Feb 11, 2020
Operator
Ladies and gentlemen, thank you for standing by, and welcome to the PrairieSky Royalty announces their Annual and Fourth Quarter 2019 Financial Results Conference Call. At this time, all participants are in a listen-only mode.
After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.
[Operator Instructions] I would now like to hand the conference to your speaker today, Andrew Phillips, President and CEO. Please go ahead, sir.
Andrew Phillips
Thank you, Joelle, and good morning and thank you for dialing into the PrairieSky year-end 2019 conference call. On the call from PrairieSky are Cam Proctor, COO; Pam Kazeil, CFO; and myself, Andrew Phillips.
Before I turn the call over to Pam, I will give an operational update and a year-end review. We entered 2019 with $15.45 million royalty barrels in book reserves.
We received over three million royalty barrels of production in 2019, which was the largest contributor to our $220 million in free cash flow. We exited the year with 16.1 million royalty oil barrels booked in reserves, as industry trended up [ph] drilling to replace all produced oil and add 650,000 barrels of new oil reserves.
This is a year in which PrairieSky did no production acquisitions, a good result. Natural gases are decreased by 11% after production, and NGL reserves grew by 8.5% net of all NGL royalty production.
Funds from operations total $55.8 million while the dividend was $45.4 million for an 81% payout ratio. Royalty production for the quarter totaled 22,203 royalty barrels, including 8,884 royalty oil barrels per day.
Declines for 2020 are expected to be modestly lower than the 19% decline experienced on the base in 2019. Climbing oil declines are a result of more conventional lower decline drilling, water flood activity throughout the portfolio, and the stability of our thermal oil project, which represents approximately 10% of our royalty oil production.
Cash administration was $2.01 per barrel, and $2.68 per barrel for the year, the lowest cost achieved since our IPO. Compliance recoveries for the quarter were $1.6 million.
All departments of PrairieSky worked very hard for shareholders over the past year, so thank you to the dedicated staff of PrairieSky, all of whom are also shareholders of the business. Over the fourth quarter, a number of acquisitions were evaluated and bids submitted, but none were executed on.
We did spend $3.2 million acquiring additional Montney, Clearwater, and Mannville undeveloped lands with excellent prospectivity and stacked oil and gas opportunities. Sizable M&A has occurred or is pending on PrairieSky acreage, including the acquisition of the Lindbergh thermal oil project, and the proposed acquisition of the Southern Alberta Bach and Light Oil Field.
These two assets total approximately 1,000 royalty oil barrels net to PrairieSky. In both cases, the acquirers are well capitalized operators with growth plans on the assets.
33 lease arrangements with 31 different operators were entered into for total consideration of $1.4 million in the quarter. A number of new oil plays were generated by our technical team throughout 2019, and in conjunction with our land negotiators, we will look for qualified operators to drill the prospects.
Since our IPO, we have now returned one-third of our market cap to shareholders and expect to return another two-thirds over the next 10 years. These are unlevered returns.
I would like to thank our shareholders for their support of this capitalized business, and we'll continue to work hard for you to generate strong returns in the future. 2019 was also an important year for advancing PrairieSky's DSG platform.
This is a focus for investors and industry participants alike, and has been a core part of PrairieSky's business model and strategy since its inception. We continue to look for areas of improvement across the organization, and opportunities to partner with companies that share a long-term commitment to sustainability.
During 2019, we partnered with Enhance Energy, an Alberta private company whose pioneering CO2 enhanced oil recovery scheme at the Clive Field and the Pentic Valley Field in Alberta. These projects will safely store CO2 delivered through the Alberta carbon trunk line that would otherwise be admitted into the atmosphere, while at the same time revitalizing the pool and maximizing recovery factors.
Enhance believes that no other crude oil produced in the world will have a lower net carbon impact on the environment than oil produced from the Clive Field, making this project a truly low carbon Canadian energy solution. This is just one example of the innovation being applied by our industry partners on PrairieSky lands.
We also continue to showcase the differentiating factors in our business model. Our leading governance strategy and risk management process are recognized by several third-party rating agencies.
In, 2019 we received a B score from CDP and an AA score from MSCI, which is a reflection of PrairieSky's strength relative to other businesses, and across industries. We continue to own zero facilities, zero well bores, and have no abandonment or end of life asset liabilities.
We continue to examine ways to improve efficiencies in our business, while reducing costs, consumption, and our overall impact on the environment. Our corporate culture fosters performance combined with diversity, and to our knowledge PrairieSky has the highest percentage of women, approximately 75%, working in an energy company in Canada.
This is an addition to strong female leadership of the board, executive, and senior management level. 2020 will be another important year for PrairieSky as the SG continues to evolve and take root in more formalized measurement and disclosure requirements.
PrairieSky's goal is to demonstrate leadership in this evolution and showcase the strength of its ESG attributes to existing investors, stakeholders, and the broader investment community. I will now turn the call over to Pam to walk through the financials.
Pam Kazeil
Thank you, Andrew. Good morning, everyone.
PrairieSky delivered a strong Q4, generating funds from operations of $55.8 million, or $0.24 per share. Our royalty production of 22,203 BOE per day represents an 8% increase over Q3 2019 production volumes, and generated $63.4 million of royalty production revenue.
Oil royalty production bonds were 8,884 barrels per day, up 11% from Q3, due to AFTA's third-party drilling on PrairieSky lands in the second half of the year. Prior period adjustments for oil totaled 618 barrels a day, comprised of 457 barrels a day of new wells on stream and better well performance, and 161 barrels a day from compliance recovery.
Oil royalty revenue totaled $36.9 million, up 8% from Q3 2019, as higher royalty production was partially offset by wider Canadian light and heavy oil differentials. Natural gas volumes totaled $63 million a day, up 3% from Q3, primarily due to the addition of Montney wells in the Pipestone area.
Natural Gas volumes included $2.2 million a day in prior period adjustments, including $1.6 million a day of compliance volume. Natural Gas revenue of $9.8 million was more than double Q3 2019 natural gas revenues of $4.1 million.
As a result of the significant increase in ACO benchmark natural gas pricing in the quarter. NGL royalty production volumes total 2,819 barrels a day, up 21% from Q3, and generated $6.7 million in revenue.
It was a strong quarter for NGLs, as we received new royalty volumes from our Pipestone Montney wells, which increased our NGL net back to $25.92 per barrel, and jail volumes included 224 barrels a day of prior paid volumes, with 179 barrels a day related to new wells on-stream. Annually, PrairieSky's funds from operations total $220.4 million or $0.94 per share, generated primarily from oil royalty revenue of $188.7 million, natural gas royalty revenue of $26.7 million, and NGL royalty revenue $29.5 million.
There were 150 wells vied in Q4, comprised of 148 oil wells and two natural gas wells. The spring's total wealth for 2019 brought on PrairieSky lands to 661, as compared to 810 in 2018.
The average royalty rate for spuds in Q4 was 6%, and 7.1% for the year. Gross capital spending on PrairieSky lands totaled $1.1 billion and $58 million net.
Looking forward, PrairieSky's 2020 annual pricing sensitivities are as follows. A $5 per barrel increase or decrease in U.S.
dollar WPI will result in a $13 million increase or decrease in funds from operations, and this is net of cash taxes and G&A. A $0.25 per MCS move in ACO up or down will result in a $4 million increase or decrease in funds from operations, again, this is net of taxes and G&A, and a $0.01 change in the U.S.
dollar to Canada FX rate will result in a $2 million change in funds from operations, net of cash taxes and G&A, and a $1 per barrel increase or decrease in the differentials for light and heavy oil results in a $5 million change in funds from operations, net of cash taxes and G&A. Other revenue in Q4 totaled $3.7 million, including $2.2 million in lease rentals, $0.1 million in other revenue, and $1.4 million in bonus consideration on entering into 33 leasing transactions with 31 different counterparties.
For 2019, other revenue totaled $23.5 million, made up of $7.2 million in lease rentals, $4.2 million of other revenue, and $12.1 million in bonus consideration on entering 127 leasing transactions with 80 different counterparties. PrairieSky collected $1.6 million in compliance revenue in Q4, bringing the total collected to $7.2 million for the year.
These amounts are included in royalty revenue. PrairieSky anticipates other revenue in the range of $25 million 2020, including lease rentals, bonus consideration, other revenue, and compliance recoveries.
Production and mineral taxes totaled $1.3 million or $0.64 per BOE for Q4, bringing annual production in mineral taxes to $4.6 million or $0.58 cents per BOE. Cash administrative expenses for the quarter totaled $4.1 million and $21.3 million, or $2.68 per BOE for the year, our lowest cash G&A per BOE since IPO.
Cash administrative expense is expected to be below $3 per BOE again in 2020. Current tax expense for the quarter totaled $5.5 million, bringing annual cash taxes to $19.4 million for the year.
At year end, PrairieSky had approximately $1.3 billion in tax pools available to shelter future income. In 2020, this will provide tax shelter of approximately $130 million During Q4, PrairieSky declared $45.4 million in dividends with the resulting payout ratio of 81%, and repurchased and canceled .2 million common shares for $2.8 million.
For the year, PrairieSky declares dividends of $182.1 million with resulting a payout ratio of 83%, and repurchased and cancelled 1.1 million common shares for $19 million. PrairieSky's balance sheet remains strong as we close the year with a minor working capital deficiency of $3.1 million and no long-term debt.
Since IPO, PrairieSky has generated approximately $1.3 billion in funds from operations, and returned over $1 billion in dividends, and repurchased and cancelled 5.2 million common shares. We will now turn it over to the moderator to proceed with the Q&A.
Operator
Thank you. [Operator Instructions] Our first question comes from Matt Murphy with Tudor, Pickering, Holt & Company.
Your line is now open.
Jenna Weir
Hi, it's Jenna Weir on for Matt Murphy, and thanks for taking our question. The Viking was just -- continued to drive oil performance on your lands this quarter.
Going forward, do you view this asset as more of a driver of growth in the near term, or a whole flattened harvest free cash flow type of asset? And as we look around the basin at the Cardium and the Mannville for example, how are you thinking about activity here and the base business being able to hold flat?
Thank you.
Andrew Phillips
You bet. Yes, it's a good question, Jenna.
And let's talk about the Vikings specifically. It's a very important asset for us.
It's currently roughly 3,000 net royalty oil barrels, net to PrairieSky. It's getting drilled at a pace of about 350 to 400 wells per year, which gives us over a 16-year inventory doubled production flat.
So it really is just a matter of how much capital is allocated towards those assets. What we've seen is a modest decline on the Saskatchewan side over the last year in terms of total real fuel production, and then growth on the Alberta side as that has become a lot more active.
The Alberta side's unique because almost all the growth on the Alberta side has been in conjunction with water floods, so they're effectively drilling one-mile laterals, and then right beside them, drilling one-mile water injectors. So that's actually helped the sustainability of Viking and lowered the base decline of it as more Alberta wells get drilled.
So we're comfortable that with what we've seen from budgets, capital budgets from our operators and the Viking, they should keep production roughly in the 3,000 barrel range. It'll have its typical Q3 decline and Q4 ramp up, but that asset remains roughly flat.
And then again, if you have higher oil price, you could probably see that asset growing again. And then, your question -- your second question was Cardium and Mannville, and we expect in 2020 that Cardium and Mannville is going to be roughly equivalent if you include the thermal oil sands, which is also Mannville aged sands.
In Lindbergh and Onion Lake, it will actually show some growth this year. And then the balance of the portfolio.
One of the things we've seen is some of our bigger pools that have been in decline on the conventional side are now seeing new operators, and likely a little more activity. So again, we don't give guidance, but there is -- should be roughly enough capital expense to keep a lot of those on the bottom we'll see on the new assets are being drilled like the Clearwater, which is growing at the fastest pace in our portfolio.
Jenna Weir
Great, thank you.
Operator
Thank you. [Operator Instructions] Our next question comes from Mike Dunn with Stifel FirstEnergy.
Your line is now open.
Mike Dunn
Thanks. Good morning, everyone.
Just wondering, maybe Pam, if you could -- I think you mentioned $25 million in other revenues guidance for 2020. What would that number be excluding compliance revenue?
Pam Kazeil
Yes. So for 2020, we expect lease rentals to remain flattish in around $7.5 million.
Other revenue generates generally around $1.5 million. And bonus consideration, we expect that to be in the range of about $12 million.
So the compliance revenue piece would make up about $3 million to $5 million.
Andrew Phillips
And usually, Mike, we'll be ahead on that. And compliance is a really difficult one to forecast, but we almost every year kind of end up north of $7 million.
So hopefully that's the -- hopefully it does end up there, but that's the guidance we're providing for the other revenues.
Mike Dunn
Great, that's all for me. The previous -- my other questions were asked there, so thank you.
Andrew Phillips
Thanks, Mike.
Operator
Thank you. Our next question comes from Jamie Kubik from CIBC.
Your line is now open.
Jamie Kubik
Good morning, guys. Thanks for this.
Can you talk about how you're thinking about the NCIB over the coming year with where prices currently sit? And would you look to use the balance sheet at all to advance repurchases?
Andrew Phillips
Yes, that's a good question, and one of the things that we have that flexibility with the accessory task on top of the $182 million dividend, and we've consistently bought stock every day, a modest amount of stock every single day, and had that same program last few years. And the way we kind of view the NCIB is we'll effectively utilize it at the capital shares, debt to free cash flow, but upon finding good opportunities to make acquisitions that will add long-term value for shareholders, we'd prefer to do that it if they are available.
But if they don't compete with our portfolio, we'll continue to buy back stock. And in terms of answering your question for utilizing leverage for the NCIB, again, we've never used leverage as a long-term part of our capital structure.
So it's unlikely that we would do a substantial issue or bid or utilize potential leverage to buy that stock.
Jamie Kubik
Okay, thank you.
Operator
Thank you. I'm not showing any further questions at this time.
I would now like to turn the call back over to Andrew Phillips for any closing remarks.
Andrew Phillips
Thank you, everyone, for dialing into the PrairieSky Q4 conference call. And as always, please call either Pam or myself if you have any follow-up questions.
Operator
Ladies and gentlemen, this concludes today's conference call. Thank you for participating.
You may now disconnect.