Good afternoon, everybody. Can everybody hear me? Can you hear me at the back? Good. Good afternoon, everybody. I'd like to welcome you all to Freehold's annual meeting, and thank you for attending. My name is Marvin Romano. I'm the Chairman of the Board of Directors of Freehold. I'm going to start with a brief business introduction, then we'll go through a formal part of the meeting, and at the end, our CEO, Dave Spyker, will do a business presentation. This chronicles a bit of our recent history, and over the past five years, Freehold has delivered a tremendous amount of progress. I want to chronicle some of that for you today. Starting with 2019, in December, we appointed David Hendry, who was named Chief Financial Officer.
As previously disclosed, David's going to be retiring later this year, and I want to thank him for all of his service, all of his leadership, all of his capacities, and what he's brought to the company over the last five and a half years. He deferred his retirement a bit to help us onboard a new CFO, who we hope to announce in the near future. In 2021, we appointed David Spyker, who you see here as President and CEO. Between 2017 and 2019, we disposed of over 2,000 barrels a day, barrels a day equivalent to working interest production. Today, we're 100% royalty company focused. We're focused on North American royalties. Starting in 2019, we commenced our U.S. strategy with several small acquisitions in 2019 and 2020. We did our first major one in November of 2020 for CAD 74 million.
We issued stock for CAD 4.80 a share when the world was clearly in the throes or was in the early throes of the COVID pandemic. If any of you can remember back to November of 2020, I think that was still a time where no vaccine was developed. We all were sure if we were going to live or die, and there we were, first out of the gate with an acquisition and an equity issue that was well-supported in the marketplace. For those who bought stock at CAD 4.80, they're very happy today, as am I. Between 2021 and 2024, we invested almost CAD 900 million into high-quality Permian and Eagle Ford assets in the United States. No basin in North America offers the multi-bench resource potential of the Permian. We still are in the very early days of completely exploiting that as an industry.
During this expansion, our production has grown to a record of about 50% to a record 16,250 barrels a day that we just disclosed in quarter one. We are roughly 50/50 balanced in cash flow between Canada and the United States, creating a very tariff-resilient portfolio. Not only have we meaningfully increased our production, we have also added higher value production with liquids weighting increasing to 65% from 55% five years ago. As Dave will cover, our American barrels are higher margin than Canadian barrels for several reasons, mostly quality and transportation. In doing this, we also increased the quality of people we receive royalty payments from. Today, ConocoPhillips and ExxonMobil, two names that I'm sure you're very familiar with, two of the largest and most financially sound U.S. operators, comprise about 30% of our revenue.
In April of 2025, we terminated our management agreement with Rife, with the strong support of the CN Investment Division, Rife's shareholder. This agreement was in place since 1996 and served the company very well during the period of time. As we continued to grow and as we continued to expand, it was the right time for us to move to a completely independent management team, where today we have a 100% focused and dedicated leadership and employee team at Freehold Royalties. As many of you may know, CN Investment Division owns 100% of Rife and about 16% of Freehold. Yesterday, we disclosed the company's plan to file a normal course issuer bid. Our buyback strategy will develop over time, but I want to reinforce to everybody our dividend policy remains unchanged with this announcement. Dividends will continue to be our main method of returning capital to shareholders.
We have no plans to change our dividend level or our policy. We are continuing to target an approximate 60% payout ratio, and as you've all seen who follow that company, that varies as commodity prices change between quarter to quarter. We will take a very disciplined approach to when we buy back stock, and we will consider things along with our share price. We will look to expected cash flows. We will consider debt levels, as well as potential acquisition opportunities, which have been an important strategic driver for us as key decision factors in determining when we're going to be buying back stock. Ladies and gentlemen, this is what your board, management, and employees have been doing for you for the last few years.
I want to conclude this introductory section by especially thanking our employees for their tireless commitment, their skill, and their energy in moving our company forward. Dave will cover this in more detail and more color as we finish the formal part of the meeting. Today's meeting marks the 28th annual meeting for Freehold. Although we've seen a lot of volatility in our industry, in addition to the recent tariff chaos, we take very, very great pride in the consistent returns we have provided to our investors over our history. We have paid a monthly dividend for the past 29 years, a unique and a rare accomplishment in our industry. I also would like to advise you that this meeting is being webcast. All references to monetary values today are in CAD.
For those of you who are attending this AGM for the first time, for those of you new to Freehold, I would like to take the opportunity to introduce our executive team to you. Please stand as you're introduced. David Spyker. David Hendry. Say your last farewells, Dave. Rob King, our Chief Operating Officer. Dave is our CFO. Lisa Farstead, Corporate Services. Susan Naicke, Business Development. And Colin Strem, Business Development. He's a recent addition to our leadership team. He was previously with Rife, and he's a good addition to the team. For the purposes of the meeting today, voting on all matters except for the termination of the meeting, this will be conducted by ballot. I would like to introduce our directors standing for election today, and would you again please stand as your name is called. Gary Bujoh. Maureen Hau. Douglas Kay. Kimberly Lynch Proctor. Valerie Mitchell.
Marvin Romano, myself, I guess I'm standing. I'm Matthew Raw. David Spyker. And last but certainly not least, Aidan Walsh. Okay, they passed the first test. They remembered all who they were. I would also like to introduce the representatives from KPMG, our auditors, Heather Steinley. You're back there. And Lindsey Phane. Thank you for coming. We will now start with the formal part of the meeting. To make the best use of our time, we have prearranged with certain shareholders attending to move and second our resolutions, which we will consider in one motion today and which are set out in the notice of meeting. Other than the election of directors, all matters to be considered will be put forward by a single motion. Shareholders will be able to vote on each of these matters separately by ballot.
If you have already sent in your proxy, your vote has already been counted, and you do not need to vote or do anything else at this meeting. You can, of course, ask questions. We ask that questions during the formal part of the meeting refer to the matters set out in the notice of meeting. Following the formal part, Dave will be making this presentation, and you will be free to ask questions about our business, and he and I will answer any additional questions we have at that time. The meeting will now come to order. As I mentioned, I am the Chairman of Freehold and will act as Chairman of the meeting.
Michelle Coose, sitting next to David here, is our General Counsel and Corporate Secretary, will act as Secretary for the meeting, and representatives of ComputerShare Trust Company of Canada who are at the back will act as scrutineers. I have received the declaration regarding the mailing of the notice of annual meeting of shareholders, the information circular, the instrument of proxy, and the annual report to shareholders. I direct that this declaration, together with copies of the documents mailed to the shareholders, be kept as the Secretary with the minutes of the meeting. A quorum for a meeting of shareholders of the corporation is 25% or greater of the outstanding common shares that are present in person or by proxy. I can declare that there is a quorum present at this meeting.
Approximately 40% of the shares have been voted by proxy, and the interim scrutineer's report indicates that a majority of the shares voted have voted in favor of each of the matters to be considered at today's meeting, including the election of each director nominee. I now declare the meeting to be regularly called and properly constituted for the transaction of business. Let's begin with voting. We will conduct each vote by way of ballot. Other than termination of the meeting, I understand that the scrutineers have collected all of the ballots, and if you have a ballot, please provide it to the scrutineers now. The annual financial report to shareholders, which includes the financial statements of the corporation for the fiscal year ending December 31st, 2024, and the auditor's report for the same period was mailed to those shareholders who requested it.
There are additional copies of the report available here at the back. They are also available on the Cedar Plus website. Moving to nomination of directors. As noted earlier, to make the best use of our time, I will be asking for a motion to consider and, if thought appropriate, to approve certain of the remaining items of business set forth in Freehold's notice of annual meeting and management information circular. However, before doing so, I will speak to the nomination and election of directors of Freehold. According to the current governance agreement between Freehold and Rife Resources, and as I mentioned earlier, Rife is a wholly owned CN Investment Division entity, Rife has the right to nominate two individuals for election as directors.
Rife has nominated Matthew Raw, who's a portfolio manager and a very senior member of the leadership team of the CN Investment Division, and David Spyker, our CEO, as directors of the corporation. As mentioned in my opening comments, Freehold and Rife announced on April 30th of 2025 their mutual agreement to terminate the management agreement effective December 31st of 2025. While the current governance agreement will terminate with the management agreement, we expect that a new governance agreement providing CN Investment Division with the right to nominate one director will be in place by year-end 2025. In accordance with the current governance agreement and the advance notice bylaw of Freehold, the only individuals entitled to be nominated as directors at this meeting are the persons that were named as nominees in the information circular.
Therefore, as directed by the board and in accordance with the notice of meeting and information circular, these persons are Gary Bujoh, Maureen Hau, Douglas Kay, Kimberly Lynch Proctor, Valerie Mitchell, myself, Marvin Romano, Matthew Raw, David Spyker, and Aidan Walsh. These persons are hereby nominated as director of Freehold Royalties Limited to hold office until the next annual election of directors or until their successors are elected or appointed, subject to the provision of the Business Corporations Act of Alberta and the bylaws of Freehold Royalties Limited. Is there any discussion or question from any registered shareholder or proxy holder? I declare those nominated as duly elected directors of Freehold. Details of the votes cast on the election of directors will be available via news release after the meeting.
I now ask for a motion to approve each of the remaining items of business set forth in Freehold's notice of annual meeting and management information circular.
Mr. Chairman, I move that the firm of KPMG LLP Chartered Accountants be appointed as auditors of Freehold until the next annual meeting or until the successors are appointed, and that the resolution set forth in Freehold's information circular regarding Freehold's approach to executive compensation be approved and adopted.
Thank you, Paul.
Mr. Chairman, I second the motion.
Thank you, Kaylee. Is there any discussion or question from any registered shareholder or proxy holder? I have been advised by the scrutineers that each of the matters considered today have been approved by the requisite majorities. I direct that the scrutineers' report be annexed to the minutes of this meeting as a schedule.
The results of the votes will be made available in a news release to be issued by Freehold that will report the voting results, and they will be again posted on SEDAR Plus. Unless there are any questions from the floor, I would entertain a motion that the meeting be terminated.
Mr. Chairman, I move this meeting be terminated.
Thank you, Paul.
Mr. Chairman, I second the motion.
Thank you, Kaylee. All in favor, raise your hand. Any opposed? Carried. I declare the formal portion of this meeting to be terminated. I note during my comments here, I was able to use the word I directed something at least four times. Let me tell you, there are so few things that I direct in life that it was an interesting read for me this morning when I was going through this.
I will now call on David Spyker to provide an update on Freehold's activities. Before I turn the mic to him, any questions? Your show, Mr. Spyker.
Thank you, Marvin. Thanks, everyone, for attending today. I wanted to start off the presentation just by kind of reminding everybody a little bit about what Marvin was talking about in his opening comments. Today, Freehold is 16,250 barrels a day of production, up 10% than where we were a year ago. Just to put it in a little bit of perspective of where we are in Canada, we are in all the oily plays in the southeast Saskatchewan, Mannville heavy oil, Clearwater, and in the gassier plays in Deep Basin and Cardium. Our U.S. production is mainly focused in Texas in the Delaware and Midland areas and down in the Eagle Ford area.
That is what gives us the revenue breakdown that Marvin talked about, where about 54% of our revenue is out of the U.S. That outpaces the production, where about 43% of our production is the U.S., but we get higher valued barrels. What this strategy allows us to do is really position ourselves in best-in-class basins in North America. We will talk a little bit more of that on the next slide. When we looked at entering into the U.S. several years ago, we looked at it from the point of view that if the Permian were a country, where would it rank? If Permian were a country at 6 million barrels a day, it would rank ahead of Canada. It would be the fourth largest oil producer in the world, slightly ahead of Canada.
If Permian were a country, it'd be the third largest gas-producing country, well in front of Canada at 18 BCF a day. What this has allowed us to do is really look at where we want to invest and having the ability to put our investment, to buy our acreage in the best places in North America and not limiting ourselves to Canada and giving us that larger opportunity set. What that's allowed us to do is really have highest margin barrels. We've got the best in business when it comes to the value of the barrels that we have in our portfolio. How do we do that? A lot of it comes from the split between the countries. In Canada, we've got a heavier oil barrel. It's a little bit farther from markets. We compare that to the U.S.
We've got a lighter oil barrel. It's very close to Gulf Coast pricing. We get a 21% premium for those barrels. On an overall basis, we get a 47% premium for a barrel in the U.S. compared to Canada. The reason there is just simply our portfolio in the U.S. is much oilier, more NGL-weighted than it is in Canada. U.S. would be about 78% liquids-weighted. Canada would be about 50%. Between those two items, that's what really allows us to drive this best-in-class margin on the barrels that we produce. How do those translate to what we're delivering to our shareholders? First off, you can see that just the production growth as we've built out the U.S. business. I think there's more to it than just the production growth. How are we doing on investing that money?
If we look at that, since we went into the U.S. in late 2020 in a bigger way, our average return on capital employed is in that mid to upper teens range, well above our royalty peer average. We think that by having that broader portfolio of investment opportunities, we can deliver more value to our shareholders than if we were looking in a single country focus. On a simple math basis, we have invested CAD 565 million in predominantly 2020, 2021, 2022. We will pay that back in early 2026. We are going to pay that back. Those assets are still contributing in mid 4,000 plus barrels a day of production, long life flat production backstopped by multi-decades of inventory.
You can see that not only do we get our money back fairly quickly on this, but we have a legacy production stream that, as Marvin mentioned, is situated in some of the thickest, highest class pay in North America. With that, we've been very intentional about how we've been building our portfolio. The work that we've been doing over the past years, particularly in 2024, is we've really kind of zeroed in on our business. Approximately half the drilling over the past five years is in this Martin and Midland County. Those areas have the most amount of stacked pay. We've been really building out our position with some acquisition work, the work that we announced in January of this year or last year and then December. We've also got an active ground game in this area.
What that ground game does is that we're actually buying from individual landowners in the heart of these areas and putting together land positions. What that allows us to do is we can look at the land and say, "Where do we think the most pay is? Where do we think the least amount of wells have been drilled to date? Let's go get that." With that work, a third now of our inventory is undeveloped. There are areas that do not even have a horizontal well drilled on them yet. We talk about the Permian potentially rolling over, getting flat. We do not see that the case just because of how we've been buying our land and where we've been positioning it. If we look back to 2023, about one in every 12 wells was drilled on our acreage in Midland.
Today, with the work that we've done, it's about one in every three rigs in Midland is operating on our lands right now. A marked difference in capture. It really fits well with this theme that we have of kind of wall-to-wall carpeting in Midland. Ideally, the whole Midland Basin would be the color of Freehold, showing that we're capturing everything that's going on. With that, as we gravitate to the best-in-class rock and where the best opportunities are, we're gravitating to the best-in-class operators. It's no coincidence that where we want to operate and position our land base is where the best operators in North America are also positioning. Marvin talked about it briefly.
Our top 10 payers, which make up over 60% of our revenue, are names like ConocoPhillips, ExxonMobil, EOG, Whitecap, Diamondback, IP because of public, Tamarack in Canada, Canadian Natural, Tourmaline, Surge, or private. These are well-funded companies. They're long-term thinkers. They're not waking up in the morning and looking at the price of oil and deciding what to do. They've got a portfolio approach where they put these acreages together and they're building it over a long period of time. That shows up in just the payer qualities. We've got large cap, greater than $10 billion market cap, large size, over 100,000 BOE/d, investment-grade ratings. We have some privates. The privates are important because they're not faced with the rigors of day-to-day reporting on how they're doing. They can invest countercyclical.
Certainly in COVID, when there was a turndown, we saw the privates as most active on our lands. When we look at the work that we have done over the last five years of both basin positioning and operator positioning, we think we are a much better company, a much more well-rounded company than we were a number of years ago. How does that translate? It translates into dividend resiliency. This graph here is all our oil-weighted peers. We are greater than 60% of their production is crude oil and liquids. What is their break-even pricing? The blue bars are where people have a dividend yield above 5% like us. The gray bars are just people that pay a dividend.
What this graph shows, and thanks to some of the work that Peters and Co has done, is that our break-even pricing, like Marvin had said, is right around $50 a barrel. Our peers that are below us here, they have slightly lower break-even pricing, but that group of companies has a dividend yield in the 2-5% range. Freehold offers a bit of a rare combination of a high dividend yield in conjunction with a relatively low break-even price. The reason that is, is because of the work that we have done in positioning in these basins and under the right operators. Just quickly, as just a quick reminder here, in Canada, what is really driving the things that we get excited about right now are southeast Saskatchewan. It is about 1,150 BOE/d of light oil.
Why that's interesting is that some of the multi-lat work that was started in the Clearwater, manual heavy oil, has really moved down into southeast Saskatchewan. For us, that's an area where we have the most mineral title, where we have some of the highest royalties. Operators just in the latter part of last year really started applying this multi-lat drilling technology with some very encouraging results. We see the licensing continuing to increase down there. The ability to expand that program into multiple horizons is quite significant. We're seeing a fair bit of activity of late in this Deep Basin. It is a little bit of a gassier area for us, 700 BOE/d. What's driving that, I think, is just some of the anticipation of better gas pricing going into the latter part of this year with LNG Canada starting up.
For us, that's about 25 million a day of gas or about 4,100 barrels a day of production that comes out of that area. It is going to be quite levered to any changes in gas pricing. On the heavy oil side, we have had substantial heavy oil growth, and that is being driven by the Clearwater and Mannville parts of our portfolio. That production is up, I think it is about 19% year over year. Again, it is multi-lateral technology. There are a number of operators operating in this fairly expansive area. On the U.S. side, just so people get oriented a little bit, when we talk Permian, it is this Midland Basin and Delaware Basin. I talked a little bit on that map that we showed before. That is primarily the Midland Basin that we are talking about. That is our biggest producing area, about 3,700 BOE/d.
The next would be Eagle Ford, and that's Conoco, our number one operator, would be the one that operates that asset for us, a little bit smaller in the Delaware. You can see here with the positioning to Gulf Coast pricing, this is the Gulf Coast where a lot of pricing is set, our proximity to it. We are not transporting all the way across North America and getting that deduction on our revenue. Like Canada, we have multi-decade inventory as a result of the work that we have been doing to build the portfolio for you over the last number of years. Story. We think it is a compelling story. We offer a very attractive dividend yield. We have good coverage. We have a target of payout ratio of about 60%. That can fluctuate. We are 65% in Q1 this year. We are liquids-weighted.
We've got 16% annual growth, compounded annual growth on liquids production since 2020. On a production per share basis, it's been around a 5% compounded annual growth since 2020. Good numbers in both cases. We talked a little bit about the option that we have on natural gas. We think that the portfolio is poised for growth in Permian with light oil and in Canada with continued emphasis on the heavy oil part of the portfolio and the light oil in southeast Saskatchewan. With that, maybe I'll just turn it over to any questions that anyone may have. Yeah, go ahead.
I would presume you're fairly familiar with the pipeline egress situation in Texas. Can you bring us up to date on how much they have, if they have enough, if they're going to have more, how they're doing?
Yeah.
The egress situation in Texas does not impact our oil volume, which is most of our volume in Texas. The egress impacts the gas predominantly out of parts of the Midland and parts of Delaware. Very much like Canada, you have a higher differential to what the posted price is to what you realize the price because of those transportation bottlenecks. There has just been a recent expansion that has come online, started last year and being brought online this year. We see a number of projects that are en route to alleviate those shortfalls coming on in the next two to three years. What we see in Texas is that, yes, there are bottlenecks, but capital quickly comes to the rescue to alleviate those bottlenecks and capture the value of those incremental barrels.
It is a gas side issue where for us, the gas side is a very small part of our revenue.
The other thing to remember for us Canadians, the regulatory environment for building pipelines in Texas is considerably more straightforward than you have in Canada. We can take years and years talking, and by that time, the opportunity goes away. That is really not the environment down in the United States. Where there is a bottleneck, unlike Canada, it tends to be remedied rather quickly. Yeah, go ahead.
Hi. What are the particular challenges that changes in tariff requirements between Canada and the U.S.? What kind of impact, if any, does it have on your company?
Yeah. Right now, under the free trade agreement, there are no tariffs on our production at all, or most Canadian companies' production for that part. Where that goes, who knows.
I think that it's generally accepted now that under that trade agreement, there's some tariff protection. What we do like is that in the event that changes or those dynamics change, with half of our revenue from the U.S., it would not be subject to those tariffs. Those would be U.S. barrels that would not be subject to it. We have some built-in security just because of the portfolio makeup.
Any more questions? Okay. Let me go ahead. Yeah? Yeah. Emile. Yeah.
Thanks for your stewardship. In regards to Rife, I'm really not familiar with the contract we had. The fact that this has been eliminated, are we saving any dollars regarding that?
Yeah. There are a couple of places that we are saving dollars in that. Through the management agreement arrangement with Rife, Freehold paid Rife a management fee to provide the services to Freehold.
That fee has gone away. We are not exposed to that fee anymore. The rest of the costs were shared on an as-needed basis. There are no effects of that. We will see some immaterial effects as we put our own hardware and software systems in place. There were some efficiencies on the edges of having shared infrastructure. I think that the immaterial cost changes are de minimis compared to the benefit of having an executive team and an employee base that is going in every day and focused 100% on Freehold and really understanding that value proposition and working to unlock value across the portfolio. We think that the minor cost changes do not even compete with the benefits that we are going to see.
Let me close with just a couple of comments.
First one is to thank our board of directors for standing again for service to the board. It's a very competitive environment to get qualified, competent directors to serve. I can share with you, we have an excellent board with a great deal of diversity, diversity of views. They come from different backgrounds, different skills. They read their materials intensely. They come prepared to have robust discussions at board meetings. It's not easy being chairman of a crew like that. They're delivering value to you, and I appreciate each one of them for the hard work they bring each time we have a discussion. Lastly, when we moved Mr. Spyker into the boss's job five or so years ago, we were pretty sure we had an extraordinary leader on our hands. He's delivered an incredible amount of success, growth, capability. He does that with knowledge.
He does that with commitment. He does that by inspiring others. We really are fortunate to have him as our boss. I want to close the meeting by giving him a round of applause. With that, the meeting concludes. We have some refreshments at the back. I encourage you to chat with directors one-on-one, chat with Dave if you have any comments or questions you want to leave with him. Thank you so much for supporting us and showing up to our annual meeting. Have a good afternoon.