Source Rock Royalties Sees Revenue Dip, Pivots to Strategic Land Deals

CALGARY, AB – March 24, 2026 – Source Rock Royalties Ltd. (TSXV: SRR) presented a dual narrative to investors today, reporting a significant drop in annual royalty revenue and production for 2025 while simultaneously announcing a highly successful strategic land transaction that validates a new path for growth.

The Calgary-based oil and gas royalty company released unaudited results showing a 22% decrease in annual royalty revenue to $6.03 million and an 8% dip in production to 230 barrels of oil equivalent (boe) per day. The figures stand in stark contrast to the company's record-setting performance in 2024, reflecting the tangible impact of softer oil prices and a subsequent slowdown in drilling activity that plagued the industry in the latter half of last year.

However, tempering the challenging production report was news of a savvy asset sale. Source Rock successfully sold its 50% interest in two sections of Alberta oil sands leases for $225,000, more than doubling its initial $110,000 investment in just six months. Crucially, the company retained a 1.75% gross overriding royalty (GORR) on all future production from the lands, turning a one-time sale into a potential long-term revenue stream.

This move, described by the company as a 'proof of concept' for its organic royalty creation strategy, signals a strategic pivot to unlock value from its undeveloped land portfolio, providing a potential buffer against the volatility of commodity markets.

A Tale of Two Results

The unaudited financial report for 2025 paints a picture of a company facing significant market headwinds. The 22% decline in annual revenue and 8% drop in production follows a banner year in 2024, when Source Rock posted record annual royalty revenue of $7.68 million and record production of 251 boe/d.

The fourth quarter of 2025 showed an even sharper decline, with royalty revenue of $1.33 million representing a 29% decrease from the same period in 2024. Quarterly production also fell by 12% year-over-year to 226 boe/d.

In a statement, President and CEO Brad Docherty attributed the slowdown to market conditions. “Prior to the recent rise in oil prices, we observed the pace of drilling activity on our royalty lands slow materially in the second half of 2025 and early in 2026, as WTI oil prices remained below $70 USD for an extended period of time,” he noted. This slowdown occurred despite 33 new horizontal wells coming online on the company’s royalty lands throughout 2025, spread across Saskatchewan and Alberta.

The company has cautioned that these results are unaudited and that final, audited figures, due by the end of April 2026, could materially change. However, the preliminary numbers align with broader industry trends in Western Canada, where many operators scaled back capital spending and drilling programs in response to sustained low oil prices.

The Crown Jewel Strategy

While production and revenue from existing royalties faltered, Source Rock demonstrated a proactive approach to value creation through its Crown mineral lease portfolio. The sale of two sections of oil sands leases to what it called a “top-tier intermediate operator” marks the first major success for its strategy of acquiring mineral rights and farming them out for development.

The transaction is notable not just for its impressive 105% return on investment in six months, but for the retention of a 1.75% GORR. This structure allows Source Rock to receive an immediate cash infusion while participating in the long-term success of the project without incurring any capital or operating costs. It effectively creates a new royalty from scratch.

This strategy is particularly relevant in Alberta's competitive land market. In 2025, the province generated over $400 million in Crown land sale bonus revenue for the fourth consecutive year, indicating fierce competition for quality drilling locations. By acquiring promising but undeveloped lands and partnering with well-capitalized operators, Source Rock aims to build out its royalty portfolio organically.

“Efficiently achieving 'proof of concept' for our new organic royalty creation strategy has not only provided us with a return on our initial investment but it has also illustrated how our leasing activity can grow our portfolio of oil royalties,” Docherty stated. He confirmed the company is actively engaging with industry partners to replicate this model across its remaining land holdings.

Following the sale and a recent acquisition of three additional sections, Source Rock still holds a significant 50% interest in 32 sections, or 20,480 acres, of oil sands and petroleum and natural gas leases in Alberta, providing a substantial runway for similar future transactions.

Building for a Volatile Future

Looking ahead, Source Rock is positioning itself to navigate a complex energy landscape by pursuing a dual-pronged growth strategy: organic royalty creation from its land base and accretive acquisitions of producing royalties. The company is actively evaluating opportunities to deploy its cash balance to expand its production base and diversify its asset portfolio.

As of its last reported quarter (Q3 2025), Source Rock held a healthy cash balance of approximately $4.7 million and, importantly, carries no debt. This strong financial position provides significant flexibility, allowing it to act on acquisition opportunities that may arise from the very market softness that impacted its 2025 revenues. Weaker commodity prices can often lower valuation expectations for royalty assets, creating a favorable buying environment for well-capitalized firms.

While the recent surge in oil prices to near $100 a barrel in early 2026 offers a glimmer of hope for renewed drilling activity, the company remains cautiously optimistic. “We are unsure whether the current events driven increase in oil prices will result in renewed near-term drilling activity,” Docherty commented, reflecting a sentiment of prudence across the industry.

By not relying solely on drilling activity on its existing royalties, Source Rock is building a more resilient business model. The successful land sale demonstrates an ability to generate returns independent of immediate drilling, while the retained GORR ensures it benefits if and when the new operator’s multi-lateral heavy oil wells prove successful. With a robust balance sheet and a newly validated strategy, the company is maneuvering to find growth in a market that demands both patience and ingenuity.