inventory: SPUDs steady despite lower rigs
Phillips pointed to leasing and drilling activity as indicators of continued interest across PrairieSky’s land base. He said elevated bonus consideration reflected 48 new leasing arrangements with 37 distinct oil and gas companies. While acknowledging a lower rig count year-over-year, he said the company saw 201 SPUDs on PrairieSky lands versus 200 in the prior year.
Phillips also said the company was seeing “early indications of higher planned activity levels post-breakup,” citing higher oil prices and a weak Canadian dollar. Based on strip pricing, he said PrairieSky was “anticipating a material reduction in debt levels by the end of 2026.”
He added that some recent leasing arrangements were “for exploration rather than pure development,” calling it a positive trend that could “help unlock the vast optionality” in PrairieSky’s 18.6 million-acre land base. Phillips said the current development inventory on PrairieSky lands could replace “the approximate 9.5 million barrels of royalty production on our lands for 61 years,” adding that new discoveries could expand that inventory.
Play-by-play operational highlights
VP of Geosciences and Capital Markets Michael Murphy said the first quarter included a record number of Duvernay well SPUDs at 26, including 20 in the West Shale Basin. He said the first West Shale completions from the program were underway, with new wells expected to be on production starting in mid-May, which he said should drive light oil growth through the back half of the year. Murphy added that, similar to 2025, the Duvernay is expected to be PrairieSky’s “fastest growing play in 2026 based on budgeted activity levels.”
Murphy also highlighted an increase in multilateral activity on PrairieSky lands, with 66 SPUDs in the first quarter of 2026 versus 41 in the first quarter of last year.
In the Clearwater, Murphy said expanding waterflood development is supporting a “highly sustainable production base” and is “positively impacting corporate decline rates.” He added that with the depth and quality of inventory in the play, PrairieSky anticipates “outsized Clearwater growth to continue for years to come.”
Additional play updates from Murphy included:
- Mannville Stack: Oil production estimated at “greater than 1,000 barrels a day” in Q1 following strong winter drilling activity.
- Thermal: A new eight-well pair pad at Lindbergh was “currently steaming,” with oil volumes expected to ramp to a peak rate of approximately 260 barrels a day net to PrairieSky.
Kazeil provided additional production details, saying first-quarter production rose 4% from Q1 2025, reflecting 2% growth in oil royalty volumes and 6% growth in NGL production. She said oil growth was led by the Clearwater, where production rose approximately 20% year-over-year, and the Duvernay, where oil royalty volumes increased by approximately 75% from Q1 2025. Kazeil said NGL growth was driven primarily by Duvernay and Montney activity.
Phillips also noted that condensate and pentane production—reported as part of the NGL stream—remained at record highs for PrairieSky at approximately 35% of the NGL stream.
Capital allocation: dividends, buybacks, acquisitions, and debt
Kazeil said funds from operations were CAD 94.9 million, or CAD 0.41 per share. PrairieSky declared CAD 61.6 million in dividends during the quarter, representing a payout ratio of 65%. Excess cash flow was allocated to:
- Acquisitions: CAD 4.2 million
- Share repurchases: CAD 8.3 million under the NCIB, canceling 269,000 shares
- Debt reduction: CAD 6 million
PrairieSky ended the quarter with net debt of CAD 257.7 million, Kazeil said. She also announced the company’s second-quarter dividend of CAD 0.265 per common share for shareholders of record on June 30, 2026.
Q&A: quarterly oil volumes and leasing structure
During the question-and-answer session, CIBC’s Jamie Kubik asked about a slight quarter-over-quarter decline in oil volumes. Phillips pointed to a “200 barrel net decline net to us from the Lindbergh Thermal Project,” which he described as “more of a transitory item.” He added that there was also a “little slower Q4” on more conventional assets, resulting in modest declines, and said PrairieSky still expects a “mid-single digit number on average throughout the year on the oil side.”
Kubik also asked whether the quarter’s bonus consideration was repeatable. Phillips said there wasn’t “one larger bonus,” but that PrairieSky was able to command a higher price on a smaller Duvernay lease due to substantially higher pricing in that area. He called the quarter’s bonus level “the highest one we’ve had in 15 quarters or something like that,” adding that while leasing “does remain robust,” the quarter’s result was “higher than anticipated” relative to what he expects for the rest of the year.
TD Cowen’s Aaron Bilkoski asked about PrairieSky’s practice of offering alternative lease structures, such as lower upfront bonuses in exchange for multi-year recurring payments. Phillips said the company still uses these structures “for the right play,” particularly longer-term leases, including agreements in Saskatchewan and the Duvernay. He said PrairieSky expects “a meaningful Duvernay payment in the back half of the year.” For shorter-term conventional leases, Phillips said the arrangements generally involve one-time bonus payments and function effectively as drilling commitments, though he added the company does not ask for explicit drilling commitments on one-year or two-year leases.
About PrairieSky Royalty TSE: PSK
PrairieSky Royalty Ltd is the owner of subsurface mineral rights on a variety of royalty properties in western Canada. The company encourages third parties to develop these properties, while also seeking additional petroleum and natural gas royalty assets. Once PrairieSky has given a third party the right to explore, develop, or produce on its properties, the company collects royalty revenue from the development of petroleum and natural gas. Property arrangements can be contracted as lease issuances, farmouts, drilling commitments, or seismic option agreements.
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