Good morning, ladies and gentlemen, and welcome to the Q2 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. On the call with me from Freehold are Rob King, our COO, Shaina Morihira , our CFO, and Tom McBride, our Manager of IR. Shaina joined our team as CFO in June of this year, and we look forward to working together and having the opportunity to introduce her to you, our shareholders, over the coming months. We have delivered a strong second quarter, reflecting the resiliency of our North American portfolio despite the uncertainty and caution associated with the constant headlines that are driving volatility in both markets and commodity prices. During the quarter, we achieved production of 16,584 BOE/d, with a liquids weighting of 67%. Both are new high watermarks for Freehold as we continue to build and evolve our portfolio.
This 9% production growth from the second quarter of last year reflects our strategic acquisitions over the past 12 months, which have expanded and strengthened our U.S. positioning, particularly in the Permian Basin. As in Canada, operators in the U.S. continue to drive higher production levels while minimizing rig time and associated costs. During the quarter, we had several prolific wells come online, producing at rates double that of the performance of historical offsetting wells. These high-productivity wells were key contributors to the production levels achieved this quarter and a reminder of the ongoing advancements in well drilling and completion strategies, despite there being over 100,000 horizontal wells drilled to date in Texas. Specific to this example, we had 31 new wells drilled on six distinct drilling pads across the Permian and Eagle Ford Basins, and these wells were brought on with initial production rates, IP30s, of over 73,000 BOE/d.
Freehold's average net royalty interest across these 31 wells was 1.1%, more than twice that of Freehold's average U.S. royalty interest. The combination of outstanding well results and a higher royalty interest was particularly impactful. For those of you that could see on the screen, we've included a graph that illustrates how these Permian and Eagle Ford wells compare to other world-class unconventional resource plays in North America, such as the Montney and Duvernay in Canada. The production performance curves are very similar, and in general, the Permian and Eagle Ford wells have a much higher oil weighting, with Eagle Ford being similar to the Duvernay and the Permian being oilier than most unconventional Canadian plays. Gross drilling activity in the quarter in the U.S. remained consistent with the prior quarter and increased almost 10% year- over- year.
We ended the quarter with approximately 4.6 net activity wells, and these are wells that have been permitted, as they're called in the U.S., or licensed, as we refer to it in Canada, plus wells that have been drilled but yet not completed. Recall that we need about four net activity wells to maintain our U.S. production. At 4.6 net wells, we're well ahead of that pace. We have seen a slowdown in drilling rig activity in both the Permian and Eagle Ford Basins. Both are down about 10% year- to- date compared to last year. This has been offset by an improvement in drilling efficiencies, as total meters drilled in the horizontal section of the wellbore, or the pay interval, is the same as last year, despite the lower rig count. Our largest payers in the U.S., accounting for approximately 60% of Freehold 's U.S. revenue, are ConocoPhillips and ExxonMobil. Both of these companies have maintained a similar market share of drilling rigs in the Midland and Eagle Ford Basins, as shown on the left-hand chart, respectively, over the past three years.
The benefit of exposure to these large investment-grade companies is that they approach capital programs with a longer-term view, maximizing program efficiencies and reducing activity-level volatility. In Canada, we saw a seasonal slowdown in drilling activity during spring breakup, while licensing activity remains strong, with a similar number of licenses in the first half of 2025 as through the same time period in 2024. We view this as a positive tailwind to the second half activity. Our key Canadian oil plays grew by 10% compared to the second quarter of last year. These key oil plays are the Mannville and Clearwater Heavy Oil, and then Southeast Saskatchewan Light Oil.
These three plays now make up approximately 30% of our Canadian production. Moving on to financial performance, we had another strong quarter bonus on leasing activity, driving a combined $5.8 million in revenue for the first half of 2025. This increased leasing activity reflects continued operator interest in leasing our Canadian mineral title lands, as well as leasing activity on our expanded U.S. mineral title portfolio. Funds from operations were $57 million in the quarter, or $0.35 per share. Benchmark oil pricing was 11% lower than the previous quarter, dropping almost $8 a bbl to approximately $64 U.S. a bbl, the lowest level since the first quarter of 2021. By comparison, however, in that first quarter of 2021, or just over four years ago, our funds from operations had $0.25 a share.
At $0.35 a share today, this marks a 40% increase in FFO per share at a similar WTI oil benchmark price. This improvement reflects our initiatives to build our production through the acquisition of high-quality assets in the U.S. that deliver premium-priced light oil barrels in basins with multi-decade drilling inventories. We paid $44 million in dividends to our shareholders in the second quarter, and we invested $12 million to acquire undeveloped mineral title lands in the U.S. These land acquisitions are in the core activity areas of both the Midland and Delaware Basins of the Permian, where operators are prioritizing development, leveraging the ability to develop these lands with the most recent drilling and completion efficiencies, thus optimizing production performance and reserve recoveries, as we referred to earlier.
Over 90% of the drilling permits on Freehold's Midland Basin lands this year have been on undeveloped acreage, and we expect to realize returns in the high teens, low 20s percentage range from these investments. We have continued to maintain the strength of our balance sheet with net debt of $271 million at the end of the second quarter, representing a 1.1x trailing net debt to funds from operations. We are pleased to take your questions.
Thank you. We will now take questions from the telephone line. If you have a question, please press star one on the device's keypad. You may cancel a 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. We have a first question on the telephone lines. It is from Patrick O'Rourke from ATB Capital Markets. Please go ahead. Your line is open. I'm sorry. Mr. O'Rourke has hung up. I will skip to the next question from Kevin Fisk from Scotiabank. Please go ahead. Your line is open.
Thanks for taking my question. Freehold had strong liquids production in Q2. Can you walk us through your outlook for liquids production for the rest of the year?
Yeah, thanks, Kevin. Turn that over to Rob here.
Sure. Hi, Kevin. Yeah, Q2 had very strong NGL volume growth, almost 30% on the U.S. side of the book, kind of quarter over quarter. Some of that was reflective of a prior period adjustment where we got some additional liquid volumes in Q1. There's also additional liquids and, frankly, some additional oil, clearly from those six pads, 31 wells that Dave talked about. I think we continue to see liquids growth in both our Canadian assets, as Dave talked about. About 30% of our Canadian volumes are coming from Southeast Saskatchewan, Mannville Heavy, and Clearwater, where a disproportionate amount of the licensing and leasing activity has been taking place on our lands.
Similarly, on the U.S. side, those 4.5, 4.6 net activity wells that Dave talked about, most of that is concentrated within our Midland and Eagle Ford position, which, those liquids weighting tend to be in the 70%, 80%+ range.
Perfect. Thank you very much.
Thanks, Kevin.
Thank you. The next question is from Josef Schachter from Schachter Energy Research . Please go ahead. Your line is open.
Thank you very much. Good morning, Dave and Rob. The first question for me is the Canadian number of wells down by 20 to 45 versus 65. It looks like nothing was going on in the Viking, very little in the Cardium. Is it that because of the higher gas weighting there, and given the commodity price, that drilling there was slower? How do you see those two areas moving in terms of activity into the end of the year?
Yeah, I can't see if I can handle that. On the Cardium, we definitely see that Cardium, despite it being a bit of an oilier type play, still needs stronger gas pricing to make those economics go around. Over the last couple of years, with a weaker gas pricing, we have seen activity levels come off in the Cardium. That's just a simple matter of well economics. On the Viking side, that has been a play that typically is a bit more seasonal. We see a lot of drilling activity in the Viking. It comes on and starts in late December and contributes to our Q1 production volumes. We've had relatively consistent activity on that play. Again, we don't see it as a play that's going to represent growth in the portfolio. It's been a very strong performer for us over the last 10 years.
If we look at other plays in the portfolio that are attracting capital, such as the ones that both Rob and I had talked to earlier, that's where we see the growth coming from. Viking, we see that more of a kind of a flat production profile going forward.
Thank you. A second question for me. The Belly River is getting a lot of attention from medium guys, but even companies like Tourmaline are talking about 700 BOE/d, 800 BOE/d, mostly liquids. Do you guys have a lot of exposure in the Belly River?
Yeah, we have a reasonable amount of exposure, and we are the benefit right now of some of that Belly River drilling. Some of the leasing in the second quarter of this year was in the Belly River, and we expect that area to continue to attract capital and be a growth area for us. I think, like you pointed out, it's emerging. It's just starting to come into the limelight. You know, certainly it's been active.
Last one for me. How do you see the M&A side? Is it from the activity and number of deals you're looking at, is it possible in terms of a deal of some significance, a material deal for you guys before year-end?
I think right now where we're focusing on, Josef, is on what we call the ground game or acquiring these undeveloped mineral title lands in the U.S. When we're getting high teens, low to mid-20% returns on that, it's a pretty efficient way to build the portfolio. You pair that with the fact that where we're seeing all the drilling is on these undrilled spacing units. For as long as the Permian's been around, it's quite amazing how many undrilled lands there are that we're targeting. From a bigger scale perspective, we're not seeing the same level of opportunity that we've seen in prior years. We're hearing that there are some bigger packages that are going to be marketed potentially later this year and into next year. We don't have a sense of what those look like yet or what the scale and scope would be.
Thank you very much for taking my questions and congratulations on the good growth quarter.
Excellent. Thanks, Josef.
Thank you. Once again, please press star one on the device's keypad if you have a question. The next question is from Patrick O'Rourke from ATB Capital Markets. Please go ahead. Your line is open.
Hey, good morning, guys. Apologies for before, the call seemed to drop on me. I apologize if this has already been asked because I was off for a moment there. Just sort of walking through some of the variability in the net royalty rates in the U.S. that you guys have seen and thinking about how that relates to the 2.2 DUCs and the 2.4 permitted but not yet drilled wells. Can you maybe provide a little bit of color on the concentration and the nature of those DUCs that you have outstanding right now?
Yeah, I mean, I don't have the exact NRI percentage in terms of what makes up those, but they're pretty well distributed, I would say. As mentioned, our average net royalty interest in the U.S. is about 0.5%. I think that would be, and in fact, that is baked into that, into that 4.6 calculation or the number of net activity wells that that was represented there.
Okay. In terms of the balance sheet, capital management, and the dividends here, sort of towards the upper end of the payout range, is it still reasonable to expect that dividend growth accompanies the outlook for M&A going forward here?
Hi, Patrick. It's Shaina. Thanks for the question. I think at this point we're quite comfortable with our 60% payout ratio and the 9% per month. I think we'll continue to evaluate that as we look forward with any type of M&A. I think we're at a good competitive level at this point.
Okay, thank you very much.
Thanks, Patrick.
Thank you. There are no further questions registered at this time. I will turn the call back to Mr. Spyker.
Okay. Thanks, everyone, for joining us this morning. I look forward to catching up again next quarter. Thank you.
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.