CALGARY, Alberta – Razor Energy Corp. (“Razor” or the “Company”) (TSXV: RZE) announces its fourth quarter and year end 2020 financial and operating results. Selected financial, operational and reserves information is outlined below and should be read in conjunction with Razor’s audited consolidated financial statements, management’s discussion and analysis and annual information form (“AIF”) for the year ended December 31, 2020 which are available on SEDAR at www.sedar.com and the Company’s website www.razor-energy.com.
- Production during the year averaged 3,783 boe/d, representing a decrease of 14% in comparison to 2019 when production averaged 4,387 boe/d. Decreased production volumes are largely due to reduced spending on well reactivations and repairs as well as natural base declines.
- Razor focused on cost control on all expenditures within its operations and recognized a 7% decrease in total operating costs for 2020 when compared to 2019.
- Progressed the South Swan Hills co-produced geothermal power generation project, which will be capable of generating 21 MW of grid connected power, of which up to 6MW will be sustainable clean power generation.
- Continued operation of six natural gas-powered generators which reduced the Company’s reliance on grid electric power and resulted in savings of $2.3 million in electricity costs during 2020.
- Razor implemented cost saving measures by internalization of certain oilfield services through its subsidiary, Blade Energy Services Corp. (“Blade”), which provides services such as crude oil hauling, earthworks and environmental services. Blade conducted $2.0 million of services on behalf of Razor during 2020 (2019 – $2.3 million).
- The Company received approval from the Alberta Energy Regulator to repurpose certain facilities in Virginia Hills to become a Waste Management Component employing bioremediation to treat hydrocarbon-impacted soils. This Soil Treatment Facility will use naturally occurring microbes to digest hydrocarbons in soils and will be integral to Razor’s Area Based Closure operations in the Virginia Hills area. The facility is anticipated to be operational in the second quarter of 2021.
Razor continues to look forward and plan for the future despite 2020 proving to be one of the most challenging years for commodity prices and energy companies due to the COVID-19 pandemic. The Company remained focused on its long-term sustainability and, subsequent to year end, in February 2021 Razor secured an extension to its Term Loan with Alberta Investment Management Corporation, for an amended principal amount of $50.1 million. On February 16, 2021 a subsidiary of Razor entered into a Term Loan with Arena Investors, LP (the “Arena Term Loan”) for a principal amount of US$11.0 million (CAD$14.0 million).
The majority of the proceeds from the Arena Term Loan will be used to invest over $8 million in 2021 on well reactivations to provide over 1,000 boepd to the year’s production levels. The balance of work is related to repairs and will be accounted for as operating expenses. The well reactivation activity started in February 2021 and will continue into 2022. Razor has an extensive opportunity set of high-quality wells requiring reactivation. In aggregate, the annual base decline of these wells is anticipated to be consistent with the Company’s current corporate decline of approximately 12 percent. In its history the Company has reactivated over 60 wells adding approximately 2,000 boepd and it expects that this program will result in similar favorable outcomes.
The Company continues to focus on cost control on its operated properties and the stabilizing effect of reduced operating costs in each area. Outside of the well reactivation program, Razor will take a cautious and case-by-case approach to spending in 2021 and into 2022, focusing on low risk, low investment capital opportunities to increase field and corporate netbacks.
CORPORATE SUSTAINABILITY, ENVIRONMENT & GOVERNANCE
Razor is committed to a strong corporate sustainability program.
- Razor operates a natural gas-powered electricity generation program which allows the Company to reduce its reliance on coal-biased grid electricity and has reduced GHG emissions by 6,000 tCO2 annually.
- Once constructed, Razor’s co-produced geothermal power generation project will reduce GHG emissions by up to 31,000 tCO2 annually.
- Razor has opted all assets/facilities into Alberta’s Technology Innovation and Emissions Reduction (TIER) program and, as such, has catalogued all GHG sources and is committed to following or exceeding guidelines for GHG reductions in its oil and gas operations.
Abandonment, Reclamation, and Remediation
- Starting in 2020, Razor has opted to participate in the Alberta Energy Regulators (“AER”) Area Based Closure (“ABC”) program, to further reduce our footprint on the environment. Planned work consists of well, facility and pipeline abandonment, site remediation and reclamation. Razor’s liability reduction target is $3.0 million in 2021.
- The Company has been successful in obtaining approved applications under the Alberta Site Rehabilitation Program (“SRP”) to assist with its abandonment and reclamation activities. The total value of approved applications is $1.5 million. Funds will be used primarily in Razor’s Chin Coulee and Virginia Hills areas, progressing approximately 70 wells towards reclamation certificates.
- In 2020, the Company settled $538 thousand of decommissioning obligations which included $198 thousand related to government grants earned for well site rehabilitation through the SRP.
- Since inception, Razor has spent $7.3 million on end-of-life activities, including deconstruction of the Virginia Hills Production Complex, and received 18 reclamation certificates from the AER which confirm that the land has been reclaimed to its natural state in accordance with regulations.
- In addition to Razor’s annual abandonment and reclamation program, Razor also paid $292 thousand in 2020 into the industry-wide Alberta Orphan Well Fund.
- Razor is committed to diversity and equality in the workplace.
- Razor is committed to conducting our operations safely and with proper policies, procedures, standards, training, equipment and emergency response procedures in accordance with all government regulations and industry practices.
- Razor maintains a complete series of documented Corporate policies and requires an annual review and sign off from all employees, consultants, management, executive and directors. Corporate policies include code of conduct, corporate disclosure and whistleblower guidance.
NEAR AND MEDIUM-TERM OBJECTIVES
- Reduce net debt through continued optimization of capital spending and increased efficiencies to reduce operating and general and administrative costs.
- Actively identify and consider business combinations with other oil and gas producers as well as service companies.
- Continued focus on implementing a technically viable and commercially sustainable solution to recover geothermal waste heat to power.
- Further analyze ancillary opportunities including power generating projects, oil blending, and services integration.
SELECT QUARTERLY AND ANNUAL HIGHLIGHTS
The following tables summarizes key financial and operating highlights associated with the Company’s financial performance.
|Three Months Ended Dec 31,
||Twelve Months Ended Dec 31,
|($000’s, except for per share amounts and production)||2020||2019||2020||2019|
|Crude oil (bbl/d)||2,023||2,839||2,176||2,712|
|Natural gas (mcf/d) 1||5,165||4,962||4,695||4,635|
|Crude oil (bbl/d)||2,024||2,862||2,179||2,783|
|Natural gas (mcf/d)||4,461||3,563||3,767||3,501|
|Oil inventory volumes (bbls)||8,203||9,251||8,203||9,251|
|Oil and NGLs sales||11,011||20,013||42,728||78,365|
|Natural gas sales||1,048||774||3,126||2,438|
|Sale of commodities purchased from third parties 4||–||(25||)||–||8,551|
|Blending and processing income||1,456||1,874||5,416||8,842|
|Cash flows from operating activities||356||3,894||4,193||16,210|
|Per share -basic and diluted||0.02||0.19||0.20||0.96|
|Funds flow 2||(126||)||9||3,798||7,691|
|Per share -basic and diluted||(0.01||)||–||0.18||0.45|
|Adjusted funds flow 2||(120||)||277||4,138||7,931|
|Per share -basic and diluted||(0.01||)||0.01||0.20||0.47|
|Per share – basic and diluted||(0.29||)||(0.56||)||(2.19||)||(1.75||)|
|Dividends per share||–||0.04||0.01||0.15|
|Weighted average number of shares outstanding (basic and diluted)||21,064||21,057||21,064||16,926|
|Gross Capital expenditures||428||2,378||1,929||13,590|
|Oil and gas sales 3||36.56||48.31||33.12||50.46|
|Transportation and treating||(2.93||)||(2.38||)||(2.16||)||(2.25||)|
|Operating netback 2||(1.25||)||5.03||0.00||7.03|
|Gain/ (Loss) on sale of commodities purchased from third parties4||–||(0.05||)||–||(0.01||)|
|Net blending and processing income 2||2.65||2.76||2.89||3.40|
|Realized loss on commodity contracts settlement 3||0.12||0.46||(1.04||)||(1.64||)|
|Other revenue and income||2.93||0.28||4.80||1.23|
|General and administrative||(3.14||)||(4.54||)||(3.26||)||(3.95||)|
|Acquisition and transaction costs||(1.02||)||–||(0.24||)||(0.13||)|
|Corporate netback 2||(6.57||)||(11.40||)||(19.48||)||(0.47||)|
1) Natural gas production includes internally consumed natural gas primarily used in power generation.
2) Refer to “Non-IFRS measures”.
3) Excludes the effects of financial risk management contracts but includes the effects of fixed price physical delivery contracts.
4) From time to time, Razor purchases commodity products from third parties to fulfill sales commitments, and subsequently sells these products to its customers.
SELECT QUARTERLY AND ANNUAL HIGHLIGHTS (continued)
|December 31,||December 31,|
|($000’s, except for share amounts)||2020||2019|
|Long-term debt (principal)||50,145||45,874|
|Minimum lease obligation||3,469||5,329|
|Net debt 1||72,789||66,911|
|Number of shares outstanding||21,064,466||21,064,466|
1) Refer to “Non-IFRS measures.”
2020 YEAR-END RESERVES
For 2020, 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 $65.5 million.
|Reserves Summary1||December 31,|
|($000’s unless otherwise stated)||2020||2019|
|Proved developed producing (Mboe)||7,416||11,144|
|Total Proved (Mboe)||13,525||16,258|
|Total Proved plus probable (Mboe)||17,319||20,750|
|Proved developed producing – NPV101||26,553||116,832|
|Proved developed non-producing – NPV101||49,199||39,409|
|Total Proved – NPV101||95,508||189,257|
|Total Proved plus probable – NPV101||133,216||242,719|
1) The table summarizes the data contained in an independent report of Razor’s gross reserves, as evaluated by Sproule, qualified reserves evaluators, dated February 19, 2021. The figures have been prepared in accordance with the standards contained in the COGEH and the reserve definitions contained in National Instrument 51-101-Standards of Disclosure for Oil and Gas Activities. Gross reserves means the total working interest (operating and non-operating) share of remaining recoverable reserves owned by Razor before deductions of royalties payable to others and without including any royalty interests owned by Razor. Additional reserve information is included in the AIF.
2) NPV 10 is net present value of before tax cash flows discounted at 10%.
During the fourth quarter of 2020, the Company realized an operating loss of ($1.25)/boe, down from an operating netback of $5.03/boe in the fourth quarter of 2019. Realized prices decreased by $11.75/boe, however, the impact of decreased prices was offset by royalty decreases of $6.41/boe due to significantly lower oil prices and a slight increase in operating expenses of $0.39/boe in comparison to the same period as in 2019. For the year ended December 31, 2020, the operating netback was $0/boe compared to $7.03/boe for the same period in 2019 mainly as a result of lower realized prices which were down 34%, partially offset by 64% lower royalty and 14% lower operating expenses.
Royalty rates averaged 12% in the fourth quarter of 2020 as compared to 22% for the same period in 2019. This decrease in royalties is mostly due to the decrease in commodity prices and production volumes. For the year ended December 31, 2020, royalties averaged 10%, down 18% from the same period last year, mostly due to lower commodity prices and production volumes.
Operating expenses increased 1%, on a per boe basis, in the fourth quarter of 2020 compared to the same period in 2019 and were down $2.9 million on a total dollar basis. The Company had limited its well intervention activity in response to the weak commodity price environment. Workovers and facility expenses averaged $2.73/boe in the fourth quarter of 2020 compared to $2.76/boe in the fourth quarter of 2019, while fuel and electricity costs averaged $9.11/boe in the fourth quarter 2020 as compared to $9.45/boe in 2019.
Other revenue and income received during the twelve months ended December 31, 2020 was $6.6 million which primarily consisted of $0.8 million of road use, $0.2 million of disposal revenue, $0.2 SRP grant income and $4.7 million of non-recurring insurance proceeds related to environmental clean-up costs as a result of an injection line failure in 2019 as well as proceeds from business interruption insurance related to a non-operated pipeline being offline for repairs in 2019.
During 2020, the Company received funds from Canada Emergency Wage Subsidy of $1.5 million. These grants were recognized as a reduction to general and administrative expense of $0.9 million and a reduction of operating expenses of $0.6 million.
Razor has focused on cost control on all expenditures within its operations by implementing a procurement system, internalizing field services and producing its own electricity.
The top cost drivers consisting of fuel and electricity, labour, property taxes, facility repairs, chemicals and accounted for 67% of total operating expenses in the fourth quarter of 2020 (Q4 2019 – 69%). For the year ended 2020, these same top cost drivers accounted for 70% of total operating expenses (2019 – 68%).
The cost of electricity and fuel decreased 25% in Q4 2020 as compared to the same quarter of last year mostly due a 41% decrease in consumption, 3% decrease in average electricity pool prices and a decreased reliance on non-operated fuel gas and lower production levels.
For the year ended 2020, the cost of electricity and fuel decreased 14% as compared to the same period of last year, with average electricity pool prices decreasing by 19% and with usage decreasing by 11%. The Company continues to operate its natural gas-powered generation 9 MW facility which reduced its reliance on grid electric power and resulted in savings of $0.5 million in Q4 2020 (Q3 2019 – $0.7 million). For the year ended 2020, the Company achieved electricity savings of $2.3 million (2019 – $2.2 million).
During the fourth quarter of 2020, Razor invested $0.2 million on its South Swan Hills Co-Produced Geothermal Natural Gas power project. Since inception, Razor has received $5.9 million in government grants to support this power generation project. The Company projects the capital cost of the project to be $37 million, which will generate 21 MW of grid connected power, of which up to 6MW will emerge from sustainable clean power generation.
During 2020, due to the volatile commodity price environment, the Company did not initiate any projects related to finding and development capital and minimal capital reactivations were conducted during this period.
Operated capital investment for the year ended 2020 consisted primarily of $1.1 million on the Razor’s Co-Produced Geothermal Natural Gas power project, $0.5 million on field equipment and a variety of project cost adjustments from prior periods, offset by government grants of $1.1 million.
RAZOR’S RESPONSE TO COVID-19
Razor is dedicated to ensuring the health, safety and security of its employees, contractors, partners and residents within all of its operating areas and communities. The Company has implemented business procedures that comply with Alberta Health Guidelines to protect the well-being of all stakeholders. Razor has successfully transitioned the majority of its corporate staff required for operational effectiveness back to its head office and the field sites continue to take site specific precautionary measures related to COVID-19.