Ladies and gentlemen, thank you for standing by. Welcome to PrairieSky Royalty Ltd., announces their Annual and Fourth Quarter 2023 Financial Results. At this time, all participants are in a 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 one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Andrew Phillips, President and Chief Executive Officer. Please go ahead.
Thank you, Operator, and good morning, everyone. Thank you for dialing into the PrairieSky year-end conference call. On the call from PrairieSky are Pam Kazeil, CFO; Dan Bertram, CCO; Michael Murphy, VP Geosciences and Capital Markets; as well as myself, Andrew Phillips. There is certain forward-looking information in my commentary today, so I would ask investors review the forward-looking statements qualifier in our press release and MD&A. As we approach our 10th year as a publicly traded company, our team continues to strive to improve our business over the next 10 years. The industry-leading organic growth rates in our liquids portfolio are the result of assets acquired years ago. 2023 was another great year on multiple levels. Organic oil growth was approximately 6%, and the 4.5 million barrels of produced royalty oil were organically replaced by drilling.
Of note, our CAD 14 million fee mineral title acquisition, which closed near year-end, was not included in the 2023 reserve report. During the quarter, there were 197 wells spud on our lands, bringing total well spud to 804 wells in 2023. This included 147 Clearwater wells, 139 Mannville heavy oil wells, and 236 Viking wells. We also saw our first helium well drilled in our acreage. We estimate that CAD 2 billion of gross capital and CAD 112 million of net capital was spent on PrairieSky Royalty lands in 2023. Based on an estimated CAD 26.7 billion of gross capital on conventional oil and gas assets spent in 2023, approximately 7.5% of industry capital was spent on PrairieSky lands. Net capital increased 38% year-over-year, although this is partially inflation-related. The increase led to PrairieSky's strong oil royalty production growth. Leasing activity remains at high levels.
Throughout the year, we entered into 202 new leasing arrangements with 110 separate counterparties. This resulted in CAD 26 million in bonus consideration over 2023 and CAD 11.2 million in Q4. Leasing activity was strong across the basin, primarily for oil targets. Strong recent well data and lower costs have resulted in stronger producer interest in the Duvernay shale, and we expect light oil growth from this play over the next 10 years. The moat around our business is our irreplicable fee mineral title land base. We also have seen stronger interest in viewing our large seismic database as operators are conducting exploration to expand their drilling inventory. PrairieSky controls 54,200 linear km of 2D seismic and 20,100 sq km of 3D seismic. Our seismic data is continually improving as we receive a copy when a producer reprocesses the data.
This data is available to third parties leasing our lands, and we also use it to develop prospects for industry, which we can then lease. Our compliance group, who are always busy, returned land to inventory and brought in CAD 6.6 million throughout 2023. As we look into 2024, our team will continue to focus on controlling costs, compliance, leasing our large undeveloped land base, and executing on high-return acquisitions. We are pleased to announce a 4% increase to our annual dividend, bringing it to CAD 1 per share and CAD 0.25 per share quarterly.
This increase is effective for the March 29th, 2024 record date. We will use excess cash flow above the dividend to retire bank debt and execute on high return on invested capital acquisition opportunities, if available. I'd like to thank our staff for the continued hard work and our shareholders for their support. I'll now turn the call over to Pam to walk through the financials.
Thank you, Andrew. Good morning, everyone. As Andrew mentioned, there is certain forward-looking information in the notes today, so I would remind investors to review our forward-looking statements qualifier in our press release and MD&A for Q4 and the year-end at December 31st, 2023. PrairieSky had a strong Q4, which closed out another year of organic oil royalty production growth and momentum in leasing activity. PrairieSky's Q4 royalty production averaged 25,608 BOE per day and included a record 12,844 barrels per day of oil, 6% higher than Q4 of 2022. NGL royalty volumes averaged 2,697 barrels per day, flat with Q4 2022, and natural gas royalty volumes averaged 60.4 million a day, down 9% from Q4 2022.
Annually, royalty production averaged 24,857 BOE per day, with a record oil royalty volumes of 12,438 barrels per day, an increase of 6% year-over-year, with growth primarily in the Clearwater and Mannville heavy oil plays. PrairieSky's Q4 royalty production revenue totaled CAD 122 million, generated 90% from liquids royalty volumes. Annually, royalty production revenue totaled CAD 474.6 million, 88% from liquids. In 2023, realized oil pricing of CAD 82.52 per barrel was 82% of Edmonton Par, and NGL realized pricing of CAD 47.60 per barrel was 47% of Edmonton Par pricing. We anticipate 2024 price realizations to be in line with 2023.
Realized natural gas pricing was CAD 2.60 per MCF, with approximately 90% of our volume sold at monthly and daily AECO pricing and approximately 10% being sold at Sumas pricing. Other revenue totaled CAD 14.6 million in the quarter and included CAD 11.4 million of bonus consideration.
This brought annual bonus consideration to CAD 26 million and total other revenues to CAD 38.6 million, the highest total since 2017. PrairieSky is forecasting other revenue in the range of CAD 25 million-CAD 30 million in 2024, including lease rentals, bonus consideration, and other revenue. Compliance recoveries will be incremental to this amount and included in royalty revenue. Looking forward, PrairieSky's 2024 annual pricing sensitivities, which are all net of taxes, are as follows. A $5 per barrel change in U.S. dollar WTI would increase or decrease funds from operations approximately CAD 22.5 million. A CAD 0.25 per MCF change in AECO would increase or decrease funds from operations approximately CAD 4 million. A $0.01 change in the U.S. to Canadian FX rate would increase or decrease funds from operations approximately CAD 4 million.
If the WCS oil differential moved by $ 1, we would see an increase or decrease in funds from operations of approximately CAD 2.5 million. This impact would be the same for a $ 1 move in the MSW differential. Cash administrative expenses totaled CAD 5.1 million or CAD 2.14 per BOE in the quarter. We expect 2024 cash administrative expense to be in the range of CAD 35 million-CAD 40 million due to strong stock performance impacting share-based compensation. Current income tax expense totaled CAD 14.4 million in Q4, bringing 2023 current tax to CAD 58.8 million. Entering 2024, PrairieSky has CAD 1.4 billion of tax pools to offset future taxable income, which is primarily deductible at 10% per year. For 2024, that means the first CAD 140 million of pre-tax cash flow is tax-free, with the incremental cash flow tax at 23.6%.
During the quarter, PrairieSky's Funds from Operations totaled CAD 111.1 million, and we declared dividends of CAD 57.3 million or CAD 0.24 per share, with a resulting payout ratio of 52%. Annually, PrairieSky generated CAD 382.5 million in Funds from Operations, which were used to fund dividends of CAD 229.2 million, with remaining cash flow used primarily to reduce PrairieSky's bank debt. At December 31st, 2023, PrairieSky's net debt totaled CAD 222.1 million, a decrease of 30% from December 31st, 2022. Once again, in 2024, PrairieSky will receive the full pricing reduction related to our sustainable credit facility based on the evaluation by third-party rating agency Sustainalytics , which included PrairieSky in its list of the Global 50 top-rated ESG companies for 2024. We will now turn it over to the moderator to proceed with the Q&A.
Thank you. As a reminder to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. The first question comes from Michael Dunn with Stifel. Your line is now open.
Thanks. Good morning, all. A couple of questions from me. Just looking at your second-half spuds on your lands, folks, more Mannville and less Viking than if we looked at the second-half of 2022. Just noticing from your reserves disclosures of your oil production in 2023, it looks like it was about 52% light, 48% heavy bitumen, kind of the same split as in 2022. How do you think the second-half activity from 2023 plays out, I guess, into your heavy versus light split into 2024, and maybe any thoughts on the absolute level of oil production in the first half of this year, I guess, relative to Q4?
Yeah. I'd hate to speculate. Good morning, Michael. Sorry. I'd hate to speculate on the actual levels of production in the first half of the year. We do expect some growth over the year, again, with the strong leasing activity and the strong drilling activity we've seen. And then as it ties to the reserves, I do think you're going to see the bitumen reserves go above 50%. I think with this, there's been. 2023 was a year of multiple discoveries. There was over nine different horizons within the Mannville stack that were proved commercial. But of course, because we just booked the one individual well in our reserve report and probably conservatively, given their new wells, it didn't add a huge amount of new barrels from a reserve standpoint.
But I do think as people start to develop those, which we're already seeing today, there's quite a few rigs running around the Cold Lake region, we should see a significant uptick in those reserves over 2024.
Thanks. Well, I thought I'd try on the guidance there, Andrew. Then just secondly, they're looking at your year-end reserves. Your oil reserves were both flat year-over-year, and of course, they're all developed reserves. Your Q4 oil production was up close to 6% year-over-year. Is that implying a little bit shorter developed reserve life, or is it just exit volumes were lower than the Q4 average, or how should we think about, I guess, the lack of oil reserves growth?
Yeah. It was interesting. I think the flat was a pretty good result for us, replacing every barrel that was produced without making any PDP acquisitions. I think one of the things that we saw this year was, just from an inflation standpoint, on the operating costs and the tail of the wells were truncated. So again, if people can get their operating costs down in future years, you can see that come back. Again, we do believe a lot of those do have long RLIs or reserve life indexes, but I think there was some truncation based on inflation and operating costs on the tail end of the wells. Otherwise, we would have seen growth there. But again, it's always a good result when you don't spend money on any PDP acquisitions and you replace every barrel you produce, which generates right now over 90% of our cash flow.
Understood. Makes sense. That's all for me. Thanks, folks.
Thanks for the questions. Bye.
One moment for the next question. The next question comes from Adam Schwartz with Black Bear Value Partners. Your line is open.
Thank you. Good morning. First, as shareholder, thank you for your quality stewardship of the company. We appreciate it. Curious if you can comment on where share buybacks fit into your plan. And when you look at the acquisitions for potential M&A, are they more attractive than the stock or the same, or how you think about that? Because today, it seems like the stock price is in a pretty benign energy price environment and virtually no value for any kind of volume growth or call options that you guys call out in your presentations, which I think are real. And over the long haul, the intrinsic value per share could compound at even higher rates than you've been experiencing if you use this tool. So I'm just curious.
Buybacks aren't always a good idea, but when the stock is really cheaper and including fairly bearish, not been benign assumptions, if you're positive on the outlook on things, it could be a pretty helpful value-add action. So just if you can comment on that, I'd appreciate it. Thank you.
Yeah. Good morning, Adam, and thanks for the question. And we do see tremendous value in the shares right now. And I will say that when looking at any acquisitions, the hurdle rate's quite a bit higher, just given the value we do see in the shares. And I do think it is a unique compounding business over time, generates a lot of cash. We've kind of refreshed our 10-year budget, and you generate almost your entire market cap in free cash flow, net of tax, net of G&A, and have a business that's likely bigger at the end of that period. So we do see great value in the shares right now. We always trade below intrinsic value. But our priority right now is retiring the debt, and any acquisitions that we enter into, the IRR hurdles have to be quite a bit higher.
So again, it's definitely a higher hurdle rate right now. But the retirement of the debt's definitely our number one priority right now. Interest rates are, again, at a pretty high historical level based on the last 15 years anyway. And we'd like to have the optionality of having all of the debt retired. So hopefully, that helps answer your question. But we definitely do see value in the buybacks. We do have a buyback in place that we could execute on at any time. And I think it will be part of the capital return over the next three, five, and 10 years as part of the returns to our shareholders.
Yeah. That's helpful. I would say just as far as a comment, it's great for it to be a tool to use if the stock's cheap. If it's not, then don't. But clearly, if it stays around here or even meaningfully higher, it still seems very attractive given the prospect. So thank you for serving you guys there. You're doing a great job.
Appreciate the question, and thanks for the comments.
One moment for our next question. The next question comes from Jamie Kubik with CIBC. Your line is open.
Yep. Good morning. Thanks for taking my question. I've got two here for you. I'm hoping you can talk a little bit more about the bonus revenue in the quarter and expand a little bit on it. As you know, it was the highest since 2017. And Pam, your comments indicate that other revenues in 2024 be between CAD 25 million-CAD 30 million. But I'm wondering, is there more to do on the bonus side as it relates to the Duvernay, and can you expand a little bit more on that side?
Yeah. You bet. So the bigger leasing arrangements that we entered into in Q4 were West Shale Basin arrangements, Jamie. And I think that's where we've seen recently a fair bit of activity. One intermediate producer has plans for very significant growth in the area. And I think just with costs coming down and kind of the nut being cracked in terms of the technical application of fracking, we're seeing some very good well results. And wells that likely are well over 500,000 barrels on an individual well. So again, pretty good results, and costs are getting figured out. So I think that's where the majority of the bonus was for last year, particularly Q4.
Then what we're seeing is a similar thing happening in the East Shale Basin in both the Westerdale Embayment and the Ghost Pine Embayment, where some improvements have really changed the EURs there per well, and costs have come down there as well. I do expect some leasing arrangements centered into there as well this year. Just don't know the exact timing of it. As a refresher, the stuff in the West Shale Basin, there's 200,000 acres that we had leased to Encana and Ovintiv upon the IPO that had eight years till expiry. Again, so we finally have received all that land back and now entering into lease arrangements with well-capitalized producers. But what we're more excited about rather than lease bonus is that it's very significant individual well events, and we do see a huge amount of resource there. It's very thick shale.
And it'll really complement. We kind of have pretty good visibility into our growth on the heavy oil portfolio, both in terms of the Mannville stack and the Clearwater. But this will complement that growth with some light oil, which is 40-degree API oil, and then a lot of liquids-rich solution gas. So likely over the next 10 years, the proportion of solution gas goes over 1/3 or significantly over 1/3 of our total gas volume. So again, some positives there. We're definitely excited about the play. But I do think there will be some more leasing arrangements, but probably not of that size.
Okay. Got it. And then.
Hopefully, that answered your question.
Yep. Yep. No, it did. Other question is, PrairieSky did acquire CAD 20 million properties in the quarter. You do outline a little bit between the Mannville stack and Central Alberta as being the areas that you acquired. Can you break apart a little bit further? What was acquired in the quarter? What has you excited on that side? And can you talk about what the types of opportunities are that are coming across your desk these days? Thanks.
Yeah. You bet. There are a few royalty packages out there. And as we said with the previous question from Adam, the hurdle rates are definitely high right now for us as a company. The CAD 14 million acquisition, which was mostly fee mineral title and also a handful of GORs, that was in Southeast Alberta. So we see both Mannville and Viking potential there. We've actually already entered into a lease two days after closing that acquisition, which has the potential to grow that asset in the double digits.
And again, it was a really good IRR, even on just the PDP. So that's a fee mineral title acquisition. That's the last of the old Apache fee mineral title left in Canada. So 8s and 26s primarily. And then the CAD 8 million was spent on six different private operators to acquire 15-year oil sands leases in the Mannville stack. We're expecting some drilling to test those opportunities over the next year.
Okay. Great. That's it for me. Thanks.
Thanks for the question, Jamie.
I show no further questions at this time. I would now like to turn the call back to Andrew for closing remarks.
Thank you again, everyone, for dialing into the PrairieSky Conference Call, and hope everyone has a great rest of the week.
This concludes today's conference call. Thank you for your participation. You may now disconnect. Have a great day.