Good morning, ladies and gentlemen. Welcome to the second quarter results conference call. I would now like to turn the meeting over to Mr. David Spyker. Please go ahead, sir.
Good morning, everyone, and thank you for joining us today. Joining me on the call this morning are Dave Hendry, our CFO, and Rob King, our Vice President of Business Development. Over the last two years, Freehold has expanded its asset base into the premier basins across North America, providing the company with a high-quality inventory that will underpin our dividend and further our ability to reinvest in the business for years to come. Our low leverage and high-margin business model means that Freehold can generate material returns for our shareholders in all cycles of the commodity, with the added benefit in the current inflationary environment of having returns that are sheltered from compressing profit margins if operating and capital costs continue to increase.
The key highlights as part of our news release yesterday include we posted our third consecutive quarter of record funds from operations at CAD 84 million or CAD 0.56 per share. This represents an 81% increase on a per-share measure versus the same period last year and a 17% improvement versus the previous quarter. Driving funds from operations is the structural shift in Freehold's business to higher return U.S. production, with U.S. realized pricing 19% higher on a per BOE basis versus the price we received in Canada during the same period. With the enhanced scale of our portfolio and confidence in the long-term performance of our asset base, we are increasing our monthly payout 13% to CAD 0.09 a share from CAD 0.08 per share.
Freehold has been able to grow our dividend over 500% since the lows of COVID in 2020, with yesterday's increase the sixth revision over that period. The ability to ramp up Freehold's dividend is a direct result of the portfolio reinvestment we have executed, the strength in commodity pricing, and the flexibility we have maintained with our balance sheet. Looking forward into 2023, the company's dividend remains as sustainable as ever, backstopped by a strong suite of payers from a high-returning portfolio. From a guidance perspective, we're maintaining our full-year production guidance of 13,750-14,750 BOE a day. Production in the second quarter averaged 13,453 BOE a day. Volumes are up 21% versus the same period last year and slightly down quarter-over-quarter.
Excluding the acquisition work announced subsequent to the quarter end, our production for the year would be coming in at the lower end of our guidance range. This is driven primarily by timing delays in getting new wells on production by our U.S. operators. Our base asset performance, our new well performance, and our drilling inventory are meeting or beating our expectations at time of acquisition. Drilling activity levels have exceeded expectations with on-production timing disrupted by supply chain and completion crew availability challenges, particularly in the U.S. We continue to expect production growth through the second half of this year and into 2023, supported by the drilling activity we are seeing year to date and in Q2 2022 in particular.
The acquisition work in the Midland and Eagle Ford basins that I will talk about in a minute will close in the third quarter and bring our annualized production back into the midpoint of our guidance range. On the Canadian side, Canadian production was down 1% quarter-over-quarter, with spring breakup impacting activity levels. Our drilling activity to date is targeting the Viking, Sparky, and Clearwater Oil, in addition to gas-focused drilling in the Deep Basin. Given our third-party capital spending assumptions, we expect Canada production to remain flat or modestly grow through the balance of 2022. The activity on our royalty lands remains robust. Currently, we have 24 rigs active on our U.S. assets and 11 rigs on our Canadian assets.
Subsequent to quarter end, we entered into two definitive agreements to acquire high-quality mineral title and royalty assets in the Midland Basin and Eagle Ford Basin. On August fourth, we closed the Midland asset transaction for $123 million. The Howard County Midland transaction positions us in an emerging section of the Midland Basin with development underpinned by an exciting public operator with significant near-term growth targets. We are forecasting greater than 20% growth in production associated with this transaction into 2023. The Eagle Ford transaction is expected to close in September and will layer in a low volatility production profile driven primarily by a diversified group of large public players. This transaction further complements our current production base in the Eagle Ford, which is backstopped by an investment-grade producer with multiple years of future development.
I'll now pass the call to David Hendry just 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. As noted by Dave, Freehold generated record funds from operations for the third straight quarter of CAD 84 million or CAD 0.56 per share. Broad increases in energy pricing, alongside the larger proportion of revenue derived from our higher-priced U.S. volumes, contributed to the increase. Dividends declared for Q2 2022 totaled CAD 36 million or CAD 0.24 per share. This represented 150% increase versus the same period in 2021. Freehold's dividend payout ratio for Q2 2022 was 43% versus 33% during the same period in 2021. We expect to continue to position our payout at 60% of forecasted funds from operations.
Accordingly, we've increased our monthly dividend to CAD 0.09 per share. Freehold's average realized US crude oil price was $138.70 per barrel during Q2 2022, up 75% versus the same period in 2021. While Freehold's average realized US natural gas price was $7.79 per Mcf, up 114% versus the same period in 2021. In Canada, Freehold's average realized crude oil price was CAD 128.30 per barrel during Q2 2022, up 85% versus the same period in 2021. Freehold realized a natural gas price of CAD 6.30 per Mcf for the second quarter, up 159% versus the same period in 2021.
Cash cost in the second quarter totaled CAD 8.38 per BOE, up over both Q1 2021 and the previous quarter. However, I would like to point out that this includes the yearly cash payment for our employee award plan and a DSU cash redemption for a retired director. These share-based compensation payments totaled CAD 4.77 per BOE. Excluding these charges, cash costs for the quarter amounted to CAD 3.61 per BOE, down from CAD 3.70 per BOE in the previous quarter. For Q2 2022, Freehold reported current income taxes in Canada of CAD 9 million and $3 million United States, driven by strong commodity pricing and production volumes.
Current tax rates realized in Q2 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 33 million at quarter end, representing 0.1 x net debt to twelve-month trailing funds from operations. Freehold's net debt declined CAD 68 million year-to-date and CAD 30 million quarter-over-quarter, including the diversified Midland asset transaction of CAD 19 million, which was closed and paid on June 28th, 2022. Inclusive of the two transactions announced in early July, Freehold expects to remain well below our upper ceiling of our net debt to funds from operations of 1.5 x. Now back to Dave for his final remarks.
Thanks, Dave. Freehold remains focused on executing our strategy of continuing to enhance our North American asset base, providing growing shareholder returns and maintaining low leverage. With the acquisitions announced year to date, we have added to our high-quality portfolio, enhancing our fund flow profile and enabling Freehold to increase our dividend payout by 13%. We're enthusiastic for the remainder of the year and remain focused on the execution of our strategy moving forward. Let's turn it over to questions.
Thank you. We will now take questions from the telephone lines. If you have a question and you are using a speakerphone, please mute your handset before making your selection. If you have a question, please press star one on the device's keypad. When prompted by the system, please clearly state your name to register your question. You also 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 Aaron Bukowski. Please go ahead. Your line is open.
Good morning, guys. My question is about the U.S. asset acquisitions that you made to date. When you look back on these deals, at least the one you've closed, how have they performed relative to your expectations? Specifically, I'm thinking about operational metrics like the number of wells drilled, wells brought on stream, and the production volumes themselves.
Good morning, Aaron. Thanks for the question. We're constantly reviewing the acquisition investments that we've made and using this look back work to calibrate our modeling and evaluation work going forward. If we look at the three major U.S. transactions that closed in 2021, you know, the diversified royalty asset package that closed in January last year, and the Eagle Ford asset in late September and the Midland asset in October. With the bulk of these closing nine months ago and representing these three deals were about $290 million, we've already recovered 30% of the purchase price in revenue from those investments. We're super pleased with this, and Rob's gonna just give you a little bit more color on the specifics and how it feeds into what we're seeing going forward.
Thanks. Hi, Aaron. On the volume side across those three transactions that Dave mentioned, you know, we've seen our cumulative volume relative to our actual cumulative volume relative to our expectations at the time of each of the three acquisitions, basically being in line. You know, when we kind of dig a little bit more into that, you know, we're seeing the gross well activity, you know, on the lands of these three transactions, you know, largely again across all three, they're basically in line. You know, where we did see some differences is on the net, you know, the difference in the actual net and the forecast net wells, you know, that are brought online.
We sort of have seen, at least on the November 2020 deal and the September, or I should say October, Midland deal, you know, the net wells have probably been a little softer than our expectations. You know, lower NRI wells being brought on, which sort of speaks to some of the softer first half of production in our U.S. assets from those two acquisitions. On our larger Eagle Ford deal, which is about, you know, by value, 65% of the purchases that we did in the U.S. over the last two years, you know, that is actually exceeding our expectations on the number of net wells that have been drilled.
Thank you for that. I guess I have a follow-up question. I'm curious about the activity levels that underpin your 2022 guidance. I don't know the best way to ask this, but I guess how many net wells in the U.S. do you anticipate will come on stream in the back half of this year?
Yeah, I mean, what we have on our what we call our net activity inventory at the end of Q2, and this would be pro forma the 3 acquisitions, you know, we have 1.5 net drilled but uncompleted wells and about 2.5 net permitted wells. So those, you know, four activity wells, if you were to put what our average IP is across those, you know, those, which we see about 700 BOE a day, IP 365, you know, from our U.S. assets, you know, that's 1.5 net well. Net DUCs would be about 1,000 barrels a day of productive capacity. You know, the 2.5 net permits would be, you know, just shy of 2,000 barrels a day of productive capacity.
Now, we're not suggesting that's what's going on in the second half of this year. You know, that's we've probably seen that there's a bit of gapping. The average is about five months, you know, when a well is spud and brought online on our U.S. assets, but that's probably been moving a little bit higher over the last few months. Pro forma, the three acquisitions that we made, you know, we need somewhere between three and three and a half net wells to hold our production flat. That helps calibrate a little bit about where, how those four activity wells, you know, match into our forecast.
Perfect. That's helpful color. Thanks, guys.
Thank you. The next question is from
Chris Jones.
Please go ahead. Your line is open.
Maybe a question for Rob. I know you guys have some direct gas exposure in the U.S. with royalties in the Haynesville, but, you know, gas is minor as a percentage of royalty sales. Recently, we've seen, you know, several U.S. operators shift asset mix to focus more on gas. Just wondering if you guys are looking at expanding your gas exposure in Bossier County. Big activity in the Haynesville is growing, which typically indicates wells are coming or else it goes. I understand there may be some limitations on basin supply given current capacity, but it seems there is interest in adding new capacity. Just curious on your thoughts there.
Yeah. I mean, Haynesville. It's Rob speaking. Haynesville is definitely a basin that we're doing our homework on. You know, to date, you're right, we don't have a lot. More and more exposure is certainly in the Eagle Ford and in the Midland. You know, pro forma, you know, the three acquisitions that we made, you know, that would be close to 90% of our U.S. production would be in those two basins. We do have some exposure to the Haynesville as well as Appalachia with the November 2020 transaction that we did. But I would say Haynesville is a basin that we're getting up to speed on and, you know, would love to look at the right opportunity to add something in that.
You know, it's on the calendar.
Okay. That's very helpful. Thank you. I guess for my follow-up, are we seeing an end to the debate over dividend versus buybacks, or is the best way to return capital to shareholders still sort of considered on the board?
Yeah. It's David Hendry here. Good morning, Chris. We don't have any plan to do share buybacks in the near term. We continue to always evaluate what's in the best interest of shareholders. But at this point, you know, our expectation with continuing accretion on our acquisition is to deploy that through increasing our dividend and maintaining a payout ratio with a longer-term pricing forecast, you know, in that 60% range.
Great. Thank you.
My pleasure.
Thank you. There are no further questions registered at this time. I will now turn the call back to Mr. Spyker.
Thanks again, everyone, for your participation today. As I say, we're pretty excited about what's going on at Freehold. We're looking forward to getting these new acquisitions enrolled into our business and our numbers, and then looking forward to continued strong execution of our business plan. Thank you, and thanks again for your time today.
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.