capex (mm) $167.5 $6.0 $6.0 net debt ye (mm) $72.5 … · acumen capital finance partners ... hbc...

November 29, 2016

Initiating Coverage on Freehold Royalties Ltd.

We are initiating coverage on Freehold Royalties Ltd. (TSX:FRU) with a Buy recommendation and $16.25/sh target price.

Our 16.1x 2017F EV/DACF target is based on a 50/50 blend of higher quality E&Ps and comparable royalty based company’s;

The royalty model provides strong margins based on modest capital requirements, and returns which are not burdened by operating costs, crown royalties, and abandonment expenditures;

FRU has placed an emphases on reduced WI drilling, as a result we see further upside to margins along with multiple expansion as the company becomes more comparable to pure play royalty company’s;

Although net drilling on FRU’s land is down YTD, Q4/16 activity has been strong, providing potential catalysts with Q4/16 and Q1/17 results;

FRU is managed by Rife resources, a high quality team with a long history of controlling royalty assets;

Management has executed on two transformative transactions over the past two years, and we believe FRU is well positioned for further growth;

Recently released Q3/16 results were highlighted by free CF of ~$11 MM, and debt to CF of 0.9x;

FRU has paid out well over $30/sh in dividends since their IPO, and based on strong free CF, and decreasing debt, we believe the company is well positioned for a dividend increase over the near to medium term; and,

We view the current stock price as a reasonably strong entry point.

COMPANY DESCRIPTION: Freehold is a dividend paying oil and gas company with one of the largest mineral land positions in Canada,

and generates income through a combination of Gross Overriding Royalties, Mineral Title Royalties, and Production Volume Royalties.

ACUMEN CAPITAL | RESEARCH IDEAS. GROWTH. OPPORTUNITY.

Freehold Royalties Ltd. (TSX:FRU)

Last Close: $12.15 OIL & GAS RESEARCH

12-Month Target: $16.25 Recommendation: BUY

Implied Total Return: 38%

Trevor Reynolds |Oil and Gas Research Analyst | (403) 410-6842 | [email protected]

Mike McMeeken |Research Associate | (403) 571-0530 | [email protected]

ACUMEN CAPITAL FINANCE PARTNERS LIMITED | SUITE 700 – 404 – 6th AVENUE SW | CALGARY, AB | T2P 0R9

MAIN PHONE: 403.571.0300 | TOLL FREE: 1.888.422.8636

Market Cap (MM) $1,429.5

Basic Shares (MM) 117.7

F.D. Shares (MM) 117.7

52-week High/Low

413,752

Implied Total Return 38%

Annual Dividend $0.48

Current Yield 4.0%

2016E 2017E 2018E

Oil/Liquids (bbl/d) 7,028 6,384 6,160

Gas (mmcf/d) 30.3 30.1 29.0

Boe/d (6:1) 12,075 11,400 11,000

% Oil & NGL's 58% 56% 56%Cash Flow (MM) $92.8 $118.0 $109.0

CFPS (FD) $0.84 $1.00 $0.93

Net Debt YE (MM) $72.5 $15.8 -$30.6

Capex (MM) $167.5 $6.0 $6.0

Payout Ratio 60% 48% 52%

Sustainability Ratio 66% 53% 57%

2016E 2017E

EV/DACF 15.4x 12.1x

EV/Production (boe/d) $124,389 $126,776

Price/CF 14.5x 12.1x

Net Debt/CF 0.8x 0.1x

Valuation

Market Information (C$)

$13.47-$8.29

30-day Avg Daily Trading Vol

Financial Data

mailto:[email protected]


November 29, 2016 ACUMEN CAPITAL | RESEARCH

IDEAS. GROWTH. OPPORTUNITY.

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Trevor Reynolds | Oil and Gas Research Analyst | (403) 410-6842| [email protected] Mike McMeeken | Research Associate | (403) 571-0530| [email protected]

Acumen Capital Finance Partners Limited #700, 404 – 6 Avenue SW | Calgary, AB | T2P 0R9| Main Phone: 403-571-0300

Background Overview – History Freehold Royalty Trust was established in 1996 with proceeds from a $254 MM IPO used to acquire mineral title land and Royalties from Canpar and Rife Resources Ltd. With the closing of the IPO, Freehold acquired all of Canpar’s producing royalty interests, while Canpar retained certain non-producing and deeper rights. The origin of FRU’s original mineral title land block dates back to 1670 with acreage granted to the Hudson Bay Company, and is briefly highlighted below:

1670 - Charles II, King of England granted to the Governor and Company of Adventurers of England trading in Hudson Bay (Hudson Bay Company - HBC) sole trade and commerce rights in, and title to all of the land encompassing the watershed of Hudson Bay. The land grant covered 1.5 million square miles, or nearly 40% of Canada.

1870 - HBC surrendered title to the lands encompassing the Hudson Bay watershed in exchange for ₤300,000 Sterling and 1/20th of all agricultural land in Western Canada. This gave HBC the mineral rights to sections 8, and ¾’s of sections 26 in most Townships south of the North Saskatchewan River between Winnipeg and the Rocky Mountains (~4.5 MM Acres).

1926 - HBC co-founded Hudson’s Bay oil and gas Company Limited which had exclusive rights to lease all of the HBC Lands in western Canada to explore for O&G.

1974 - Hudson Bay O&G company sold its mineral title interests in western Canada to Siebens O&G.

1979 - Canpar Holdings Ltd (owned by CN Pension Trust Funds) and Dome Petroleum jointly acquired the assets of Siebens.

1988 - Amoco Canada acquired Dome Petroleum.

1993 - Canpar and Amoco exchanged certain assets whereby Canpar acquired increased mineral title ownership in the producing HBC Lands originally acquired from Siebens.

1996 - Canpar and Rife Resources Ltd. (Private Co’s owned by CN Pension Trust Funds) established Freehold Royalty Trust. Proceeds from Freeholds $264 MM IPO were used to acquire Canpar’s producing royalty assets, leaving Canpar with non-producing deeper rights.

We provide a brief corporate timeline in figure 1, while a more detailed summary can be found in Appendix I.

Figure 1: Corporate Timeline

Source: Acumen Capital, Company reports, Yahoo Finance





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Investment Outline

FRU is an O&G royalty company with an emphasis on the maximization of distributable income, while striving to achieve long term growth per share. The royalty model provides strong margins based on modest capital requirements, and returns which are not burdened by operating costs and crown royalties. FRU maintains a conservative balance sheet with a focus on an effective, strong audit process. Growth is driven by acquisitions, free drilling, and the creation of royalties and lease outs. FRU has a strong track record of growing production and royalty exposure through acquisitions, a trend that has continued in the current market environment. Over $30/sh has been paid out since the IPO, while the management team has been proactive in adjusting payout levels to remain 100% sustainable.

The assets of Freehold have been managed by Rife Resources Management Ltd. since the IPO. Rife is a private E&P company with a minor royalty acreage position, and is owned by the CN Pension Trust fund. The management group is focused on the identification, and evaluation of M&A opportunities, along with ongoing administration of royalties and working interest partnerships for Freehold. The Rife management agreement provides FRU with access to a high quality team, with a long history of controlling royalty assets. The management company is aligned with shareholders through payment in shares of FRU. In addition, so long as CN Pension Trust Funds hold over 10% of the common shares of FRU (currently hold ~24%), then they are entitled to two board seats.

FRU generated ~93% of its operating income through royalties in Q3/16. Royalties are high margin for the owner, providing participation in the production from a well, without exposure to costs. The model has proven resilient through cyclical pricing over the years. The two primary sources of royalty income generation for FRU are driven by Mineral Title acreage, and Gross Overriding Royalty deals (GORR’s). FRU’s mineral title rights are clearly their most valuable asset as they are held in perpetuity, and highly coveted. In order for a company to drill a well in Canada they must first negotiate with the mineral title owner who is either the crown or an owner such as FRU. In total FRU has ~1.0 MM net acres of mineral title land which generated ~41% of their operating income in Q3/16. GORR’s entitle FRU to a share of revenue on production from underlying properties held and operated by other parties. Revenues from GORR’s represented ~43% of Q3/16 operating income. A smaller portion of FRU’s income is generated through Production Volume Royalty (PVR) deals in which FRU has provided up front capital in exchange for committed future volumes. Lastly, FRU generates a decreasing portion (~7%) of its income through participation in low risk working interest projects, which is generally their lowest margin business. FRU has a diverse royalty base which generates payments from ~200 payers, and over 40,000 wells. FRU’s focus is on the maximization and growth of income from royalties, to support payouts to shareholders. Since the IPO, FRU has paid out over $30/sh. With the depletion of reserves over time, capital is generally required to acquire production and CF. FRU generally targets individual, or groups of properties with a focus on royalty interests. Key points of focus in acquisitions include asset quality, return/risk profile, and life cycle.

FRU generally funds acquisitions with equity, and have been quick to adjust the dividend to maintain a sub 100% payout ratio. As a result, FRU’s debt to CF has generally remained strong. Over the last two years debt increased relative to declining CF based on industry activity, and continued participation in WI drilling. In the third quarter FRU produced Free CF of almost $11 MM which was used to reduce debt, which currently sits at ~87 MM, or 0.9x annualized quarterly CF.

We are initiating coverage on FRU with a Buy rating and $16.25/sh target price which equates to 16.1x 2017F EV/DACF. Our target multiple is based on a 50/50 blend of higher quality E&P valuations of ~9.0x along with a royalty based peer group average of ~23.4x.





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Management

The assets of Freehold have been managed by Rife Resources Management Ltd since the IPO. Rife is owned by CN Pension Trust fund and has a minor royalty, and also manages land for Canpar Holdings. The management group is focused on the identification and evaluation of M&A opportunities, along with ongoing administration of royalties and working interest partnerships for Freehold. The Rife management agreement provides FRU with a high quality team that has a long history with royalty assets. The Management Company is aligned with shareholders through their payment in shares of FRU. CN Pension Trust Funds controls two seats on the board which they are entitled to as long as their current ~24% ownership in FRU doesn’t fall below 10%. We outline the Management and Board of Directors of FRU in figure 2, while more in depth bio’s are available in Appendix II.

Figure 2: FRU Management & Board of Directors

Source: Acumen Capital, Company reports

Management Contract.

Rife is compensated for the management of assets in the form of equity on a quarterly basis. The officers of FRU including the CEO and CFO, are employees of Rife and do not receive any compensation directly from FRU. Compensation policies are determined by a Governance Nominating and Compensation (GNC) committee comprised of at least three independent directors. Rife’s approach to compensation for FRU executives is driven by a commitment to deliver sustainable and solid returns, by retaining high quality employees through compensation that consists of a mix of base salary, and both short and long term incentives. The management agreement was renegotiated in November 2015. At the time, a special committee determined Rife’s extensive experience managing royalties along with the organizational and synergistic benefits, were in the best interest of shareholders. The outcome was favorable term and fee adjustments with highlights that include.

Continuation of the existing Manager (Rife) until 2019, thereafter by mutual consent,

A Management fee cap of 71,912 sh/quarter for 2016, o decreasing to 55,000 sh/quarter from 2017-2019, o 41,250 sh/quarter in 2020, o 27,500 sh/quarter in 2021, o 13,750 sh/quarter in 2022,

Management

Name Position Background

Thomas J. Mullane President, CEO & Director Previously COO of Rife, Promoted to current position 2013, Prior thereto VP Engineering at Bonavista

Darren G. Gunderson VP Finance & CFO Joined the accounting department of Rife in 1991, became controller in 1999, took on his current position 2008

Michael J. Stone VP Land Came on as a Consultant with Rife in 2008, Appointed VP of land 2010, Prior thereto was VP land at Real Resources

Karen C. Taylor Corporate Secretary Joined Rife in 1997, Appointed to her current position February 2008

Michael J. Mogan Controller Joined Rife in 2003 as a Senior Accountant, Appointed Controller of FRU August 2008

Directors

Name Position Background

Marvin F. Romanow Chairman of the Board

Currently Corporate Director and Executive in Residence at U of S, prior thereto President & CEO Nexen; Bank of

Tokyo Mitsubishi Canada, Commissioner Alberta Petroleum Marketing, and Southern Alberta Cancer Research

Institute (Trustee)

Thomas J. Mullane President, CEO & Director Previously COO of Rife, Promoted to current position 2013, Prior thereto VP Engineering at Bonavista

Gary R. Bugeaud DirectorFormerly Managing Partner at Burnet, Duckworth & Palmer LLP, Former corporate Lawyer; Director at Raging

River & Alberta Cancer Foundation

Douglas J. Kay Director38 Yrs O&G Experience including Cabre Exploration (1980-2000), Segue Energy Ltd. (2001-2003), and Intrepid Energy

(2004-2009), Currently a director of Westbrook Energy. Formerly a Director of EPAC, and Founder Trout River Energy

Susan M. MacKenzie DirectorFormer COO at Oilsands Quest, VP HR & VP of In Situ Development & Operations at Petro Canada, Various roles at

Amoco; Director of Enerplus, FortisAlberta, and TransGlobe Energy

Peter T. Harrison Director Manager O&G Investments for CN Investment Division, Prior thereto Senior VP of Montrusco Bolton Investments

Arthur N. Korpach Director

Former Vice Chairman IB at CIBC World Markets, Director of Canexus Corp. and HPC Energy Services, Chair of the

Board of the Heart and Stroke Foundation Alberta. Past Chair of United Way and Accounting Standards Board of

Canadian Institute of CA's

Aidan M. Walsh Director CEO of Baccalieu Energy, Director of EPAC.





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o 5,500 sh/quarter in 2023.

Reduction in the number of shares issuable if pricing exceeds $19.00/sh.

FRU can terminate the Agreement at any time after May 26, 2020 without any request for a shareholder vote with six months written notice. Or if the Manager and its affiliates (CN Pension Trust Funds) own less than 5% of FRU for a period of over 90 days.

Rife can terminate the contract after November 26, 2016 with the issuance of six months written notice

Although there appears to be some potential conflicts of interest with the Management agreement, the payment of compensation in common shares (FRU can elect to pay in cash), and CN Pension Trust Fund’s 24% ownership clearly help to mitigate compensation risk.

Royalties

In oil and gas terms, a royalty is a payment made by a producer to the issuer based on a percentage of gross production. Royalties offer the benefit of sharing in production without exposure to the drilling/completion capital, operating, and environmental costs associated with production. FRU generated ~93% of its operating income through royalties in Q3/16, which is up from ~86% through the first three quarters of 2015. The remaining 7% of income in Q3/16 was generated through working interest volumes. Freehold’s two primary sources of income generation are Mineral Title (Lessor) Royalties and Gross Overriding Royalties (GORR’s). FRU’s Mineral Title rights are their most valuable asset as they are held in perpetuity, and highly coveted. In order for a company to drill a well in Canada they must first negotiate with the mineral title owner who can either be the crown, or an owner such as FRU. In total Freehold has ~1.0 MM net acres of mineral title land. A smaller portion of FRU’s income is generated through Production Volume Royalty (PVR) deals in which FRU has provided up front capital in exchange for committed future volumes. Lastly, FRU generates a minor portion of its income through participation in low risk working interest projects, a segment which FRU has been looking to eliminate through the downturn in order to focus on higher netback projects, and become more comparable to Prairie Sky Royalty Ltd (PSK-T). We provide a brief outline of FRU’s Income Sources in figure 3 and royalty descriptions below. Royalty Descriptions:

Gross Overriding Royalty – A contractual share of the production from a property that is free of all costs, and calculated at the wellhead. The royalty interest is created from a working interest in a lease, expires on termination of a lease, is attached to the property, and unaffected by changes to the lessee.

Mineral Title Royalty – A share of production that is agreed upon through negotiations between the mineral title holder (FRU) and a lessee (tenant/operator). The lessee generally sells the production and the proceeds are paid to the Lessor (FRU) before being burdened by any operating costs. Mineral rights are held in perpetuity.

Production Volume Royalty – A manufactured royalty interest attached to a property which is not impacted by changes to the lessee. Generally created via an upfront payment by a royalty holder (FRU) in exchange for a long term stream of production volumes that is free of all costs.

Working Interest – E&P operations on acreage leased from the crown or mineral title holders. WI partner (FRU) can elect whether or not to participate in operations in drilling on mineral title lands. Exposure to typical E&P operating costs and royalties on crown land. Participation generates tax pools.





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Figure 3: Income Breakdown


Land Base Overview

FRU’s extensive royalty land base is highlighted in figure 4. The acreage position was most recently added to with a material acquisition from Husky, and now sits at ~6.2 MM gross acres. Of the current acreage position, over 95% is royalty acreage, with ~1.0 MM acres of mineral title acreage which is held in perpetuity, while over 4.9 MM acres are GORR interests. When FRU was formed 20 years ago, all their royalty acreage was leased to third parties and producing. Since that time, unleased mineral title acreage has grown to ~380,000 mineral acres through acquisitions, lease expiries, surrenders, and defaults.

FRU has interests in over 42,000 wells, of which ~40,000 are royalty interests (the remaining ~2,000 being WI wells), with over 20,000 being unitized wells. Royalty rates on the asset base vary from below 1.0% for some of the GORR’s, up to 22.5% for lessor royalties on mineral title acreage. FRU’s average royalty on all producing wells is ~2.5%. FRU’s assembled acreage position provides exposure to numerous play types across AB, SK, and BC. The major driver of current revenue is oilier properties including SE Saskatchewan and the Viking. However, the company also has strong exposure to numerous liquids rich plays including the Montney, Deep Basin, and emerging plays in SE Alberta.

Figure 4: FRU Land Base Overview






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Acquisition History. FRU has reduced WI drilling in the current commodity price environment, which has placed an emphasis on acquisitions to grow the production base. The most recent deal was a $165 MM acquisition from Husky announced on May 2nd, 2016. The deal was funded through a concurrent $209 MM equity deal at $11.55/sh, of which ~$20 MM went to CN Pension Funds Trust. In addition to a material royalty land base (as outlined in the previous figure), the transaction added ~1,700 boe/d (70% natural gas) of royalty production with a base decline of ~17%. At the time of the deal it was projected that the annualized operating income addition would be ~$11.4 MM, with ~62% driven by the liquids content. FRU paid ~$95,000/boe/d, without factoring in the land value which is less than the average paid since 2005 based on a higher natural gas weighting. The deal was expected to be ~2% accretive to 2016 funds flow. Since the deal, ~15 wells have been drilled on the Husky acreage.

Prior to Husky, the most recent deal of scale was completed in 2015. FRU paid ~$318 MM to acquire two royalty packages from Penn West that were producing ~1,400 boe/d. The acquisition included an 8.5% GORR on 45,000 acres of Dodsland Viking acreage (recently sold by Penn West to Tiene), and a second land package with a mixture of GORR and Mineral title acreage in SE Saskatchewan and Central Alberta. The Penn West deal was funded through a concurrent $406 MM financing at $18/sh, which included $33 MM issued to CN Pension Trust Funds. Projected 2015 annualized operating income from the Penn West asset base was ~$29 MM.

Overall, the two most recent deals are good examples of what FRU is targeting with acquisitions. The goal is to transition away from WI drilling and become more comparable to Prairie Sky Royalty (PSK – Not covered). With very few other pure play royalty companies to compare to, FRU is working to reduce one of the distinguishing factors they have relative to PSK, in order to close a relatively steep valuation gap. We provide a brief summary of the acquisitions completed over the years in figure 5.

Figure 5: Future Drilling Inventory


Royalty Payers Breakdown. In figure 6 we provide an outline of FRU’s top royalty payers from July 2015 through to June 2016 (effective September 30, 2016). FRU received royalty payments from ~266 different companies through the effective period. The trailing 12 month list highlights the stability of the business based on minimal exposure risk to any one single payer outside the top four. We also see minimal risk with FRU’s top four royalty payers which included Penn West – now Teine (13%), Crescent Point (11%), Canadian Natural Resources (10%), and Perpetual (9%). Of note, there is consistently movement in contribution levels based on the pace of activity, and declines. Change can also occur as a result of M&A with the most recent adjustment coming as a result of the purchase of Penn Wests Dodsland Viking by Teine Energy in June this year. The deal is a material positive for FRU as activity had lagged at Dodsland given Penn Wests debt position, but has already picked up significantly under the new owner. Moving down the list, after the top four payers, the single company risk is negligible with the fifth largest contributor representing only ~3% of overall royalties. Given the tough operating environment over the past two years, collections have remained steady despite several bankruptcies. The fact is, that if the banks take over assets it is highly unlikely they will shut in production as long as CF is positive, which is the case in most instances. As a result, FRU has experienced

Year Area Cost Initial Prod. Acquired Implied Capital Efficiency($MM) (boe/d) ($/boe/d)

2005 Petrovera (CNRL) 352 3,800 92,632

2007 AB/SK 90 700 128,571

2010 AB, SK & BC 38 400 95,000

2011 NW AB 7 100 70,000

2012 AB, SK & BC 60 600 100,000

2013 Numerous small acquisitions 10 30 333,333

2014 SK/MB/AB 248 1,500 165,333

2015 SK/AB/BC 410 2,100 195,238

2016 YTD SK/AB 162 1,700 95,294

Total 1,377 10,930 125,984





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very little in the way of disruptions as a result of companies entering into creditor protection, and have generally emerged in a stronger position with a more active management group.

Figure 6: Royalty Payers Breakdown

Source: Company reports, Acumen Capital

Drilling Breakdown. In figure 7 we provide an outline of the gross and net drilling on FRU’s acreage over the past few years, along with a breakdown of capital deployment and production. In terms of both gross and net drilling, the industry transition from vertical to horizontal wells is evident, and makes the overall comparison somewhat irrelevant. Focusing on just horizontals, it’s evident that activity has decreased on FRU acreage YTD. This shouldn’t be a surprise given activity levels Canada-wide in the current commodity price environment. Also worth noting in our opinion is that the contribution from a well is dependent on where it was drilled. As such it would take numerous wells drilled in the Viking to have the same contribution as a strong Montney well. Through the first nine months of 2016 net drilling is down 60% y/y. The decrease in activity is attributable to a lack of drilling in the Dodsland area through H1/16. As previously discussed, the change in operators to a well-funded, active private company in Teine is already having a material impact which we expect will be evident in year end and Q1/17 numbers. Overall, we view H1/16 as somewhat anomalous, and point to the fact that drilling on FRU’s acreage in 2015 was at an all-time high on a net basis. In their Q3 release FRU notes an increase in licensing and drilling activities across all acreage positions which is positive. Highlights of recent activity in and around FRU’s acreage from the Q3 release include:

Dodsland - 11 Viking wells drilled by various operators, with another 50+ licensed,

Williston Basin – 20 locations drilled in the Mississippian Carbonates, along with other locations in the Watrous, Bakken, and Torquay.

Husky Acreage – 15 wells drilled with seven targeting the Shaunavon.

PWT, 13%

CPG, 11%

CNQ, 10%

PMT, 9%

MEI, 3%

SPE, 3%HSE, 3%HARVEST, 2%TUNDRA, 2%

TEINE, 2%

CJ, 2%

LTS, 2%

MQL, 2%

APA, 1%

TOG, 1%

PGF, 1%

SGL, 1%

WCP, 1%

BXE, 1%

PRQ, 1%

RIFE, 1%

ARX, 1%

NBZ, 1%

REPSOL, 1%

DEE, 1%

POTASH, 1%

TAQA, 1%

BNE, 1%

TOU, 1%

NAL, 1%

OTHER (233), 18%

Payor % of Total

PENN WEST PETROLEUM 13%

CRESCENT POINT ENERGY PARTNERSHIP 11%

CANADIAN NATURAL RESOURCES 10%

PERPETUAL ENERGY OPERATING CORP. 9%

MANITOK ENERGY INC. 3%

SPARTAN ENERGY CORP 3%

HUSKY OIL OPERATIONS LIMITED 3%

HARVEST OPERATIONS CORP. 2%

TUNDRA OIL & GAS LIMITED 2%

TEINE ENERGY LTD. 2%

CARDINAL ENERGY LTD. 2%

LIGHTSTREAM RESOURCES LTD. 2%

MARQUEE ENERGY LTD. 2%

APACHE CANADA LTD. 1%

TORC OIL & GAS LTD. 1%

PENGROWTH ENERGY CORPORATION 1%

SPYGLASS RESOURCES CORP. 1%

WHITECAP RESOURCES INC. 1%

BELLATRIX EXPLORATION LTD. 1%

PETRUS RESOURCES CORP. 1%

RIFE RESOURCES LTD. 1%

ARC RESOURCES LTD. 1%

NORTHERN BLIZZARD RESOURCES INC. 1%

REPSOL CANADA ENERGY PARTNERSHIP 1%

DELPHI ENERGY CORP. 1%

POTASH CORP. OF SASKATCHEWAN INC. 1%

TAQA NORTH 1%

BONTERRA ENERGY CORP. 1%

TOURMALINE OIL CORP. 1%

NAL RESOURCES LIMITED 1%

ADDITIONAL PAYORS 18%

TOTAL 100%





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Figure 7: Drilling Activity


Wells & Future Drilling Potential. Within their asset base, there are just north of 100 wells currently licensed. Of the 105 licenses, over 40% are targeting the Viking, ~25% the Bakken, ~12% Mississippian, ~10% Cardium, ~7% Mannville, and ~5% other. FRU highlights ~10 years of future drilling potential on their acreage based on an average well count from 2005-2014 of 287 wells. The current reserve report recognizes ~40% of the internally identified locations, while future inventory growth is expected. See figure 8 for a breakdown of FRU’s 10+ years of identified drilling inventory.

Figure 8: Future Drilling Inventory


2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017F

Corporate Production boe/d 8,484 7,805 7,302 7,615 7,476 8,850 8,912 9,180 10,944 12,075 11,400

% Oil & NGL's % 63% 63% 64% 62% 63% 64% 64% 63% 62% 58% 56%

Development Capital $mm 12.2 13.0 15.5 18.1 25.6 36.7 29.3 33.7 22.3 5.0 6.0

Total Capex $mm 102.3 20.7 25.5 57.1 35.4 92.6 39.4 282.9 432.7 167.5 6.0

Production

Capital Deployment





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Financials

Dividend. Since 1996, FRU has distributed over $1.5 billion to investors through the dividend. With the decrease in CF through the downturn, the dividend was reduced to $0.04/sh ($0.48/sh annually), and the DRIP program is currently suspended to avoid dilution. Prior to the downturn FRU’s distribution was unchanged for a period of over four years at $0.14/sh on monthly basis, or $1.68/sh annually. In the third quarter FRU produced free CF of almost ~$11 MM ($0.09/sh) which went to debt reduction. With debt to CF currently running below 1.0x, and minimal capital going to WI drilling, the company appears well position for a dividend increase over the near to medium term assuming some pricing stability. In Figure 9 we outline the historical dividend and cumulative dividend.

Figure 9: Dividend History


Production Profile & Netback Analysis.

We outline FRU’s production profile in figure 10. In Q3/16 FRU produced 12,281 boe/d, which consisted of 55% liquids and 45% natural gas. The company’s natural gas weighting increased from 37% in Q3/15 as a result of the Husky acquisition. FRU has been able to steadily increase their production base through the years primarily through acquisitions. The cost of those acquisitions has been dilution on a production per share basis, which can be expected. Overall, we expect FRU to continue adding production in the current commodity price environment through acquisitions. In addition, we expect activity to pick up over the coming year which will likely have a positive impact on FRU, at no incremental cost to the company. Of note, we view FRU as being relatively conservative in their guidance of production additions. In addition, FRU has a strong audit function which generally contributes to positive prior period adjustments. In the most recent quarter prior period adjustments added ~60 boe/d, while an audit in Q3/15 added ~350 boe/d.

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Figure 10: Production Growth


Cost Structure. One of the key benefits of the royalty model is strong netbacks. Despite the significant decrease in commodity prices, FRU’s field and cash flow netbacks have remained strong, and only dropped below $20/boe in the first quarter of 2016. In Q3/16 FRU’s field netbacks were over $24/boe, while CF netbacks were over $21/boe. FRU doesn’t hedge which provides strong torque to commodity price improvements given their cost structure. Of note, the management fee contract is paid in shares, and is included in our calculation of G&A. We outline FRU’s cost structure in figure 11.

Figure 11: Cost Structure


Debt level. FRU has generally maintained a strong balance sheet as a result of resilient CF and the funding of acquisitions with equity. M&A aside, free CF is expected to continue driving down debt in the near term with our model showing the company debt free by mid-2018. It is FRU’s strong free CF and decreasing debt which supports our thesis that FRU has the ability to provide a dividend increase over the near to medium term. We outline FRU’s historical net debt to CF ratio along with our forecast in figure 12.

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F

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FRU Production Profile

Oil/NGLs Natural Gas Prod per Share

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F

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FRU Cost Structure

Opex

G&A

Field Netback

CF Netback





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Figure 12: Net Debt – Historical & Forecasted


Reserves. In figure 13 we outline a summary of FRU’s 2015 YE reserve bookings, and growth over the years versus NAV. Based on the royalty model and FRU’s lack of control over bookings, we place less emphasis on the numbers than we do for a typical E&P. As previously noted, FRU has only received bookings for ~40% of their internally identified drilling locations on their acreage, leaving plenty of upside. Future development capital on a total proved basis and 2P basis is notably low at ~$3.2 MM, and ~$13.8 MM respectively.

Figure 13: 2015YE Reserve Summary


0.0

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1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F

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t ($

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)

Net Debt

Net Debt

Net Debt/Cash Flow

Reserve Type Gas Oil/NGL BOE Oil & NGL's

% of 2P

Reserves 2014 BOE Oil & NGL's

% of 2P

Reserves Y/Y Change

Per-Share

Y/Y Change

(bcf) (mmbbl) (mmboe) (%) (mmboe) (%) (%) (%) (%)

Proved Producing 37.0 10.5 16.7 63% 46% 14.1 62% 47% 18% -7%

Proved Non-Producing 21.3 2.7 6.3 43% 17% 5.5 62% 19% 13% -11%

Total Proved 58.3 13.2 22.9 58% 64% 19.6 16% 66% 17% -8%

Probable 31.3 7.9 13.1 60% 36% 10.1 49% 34% 30% 2%

Proved + Probable 89.6 21.1 36.1 59% 100% 29.7 63% 100% 21% -5%

2015 Reserves 2014 Reserves

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

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NAV vs Reserve Growth

P+P Reserves

NAV





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Guidance. In figure 14 we outline FRU’s preliminary 2017, and updated 2016 guidance which was released in conjunction with Q3/16 results in early November. FRU’s guidance for 2016 was steadily increased through the year. While a significant portion of the increase is attributable to acquisitions, FRU also made positive revisions based on a conservative outlook, and positive prior period adjustments. Given that FRU doesn’t control drilling on their land base, we believe they are taking a relatively conservative approach to guidance for 2017. Assuming pricing provides support, we expect more activity next year which should contribute to stronger results for FRU.

Figure 14: Guidance Updated November 8, 2016


Forecast: 2016 2017

Average Production (boe/d) 12,000 11,000

Capital Expenditures ($MM) $6.0 $6.0

Operating Costs ($/boe) $3.75 $3.25

G&A* ($/boe) $2.35 $2.65

DRIP Proceeds ($MM) $5.0 $0.0

Key Assumptions:

WTI Oil (US$/bbl) $43.00 $50.00

WCS (US$/bbl) $38.00 $46.00

AECO Gas (C$/GJ) $2.10 $3.00

Exchange Rate ($C/US$) 0.76 0.75

*Doesn't include Management Contract





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Forecast. We provide a summary of our estimates for FRU in figure 15.

Figure 15: FRU Estimates Summary


Commodity Assumptions 2014 2015 Q1/16 Q2/16 Q3/16 Q4/16(F) 2016F Q1/17(F) Q2/17(F) Q3/17(F) Q4/17(F) 2017F 2018F

WTI Crude Oil US$/bbl 92.91 48.76 33.63 45.64 44.94 50.90 43.80 52.50 54.00 55.00 58.45 55.00 55.00

Reference Natural Gas C$/mcf 4.50 2.71 1.82 1.40 2.38 3.25 2.22 3.56 3.19 3.38 3.06 3.30 2.94

Foreign Exchange (US$/C$) US$/C$ 0.91 0.78 0.73 0.78 0.77 0.77 0.76 0.80 0.80 0.80 0.80 0.80 0.80

Realized Price

Oil & NGL's at Wellhead C$/bbl 79.74 45.29 29.79 43.58 42.31 45.68 40.36 46.68 48.13 49.09 52.41 49.09 49.09

Natural Gas at Wellhead C$/mcf 3.94 2.28 1.56 1.09 1.97 2.90 1.89 3.26 2.89 3.08 2.76 3.00 2.64

Production

Oil & NGL bbl/d 5,772 6,757 7,545 7,136 6,795 6,641 7,028 6,608 6,440 6,272 6,221 6,384 6,160

Natural Gas mcf/d 20,446 25,123 26,572 29,427 32,914 32,174 30,284 31,152 30,360 29,568 29,330 30,096 29,040

Corporate Production boe/d 9,180 10,944 11,974 12,041 12,281 12,004 12,075 11,800 11,500 11,200 11,110 11,400 11,000

% Oil & NGL's % 63% 62% 63% 59% 55% 55% 58% 56% 56% 56% 56% 56% 56%

Netbacks

Revenue $/boe 59.65 34.15 22.88 29.41 28.20 33.81 28.59 35.23 35.05 36.09 37.23 35.89 34.45

Net Royalties $/boe 1.69 0.58 0.24 0.29 0.25 0.35 0.28 0.35 0.35 0.36 0.37 0.35 0.34

Operating Expense $/boe 5.67 4.56 4.02 3.55 3.90 3.89 3.84 3.50 3.50 3.50 3.50 3.50 3.90

Operating Netback $/boe 52.29 29.02 18.62 25.56 24.04 29.57 24.47 31.38 31.21 32.24 33.37 32.04 30.21

G&A* $/boe 4.42 4.00 4.21 3.17 2.77 3.13 3.32 3.48 3.49 3.51 3.52 3.50 3.50

Realized Hedging $/boe 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Interest Expense $/boe 1.31 1.43 1.11 1.42 0.83 0.85 1.05 0.36 0.36 0.37 0.37 0.36 -0.05

Corporate Netback $/boe 46.56 23.59 13.30 20.98 20.44 25.59 20.10 27.54 27.35 28.35 29.47 28.17 26.76

Earnings

Cash Flow $mm 138.4 103.8 15.5 24.1 24.1 28.6 92.8 29.5 28.8 29.4 30.3 118.0 109.0

CFPS (Basic) $/sh 1.95 1.15 0.16 0.23 0.21 0.24 0.84 0.25 0.24 0.25 0.26 1.00 0.93

Free Cash Flow $mm 17.2 8.6 -2.0 11.5 11.0 11.1 31.9 13.8 13.2 13.8 14.7 55.5 46.6

FCFPS (Basic) $/sh 0.24 0.10 -0.02 0.11 0.09 0.09 0.29 0.12 0.11 0.12 0.12 0.47 0.40

Liquidity

E&D Capex $mm 33.7 22.3 2.1 0.8 0.2 2.0 5.0 1.5 1.5 1.5 1.5 6.0 6.0

Capex $mm 282.9 432.7 2.3 163.0 0.3 2.0 167.5 1.5 1.5 1.5 1.5 6.0 6.0

Net Debt $mm 135.8 146.9 149.2 98.2 87.3 72.5 72.5 58.4 44.9 30.8 15.8 15.8 -30.6

Net Debt/Cash Flow x 1.0x 1.4x 2.4x 1.0x 0.9x 0.6x 0.8x 0.5x 0.4x 0.3x 0.1x 0.1x -0.3x

Capex/Cash Flow x 2.0x 4.2x 0.1x 6.8x 0.0x 0.1x 1.8x 0.1x 0.1x 0.1x 0.0x 0.1x 0.1x

Payout

Dividend Per Share $/sh 1.69 1.00 0.18 0.12 0.12 0.12 0.54 0.12 0.12 0.12 0.12 0.48 0.48

Payout Ratio % 87% 87% 115% 55% 59% 54% 66% 48% 49% 48% 47% 48% 52%

Sustainability % 111% 108% 129% 59% 59% 61% 71% 53% 54% 53% 52% 53% 57%

Shares Outstanding

Total Shares Outstanding mm 74.9 98.9 117.7 117.7 117.7

*Includes Management Contract





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Acumen E&P Valuation Comparison. We outline our valuation on FRU in comparison to Acumen’s peer group in figure 16. The royalty model provides superior returns relative to our E&P universe, as a result FRU is a clear outlier.

Figure 16: FRU Valuation versus Acumen Peer Group


Royalty Peer Group Comparison. The most comparable company to FRU is PSK, which trades at a relatively strong premium based on its size, larger mineral title land position, and the fact that it’s a pure play royalty company. As we have stated throughout the report, FRU is working to become more comparable to PSK through acquisitions, and a reduction in WI drilling. Aside from PSK there are no public pure play oil and gas royalty companies in Canada. That said, we have developed a comp table of royalty companies which includes PSK, Franco Nevada Gold, and two U.S. oil and gas royalty focused companies (see figure 17). Relative to consensus Bloomberg estimates, FRU is undervalued at 12.6x 2017 EV/DACF versus the peer group average of 23.4x.

Figure 17: FRU Valuation versus Royalty Peer Group


FRU

Acumen

Peer Group

Variance from

Peer Group

2016 20.4x nm -

2017 16.1x 7.2x 123%

2016 15.6x 8.5x 83%

2017 12.3x 5.5x 123%

2016 14.7x 7.0x 110%

2017 12.3x 4.2x 192%

2016 126,045 46,049 174%

2017 128,530 31,629 306%

EV/2P Reserves ($/boe) 2014 42.22 8.97 371%

2016 0.8x 3.2x -76%

2017 0.1x 1.5x -91%

EV/Boe/d

D/CF

Target EV/DACF

EV/DACF

P/CF

Acumen FRU

Estimates PSK

Variance

from PSK FNV VNOM BSM

Peer

Group

Average

Variance

from Peer

Group

2016 15.6x 34.8x -55% 29.1x 21.2x 25.5x 27.7x -44%

2017 12.3x 27.9x -56% 27.1x 14.1x 24.5x 23.4x -48%

2018 13.0x 25.3x -48% 23.9x nm 25.6x 24.9x -48%

2016 14.7x 35.7x -59% 21.9x 20.5x 11.7x 22.5x -35%

2017 12.3x 28.9x -57% 20.8x 13.6x 10.6x 18.5x -34%

2018 12.3x 26.4x -54% 18.8x nm 10.6x 18.6x -34%

2016 126,045 299,933 -58% nm 231,877 121,655 217,821 -42%

2017 128,530 304,203 -58% nm 184,277 116,324 201,601 -36%

2018 128,985 300,221 -57% nm 150,419 123,914 191,518 -33%

2016 2.3% 2.6% -10% 0.0% 2.6% 9.0% 3.6% -34%

2017 3.8% 2.9% 31% 2.4% 7.8% 11.3% 6.1% -37%

2018 3.2% 3.2% 2% 2.3% 10.2% 13.8% 7.4% -56%

2016 0.8x -0.9x nm -0.5x 0.7x 2.1x 0.3x nm

2017 0.1x -0.9x nm -1.0x 0.5x 3.2x 0.4x nm

2018 -0.3x -1.1x nm -1.5x nm 4.5x 0.6x nm

EV/Boe/d ($/boe/d)

*Comps Based on Consensus Bloomberg Estimates and include Prairie Sky Royalty (PSK-T), Franco Nevada Gold Corp (FNV-T), Viper

Energy Partners (VNOM-NASDAQ), Black Stone Minerals (BSM-NYSE)

EV/DACF

P/CF

FCF Yield

Debt to CF





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RECOMMENDATION AND INVESTMENT CONCLUSION We are initiating coverage on Freehold Energy with a Buy recommendation and $16.25/sh target (16.1x 2017F EV/DACF

multiple). We are utilizing a 50/50 blend of higher quality E&P multiples of ~9.0x in conjunction with the royalty peer

group average of 23.4x to arrive at our target price of $16.25/sh. As FRU continues to execute on its transition, we see

upside to the multiple and potentially a dividend increase over the near to medium term. We recommend investors

take advantage of dips in this high quality name in order to build a position.





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APPENDIX I: Corporate Timeline

1996 -On November 25, Proceeds from Freeholds $264 MM IPO were used to acquire the starter royalty package from Canpar. 1997 -Spring of 1997, FRU acquired 25.6% WI in Pouce Coupe South Boundary “B” Pool Unit #2 for $22.4 MM. -Additional royalties purchased in the Swift Current area of Saskatchewan and Wildmere for $10.2 MM. 2000 -April 30, producing and undeveloped mineral title and GORR properties in SE Sask for $25.7 MM. 2001 -April 30, the Trust acquired producing royalty properties and an interest in ~95,000 gross acres in SE Saskatchewan for $25.4 MM. -May 17, Trust issued 3.3 MM Units at $9.65/unit for proceeds of $31.8 MM. Proceeds were used to reduce debt. -November 1, the trust acquired ~140 boe/d of royalty production in the Hayter property for $4.3 MM. 2002 -FRU acquired two royalty properties at Lashburn and Enchant along with one property swap for $2.3 MM. 2003 -Additional royalty interests in SE Saskatchewan (Elswick & Midale), and Alberta (Cecilia & Woodriver) producing ~100 boe/d were purchased for an aggregate $3.4 MM. 2004 -June 25, closed on a $0.3 MM acquisition of a 6% GORR in 18 Belly River wells in Pembina. -July 31, Acquired Ventana Ventures Inc., for ~$3.0 MM (primarily royaly interests). -October 1, Acquired 10,880 acres and WI in 3,520 acres in Willesden Green for $9.8 MM. 2005 -May 10, FRU indirectly acquired a general partnership which owns certain royalty, mineral title and WI for $352 MM. The acquisition was funded through a concurrent 13.5 MM Unit issuance @$15.55/unit, along with a private placement to the vendor of 3.9 MM units @$15.55/unit for net proceeds of $259 MM. The remaining $93 MM was funded through FRU’s credit facility. 2006 -July 1, FRU purchased 5.2% WI in the Wildmere Lloyd A Pool Unit No. 1 for $5.4 MM. 2007 -August 31, GORR interests in ~309,800 gross acres in Alberta and Saskatchewan were purchased for $58 MM. The properties added ~1.5 MMboe and ~1,300 producing wells. -September 5, a 7% GORR interest on 9,078 gross acres at Dixonville was acquired for $33 MM. PDP reserves were 0.8 MMboe. 2008 -July 7, acquired royalty & minor interests in Alberta for $8.5 MM. Acquisition included interests in units at Seven Persons, Bellshill Lake, Viking Kinsella, Beaverhill Lake, and Plain, as well as interests at Medicine Hat, Killam, Wainwright, Viking Kinsella, and Skara/Redwater. 2009 -December 10, issued 7.6 MM Units @$15.15/unit for net proceeds of $110.5 MM that were used to reduce debt and thereafter general corporate purposes. -December 21, acquired royalty interests for ~$10 MM expanding deep basin exposure. Acquisition included royalty interests on 43,214 gross acres, of which 26,400 are located at Bigstone and represented the creation of a 5% GORR. 2010 -February 12, acquired royalty interests encompassing 319,681 gross acres in Alberta, Saskatchewan, and British Columbia for $39 MM. The acquisition represented the creation of a 5% overriding royalty on 11 producing properties and the assignment to FRU of eight small GORRs.





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2011 -July 1, acquired a 10% GORR in the Peace River area of NW Alberta for $3 MM. -September 30, acquired 125 boe/d of royalty interests for $7 MM. 2012 -January 17, acquired royalty interests on certain producing and non-producing lands in Alberta, British Columbia, and Saskatchewan for $49.3 MM. The deal included a 4% GORR on over 250,000 gross acres. -February 29, raised $67.6 MM in net proceeds through the issuance of 3,450,000 shares at $20.50/sh. -August 31, acquired 6,100 net acres of mineral title lands in Alberta and Saskatchewan for $10.9 MM. Lands and 90 boe/d (21% royalty) were purchased for $10.9 MM. 2013 -Through the year a total of five transactions were completed for a total $10 MM which added 100 boe/d. The assets consisted primarily of royalty interests in Alberta. 2014 -March 18, acquired WI participation in three wells in Ferrier Alberta. The total expected expenditure for all three wells was $4.2MM, with FRU’s position converting to a GORR upon payout. -May 2, acquired royalty interests on certain producing and non-producing lands in SE Saskatchewan and Manitoba for $107.6 MM. The acquisition added 71,700 acres of mineral title lands in SE Saskatchewan and 470 boe/d of production. -July 10, SE Saskatchewan assets acquired for $7.0 MM. Purchased a 1.8% royalty on 21.2 sections of land and 22 boe/d of high netback volumes. -July 16, completed a $120 MM JV with a Canadian based company in East Edson area of Alberta. The deal included a 50% royalty interest on current production within a JV area for $50 MM, and a capital commitment of $70 MM. The deal adds ~1,100 boe/d -July 16, closed a $132 MM bought deal financing through the sale of 4.9 MM shares @ $29.60/sh. CN Pension Trust Funds invested ~$15 MM through the purchase of 557,621 shares @ 26.90/sh. -November 13, purchased a 5% GORR on Rife’s Soda Lake and Lindbergh assets. 2015 -January 23, acquired shares of Anderson Energy for $35 MM. The deal included ~340 boe/d (96% natural gas) with primary driver of the deal being tax pools. Immediately following the completion of the acquisition FRU completed a restructuring agreement to utilize the tax assets. -January 23, FRU acquired royalty and fee title assets for $12 MM in British Columbia, Alberta, and Saskatchewan. The assets had net production of ~70 boe/d (60% natural gas) and 35,600 mineral title acres. -March 24, FRU closed a $20 MM Production Volume Royalty deal which added 138 bbls/d for an eight year period which declines at 20%/year thereafter. The deal included a minimum spend of $2.75 MM per annum till 2022. -May 6, completed an acquisition from PWT of two royalty packages for $318 MM. The first package was an 8.5% GORR covering 45,000 acres in Dodsland prospective for Viking. The second package included royalties and mineral title lands across a variety of plays within the WCSB covering 280,000 acres. Approximately 70% of the 1,500 boe/d (80% liquids) of existing production was derived from SE Saskatchewan and Central Alberta. In conjunction with the acquisition Penn West completed a $373 MM financing @$18.00/sh. In addition, CN Pension Fund Trust invested ~$33 MM at the same $18.00/sh price. -June 12, acquired a new royalty with Manitok Energy for $25 MM which provides 140 bbls/d of new light oil production for eight years, which declines at 10% thereafter. Production from the Stolberg area is backed by others areas in Manitok’s portfolio in the event production is not adequate. -November 9, Management agreement revised as outlined in the management section of our report.





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APPENDIX II: Management & Board of Directors (Source: Company Documents)

Gary R. Bugeaud – Director (Since 2015) Mr. Bugeaud is a Corporate Director. He retired (December 31, 2013) as Managing Partner of Burnet, Duckworth & Palmer LLP. He is a director of Raging River Exploration Inc., Trustee of Alberta Cancer Foundation and Member of the Dean's Advisory Committee of the College of Law of the University of Saskatchewan. He is a former corporate lawyer with over 23 years of legal experience focused on securities, corporate finance, mergers and acquisitions, and corporate governance matters. Mr. Bugeaud has a Bachelor of Commerce (Finance) degree. and a Bachelor of Laws degree from the University of Saskatchewan. Mr. Bugeaud holds the ICD.D designation from the Institute of Corporate Directors.

Peter T. Harrison – Director (Since 1996) Mr. Harrison is Manager, Oil and Gas Investments of the CN Investment Division (Montreal), which manages one of the largest corporate pension funds in Canada. Prior to joining the CN Investment Division in August 2009, he was Senior Vice-President of Montrusco Bolton Investments Inc. (Montreal). He has a Bachelor of Commerce degree from McGill University, an MBA from the University of Western Ontario, and is a Chartered Financial Analyst.

Arthur N. Korpach – Director (Since 2012) Mr. Korpach is a corporate director and past Vice-Chairman Investment Banking at CIBC World Markets Inc. (Calgary). He is a Fellow Chartered Accountant and a Chartered Business Valuator with 27 years of investment banking experience. He has a Bachelor of Commerce degree from the University of Saskatchewan and an MBA from Harvard Business School. Mr. Korpach is a director of Canexus Corporation and HPC Energy Services Limited. He is Chair of the Board of the Heart and Stroke Foundation Alberta, past Chair of the board of directors of the United Way of Calgary and Area, past Chair of the Accounting Standards Board of the Canadian Institute of Chartered Accountants, and past director of Mount Royal University and its Foundation. Mr. Korpach holds the ICD.D designation from the Institute of Corporate Directors.

Douglas J. Kay – Director (Since 2016) Douglas Kay is a Corporate Director and an experienced oil and gas industry Executive with strong land, finance, negotiating and leadership skills. He has over 38 years of diverse responsibilities with Canadian based oil and gas exploration and production companies. Mr. Kay holds a Bachelor of Economics degree from the University of Calgary, is a graduate of the Management Development Program of the University of Western Ontario, and holds the designation of P. Land through the Canadian Association of Petroleum Landmen (CAPL). He currently serves on the boards of Westbrook Energy Ltd. as Chairman, is a director and former Chair of the Explorers and Producers Association of Canada (EPAC) and a founder and Chairman of Trout River Energy Inc.

Susan M. MacKenzie – Director (Since 2014) Ms. MacKenzie is a Corporate Director. She formerly served as Chief Operating Officer with Oilsands Quest Inc., as Vice-President of Human Resources and Vice-President of In Situ Development & Operations at Petro-Canada and held engineering and leadership roles in natural gas, conventional oil and heavy oil exploitation with Amoco Canada. Ms. MacKenzie holds a Bachelor of Engineering (Mechanical) degree from McGill University and an MBA from the University of Calgary. She is a member of the Association of Professional Engineers and Geoscientists of Alberta (APEGA), and holds the ICD.D designation from the Institute of Corporate Directors. She is a director of Enerplus Corporation, FortisAlberta and TransGlobe Energy Corporation.

Thomas J. Mullane – President & CEO of Rife (Since 2012) Mr. Mullane is the President and Chief Executive Officer of the Corporation. He joined Rife as Executive Vice-President and Chief Operating Officer on July 18, 2012 and was appointed President and Chief Executive Officer on May 17, 2013. He has over 25 years of industry experience and a broad background in exploitation and production engineering gathered from both domestic and international assignments. Prior to joining Rife, Mr. Mullane most recently served as Senior Vice-President of Bonavista Energy Corporation. Over his 12 years at Bonavista, his responsibilities included acquisitions and divestitures, exploitation and reservoir engineering management. He graduated from the University of Alberta in 1983 with a Bachelor of Science degree in Chemical Engineering and is a member of the Association of Professional Engineers and Geoscientists of Alberta (APEGA).

Marvin F. Romanow – Chairman of the Board (Since 2015) Mr. Romanow is a Corporate Director, and since 2012, Executive in Residence at the University of Saskatchewan. Prior thereto he was the President and Chief Executive Officer of Nexen Inc. Mr. Romanow has over 30 years of experience in the oil and gas industry, and has held senior positions in engineering, operations, finance and planning with Wascana Energy Inc., Amoco Canada Petroleum Company Ltd., and Dome Petroleum Ltd. Mr. Romanow is a graduate of Harvard's Program for Management Development and in October 2007 he completed INSEAD's Advance Management Programme. In April of 2007 he was awarded Canada's "CFO of the Year" award and in September of the same year he received the Petroleum Economist award for "Energy Executive of the Year 2008". He is currently a director of the Bank of Tokyo Mitsubishi Canada, Commissioner with the Alberta Petroleum Marketing Commission, and serves on the Board of Trustees of the Southern Alberta Cancer Research Institute. Mr. Romanow has a Masters of Business Administration and a Bachelor of Engineering, with Great Distinction, from the University of Saskatchewan. Mr. Romanow holds the ICD.D designation from the Institute of Corporate Directors.





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Aidan M. Walsh – Director (Since 2013) Mr. Walsh is Chief Executive Officer of Baccalieu Energy Inc. (Calgary), a private junior oil and gas company that he co-founded in 2008. He was President and Chief Executive Officer of Burmis Energy Inc. from 2003 to 2008, and President and Chief Executive Officer of Elk Point Resources Inc. from 1993 to 2003. He is currently a director and former Chair of the Explorers and Producers Association of Canada (EPAC). Mr. Walsh has a Bachelor of Engineering degree in Mechanical Engineering from Memorial University of Newfoundland and an MBA from the University of Calgary. He is a member of the Association of Professional Engineers and Geoscientists of Alberta (APEGA). Mr. Walsh holds the ICD.D designation from the Institute of Corporate Directors. Darren G. Gunderson – VP Finance & CFO (Since 2013) Mr. Gunderson is Vice-President, Finance and Chief Financial Officer of the Corporation and was appointed Vice-President, Finance and Chief Financial Officer of Freehold Resources Ltd. and Rife on August 13, 2008. He joined Rife in 1991 in the accounting department and became Controller in 1999. Mr. Gunderson has a Bachelor of Commerce degree from the University of Saskatchewan and is a Certified Public Accountant (CPA, CGA). Michael J. Stone – VP Land (Since 2010) Mr. Stone is Vice-President, Land of the Corporation and Rife and has held such position since March 1, 2010. Mr. Stone joined Rife in January 2009 as Manager, Land Negotiations and Business Development. Prior to joining Rife, Mr. Stone was Vice-President, Land with Real Resources Ltd. Mr. Stone has a Bachelor of Commerce degree from the University of Calgary and is a member of the Canadian Association of Petroleum Landmen (CAPL). Michael J. Mogan – Controller (Since 2008) Mr. Mogan, Controller of the Corporation, was appointed Controller of Freehold Resources Ltd. effective August 13, 2008. Mr. Mogan joined Rife in 2003 as Senior Accountant and was the Manager, Financial Accounting prior to his current role. He is a Certified Public Accountant (CPA, CMA). Karen C. Taylor – Corporate Secretary (Since 2008) Ms. Taylor, Corporate Secretary of the Corporation, joined Rife in February 1997 as Manager, Corporate Communications and held the position of Manager, Investor Relations from January 1999 to August 2013. Her appointment as Corporate Secretary of Freehold Resources Ltd. and Rife was effective February 27, 2008. Ms. Taylor is a member of the Canadian Society of Corporate Secretaries (CSCS).





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APPENDIX III: Oil & Gas Universe





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Notes:





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Company: Freehold Royalties Ltd.

Disclosure Requirements

Is this an issuer related or industry related publication? Issuer Industry

Does the Analyst/Associate have a financial interest in securities of the subject issuer?

If yes, nature of interest:

Yes No

Is Acumen Capital Partners a market maker in the issuer’s securities at the date of this

report? Yes No

Does Acumen Capital Partners beneficially own more than 1% of any class of common

equity of the issuer? Yes No

Does Acumen Capital Partners or the Analyst/Associate have any actual material

conflicts of interest with the issuer?

Explanation:

Yes No

Does the Analyst/Associate or Household member serve as a Director, Officer, or

Advisory Board Member of the issuer? Yes No

Has the Analyst/Associate received any direct compensation from the subject Company in

the past 12 months?*

Yes No

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issuer in the past 12 months? Yes No

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related services from the issuer in the past 12 months? Yes No

Other disclosures:

* Acumen has a pool for compensation purposes, which includes research analysts, investment banking personnel and institutional traders. Revenue in the pool includes trading commissions, advisory fees, new issue commissions and broker warrant proceeds.

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ACUMEN CAPITAL | STAFF LIST

RESEARCH

Brian D. Pow, MBA Vice President Research, Equity Analyst (403) 571-0303 [email protected]

Trevor Reynolds Oil and Gas Research Analyst (403) 410-6842 [email protected]

Mike McMeeken Research Associate (403) 571-0530 [email protected]

Nick Corcoran Research Associate (403) 410-6840 [email protected]

INSTITUTIONAL SALES

Brian Parker President & CEO, Institutional Sales (403) 571-2514 [email protected]

Andre Drouillard, CFA Vice President, Institutional Sales (403) 571-0685 [email protected]

Robert Cooper, CFA Institutional Sales (403) 571-0324 [email protected]

TRADING

Liam Farrell Vice President, Head of Institutional Trading (403) 571-0318 [email protected]

David Waite Institutional Trading (403) 410-6730 [email protected]

Jesse Ahlan Institutional Trading (403) 571-0148 [email protected]

Crystal Bellefountaine Associate (403) 571-0314 [email protected]

INVESTMENT BANKING

Kelly Hughes Vice President, Investment Banking (403) 571-5036 [email protected]

Ian Thomson Vice President, Investment Banking (403) 571-0301 [email protected]

Shawn Ostrow Investment Banking Associate (403) 571-0319 [email protected]

RETAIL SALES

Robert Laidlaw Vice President (403) 571-2522 [email protected]

Imran Mulji Investment Advisor (403) 571-0112 [email protected]

Loredana Alaia Associate Investment Advisor (403) 441-0536 [email protected]

Sheldon LeLievre Vice President, Sr. Investment Advisor (403) 571-0315 [email protected]

Craig Madill Investment Advisor (403) 410-6018 [email protected]

Erin Williams Investment Advisor Assistant (403) 571-2416 [email protected]

Donny Woo Vice President, Sr. Investment Advisor (403) 571-2510 [email protected]

Darren Fong Investment Advisor (403) 441-2754 [email protected]

Matthew Wiens Investment Advisor (403) 441-5672 [email protected]

Alan Tolg Investment Advisor (403) 410-2042 [email protected]

Ron Cairns Investment Advisor (403) 410-2040 [email protected]

Scott Barnett Investment Advisor (403) 571-0532 [email protected]

Curtis Schirrmacher Investment Advisor (403) 571-0113 [email protected]

Preston Smith Investment Advisor (403) 571-2195 [email protected]

Grant Gowland Associate (403) 441-0537 [email protected]

TREASURY AND OPERATIONS

Cindy Marthaller Operations Manager (403) 571-8045 [email protected]

Myja Miller CFO, COO (403) 571-0308 [email protected]

Govind Achyuthan Chief Compliance Officer (403) 571-0689 [email protected]

Krystine Hebert Client Services (403) 571-0300 [email protected]

Acumen Capital Finance Partners Limited | Main Phone: 403-571-0300 | Trading Toll Free: 1-866-410-9039

www.acumencapital.com

| Suite 700, 404 – 6 Avenue SW Calgary, AB T2P 0R9 |

