Freehold Royalties (TSE:FRU) reported results and discussed its outlook on its fourth-quarter 2025 webcast, highlighting another year of record production, a heavier liquids mix, and continued investment in undeveloped royalty interests, while also cautioning that operator activity slowed in the back half of 2025 amid lower commodity prices and weak Canadian natural gas pricing.
Record 2025 production and a higher-value liquids mix
President and CEO David Spyker said Freehold achieved its fifth consecutive year of record annual production in 2025, averaging 16,294 BOE/d from its North American royalty portfolio. Over the past five years, the company increased its liquids weighting from 55% to 66%, a shift Spyker said drove the company’s revenue mix: liquids represented 90% of total revenue in 2025.
Spyker said Freehold’s U.S. royalty volumes received a 35% pricing premium versus Canadian production in 2025. He also cited a significant gap in natural gas realizations, with U.S. natural gas receiving an 80% premium over Canadian prices, which management attributed to proximity to U.S. Gulf Coast LNG facilities and greater egress options.
Funds from operations, dividends, debt reduction, and acquisitions
Freehold generated CAD 235 million in funds from operations in 2025, or CAD 1.43 per share, management said. With that cash flow, the company:
- Paid CAD 177 million in dividends to shareholders
- Reduced long-term debt by CAD 18 million
- Invested CAD 38 million in oil-focused royalty interest assets
The acquisitions included mineral title land in undeveloped drilling areas in the core of the Permian Basin and gross overriding royalty interests in Canada. Spyker described the acquired Permian mineral title lands as held in perpetuity and located in areas with “significant undeveloped resource and drilling inventory,” adding that the lands were in early stages of development.
2026 production guidance reflects slower activity and early-year headwinds
Management guided to 2026 production averaging 15,500 to 16,300 BOE/d. Spyker said the outlook reflects the slowdown in activity experienced in 2025, ongoing weakness in Canadian natural gas prices that has reduced gas-directed drilling on Freehold’s Canadian royalty lands, and potential production impacts from a late-January winter storm in the southern U.S., which management expects could moderate volumes in the first half of 2026.
However, Freehold expects activity and volumes to improve later in the year. Spyker said the company anticipates a ramp in the second half of 2026 supported by existing well licenses and permits, active drilling programs, and an inventory of drilled but uncompleted wells.
In response to an analyst question on cadence, Spyker said internal expectations are for results to track near the lower end of guidance in the first half and the higher end in the second half, driven by a lag in drilling momentum coming out of 2025 and spring breakup in Canada. He pointed to “big pad activity” under Diamondback and Exxon in the Permian, as well as ConocoPhillips activity in the Eagle Ford—including refracs and three-mile wells—where the company expects production to come on in the second half. In Canada, he cited Ovintiv’s Montney drilling and Freehold’s exposure under Spartan Delta in the Duvernay as additional second-half contributors.
Spyker also noted that the guidance range does not consider impacts of recent geopolitical events in the Middle East, while acknowledging the potential for a significant oil supply response if prices remain elevated.
Operational themes: Permian innovation, Eagle Ford laterals and refracs, and improving Canadian well performance
Spyker emphasized technology-driven improvements in key U.S. basins. In the Permian, he said operators are deploying surfactants and lightweight proppant to improve well performance, and that Freehold’s average U.S. production type curve showed a 10% year-over-year improvement. He also said the company is seeing increased activity targeting deeper Permian formations such as the Barnett and Woodford, contributing to record leasing levels.
Freehold reported CAD 8 million of lease bonus revenue in 2025, up from CAD 3 million the prior year. Spyker referenced a four-well pad permitted on one of these new leases targeting the Barnett Shale, and said several operators are pursuing Barnett potential, including Ovintiv, which has announced it will drill its first well in 2026.
In the Eagle Ford, Spyker said ConocoPhillips will drill three-mile wells on Freehold royalty land in 2026 and will pursue a refrac program aimed at wells completed prior to 2016. He said Freehold has a royalty interest in approximately 500 wells that would be refrac candidates.
In Canada, Spyker said capital continues to be directed toward oil-weighted assets in heavy oil plays including Clearwater and the Mannville stack, as well as light oil in Southeast Saskatchewan. He also said Viking light oil drilling activity returned in the first quarter of 2026 after being absent in the last half of 2025.
Management said Canadian well performance improved by approximately 35% year-over-year as operators targeted premium acreage and optimized well design. On the natural gas side, Spyker referenced 23 licensed Montney wells on Freehold’s Northeast B.C. royalty lands. In a Q&A exchange, management specified the royalty rate on those Montney wells at 3.5%.
Capital allocation and risk posture: dividends, debt, disciplined acquisitions; no hedging
CFO Shaina Morihira said that if higher commodity prices persist and cash flow exceeds expectations, Freehold’s first priorities would be to continue paying dividends—bringing down the payout ratio—and to apply incremental cash flow to the balance sheet. She added that the company intends to remain patient and disciplined on acquisitions, noting that elevated commodity prices can widen the gap between buyers and sellers.
Asked about share buybacks, management said it has not publicly set a target debt level that would trigger buybacks, but reiterated a leverage target of below 1.5 times and noted the company has an NCIB in place. Morihira said Freehold would generally prioritize reinvestment opportunities, including acquiring undeveloped acres in the Permian or Canada.
Management also said Freehold has not historically hedged and is not considering hedging at this time, citing its business structure, capital requirements, and balance sheet position.
Spyker closed the call by thanking staff for efforts in transitioning from the long-standing management agreement with Rife Management to becoming a fully independent Freehold.
About Freehold Royalties (TSE:FRU)
Freehold Royalties Ltd is in acquiring and managing Oil and Gas royalties. It operates in two segments: Canada, which includes exploration and evaluation assets and the petroleum and natural gas interests in Western Canada; and the United States, which includes petroleum and natural gas interests held in the Permian (Midland and Delaware), Eagle Ford, Haynesville and Bakken basins primarily located in the states of Texas, Louisiana, and North Dakota. The majority of its revenue is generated from Canada Segment.
