Freehold Royalties Ltd. (Freehold) has made a significant stride in the North American energy market by entering into definitive agreements to acquire Permian mineral title and royalty assets for approximately CAD$112 million. This strategic move, involving acquisitions from two private sellers, is set to bolster Freehold’s presence in the lucrative Permian Basin, spanning across Texas and New Mexico.

Strategic Significance of the Acquired Assets

The Acquired Assets, predominantly located in Martin County, Texas, within the Midland Basin, represent some of North America’s richest reservoir quality, with up to ten stacked pay benches available for development. This acquisition, net of customary closing adjustments, is a game-changer for Freehold, enhancing its undeveloped land portfolio and potential for future development. The assets comprise approximately 123,000 gross acres, translating to 2,670 net royalty acres normalized to 1/8th, with a substantial 76% in the Midland and 24% in the Delaware basins.

Impressive Growth and Production Forecasts

Freehold’s total Permian land position is set to rise by 40%, exceeding half a million gross acres, accounting for 57% of its US gross land base. The 2024 forecast predicts an average production increase of 600 boe/d, contributing significantly to the company’s US production by 12% and enhancing its Permian production by around 30%. The acquisition promises a liquids-weighted production stream, estimated at 85%, surpassing Freehold’s current average in the US.

Enhancing Freehold’s Drilling Inventory and Future Development

The Acquired Assets are expected to add over 2,000 gross development locations to Freehold’s portfolio, marking a 25% increase in the company’s total US inventory. This expansion implies a robust 17-year drilling inventory based on 2022 drilling levels. Key operators such as Exxon Mobil and Pioneer Natural Resources are anticipated to be among the top payors, significantly contributing to Freehold’s future gross locations.

Financial Strategy and Future Outlook

The Acquisitions, financed through Freehold’s existing credit facility, are poised to double Freehold’s Midland basin activity, indicating that one in every seven wells drilled in 2023 in the Midland basin will be on Freehold’s lands. The company plans to provide an update on its 2024 guidance as part of its 2023 year-end operating and financial results.

Aligning with Freehold’s Strategic Vision

This acquisition aligns perfectly with Freehold’s strategy of positioning its portfolio ahead of the drill bit in high-quality resource plays. The addition of the Acquired Assets is expected to contribute significantly to enhanced returns and sustainability for shareholders in the years ahead.

  Delaware Basin, Freehold Royalties, Midland Basin, Permian Basin, USA