Headwater expects approximately 38% production per share growth in 2023 while underspending anticipated cash flow. As a result of continued exceptional results, Headwater's Board of Directors (the "Board") has implemented a return of capital strategy with the declaration of Headwater's inaugural quarterly cash dividend of
Headwater drilled a successful exploration test at 16-22-075-02W5 in
We also drilled two successful 1.5 mile extended reach step-out wells in our
In our
In assessing our continued success and our initial return of capital strategy, the Board has approved an initial capital budget for 2023 of
The capital budget is expected to generate 38% production per share growth at a reinvestment rate of 60%-70% of 2023 forecasted adjusted funds flow from operations at
At
Selected financial and operational information is outlined below and should be read in conjunction with the unaudited condensed interim financial statements and the related management's discussion and analysis ("MD&A"). These filings will be available at www.sedar.com and the Company's website at www.headwaterexp.com
Financial and Operating Highlights
Three months ended |
Percent |
Nine months ended |
Percent Change | ||||
2022 | 2021 | 2022 | 2021 | ||||
Financial (thousands of dollars except share data) | |||||||
Sales, net of blending (1) (4) | 94,949 | 48,841 | 94 | 327,073 | 109,392 | 199 | |
Adjusted funds flow from operations (2) | 58,441 | 31,524 | 85 | 207,899 | 69,185 | 200 | |
Per share - basic | 0.25 | 0.16 | 56 | 0.92 | 0.35 | 163 | |
- diluted | 0.25 | 0.13 | 92 | 0.89 | 0.29 | 207 | |
Cash flow provided by operating activities | 72,060 | 27,888 | 158 | 217,477 | 63,903 | 240 | |
Per share - basic | 0.31 | 0.14 | 121 | 0.96 | 0.32 | 200 | |
- diluted | 0.30 | 0.12 | 150 | 0.93 | 0.27 | 244 | |
Net income | 31,545 | 26,106 | 21 | 122,320 | 17,901 | 583 | |
Per share - basic | 0.14 | 0.13 | 8 | 0.54 | 0.09 | 500 | |
- diluted | 0.13 | 0.12 | 8 | 0.53 | 0.08 | 563 | |
Capital expenditures (1) | 71,001 | 37,293 | 90 | 183,818 | 91,346 | 101 | |
Adjusted working capital (2) | 117,967 | 63,709 | 85 | ||||
Shareholders' equity | 525,006 | 295,528 | 78 | ||||
Weighted average shares (thousands) | |||||||
Basic | 229,909 | 202,313 | 14 | 225,794 | 198,385 | 14 | |
Diluted | 236,658 | 218,190 | 8 | 232,984 | 214,166 | 9 | |
Shares outstanding, end of period (thousands) | |||||||
Basic | 229,911 | 202,466 | 14 | ||||
Diluted (5) | 241,593 | 240,447 | - | ||||
Operating (6:1 boe conversion) | |||||||
Average daily production | |||||||
Heavy crude oil (bbls/d) | 10,842 | 7,637 | 42 | 10,695 | 5,751 | 86 | |
Natural gas (mmcf/d) | 4.3 | 0.3 | 1,333 | 7.2 | 3.7 | 95 | |
Natural gas liquids (bbls/d) | 55 | - | 100 | 43 | 3 | 1,333 | |
Barrels of oil equivalent (9)(boe/d) | 11,612 | 7,688 | 51 | 11,929 | 6,363 | 87 | |
Average daily sales (6) (boe/d) | 11,680 | 7,613 | 53 | 11,925 | 6,355 | 88 | |
Netbacks ($/boe) (3) (7) | |||||||
Operating | |||||||
Sales, net of blending (4) | 88.36 | 69.73 | 27 | 100.46 | 63.05 | 59 | |
Royalties | (21.93) | (10.46) | 110 | (20.21) | (8.66) | 133 | |
Transportation | (3.94) | (8.68) | (55) | (4.31) | (7.86) | (45) | |
Production expenses | (5.95) | (4.42) | 35 | (5.79) | (4.88) | 19 | |
Operating netback (3) | 56.54 | 46.17 | 22 | 70.15 | 41.65 | 68 | |
Realized losses on financial derivatives | - | - | - | (1.29) | (0.23) | 461 | |
Operating netback, including financial derivatives (3) | 56.54 | 46.17 | 22 | 68.86 | 41.42 | 66 | |
General and administrative expense | (1.46) | (1.40) | 4 | (1.49) | (1.61) | (7) | |
Interest income and other expense (8) | 1.18 | 0.24 | 392 | 0.58 | 0.08 | 625 | |
Current tax expense | (1.87) | - | 100 | (4.09) | - | 100 | |
Adjusted funds flow netback (3) | 54.39 | 45.01 | 21 | 63.86 | 39.89 | 60 |
(1) | Non-GAAP measure. Refer to "Non-GAAP and Other Financial Measures" within this press release. |
(2) | Capital management measure. Refer to "Non-GAAP and Other Financial Measures" within this press release. |
(3) | Non-GAAP ratio. Refer to "Non-GAAP and Other Financial Measures" within this press release. |
(4) | Heavy oil sales are netted with blending expense to compare the realized price to benchmark pricing while transportation expense is shown separately. In the interim financial statements blending expense is recorded within blending and transportation expense. |
(5) | In-the-money dilutive instruments as at |
(6) | Includes sales of unblended heavy crude oil, natural gas and natural gas liquids. The Company's heavy crude oil sales volumes and production volumes differ due to changes in inventory. |
(7) | Netbacks are calculated using average sales volumes. For the three months ended |
(8) | Excludes unrealized foreign exchange gains/losses, accretion on decommissioning liabilities, interest on lease liability and interest on repayable contribution. |
(9) | See '"Barrels of Oil Equivalent." |
THIRD QUARTER 2022 HIGHLIGHTS
- Realized adjusted funds flow from operations (1) of
$58.4 million ($0.25 per share basic) and cash flows from operating activities of$72.1 million ($0.31 per share basic) representing an increase of 85% and 158%, respectively, over the third quarter of 2021. - Recognized net income of
$31.5 million ($0.14 per share basic) representing an increase of 21% from the third quarter of 2021. - Achieved an operating netback (2) of
$56.54 /boe and an adjusted funds flow netback (2) of$54.39 /boe representing an increase of 22% and 21%, respectively, over the third quarter of 2021. - Production averaged 11,612 boe/d (consisting of 10,842 bbls/d of heavy oil, 4.3 mmcf/d of natural gas and 55 bbls/d of natural gas liquids) representing an increase of 51% from the third quarter of 2021.
- Executed a
$71.0 million capital expenditure (3) program including 9 successful exploration wells inMarten Hills West plus 8 injection wells inMarten Hills as part of Headwater's enhanced oil recovery project. - Added 8.25 sections of additional crown lands prospective for
Clearwater oil in the Greater Peavine area. - As at
September 30, 2022 , Headwater had adjusted working capital (1) of$118.0 million , working capital of$113.4 million and no outstanding bank debt.
(1) | Capital management measure. Refer to "Non-GAAP and Other Financial Measures" within this press release. |
(2) | Non-GAAP ratio that does not have any standardized meaning under IFRS and therefore may not be comparable with the calculation of similar measures of other entities. Refer to "Non-GAAP and Other Financial Measures" within this press release. |
(3) | Non-GAAP measure that does not have any standardized meaning under IFRS and therefore may not be comparable with the calculation of similar measures of other entities. Refer to "Non-GAAP and Other Financial Measures" within this press release. |
In addition to the previously discussed successful exploration extension well at 16-22-075-02W5, an additional 5 wells were drilled in the Clearwater A in the third quarter of 2022. The IP30 rates on these wells have continued to exceed our expectations, achieving average rates of >175 bbls/d of oil.
Headwater has continued to delineate the Clearwater B formation with a total of 3 wells being drilled in the quarter. IP30 rates on these wells have averaged 100 bbls/d of oil which is consistent with expectations for the Clearwater B.
A pilot waterflood to assess the enhanced oil recovery potential in the Clearwater A is contemplated for the first quarter of 2023.
We have continued operations in the
Waterflood implementation in the core area has resulted in production stabilization of approximately 2,000 bbls/d (20% of current core area production). The production stabilization witnessed over the last several months is consistent with expectations and it continues to demonstrate that enhanced oil recovery is a viable option for the
Greater Peavine Area
Our first exploration test, a stratigraphic test at 06-16-074-18W5 in our Shadow prospect is currently drilling. Immediately following this well, the rig will spud our first multi-lateral horizontal well in the same prospect area. Headwater has one drilling rig assigned to continue drilling exploration prospects through year end and into the first quarter of 2023. The current schedule will see this rig drill a total of three horizontal wells at Shadow, prior to moving to test additional prospects at Peavine,
Since the start of the fourth quarter, Headwater has added an additional 6 sections of land in Peavine, increasing our total land position in the Greater Peavine area to 117.5 sections.
McCully
McCully is scheduled to be placed back on production at the end of November. We have hedged approximately 4.3 mmcf/d representing 57% of our estimated winter season's production at a price of
(1) | McCully's winter season is estimated to be |
The Company remains on track to achieve its previously released annual production guidance of 13,000 boe/d. Capital expenditures for the year are now expected to be
Previous 2022 Guidance (1) | Revised 2022 Guidance | |
2022 annual average production (boe/d) | 13,000 | 13,000 |
Capital expenditures (2) | ||
Adjusted funds flow from operations (3) | ||
Dividend payable | ||
Exit adjusted working capital (3) |
(1) | Previous guidance released on |
(2) | Non-GAAP measure. Refer to "Non-GAAP and Other Financial Measures" within this press release. |
(3) | Capital management measure. Refer to "Non-GAAP and Other Financial Measures" within this press release. |
(4) | For assumptions utilized in the above guidance see "Future Oriented Financial Information" within this press release. |
Headwater has executed a commitment letter for a credit facility in the amount of
The positive working capital balance and credit facility provide a war chest to continue to provide Headwater the optionality to organically expand its
2023 will be another exciting year for Headwater as it targets 38% production growth while testing material exploration potential. Based on current strip pricing, we anticipate generating significant free cash flow above our capital expenditures and committed quarterly dividend which will allow the optionality to continually increase our regular quarterly dividend and/or provide special dividends while pursuing incremental opportunities.
Additional corporate information can be found in the Company's corporate presentation and on Headwater's website at www.headwaterexp.com
FORWARD LOOKING STATEMENTS: This press release contains forward-looking statements. The use of any of the words "guidance", "initial, "anticipate", "scheduled", "can", "will", "prior to", "estimate", "believe", "potential", "should", "unaudited", "forecast", "future", "continue", "may", "expect", "project", and similar expressions are intended to identify forward-looking statements. The forward-looking statements contained herein, include, without limitation, revised 2022 and 2023 guidance related to expected annual average production, expected reinvestment rate in 2023, capital expenditures and the breakdown thereof, adjusted funds flow from operations, expected dividends, free cash flow and exit adjusted working capital; the expectation to deliver 38% production per share growth in 2023 while underspending anticipated cash flow; the expected timing of the inaugural quarterly dividend; the expectation the quarterly dividend can be maintained in conjunction with our long-term growth profile at long term WTI of
FUTURE ORIENTED FINANCIAL INFORMATION: Any financial outlook or future oriented financial information in this press release, as defined by applicable securities legislation, has been approved by management of the Company as of the date hereof. Readers are cautioned that any such future-oriented financial information contained herein should not be used for purposes other than those for which it is disclosed herein. The Company and its management believe that the prospective financial information as to the anticipated results of its proposed business activities for 2022 and 2023 has been prepared on a reasonable basis, reflecting management's best estimates and judgments, and represent, to the best of management's knowledge and opinion, the Company's expected course of action. However, because this information is highly subjective, it should not be relied on as necessarily indicative of future results. The assumptions used in the revised 2022 guidance include: WTI
DIVIDENDS: The amount of future cash dividends paid by the Company, if any, will be subject to the discretion of the Board and may vary depending on a variety of factors and conditions existing from time to time, including, among other things, adjusted funds from operations, fluctuations in commodity prices, production levels, capital expenditure requirements, acquisitions, debt service requirements and debt levels, operating costs, royalty burdens, foreign exchange rates and the satisfaction of the liquidity and solvency tests imposed by applicable corporate law for the declaration and payment of dividends. Depending on these and various other factors, many of which will be beyond the control of the Company, the Board will adjust the Company's dividend policy from time to time and, as a result, future cash dividends could be reduced or suspended entirely.
BARRELS OF OIL AND CUBIC FEET OF NATURAL GAS EQUIVALENT: The term "boe" (or barrels of oil equivalent) and "Mcf" (or thousand cubic feet of natural gas equivalent) may be misleading, particularly if used in isolation. A boe and Mcf conversion ratio of six thousand cubic feet of natural gas to one barrel of oil equivalent (6 Mcf: 1 bbl) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Additionally, given that the value ratio based on the current price of crude oil, as compared to natural gas, is significantly different from the energy equivalency of 6:1; utilizing a conversion ratio of 6:1 may be misleading as an indication of value.
INITIAL PRODUCTION RATES: References in this press release to IP rates, other short-term production rates or initial performance measures relating to new wells are useful in confirming the presence of hydrocarbons; however, such rates are not determinative of the rates at which such wells will commence production and decline thereafter and are not indicative of long-term performance or of ultimate recovery. All IP rates presented herein represent the results from wells after all "load" fluids (used in well completion stimulation) have been recovered. While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production for the Company. Accordingly, the Company cautions that the test results should be considered to be preliminary.
NON-GAAP AND OTHER FINANCIAL MEASURES
In this press release, we refer to certain financial measures (such as free cash flow, total sales, net of blending and capital expenditures) which do not have any standardized meaning prescribed by IFRS. Our determinations of these measures may not be comparable with calculations of similar measures for other issuers. In addition, this press release contains the terms adjusted funds flow from operations and adjusted working capital, which are considered capital management measures. The term cash flow in this press release is equivalent to adjusted funds flow from operations.
Non-GAAP Financial Measures
Free cash flow
Management utilizes free cash flow to assess the amount of funds available for future capital allocation decisions. It is calculated as adjusted funds flow from operations net of capital expenditures.
Three months ended |
Nine months ended | |||
2022 | 2021 | 2022 | 2021 | |
(thousands of dollars) | (thousands of dollars) | |||
Adjusted funds flow from operations | 58,441 | 31,524 | 207,899 | 69,185 |
Capital expenditures | (71,001) | (37,293) | (183,818) | (91,346) |
Free cash flow | (12,560) | (5,769) | 24,081 | (22,161) |
Total sales, net of blending
Management utilizes total sales, net of blending expense to compare realized pricing to benchmark pricing. It is calculated by deducting the Company's blending expense from total sales. In the interim financial statements blending expense is recorded within blending and transportation expense.
Three months ended |
Nine months ended | |||
2022 | 2021 | 2022 | 2021 | |
(thousands of dollars) | (thousands of dollars) | |||
Total sales | 99,587 | 50,123 | 349,002 | 115,653 |
Blending expense | (4,638) | (1,282) | (21,929) | (6,261) |
Total sales, net of blending expense | 94,949 | 48,841 | 327,073 | 109,392 |
Capital expenditures
Management utilizes capital expenditures to measure total cash capital expenditures incurred in the period. Capital expenditures represents capital expenditures – exploration and evaluation and capital expenditures – property, plant and equipment in the statement of cash flows in the Company's interim financial statements netted by the government grant.
Three months ended |
Nine months ended | |||
2022 | 2021 | 2022 | 2021 | |
(thousands of dollars) | (thousands of dollars) | |||
Cash flows used in investing activities | 54,062 | 23,741 | 170,099 | 62,080 |
Proceeds from government grant | 1,208 | - | 1,208 | - |
Restricted cash | - | (1,248) | (5,000) | 229 |
Change in non-cash working capital | 15,731 | 14,800 | 20,102 | 29,037 |
Government grant | - | - | (2,591) | - |
Capital expenditures | 71,001 | 37,293 | 183,818 | 91,346 |
Capital Management Measures
Adjusted Funds Flow from Operations
Management considers adjusted funds flow from operations to be a key measure to assess the Company's management of capital. In addition to being a capital management measure, adjusted funds flow from operations is used by management to assess the performance of the Company's oil and gas properties. Adjusted funds flow from operations is an indicator of operating performance as it varies in response to production levels and management of production and transportation costs. Management believes that by eliminating changes in non-cash working capital and deducting current income taxes, adjusted funds flow from operations is a useful measure of operating performance. While current income taxes will not be paid until 2023, management believes adjusting for current income taxes in the period incurred is a better indication of the funds generated by the Company.
Three months ended |
Nine months ended | |||
2022 | 2021 | 2022 | 2021 | |
(thousands of dollars) | (thousands of dollars) | |||
Cash flows provided by operating activities | 72,060 | 27,888 | 217,477 | 63,903 |
Changes in non–cash working capital | (11,610) | 3,636 | 3,740 | 5,282 |
Current income taxes | (2,009) | - | (13,318) | - |
Adjusted funds flow from operations | 58,441 | 31,524 | 207,899 | 69,185 |
Adjusted working capital is a capital management measure which management uses to assess the Company's liquidity.
As at 2022 | As at
| |||
(thousands of dollars) | ||||
Working capital | 113,381 | 89,775 | ||
Contribution receivable (long-term) | 671 | - | ||
Repayable contribution | (4,195) | - | ||
Financial derivative receivable | (711) | (770) | ||
Financial derivative liability | 8,821 | 3,924 | ||
Adjusted working capital | 117,967 | 92,929 | ||
Non-GAAP Ratios
Payout
Headwater uses this ratio to evaluate is operational performance and capital allocation processes. Payout is calculated as the time at which a well or project's cumulative operating netback equals total capital expenditures.
Reinvestment Rate
Management believes the reinvestment rate is a useful measure to analyze the ratio of funds generated by the Company and used for reinvestment. Reinvestment rate is calculated as capital expenditures divided by adjusted funds flow from operations.
Adjusted funds flow netback, operating netback and operating netback, including financial derivatives
Adjusted funds flow netback, operating netback and operating netback, including financial derivatives are non-GAAP ratios and are used by management to better analyze the Company's performance against prior periods on a more comparable basis. Adjusted funds flow netback is defined as adjusted funds flow from operations divided by sales volumes in the period.
Operating netback is defined as sales less royalties, transportation and blending costs and production expense divided by sales volumes in the period. The sales price, transportation and blending costs, and sales volumes exclude the impact of purchased condensate. Operating netback, including financial derivatives is defined as operating netback plus realized gains or losses on financial derivatives.
Adjusted funds flow per share
Adjusted funds flow per share is a non-GAAP ratio and is used by management to better analyze the Company's performance against prior periods on a more comparable basis. Adjusted funds flow per share is calculated as adjusted funds flow from operations divided by weighted average shares outstanding on a basic or diluted basis.
Per boe numbers
This press release represents various results on a per boe basis including Headwater average realized sales price, net of blending, financial derivatives gains (losses) per boe, royalty expense per boe, transportation expense per boe, production expense per boe, general and administrative expenses per boe, interest income and other expense per boe and current taxes per boe. These figures are calculated using sales volumes.
SOURCE
© Canada Newswire, source