/NOT FOR DISSEMINATION IN THE U.S. OR THROUGH U.S. NEWSWIRES/
CALGARY, May 29, 2019 /CNW/ – Highwood Oil Company Ltd., (“Highwood” or the “Corporation“) (TSXV: HOCL) is pleased to announce financial and operating results for the quarter ended March 31, 2019. The Corporation also announces that its unaudited financial statements and associated Management’s Discussion and Analysis (“MD&A“) for the quarter ended March 31, 2019, can be found at www.sedar.com and www.highwoodoil.com.
Highlights
- Achieved record production of 1,354 bbl/d of oil in the first quarter of 2019, increasing from 1,117 bbl/d in the fourth quarter of 2018 due primarily from 2018 Clearwater production being brought onstream.
- Highwood continued to delineate it’s Clearwater position by successfully drilling 3 gross (1.5 net) wells in the formation in the first quarter which have performed as per internal type curves. The wells are on flow back with current gross well production of approximately 135 bbls/d on average. Total Clearwater wells drilled to date are 7 gross (3.5 net). Assuming WCS realized pricing remains in the range of current strip pricing, the Corporation would plan to drill another 6 to 10 gross (3 to 5 net) wells in the Clearwater before the end of 2019. Industry activity remains high surrounding Highwood’s core lands at Nipisi/Marten Hills and has shown increasing activity in more exploratory areas of the Clearwater, expanding the play’s fairway.
- Acquired 27 gross (13.5 net) sections of Clearwater Oil Sands Leases in the Craigend area of East Central Alberta. Highwood intends to drill one exploration well in Q1 2020 in the area.
- During the three-month period ended March 31, 2019, the Corporation completed an amalgamation transaction (the “Amalgamation”) with a public, capital pool company. The public company received common shares of the Corporation at a ratio of 53:1, resulting in 188,679 common shares of the Corporation being issued to shareholders of the public company at a deemed price of $9.00 per common share. The Corporation began trading on the TSX Venture Exchange under the symbol “HOCL” on January 30, 2019.
- Subsequent to March 31, 2019, and as per its previous disclosure announced on May 16, 2019, the Corporation has entered into a purchase and sale agreement to acquire the operated 55% working interest in the Peace River Oil Partnership (the “PROP”) (8,000 boe/d gross production, 4,400 boe/d net production to HOCL, 89% oil and liquids) for a total transaction price of $93.8 million. The transaction is significantly accretive to Highwood, provides exposure to considerable primary / secondary recovery potential on the producing Bluesky assets, access to a large contiguous block of undeveloped Clearwater lands, strategic ownership of significant area infrastructure and materially improves its Liability Management Rating.
- Current production from Highwood is approximately 1,700 bbl/d of oil.
Summary of Financial & Operating Results
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Three months ended March 31,
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Financial
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2019
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2018
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% Change
|
|
Oil and natural gas sales
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$
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6,928,968
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$
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6,430,452
|
8
|
|
Transportation pipeline revenues
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|
1,233,712
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|
580,646
|
112
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|
Total revenues, net of royalties and commodity contracts (1)
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5,572,594
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5,649,920
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(1)
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|
Loss
|
|
(2,507,617)
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(1,783,861)
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(41)
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|
Capital expenditures
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|
4,077,397
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|
12,583,454
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(68)
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|
Net debt (2)
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(31,667,081)
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(26,752,866)
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18
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|
Shareholders’ equity (end of period)
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$
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24,167,445
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$
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25,099,660
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(4)
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Shares outstanding (end of period)
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5,948,030
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5,538,674
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7
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|
Weighted-average basic shares outstanding
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5,890,457
|
|
5,538,674
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6
|
|
|
|
|
|
|
|
Operations (3)
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|
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|
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|
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Production
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|
|
|
|
|
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Natural gas (Mcf/d)
|
|
–
|
|
38
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–
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|
Natural gas liquids (NGL) (bbls/d)
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–
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–
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–
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Crude oil (bbls/d)
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1,354
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1,105
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23
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Total (boe/d)
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1,354
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1,112
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22
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Average realized prices (4)
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|
|
|
|
|
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Natural gas (per Mcf) (6)
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|
–
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2.14
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–
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NGL (per bbl) (6)
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–
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63.94
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–
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Crude oil (per bbl)
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56.85
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64.55
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(12)
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Operating netback (per boe) (5)
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15.89
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(1.99)
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900
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Wells drilled:
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Gross
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3
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1
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|
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Net
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1.5
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0.5
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|
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Success(%)
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100
|
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100
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|
|
|
|
|
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(1)
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Includes unrealized gain and losses on commodity contracts
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(2)
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Net debt consists of bank debt and working capital surplus (deficit) excluding commodity contract assets and/or liabilities
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(3)
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For a description of the boe conversion ratio, see “Basis of Barrel of Oil Equivalent”.
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(4)
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Before hedging.
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(5)
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See “Non-GAAP measures”.
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(6)
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Natural gas and NGL production and revenues are immaterial to the Corporation
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2019 First Quarter Overview
The first quarter pricing environment showed significant improvement from the challenged pricing Western Canadian producers saw across Q4 2018. The Corporation is encouraged by current pricing and market sentiment and accordingly continues to license prospective wells in the Clearwater formation. Our Clearwater land position has grown to 228 gross (116 net) sections and continues to present exciting drilling opportunities with short cycle times.
Stronger West Texas Intermediate (“WTI”) oil prices combined with reduced Canadian oil differentials led to an increase of $19.27 to operating netbacks from the fourth quarter of 2018. Given the traditionally higher operating costs in the first quarter due to workover programs and seasonal access, the Corporation anticipates seeing this netback improve throughout the rest of 2019, ignoring moves in commodity pricing.
2019 Outlook and PROP Acquisition
Subsequent to March 31, 2019, the Corporation entered into a purchase and sale agreement with a public oil and gas exploration and production company to acquire the public company’s 55% interest in the Peace River Oil Partnership (the “PROP”) (8,000 boe/d gross production, 4,400 boe/d net production to HOCL, 89% oil and liquids) with petroleum and natural gas assets in the Peace River region along with other non-producing wells for a total transaction price of $93.8 million, comprised of cash considerations of $88.8 million and equity consideration of $5.0 million prior to customary closing adjustments. The PROP asset is a world-class resource with a large drilling inventory in the conventional Bluesky and emerging Clearwater oil plays where significant low risk development opportunities exist. The PROP assets also include access to a large 2D / 3D seismic database license, and extensive egress and infrastructure in place to facilitate self-sustaining operations.
The acquisition of the Peace River Oil Partnership interest by the Corporation would bring total Clearwater lands to 278 gross (143 net) sections on a pro-forma basis. Assuming WCS realized pricing remains in the range of current strip prices, Highwood would plan to drill another 6 to 10 gross (3 to 5 net) wells in the Clearwater before the end of 2019.
Our Red Earth asset continues to provide a low decline production base which can be mitigated through the introduction of proppant fractures in both the vertical and horizontal wellbores in the area. Management anticipates that through modest annual capital we will be able to hold production flat. The MSW pricing received on the Red Earth production drives an attractive netback and provides an excellent source of cash flow to redeploy into the Clearwater assets. Focus in 2019 is to continue to drive down operating costs in the field which are challenged by year-round accessibility and geographic spread.
The Corporation remains focused on evaluating opportunities in the M&A market and completing accretive acquisitions through the duration of 2019. Highwood maintains a focus on free funds flow generation as a means to provide maximum flexibility to the Corporation for growth, debt repayment and strategic M&A.
Current production for Highwood is approximately 1,700 bbl/d of oil.
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Oil and Gas Measures
Readers should see the “Selected Technical Terms” in the Annual Information Form filed on April 30, 2019 for the definition of certain oil and gas terms.
Basis of Barrels of Oil Equivalent – This news release discloses certain production information on a barrels of oil equivalent (“boe”) basis with natural gas converted to barrels of oil equivalent using a conversion factor of six thousand cubic feet of gas (Mcf) to one barrel (bbl) of oil (6 Mcf:1 bbl). Condensate and other NGLs are converted to boe at a ratio of 1 bbl:1 bbl. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf:1 bbl is based roughly on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at sales point. Although the 6:1 conversion ratio is an industry-accepted norm, it is not reflective of price or market value differentials between product types. Based on current commodity prices, the value ratio between crude oil, NGLs and natural gas is significantly different from the 6:1 energy equivalency ratio. Accordingly, using a conversion ratio of 6 Mcf:1 bbl may be misleading as an indication of value.
Mcfe Conversions: Thousands of cubic feet of gas equivalent (“Mcfe”) amounts have been calculated by using the conversion ratio of one barrel of oil (1 bbl) to six thousand cubic feet (6 Mcf) of natural gas. Mcfe amounts may be misleading, particularly if used in isolation. A conversion ratio of 1 bbl to 6 Mcf is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of natural gas as compared to oil is significantly different from the energy equivalent of 1:6, utilizing a conversion on a 1:6 basis may be misleading as an indication of value.
Non-GAAP Measures
“Netback” is a non-GAAP financial measure and is calculated as revenues net of royalties, less transportation and processing charges and operating expenses and then divided by BOE or Mcf sold.
Other Warnings
The Exchange has in no way passed upon the merits of the proposed transaction and has neither approved nor disapproved the contents of this press release.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the Exchange) accepts responsibility for the adequacy or accuracy of this press release.
This news release contains forward-looking statements relating to the future operations of the Corporation and other statements that are not historical facts. Forward-looking statements are often identified by terms such as “will”, “may”, “should”, “anticipate”, “expects” and similar expressions. All statements other than statements of historical fact, included in this release, including, without limitation, statements regarding the future plans and objectives of the Corporation, are forward-looking statements that involve risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. Important factors that could cause actual results to differ materially from the Corporation’s expectations include risks detailed from time to time in the filings made by the Corporation with securities regulations.
The reader is cautioned that assumptions used in the preparation of any forward-looking information may prove to be incorrect. Events or circumstances may cause actual results to differ materially from those predicted, as a result of numerous known and unknown risks, uncertainties, and other factors, many of which are beyond the control of the Corporation. The reader is cautioned not to place undue reliance on any forward-looking information. Such information, although considered reasonable by management at the time of preparation, may prove to be incorrect and actual results may differ materially from those anticipated. Forward-looking statements contained in this news release are expressly qualified by this cautionary statement. The forward-looking statements contained in this news release are made as of the date of this news release and the Corporation will update or revise publicly any of the included forward-looking statements as expressly required by Canadian securities law.
SOURCE Highwood Oil Company Ltd.
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