Freehold Royalties Ltd. — Management Reports 2024

Feb 28, 2024

MANAGEMENT’S DISCUSSION AND ANALYSIS

The following Management’s Discussion and Analysis (MD&A) was prepared as of February 28, 2024 and is management’s opinion about the consolidated operating and financial results of Freehold Royalties Ltd. and its wholly-owned subsidiaries (collectively, Freehold or the Company) for the three and twelve months ended December 31, 2023 and its comparative periods, and the outlook for Freehold based on information available as of the date hereof.

The financial information contained herein is based on information in the consolidated financial statements, which have been prepared in accordance with International Financial Reporting Standards (IFRS), which are the Canadian generally accepted accounting principles (GAAP) for publicly accountable enterprises. All comparative percentages are between the three (Q4-2023) and twelve months (current year or 2023) ended December 31, 2023 (combined the current reporting periods in that respective order) and the same period(s) in 2022 (also in that respective order), and all dollar amounts are expressed in Canadian currency, unless otherwise noted. References to “US$” are to United States (U.S.) dollars. This MD&A should be read in conjunction with the December 31, 2023 audited consolidated financial statements (the “audited financial statements”). These documents, as well as, additional information about Freehold, including its Annual Information Form for the year ended December 31, 2023 (AIF), are available on SEDAR+ at www.sedarplus.ca and on Freehold’s website at www.freeholdroyalties.com.

This MD&A contains the non-GAAP financial measures: net revenue , cash costs and netback and the supplementary financial measures: dividend payout ratio and funds from operations per share . These are useful supplements to analyze operating performance, financial leverage, and liquidity, among others. However, these terms do not have any standardized meanings prescribed by GAAP and therefore may not be comparable with the calculations of similar measures for other entities. This MD&A also contains the capital management measures of working capital, net debt, capitalization and net debt to trailing funds from operations for the last 12 months as defined in Note 14 of the audited financial statements. In addition, this MD&A contains forwardlooking statements that are intended to help readers better understand our business and prospects. Readers are cautioned that the MD&A should be read in conjunction with our disclosure under “Non-GAAP and Other Financial Measures” and “Forward-Looking Statements” included at the end of this MD&A.

Business Overview

Freehold is incorporated under the laws of the Province of Alberta and trades on the Toronto Stock Exchange under the symbol FRU. We receive revenue primarily from royalties on crude oil, natural gas, natural gas liquids (NGLs) and potash properties as reserves are produced over the life of the properties located in Canada and the continental U.S. Freehold’s primary focus is managing and acquiring royalties.

The Royalty Advantage

Freehold manages one of the largest non-government portfolios of oil and natural gas royalties in Canada with a sizeable land base in the U.S., uniquely positioning Freehold as a leading North American energy royalty company. Our total land holdings encompass approximately 6.2 million gross acres in Canada and approximately 1.1 million gross drilling acres in the U.S., collectively greater than 99% of which are royalty lands. Our Canadian mineral title lands, which we own in perpetuity, cover approximately 1.1 million acres and we also have gross overriding royalty (GORR) and other interests in approximately 5.1 million acres. Our U.S. acreage is comprised of greater than 75% mineral title lands.

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We have royalty interests in more than 20,000 producing wells and almost 400 units spanning five provinces and eight states and receive royalty income from over 360 industry operators throughout North America. Our revenues also include potash royalties, lease bonus consideration and lease rental streams that diversify our revenue portfolio. Our North American land base lowers Freehold’s risk and, as a royalty owner, Freehold benefits from the drilling activity of others without any capital investments.

As a royalty interest owner, Freehold does not pay any of the capital costs to drill, complete and equip wells for production on its properties, nor does it incur costs to operate wells, maintain production, or ultimately abandon wells and restore the land to its original state. All of these costs are paid by our royalty payors. Freehold receives royalty income from gross production revenue (revenue before any royalty expenses and operating costs are deducted) resulting in strong netbacks.

Freehold’s Strategy

As a leading North American royalty company, Freehold’s objective is to deliver growth and lower risk attractive returns to shareholders over the long term. Freehold accomplishes this by:

• Creating Value

• Drive development on our lands through our lease out program and royalty optimization

• Acquire royalty assets with acceptable risk profiles and long economic life

• Generate GORRs for revenue growth

• Enhancing Value

• Maximize Freehold’s royalty interests through a comprehensive audit and compliance program

• Manage our debt prudently with a target below 1.5 times net debt to trailing funds from operations

• Delivering Value

• Target a dividend payout ratio of approximately 60%

Dividend Announcement

Freehold’s Board of Directors (the Board) approved a dividend of $0.09 per common share to be paid on April 15, 2024, to shareholders of record on March 28, 2024. Freehold’s dividend of $0.09 per common share is in-line with our payout strategy and highlights the sustainability of our dividend through commodity cycles. The dividend is designated as an eligible dividend for Canadian income tax purposes.

Outlook

Freehold is forecasting modestly lower drilling activity in Canada and similar drilling activity in its U.S. portfolio in 2024, when compared to 2023.

In the U.S., we anticipate drilling on our lands to be focused in the Permian and Eagle Ford, where play economics remain top decile.

In Canada, we anticipate drilling on our lands focused in the Viking, southeast Saskatchewan, Clearwater, Mannville heavy oil and Cardium plays. Following record leasing in 2023, we have seen an increase in the number of private and smaller operators targeting oil focused prospects on Freehold’s royalty lands in southeast Saskatchewan and lands prospective for Mannville heavy oil.

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Subsequent Event – U.S. Acquisitions

In January 2024, Freehold invested $115.5 million (US$86.0 million), before customary closing adjustments, in U.S. acquisitions through two transactions. These acquisitions included mineral title and royalty assets on approximately 123,000 gross acres, in the Midland and Delaware basins of the Permian located in Texas and New Mexico and are expected to add approximately 600 boe/d of production in 2024 with an estimated 85% liquids weighting. The transactions were funded by acquisition deposits and borrowing from Freehold’s credit facility.

2024 Guidance

After incorporating the two U.S. royalty acquisitions early in the year (See Subsequent Event-U.S. Acquisitions, above), Freehold is forecasting production to average between 14,700-15,700 boe/d in 2024. In addition, Freehold expects 2024 West Texas Intermediate (WTI) prices to average US$75/bbl with AECO 5A and NYMEX prices averaging $2.00/Mcf and US$2.50/Mcf respectively.

The following table summarizes our key operating assumptions for 2024 with production expected to be weighted 64% oil and NGLs and 36% natural gas:

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February 28
2024 Guidance 2024
Production (boe/d) (1) 14,700 - 15,700
West Texas Intermediate crude oil (US$/bbl) $75.00
AECO natural gas (Cdn$/Mcf) $2.00
Nymex (US$/Mcf) $2.50
Exchange rate (Cdn$/US$) 1.35
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1. 2024 production is expected to consist of 9% heavy oil, 43% light and medium oil, 12% NGLs and 36% natural gas

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Operating and Financial Results

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Three months ended December 31 Year ended December 31
Financial ($000s, except as noted) 2023 2022 Change 2023 2022 Change
Royalty and other revenue $ 80,062 $ 98,502 -19% $ 314,575 $ 393,020 -20%
Net income $ 34,323 $ 40,744 -16% $ 131,904 $ 209,189 -37%
Per share, basic & diluted ($) (1) $ 0.23 $ 0.27 -15% $ 0.88 $ 1.39 -37%
Cash flows from operations $ 70,704 $ 82,675 -14% $ 216,916 $ 327,348 -34%
Funds from operations $ 62,805 $ 79,973 -21% $ 239,665 $ 316,494 -24%
Per share, basic & diluted ($) (1)(3) $ 0.42 $ 0.53 -21% $ 1.59 $ 2.10 -24%
Acquisitions and related expenditures $ 2,065 $ 7,160 -71% $ 10,647 $ 190,794 -94%
Dividends paid $ 40,686 $ 40,677 0% $ 162,731 $ 141,597 15%
Per share ($) [(2) ] $ 0.27 $ 0.27 0% $ 1.08 $ 0.94 15%
Dividends declared $ 40,686 $ 40,678 0% $ 162,732 $ 146,121 11%
Per share ($) [(2) ] $ 0.27 $ 0.27 0% $ 1.08 $ 0.97 11%
Dividend payout ratio (%) [(3)] 65% 51% 27% 68% 45% 51%
Long-term debt $ 122,973 $ 156,560 -21% $ 122,973 $ 156,560 -21%
Net debt [(4)] $ 93,652 $ 127,904 -27% $ 93,652 $ 127,904 -27%
Shares outstanding, period end (000s) 150,689 150,667 0% 150,689 150,667 0%
Average shares outstanding (000s) [(1)] 150,684 150,654 0% 150,676 150,633 0%
Operating
Light and medium oil (bbl/d) 6,308 6,418 -2% 6,203 5,758 8%
Heavy oil (bbl/d) 1,182 1,218 -3% 1,187 1,202 -1%
NGL (bbl/d) 1,878 1,781 5% 1,796 1,715 5%
Total liquids (bbl/d) 9,368 9,417 -1% 9,186 8,674 6%
Natural gas (Mcf/d) 32,968 33,744 -2% 33,167 32,563 2%
Total production (boe/d) [(5)] 14,863 15,041 -1% 14,714 14,101 4%
Oil and NGL (%) 63% 63% 0% 62% 62% 0%
Petroleum and natural gas realized price ($/boe) [(] $ 57.94 $ 69.76 -17% $ 57.65 $ 75.14 -23%
Cash costs ($/boe) [(3)(5)] $ 4.73 $ 5.17 -9% $ 5.71 $ 5.19 10%
Netback ($/boe) [(3)(5)] $ 52.59 $ 63.92 -18% $ 51.28 $ 69.48 -26%
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1. Weighted average number of shares outstanding during the period, basic and diluted

2. Based on the number of shares issued and outstanding at each record date

3. See Non-GAAP and Other Financial Measures

4. Net debt is a capital management measure

5. See Conversion of Natural Gas to Barrels of Oil Equivalent (boe)

Q4-2023 Operating and Financial Highlights

• Q4-2023 production averaged 14,863 boe/d, a 1% decrease versus the same quarter in 2022, largely reflecting natural declines offset by strong third-party drilling and completion activities.

• U.S. and Canadian production averaged 5,204 boe/d and 9,659 boe/d respectively.

• Lower benchmark prices during Q4-2023 resulted in an average realized commodity price of $57.94/boe, down 17% from the same period in 2022.

• Royalty and other revenue totaled $80.1 million, down 19% from the same period in 2022, related to lower commodity pricing. Total royalty revenue was weighted 91% to oil and NGL revenue.

• Funds from operations totaled $62.8 million or $0.42 per share[(1)] , down 21% from the $80.0 million or $0.53 per share[(1)] in the same quarter in 2022.

• Dividends paid for Q4-2023 totaled $40.7 million ($0.27 per share), consistent with the same period in 2022.

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• Dividend payout ratio[(1)] of 65% is up 27% from the same period in 2022.

• Cash costs[(1)] for the quarter totaled $4.73/boe, down 9% versus the same period in 2022 reflecting lower interest costs, despite an increase in the effective interest rate of 1.4%, due to debt repayment throughout 2023.

• Long term debt at December 31, 2023 was $123.0 million, a decrease of $18.2 million versus September 30, 2023.

• Net debt at December 31, 2023 was $93.7 million, a decrease of $12.9 million versus September 30, 2023, reflecting strength in revenue.

• Entered into two definitive acquisition agreements in Q4-2023, both of which closed in January 2024. As part of the transactions, Freehold acquired U.S. mineral title and royalty assets in the Midland and Delaware basins of the Permian for $115.5 million (US$86.0 million). The transactions are expected to add approximately 600 boe/d of production in 2024 with an estimated 85% liquids weighting. Acquisition deposits of $12.1 million (US$9.1 million) were paid in Q4-2023.

2023 Operating and Financial Highlights

• Dividends declared and paid for 2023 reached a record level for Freehold, totaling $162.7 million ($1.08 per share), up 11% versus 2022 when Freehold declared dividends of $146.1 million ($0.97 per share). Our dividend payout[(2)] ratio for 2023 was 68% compared to 45% in 2022.

• 2023 production averaged 14,714 boe/d, a 4% increase versus 2022 as third-party drilling and the impacts of 2022 U.S. acquisition activity drove production growth, with Canadian production relatively stable and U.S. production increasing 16%.

• Oil and NGL volumes represented 62% of 2023 royalty production, consistent with 2022.

• Royalty and other revenue totaled $314.6 million in 2023, down 20% from the previous year reflecting lower commodity prices partly offset by production growth. Total royalty revenue was weighted 89% to oil and NGL revenue.

• Funds from operations in 2023 totaled $239.7 million or $1.59 per share[(1)] , down 24% from $316.5 million or $2.10 per share[(1)] in 2022. This year-over-year decrease reflected weakening commodity prices partially offset by increased U.S. production volumes.

• Long term debt decreased by $33.6 million from December 31, 2022 to December 31, 2023.

• Proved and probable oil and natural gas reserves[(3)] totaled 54.5 MMboe exiting 2023, relatively unchanged from 2022 as previously unbooked drilling additions largely offset production in 2023 of 5.4 MMboe.

• See Non-GAAP and Other Financial Measures

• Dividend payout ratio is a supplementary measure

• A detailed review of Freehold's U.S. and Canadian reserve information, including a summary of the evaluation of Freehold’s reserves and associated future net revenues as prepared by RSC Group, Inc. and Trimble Engineering Associates Ltd., respectively, Freehold’s independent reserve evaluators effective as at December 31, 2023, is provided in the AIF. A copy of the AIF can be found on Freehold's website at www.freeholdroyalties.com or www.sedarplus.ca

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Drilling Activity

In 2023, 993 gross wells (18.6 net) were drilled on Freehold’s North American royalty lands, slightly below the 2022 record of 1,057 gross wells (23.0 net). Drilling activity levels on Freehold’s land and the Western Canadian Sedimentary Basin mirrored a 23% reduction in commodity prices year over year, as well as capital discipline within the broader exploration and production industry. Of the gross wells drilled in the current reporting periods, 94% and 95% targeted oil prospects. Approximately 37% of 2023 gross wells were drilled on Freehold’s GORR prospects in Canada, 10% targeted mineral title prospects in Canada and of the 53% of wells drilled on Freehold’s U.S. royalty acreage, 78% were drilled on Freehold’s mineral title.

Three months ended December	Three months ended December	31	Year ended	December 31
2023	2022		2023	2022
Gross	Net (1) Gross	Net (1) Gross Net (1)		Gross Net (1)
Canada 120 United States 142	3.8 137 0.7 156		6.2 466 16.0 0.9 527 2.6	503 20.1 554 2.9
Total 262	4.5 293		7.1 993 18.6	1,057 23.0

1. Net wells are the equivalent aggregate of the numbers obtained by multiplying each gross well by our royalty interest percentage

CANADA

During 2023, 466 gross locations, or 47%, were drilled on Freehold’s Canadian lands, a 7% decrease over 503 gross locations in the same period in 2022, correlating with a decrease in benchmark prices. Freehold saw drilling in oil weighted areas including the Clearwater and Cardium in Alberta and the Mississippian Subcrop, Bakken and Viking in Saskatchewan. Additionally, there was an increase in heavy oil drilling in the Mannville stack in Alberta and Saskatchewan, the result of strong recent leasing activity.

Q4-2023 gross activity levels were down 12% compared to the same quarter in 2022 as operators curtailed their drilling activities in the wake of benchmark pricing volatility. During the fourth quarter, approximately 13% of the 120 gross locations drilled within our Canadian portfolio, were drilled in each of the Cardium and Clearwater plays. By geography, approximately 74% of gross wells drilled targeted prospects in Alberta and 22% targeted prospects in Saskatchewan.

U.S.

For the full year 2023, 527 gross locations, or 53%, were drilled on Freehold’s U.S. land, a 5% decrease from 554 gross wells in 2022. In the U.S., operators focused drilling on light oil prospects in the Permian and Eagle Ford with 88% of activity within these basins. Freehold also saw strong activity associated with development in the Bakken play. Development of Freehold’s U.S. lands was led by a diverse group of investment grade public companies and growth oriented public and private operators.

During Q4-2023, 142 gross wells were drilled on our U.S. royalty lands, with 59% of Q4-2023 drilling in the Permian and 25% in the Eagle Ford, compared to 156 gross wells during the same quarter in 2022. By geography, approximately 89% of Q4-2023 gross wells in the U.S. targeted prospects in Texas.

Although Freehold’s U.S. net well additions were lower than in Canada, U.S. wells generally come on production at approximately ten times that of an average Canadian well in our portfolio. However, a U.S. well can take upwards of six to nine months on average from initial license to first production, compared to three to four months in Canada.

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Production

Freehold's total production averaged 14,863 boe/d and 14,714 boe/d during the current reporting periods, a 1% decrease and 4% increase over the same periods in 2022. The annual increase mainly reflects acquisitions completed during 2022 and third-party drilling and completion activities on Freehold’s lands.

Production Summary

	Three months ended December	Three months ended December	31	Year ended December 31	Year ended December 31
	2023	2022	Change	2023	2022	Change
Canada (boe/d)	9,659	9,777	-1%	9,612	9,706	-1%
United States(boe/d)	5,204	5,264	-1%	5,102	4,395	16%
Totalproduction(boe/d)	14,863	15,041	-1%	14,714	14,101	4%

Average Daily Production by Product Type

	Three months ended December	Three months ended December	31	Year ended December 31	Year ended December 31
	2023	2022	Change	2023	2022	Change
Light and medium oil (bbl/d)	6,308	6,418	-2%	6,203	5,758	8%
Heavy oil (bbl/d)	1,182	1,218	-3%	1,187	1,202	-1%
NGL (bbl/d)	1,878	1,781	5%	1,796	1,715	5%
Natural gas (Mcf/d)	32,968	33,744	-2%	33,167	32,563	2%
Total production (boe/d)	14,863	15,041	-1%	14,714	14,101	4%
Number of days in period (days)	92	92	-	365	365	-
Total volumes during period (MMboe)	1.367	1.384	-1%	5.371	5.147	4%

CANADA

Canadian production averaged 9,659 boe/d and 9,612 boe/d during the current reporting periods, comprised of approximately 55% oil and NGLs and 45% natural gas. These production volumes were largely consistent with the same periods in 2022 as natural declines were offset by third-party drilling on our royalty lands. 2023 production was also impacted by producer shut-ins due to wildfires throughout Western Canada which decreased annual production by approximately 100 boe/d.

Canadian Average Daily Production by Product Type

Year ended December Canadian production 2023 2022 Change 2023 2022 Three months ended December 31	31 Change
Light and medium oil (bbl/d) 3,261 3,118 5% 3,196 3,160 Heavy oil (bbl/d) 1,182 1,218 -3% 1,187 1,202 NGL (bbl/d) 863 925 -7% 857 893 Natural gas (Mcf/d) 26,120 27,096 -4% 26,229 26,710	1% -1% -4% -2%
Total production (boe/d) 9,659 9,777 -1% 9,612 9,706	-1%

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U.S.

U.S. production averaged 5,204 boe/d and 5,102 boe/d during the current reporting periods, a 1% decrease and 16% increase versus the same periods in 2022, with 2023 setting a record for U.S. annual production. The slight decrease in Q4-2023 production compared to the same period in 2022 mainly relates to the timing of new wells coming on production. Freehold’s 2023 U.S. production peaked in Q3-2023, with the associated flush production from new well activities curtailing slightly in Q4-2023, while 2022 U.S. production peaked in Q4-2022. The 2023 increase was mainly due to the impact of acquisitions completed in 2022 and third-party drilling and completion activities, particularly in the Midland basin. Freehold’s U.S. production during the current reporting periods represents approximately 35% of corporate volumes, flat and a 4% increase from the same periods in 2022.

Freehold’s U.S. production in 2023 was comprised of approximately 77% oil and NGLs and 23% natural gas.

U.S. Average Daily Production by Product Type

Year ended December United States production 2023 2022 Change 2023 2022 Three months ended December 31	31 Change
Light and medium oil (bbl/d) 3,047 3,300 -8% 3,007 2,598 NGL (bbl/d) 1,015 856 19% 939 821 Natural gas (Mcf/d) 6,849 6,648 3% 6,937 5,853	16% 14% 19%
Total production (boe/d) 5,204 5,264 -1% 5,102 4,395	16%

Product Prices

Benchmark Prices

The price received by Freehold for produced oil is primarily driven by the U.S. dollar price of WTI, with the realized Canadian price adjusted for the value of the Canadian dollar relative to the U.S. dollar and quality differentials. For the current reporting periods, WTI averaged US$78.32/bbl and US$77.62/bbl, 5% and 18% lower versus the same periods in 2022. When compared to the previous quarter, WTI prices fell by 5%. Weakening refined product demand, recessionary concerns, supply quota uncertainty from OPEC+ and surging U.S. production drove lower crude oil prices during Q4-2023.

Within Canada, Edmonton Light Sweet prices averaged $99.69/bbl and $100.39/bbl during the current reporting periods, 9% and 16% lower versus the same periods in 2022. Western Canadian Select (WCS) prices averaged $76.96/bbl and $79.52/bbl during the current reporting periods, flat and 19% lower versus the same periods in 2022. Egress takeaway constraints tightened during Q4-2023 with low turnaround activity across oil sands projects. Going forward the need to refill the U.S. Strategic Petroleum Reserve and the completion of the Trans Mountain Expansion Project is expected to provide support for narrowing heavy oil differentials.

For Q4-2023, AECO 7A Monthly Index and NYMEX natural gas monthly contract prices averaged $2.70/Mcf and US$2.98/Mcf, respectively, down 52% and 51% from the same period in 2022. For 2023, AECO 7A and NYMEX prices averaged $2.98/Mcf and US$2.84/Mcf, respectively, down 46% and 56% from 2022. Prices retreated over the current reporting periods, as Canadian natural gas storage levels approached capacity in December 2023 while storage levels in the U.S. reached a new 5-year high. These storage builds have been driven by an unseasonably warm winter, along with significant supply increases in North America.

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Average Benchmark Prices

Year ended December 2023 2022 Change 2023 2022 Three months ended December 31	Year ended December 2023 2022 Change 2023 2022 Three months ended December 31	31 Change
West Texas Intermediate crude oil (US$/bbl) 78.32 $ 82.64 $ Exchange rate (Cdn$/US$) 1.36 1.35 Edmonton Light Sweet crude oil (Cdn$/bbl) 99.69 $ 109.83 $ Western Canadian Select crude oil (Cdn$/bbl) 76.96 $ 77.08 $ Nymex natural gas (US$/Mcf) 2.98 $ 6.03 $ AECO 7A Monthly Index (Cdn$/Mcf) 2.70 $ 5.58 $	-5% 77.62 $ 94.23 $ 1% 1.35 1.30 -9% 100.39 $ 120.03 $ 0% 79.52 $ 98.42 $ -51% 2.84 $ 6.40 $ -52% 2.98 $ 5.56 $	-18% 4% -16% -19% -56% -46%

Realized Prices

As Freehold has increased its U.S. royalty portfolio, its overall realized price has strengthened as U.S. crude oil production realizes prices closer to WTI versus discounted pricing in Canada associated with transportation costs to markets and oil quality differentials. This, coupled with a higher oil weighting in the U.S., resulted in Freehold receiving a 43% and 39% commodity pricing premium for its U.S. production compared to its Canadian production for the current reporting periods. However, as driven by a lower commodity price environment, our average selling prices were $57.94/boe and $57.65/boe in the current reporting periods, down from $69.76/boe and $75.14/boe during the same periods in 2022.

Average Realized Prices Summary

		Three months	Three months	ended December	31		Year ended	Year ended	December 31
		2023		2022	Change		2023		2022	Change
Oil ($/bbl)	$	96.14	$	103.27	-7%	$	94.43	$	113.47	-17%
NGL ($/bbl)	$	37.59	$	46.33	-19%	$	39.19	$	53.31	-26%
Oil and NGL ($/bbl)	$	84.40	$	92.51	-9%	$	83.62	$	101.58	-18%
Natural gas ($/Mcf)	$	2.14	$	5.28	-60%	$	2.41	$	5.48	-56%
Oil equivalent ($/boe)	$	57.94	$	69.76	-17%	$	57.65	$	75.14	-23%

CANADA

Freehold’s average selling price realized in Canada was $50.34/boe and $50.82/boe during the current reporting periods, lower by 16% and 25% versus the same periods in 2022. These decreases reflect lower Canadian benchmarks.

Freehold’s Canadian realized oil pricing averaged $87.65/bbl and $87.48/bbl during the current reporting periods, down 6% and 19% when compared to the same periods in 2022. The average realized NGL price of $51.26/bbl and $51.47/bbl during the current reporting periods was down 5% and 19% versus the same periods in 2022, reflecting lower oil benchmarks. The average realized natural gas price was $2.02/Mcf and $2.32/Mcf in the current reporting periods, down by 59% and 54% from the same periods in 2022. Canadian natural gas pricing was also affected by overall weakening in North American pricing.

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Canadian Average Realized Prices

		Three months	Three months	ended December	31		Year ended	Year ended	December 31
		2023		2022	Change		2023		2022	Change
Oil ($/bbl)	$	87.65	$	92.85	-6%	$	87.48	$	107.83	-19%
NGL ($/bbl)	$	51.26	$	53.84	-5%	$	51.47	$	63.53	-19%
Oil and NGL ($/bbl)	$	81.73	$	85.99	-5%	$	81.60	$	100.30	-19%
Natural gas ($/Mcf)	$	2.02	$	4.90	-59%	$	2.32	$	5.02	-54%
Oil equivalent($/boe)	$	50.34	$	59.85	-16%	$	50.82	$	68.12	-25%

U.S.

Freehold’s average realized selling price in the U.S. was $72.04/boe and $70.50/boe during the current reporting periods, down 18% and 22% versus the same periods in 2022, reflecting lower U.S. benchmarks. The current reporting periods include realized oil pricing in the U.S. averaging $108.51/bbl and $104.56/bbl, down 7% and 15% when compared to the same periods in 2022. U.S. average realized NGL pricing of $26.01/bbl and $27.96/bbl, decreased 32% and 34% versus the same periods in 2022. In the U.S., NGL prices declined more than oil due to stagnant demand from U.S. and international markets, while supplies increased due to record natural gas production. Freehold’s average realized U.S. natural gas price was $2.60/Mcf and $2.75/Mcf, down 62% and 64% when compared to the same periods in 2022. Realized U.S. natural gas pricing was driven by lower NYMEX pricing, caused by strong U.S. production levels alongside limited new LNG export capacity.

U.S. Average Realized Prices (in Canadian Dollars)

		Three months	Three months	ended December	31		Year ended	Year ended	December 31
		2023		2022	Change		2023		2022	Change
Oil ($/bbl)	$	108.51	$	116.97	-7%	$	104.56	$	122.95	-15%
NGL ($/bbl)	$	26.01	$	38.22	-32%	$	27.96	$	42.19	-34%
Oil and NGL ($/bbl)	$	87.91	$	100.75	-13%	$	86.34	$	103.55	-17%
Natural gas ($/Mcf)	$	2.60	$	6.83	-62%	$	2.75	$	7.57	-64%
Oil equivalent ($/boe)	$	72.04	$	88.17	-18%	$	70.50	$	90.64	-22%

Credit Risk Management

Freehold’s royalty lands consist of a large number of properties with generally small volumes per property. Many of Freehold’s leases and royalty agreements allow it to take its share of oil and natural gas in-kind. Taking product in-kind allows us to take ownership of the product as it is produced and thus sell it directly rather than having the royalty payor sell the product on our behalf and pass along proceeds from the sale in subsequent months. For 2023, Freehold marketed and took-in-kind approximately 3% of its total royalty production. As part of Freehold’s credit risk mitigation program, Freehold’s dedicated Compliance Group carefully monitors its royalty receivables and may choose to take its royalty in-kind if there are benefits in doing so.

2023 | MANAGEMENT’S DISCUSSION AND ANALYSIS | FREEHOLD ROYALTIES LTD 10

Royalty and Other Revenue

Royalty and other revenue of $80.1 million and $314.6 million in the current reporting periods was 19% and 20% lower when compared to the same periods in 2022, primarily reflecting lower benchmark commodity pricing. For the current reporting periods, oil and NGLs represented 91% and 89% of royalty and other revenue, 10% and 7% increases from the same periods in 2022.

Bonus consideration and lease rental revenue were $0.4 million and $3.3 million in the current reporting periods, a decrease of 58% and increase of 6% from the same periods in 2022. During 2023, Freehold set a record for leasing activity, entering into 122 new leases with 41 counterparties. Included in the current reporting periods for royalty and other revenue is $0.4 million and $1.6 million in potash royalty revenues, decreases of 56% and 48% versus the same periods in 2022. These decreases were due to lower global potash pricing, with current reporting periods’ pricing coming down from historical highs realized in 2022.

Royalty and Other Revenue Summary

Three months ended December	31	Year ended December 31
($000s, except as noted) 2023 2022	Change 2023 2022 Change
Canada 45,479 $ 55,345 $ United States 34,583 43,157		-18% 183,128 $ 246,689 $ -26% -20% 131,447 146,331 -10%
Royalty and other revenue 80,062 $ 98,502 $ Per boe($) 58.57 $ 71.17 $		-19% 314,575 $ 393,020 $ -20% -18% 58.57 $ 76.36 $ -23%

Royalty and Other Revenue by Category

Three months ended December	31	Year ended December 31
($000s) 2023 2022	Change 2023 2022 Change
Royalty interest 79,619 $ 97,438 $ Bonus consideration and lease rentals 443 1,062		-18% 311,244 $ 389,891 $ -20% -58% 3,331 3,129 6%
Royalty and other revenue 80,062 $ 98,502 $		-19% 314,575 $ 393,020 $ -20%

Royalty and Other Revenue by Type

Three months ended December	31	Year ended December 31
($000s) 2023 2022	Change 2023 2022 Change
Oil 66,251 $ 72,556 $ Natural gas 6,483 16,391 Natural gas liquids 6,491 7,590 Potash 394 901 Bonus consideration and lease rentals 443 1,064		-9% 254,695 $ 288,245 $ -12% -60% 29,206 65,109 -55% -14% 25,695 33,367 -23% -56% 1,648 3,170 -48% -58% 3,331 3,129 6%
Royalty and other revenue 80,062 $ 98,502 $		-19% 314,575 $ 393,020 $ -20%

11 2023 | MANAGEMENT’S DISCUSSION AND ANALYSIS | FREEHOLD ROYALTIES LTD.

General and Administrative

Freehold has a business development group dedicated to the acquisition and development of its future and existing assets and a diversified royalties’ team who are evaluating non-hydrocarbon, resource based royalty opportunities in addition to land administration, accounting, and auditing expertise to administer and collect royalty payments, including systems to track development activity on its royalty lands. General and administrative (G&A) expenses include directly billed costs in addition to costs incurred by the Manager (as defined below) and billed to Freehold (see Related Party Transactions).

In the current reporting periods, G&A expenses totaling $4.0 million and $15.7 million were down 7% and up 12% versus the same periods in 2022. The annual increase related to the additional skill sets obtained in 2022 to manage Freehold’s expanding North American asset base, demonstrated through a 16% increase in U.S. production, as well as overall inflationary pressures. Additionally, the year-to-date increase was impacted by higher annual performance-based bonus payouts and a one-time severance cost.

On a per boe basis, current reporting periods G&A expenses of $2.90/boe and $2.93/boe decreased by 6% and increased by 8%, respectively.

Three months ended December	31	Year ended December 31
($000s,except as noted) 2023 2022	Change 2023 2022 Change
4,786 $ 4,857 $ Less: capitalized and overhead recoveries (818) (600) General and administrative expenses before capitalized and overhead recoveries		-1% 19,189 $ 16,931 $ 13% 36% (3,469) (2,953) 17%
General and administrative expenses 3,968 $ 4,257 $ Per boe ($) 2.90 $ 3.08 $		-7% 15,720 $ 13,978 $ 12% -6% 2.93 $ 2.72 $ 8%

Production and Ad Valorem Taxes

Production and ad valorem taxes are incurred in the U.S. at the state level derived from production and property values. The expenses of $1.7 million and $8.5 million during the current reporting periods were 41% and 2% lower than the same periods in 2022. The decreases reflect a one-time reduction in Q4-2023 of property tax rates in Texas due to a state tax surplus and lower U.S. revenues, as partially offset by a full year of production from 2022 U.S. acquisitions. Similarly, variations on a per boe basis are impacted by the Texas property tax rate reduction in Q4-2023 as well as by production levels by state.

		Three months ended December	31			Year ended December 31
($000s, except as noted)		2023 2022	Change			2023 2022	Change
Production and ad valorem taxes Per boe ($)	$ $	1,715 2,882 $ 1.25 2.08 $		-41% -40%	$ $	8,488 8,687 $ 1.58 1.69 $	-2% -7%

2023 | MANAGEMENT’S DISCUSSION AND ANALYSIS | FREEHOLD ROYALTIES LTD 12

Interest and Financing

Interest on long term debt decreased in Q4-2023 but increased in the current year compared to the same periods in 2022. The Q4-2023 decrease reflects lower average debt resulting from the repayment of borrowings incurred for the U.S. acquisitions that closed in 2022. The 2023 increase was due to higher interest rates and average debt levels associated with these 2022 U.S. acquisitions. The current reporting periods’ average effective interest rate on advances from Freehold’s $300 million committed credit facilities were 6.7% and 6.4% (same periods in 2022 – 5.3% and 4.3%).

Three months ended December	31	Year ended December 31
($000s, except as noted) 2023 2022	Change 2023 2022 Change
Interest on long-term debt and financing fees 2,257 $ 2,646 $ Non-cash interest expense(1) 82 47		-15% 10,017 $ 5,934 $ 69% 74% 263 186 41%
Interest and finance expense 2,339 $ 2,693 $ Per boe - cash expense ($) 1.65 $ 1.91 $		-13% 10,280 $ 6,120 $ 68% -14% 1.87 $ 1.15 $ 63%

1. Non-cash interest expense represents accretion of Freehold’s decommissioning liability and lease obligation

Share-Based Compensation

Freehold’s award plans consist of grants of performance share units (PSUs) and restricted share units (RSUs) to executive officers and employees of Freehold under a Share Unit Award Plan (the Share Award Plan) and grants of deferred share units (DSUs) and restricted share units (DRSUs) to non-management directors of Freehold under a Deferred and Restricted Share Unit Plan, as amended in November 2022 (the Director Award Plan, when combined with the Share Award Plan, the Award Plans). The Award Plans are accounted as cash settled.

Share-based compensation expense was $1.3 million and $3.1 million during the current reporting periods, decreases of 35% and 63% compared to the same periods of 2022. These decreases generally reflect a lower Freehold share price. The closing Freehold share price at December 31, 2023 was $13.69, as compared to $15.83 at December 31, 2022. Share-based compensation expense in 2022 also included a non-cash charge of $3.3 million, adjusting DSUs to market value to prospectively account for these units as cash settled effective April 1, 2022.

During 2023, Freehold paid $3.9 million in share-based compensation as previously charged against net income, as compared to payouts of $5.8 million during the same period in 2022. This decrease reflects both a lower award value and payouts to retired directors. Payouts generally occur in the second quarter of each year.

Three months ended December	31	Year ended December 31
($000s, except as noted) 2023 2022	Change 2023 2022 Change
Share-based compensation 1,324 $ 2,028 $		-35% 3,052 $ 8,336 $ -63%
- $ - $ Less: capitalized recovery - - Cash payout on share based compensation before capitalized recovery		nm 4,817 $ 5,838 $ -17% nm (930) - nm
Cash payout on share based compensation - $ - $ Per boe ($) - $ - $		nm 3,887 $ 5,838 $ -33% nm 0.72 $ 1.13 $ -36%

(nm) not meaningful

During 2023, Freehold granted 232,024 awards under the Share Award Plan resulting in a total of 216,469 outstanding RSUs (December 31, 2022 – 291,605) and 425,225 outstanding PSUs (December 31, 2022 – 573,037) at each of December 31, 2023 and February 28, 2024.

13 2023 | MANAGEMENT’S DISCUSSION AND ANALYSIS | FREEHOLD ROYALTIES LTD.

During the year-to-date, Freehold granted 110,736 awards under the Director Award Plan to members of the Board, largely as part of their annual compensation resulting in a total of 523,587 outstanding DSUs (December 31, 2022 – 481,359) and 18,508 outstanding DRSUs (December 31, 2022 – nil) at December 31, 2023. Since Q42023, additional grants less redemptions resulted in 522,977 outstanding DSUs and 38,334 outstanding DRSUs at February 28, 2024.

Netback and Cash Costs

The netback[(1)] allows Freehold to benchmark how changes in commodity pricing and our cash-based cost structure compare against prior periods. Freehold’s netback[(1)] totaled $52.59/boe and $51.28/boe during the current reporting periods, 18% and 26% lower than the same periods in 2022. These decreases largely reflect lower realized commodity pricing in 2023.

Cash costs[(1)] during the current reporting periods, as measured on boe basis and compared to the same periods in 2022, were down 9% and up 10%. The Q4-2023 decrease primarily reflects reduced borrowing costs stemming from lower average debt. Inversely, the 2023 increase primarily reflects higher interest rates and higher average outstanding debt resulting from U.S. acquisitions that closed in 2022.

==> picture [483 x 144] intentionally omitted <==

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Three months ended December 31 Year ended December 31
($/boe) 2023 2022 Change 2023 2022 Change
Royalty and other revenue $ 58.57 $ 71.17 -18% $ 58.57 $ 76.36 -23%
Production and ad valorem taxes (1.25) (2.08) -40% (1.58) (1.69) -7%
Net revenue [(1)] $ 57.32 $ 69.09 -17% $ 56.99 $ 74.67 -24%
Less:
General and administrative $ (2.90) $ (3.08) -6% $ (2.93) $ (2.72) 8%
Operating expense [(2)] (0.18) (0.18) 0% (0.19) (0.19) 0%
Interest and financing cash expense (1.65) (1.91) -14% (1.87) (1.15) 63%
Cash payout on share based compensation - - nm (0.72) (1.13) -36%
Cash costs [(1)] $ (4.73) $ (5.17) -9% $ (5.71) $ (5.19) 10%
Netback [ (1)] $ 52.59 $ 63.92 -18% $ 51.28 $ 69.48 -26%
----- End of picture text -----

1. See Non-GAAP and Other Financial Measures

2. Operating expense relates to working interest assets. Also relating to working interest assets, decommissioning liabilities reflected on Freehold’s balance sheet and 2023 production of 116 boe/d (2022 – 102 boe/d) included in volumes presented under the “production” heading above.

(nm) not meaningful

Depletion, Depreciation and Other

Petroleum and natural gas interests, including acquisitions costs, and directly attributable G&A costs, are depleted on the unit-of-production method based on estimated proved and probable petroleum and natural gas reserves.

The depletion rates per boe of $13.48/boe and $17.84/boe in the current reporting periods are lower than the same periods in 2022 largely due to an increase in Freehold’s proved and probable reserves as at December 31, 2022, resulting in a reduced depletion rate throughout 2023. Additionally, the Q4-2023 depletion rate reflects previously unbooked drilling additions largely offsetting production in 2023. Changes in depletion expense for the current reporting periods, as compared to the same periods in 2022, also reflect changes in production.

2023 | MANAGEMENT’S DISCUSSION AND ANALYSIS | FREEHOLD ROYALTIES LTD 14

Year ended December ($000s, except as noted) 2023 2022 Change 2023 2022 Three months ended December 31	31 Change
Depletion 18,430 $ 26,839 -31% 95,821 $ 100,667	-5%
Depreciation and other 677 1,456 $ -54% 803 1,946 $	-59%
Depletion, depreciation and other 19,107 $ 28,295 $ -32% 96,624 $ 102,613 $	-6%
Depletionper boe($) 13.48 $ 19.39 $ -30% 17.84 $ 19.56 $	-9%

Foreign Exchange

Freehold has intercompany balances which arose from the financing of prior years’ U.S. royalty acquisitions. Although these balances eliminate on consolidation, the foreign exchange change in the intercompany balance held by the Canadian parent is recognized as foreign exchange within net income whereas revaluation by the U.S. subsidiary is recognized within other comprehensive income due to different functional currencies between these entities. These intercompany positions are revalued at the relevant foreign exchange rate at each period end partially offset by changes in the Canadian dollar equivalent of the portion of Freehold’s long-term debt denominated in U.S. dollars when outstanding.

At December 31, 2023, and as compared to September 30, 2023 and December 31, 2022, the Canadian dollar strengthened relative to the U.S. dollar to CDN$1.32/US, resulting in foreign exchange losses during the current reporting periods.

At December 31, 2023, Freehold had repaid all U.S. dollar denominated borrowings drawn initially to fund 2022 U.S. acquisitions, resulting in nominal foreign exchange on long term debt in the current reporting periods compared to the same periods in 2022.

($000s) 2023 2022 Change Three months ended December 31	Year ended December 31 2023 2022 Change
Foreign exchange (gain) loss on:
Intercompany note 6,120 $ 6,684 $ -8% Long-term debt 105 (1,590) -107%	6,930 $ (24,332) $ -128%
	(273) 6,850 104%
6,225 $ 5,094 $ 22%	6,657 $ (17,482) $ -138%

Management Fee

The Manager (as defined below) receives a quarterly management fee paid with Freehold common shares. In 2023 and thereafter, the management fee is capped at the equivalent of 5,500 Freehold common shares per quarter. Freehold has the right to settle the management fee through either cash payments or issuing Freehold common shares.

The ascribed value attributable to management fees during the current reporting periods of $0.1 million and $0.3 million decreased by 66% and 61% compared to the same periods of 2022. These decreases largely reflect the lower number of shares issued for management fees.

Three months ended December	31	Year ended December 31
2023 2022	Change 2023 2022 Change
Shares issued for management fees 5,500 13,750 Ascribed value ($000s)(1) 73 $ 217 $ Closing share price ($/share) 13.69 $ 15.83 $		-60% 22,000 55,000 -60% -66% 308 $ 787 $ -61% -14% 13.69 $ 15.83 $ -14%

1. The ascribed value of the management fees was based on Freehold’s closing common share price at the end of each quarter

15 2023 | MANAGEMENT’S DISCUSSION AND ANALYSIS | FREEHOLD ROYALTIES LTD.

Impairment

At December 31, 2023, there were no indicators of impairment on Freehold’s U.S. and Canadian royalty cash generating units nor on its exploration and evaluation assets. As a result, no impairment testing was conducted.

Income Taxes

Freehold’s taxable income is based on revenues less deductible expenses, including tax pool deductions. For the current reporting periods, income tax expenses of $10.7 million and $40.5 million decreased from the same periods in 2022, reflecting lower revenues partially offset by lower tax deductions on its oil and gas properties.

		Three months	Three months	ended December	31		Year ended	Year ended	December 31
($000s)		2023		2022	Change		2023		2022	Change
Current income tax expense	$	8,866	$	8,328	6%	$	35,465	$	40,074	-12%
Deferred income tax expense		1,881		3,711	-49%		5,067		19,761	-74%
Income taxes	$	10,747	$	12,039	-11%	$	40,532	$	59,835	-32%

CRA Assessments

The Canada Revenue Agency (CRA) has assessed Freehold's prior years’ tax returns, denying $222 million of noncapital losses (NCL’s) (the Assessments). Pursuant to the Assessments, denied NCL claims resulted in taxes, interest, and penalties totaling an estimated $62 million. Freehold is objecting to all Assessments and has provided deposits totaling $29.3 million as at December 31, 2023 (December 31, 2022 - $21.9 million) and paid an additional deposit of $1.6 million subsequent to December 31, 2023.

Income tax deposits were reclassified to non-current assets during the year ended December 31, 2023 due to the longer than anticipated timeline for resolving the Assessments with the CRA. Freehold has received legal advice that it should be entitled to deduct the NCLs and as such, expects to be successful in challenging the Assessments.

Tax Pools

Freehold is entitled to claim tax deductions on its oil and gas properties at prescribed rates. Freehold’s tax pools decreased to $887.3 million at the end 2023 (from $1,011 million at the end of 2022) due to tax deductions claimed in 2023. Freehold’s tax pools are summarized below:

	Year ended December 31	Year ended December 31	Year ended December 31
($000s)	2023	2022	Change
Canada Oil and gas property expense Development expense Capital cost allowance Share issue costs ~~United States~~ Depletion	448,289 5,590 2,665 3,790 426,970	496,859 7,755 3,365 5,686 496,913	-10% -28% -21% -33% -14%
Total	887,304	1,010,578	-12%

2023 | MANAGEMENT’S DISCUSSION AND ANALYSIS | FREEHOLD ROYALTIES LTD 16

Net Income and Comprehensive Income

In the current reporting periods, Freehold had net income of $34.3 million and $131.9 million, decreases compared to $40.7 million and $209.2 million in the same periods in 2022, largely due to lower realized average commodity prices. For these same periods and for the same reasons, comprehensive income also decreased as further impacted in the current reporting periods by foreign currency translation losses related to the translation of Freehold’s wholly-owned U.S. subsidiary to Canadian dollars.

Year ended December 31 ($000s, except per share) 2023 2022 Change 2023 2022 Change Three months ended December 31	Year ended December 31 ($000s, except per share) 2023 2022 Change 2023 2022 Change Three months ended December 31
Net income 34,323 $ 40,744 $ -16% 131,904 $ Per share, basic and diluted ($) 0.23 $ 0.27 $ -15% 0.88 $ Comprehensive income 28,355 $ 39,497 $ -28% 125,846 $	209,189 $ -37%
	1.39 $ -37%
	219,230 $ -43%

Liquidity and Capital Resources

We define capital (and capitalization) as long-term debt, shareholders’ equity and working capital. We retain working capital primarily to fund capital expenditures or acquisitions, pay dividends and reduce bank indebtedness. We manage our capital structure taking into account operating activities, debt levels, debt covenants, acquisitions, dividend levels, foreign exchange rates and taxes, among others. We also consider changes in economic conditions and commodity prices as well as the risk characteristics of our assets. Ongoing acquisitions and third-party development activities are necessary to replace production and extend reserve life. From time to time, we may issue shares to finance acquisitions.

Operating Activities

Cash Flow from Operations and Funds from Operations

We consider funds from operations to be a key measure of operating performance as it demonstrates Freehold's ability to pay dividends, fund acquisitions and repay debt. We believe this measure provides a useful assessment of Freehold's operations on a continuing basis by eliminating certain non-cash charges. Funds from operations per share is calculated based on the weighted average number of shares outstanding consistent with the calculation of net income per share.

Funds from operations for the current reporting periods decreased to $62.8 million ($0.42/share) and $239.7 million ($1.59/share) from $80.0 million ($0.53/share) and $316.5 million ($2.10/share) in the same periods of 2022. These decreases mainly reflect lower realized average commodity prices caused by various benchmark decreases. The decrease in 2023 also reflects higher interest costs. 2023 funds from operations of $239.7 million was $10.3 million below the low end of 2023 guidance caused by lower benchmark prices and product mix.

Cash flow from operations of $70.7 million and $216.9 million during the current reporting periods were approximately 14% and 34% lower than the same periods of 2022, directionally consistent with the decrease in funds from operations, and the impact of paying the final 2022 tax instalment of $29.3 million in 2023.

Three months ended December	31	Year ended December 31
($000s,except as noted) 2023 2022	Change 2023 2022 Change
Cash flow from operations 70,704 $ 82,675 $ Funds from operations 62,805 $ 79,973 $ Per share - basic ($) (1) (2) 0.42 $ 0.53 $		-14% 216,916 $ 327,348 $ -34% -21% 239,665 $ 316,494 $ -24% -21% 1.59 $ 2.10 $ -24%

17 2023 | MANAGEMENT’S DISCUSSION AND ANALYSIS | FREEHOLD ROYALTIES LTD.

1. Weighted average number of shares outstanding during the period, basic

2. Funds from operations per share is a supplementary financial measure

Working Capital

We retain working capital (calculated as current assets, less current liabilities) primarily to fund dividends, acquisitions, expenditures and/or repayments of long-term debt. In the oil and gas industry, accounts receivable from industry partners are typically settled in the following month. However, due to royalty administration, payments to royalty owners are often delayed longer. Also, working capital can fluctuate significantly due to volume and commodity price changes at each period end. Changes in the declared dividend and timing differences between accruing a liability, such as current income taxes, and the related payments can also affect working capital.

Working capital on December 31, 2023, was $29.3 million, 2% or $0.7 million higher when compared to December 31, 2022. Working capital was relatively unchanged as the settlement of 2022 year end current taxes payable of $29.3 million was offset by income tax deposits being reclassified from current to non-current assets (see CRA Assessments). Starting in 2023 corporate income taxes are required to be paid through current year installments. Decreases in accounts receivable attributed to collection efforts and lower commodity pricing was offset by acquisition deposits posted on signing definitive agreements, where these U.S. acquisitions closed in January 2024.

At December 31	At December	31
($000s) 2023	2022	Change
Workingcapital(1) 29,321 $	28,656 $	2%

1. Working capital is a capital management measure

Financing Activities

Long-Term Debt

Freehold’s credit facilities with a syndicate of four Canadian banks have a committed revolving facility availability of $285 million and an operating facility availability of $15 million, where either facility can be drawn in Canadian or U.S. dollars. The credit agreement includes a permitted increase in the committed revolving facility to $435 million subject to lenders’ consent. Both the committed revolving and operating facilities mature October 21, 2025. At December 31, 2023, $123.0 million was drawn on the committed revolving facility (December 31, 2022 - $156.6 million). There were no U.S. dollar denominated borrowings against the committed revolving facility (2022 – US$61.4 million) or drawings against the operating facility (2022 – $nil) at December 31, 2023. The credit facilities are secured with a $400 million first charge demand debenture over all of Freehold’s Canadian royalty income assets and fixed charge mortgage securities on certain U.S. royalty income assets with associated proved developed producing reserves.

Freehold’s credit agreement contains, among affirmative covenants, two financial covenants: (i) long-term debt to EBITDA on royalty interest properties (calculated as earnings on royalty interest properties before non-cash charges including, but not limited to, interest, taxes, depletion and depreciation and amortization) shall not exceed 3.5 times (0.4 times at December 31, 2023) and (ii) long-term debt to the aggregate of long-term debt and shareholders’ equity percentage shall not exceed 55% (12% at December 31, 2023). Freehold forecasts to be in compliance with all covenants on a quarterly basis for at least the next year based on its current best estimate of results from operations.

2023 | MANAGEMENT’S DISCUSSION AND ANALYSIS | FREEHOLD ROYALTIES LTD 18

Outstanding borrowings under the credit facilities bear interest on U.S. and Canadian denominated drawings at Secured Overnight Financing Rate (SOFR) and Canadian Dollar Offered Rate (CDOR), respectively, or at the lender’s prime lending rate plus applicable margins and standby fees, dependent on ratios of Freehold’s longterm debt to EBITDA on royalty interest properties. The publication of CDOR will cease after June 28, 2024, with the credit facilities transitioning to Canadian Overnight Repo Rate Average (CORRA) based loans. Freehold does not expect this transition will cause a significant difference on the cost of its borrowings under the credit facilities.

At December 31, 2023 and December 31, 2022, the fair value of the long-term debt approximated its carrying values, as the long-term debt carries interest at prevailing market and foreign exchange rates.

Net Debt

During 2023, net debt decreased by $34.3 million, or 27%, to $93.7 million from $127.9 million at December 31, 2022, largely as a result of lower long-term debt.

Freehold’s net debt to trailing funds from operations ratio of 0.4 times at December 31, 2023 was consistent with the December 31, 2022 ratio, and well within our net debt strategy target of below 1.5 times. This ratio is a financial leverage measure. It represents the number of years it would take Freehold to reduce its net debt to zero if funds from operations was held constant and there were no other cash outflow obligations required such as dividends and acquisitions, among others.

Freehold uses the capital management measure capitalization which is defined as net debt plus shareholders’ equity. The associated capital management measure net debt to capitalization ratio is a financial leverage measure that shows the portion of capital relating to debt. Freehold’s net debt to capitalization ratio was 9% at December 31, 2023, a reduction of 3% from December 31, 2022.

Debt Analysis

	At December 31 At December 31
($000s)	2023 2022 Change
Long-term debt Working capital(1)	122,973 $ 156,560 $ -21% (29,321) (28,656) 2%
Net debt(1)	93,652 $ 127,904 $ -27%

1. Working capital and net debt are capital management measures

Financial Leverage Ratios[1][,][2]

	At December 31 At December 31
	2023 2022	Change
Net debt to funds from operations (times) Net debt to capitalization(%)	0.4 0.4 9% 12%	0% -25%

1. Funds from operations are 12-months trailing and do not include the proforma effects of acquisitions

2. Net debt to trailing funds from operations is a capital management measure

19 2023 | MANAGEMENT’S DISCUSSION AND ANALYSIS | FREEHOLD ROYALTIES LTD.

Shareholders’ Capital

In 2023, Freehold issued 22,000 shares for payment of the management fee.

At each of December 31, 2023 and February 28, 2024, there were 150,689,334 common shares outstanding.

Shareholders’ Capital

	December	31,	2023	December	31,	2022
($000s, except as noted)	Shares		Amount	Shares		Amount
Balance, beginning of year	150,667,334	$	1,500,331	150,612,334	$	1,499,544
Issued for payment of management fee	22,000		308	55,000		787
Balance, end of year	150,689,334	$	1,500,639	150,667,334	$	1,500,331

Weighted Average Shares

Three months ended December	31	Year ended December 31
2023 2022	Change 2023 2022 Change
Weighted average Basic 150,684,013 150,653,733 Diluted 151,219,052 151,077,555		0% 150,675,727 150,633,203 0% 0% 151,219,049 150,822,910 0%
At year end 150,689,334 150,667,334		0% 150,689,334 150,667,334 0%

Dividend Policy and Analysis

The Board reviews and determines the monthly dividend rate on a quarterly basis, or as conditions necessitate, after considering many factors including but not limited to expected commodity prices, foreign exchange rates, economic conditions, production volumes, taxes payable, and Freehold’s capacity to finance operating and investing obligations and opportunities. The dividend rate is established with the intent of absorbing short-term market volatility over several months. It also recognizes our intention to fund capital expenditures primarily through funds from operations and to maintain a strong balance sheet to take advantage of acquisition opportunities and withstand potential commodity price declines.

The payment of dividends by a corporation is governed by the liquidity and insolvency tests described in the Business Corporations Act (Alberta) (ABCA). Pursuant to the ABCA, after the payment of a dividend, we must be able to pay our liabilities as they become due and the realizable value of our assets must be greater than our liabilities and the legal stated capital of our outstanding securities. At December 31, 2023, our legal stated capital was $361 million.

2023 | MANAGEMENT’S DISCUSSION AND ANALYSIS | FREEHOLD ROYALTIES LTD 20

2023 Dividends Declared

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Dividend Amount
Record Date Payment Date ($/share)
January 31, 2023 February 15, 2023 $ 0.09
February 28, 2023 March 15, 2023 $ 0.09
March 31, 2023 April 17, 2023 $ 0.09
April 28, 2023 May 15, 2023 $ 0.09
May 31, 2023 June 15, 2023 $ 0.09
June 30, 2023 July 17, 2023 $ 0.09
July 31, 2023 August 15, 2023 $ 0.09
August 31, 2023 September 15, 2023 $ 0.09
September 29, 2023 October 16, 2023 $ 0.09
October 31, 2023 November 15, 2023 $ 0.09
November 30, 2023 December 15, 2023 $ 0.09
December 29, 2023 January 15, 2024 $ 0.09
$ 1.08
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On January 16, 2024, the Board declared a dividend of $0.09 per common share which was paid on February 15, 2024, to common shareholders on record on January 31, 2024. On February 15, 2024, the Board declared a dividend of $0.09 per common share to be paid on March 15, 2024, to common shareholders on record on February 29, 2024. On February 28, 2024, the Board declared a dividend of $0.09 per common share to be paid on April 15, 2024, to common shareholders on record on March 28, 2024.

2023 Dividends Paid

Dividends paid in Q4-2023 totaled $40.7 million ($0.27/share), were unchanged from the same period of 2022. For 2023, dividends paid represent a record level of dividends, totaling $162.7 million ($1.08/share), higher than the $141.6 million ($0.94 per share) paid in the same period of 2022.

From inception in 1996 through to December 31, 2023, Freehold has distributed in excess of $2.1 billion ($35.14 per share) to our shareholders. Freehold’s dividends are designated as eligible dividends for Canadian income tax purposes.

Accumulated Dividends[1 ]

Three months ended December 31 Year ended December 31 ($000's, except per share) 2023 2022 Change 2023 2022 Change	Three months ended December 31 Year ended December 31 ($000's, except per share) 2023 2022 Change 2023 2022 Change
Dividends declared 40,686 $ 40,678 $ 0% Accumulated, beginning of period 2,074,643 1,911,920 9%	162,732 $ 146,121 $ 11%
	1,952,597 1,806,477 8%
Accumulated, end of period 2,115,329 $ 1,952,598 $ 8%	2,115,329 $ 1,952,598 $ 8%
Dividends per share ($) (2) 0.27 $ 0.27 $ 0% Accumulated, beginning of period ($) 34.87 33.79 3%	1.08 $ 0.97 $ 11%
	34.06 33.09 3%
Accumulated, end of period ($) 35.14 $ 34.06 $ 3%	35.14 $ 34.06 $ 3%

1. Accumulated dividends reflect distributions paid on trust units of Freehold Royalty Trust (the predecessor of Freehold) from 1996 through 2010 and dividends on common shares of Freehold from 2011 onwards

2. Based on the number of shares issued and outstanding at each record date

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In the current reporting periods, Freehold's payout[(2)] ratios were 65% and 68% with excess funds from operations largely being used to repay debt, in addition to funding acquisition deposits during Q4-2023 and paying the 2022 year-end Canadian current income tax payable during 2023.

Dividend Payout Ratio[2]

Three months ended December	31	Year ended December 31
($000s,except as noted) 2023 2022	Change 2023 2022 Change
Dividends paid(1) 40,686 $ 40,677 $ Funds from operations 62,805 $ 79,973 $ Dividend payout ratio (%)(2) 65% 51%		0% 162,731 $ 141,597 $ 15% -21% 239,665 $ 316,494 $ -24% 27% 68% 45% 51%

1. Based on the dividend payment date which is generally on the 15th day of the month following the month it was declared

2. Dividend payout ratio is a supplementary financial measure

Dividend payout ratios, a supplementary financial measure, are often used for dividend paying companies in the oil and gas industry to identify dividend levels in relation to the funds a company receives and uses in its capital and operational activities. Freehold’s dividend payout ratio is calculated as dividends declared as a percentage of funds from operations.

With the goal of aligning dividend levels to a stronger and stabilizing business outlook, Freehold increased its monthly dividend from $0.04/share in May 2021, to $0.05/share in August 2021, to $0.06/share in November 2021, to $0.08/share in March 2022 and to $0.09/share, or $1.08/share on an annualized basis, in August 2022.

Investing Activities

Canadian Acquisitions and Related Expenditures

Canadian Acquisitions

In 2023, Freehold invested $5.2 million to acquire GORRs in the Clearwater play in central Alberta and $0.2 million for an incremental royalty interest in a potash mine located in Rocanville, Saskatchewan.

U.S. Acquisitions

As at December 31, 2023, Freehold had paid acquisition deposits totaling $12.1 million (US$9.1 million) towards two U.S. transactions that closed in January 2024.

Related Expenditures

Freehold capitalized G&A costs of $3.4 million and cash share-based compensation payouts of $0.9 million that were directly attributable to acquisition activities and capitalized other royalty income asset and miscellaneous expenditures of $0.9 million in 2023.

2023 | MANAGEMENT’S DISCUSSION AND ANALYSIS | FREEHOLD ROYALTIES LTD 22

Related Party Transactions

Freehold does not have any employees. Rather, Freehold is managed by Rife Resources Management Ltd. (the Manager) pursuant to a management agreement (the Management Agreement). The Manager is a wholly-owned subsidiary of Rife Resources Ltd. (Rife). Rife is 100% owned by the pension funds for the employees of the Canadian National Railway Company (the CN Pension Trust Funds), and both Rife and the CN Pension Trust Funds are shareholders of Freehold. Combined they have a 16.7% ownership in Freehold at December 31, 2023 and December 31, 2022. Canpar Holdings Ltd. (Canpar, and together with Rife and the Manager, the Related Parties) is managed by Rife and owned 100% by the CN Pension Trust Funds. Two of the directors of each of Rife and Canpar are also directors of Freehold.

All amounts owing to/from the Related Parties are unsecured, non-interest bearing and due on demand. All transactions were in the normal course of operations and were measured at the exchange amount, with consideration established and agreed to by the parties.

Rife Resources Management Ltd.

The Manager provides certain services for a fee based on a specified number of Freehold common shares on a quarterly basis. Pursuant to the Management Agreement, the management fee was capped at 5,500 and 13,750 Freehold common shares per quarter for 2023 and 2022, respectively. For the current reporting periods, the respective ascribed values of $0.1 and $0.3 million were based on the closing price of Freehold's common shares on the last trading day of each quarter (same periods of 2022 - $0.3 million and $0.8 million).

For 2023 and 2022, the Manager charged $15.1 million and $12.2 million in general and administrative costs and $4.1 million and $4.6 million for share-based compensation payouts, respectively. At December 31, 2023 there was $0.2 million in accounts payable and accrued liabilities relating to these costs (December 31, 2022 - $nil).

Rife Resources Ltd. and CN Pension Trust Funds

For 2023 and 2022, Freehold paid $27.1 million and $25.8 million, respectively, in total cash dividends to Rife and the CN Pension Trust Funds for their combined ownership in Freehold’s common shares. In addition, Freehold receives royalties from Rife pursuant to various royalty agreements. For 2023 and 2022 Freehold received royalties of approximately $0.4 million and $0.6 million from Rife. At December 31, 2023 and 2022 there was $2.3 million in dividends payable due to Rife and the CN Pension Trust Fund related to dividends declared.

Canpar Holdings Ltd.

Freehold and Canpar generally share mineral title ownership in a substantial land base in western Canada. Generally, Canpar owns mineral rights that were below the deepest producing formation at the time that Freehold was created, and Freehold holds the balance of the mineral rights. Where Freehold is not the legal registered owner of such mineral rights, Canpar holds these rights in trust for Freehold and receives the royalty payments in respect of such mineral rights on behalf of Freehold. Amounts due from Canpar at December 31, 2023 were a nominal amount (December 31, 2022 - $0.7 million).

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Key Management Personnel Compensation

Key management personnel are considered to be the Board and executive officers. The Board is compensated directly by Freehold. Executive officers’ salaries and other benefits are charged by and paid to the Manager, whereas grants pursuant to the Share Awards Plan are issued directly by Freehold. The table below provides amounts charged by the Manager for the executive officers, Board fees and the share based compensation expense attributable to key management personnel.

	December 31	December 31	December 31	December 31
($000s)		2023		2022
Cash directors' fees	$	399	$	421
Manager charges for executive officers		2,388		1,366
Share based compensation		1,866		6,327
Key management compensation	$	4,653	$	8,114

The 2022 share based compensation includes a non-cash charge of $3.3 million to adjust the carrying amount of DSUs to their market value at December 31, 2022 to prospectively account for this plan as cash settled (see Share-Based Compensation).

Select Annual Information

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FINANCIAL ($000S, except as noted) 2023 2022 2021
Royalty and other revenue 314,575 393,020 208,992
Net income 131,904 209,189 72,084
Per share, basic and diluted ($) 0.88 1.39 0.53
Dividends declared 162,732 146,121 68,628
Per share ($) 1.08 0.97 0.45
Total assets 1,118,423 1,212,003 1,070,507
Long-term debt 122,973 156,560 146,000
Total long-term liabilities 168,566 200,235 161,109
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Select Quarterly Information

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2023 2022
Financial ($millions, except as noted) Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
Royalty and other revenue 80.1 84.2 73.7 76.6 98.5 98.4 108.5 87.6
Net income 34.3 42.3 24.3 31.1 40.7 63.2 66.9 38.4
Per share, basic & diluted ($) (1) 0.23 0.28 0.16 0.21 0.27 0.42 0.44 0.25
Cash flows from operations 70.7 53.7 49.9 42.6 82.7 99.9 75.4 69.3
Funds from operations 62.8 65.3 53.0 58.6 80.0 80.8 83.8 71.9
Per share, basic & diluted ($) (1) 0.42 0.43 0.35 0.39 0.53 0.54 0.56 0.48
Acquisitions and related expenditures 2.1 1.2 3.2 4.3 7.2 161.7 20.7 1.3
Dividends paid 40.7 40.7 40.7 40.7 40.7 37.7 36.2 27.1
Per share ($) (2) 0.27 0.27 0.27 0.27 0.27 0.25 0.24 0.18
Dividends declared 40.7 40.7 40.7 40.7 40.7 39.2 36.2 30.1
Per share ($) (2) 0.27 0.27 0.27 0.27 0.27 0.26 0.24 0.20
Payout ratio (%) [ (3)] 65% 62% 77% 69% 51% 47% 43% 38%
Long term debt 123.0 141.2 152.0 159.1 156.6 196.9 86.0 105.0
Net debt [(4)] 93.7 106.6 130.8 115.8 127.9 159.9 33.1 62.6
Shares outstanding, period end (millions) 150.7 150.7 150.7 150.7 150.7 150.7 150.6 150.6
Average shares outstanding (millions) (1) 150.7 150.7 150.7 150.7 150.7 150.6 150.6 150.6
Operating
Light and medium oil (bbls/d) 6,308 6,325 6,093 6,102 6,418 5,935 5,378 5,234
Heavy oil (bbls/d) 1,182 1,127 1,167 1,253 1,218 1,190 1,239 1,210
NGL (bbls/d) 1,878 1,678 1,845 1,788 1,781 1,708 1,613 1,757
Total liquids (bbls/d) 9,368 9,130 9,105 9,143 9,417 8,833 8,230 8,201
Natural gas (Mcf/d) 32,968 32,851 33,372 33,486 33,744 32,319 31,336 32,845
Total production (boe/d) [(5)] 14,863 14,605 14,667 14,724 15,041 14,219 13,453 13,676
Oil and NGL (%) 63% 63% 62% 62% 63% 62% 61% 60%
Petroleum and natural gas realized price ($/boe) 57.94 61.55 54.05 56.99 69.76 74.31 87.55 69.71
Cash costs ($/boe) (3)(5) 4.73 5.10 7.19 5.82 5.17 3.62 8.38 3.70
Netback ($/boe) [(3)(5)] 52.59 55.63 46.07 50.79 63.92 69.77 78.80 66.17
Benchmark Prices
West Texas Intermediate crude oil (US$/bbl) 78.32 82.26 73.78 76.13 82.64 91.56 108.41 94.29
Average Exchange rate (Cdn$/US$) 1.36 1.34 1.34 1.35 1.35 1.30 1.28 1.27
Edmonton Light Sweet crude oil (Cdn$/bbl) 99.69 107.89 94.97 99.03 109.83 116.85 137.79 115.67
Western Canadian Select crude oil (Cdn$/bbl) 76.96 93.05 78.76 69.31 77.08 93.49 122.09 101.02
Nymex natural gas (US$/Mcf) 2.98 2.64 2.17 3.30 6.03 8.20 7.17 4.64
AECO 7A Monthly Index (Cdn$/Mcf) 2.70 2.42 2.40 4.34 5.58 5.50 6.27 4.58
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1. Weighted average number of shares outstanding during the period, basic

2. Based on the number of shares issued and outstanding at each record date

3. See Non-GAAP and Other Financial Measures

4. Net debt is a capital management measure

5. See Conversion of Natural Gas to Barrels of Oil Equivalent (boe)

25 2023 | MANAGEMENT’S DISCUSSION AND ANALYSIS | FREEHOLD ROYALTIES LTD.

Business Risks

Our operations are subject to some of the same industry risks and conditions faced by oil and gas companies. The most significant of these include the following:

• volatility in market prices for oil and natural gas;

• the impact of development of alternatives to, and changing demand for, petroleum producers;

• the impact of any changes in the regulatory or royalty regimes in the jurisdictions where the Corporation has assets;

• liabilities inherent in oil and natural gas operations;

• changes in general economic, market and business conditions;

• the effects of the Russian/Ukrainian conflict and Isreal/Hamas conflict on commodity prices and the world economy;

• uncertainties associated with estimating oil and natural gas reserves;

• competition for, among other things, capital, acquisitions of royalty reserves, undeveloped lands and skilled personnel;

• incorrect assessments of the value of acquisitions;

• operational dependence on the financial and operational capacity of royalty payors and third-party operators for Freehold’s revenues;

• risks related to the environment and changing environmental laws, such as, carbon tax and methane emissions regulations;

• risks pertaining to supply chain issues and inflationary pressures;

• fluctuations in the availability and cost of borrowing;

• royalty payor geological, technical, drilling, and processing problems; and

• changes in income tax laws or changes in tax laws and incentive programs relating to the oil and gas industry.

For a more detailed description of risk factors, please see our AIF, filed on SEDAR+ at www.sedarplus.ca.

2023 | MANAGEMENT’S DISCUSSION AND ANALYSIS | FREEHOLD ROYALTIES LTD 26

Environmental Risks

All phases of the oil and natural gas business present environmental risks and hazards and are subject to environmental regulation pursuant to a variety of federal, state, provincial and local laws and regulations. Environmental legislation provides for, among other things, the initiation and approval of new oil and natural gas projects, restrictions and prohibitions on the spill, release or emission of various substances produced in association with oil and natural gas industry operations. In addition, such legislation sets out the requirements with respect to oilfield waste handling and storage, habitat protection and the satisfactory operation, maintenance, abandonment and reclamation of well and facility sites. New environmental legislation at the federal, provincial and state levels may increase uncertainty among oil and natural gas industry participants as the new laws are implemented, and the effects of the new rules and standards are felt in the oil and natural gas industry.

Compliance with environmental legislation can require significant expenditures and a breach of applicable environmental legislation may result in the imposition of fines and penalties, some of which may be material. Environmental legislation is evolving in a manner expected to result in stricter standards and enforcement, larger fines and liabilities and potentially increased capital expenditures and operating costs. The discharge of oil, natural gas or other pollutants into the air, soil or water may give rise to liabilities to governments and third parties and may require the Corporation to incur costs to remedy such discharge. Although the Corporation believes that it is in material compliance with current applicable environmental legislation, no assurance can be given that environmental compliance requirements will not result in a curtailment of production or a material increase in the costs of production, development or exploration activities or otherwise have a material adverse effect on the Corporation's business, financial condition, results of operations and prospects.

Additional information on environmental regulations and risks related thereto can be found under the headings "Industry Conditions" and "Risk Factors" in the AIF.

Climate Change Risks

Global climate issues continue to attract public and scientific attention. Numerous reports, including reports from the Intergovernmental Panel on Climate Change, have engendered concern about the impacts of human activity, especially hydrocarbon combustion, on global climate issues. In turn, increasing public, government, and investor attention is being paid to global climate issues and to emissions of GHG, including emissions of carbon dioxide and methane from the production and use of oil, liquids and natural gas. The majority of countries, including Canada and the United States, have agreed to reduce their carbon emissions in accordance with the Paris Agreement. At the 2021 United Nations Climate Change Conference in Glasgow, Scotland, Canada made several pledges aimed at reducing Canada's GHG emissions and at the 2023 United Nations Climate Change Conference, Canada renewed its commitments to transitioning away from fossil fuels and further cutting GHG emissions.

Transition Risks

Foreign and domestic governments continue to evaluate and implement policy, legislation, and regulations focused on restricting GHG emissions and promoting adaptation to climate change and the transition to a lowcarbon economy. It is not possible to predict what measures foreign and domestic governments may implement in this regard, nor is it possible to predict the requirements that such measures may impose or when such measures may be implemented. However, international multilateral agreements, the obligations adopted thereunder and legal challenges concerning the adequacy of climate-related policy brought against foreign and domestic governments may accelerate the implementation of these measures. Given the evolving nature of climate change policy and the control of GHG emissions and resulting requirements, including carbon taxes and carbon pricing schemes implemented by varying levels of government, it is expected that current and future

27 2023 | MANAGEMENT’S DISCUSSION AND ANALYSIS | FREEHOLD ROYALTIES LTD.

climate change regulations will have the effect of increasing the operating expenses of some of the Corporation's royalty payors, and, in the long-term, potentially reducing the demand for oil and natural gas and related products, resulting in a decrease in the Corporation's profitability and a reduction in the value of its assets.

Claims have been made against certain energy companies alleging that GHG emissions from oil and natural gas operations constitute a public nuisance under certain laws or that such energy companies provided misleading disclosure to the public and investors of current or future risks associated with climate change. Individuals, government authorities, or other organizations may make claims against oil and natural gas companies, including the Corporation, for alleged personal injury, property damage, or other potential liabilities. While the Corporation is not a party to any such litigation or proceedings, it could be named in actions making similar allegations. An unfavorable ruling in any such case could adversely affect the demand for and price of securities issued by the Corporation, impact its operations and have an adverse impact on its financial condition.

Given the perceived elevated long-term risks associated with policy development, regulatory changes, public and private legal challenges, or other market developments related to climate change, there have also been efforts in recent years affecting the investment community, including investment advisors, sovereign wealth funds, banks, public pension funds, universities and other institutional investors, promoting direct engagement and dialogue with companies in their portfolios on climate change action (including exercising their voting rights on matters relating to climate change) and increased capital allocation to investments in low-carbon assets and businesses while decreasing the carbon intensity of their portfolios through, among other measures, divestments of companies with high exposure to GHG-intensive operations and products. Certain stakeholders have also pressured insurance providers and commercial and investment banks to reduce or stop financing, and providing insurance coverage to oil and natural gas and related infrastructure businesses and projects. The impact of such efforts require the Corporation's management to dedicate significant time and resources to these climate changerelated concerns, which may adversely affect the Corporation's operations, the demand for and price of the Corporation's securities and the Corporation's cost of capital and access to the capital markets.

Emissions, carbon and other regulations impacting climate and climate-related matters are constantly evolving. With respect to environmental, social, governance and climate reporting, in June 2023 the International Sustainability Standards Board issued two new international sustainability disclosure standards with the aim to develop sustainability disclosure standards that are globally consistent, comparable and reliable. The Canadian Securities Administrators had previously published for comment Proposed National Instrument 51-107 – Disclosure of Climate-Related Matters , intended to introduce climate-related disclosure requirements for reporting issuers in Canada. It is expected that the introduction of new international standards will instruct how new Canadian sustainability disclosure standards are finalized. If the Corporation is not able to meet future sustainability reporting requirements of regulators or current and future expectations of investors, insurance providers, or other stakeholders, its business and ability to attract and retain skilled employees, obtain regulatory permits, licences, registrations, approvals, and authorizations from various governmental authorities, and raise capital may be adversely affected.

Additional information on environmental regulations and risks related thereto can be found under the heading "Industry Conditions" in the AIF.

2023 | MANAGEMENT’S DISCUSSION AND ANALYSIS | FREEHOLD ROYALTIES LTD 28

Physical Risks

Based on the Corporation's current understanding, the potential physical risks resulting from climate change are long-term in nature and associated with a high degree of uncertainty regarding timing, scope, and severity of potential impacts. Many experts believe global climate change could increase extreme variability in weather patterns such as increased frequency of severe weather, rising mean temperature and sea levels, and long-term changes in precipitation patterns. Extreme hot and cold weather, heavy snowfall, heavy rainfall, and wildfires may restrict the ability of the Corporation's royalty payors to access their properties and cause operational difficulties, including damage to equipment and infrastructure. Extreme weather also increases the risk of personnel injury as a result of dangerous working conditions.

Controls, Accounting and Regulatory Matters

Freehold is required to comply with National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings. The certification of annual filings requires us to disclose in the MD&A any changes in our internal controls over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting. While we believe that our disclosure controls and procedures and internal control over financial reporting provide a reasonable level of assurance, we do not expect that the controls will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objective of the control system is met. The Chief Executive Officer and Chief Financial Officer have signed form 52-109F1, Certification of Annual Filings, which can be found on SEDAR+ at www.sedarplus.ca.

Disclosure Controls and Procedures

As of December 31, 2023, an internal evaluation was carried out of the effectiveness of Freehold’s disclosure controls and procedures. This evaluation was performed under the supervision of, and with the participation of the CEO and the CFO. It took into consideration Freehold’s Disclosure, Insider Trading, Code of Business Conduct and Conflict of Interest, and Whistleblower policies, as well as the functioning of the Manager, the officers, the Board and Board Committees. In addition, the evaluation covered the processes, systems and capabilities relating to regulatory filings, public disclosures, and the identification and communication of material information. Based on this evaluation, management has concluded that Freehold’s disclosure controls and procedures were effective as at December 31, 2023, in ensuring that material information is made known to management in a timely manner, particularly during the period in which the annual filings were being prepared, and information required to be disclosed by Freehold in its annual filings, interim filings or other reports filed or submitted by Freehold under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation.

Internal Control Over Financial Reporting

Our CEO and CFO are responsible for establishing and maintaining internal control over financial reporting (ICFR). They have caused ICFR to be designed under their supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with Canadian GAAP. The control framework used to design ICFR is the Internal Control – Integrated Framework (2013 COSO Framework) published by The Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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Under the supervision of the CEO and CFO, Freehold conducted an evaluation of the effectiveness of its ICFR as at December 31, 2023, as structured within the 2013 COSO Framework. Based on this evaluation, the CEO and CFO concluded that, as of December 31, 2023, Freehold’s ICFR was effective. Our ICFR provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP. There were no changes in our ICFR during the year ended December 31, 2023 that materially affected Freehold’s ICFR.

Use of Estimates and Judgment

The preparation of financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reporting period. Actual results could differ as a result of using estimates.

Petroleum and Natural Gas Reserves

The amounts recorded for the depletion of petroleum and natural gas interests, business combinations, indicators of impairment and the amounts used in an impairment calculation are based on estimates of proved and probable petroleum and natural gas reserves. By their nature, these estimates of proved and probable petroleum and natural gas reserves and the related cash flows are subject to uncertainty including significant assumptions related to forecasted royalty production from proved and probable petroleum and natural gas reserves and forecasted oil and gas commodity prices and the impact on the financial statements of future periods could be material. Freehold’s proved and probable petroleum and natural gas reserves have been prepared at December 31, 2023 by the Company’s external independent qualified reserves evaluators. Management judgment is required to analyze internal and external indicators of impairment for petroleum and natural gas interests and exploration and evaluation assets with the estimate of proved and probable petroleum and natural gas reserves and the related cash flows being significant to the assessment.

Unbooked Future Development Locations

Unbooked future development locations on royalty lands and the associated future cash flows can also be used in an impairment calculation. These unbooked future development locations are determined from a historical analysis of booking previously undeveloped reserves into the independently prepared reserve reports. By their nature, this estimate and future cash flows are subject to uncertainty including significant assumptions related to future royalty production and forecasted oil and gas commodity prices and timing of third-party development.

Share-based Compensation

Share based compensation is determined based on the value of outstanding awards at each period end. The value recorded incorporates the period-end share price, dividends declared from the grant date through to the period-end and certain assumptions including an estimate of the multiplier for PSUs. Actual results could differ as a result of using estimates.

2023 | MANAGEMENT’S DISCUSSION AND ANALYSIS | FREEHOLD ROYALTIES LTD 30

Income Taxes

Deferred income tax liabilities and assets are recognized for the estimated tax consequences attributable to differences between the amounts reported in the financial statements and their respective tax bases, using enacted or substantively enacted income tax rates, when it is considered probable that deferred tax liabilities or assets will be payable or recoverable, respectively, in future periods, which requires management judgement. The effect of a change in income tax rates on deferred income tax liabilities and assets is recognized in income in the period that the change occurs. The actual amount of income tax may be greater than or less than the estimates and the differences may be material. Management reviews the adequacy of these amounts at the end of the reporting period. However, changes in income tax liabilities or assets may arise in future periods resulting from audits by taxing authorities. Where the probable outcome of these tax related matters is different from the amounts that were initially recorded, such differences will affect the expensed income tax in the period in which such determination is made.

Cash Generating Units

The determination of a cash generating unit (CGU) is subject to management judgment. The recoverability of petroleum and natural gas interests and exploration and evaluation assets are assessed at the CGU level. A CGU is the lowest level at which there are identifiable cash inflows that are largely independent of the cash inflows of other CGUs. Freehold currently has two royalty CGUs: the United States and Canada.

United States and Canadian Petroleum and Natural Gas Royalty Revenue Accruals

Freehold follows the accrual method of accounting, making estimates in its financial and operating results. This may include estimates of U.S. and Canadian revenues, which are based on significant assumptions related to royalty production, realized commodity pricing and, where applicable, permitted source deductions for the period being reported, for which actual results have not yet been received. It is expected that these accrual estimates will be revised, upwards or downwards, based on the receipt of actual results. Freehold has no operational control over its royalty lands and primarily holds small interests in several thousand wells. Thus, obtaining timely production data from the well operators is extremely difficult. As a result, the Company uses historical production information, new wells on stream and publicly available production data pursuant to the terms of the Company’s U.S. and Canadian leases and royalty agreements to determine royalty production. Realized commodity prices are based on publicly available price benchmarks, adjusted for quality, location, allowable deductions, or other factors pursuant to the terms of these leases and royalty agreements. These U.S. and Canadian royalty revenue accrual estimates are revised based on actual royalty production volumes and realized commodity prices received in subsequent periods. The U.S. and Canadian royalty revenue accruals are necessary due to the delay between the timing of oil and gas production and when the Company receives its royalty production and payment, which is typically a time lag of approximately two to three months.

Judgment is required to determine the interests of royalty properties in areas where mineral rights are shared with a related party, Canpar. Freehold uses publicly available information on geological formations to apportion revenues between the entities in accordance with the respective party’s interests. As new geological information becomes available and as part of its ongoing internal audit activities, Freehold periodically revises these allocations and consideration is transferred to reflect the changes.

31 2023 | MANAGEMENT’S DISCUSSION AND ANALYSIS | FREEHOLD ROYALTIES LTD.

Changes in Accounting Standards

Amendments to IAS 1 Presentation of Financial Statements

In January 2020 and October 2022, the International Accounting Standards Board issued amendments to IAS 1 Presentation of Financial Statements that specify the requirements for the classification of debt and other liabilities as either current or non-current. The amendments will be effective on January 1, 2024 and are to be applied retrospectively. The Company’s preliminary assessment on the impact of the January 1, 2024 adoption on the consolidated financial statements indicates that the amendments will result in the reclassification of certain share-based compensation liabilities from long-term to current. Retrospective application will result in a restatement of the December 31, 2023 balance sheet, reclassifying $6.5 million of the share compensation liability from long-term to current.

Sustainability Reporting

During 2023, the International Sustainability Standards Board (ISSB) published the following two IFRS sustainability disclosure standards: “General Requirements for Disclosure of Sustainability-related Financial Information” and “Climate-related Disclosures”. These standards “set out the overall requirements for disclosing sustainability-related financial information in order to provide primary users with a complete set of sustainability-related financial disclosures” and “set out the requirements for identifying, measuring and disclosing climate-related risks and opportunities as part of an entity’s general purpose financial reporting.” Currently, the ISSB’s sustainability disclosure standard, effective from January 1, 2024, is subject to adoption by the international community, including Canada’s Securities Administration. The recently formed Canadian Sustainability Standards Board’s mandate is to develop and support adopting international sustainability standards in Canada. With the adoption of sustainability standards not yet having an effective date in Canada, accordingly, Freehold, at this time, is in the preliminary stages of understanding the impacts on its future financial statements resulting from the ISSB’s standards. Costs to comply with these sustainability disclosures is not quantifiable at this time.

Forward-looking Statements

Certain statements contained in this MD&A constitute forward-looking statements. These statements relate to future events or our expectations of future performance. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "forecast", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions (including the negatives thereof). These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. We believe the expectations reflected in those forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and, as such, forwardlooking statements included in this MD&A should not be unduly relied upon. These forward-looking statements are provided to allow readers to better understand our business and prospects.

In particular, this MD&A contains forward-looking statements under the headings Freehold’s Strategy, Outlook, 2024 Guidance, Q4-2023 Operating and Financial Highlights, Credit Risk Management, CRA Assessments, Liquidity and Capital Resources, Financing Activities, Dividend Policy and Analysis and Changes in Accounting Standards pertaining to the following:

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• our expectation of generating growth and lower risk returns to our shareholders by driving oil and gas development on our lands through our lease program and royalty optimization, acquiring royalty assets with acceptable risk profiles and long economic life and generating GORRs for revenue growth;

• our expectation that we will maximize Freehold’s royalty interests through a comprehensive audit and compliance program, our intent to maintain balance sheet strength (1.5 times or less net debt to trailing funds from operations) and target a dividend payout ratio of approximately 60%;

• expectations with respect to drilling activity across Freehold's North American portfolio in 2024, when compared to 2023;

• our expected areas of focus for drilling in 2024 in both the U.S. and Canada;

• anticipated 2024 production from Freehold's two U.S. acquisitions that closed in January 2024 and the estimated commodity weighting of such production;

• 2024 guidance including 2024 production profile, commodity pricing, average royalty production (including commodity weighting), pricing and exchange rate assumptions;

• our expectation that the need to refill the U.S. Strategic Petroleum Reserve and the completion of the Trans Mountain Expansion Project will provide support for narrowing heavy oil differentials;

• the possibility that we may take our royalty in-kind if there are benefits in doing so;

• Freehold’s expectations regarding the Assessments;

• our forecast to be in compliance with all covenants under our credit facilities on a quarterly basis for at least the next 12 months based on Freehold’s current best estimate of results from operations;

• expectations regarding the issuance of shares to finance acquisitions;

• the expectation that the transition from publication of CDOR rates will cease and the timing thereof, the anticipated transition of credit facilities to CORRA based loans and the expectation that this will not cause a significant difference on the cost of our borrowings under the credit facilities;

• Freehold's intent in establishing its dividend rate and the process;

• the expected impact to our financial reporting of certain changes in accounting standards; and

• treatment under governmental regulatory regimes and tax laws.

Our actual results could differ materially from those anticipated in these forward-looking statements because of many factors, the most significant of which are as follows:

• volatility in market prices for crude oil, NGL and natural gas;

• the impacts of the ongoing Israeli-Hamas and Russia-Ukraine wars and any associated sanctions as well as OPEC+ curtailments on the global economy and commodity prices;

• the impacts of inflation and supply chain shortages on the operations of our industry partners and royalty payors, as well as on demand and commodity prices;

• future capital expenditure levels;

• future production levels;

• future exchange rates;

• future tax rates;

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• future legislation;

• the cost of developing and expanding our assets;

• our ability and the ability of our industry partners and royalty payors to obtain equipment in a timely manner to carry out development activities;

• our ability to market our product successfully to current and new customers;

• our expectation for the consumption of crude oil, NGLs and natural gas;

• our expectation for industry drilling levels on our royalty lands;

• the impact of competition;

• our ability to obtain financing on acceptable terms;

• our ability to add production and reserves through our development and acquisitions activities.

• pipeline capacity constraints;

• currency fluctuations;

• our and our counsel's interpretation of tax laws, regulations, royalties, or incentive programs relative to the interpretation and enforcement of thereof by governmental authorities;

• changes in income tax laws or changes in tax laws, regulations, royalties, or incentive programs relating to the oil and gas industry;

• reliance on royalty payors to drill and produce on our lands and their ability to pay their obligations;

• uncertainties or imprecision associated with estimating oil and gas reserves;

• stock market volatility and our ability to access sufficient capital from internal and external sources;

• a significant or prolonged downturn in general economic conditions or industry activity;

• incorrect assessments of the value of acquisitions;

• competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel;

• geological, technical, drilling, and processing problems;

• environmental risks and liabilities inherent in oil and gas operations; and

• other factors discussed in this MD&A and audited financial statements for the year-ended December 31, 2023 and our AIF.

Key operating assumptions with respect to the forward-looking statements contained in this MD&A are provided in the Outlook section and elsewhere in this MD&A. In addition, with respect to forward-looking statements contained in this MD&A, we have made assumptions regarding, among other things, future commodity prices, future capital expenditure levels, future production levels, future exchange rates, future tax rates, future legislation, the cost of developing and producing our assets, our ability and the ability of our lessees to obtain equipment in a timely manner to carry out development activities, the interpretation and implementation of tax legislation, our ability to market our oil and gas successfully to current and new customers, our expectation for the consumption of crude oil and natural gas, our expectation for industry drilling levels, assumptions as to expected performance of current and future wells drilled by our royalty payors, our ability to obtain financing on

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acceptable terms, shut-in production, production additions from our audit function and our ability to add production and reserves through development and acquisition activities.

To the extent any guidance or forward-looking statements herein constitutes a financial outlook, they are included herein to provide readers with an understanding of management's plans and assumptions for budgeting purposes and readers are cautioned that the information may not be appropriate for other purposes. You are further cautioned that the preparation of financial statements in accordance with IFRS requires management to make certain judgments and estimates that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates may change, having either a positive or negative effect on net income, as further information becomes available and as the economic environment changes.

The forward-looking statements contained in this MD&A are expressly qualified by this cautionary statement and speak only as of the date of this MD&A. Our policy for updating forward-looking statements is to update our key operating assumptions quarterly and, except as required by law, we do not undertake to update any other forward-looking statements.

Non-GAAP and Other Financial Measures

Within this MD&A, references are made to terms commonly used as key performance indicators in the oil and gas industry. We believe that net revenue, cash costs, netback, dividend payout ratio and funds from operations per share are useful non-GAAP financial measures for management and investors to analyze operating performance, financial leverage, and liquidity, and we use these terms to facilitate the understanding and comparability of our results of operations and financial position. However, these terms do not have any standardized meanings prescribed by GAAP and therefore may not be comparable with the calculations of similar measures for other entities.

Net revenue, which is calculated as revenues less ad valorem and production taxes (as incurred in the U.S. at the state level, largely Texas, which do not charge corporate income taxes but do assess flat tax rates on commodity revenues in addition to property tax assessments) details the net amount Freehold receives from its royalty payors, largely after state withholdings. Please refer to the table under the heading Netback and Cash Costs within this MD&A for a quantitative calculation of net revenue.

Cash costs, which is also calculated on a boe basis, is comprised of recurring cash based costs, excluding taxes, reported on the statements of operations. For Freehold, cash costs are identified as operating expense, G&A expense and cash-based interest and financing charges and share-based payouts. Cash costs allow Freehold to benchmark how changes in its manageable cash-based cost structure compare against prior periods. Please refer to the table under the heading Netback and Cash Costs within this MD&A for a quantitative calculation of cash costs.

Netback, which is calculated on a boe basis, as average realized price less production and ad valorem taxes, operating expenses, general and administrative, cash interest charges and share-based payouts, represents the per boe netback amount allowing the Company to benchmark how changes in commodity pricing, net of production and ad valorem taxes, and our cash-based cost structure compare against prior periods. Please refer to the table under the heading Netback and Cash Costs within this MD&A for a quantitative calculation of netback.

Dividend payout ratios are often used for dividend paying companies in the oil and gas industry to identify dividend levels in relation to funds from operations that are also used to finance debt repayments and/or acquisition opportunities. Dividend payout ratio is calculated as dividends paid as a percentage of funds from

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operations. Please refer to the table under the heading Dividend Policy and Analysis – Dividend Payout Ratio within this MD&A for discussion on this supplementary measure.

Funds from operations per share, which is calculated as funds from operations divided by the weighted average shares outstanding, provides direction if changes in commodity prices, cash costs, and/or acquisitions were accretive on a per share basis. Please refer to the table under the heading Cash Flow from Operations and Funds from Operations within this MD&A for discussion on this supplementary measure.

Conversion of Natural Gas to Barrels of Oil Equivalent (boe)

To provide a single unit of production for analytical purposes, natural gas production and reserves volumes are converted mathematically to equivalent barrels of oil (boe). We use the industry-accepted standard conversion of six thousand cubic feet of natural gas to one barrel of oil (6 Mcf = 1 barrel). The 6:1 boe ratio is based on an energy equivalency conversion method primarily applicable at the burner tip. It does not represent a value equivalency at the wellhead and is not based on either energy content or current prices. While the boe ratio is useful for comparative measures, it does not accurately reflect individual product values and might be misleading, particularly if used in isolation. As well, given that the value ratio, based on the current price of crude oil to natural gas, is significantly different from the 6:1 energy equivalency ratio, using a 6:1 conversion ratio may be misleading as an indication of value.

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