All participants, please stand by. Your conference is now ready to begin. Good morning, ladies and gentlemen, and welcome to the First Quarter Results Conference Call. I would now like to turn the meeting over to Mr. David Spyker. Please go ahead.
Good morning, everyone, and thank you for joining us today. After a busy 2021, we see significant opportunities ahead of us to continue to build our company through strategic acquisition work and third-party drilling activity on our lands. Joining me on the call this morning are Dave Hendry, our CFO, and Rob King, our VP of Business Development. Approximately 18 months after Freehold's initial large-scale expansion in the U.S., the company continues to execute its North American strategy, providing shareholders a sustainable dividend, low leverage, and diversification to royalty payers operating in core oil and gas plays throughout North America. Through the efforts of our team, we are a bigger, better company, and we'll continue to showcase this moving forward. Key highlights for the quarter included bigger and better, resulting in a second consecutive quarter of record funds from operations of CAD 72 million or CAD 0.48 per share.
This was driven by production of 13,676 BOE a day and the continued strength in commodity prices. Drilling activity remained strong on our lands with 244 gross wells drilled, and this is approximately the same number of wells as drilled in the previous quarter and 132% higher than Q1 of last year. Our asset base is very well positioned in the most actively drilled plays across North America and is being developed by top-tier operators. The ramp up over the past two quarters in Canadian drilling activity is already showing up in our quarterly results.
In the U.S., these strong activity levels will show up as production in Q2 and beyond as a cycle time to go from a permit or well license to production is typically nine months in the U.S. as compared to three months in Canada. Our Canadian production was down approximately 1% quarter-over-quarter, and this was driven by cold weather impacts that started late last year and continued into mid-February. March production has fully recovered. We averaged nine drilling rigs on our lands in Q1, drilling a total of 144 wells, with primary targets being the Viking, Clearwater, Cardium, and light oil in Southeast Saskatchewan. Our U.S. production was down 5% quarter-over-quarter, primarily driven by the timing of bringing new wells on stream.
The asset overall continues to be very well supported by drilling activity with 17 rigs active, primarily on our core Permian and Eagle Ford land base. After increasing our dividend every quarter in 2021, we are maintaining our monthly payout at CAD 0.08 per share. Current dividend levels imply approximately a 55% payout ratio for 2022 under our current commodity price and production assumptions. With the expectation to review dividend levels again as part of our Q2 2022 results in August. Given the suite of opportunities we see to reinvest in royalties on both sides of the border, we are preserving dry powder to pursue acquisitions. We currently believe this is the best return for our shareholders as we see a number of high-quality opportunities to continue to enhance our underlying royalty portfolio.
With this, subsequent to quarter end, we entered into a definitive agreement to acquire mineral title and overriding royalty interests across approximately 1,100 net royalty acres, which equates to about 220,000 gross acres in our core Midland Basin of the Permian for $15.5 million. This is a tuck-in to our Permian royalty lands that were acquired in October of last year. Leasing activity in both Canada and the U.S. continues to strengthen, with bonus and rental considerations approaching CAD 1 million in the quarter. I will now pass the call to Dave Hendry to walk through some of the financial highlights.
Thanks, Dave, and good morning, everyone. As commodity prices improved over the quarter, Freehold continued to deliver on the core financial aspects of its return proposition, providing a meaningful dividend while also providing investors with a lower risk investment, differentiating the company from traditional oil and gas E&P companies. For the second straight quarter, we delivered record funds from operations, generating CAD 72 million over the quarter or CAD 0.48 per share. This represented a 122% improvement versus the same period in 2021 and a 5% gain versus the previous quarter. Continued strength in commodity prices, including the premium prices Freehold receives for our U.S. volumes, drove much of the outperformance. Freehold's average realized U.S. crude oil price was $119 per barrel during Q1 2022, up 80% versus the same period in 2021.
While Freehold's average realized US natural gas price was $6.54 per Mcf, up 106% versus the same period in 2021. In Canada, Freehold's average realized crude oil price was CAD 104 per bbl during Q1 2022, up 79% versus the same period in 2021. Freehold realized a natural gas price of CAD 4.20 per Mcf in Canada for the first quarter, up 65% versus the same period in 2021. Freehold's dividend payout totaled 38% for Q1 2022 versus 24% in Q1 2021, which reflected two months of Q1 2022 dividend paid at CAD 0.06 per share prior to March's increase.
As previously mentioned, we are maintaining our monthly dividend at CAD 0.08 per share, reflecting what we see as a balance between managing our financial leverage and portfolio reinvestment in a volatile commodity price environment. For Q1 2022, cash costs totaled CAD 3.70 per bbl equivalent, down from CAD 4.37 per BOE in Q1 2021 due to stronger production volumes. Freehold has cost effectively integrated our U.S. acquisitions into the company's operations, leading to the cost per barrel improvement. In Q1 2022, Freehold reported current income tax expenses in Canada and the U.S. of CAD 6.4 million and $2.6 million respectively, driven by stronger commodity prices and increased production volumes. This represents the first quarter of material current income tax expense since 2014.
Given Freehold's current tax pool inventory, current tax rates realized in Q1 2022 as a percentage of funds from operations can be used to estimate cash taxes for the remainder of the year. Net debt totaled CAD 63 million at quarter end, representing 0.3 times net debt to 12-month trailing funds from operations. Overall, Freehold's net debt decreased by CAD 39 million versus Q4 2021. The decrease in net debt reflected stronger funds from operations relative to dividend commitments. Freehold's prudent strategy of maintaining net debt to funds flow well below 1.5 times, alongside a longer-term dividend payout target starting at 60% of funds from operations, provides protection to the business from commodity price volatility while maintaining capacity to continue to grow through strategic and disciplined acquisition work. Now back to David for his final remarks.
Thanks, Dave. We remain enthusiastic going forward as the prospects to continue to grow our business are robust. There's been a steady trending up of capital spending on our royalty lands, both in Canada and the U.S. Our high margins offer significant option value to provide returns to our shareholders. We will continue to pay down debt to maintain maximum balance sheet flexibility to support our M&A ambitions. We are continuing our measured pace of moving our dividend toward a 60% payout ratio, and we see tremendous opportunity set in front of us to continue a disciplined, value-enhancing acquisition work. Thank you, and we'll now take questions.
Thank you. We will now take questions from the telephone lines. If you have a question and you're using a speaker phone, please mute your handset before making your selection. If you have a question, please press star one on your device's keypad. You may cancel your question at any time by pressing star two. Please press star one at this time if you have a question. There will be a brief pause while the participants register. We thank you for your patience. The first question is from Luke Davis from RBC. Please go ahead. Your line is open.
Thanks, good morning, guys. Just wondering if you can elaborate a little bit on timing issues in the U.S., where volume is kind of tracking now, and how should we think about that for the balance of the year?
Yeah. In the U.S., from a timing perspective, you know, we see that strong drilling activity translating into volumes in the latter part of Q2 into the H2 of 2022. We're still expecting, you know, growth on the U.S. assets, you know, throughout the year to be in a 15%-20% range from Q1 to exit of this year. Again, that's, you know, based on, you know, the drilling inventory that we have based on the DUCs and permits that we see in front of us right now and as those convert over the coming months into wells.
I've got Rob here, and he can probably give you a little bit of color on what we're seeing right now for DUC and permit count, and I think that would help give you some perspective, Luke.
Thanks, Dave. Hi, Luke. Yeah, maybe to put a bit of context around, you know, about how many net wells, you know, we're looking to need to maintain our production in the U.S. on a flat basis, and it's about two net wells plus or minus, you know, a quarter net well. You know, there's a lot of assumptions that go into that, you know, two number, but that's about a good number to use. We look at how many, you know, drilled but uncompleted wells we have on our assets at the end of the quarter. It's about 1.5, you know, net wells that were DUCs. Then we also on top of that had about 1.7 net wells that were permits.
Both of those combined are about 3.1, what we call net activity wells. You know, a bit of context on those DUCs, you know, we see those being turned in line, you know, into production somewhere on average. You know, it could be zero months, it could be on average in the U.S., we've seen, you know, post-COVID, about five months. So that's sort of the timeframe on the DUCs and then the permits. You know, those, you know, you can probably use somewhere in a six-18-month time period, those permits get drilled and then also get completed and brought on production.
That's helpful. Maybe within your guidance, how do you split Canada and U.S. volumes? Then have you tweaked that at all, just given the slower start?
We haven't split Canada and U.S. in our guidance. You know, based on the modeling that we're doing, you know, the guidance is still appropriate, you know, given where we are in Q1 and where we see the portfolio continuing to ramp up through the year.
All right. Makes sense. On M&A, another tuck-in post quarter, just wondering if you can give us some details on kind of what sort of opportunities you're seeing in the market and where valuations are sitting now, kind of how they've moved, and maybe just break that down a little bit between Canada and the U.S., if you could.
Sure. Yeah, maybe touching on the tuck-in acquisition, you know, just briefly first, you know, that was $15.5 million in the Midland Basin. You know, operators there, two in the public with Pioneer and SM, two on the private with Endeavor and Surge. I'm sorry, and it's, you know, on that transaction, it was about, you know, high teens on both the IRR as well as on a cash flow, near-term cash flow yield basis using strip prices back in early March timeframe. That kind of gives you a bit of a direction in terms of where we're seeing, you know, the acquisition prices stacking up.
In terms of activity, you know, just to give some numbers on what opportunities came across our desks in both U.S. and Canada this quarter. You know, we had about 2.5 billion of opportunities that came across our desk across 30 deals. About 80% of that was U.S., 20% Canada. In terms of what we actually evaluated that fit our acquisition criteria, you know, that was about 15 transactions, so we sort of eliminated half, you know, right away. It was just over 2 billion of opportunities. In terms of what we actually bid on is a much smaller, you know, number from that 15 that we actually evaluated. You know, we bid on three opportunities, and we're successful on the one tuck-in deal.
In terms of forward expectations, there's a lot of opportunities that continue to be in the market and sort of in particular, you know, on the U.S. side. You know, this high continued constructive commodity pricing has really brought forward a number of sellers, really all across the size spectrum, to be honest.
Okay, that's helpful. Maybe final one for me, just wondering how you're thinking about hedging in the context of M&A. I know you guys haven't done it historically, but have you, just given how much volatility we've seen in pricing, are you considering or have you considered just hedging out any acquisitions going forward just to sort of lock in your returns and kind of set that base?
Hi, Luke. It's Dave Hendry here. Every quarter, we do look at dividends from a context. You know, for us, considering our cash flow profile and our current debt leverage, that it's not something which really fits within our strategy. As far as sort of applying a hedge to a particular transaction, we would absolutely look at it, but it depends on the merits of the transaction and do we feel that it's important enough to actually lock in. For a deal like the one we just closed, on the smaller side, you know, we wouldn't put in a hedge position for it. It would have to be an acquisition that's meaningful that we needed the surety of the cash flow, so.
Great. That's all been super helpful. Thanks, guys.
Thanks, Luke.
Thank you. Once again, please press star one on the device's keypad if you have a question. Please press star one. We have another question now from Jamie Kubik from CIBC. Please go ahead. Your line is open.
Yep. Good morning, and thanks for taking my question. Just expanding a little bit on Luke's question with respect to the U.S. I mean, you talk a fair bit about timing issues on this asset. Can you talk a bit about where production has trended versus your original expectations and I guess what gives you comfort that the timing issues will get resolved in future quarters here?
Yeah. You know, maybe what gives us comfort on the activity as we look into 2022, just a bit more context around those, you know, net DUCs and net permits numbers that I was mentioning to Luke. You know, that's 1.4 net DUCs. That actually is up 20% quarter-over-quarter. We added 20% to the DUC inventory between Q4 and Q1.
While that has an impact on and did have an impact on Q1 production, you know, that gives us confidence that, you know, over the next six months, that's sort of the average timeframe, you know, in the basins that we care about in the U.S. where wells have been completed and brought online, you know, that we'll see that production being added to our asset base. What gives us, you know, the confidence sort of beyond those six months timeframe is on those permits.
What we've again observed in the U.S. is between, again, on the assets that we care about, you know, we call about three-four months between when a permit is applied for and a well is drilled, and then it's another five-six months from when the well is spud to when it's completed and brought online. Those permits, you know, give us confidence in the six-18-month time frame in terms of where when that production will come online. To put some context on the increase in the permits, that was also a 17% increase quarter-over-quarter and an increase of 50% year-over-year in terms of the permits that we have on our lands at the end of Q1.
I think, Jamie, as you know, compared to your initial valuation work. You know, the acquisitions, you know, are certainly meeting expectations. What we are seeing is drilling, you know, on lands that we didn't expect to see drilling. You know, we'd essentially, you know, backstop the acquisition work with drilling on the core lands in the Permian and Eagle Ford. We're certainly seeing, you know, quite a bit of activity outside of those areas. You know, as far as the expectations from the deal, you're probably a little bit, you know, toppy on the production growth side. You know, certainly really happy with the activity level we're seeing and how that's going to build out going forward.
Okay. Maybe just another one. We have heard of some, you know, timing related issues with respect to completion crews in the U.S. compared to wells that are drilled. You touched on that I think a little bit with Luke's question there also. Can you just expand on maybe what you're seeing in real time with respect to wells that are drilled and, you know, some of the time to completion compared to maybe what you expected?
Yeah. I mean, I think we're in a little bit of a different spot where 75% of our payers in the U.S. are large investment grade companies. You know, I think that tends to. They have a better access to services than we've certainly seen in some other the smaller private end of you know end of the operators. You know, I think we're, you know, I think that's...
Yeah, that's probably fair. You know, I think if anything, you know, we're seeing a little bit of contraction on cycle times compared to historically, just with the DUC count coming down in the U.S. over the last couple of years, prioritizing on drilled wells. You know, a little bit of compression and timing there that we'll see will benefit us. I think, you know, Rob nailed it as far as, you know, just the quality of the payers that we have and their access to equipment.
Okay. That's it for me. Thank you, guys.
Yeah. Thanks, Jamie.
Thank you. There are no further questions registered at this time. I will turn the call back to Mr. Spyker.
All right. Thanks for everyone's questions and participation in the call this morning. We appreciate your continued interest in the company, and we're always happy to share our results with you. Have a good day.
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.