Good morning and welcome to the Q1 2023 PSK earnings call. On the call from PrairieSky are Cam Proctor, COO; Pam Kazeil, CFO and myself, Andrew Phillips.

There is certain forward-looking information in my commentary today. So I would ask investors to review the forward-looking statements qualifier in our press release and MD&A.

Liquids royalty volumes, which drove 80% of royalty revenue, remain at record levels after experiencing 18% organic growth in 2022, the strongest on record for PrairieSky. We expect oil royalty volumes to grow again in 2023.

Another record quarter of land leasing was achieved in Q1 and resulted in 67 new leases with 57 different counterparties. Leasing in the Western Canadian heavy oil fairway remains strong.

Viking leasing has also recently picked up with light oil around CAD$100 per barrel and sub-linear payouts for operators on the shallow resource play. Economic inventory for oil directed drilling has been a growing concern for North American operators.

With our large undeveloped land base, we are a natural beneficiary of operators looking to expand existing plays or develop new ones. This is evident in the volume of land leasing arrangements we have entered into.

With decades of economic Clearwater inventory remaining and numerous new discoveries in the heavy oil region of Alberta, our owners get the benefit of strong cash flows today with a long duration attached to the shares of the business they own. There were 214 wells spud in Q1, which were 87% oil with an average royalty rate of 8.2%.

This is an increase of 20 wells over Q1 2022 and an increase of 2.1% in the average royalty rate for new wells on our land. The Viking light oil play was most active play with 68 wells spud followed by the Mannville heavy and light oil play with 42 wells spud and the Clearwater with 25 wells spud.

We saw activity across our entire land base again this quarter, including the Duvernay block in the Mississippi. There were also 28 natural gas wells spud, including 18 in the Montney which we anticipate will come on late in the year.

98% operating margins, no liabilities or maintenance CapEx and organic growth through land leasing should continue to differentiate our business over the short, medium and long-term. These strong attributes to the business will lead to strong shareholder returns.

Thank you. And I will turn the call to Pam to walk through the financials.

Thank you, Andrew. Good morning, everyone.

As Andrew mentioned, there are certain forward-looking information in the note today. So, I would remind investors to review the forward-looking statements qualifier in our press release and MD&A for Q1.

PrairieSky had another strong quarter generating funds from operations of $86.3 million or $0.36 per common share. Funds from operations were driven by royalty production revenue of $116.8 million earned on total royalty production of 24,809 BOE per day as well as $9.3 million of other revenues.

PrairieSky’s oil royalty production totaled 12,212 barrels per day in the quarter, which was up 9% over Q1 2022 and flat with Q4. We saw number of new wells come on stream which more than offset declines as compared to both periods.

Operational downtime at one of our thermal heavy oil projects negatively impacted the quarter by approximately 75 barrels per day and a decline in benchmark oil prices negatively impacted sliding scale royalty volumes, which were down by 67 barrels per day. Oil royalty revenue totaled $83.8 million, which was down from prior quarters due to lower benchmark WTI pricing as well as the lighter heavy oil differential.

PrairieSky’s oil price realization was 77% of emitting light oil versus our usual 80% to 85% range. With heavy oil differentials now in the mid-teens, price realizations are expected to return to the 80% plus range.

Natural gas royalty volumes average $59.6 million a day flat with Q1 and down 10% from Q4. Q1 included 0.7 million a day of prior period adjustments as compared to Q4, which included 5 million a day of PPAs.

PPAs were lower due to 0.5 million a day fewer compliance volumes in Q1 as well as the negative impact of higher than estimated freeze-up volumes in December, which reduced volumes by a further 1.2 million a day. In addition, certain of our BC royalty production volumes were fully shut in for February due to transportation constraints and started to come back on production in March, reducing volumes in the quarter by approximately $1.5 million a day.

Natural gas revenue totaled $21.8 million. The decrease from the prior quarter was primarily due to lower benchmark pricing for AKO.

PrairieSky’s quarterly realized price of $4.05 per Mcf was positively impacted as certain BC royalty production volumes were sold at few mass pricing in January, which averaged $21.97 per Mcf, before being shut in for February. NGL royalty volumes averaged 2,664 barrels per day, which was flat with both Q1 and Q4.

NGL royalty volumes generated $11.2 million a day – sorry, generated $11.2 million of royalty revenue at a realized price of $46.71 per barrel. There were 712 BOE per day of prior period adjustments in the quarter including the gas PPAs already discussed.

533 BOE per day or 75% were from new wells on stream and better well performance. There was an additional 180 BOE per day of compliance activity.

Overall, PPAs were 84% liquid. The compliance group recovered missed and incorrect royalties through forensic accounting collecting $2.6 million in the quarter.

We had another record quarter of leasing and earned $5.5 million of bonus consideration. In addition, we earned $1.1 million in lease rentals and $2.7 million in other income, which included $0.5 million a day of potash income, $900,000 in fees related to licensing our seismic to third-parties and $1.2 million related to annual water disposal fees.

Cash administrative expense totaled $17.2 million in Q1 and included annual long-term incentive payments, which were higher than the prior year due to strong share price and corporate performance. PrairieSky recorded a current tax expense of $16.5 million as mentioned on our year-end call, entering into 2023, PrairieSky has $1.55 billion of tax pool to offset future taxable income.

So, for the year the first $155 million of cash flow before tax is tax free, with remainder tax at the statutory tax rate of approximately 23.5%. During the quarter, PrairieSky declared dividends of $0.24 per share with the resulting payout ratio of 66%.

Excess funds from operations above the dividends were used primarily to repay bank debt, which totaled $292.4 million at March 31st. We plan to apply to the TSX to renew our NCIB at the end of May.

The NCIB is subject to TSX approval. We will now turn it over to the moderator to proceed with the Q&A.

Thank you. So, good morning.

My question is about the royalty rate on the new wells in Q1 was obviously pretty strong relative to your historical run rate. I guess my question is what’s driving this number higher and how should we think about the new well royalty rate going forward?

Yes. Thanks for the question Aaron.

The royalty rate was a little bit higher. We expected to be significantly higher again in the back half year as well.

I think what’s really driving that is the Heritage asset that we acquired, and the majority of leasing we have done on that is for heavy oil, and it’s 17.5% royalties, and it’s primarily multilaterally drilled. So, the entire wellbore path is on the 17.5% royalties.

So, it will kind of drive, pardon me, average royalties higher over time, we think. And then of course we have got the Q3 Viking drilling, which is where the majority of the activity happens on that asset.

And that’s predominantly 17.5% as well.

Thanks Andrew. I got a follow-up question.

In regards to the annual water disposal fees you guys are collecting. Is this a new line of business that you are growing or is this something that’s always been the case, but just buried in the financials?

Yes, it’s always been there. It’s always been the case buried in the financials.

I think it’s becoming a little bit larger part of our business and I think a lot of the other revenue lines should start to grow over time, including potash. We have done some recent leasing for that.

So, we are working hard on other minerals and other revenues and that should grow over time.

Thank you.

Thanks for the questions.

Thanks. Good morning folks.

Just wondering if you have indications from the operators on your land of how much more you might see for, I guess, Mannville heavy oil drilling this year. And also on the Clearwater, I guess the wells spud were down year-over-year, just maybe can you speculate on how that might look for the rest of the year?

Thank you.

You bet, Michael and thanks for the question. Good morning.

Yes. The Mannville drilling, we expect to see a significant pickup just given that we had our first full year last year in 2022 with the Heritage asset.

We are very active leasing those lands. There were numerous discoveries made, multilateral wells drilled in different parts of Mannville, including the Sparky, the Waseca, the upper and lower Cummings.

And we expect now development to occur on a lot of those assets. And a lot of the operators have told us they plan to be in growth mode, specifically with the narrower differentials we are seeing now and the stronger WTI pricing.

We think that holds true and then the Clearwater is more of just the timing issue. And we expect activity to pick up year-upon-year based on the conversations with the operators, primarily privates.

We will give a bigger update on that on both the Mannville drilling, the Clearwater at our Investor Day on May 17th, as well. And we will have the CEO presenting, who is our largest royalty payer and fast growing royalty payer at our Investor Day as well.

So, should get more detail there.

Great. That’s all for me.

Thanks.

Thanks Michael.

Thank you very much everyone for your support and for dialing into the conference call and hopefully we will see you at the AGM in a couple of hours. Have a good day.