Ladies and gentlemen, thank you for standing by, welcome to today's conference call. PrairieSky Royalty announces their second quarter 2020 financial results. At this time, all participant lines are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star then one on your telephone keypad. If you require operator assistance, please press star then zero. I'd now like to hand the conference over to your host today, Mr. Andrew Phillips, President and Chief Executive Officer. Please go ahead, sir.
Thank you. Good morning, and thank you for dialing into the Q2 2020 PrairieSky earnings call. On the call from PrairieSky are Pamela Kazeil, CFO, Cameron Proctor, COO, and myself. I will provide an operational update, turn the call over to Pam to walk through the financials. We completed a CAD 6 million acquisition in the northeastern British Columbia Montney play, where two new high-rate wells in distinct zones now provide over 100 barrels per day of net royalty oil production and gas production. PrairieSky now has royalty interests in 100 contiguous sections of Triassic rights in this particular part of the Montney fairway and is well-positioned for the continued development of this play. During the second quarter, we evaluated numerous acquisition opportunities and submitted seven different bids on varying sizes of packages, none were successful.
We continue to look for expansion opportunities for the business where we can achieve near and long-term accretion on free cash flow per share. These opportunities have to compete with buying PrairieSky shares for cancellation at an unlevered 7% free cash flow yield with large contiguous tracts of undeveloped land on the best parts of the oil cost curve. This is difficult to do, but we'd have the benefit of being able to allocate our excess cash flow on top of the dividend to the NCIB and give our owners a larger share in a wonderful business. PrairieSky entered into 19 new lease arrangements with 17 counterparties and received CAD 0.7 million in lease issuance bonus. The leasing was primarily for oil targets across Alberta and Saskatchewan and included some natural gas leasing. Cash G&A totaled CAD 2.35 per BOE. Royalty compliance collected CAD 2.2 million, taking the annual total to CAD 4 million.
As we have in previous downturns, PrairieSky management will work hard to take advantage of this challenging environment to improve the business on a per share basis. Given the significant amount of free cash flow the business will generate over the next 12 months in excess of the dividend payments, we are well positioned to do this. We appreciate the support of our shareholders and our employees who have managed the business well from a variety of work environments. I will now pass the call to Pam to discuss the financials.
Thank you, Andrew. Good morning, everyone. Before I get started, I will be including certain forward-looking information in my remarks today. As such, I would refer all participants on this call to please reference the forward-looking information section of our MD&A as at June 30, 2020, as well as our press release issued on July 20, 2020. During the second quarter, PrairieSky generated funds from operations of CAD 21.3 million or CAD 0.09 per share. Royalty production revenue totaled CAD 25.1 million on average production volumes of 18,671 BOE per day. Production volumes were down from both Q1 2020 and Q2 2019 due primarily to the impacts on global oil demand from COVID-19 and instability in global oil benchmark pricing. Third-party operators reacted to market uncertainty, reducing capital budgets for 2020. These changes, along with spring breakup, meant that there was limited exploration and development activity across Western Canada in the quarter.
Production was comprised of oil volumes of 6,035 barrels per day, NGL volumes of 2,586 barrels per day, and natural gas volumes of 60.3 million a day. Oil volumes were impacted by shut-ins across Alberta and Saskatchewan as operators reacted to the dramatic decrease in WTI benchmark pricing. During the quarter, average oil royalty volumes of approximately 2,600 barrels a day were shut in. As pricing has started to improve, certain operators have started to bring production volumes back on. At current WTI pricing and differentials, we expect to see shut-in volumes on light oil continue to return over the summer. Heavier volumes, including our thermal production, will take longer to return. The combined impact of shut-in volumes and lower benchmark pricing resulted in oil royalty revenues of CAD 13.4 million, a 74% decrease as compared to Q2 2019. Natural gas volumes totaled 60.3 million a day in the quarter.
Natural gas volumes were impacted by oil production shut-ins, which reduced solution gas volumes as well as declines due to limited activity. Stabilized AECO pricing through Q2 versus the prior year generated CAD 7.6 million in revenue, a 69% increase over Q2 2019. NGL volumes generated an additional CAD 4.1 million in product revenue, down 37% from Q2 2019 due to lower benchmark pricing. PrairieSky's production volumes in the quarter included 1,245 BOE a day of prior period adjustments, which were 52% liquids and included 528 BOE a day from compliance activities and an additional 717 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 2.2 million in the quarter.
Other revenue totaled CAD 3.1 million, including CAD 2.2 million in lease rentals, CAD 0.2 million in other income, and CAD 0.7 million in bonus consideration on entering into 19 leasing arrangements with 17 different counterparties. As mentioned on our Q1 2020 conference call in April, given the impact of COVID-19 on the global economy and on the energy industry, we expect the outlook for other revenue to be in the range of CAD 15 million-CAD 17 million. Primarily as a result of lower anticipated leasing activity. This includes our estimate for compliance revenues. We continue to monitor our controllable costs and cash administrative expenses total CAD 4 million or CAD 2.35 per BOE in the quarter. Current tax for the quarter was CAD 3 million, which reflects an improved cash flow outlook for 2020 at June 30th as compared to March 31st.
During Q2, PrairieSky declared dividends of CAD 0.06 per share or CAD 13.9 million and repurchased 470,000 common shares for CAD 4.1 million. At June 30th, PrairieSky had a modest working capital deficiency of CAD 8.7 million and no long-term debt. Since IPO, PrairieSky has generated approximately CAD 1.3 billion in funds from operations and returned CAD 1.2 billion to shareholders through approximately CAD 1.1 billion in dividends and the repurchase of 6.2 million common shares. We will now turn it over to the moderator to proceed with the Q&A.
As a reminder, ladies and gentlemen, to ask a question, you will need to press star then one on your telephone keypad. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Again, ladies and gentlemen, that is star then one to ask a question. We have a question from the line of Jamie Kubik with CIBC. Your line is now open.
Good morning, everybody, and thanks for taking my question here. Can you talk a little bit about counterparty risk in the current environment and how PrairieSky is managing that?
Yeah. Counterparty risk is something that we always are reviewing as a business. Through the quarter, one of the things that we focused on was where counterparties wish to shut in production, we did compliance reviews and collected any outstanding amounts. We take production in kind, where we perceive that there may be some counterparty risk. When we're entering into leasing arrangements, we're always looking at our counterparties to evaluate their balance sheets and their ability to meet their commitments. One of the things that we've tried to focus on with our counterparties is ensuring that we're picking counterparties who are able to commit capital to develop their plays. That's always been a priority for PrairieSky.
Just to follow up on that, Jamie, PrairieSky is the owner of the resource. If a receiver stops paying or a counterparty stops paying, we have the ability to remove them from our land. That's the super secured nature of owning fee simple lands. You actually own the resource, and of course, we see the whole spectrum because we have 325 different royalty payors, so we see everything from the really financially stable companies down to the weaker ones. Again, this process has been ongoing for six years, and Pam and her team have done a really good job of ensuring we're taking production in kind for some of the stressed producers.
Okay, understood. Then maybe just another quick question here. You mentioned in your remarks the management and the PrairieSky employees are going to work hard to take advantage of this environment to improve the business. When we look out, obviously, commodity prices are better for the second half of 2020 than what they look like they were for Q2, obviously. How should we think about your allocations of free cash flow? Is a dividend increase a possibility in the next six months given what we're seeing on pricing? Is it more likely that you repurchase stock and look to M&A?
Yeah. It's a great question. I think, again, we'll continue to review the dividend every February. I think the dividend will grow over time with the growth and the free cash flow of the business. I think where we sit today we see tremendous value in buying the stock below intrinsic value here, and that's a primary allocation for the excess free cash flow on top of the dividend. We'd be keen to do acquisitions that improve our business. We're working hard on a number of them. Again, I think there's definitely a value gap there. Again, we'll continue to cancel shares down here and look for opportunistic acquisitions. I think the dividend will have the opportunity to grow over time, and I think it's a wonderful dividend-paying company.
In the three years prior, we paid CAD 185 million each of those years all out of free cash flow and had another CAD 40 million left over to cancel shares with. Those were better times in terms of pricing and activity. In this environment, with quite a bit of excess free cash flow, we'll utilize it to improve the business.
Okay, maybe final question here from me is, if we think about Q2, you obviously had a 30% drop in oil volumes much less activity over the second quarter as well. How should we think about oil volumes for Q3, Q4 here, given shut-ins are likely returning, as you mentioned, activity is certainly lower. Do those two offset one another, should we expect oil volumes to lift? Respecting that you don't provide firm guidance, any loose numbers that you can provide on that side would probably be helpful.
Yeah, for sure. Again, we had the 30% shut-ins. We do anticipate for sure the light oil, as Pam mentioned on the call, the light oil volumes have already come back on or are in the process of coming back on. Some of the waterflood pools take a little longer before they reach peak production. The 14% of our volumes that come from the thermal oil, those are going to take as long as December till they're back up to their full production. Then the heavy oil, it really depends on people where they sit on the cost curve, but also it depends on their individual hedging situations. I know a number of our heavy oil producers crystallized their hedges, took the cash, and left the volume shut in for slightly better pricing.
Again, it'll take a bit of time, but I would assume oil volumes would be up from Q3, obviously, even with the low activity over the back half of the year. Again, activity is extremely anemic in the basin, certainly on the oil side. I know there was a pretty long period of time where there was zero rigs running in Saskatchewan and only two oil rigs running in Alberta, and it's hard to drill a new well when you've got oil production curtailed. I do think we will see an improvement in the back half of the year.
Okay. That's it for me. Thank you, guys.
As a reminder, ladies and gentlemen, that is star, then one to ask a question. Our next question comes from the line of Jeremy McCrea with Raymond James. Your line is now open.
Oh, hi. Just a bit on that follow-up question there, Andrew. In terms of activity, I know a lot of companies haven't said they are expanding their CapEx budgets, but just with commodity prices really starting to move up here in the last couple of weeks, have you heard any indications from any of the companies that drill in your line that they're thinking about getting back to work? Maybe not they've announced official, but they're asking more licensing type questions, or any kind of indication that activity is starting to come back here. Just with that, is there any indications or numbers that you can give for how many wells were actually drilled on your lines here for Q2?
Yeah. For sure. In Q2, there were zero spuds on our land. Talking to a lot of the bigger producers on our lands and some of the top 10 royalty players, there's a lot of planning for a Q4 program, which dovetails into their 2021 program. I think with the improvement in pricing and the narrow differentials have actually probably been the biggest factor in people making these decisions. We're starting to see some programs trickle into Q4, late Q3 or late Q4. I think people are setting up their 2021. We do expect greater activity than we would've two months ago had we chatted. Again, I don't know that that'll show an effect for us in the back half of this year, but it certainly will improve 2021.
Okay. Perfect. Thanks, Andrew.
Thanks, Jeremy.
Our next question comes from Harshit Gupta with Accountability Research. Your line is now open.
Hi, good morning. My questions actually have been answered. Thank you very much. Thank you.
I'm showing no further questions in queue at this time. I'd like to turn the call back to Mr. Phillips for closing remarks.
Well, thank you, everyone, for calling into the PrairieSky Q2 earnings call. If you have any further follow-up questions, please call Pam or myself.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.