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CALGARY, AB, Aug. 9, 2022 /CNW/ – Spartan Delta Corp. (“Spartan” or the “Company“) (TSX: SDE) is pleased to report its unaudited financial and operating results for the three and six month periods ended June 30, 2022, details of a strategic acquisition, as well as an update to the Company’s guidance for the remainder of 2022.
Selected financial and operational information is set out below and should be read in conjunction with Spartan’s unaudited interim financial statements and related management’s discussion and analysis (“MD&A“) for the three and six months ended June 30, 2022, which are filed on SEDAR at www.sedar.com and are available on the Company’s website at www.spartandeltacorp.com. The highlights reported in this press release include certain non-GAAP financial measures and ratios which have been identified using capital letters. The reader is cautioned that these measures may not be directly comparable to other issuers; refer to additional information under the heading “Reader Advisories – Non-GAAP Measures and Ratios”.
SECOND QUARTER 2022 HIGHLIGHTS
- Spartan’s Q2 2022 production averaged 72,966 BOE/d (38% liquids), up 84% compared to 39,638 BOE/d (29% liquids) in Q2 2021 and exceeded the upper range of previous guidance of 68,500 to 72,500 BOE/d. This was achieved despite of unplanned downtime from third party facilities and planned downtime from our major facility turnaround operations completed during the second quarter of 2022.
- The Company continues to see strong results from its drilling program and brought 9.0 new wells on production during the second quarter, of which 7.0 net wells were in the Montney driving the 15% increase in crude oil production compared to Q1 2022.
- Global crude oil and natural gas prices reached their highest levels seen over the last decade driving record oil and gas sales, before royalties, of $438 million in Q2 2022. The Company’s average selling price of $65.92 per BOE increased by 34% from $49.35 per BOE in Q1 2022 and by 147% from $26.71 per BOE in Q2 2021. The increase in average realized prices highlights the Company’s oil-weighted production growth which has compounded the benefit of higher benchmark prices on revenues and cash flow.
- The Company’s Q2 2022 Operating Netback increased to $45.56 per BOE before hedging ($37.47 per BOE after hedging), up 35% from $33.73 per BOE ($26.94 per BOE after hedging) in Q1 2022 and up 161% from $17.43 per BOE ($16.89 per BOE after hedging) in Q2 2021.
- Spartan achieved record Adjusted Funds Flow of $232 million ($1.33 per share, diluted), an increase of 45% compared to $160 million ($0.92 per share, diluted) in Q1 2022 and an increase of 339% from $53 million ($0.39 per share, diluted) in Q2 2021.
- Net income increased to $182 million in Q2 2022, up from $61 million in Q1 2022 and compared to $20 million in Q2 2021.
- Capital Expenditures before A&D were $91 million for the three months ended June 30, 2022, of which approximately 90% was spent in the Montney as activity slowed in the Deep Basin through spring break-up. During the second quarter, Spartan completed and brought on production a 4.0 well pad at Karr, drilled and completed a 5.0 (4.9 net) well pad in West Gold Creek which was subsequently brought on production in late July, and a 3.0 well pad in East Gold Creek that was completed in the first quarter was tied-in and brought on production in April. The Company also brought 2.0 Cardium wells in the Deep Basin on production in April that were completed in the first quarter and commenced drilling its first well into the Viking formation in June.
- Free Funds Flow of $142 million generated in Q2 2022 was used to reduce the Company’s Net Debt to $262 million as at June 30, 2022; Spartan’s quarter-end Net Debt represents approximately 0.3 times its Q2 Annualized Adjusted Funds Flow.
FINANCIAL AND OPERATING HIGHLIGHTS
The table below summarizes the Company’s financial and operating results for the three and six month periods ended June 30, 2022 and June 30, 2021:
|
(CA$ thousands, except as otherwise noted) |
Three months ended June 30 |
Six months ended June 30 |
||||
|
2022 |
2021 |
% |
2022 |
2021 |
% |
|
|
FINANCIAL HIGHLIGHTS |
||||||
|
Oil and gas sales |
437,699 |
96,356 |
354 |
760,123 |
165,639 |
359 |
|
Net income and comprehensive income |
181,740 |
19,664 |
824 |
242,917 |
78,828 |
208 |
|
$ per share, basic (a) |
1.17 |
0.17 |
588 |
1.58 |
0.86 |
84 |
|
$ per share, diluted (a) |
1.05 |
0.15 |
600 |
1.41 |
0.75 |
88 |
|
Cash provided by operating activities |
236,007 |
48,028 |
391 |
373,847 |
80,135 |
367 |
|
Adjusted Funds Flow (b) |
232,374 |
52,957 |
339 |
392,095 |
87,574 |
348 |
|
$ per share, basic (a) |
1.50 |
0.46 |
226 |
2.54 |
0.96 |
165 |
|
$ per share, diluted (a) |
1.33 |
0.39 |
241 |
2.26 |
0.79 |
186 |
|
Free Funds Flow (b) |
141,738 |
43,555 |
225 |
193,475 |
58,890 |
229 |
|
Cash used in investing activities |
103,185 |
26,744 |
286 |
207,547 |
69,682 |
198 |
|
Capital Expenditures before A&D (b) |
90,636 |
9,402 |
864 |
198,620 |
28,684 |
592 |
|
Adjusted Net Capital Acquisitions (b) |
(374) |
11,828 |
(103) |
(941) |
166,887 |
(101) |
|
Total assets |
1,811,725 |
729,966 |
148 |
1,811,725 |
729,966 |
148 |
|
Long-term debt |
226,762 |
– |
– |
226,762 |
– |
– |
|
Net Debt (Surplus) (b) |
261,655 |
(131,696) |
(299) |
261,655 |
(131,696) |
(299) |
|
Net Debt to Annualized AFF Ratio (b) |
0.3x |
n/a |
0.3x |
n/a |
||
|
Shareholders’ equity |
1,139,794 |
437,730 |
160 |
1,139,794 |
437,730 |
160 |
|
Common shares outstanding (000s), end of period (a) |
155,390 |
114,476 |
36 |
155,390 |
114,476 |
36 |
|
OPERATING HIGHLIGHTS AND NETBACKS (e) |
||||||
|
Average daily production |
||||||
|
Crude oil (bbls/d) |
13,009 |
1,969 |
561 |
12,145 |
1,290 |
841 |
|
Condensate (bbls/d) (c) |
2,365 |
1,989 |
19 |
2,389 |
1,666 |
43 |
|
Natural gas liquids (bbls/d) (c) |
12,373 |
7,627 |
62 |
12,670 |
7,372 |
72 |
|
Natural gas (mcf/d) |
271,313 |
168,319 |
61 |
273,443 |
152,819 |
79 |
|
BOE/d |
72,966 |
39,638 |
84 |
72,778 |
35,798 |
103 |
|
% Liquids (d) |
38 % |
29 % |
31 |
37 % |
29 % |
28 |
|
Average realized prices, before financial instruments |
||||||
|
Crude oil ($/bbl) |
137.94 |
71.98 |
92 |
127.98 |
70.72 |
81 |
|
Condensate ($/bbl) (c) |
135.63 |
79.00 |
72 |
127.87 |
76.21 |
68 |
|
Natural gas liquids ($/bbl) (c) |
57.88 |
30.21 |
92 |
53.66 |
29.33 |
83 |
|
Natural gas ($/mcf) |
7.29 |
3.15 |
131 |
6.07 |
3.15 |
93 |
|
Combined average ($/BOE) |
65.92 |
26.71 |
147 |
57.70 |
25.56 |
126 |
|
Netbacks ($/BOE) (e) |
||||||
|
Oil and gas sales |
65.92 |
26.71 |
147 |
57.70 |
25.56 |
126 |
|
Processing and other revenue |
0.30 |
0.80 |
(63) |
0.33 |
0.72 |
(54) |
|
Royalties |
(8.69) |
(2.90) |
200 |
(6.79) |
(2.96) |
129 |
|
Operating expenses |
(9.18) |
(5.56) |
65 |
(8.78) |
(5.34) |
64 |
|
Transportation expenses |
(2.79) |
(1.62) |
72 |
(2.77) |
(1.49) |
86 |
|
Three months ended June 30 |
Six months ended June 30 |
|||||
|
Netbacks continued from previous page |
2022 |
2021 |
% |
2022 |
2021 |
% |
|
Operating Netback, before hedging ($/BOE) (e) |
45.56 |
17.43 |
161 |
39.69 |
16.49 |
141 |
|
Settlements on Commodity Derivative Contracts(e)(f) |
(8.09) |
(0.54) |
nm |
(7.42) |
(0.76) |
876 |
|
Net Pipeline Transportation Margin (e)(g) |
– |
– |
– |
(0.02) |
– |
– |
|
Operating Netback, after hedging ($/BOE) (e) |
37.47 |
16.89 |
122 |
32.25 |
15.73 |
105 |
|
General and administrative expenses |
(0.99) |
(1.33) |
(26) |
(0.94) |
(1.28) |
(27) |
|
Cash Financing Expenses (e)(h) |
(1.05) |
(0.01) |
nm |
(1.04) |
(0.06) |
nm |
|
Realized foreign exchange and other |
0.12 |
– |
– |
0.11 |
0.08 |
38 |
|
Settlement of decommissioning obligations |
(0.10) |
(0.16) |
(38) |
(0.15) |
(0.19) |
(21) |
|
Lease payments (i) |
(0.45) |
(0.71) |
(37) |
(0.46) |
(0.76) |
(39) |
|
Adjusted Funds Flow Netback ($/BOE) (e) |
35.00 |
14.68 |
138 |
29.77 |
13.52 |
120 |
|
a) |
Refer to “Share Capital” section of this press release. |
|
b) |
“Adjusted Funds Flow”, “Free Funds Flow”, “Capital Expenditures before A&D”, “Adjusted Net Capital Acquisitions”, “Net Debt” and “Net Debt to Annualized AFF Ratio” do not have standardized meanings under IFRS, refer to “Non-GAAP Measures and Ratios” section of this press release. |
|
c) |
Condensate is a natural gas liquid (“NGL“) as defined by NI 51-101. See “Other Measurements”. |
|
d) |
“Liquids” includes crude oil, condensate and NGLs. |
|
e) |
“Netbacks” are non-GAAP financial ratios calculated per unit of production. “Operating Netback”, “Settlements on Commodity Derivative Contracts”, “Net Pipeline Transportation Margin”, “Cash Financing Expenses” and “Adjusted Funds Flow Netback” do not have standardized meanings under IFRS, refer to “Non-GAAP Measures and Ratios” section of this press release. |
|
f) |
Includes realized gains or losses on derivative financial instruments plus settlements of acquired derivative liabilities. |
|
g) |
Pipeline transportation revenue, net of pipeline transportation expense. |
|
h) |
Includes interest and fees on long-term debt, net of interest income. |
|
i) |
Includes total lease payments comprised of the principal portion and financing cost of lease liabilities. |
UPDATED 2022 GUIDANCE
Average production volumes of 72,778 BOE/d in the first half of 2022 reflect the strong Montney drilling results achieved to date and, in tandem with rising commodity prices, have led to outperformance of the Company’s forecast for the first half of the year. Free Funds Flow of $193 million generated in the first six months of 2022 exceeded the Company’s previous H1 forecast of $65 million by 200%, allowing Spartan to reduce its bank debt at an accelerated pace.
Spartan is encouraged by the results of its 2022 drilling program, which has consistently delivered highly accretive returns in excess of our budgeted type curves. Although our short-term priority for Free Funds Flow continues to focus on debt repayment, Spartan’s Board of Directors has approved a $90 million increase to our 2022 capital program. Of this amount, approximately one-half relates to added activity which will deliver incremental Montney production in early 2023. This accelerated development plan is an efficient allocation of capital that allows Spartan to fully utilize one of our Montney rigs year-round, reducing the risk of timely procurement of key services. In addition, incremental long-lead inventory has also been procured and select infrastructure and construction activities are being accelerated into 2022 to reduce execution risk in the 2023 operating plan.
The remainder of the increase to the 2022 capital budget is to address historical and anticipated cost inflation which has been seen across virtually every aspect of our business. This additional inflation amount represents an overall increase of approximately 14% over our original 2022 capital estimates.
Based on forecast commodity prices for the second half of 2022 of US$90/bbl for WTI crude oil and $5.75/GJ for AECO 7A natural gas, Spartan expects to generate Adjusted Funds Flow of $840 million (previously $589 million) and Free Funds Flow of $420 million (previously $259 million) for the 2022 calendar year.
Spartan’s updated 2022 guidance is summarized below along with a comparison to previous guidance published as of February 15, 2022:
|
ANNUAL GUIDANCE |
Updated |
Previous |
Variance (a) |
|
|
Year ending December 31, 2022 |
Guidance |
Guidance |
Amount |
% |
|
Average Production (BOE/d) (a)(c) |
71,000 – 73,000 |
68,500 – 72,500 |
1,500 |
2 |
|
% Liquids |
38 % |
40 % |
(2 %) |
(4) |
|
Benchmark Average Commodity Prices (d) |
||||
|
WTI crude oil price (US$/bbl) |
95.67 |
80.00 |
15.67 |
20 |
|
NYMEX Henry Hub natural gas price (US$/mmbtu) |
6.97 |
4.38 |
2.59 |
59 |
|
AECO 7A natural gas price ($/GJ) |
5.45 |
3.75 |
1.70 |
45 |
|
Average exchange rate (CA$/US$) |
1.28 |
1.26 |
0.02 |
2 |
|
Operating Netback, before hedging ($/BOE) (b)(c) |
38.69 |
27.73 |
10.96 |
40 |
|
Operating Netback, after hedging ($/BOE) (b)(c) |
33.94 |
25.58 |
8.36 |
33 |
|
Settlements on Commodity Derivative Contracts ($MM) (b) |
(124) |
(55) |
(69) |
125 |
|
Adjusted Funds Flow ($MM) (b)(c) |
840 |
589 |
251 |
43 |
|
Capital Expenditures, before A&D ($MM) (b) |
420 |
330 |
90 |
27 |
|
Free Funds Flow ($MM) (b) |
420 |
259 |
161 |
62 |
|
Adjusted Net Capital Acquisitions ($MM) (b) |
5 |
– |
5 |
– |
|
Net Debt, end of year ($MM) (b)(e) |
41 |
199 |
(158) |
(79) |
|
Common shares outstanding, end of year (MM) (f) |
155 |
154 |
1 |
1 |
|
a) |
The financial performance measures included in the Company’s updated guidance for 2022 is based on the midpoint of the average production forecast of 72,000 BOE/d (previously 70,500 BOE/d). |
|
b) |
“Operating Netback”, “Settlements on Commodity Derivative Contracts”, “Adjusted Funds Flow”, “Capital Expenditures, before A&D”, “Free Funds Flow”, “Adjusted Net Capital Acquisitions” and “Net Debt” do not have standardized meanings under IFRS, see “Non-GAAP Measures and Ratios”. |
|
c) |
Additional information regarding the assumptions used in the forecasted Average Production, Operating Netbacks and Adjusted Funds Flow for 2022 are provided in the Reader Advisories section of this press release. |
|
d) |
The forecast of benchmark average prices for the 2022 calendar year is based on actual prices for the period ended June 30, 2022 and the following forecast prices for the second half of 2022: WTI US$90/bbl; NYMEX US$7.88/mmbtu; AECO 7A $5.75/GJ; and a CA$/US$ exchange rate of 1.29. |
|
e) |
The change in forecast Net Debt at December 31, 2022 compared to previous guidance primarily relates to the $161 million increase in forecasted Free Funds Flow for 2022, $4 million of proceeds received from stock options and warrants exercised in H1, and $6 million of acquisition costs, net of approximately $1 million of proceeds from dispositions. |
|
f) |
The forecast of common shares outstanding at the end of 2022 includes restricted share awards expected to be released upon vesting, but does not include common shares potentially issuable in respect of stock options and warrants for which the exercise is discretionary on behalf of the holder (refer to “Share Capital” for additional information regarding dilutive securities). |
Changes in forecast commodity prices, exchange rates, differences in the amount and timing of capital expenditures, and variances in average production estimates can have a significant impact on the key performance measures included in Spartan’s guidance. The Company’s actual results may differ materially from these estimates. Holding all other assumptions constant, a US$10/bbl increase (decrease) in the forecasted WTI crude oil price for the second half of 2022 would increase Adjusted Funds Flow by approximately $39 million (decrease by $40 million). An increase (decrease) of CA$1.00/GJ in the forecasted AECO 7A natural gas price for the second half of 2022, holding the NYMEX-AECO basis differential and all other assumptions constant, would increase Adjusted Funds Flow by approximately $27 million (decrease by $30 million). Holding U.S. dollar benchmark commodity prices and all other assumptions constant, an increase (decrease) of $0.10 in the CA$/US$ exchange rate would increase Adjusted Funds Flow by approximately $41 million (decrease by $42 million). Assuming capital expenditures are unchanged, the impact on Free Funds Flow would be equivalent to the increase or decrease in Adjusted Funds Flow. An increase (decrease) in Free Funds Flow will result in an equivalent decrease (increase) in the forecasted Net Debt (Surplus).
STRATEGIC ACQUISITION
On August 9, 2022, Spartan closed the corporate acquisition of Bellatrix Exploration Ltd. (“Bellatrix“) through a court supervised process under the Companies’ Creditors Arrangement Act (the “CCAA“) for a cash purchase price of $6 million (the “Acquisition“). Pursuant to the Acquisition, Spartan acquired 1,000 new common shares issued by Bellatrix and all other existing equity securities of Bellatrix were cancelled for no consideration, resulting in Spartan holding 100% of the aggregate issued and outstanding equity securities of Bellatrix. Spartan previously acquired substantially all of Bellatrix’s assets for total consideration of $109 million in June 2020, which established the Company’s core operating area in the Alberta Deep Basin. Following the Acquisition and reorganization under the CCAA, Bellatrix will not have any significant assets or liabilities remaining except for approximately $600 million of non-capital loss tax pools estimated to be available for use by Spartan as of the closing date. Together with Spartan’s existing tax pools of $1.6 billion as of June 30, 2022, the Company’s total tax pools are estimated to be in excess of $2.2 billion (~60% non-capital losses) pro forma the Acquisition. Based on commodity strip pricing and current expectations of future capital expenditures and production levels, among other significant assumptions, Spartan expects its future tax horizon to be extended beyond 2025.
Pursuant to the early warning requirements of applicable Canadian securities laws, an early warning report with additional information in respect of the foregoing matters will be filed and made available on the SEDAR profile of Bellatrix at www.sedar.com. To obtain a copy of the early warning report, you may also contact Geri Greenall, Chief Financial Officer of Spartan, by emailing [email protected].
ESG Report
Spartan is proud to present its updated environment, social and governance (“ESG“) reporting and strategy. Reflecting our continuous commitment to ESG, Spartan will be updating ESG information regularly (versus annually) via the Company’s ESG website which can be accessed at https://esg.spartandeltacorp.com/. Spartan’s performance data will continue to be updated annually and we will provide an Annual ESG Snapshot to capture Spartan’s annual goals, targets and achievements.
ABOUT SPARTAN DELTA CORP.
Spartan is committed to creating a modern energy company, focused on sustainability both in operations and financial performance. The Company’s ESG-focused culture is centered on generating Free Funds Flow through responsible oil and gas exploration and development. The Company has established a portfolio of high-quality production and development opportunities in the Deep Basin and Montney. Spartan is focused on the execution of the Company’s organic drilling program, delivering operational synergies in a respectful and responsible manner to the environment and communities it operates in. The Company is well positioned to continue pursuing immediate production optimization, future growth with organic drilling, opportunistic acquisitions and the delivery of Free Funds Flow.
Spartan’s corporate presentation as of August 9, 2022 can be accessed on the Company’s website at www.spartandeltacorp.com.
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