Good morning, ladies and gentlemen. Welcome to the third 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 this morning. On the call from Freehold with me are Dave Hendry, our CFO, and Rob King, our VP of Business Development. We're really excited about the third quarter. For the third quarter, we delivered record production of 14,219 BOE a day, driving revenues of CAD 98 million and funds from operations of CAD 81 million or CAD 0.54 per share. After two years of upward momentum in crude oil prices, Q3, 2022 represented a 15% retreat in West Texas Intermediate oil price. This oil price retreat contributed to a CAD 2 million reduction in funds from operations quarter-over-quarter. Through the quarter, Freehold was able to complete greater than CAD 160 million in value-enhancing royalty transactions, adding to both our U.S. and Canadian portfolios.
We also increased our dividend for the sixth time in the past nine quarters, and we maintained flexibility within our balance sheet. Some of the highlights from yesterday's news release include, as I mentioned already, the record production with volumes averaging 14,219 BOE a day for the quarter, up 6% versus the previous quarter and up 26% versus the same period in 2021. Our Canadian portfolio was not impacted by the seasonal slowdown associated with lower Q2 drilling, with Canadian production flat quarter-over-quarter. U.S. production was up 24% quarter-over-quarter as new wells were brought on production and the acquisition work announced with our Q2 results closed in August. Looking forward, we continue to see strong third-party development on our royalty lands with 30-35 rigs consistently drilling on our lands in Q3.
We are reiterating our 2022 production guidance range of 13,750-14,750 BOE a day. The CAD 160 million in value-enhancing acquisitions expanded our royalty positions in the Permian and Eagle Ford in the U.S. as well as the Clearwater in Canada. The Permian and Eagle Ford transactions have been incorporated into our portfolio already, with early drilling results in line or ahead of expectations. These transactions are expected to provide a strong growth wedge for our royalty portfolio going into 2023. In Canada, we completed a royalty transaction for Clearwater assets. In total, this deal adds greater than 300,000 gross acres to Freehold's inventory, tripling the company's previous Clearwater land position. This CAD 18.4 million deal includes a drilling commitment with a strategic partner who has a track record of development success within the play.
This transaction aligns nicely with the drilling momentum we're seeing in the Clearwater oil play. We've had 26 wells drilled on our Clearwater acreage in Q3, with early success in our southern Clearwater acreage, including Figure Lake, where we're seeing initial oil production rates for the first 30 days of approximately 230 barrels a day, per well on a gross basis. Overall, we achieved record gross drilling results within our North American portfolio, with 304 gross wells drilled on royalty lands over the quarter. For the first nine months of 2022, more than 760 gross locations have been drilled, with robust activity associated with both our Canadian and US portfolios, setting up for what we expect will be a record level of gross drilling on Freehold's lands in 2022.
In Canada, we've seen activity focused on oil-weighted areas in southeast Saskatchewan, the Viking, Cardium, and the previously mentioned Clearwater play. We've also had strong drilling results in the Deep Basin and Spirit River, with eight wells drilled and a number of those wells in the top 15 well results in August and September. We expect this to be a strong growth driver through the remainder of the year and into 2023, with activity expected to continue on Freehold lands. In the U.S., development is focused on light oil prospects in the Permian and Eagle Ford basins. Drilling was driven by a diverse group of disciplined investment-grade companies. However, we've also seen an increase in the share of activity coming from a more active group of smaller public and private operators.
Freehold achieved near record financial returns for the quarter, as the company generated CAD 81 million or CAD 0.54 per share in funds from operations. This represents a 67% increase on a per-share measure versus the same period last year, and only CAD 2 million below the funds flow record set in Q2 2022. A key highlight associated with the advancement of our North American strategy has been the stronger pricing we receive associated with our U.S. production. Our U.S. realized pricing was $92.15 a BOE on 4,653 BOE/D of production, while our Canadian pricing was CAD 65.63 a BOE on 9,566 BOE/D of production.
This is a 40% premium on a third of our production and really highlights the benefit of our diversification to North American pricing points, which has enhanced the sustainability of our return profile. We benefit from lower transportation and quality differentials on the oil side, and specifically for Q3, the strength in NYMEX pricing when AECO gas pricing was weaker as it related to egress constraints associated with maintenance on pipeline systems in Canada. Second quarter totaled 362 BOE, down 57% versus the same period in 2021. This decrease was driven by increased production volumes and reduced stock-based comp payouts. Given the low cost intensity of royalties as we expand our North American portfolio, we believe we are positioned to add production at very low costs. The transactions that we've completed year-to-date were funded by utilizing our existing credit facility.
Q3 2022 net debt exited the period at approximately CAD 160 million or 0.5 times net debt to trailing funds from operations. Note that this includes acquiring over CAD 160 million of value-adding acquisitions in the quarter while paying down CAD 33 million in debt. At current commodity price levels, cash flow generation remains robust, allowing for debt to be paid down over and above our dividend, with Freehold committed to maintaining flexibility through our balance sheet. Dividends declared for Q3 totaled CAD 39 million or CAD 0.26 per share. This represents a 102% increase versus the same period in 2021. Freehold's dividend payout ratio for Q3 2022 was 47% versus 35% during the same period in 2021.
We increased our dividend 13% to 9 cents a share from 8 cents a share, paid on September 15. Our dividend planning is based on a longer-term price view of $75 per barrel West Texas Intermediate oil price, CAD 4 per Mcf Canadian gas price, and $5 per Mcf US gas price. This view reflects the volatility that we're seeing in commodity pricing and positions us within our stated payout guidance of approximately 60% into 2023. We will continue to monitor our dividend quarterly, allocating returns with an objective of maximizing shareholder value. We continue to see high-quality acquisitions opportunities across North America. With that, patient and disciplined M&A work will continue to be a key component of our go-forward strategy.
In closing, Freehold remains focused on executing our strategy of continuing to enhance our North American asset base, providing growing shareholder returns, and maintaining low leverage. The acquisitions announced during the quarter have made a material improvement in the scale and quality of Freehold's portfolio. 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 speakerphone, please lift your handset prior to 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. Thank you for your patience. The first question is from Luke Davis with RBC. Please go ahead.
Hey, good morning, guys. Wondering if you can just frame out your volume growth expectations for Q4, split by the U.S. and Canada and just provide some details on key plays, key operators, key drivers, that sort of thing. To the extent that you can frame that out just directionally for 2023, that'd be helpful as well.
Sure. Hi, Luke. It's Rob King here. For Q4, in terms of overall volumes, we're sort of targeting in and around that 15,000 ± for the quarter. You know, that's really call it two-thirds in Canada, one-third in the US in terms of how that volume contributes to that 15,000, you know, type level. Some of the key plays on the US side are clearly going to be in the Eagle Ford. You know, Marathon actually is really bringing on about 40% of the wells that we expect to have turned in line, you know, in 2022, actually in September, October, November timeframe.
We are expecting some, you know, strong production from our Eagle Ford assets. I think the other is gonna be the new transaction that we closed in August in Howard County in the Midland Basin. That's, you know, one of the key operators there has been very actively completing a number of the DUCs that they had, you know, on that asset. Between those two, you know, that's a material part of our Q4 volume growth on the U.S. side. You know, in Canada, you know, we're seeing, you know, some really strong gas drilling in the Deep Basin.
That's probably where the most significant amount of the volume growth that we're gonna see in Canada. You know, 2023, you know, I think we're a little early to be talking about 2023. I think it's one where we're still waiting to sort of understand a bit from our key players in terms of what their capital programs are going to be. But if we're directionally call it, like right now, Canada's, you know, call it, you know, flat, you know, in terms of what we would sort of see that over the next year and the US would be modestly growing.
That, that's helpful. Thanks.
Thank you. Once again, please press star one at this time if you have a question. The next question is from Patrick O'Rourke with ATB Capital. Please go ahead.
Hey, good morning, guys. Thank you for taking my question. I guess, I just would like to know kinda your views in terms of the current dividend payout ratio, now that you've sort of right-sized it over the last couple of years, how you think about the timing and scaling of future dividend growth? Then I guess it's probably somewhat inextricably linked to, the view on the outlook for M&A and balance sheet management here. Perhaps, you know, if you could tie in how you think about all these sort of three factors working together going forward.
Yeah. Dave, David Spyker here. Really how we're thinking of the dividend is, we wanna run a dividend at approximately, you know, 60% payout, you know, based again on that longer term pricing strategy that we see. That longer term pricing strategy really aligns with what we're seeing on the forward curve right now. When we review our dividend again with our Q4 results, it will be looking at, you know, what is pricing shaping up to be. I mean, there's a lot of moving parts on commodity right now. We see the volatility in it. We wanna keep our balance sheet strong.
You know, a key part of that is continuing to pay down debt, to keep ourselves flexible for M&A acquisition type opportunities. Like I mentioned, we do see a lot of deal flow, you know, right now. Rob and I were in Houston last week and continue to see you know, quality opportunities available today. It doesn't sound like the pipeline of opportunity is slowing down any. You know, part of our strategy is to be able to invest you know, the other 40% of our funds from operation to really grow our business, enhance it, you know, along the same lines that we've been focused on over the last two years.
Thank you.
Thank you. The next question is from Jamie Kubik with CIBC. Please go ahead.
Yep. Good morning, guys. Thanks for taking my question. Just a question on your U.S. asset base. You know, Rob, you're mentioning, you know, around a third of the volumes in U.S., for Q4, from 15,000 BOE/d, so about 5,000 BOE/d out of the U.S. Can you just talk a little bit about how many net wells you need to see drilled to maintain volumes at that level in 2023? You know, what level of drilling cadence would see that asset base grow? Thanks.
Yeah. In terms of the number of net wells that we need to sort of see a flat scenario, it's about, call it 3.5 net wells. You know, I'd say that obviously is an estimate 'cause you know, it's, there's obviously no shortage of different type curves that are embedded within that. Just to kind of give a context, you know, obviously so far in 2022, we've had close to 400 gross wells drilled, you know, on our U.S. lands, about 2 net wells. A lot of type curves are embedded within that.
We sort of see about an average of 700-800 barrels a day on IP365 is what our typical U.S. well is in our portfolio. You know, to sort of put that 3.5, you know, net wells in context when we look at what our net activity as wells are. That's a combination of the drilled and uncompleted wells and the permits that are on our lands. At the end of Q3, we had, you know, over four of those net activity wells.
I think one of the other parts that, you know, gives us some confidence and gets us excited is also seeing that, you know, the net DUCs have increased quarter-over-quarter, you know, which again sort of builds in that confidence of how we can sort of see those volumes materialize, you know, in Q4 and into the first half of next year.
Okay. The four net wells, activity wells that you mentioned there, did I get that right, first of all? I guess how or over what timeframe would you expect those to start to hit the profile? I know that there is extended time frames in the U.S.
Yeah. I mean, that's the.
Yeah.
Yeah, the 4 activity wells are, they're almost call it equally split between DUCs and permits. You know, DUCs, you know, those can come on, you know, anywhere between 1 month and 4 months. The permits, you know, are kind of 6 to 12 months between when a permit is filed and when it's turned in line. You know, it's a much wider range on the permit side and a tighter range, you know, typically on the DUC front.
Got it. Okay. That's a good color. Thanks, guys.
Thank you. The next question is from Jeremy McCrea with Raymond James. Please go ahead.
Yeah. Hi, guys. I have a couple quick questions here. The one, can you give some actual numbers behind, you know, some of the statements that you guys were talking about? Just I think it was Patrick who was asking the question, just on some of the M&A, you know, what would be the dollar amount that you've looked at, say, you know, this quarter versus last quarter versus this time last year? And then just for this Clearwater acquisition, can you give a little bit more details on that? You know, you know, how many wells are committed on the land?
You know, is there any results, you know, to date that we could, you know, kind of speculate on, you know, how much more, you know, follow-up wells there could be here, if there's been any success on these lands so far?
Sure. This is Rob speaking again. On the deals that we looked at in Q3, you know, it's just a little bit under, on a value basis, about $2.5 billion. In terms of the number of opportunities, that's about, you know, close to 40 opportunities came across our desk. In terms of what we actually dug into and reviewed, about a third of that, by number. You know, so we took that 40 and probably looked at, you know, about call it 12, 13, you know, opportunities. You know, of that, bid on about half. We were successful in closing the Clearwater transaction. You know, in terms of makeup of those deals, about 80% were focused in the US, 20% in Canada.
You know, the point being, we're still very actively looking at Canadian opportunities as well as U.S. opportunities. It's just given you know the size and scope of the U.S. market, there tends to be a lot more opportunities to you know to look at. You know, obviously demonstrating that our Clearwater transaction, you know, Canadian opportunities is still something very much in our focus area. How that compares to activity we've seen so far this year, you know, that's you know 36 opportunities, as I mentioned. 90 opportunities we've reviewed over the course of 2022.
You know, it's sort of the Q3 was consistent with what we've seen in prior quarters this year. I don't have the stat for what Q3 of 2021 would have looked like, but I think we've certainly seen increased activity year-over-year as prices have remained constructive. That's brought a number of sellers into the market. On the Clearwater side, you know, it's a 26-well commitment, that gross well commitment that we have with the operator. They've drilled 2 gross wells so far, but we don't have any tangible results at this point. You know, they certainly have a very active winter drilling program that we're pretty excited about.
Okay. Thank you guys for that. Thank you.
Thank you. There are no further questions registered at this time, so I will turn the meeting back over to Mr. Spyker.
Thanks everyone for participating today. We're very enthusiastic for the remainder of the year, and we're gonna remain focused on the execution of our strategy. Thanks again and 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. Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.