PrairieSky Royalty (TSX:PSK) reported second-quarter financial results on Tuesday. The transcript from the company's second-quarter earnings call has been provided below.

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Summary

PrairieSky Royalty Ltd. reported a 7% increase in oil production from Q1 2026, driven by heightened activity across its lands.

The company executed 57 leases with 46 operators and anticipates a busy summer of leasing and drilling, despite some operational delays due to wet field conditions.

Total production reached a record 27,479 boe per day, with notable increases in liquids and NGL volumes, primarily from Clearwater and Manville stack.

Funds from operations rose to $133.1 million, up 38% from Q2 2025, with a 46% payout ratio, and the company declared a Q3 dividend of 26.5 cents per share.

Management expressed optimism about growth in Duvernay and other plays, highlighting the impact of technological advancements and robust commodity prices on future activities.

Full Transcript

OPERATOR

Thank you for standing by. Welcome to the PrairieSky Royalty Ltd. announces their second quarter 2026 financial results. At this time all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press Star 11 on your telephone and you will then hear an automated message of asking. Your hand is raised and to withdraw your question, please press Star 11 again.

Please be advised that today's conference is being recorded. I would like now to turn your conference over to Andrew Phillips, President and Chief Executive Officer. Please go ahead.

Andrew Phillips, President and CEO

Thank you very much, Operator, and good morning. Thank you for dialing into the PrairieSky Q2 2026 conference call. On the call from PrairieSky are Dan Bertram, Pam Cazale, Mike Murphy, and myself, Andrew Phillips. Before we begin, there is certain forward-looking information and statements in our commentary today, so I would ask listeners and investors to review the forward-looking statements qualifier in our press release and MD&A, which can be found on our website.

Oil production increased 7% from Q1 this year. Stronger activity levels across the basin drove the increase. Strong spud activity on our lands throughout the quarter is encouraging for the balance of the year. With a $0.71 dollar and over $70 US WTI crude, we are close to $100 per barrel for Canadian light oil. In 2019, pre-COVID, we had 234 million shares fully diluted outstanding with average annual royalty production of 8,633 barrels per day of oil and 46 million barrels of reserves.

Today we have 232.4 million shares outstanding with average oil production of 14,740 barrels per day and 64 million barrels of reserves. We will be net cash by this time next year. Numerous newly formed oil companies have been founded over the past year. This quarter we entered into 57 leases with 46 distinct operators. We continue to pursue leasing agreements with qualified, well-capitalized companies. PrairieSky expects another busy summer of both leasing and drilling activity with 215 rigs active in the field today, up from 170 a year ago.

Wet field conditions have hindered operations in the Eastern Alberta heavy oil region, delaying some completion and drilling activity. I will turn the call over to Mike to discuss activity on our lands.

Mike Murphy, VP, Geosciences and Capital Markets

Thanks, Andrew. Duvernay activity remains strong in Q2 with 51 spuds year to date compared to 55 in all of 2025. The first West Shale basin Duvernay wells from this year's programs were brought on production late in Q2, which should positively impact Q3 royalty oil production. Expanded third-party capital programs in the Duvernay and continued completion activities over the summer should position PrairieSky for meaningful light oil growth through the remainder of the year.

Multilateral activity continues to expand on PrairieSky lands with 137 spuds year to date relative to 100 over the same period last year. Beyond the Clearwater and Manville stack, we also saw multilateral spuds in the Charlie Lake, Ellerslie, Bakken, and Southeast Pask Mississippian in Q2. In the Clearwater, we now estimate 60% of our royalty oil volumes are under waterflood support, with declines in the mid-teens contributing to our highly sustainable production base.

Finally, thermal volumes from a new pad at Lindbergh began ramping up in Q2, which should support growth in our second half royalty oil production. A new south pad is currently drilling at Lindbergh, setting the asset up for incremental growth in 2027 and beyond. I'll now turn it over to Pam to discuss the financials.

Pam Cazale

Thank you, Mike. Good morning, everyone. PrairieSky delivered strong second quarter results in cash flow, production, and leasing activity. Total production reached a record 27,479 boe per day, an increase of 4% as compared to Q2 2025, driven by liquids growth, with oil volumes up 3% and NGL volumes up 15%. The Clearwater provided our largest increase, up 27% over Q2 2025, and the Manville stack was up 19%. NGL royalty production growth of 15% over Q2 2025 was driven by the Montney and the West Shale basin Duvernay.

With US dollar WTI averaging $92.80 in the quarter, our realized price rose to an average of $109.87 per barrel, and NGL pricing averaged $55.30 per barrel. Liquids production generated 93% of our total production revenue, which totaled $167.1 million in the quarter. In aggregate, other revenues added $10.9 million to cash flow, including $6.4 million in bonus consideration year to date. Bonus consideration of $18.7 million is 39% ahead of year to date 2025.

Once again this quarter, leasing was most active in the Duvernay Light oil and Manville Heavy oil plays. We view leasing as a leading indicator of future development and anticipate operators will be active across these plays throughout 2026 and beyond. Funds from operations were $133.1 million or $0.57 per share, up 38% from Q2 2025. PrairieSky declared dividends of $61.6 million during the quarter with a corresponding payout ratio of 46%. Excess cash flow was allocated to minor acquisitions totaling $1.8 million and debt reduction of $71.1 million in the quarter.

At June 30, net debt totaled $186.6 million. PrairieSky also declared its third quarter dividend of 26.5 cents per common share for shareholders of record on September 29, 2026. With that, I'll turn it back to the moderator to begin the Q&A.

OPERATOR

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. And the first question is going to come from Jeremy McCray with BMO Capital Markets. Your line is open.

Jeremy McCray, BMO Capital Markets

I can't help but notice there's a lot more activity in this quarter versus Q2 of last year, and obviously commodity price is probably driving some of that. But I'm trying to get a sense of if you were to exclude the higher commodity price, would this activity still have been as robust? I'm just trying to get a sense of what we could expect going forward. Is the higher activity driven more by the commodity price or just more driven by the opportunity of some of the land base that you have here?

Andrew Phillips, President and CEO

I think it's a combination of things, Jeremy. Thanks for the question. Good morning. When you think about just multilateral drilling and just kind of sequential improvements in technology, but also in Canada with the weak Canadian FX, you're still at 100 CAD for light. So I think it's a combination of those things. We do expect that to continue just given it is still quite a robust commodity environment. But there's even things like the Viking that had a bit of a resurgence.

When you simply think about it, a Viking well is $1.1 million and the most recent wells are getting about 55,000 barrels of light oil. A Duvernay well is $11 million and it's 550,000 barrels of condensate. So it's 10 times the price for 10 times the volumes. The Viking competes quite well with even really good plays like the Duvernay. I think you're starting to see operators with better balance sheets and more capital available to drill a little bit more of some of their inventory that sits within their cupboards.

Jeremy McCray, BMO Capital Markets

And a bit of a follow-up question here too. So yeah, when you look at your Viking activity, how much that came up and I would say surprised us. Is there any other plays that could surprise us here for the back half of the year heading into 2027 that maybe we're not thinking enough about?

Andrew Phillips, President and CEO

Yeah, it's a good question. I think the one thing we have seen is just very focused drilling over the last 10 years. The Viking had a massive push in 2016, 17, 18, and then you see the Duvernay today, a lot of the Eastern Alberta heavy oil plays. But what's starting to happen today is just with the robust economics, everything from southeast Saskatchewan to some conventional oil in western Saskatchewan, all throughout the province in Eastern Alberta, people are testing these multilaterals in different ways.

Even there's some intermediate-sized companies in Eastern Alberta working on Sparky water floods, et cetera, that have shown really good response. So I think just kind of higher basin-wide activity. You have the plays that we're expecting, which are kind of the three core growth plays for us: the Clearwater, the Manville Stack, and the Duvernay. But then all of a sudden you have kind of a resurgence in drilling across the basin on the more conventional plays, I guess.

Jeremy McCray, BMO Capital Markets

Okay, perfect. Thanks, Andrew.

Andrew Phillips, President and CEO

Appreciate the questions.

OPERATOR

Thank you. And as a reminder, to ask a question, please press star 11 on your telephone at this time. I'm showing no further questions. I will now turn the call back to Andrew for closing remarks.

Andrew Phillips, President and CEO

Thanks everyone who dialed in early and hope everyone has a great summer.

OPERATOR

Thank you. This does conclude today's conference call. Thank you for participating and you may now disconnect.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.