CALGARY, Alberta, March 28, 2019 (GLOBE NEWSWIRE) — Razor Energy Corp. (“Razor” or the “Company”) (TSXV: RZE) (www.razor-energy.com) is pleased to announce its fourth quarter and year end 2018 financial and operating results. Selected financial and operational information is outlined below and should be read in conjunction with Razor’s audited consolidated financial statements and management’s discussion and analysis for the year ended December 31, 2018, which are available on SEDAR at www.sedar.com and the Company’s website.
NEAR AND MEDIUM-TERM OBJECTIVES
FOURTH QUARTER 2018 HIGHLIGHTS
2018 HIGHLIGHTS
DISTRIBUTIONS TO SHAREHOLDERS
OPERATING
CAPITAL
ACQUISITIONS
FINANCING
FINANCIAL AND OPERATING HIGHLIGHTS
The following tables summarize key financial and operating highlights associated with the Company’s financial performance.
Three Months Ended December 31, |
Year Ended December 31, |
|||||||
($000’s, except for per share amounts and volumes) | 2018 | 2017 | 2018 | 2017 | ||||
Production volumes1 | ||||||||
Light oil (bbl/d) | 2,995 | 2,917 | 3,143 | 2,487 | ||||
Gas (mcf/d) 2 | 3,225 | 3,299 | 3,770 | 2,448 | ||||
NGL (bbl/d) | 1,374 | 1,067 | 1,117 | 918 | ||||
Total (boe/d) | 4,907 | 4,534 | 4,888 | 3,813 | ||||
Sales volumes 1, 3 | ||||||||
Light oil (bbl/d) | 2,611 | 2,917 | 3,046 | 2,487 | ||||
Gas (mcf/d)2 | 3,225 | 3,299 | 3,770 | 2,448 | ||||
NGL (bbl/d) | 1,374 | 1,067 | 1,117 | 918 | ||||
Total (boe/d) | 4,523 | 4,534 | 4,792 | 3,813 | ||||
Light oil inventory volumes (bbls) | 35,267 | — | 35,267 | — | ||||
Light oil and natural gas revenue | ||||||||
Light oil and NGLs sales | 14,712 | 21,750 | 91,901 | 59,459 | ||||
Natural gas sales | 565 | 559 | 2,481 | 1,635 | ||||
Sales of commodities purchased from third parties 7 | 4,352 | — | 15,639 | — | ||||
Blending and processing | 1,912 | 1,865 | 10,472 | 4,333 | ||||
Other revenues | 342 | 342 | 2,406 | 840 | ||||
Total revenue | 21,883 | 24,516 | 122,899 | 66,267 | ||||
Cash flows from operating activities | 6,696 | 4,404 | 22,360 | 4,351 | ||||
Per share -basic and diluted | 0.06 | 0.30 | 1.10 | 0.49 | ||||
Adjusted funds flow 4 | 1,974 | 6,281 | 20,435 | 9,965 | ||||
Per share -basic and diluted | 0.13 | 0.40 | 1.31 | 0.73 | ||||
Net income (loss) | 3,773 | 2,256 | 4,239 | (3,650 | ) | |||
Per share – basic and diluted | 0.25 | 0.14 | 0.27 | — | ||||
Dividends paid | 3,126 | — | 3,126 | — | ||||
Dividends paid per share | 0.20 | — | 0.20 | — | ||||
Weighted average number of shares outstanding (basic and diluted) | 15,360,729 | 15,690,133 | 15,622,374 | 13,709,753 | ||||
Capital expenditures | 3,315 | 8,873 | 33,758 | 15,055 | ||||
Net assets acquired 5 | 43 | 15,661 | 3,921 | 15,661 | ||||
Netback ($/boe) | ||||||||
Light oil and gas sales 6 | 36.71 | 53.48 | 53.97 | 47.97 | ||||
Royalty | (9.34 | ) | (11.04 | ) | (11.18 | ) | (9.87 | ) |
Operating expenses | (24.53 | ) | (25.46 | ) | (29.26 | ) | (27.98 | ) |
Transportation and treating | (2.17 | ) | (1.11 | ) | (2.17 | ) | (0.61 | ) |
Operating netback 4 | 0.67 | 15.87 | 11.36 | 9.51 | ||||
Net blending and processing income 4 | 1.74 | 3.48 | 3.01 | 2.59 | ||||
Realized gain/(loss) on commodity contracts settlement | 2.38 | (0.09 | ) | (1.51 | ) | 0.12 | ||
Other revenues | 0.82 | 0.82 | 1.38 | 0.27 | ||||
General and administrative | (2.91 | ) | (5.14 | ) | (3.24 | ) | (4.25 | ) |
Acquisition and transaction costs | — | (0.02 | ) | (0.01 | ) | (0.90 | ) | |
Interest | (2.87 | ) | (1.82 | ) | (2.62 | ) | (2.18 | ) |
Corporate netback 4 | (0.17 | ) | 13.09 | 8.36 | 5.15 |
1) Production for the Year Ended December 31, 2017 represents the daily average production from February 1 to December 31, 2017.
2) Gas production includes internally consumed gas used in power generation.
3) Sales volumes exclude volumes produced and stored in inventory. For the year ended December 31, 2017, no inventory was held and therefore sales volumes equal production volumes.
4) Refer to “Non-IFRS measures”.
5) Net acquisitions exclude non-cash items and is net of post-closing adjustments.
6) Excludes the effects of financial risk management contracts but includes the effects of fixed price physical delivery contracts.
7) At certain times during 2018, Razor purchased commodity products from third parties to fulfill sales commitments (2018-$14.8 million), and subsequently sold these products to its customers.
December 31, | ||||
($000’s unless otherwise stated) | 2018 | 2017 | ||
Total assets | 157,937 | 133,904 | ||
Cash | 2,239 | 7,487 | ||
Long-term debt (principal) | 46,155 | 30,000 | ||
Net debt 1 | 54,244 | 24,376 | ||
Number of shares outstanding | 15,188,834 | 15,511,934 |
1) Refer to “Non-IFRS measures”.
2018 YEAR-END RESERVES
In 2018, the Calgary Chapter of the Society of Petroleum Evaluation Engineers and associated industry professionals updated the COGE Handbook. The updates clarify and streamline existing guidelines and offer additional guidance regarding Canadian reserves evaluations.
For greater transparency and accuracy of current values and future cash flows, Razor has elected to include all abandonment, decommissioning and reclamation costs and inactive well costs in accordance with best practice recommendations into the Company’s 2018 year-end reserves report. For 2018, the net present value of before tax cash flows discounted at 10% (“NPV10”) for each reserve category disclosed below includes all abandonment, decommissioning and reclamation costs and inactive well costs totaling $49.3 million.
Reserves Summary | December 31, | |||
($000’s unless otherwise stated) | 2018 | 2017 | ||
Proved developed producing (Mboe) | 12,194 | 11,910 | ||
Total Proved (Mboe) | 15,397 | 15,072 | ||
Total Proved plus probable (Mboe) | 20,223 | 20,326 | ||
Proved developed producing – NPV101 | 148,671 | 178,344 | ||
Total Proved – NPV101 | 197,733 | 216,916 | ||
Total Proved plus probable – NPV101 | 209,047 | 265,049 |
1) NPV 10 is net present value of before tax cash flows discounted at 10%.
OPERATIONAL UPDATE
In 2018 Razor’s average production increased 28% to 4,888 boe/d, from 3,813 boe/d average production in 2017, of which approximately 89% was light oil and NGLs.
Due to the high discounts on MSW in the fourth quarter of 2018, Razor did not sell all of its produced oil, instead it was temporarily stored in existing surface tanks thus establishing material inventory. As at December 31, 2018, Razor had 35,267 bbls of light oil inventory (2017 – nil bbls). MSW differentials and WTI pricing improved significantly in Q1 2019 and the Company intends to sell a portion of the light oil inventory throughout Q1 and Q2 2019. The Company intends to improve the effectiveness of sales and production management through more advanced inventory, blending and transportation processes and controls.
In Q4 2018, production of 4,907 boe/d was up 8% from the same quarter of 2017 as a result of continued efforts toward increasing production from the Swan Hills and Kaybob assets through reactivations, optimization activities, and waterflood initiatives. The working interest acquisition of the Kaybob assets in January and June 2018 provided additional average daily production of 254 boe/d (226 boe/d impact on Q4 2018 production).
However, Q4 2018 production was down 7% from Q3 2018 due to a pull back in Razor’s spending as workovers and reactivations were put on hold due to the significant increase in MSW differentials in the fourth quarter of 2018.
During the fourth quarter of 2018, the Company realized an average operating netback of $0.67/boe, down 93% and 85% as compared to Q4 2017 and Q3 2018, respectively, primarily attributable to the sharp increase in both MSW differentials to WTI and decrease in WTI pricing.
Royalty rates averaged 25% in the fourth quarter of 2018, up from 23% in the third quarter of 2018, and up from 19% in the same quarter of 2017, primarily due to the timing of realized oil prices as compared to the reference oil price used by the Government of Alberta as the basis for calculating royalties. As the index price is set a month in advance, periods of sharp price decreases will result in higher than expected royalty rates, conversely in periods of price increases, due to the pricing lag, realized royalties will be lower than expected.
In the fourth quarter of 2018, operating expenses decreased by 4% as compared to Q4 2017 and 26% as compared to Q3 2018 mostly as a result of Razor’s curtailment of spending due to the steep drop in Q4 prices. This resulted in lower workover activity in the quarter with workover costs dropping to $1.20/boe from $5.73/boe in the same quarter of 2017 and $9.26/boe in Q3 2018.
The top five cost drivers, fuel and electricity, labour, taxes and licenses, facility and pipeline repairs and workovers, accounted for 80% of total operating expenses in 2018 (2017 – 66%), with facility and pipeline repairs, and workovers accounting for 33% (2017 – 24%) of operating expenses and fuel and electricity following closely at 29% (2017 – 25%) of operating expenses.
Management is focused on continuous improvement of operational efficiencies to drive down key cost drivers.
CAPITAL PROGRAM
In 2018, Razor invested $33.8 million through its capital program. It comprised mainly of the purchase and installation of natural gas power generation equipment, drilling, an upgrade of field and corporate information technology systems and infrastructure and the continuation of the well reactivation program.
The Company reactivated 18 gross (16.7 net) wells during 2018, resulting in 593 boe/d of additional initial production.
Razor completed a four well development program in its Kaybob South Triassic A Pool during the first quarter of 2018. The four well program added 55 bbl/d oil plus 139 mcf/d or 78 boe/d of initial production.
Operating enhancement related capital costs consisted primarily of the purchase and installation of six natural gas powered generators for $9.5 million which reduced the Company’s reliance on grid electric power. This project is expected to have a payback of under four years, through cost avoidance on the market cost of grid sourced electricity. $1.9 million was invested in the upgrade of field and corporate information technology systems and infrastructure. A further $0.8 million was invested in field service equipment which is expected to decrease future trucking and road maintenance costs.
In 2018, corporate capital expenditures of $0.8 million related to computer equipment, business intelligence initiatives and the purchase of vehicles, up from the $0.5 million spent in 2017 which was mostly on corporate start-up costs consisting primarily of computer systems and equipment, vehicles and furniture and fixtures.
ABANDONMENT, RECLAMATION, AND REMEDIATION EXPENDITURES
Razor inherited decommissioning liabilities included in its Swan Hills and Kaybob acquisitions. The Company spent $1.1 million in Q4 2018 and a total of $3.2 million year-to-date. The Company has met the Alberta Energy Regulator’s requirements under its 2018 Inactive Well Compliance Program and continues to invest in end-of-life well and facility operations.
2019 OUTLOOK
Production in Q1 2019 was lower than expected and is anticipated to average 4,100 boe/d due to discretionary shut-ins, impacts from severe cold weather, and from an absence of reactivation and workover spending in Q4. Wells shut in during both Q4 2018 and Q1 2019 are being consistently brought back online as the Company’s reactivation and workover program resumed in Q1 2019, focused on the highest capital efficiency projects. In addition, well and facility downtimes have been remedied following challenging weather in February and early March.
For the remainder of 2019, in addition to executing its capital program, the Company has identified additional reactivations that will be executed throughout the remainder of 2019 which will strengthen production. The Company believes that it will still meet its 2019 guidance of 4,900 boe/d from our Swan Hills and Kaybob areas of which 86% is light oil and NGL.
ABOUT RAZOR
Razor is a publicly-traded junior oil and gas development and production company headquartered in Calgary, Alberta, focused on shareholder returns through sustainable monthly dividends, production and margin growth through a combination of acquiring, enhancing, and producing oil and gas from properties primarily in Alberta. The Company is led by experienced management and a strong, committed Board of Directors, with a long term vision of growth focused on efficiency and cost control in all areas of the business.
Razor started operations in the first quarter of 2017, through an acquisition of producing assets in the Swan Hills area. In the second quarter of 2017, Razor added to its asset base with the acquisition of complementary assets in the Kaybob area. These predominantly light oil assets provide a foundation for strong shareholder return through abundant low risk operations. Razor plans to concurrently grow Swan Hills and Kaybob, and execute on similar acquisitions, using its experience to extract upside value.
Razor is a pivotal leading-edge enterprise, balancing creativity and discipline, focused on growing an enduring energy company. Razor currently trades on TSX Venture Exchange under the ticker “RZE”.