Andrew Phillips - President and Chief Executive Officer Pam Kazeil - Chief Financial Officer

Travis Wood - National Bank Shailender Randhawa - RBC Capital Markets

Thank you, operator and good morning, everyone. And thank you for dialing into the PrairieSky Q3 earnings call.

On the call from PSK are Cam Proctor, COO; Pam Kazeil, CFO, and myself, Andrew Phillips. During the third quarter, the team at PrairieSky were targeted towards its four objectives of cost control, compliance, acquisitions and leasing land.

By selling at these, we can accomplish our goal of increasing free cash flow per share over the long-term for our shareholders. Cash G&A expense totaled $2.45 a barrel, down 28% from a year ago.

The compliance team continue to find missing barrel, excessive deductions, as well as returning land to our inventory. Recoveries to date totaled $4.9 million, $5 million return on acquisitions in the third quarter.

This included the consolidation of seismic assets over PSK Fee Land in Central Alberta and a royalty of 6% in two emerging heavy play the Alberta, covering over 70 section of crown land. Two multilateral horizontal wells have been committed on the acreage.

The fall has brought with it numerous high-quality royalty packages that our team is busy evaluating, approximately half of the packages come directly to PrairieSky and half are publicly marketed. Leasing activity remains strong with PSK entering into 29 leasing arrangements and collecting $5.6 million in bonus revenue.

The majority of the leases are for crude oil in less than two years term, so should result in new drilling activity. As of September 30, PSK had a $168 [ph] million of positive working capital.

Our quarterly free cash flow was $54.2 million. If you annualize this and use a $30 share price it translates into 3.2% free cash flow yield.

Over the quarter, we paid $41.1 million in dividends for 76% payout ratio. We also used $10.1 million of free cash flow to cancel 390,000 shares.

The remaining $3 million of free cash flow after the dividend of buyback was used for acquisitions. 200 wells were spud on PrairieSky land in Q3, up from 80 in the typically quiet Q2 breakup period.

We're very proud of the team we've assembled at PrairieSky over the last 2.5 years. The finance compliance, land, technical and business development groups worked hard and efficiently and are all invested alongside our shareholders.

I'd like to thank our investors for their support. Pam and myself are available at anytime that is convenient for you if you have any follow up questions regarding the quarter or other matters.

I will now pass the call over to Pam to walk through the financial.

Thank you, Andrew. Good morning, everyone.

PrairieSky generated funds from operations of $54.2 million or $0.24 per share in the third quarter, this was up from $42.8 million and $0.18 per share in Q2 2016, as a result an improved AKO pricing and increased leasing activity. Year-to-date, funds from operations totaled $138.4 million or $0.61 per share.

Average daily production for the quarter was 23,050 BOE per day. Production was comprised of natural gas volumes at $74.8 million a day, oil volumes at 8,278 barrels a day and NGL volumes of 2,305 barrels a day.

PrairieSky's production volumes included 1,056 BOE a day from compliance activity and 885 BOE a day of other prior period adjustments related to new wells and better performance. Year-to-date volumes totaled 23,096BOE a day, and reported 7% liquid.

Q3 2916 production revenue totaled $52.2 million, which was 76% liquid. Product revenue was positively impacted by improved natural gas pricing in the quarter.

Year-to-date production revenue totaled $138.6 million, which was 79% liquids revenue. The compliance group continues to work hard identifying missed and incorrect [ph] royalty.

As a result of their efforts year-to-date we have collected $4.9 million of compliance revenue. Other revenue for the quarter was $7.1 million and includes lease rental income of $1.3 million and bonus consideration of $5.6 million related to entering into 29 new leases with 26 different counterparties in the period.

Year-to-date, other revenue totaled $17.7 million, which included $6.5 million of lease rental and $10 million of bonus consideration. Administrative expenses in the quarter totaled $7.6 million or $3.58 per BOE.

Cash and administrative cost were $5.2 million or $2.25 per BOE, down 11% from Q2 and down 28% from Q3 2015. Year-to-date cash G&A per BOE totaled $18.8 million or $2.97 per BOE.

PrairieSky anticipates cash G&A to be in the low $3 per BOE range for full year 2016. PrairieSky generated net income in the quarter of $7.9 million or $0.03 per share, and $3.9 million or $0.02 per share year-to-date.

PrairieSky declared dividends of $41.1 million or $0.18 per share in the quarter with resulting payout of 76%. Since IPO, PrairieSky has declared $450 million in dividends to shareholders.

Under the normal course issuer bid, PrairieSky repurchased 390,000 common shares for $10.1 million. At September 30, PrairieSky had positive working capital of $168.1 million, including cash of $159.4 million and no debt.

We will now turn it over to the moderator to proceed with the Q&A.

Yes. Good morning, guys.

Just wondering if you could provide some context around the business development landscape in terms of what you're seeing in volume and size of transactions and consolidation opportunities out there?

You bet. Travis.

Yes, it's pretty quiet in the late spring, summer, it’s typically quiet. But as the fall came we saw a number of different royalty packages come available.

And there is everything from you know, $100 million type packages to $3 million to $5 million type packages. So I do think you know, it is the – those margin royalty streams that are within some of these smaller companies they are now coming available as they dug them out and some other interesting royalties on more resource type plays are also coming available today.

Okay, that's it. Thank you.

Thanks. Good morning.

So a couple of questions from me, Andrew. So one, can you give us just a rough split of what the 200 spuds during the quarter would have been in terms of mineral title versus GORRs?

Guess what I'm kind of interested in is, what does the dollar at CapEx in 2017 mean versus 2014 when you were more weighted to fee simple lands?

Okay. And then the second question, or do you want me to answer that one first?

Yes, and the second question is just on the heavy oil prospect, just any more color in terms of magnitude of what that means, and if I heard you right, you said a 6% royalty, so is that a GORR or is that also mineral title?

Right, okay. So you bet.

Those are great questions Shailender. So the split in terms of the spuds 139 of them were on fee simple lands 62 were around the GORR lands.

We've actually seen a little bit of increased activity on the GORR acreage, that’s a result of our Range Royalty acquisition, which was entered into in late 2014. Some of the private operators where the majority of the payers actually ramped up drilling activity this year.

So we saw a little bit of a disproportionate spread on GORR versus Lore's [ph]. So 139 lessor royalties.

And then in terms of where the spuds geographically were located, we had about 140 in Saskatchewan with a slant towards the Viking. And then on the operating side, what was unique about this quarter is, we finally saw some of the Tier 2 plays in our inventory start to get drilled.

So we had 8 spuds on the Cardium, mostly in West Canada and Rosevear and then broad array of other Manville and Bakken locations that were drilled. So, it was a nicer mix this quarter in terms of the splits.

And then your second question in terms of heavy oil prospect. So this is -its kind of unique area in the oil sands where you have oil that's just a little bit too late for SAGDs but the reservoirs are a little bit too lithic for cold flow heavy oil production or CHOPS production to work.

So, these multi-lateral horizontals get the oil out and you know, our normal time some of these oils translations would be $30 million to $50 million. So we were able to under $5 million get long-term lease on some really high quality lands with a great operator.

So, the prospect is what I described. So it's multi-lateral horizontals to exploit it, and it’s got a massive oil and plays number and it's all delineated with vertical logs.

So we have a pretty good understanding of the resource, I don’t know how long its going to take to get out or properly understand it, but its one of those ones that we view as good optionality in our portfolio where we can get the multiples on capital into the future. And it is a 6% and it’s on Crown lands.

Okay, great. Okay, thanks very much.

You're welcome. And also, I guess the one comment I make on it is because the multi-laterals can be up to four and four [ph] miles of length, the royalties from the Crown are very reasonable.

So there is room to have a growth to our royalty without impacting economics too unfavorably.

Well, thank you much for dialing into our Q3 earnings call and if you have any follow-up questions, feel free to call Pam or myself, we'll be around all day. Thanks very much.