Ladies and gentlemen, thank you for standing by, and welcome to the PrairieSky Royalty Ltd. Announces their Third Quarter 2020 Financial Results Call. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during the session, you'll need to press star one on your telephone. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Andrew Phillips. Thank you. Please go ahead, sir.
Thank you, good morning, and thank you, everyone, for dialing into the PrairieSky Royalty Q3 2020 earnings call. On the call with me from PrairieSky are Cam Proctor, COO, and Pam Kazeil, CFO. I'll provide an operational update then pass the call over to Pam to walk through the financials. During Q3, PrairieSky entered into 15 new leasing arrangements with 15 different counterparties, resulting in lease issuance bonus of CAD 1.8 million. This was a significant improvement from the prior quarter, as many industry participants turned their attention to future opportunities following spring breakup and easing of restrictions due to COVID-19. Among the leasing transactions for larger bonuses were from Mannville resource Play and a short-term Duvernay lease. With leasing activity picking up across a number of plays and regions, we expect drilling activity to improve in 2021, provided commodity prices remain stable.
On the M&A side, we bid on a number of small packages and one medium-sized opportunity, have returns exceeding our cost of capital. None of the bids were accepted. We were successful, however, in acquiring and canceling 4% of the outstanding shares of the company using excess cash flow and a modest amount of leverage that will be retired over the next three fiscal quarters. This provides us further flexibility to make acquisitions and/or cancel additional shares at low intrinsic value. Just over 5% of oil volumes are currently curtailed or remain shut in and will return as pricing improves and as curtailments were eased on Friday. Natural gas flows remain stable. Recent results in the Duvernay and Clearwater plays both show lower drilling and completion costs, as well as stronger type curves.
We expect our industry-leading land position on both plays will provide shareholders with long-term growth without capital or dilution. PSK maintained its focus on cost control through the quarter, a core pillar of our strategy since inception, with cash G&A totaling CAD 3.5 million, or CAD 2.03 per BOE. Compliance recoveries over the quarter totaled CAD 1 million. Our accounting and royalty compliance group has been extraordinarily busy over the past two fiscal quarters, focusing on collections as well as working closely with our land department, dealing with the high volume of requests for lease relaxations and production shut-ins. Throughout Q3, our team worked diligently to lift these relaxations as pricing improved, which also resulted in several new leasing arrangements in order to reactivate existing oil and natural gas wells and return undeveloped zones to our leasing inventory, particularly those prospective for natural gas and NGLs.
PrairieSky has a long-duration unhedged natural gas royalty stream, which is currently benefiting from strong regional pricing environment we have seen at AECO and Station 2. As the pricing environment for natural gas has improved, many of our high gas-to-oil ratio plays have seen enhanced economics, which we expect to translate into more robust activity levels throughout the balance of 2020 and into 2021. PrairieSky continues to work with its industry partners to find efficiencies and highlight the world-class ESG profile of Canada's energy industry. During 2020, an important milestone was achieved in Alberta by a private operator, which is now sequestering CO2 into a depleted oil unit in central Alberta, which includes PrairieSky land. PrairieSky has a small royalty on this unit and has lands across Western Canada with analogous reservoirs.
In addition to permanently sequestering greenhouse gases from industrial emitters across the province, it is the equivalent of taking over 300,000 cars off the road, the previously stranded oil reserves will be produced at some of the lowest scope one, two, and three emissions in the world. This project is a great example of Canadian ESG leadership, ingenuity, and collaboration across industries. As we look towards 2021, our organization is working hard on the third PrairieSky Royalty Playbook ahead of our Investor Day in May, as well as our fourth annual ESG report. We expect both of these documents to highlight the unique attributes of our long-duration, capital-free, high-margin business model, which was recently recognized by Sustainalytics as the number one ranked company in their oil and gas ESG rankings. I will now turn the call over to Pam to walk through the financials.
Thanks. Excuse me. Thank you, Andrew. Good morning, everyone. Before I get started, I will be including certain forward-looking information in my remarks today. I would refer all participants on this call to please reference the forward-looking information section of our MD&A as at September 30th, 2020, as well as the press release issued on October 26th, 2020. Funds from operations totaled CAD 37.9 million, or CAD 0.16 per share in the quarter, generated primarily from royalty production revenue of CAD 38.4 million on production volumes of 18,745 BOE per day. Overall production volumes were up modestly from Q2 2020, as increases in oil production volumes were offset by decreases in natural gas and NGLs. We saw increased activity in Western Canada during the quarter as compared to Q2 and on PrairieSky lands, where we had 44 wells spud.
These wells were primarily oil wells in the Viking and the Clearwater. Oil royalty production volumes totaled 6,572 barrels per day, a 9% increase from Q2, as third-party operators started to bring on previously shut-in production throughout the quarter. Natural gas volumes totaled 58.2 million a day in the quarter and were down due to declines and reduced solution gas volumes from shut-in oil production. Natural gas royalty revenue totaled CAD 8.7 million, up 14% from Q2 due to strong AECO pricing. NGL volumes generated an additional CAD 4.9 million in product revenue, up 20% from Q2 due to improved benchmark pricing. During Q3, PrairieSky's production volumes included 780 BOE a day of prior period adjustments, which were 27% liquids, and included 371 BOE a day from compliance activities and an additional 409 BOE a day of other prior period adjustments related to new wells on stream and better well performance.
The compliance group continues to recover missed and incorrect royalties through forensic accounting, collecting CAD 1 million in the quarter. PrairieSky generated CAD 5.1 million in other revenue, comprised of CAD 1.2 million in lease rentals, CAD 2.1 million in other income, and CAD 1.8 million in bonus consideration on entering into 15 leasing arrangements with 15 different counterparties. PrairieSky is a high margin, low cost business model. Total cash expenses during the quarter were CAD 5.6 million on CAD 43.5 million of revenue, resulting in an 87% cash operating margin. Cash expenses included income taxes of CAD 1.1 million and cash administrative expenses of CAD 3.5 million, or CAD 2.03 per BOE. Looking forward, we expect cash administrative expense per BOE to be well below CAD 3 for 2020. During Q3 2020, PrairieSky declared dividends of CAD 0.06 per share, or CAD 13.4 million, resulting in a 35% payout ratio.
Under the NCIB, we repurchased and canceled 8.9 million common shares for CAD 81.8 million in the quarter. At September 30th, PrairieSky had a working capital deficit of CAD 66.2 million, including bank debt of CAD 67 million, which we expect to repay in less than nine months. Since IPO, PrairieSky has generated CAD 1.4 billion in funds from operations, of which we have returned 96%, or over CAD 1.3 billion to shareholders in the form of dividends and share repurchases. This equates to returning over 65% of our current market capitalization to shareholders in just over six years. We will now turn it over to the moderator to proceed with the Q&A.
Thank you. As a reminder, to ask a question, you'll need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Once again, that is star one if you would like to ask a question. One moment for questions. Again, ladies and gentlemen, if you'd like to ask a question, that is star one. Our first question comes from Mike Dunn from Stifel. Your line is now open.
Thank you. Good morning, everyone. I just wondered, I know, obviously, you folks don't give guidance. Historically, Q3 is a busy drilling period on your lands, particularly in the Viking, and you see a bump in volumes in Q4, with all the puts and takes of curtailments and voluntary or otherwise. Just wondering if you can talk to what you think Q4 might be shaping up for you guys on the oil side or total BOE, maybe just in general terms relative to Q3.
Sure, Mike. Yeah, no, thank you for the question. No, we don't give guidance of course, but just directionally we do obviously still have some curtails and shut-in oil volumes, which have been coming back at the back half of Q3. Those would represent a full quarter in Q4 as well as some of the ones that come back on. As well, obviously not a very active Viking quarter like we typically have in Q3. There was some activity that'll translate into some volumes trickling into Q4. I guess probably the most impactful one would be the most efficient play on our lands, which was we had two rigs running through the back half of Q3 on the Clearwater play, and it's our most capital efficient play-
...per dollar spent, it's the most capital efficient play we have in the business, and it also has the lowest base decline. Thinking of Q4, again, we do expect some growth on the oil volume side, and the gas should remain fairly stable. We don't, again, give exact numbers on that. Into 2021, we do have some more active drilling programs that are starting to be shown to us from industry. I think we should see an improvement in 2021 in terms of activity. Of course, the last piece I'll talk about is obviously our business is based on two things, and the sustainability of it is the declines and the capital spend. Just one comment on the declines.
Our decline has gone down from, on the oil side, in the high 20s to the low 20s, or in the range of 20%, and gas is in the mid to low teens. Because our lower base declines as a company, we have less capital required to keep those production volumes flat. Then the last piece to that is the people who are drilling right now are the most typically drilling their best prospects and the most capital efficient producers with the best opportunity set. The capital we are seeing spent is very efficient, so it should require less capital to maintain production or potentially grow production in the future. Hopefully that answers your question.
Thanks, Andrew. Yeah, that helps. That's all for me.
Thank you. Again, ladies and gentlemen, that's star one if you'd like to ask a question. Our next question comes from Mark McLennan from Alberta Energy. Your line is now open.
Hi there. If you could provide any color around the use of the bank debt to fund the NCIB. Is that something you can see yourself doing more in the future, or is this more of just taking advantage of one-time dislocations?
Yeah, that's a good question, Mark. I think the NCIB has also always been kind of a pillar of our return strategy to shareholders. We're an interesting business because we generate a lot of cash and we don't spend any. In order to return to shareholders, we have three ways. One is through acquisitions, number two is through obviously dividends, in which we paid in the range of CAD 1.2 billion in dividends, the third is through buybacks. Just given where our shares trade, which we think is way below the intrinsic value of the business, it's a great way, we think, to enhance the compounding potential of this business. We're currently at an 8% free cash flow yield, we think we have a terminal growth rate somewhere in the range of 3%-5% over the long term.
We just think it's a great way to take advantage, obviously of the dislocation in price versus intrinsic value, but also over the long term, it is a way to return capital to shareholders. It's not just something we do for a short period of time. It's been something we've been doing for years.
I agree. Thanks so much. Have a good day.
Thank you.
Thank you. I'm showing no further questions. I would now like to turn the call back over to Andrew Phillips for further remarks.
Thank you everyone for taking the time to dial into our call, and have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.