CALGARY, Alberta – Crew Energy Inc. (TSX: CR) (“Crew” or the “Company”) today announced our operating and financial results for the three-month period ended March 31, 2021. Crew’s Financial Statements and Notes, as well as Management’s Discussion and Analysis (“MD&A”) for the three-month period ended March 31, 2021 are available on Crew’s website at www.crewenergy.com and filed on SEDAR at www.sedar.com.
“Crew entered 2021 primed to capitalize on structural improvements in crude oil and natural gas pricing with a pivotal two-year plan which is designed to increase the pace of development of our world-class Montney resource while optimizing production and infrastructure utilization. This is expected to enhance margins, improve leverage metrics and generate shareholder value,” said Dale Shwed, President and CEO of Crew. “In Q1 2021, we saw the initial benefits of our two-year plan, with meaningful growth across an array of financial and operating metrics both year-over-year and quarter-over-quarter, including a 124% increase in revenue, 174% increase in Adjusted Funds Flow1 (“AFF”) and a 10% increase in production volumes compared to Q1 2020.”
Q1 2021 OPERATING & FINANCIAL HIGHLIGHTS
- 26,258 boe per day2 (157.5 mmcfe per day) average production in Q1/21, a 10% increase over Q1/20 and a 21% increase from the preceding quarter, reflecting the operational success of Crew’s drilling and completions program.
- $34.0 million of AFF1 ($0.22 per fully diluted share) generated in the quarter, a 174% increase over Q1/20 and 118% higher than the preceding quarter, due largely to increased production, lower costs and stronger commodity pricing, particularly for natural gas.
- $4.65 per boe net operating costs1 in Q1/21, representing a 19% reduction compared to Q1/20, and a 12% reduction from the prior quarter, reflecting higher production leading to operational efficiencies. Q1/21 general and administrative (“G&A”) costs of $0.93 per boe declined 19% and 28% compared to Q1/20 and Q4/20, respectively.
- $50.1 million of net capital expenditures1 in Q1/21, at the low end of the previously announced guidance range of $50 to $53 million, as drilling and completion efficiencies improved in the quarter. The majority of expenditures were directed towards the continued development of our world-class Montney resource play, with $42.3 million invested in drilling and completions activities, $5.6 million directed to equipment and pipelines, and $2.2 million on land, seismic, recompletions and other miscellaneous amounts.
- 11 natural gas wells were drilled in Q1/21, while six natural gas wells were completed, and seven previously completed natural gas wells were tied in through permanent facilities. In Q1/21, Crew drilled two wells over 6,200 meters in total length, the longest wells drilled in the Company’s history.
- 4 ultra-condensate rich wells were completed on Crew’s 3-32 pad with encouraging initial first month average per well sales rates of 497 bbls per day of condensate, 2.2 mmcf per day of conventional natural gas and 99 bbls per day of ngl. These wells had an average condensate to gas ratio of 226 bbls per mmcf over the first month of production.
- $375.7 million of net debt1 at March 31, 2021, with no near-term maturities or repayment requirements on the $300 million of senior notes termed out until 2024, and 38% drawn on our $150 million credit facility.
FINANCIAL & OPERATING HIGHLIGHTS
FINANCIAL ($ thousands, except per share amounts) |
Three months ended Mar. 31, 2021 |
Three months ended Mar. 31, 2020 |
Petroleum and natural gas sales | 85,517 | 38,094 |
Adjusted funds flow 1 | 33,995 | 12,400 |
Per share – basic | 0.23 | 0.08 |
– diluted | 0.22 | 0.08 |
Net income / (loss) | 1,353 | (191,909) |
Per share – basic | 0.01 | (1.27) |
– diluted | 0.01 | (1.27) |
Exploration and development expenditures | 50,090 | 18,029 |
Property acquisitions (net of dispositions) | – | (34,940) |
Net capital expenditures | 50,090 | (16,911) |
As at Mar. 31, 2021 |
As at Dec. 31, 2020 |
|
Working capital deficiency 1 | 21,739 | 24,361 |
Bank loan | 56,851 | 35,994 |
78,590 | 60,355 | |
Senior Unsecured Notes | 297,097 | 296,851 |
Total net debt 1 | 375,687 | 357,206 |
Common shares outstanding (thousands) | 156,576 | 156,449 |
Notes:
(1) Non-IFRS measure that does not have any standardized meaning as prescribed by International Financial Reporting Standards, and therefore, may not be comparable with the calculations of similar measures for other entities. See “Advisories – Non-IFRS Measures” contained within this press release.
Operations | Three months ended Mar. 31, 2021 |
Three months ended Mar. 31, 2020 |
Daily production | ||
Light crude oil (bbl/d) 1 | 155 | 215 |
Heavy crude oil (bbl/d) | 1,055 | 1,527 |
Natural gas liquids (“ngl”) 2 (bbl/d) | 2,401 | 2,288 |
Condensate (bbl/d) | 2,708 | 3,340 |
Conventional natural gas (mcf/d) | 119,635 | 99,144 |
Total (boe/d @ 6:1) | 26,258 | 23,894 |
Average prices 3 | ||
Light crude oil ($/bbl) | 63.97 | 44.81 |
Heavy crude oil ($/bbl) | 52.69 | 20.06 |
Natural gas liquids ($/bbl) | 13.56 | 4.86 |
Condensate ($/bbl) | 69.75 | 54.83 |
Conventional natural gas ($/mcf) | 5.54 | 1.86 |
Oil equivalent ($/boe) | 36.19 | 17.52 |
Notes:
(1) The Company does not have any medium crude oil as defined by NI 51-101.
(2) Throughout this news release, natural gas liquids (“ngl”) comprise all natural gas liquids as defined in National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities (“NI 51-101”), other than condensate, which is disclosed separately, and natural gas means conventional natural gas by NI 51-101 product type.
(3) Average prices are before deduction of transportation costs and do not include realized gains and losses on derivative financial instruments.
Three months ended Mar. 31, 2021 |
Three months ended Mar. 31, 2020 |
|||
Netback ($/boe) | ||||
Petroleum and natural gas sales | 36.19 | 17.52 | ||
Royalties | (2.21 | ) | (1.00 | ) |
Realized commodity hedging gain | (7.34 | ) | 1.75 | |
Marketing income 1 | – | 0.11 | ||
Net operating costs 2,3 | (4.65 | ) | (5.74 | ) |
Transportation costs | (4.17 | ) | (3.21 | ) |
Operating netback 3 | 17.82 | 9.43 | ||
G&A | (0.93 | ) | (1.15 | ) |
Financing costs on long-term debt | (2.50 | ) | (2.58 | ) |
Adjusted funds flow 3 | 14.39 | 5.70 |
Notes:
(1) Marketing income was recognized from the monetization of forward physical sales contracts offset by the cost of committed natural gas transportation that was not available during the period.
(2) Net operating costs are calculated as gross operating costs less processing revenue.
(3) Non-IFRS measure that does not have any standardized meaning as prescribed by International Financial Reporting Standards, and therefore, may not be comparable with the calculations of similar measures for other entities. See “Advisories – Non-IFRS Measures” contained within this press release.
SUSTAINABILITY AND ESG INITIATIVES
Crew’s environmental, social and governance (“ESG”) initiatives were a prime focus in Q1/21 as we continued our unwavering commitment to safely and to responsibly operate in the communities in which we work. The Company expects to release our inaugural ESG report to stakeholders in mid-2021, while we continue to advance our sustainability goals:
- The Company continues to reduce its surface footprint by developing its resource through the drilling of longer Extended Reach Horizontal (“ERH”) wells. These longer wells ultimately reduce the number of wells needed to deplete a reservoir, reduce future development capital and minimize pipeline requirements. Additionally, by concentrating the placement of wells on drilling pads, surface impact is minimized to one area as exhibited on our Greater Septimus 1-8 pad. Recent wells have exceeded 4,000 meters in lateral length, allowing access to resource that would otherwise have been challenging and costly to access due to difficult terrain and environmental sensitivities.
- Crew has upheld an exemplary safety record, featuring no employee or contractor lost time injuries for over 1,000 consecutive days as of Q1 2021.
- Crew successfully participated in the provincially funded dormant well programs, having abandoned 41 wells and initiated 78 site assessments to date in 2021. Crew expects to abandon approximately 16% of the Company’s idle wells in 2021.
- Crew continues to leverage the use of next generation, spoolable surface pipelines for produced water transfer, which removes trucks from the road, reduces CO2 emissions, and affirms Crew’s commitment to improving efficiencies and reducing our environmental impact. In addition to meaningful reductions in emissions, the corresponding removal of vehicles from the road also significantly reduces the risk of accidents and spills, further contributing to improved safety and environmental performance.
- Through Q1/21, Crew’s strong regulatory compliance record remained consistent with 2019 and 2020, achieving a 96% compliance rating with 57 regulatory inspections completed across the three provinces in which we operate.
OPERATIONS & AREA OVERVIEW
NE BC Montney
Production & Drilling | Q1 2021 |
Q4 2020 |
Q3 2020 |
Q2 2020 |
Q1 2020 |
Average daily production (boe/d) 1 | 23,130 | 18,089 | 17,119 | 18,565 | 19,894 |
Wells drilled | 11 | 6 | 6 | 0 | 1 |
Wells completed | 6 | 7 | 0 | 1 | 0 |
Note:
(1) See table in the Advisories for production breakdown by product type as defined in NI 51-101.
Operating Netback ($ per boe) |
Q1 2021 |
Q4 2020 |
Q3 2020 |
Q2 2020 |
Q1 2020 |
Petroleum and natural gas sales | 36.15 | 20.41 | 15.73 | 11.97 | 17.61 |
Royalties | (2.07) | (0.89) | (0.42) | (0.36) | (0.86) |
Realized commodity hedge (loss) gain | (7.26) | 1.45 | 2.18 | 3.06 | 1.44 |
Marketing (loss) income 1 | – | (0.05) | (0.33) | (0.31) | 0.13 |
Net operating costs 2,3 | (3.84) | (4.33) | (4.71) | (4.81) | (4.52) |
Transportation costs | (4.25) | (4.33) | (3.86) | (3.37) | (2.99) |
Operating netback 3 | 18.73 | 12.26 | 8.59 | 6.18 | 10.81 |
Notes:
(1) Marketing income was recognized from the monetization of forward physical sales contracts offset by the cost of committed natural gas transportation that was not available during the period.
(2) Net operating costs are calculated as gross operating costs less processing revenue.
(3) Non-IFRS measure that does not have any standardized meaning as prescribed by International Financial Reporting Standards, and therefore, may not be comparable with the calculations of similar measures for other entities. See “Advisories – Non-IFRS Measures” contained within this press release.
- Production at Greater Septimus totaled 23,130 boe per day in Q1/21, a 28% increase compared to the prior quarter and a 16% increase year-over-year.
- Despite extreme cold weather in February, Crew effectively executed our first quarter drilling and completions program, with 11 wells drilled and six Montney wells completed. Four wells were drilled for land tenure extensions with three wells drilled at Groundbirch, which are expected to be completed in the next year, and one well drilled at Attachie, which is not expected to be completed until a development plan for the area has been established. Excluding the Attachie well, the Company now has an inventory of 10 drilled and uncompleted wells and has recently paused its drilling program through spring breakup.
- At Crew’s 3-32 pad, four wells were completed in the ultra-condensate rich Upper Montney “B” zone with encouraging initial first month per well average sales rates of 497 bbls per day of condensate, 2.2 mmcf per day of conventional natural gas, and 99 bbls per day of ngl. These wells had an average condensate to gas ratio of 226 bbls per mmcf over the first month of production. The 3-32 pad wells were tied into permanent facilities in mid April.
- At the 3-32 pad, Crew’s commitment to improving efficiencies and reducing emissions was reaffirmed through the installation of a licensed temporary surface pipeline for produced water. The pipeline allows for the safe and environmentally responsible transportation of produced water, dramatically reducing the trucking of water in Crew’s area of operations while significantly reducing emissions. As a result of this pipeline, 7,333 two-way truckloads were removed from the road during the completion of the 3-32 pad in Q1 2021, which is the approximate equivalent of 329 tCO2e.
- Drilling of the seven-well 1-8 pad began in Q4 and was finished in Q1, incorporating the longest wells drilled in the Company’s history. After completing the drilling of the 1-8 pad, the associated drilling rig was moved to our nine well 4-14 pad, targeting gas and condensate at Greater Septimus.
Other NE BC Montney
- Crew continues to evaluate encouraging offset operator activity in the Attachie and Oak/Flatrock areas.
- During Q1/21, Crew completed our land retention program focused in the Groundbirch area to facilitate future growth by drilling three land tenure extension wells. This program allowed the Company to hold 53 sections of Montney mineral rights.
AB / SK Heavy Oil Lloydminster
- Crew’s dedication to the optimization of operations has led to an 8% year-over-year decline in Q1/21 operating costs in the heavy oil operating area.
- In Q1/21, Crew successfully executed 35 well abandonments in the area.
BOARD OF DIRECTORS TRANSITION
Crew is pleased to announce that Ms. Gail Hannon will be standing for election to our Board of Directors at the 2021 Annual General and Special Meeting (“AGSM”), which is to be held on May 20th, 2021. Ms. Hannon is currently the Vice President of Corporate and Financial Planning with a private Alberta based oil and gas company. Bringing over 30 years of diverse accounting and reporting experience, Ms. Hannon has worked in various management and executive roles in both private and public companies. She holds a CPA designation, a CMA certification and currently serves on the board of a private company. We are very excited to have Ms. Hannon join our Crew and believe her extensive experience will be an invaluable contribution to the Board.
The Company also announces that Mr. David Smith is not standing for re-election at Crew’s 2021 AGSM. On behalf of our Board of Directors and our Crew, we would like to thank David for 12 years of outstanding advice and service on Crew’s Board, and we wish him all the best in his retirement.
OUTLOOK
Crew continues to execute on our two-year plan with production and AFF ahead of budget assumptions. Both short-term and long-term fundamentals remain strong for natural gas while oil prices have recently exhibited positive momentum as the world begins to recover from the effects of the COVID-19 pandemic. Crew management anticipates that natural gas will continue to play a long-term and vital role in the global energy transition as the world looks to diversify energy sources and reduce emissions.
Two-Year Plan on Track
Crew’s pivotal two-year plan, designed to expand margins and significantly improve leverage metrics by efficiently matching production volumes with infrastructure and transportation commitments, has been successfully initiated.
- Production Growth – Q1/21 production averaged 26,258 boe per day3, representing a 21% increase over Q4/20, as our drilling and completions program progresses. The Q2/21 capital program is expected to range between $15 and $18 million, while production volumes are expected to average between 26,000 and 27,000 boe per day3.
- AFF Guidance Increased – As a result of strong first quarter AFF4 and an improved commodity price forecast for the remainder of the year, the Company now expects 2021 AFF4 to range between $105 and $125 million5, representing an increase of approximately 20% over previous guidance.
- Optimizing Commitments – Increasing Q1/21 natural gas production has resulted in Crew enhancing the utilization of our committed transportation by over 30% as compared to Q4/20. Further improvements are anticipated as production increases throughout the year and as committed transportation decreases by over 20% in Q4/21, which is expected to reduce transportation expenses by over $9 million annually.
- Enhanced Hedging Program – Crew currently has over 55% of forecast 2021 natural gas production hedged at an average price of $2.48 per Gigajoule (“GJ”) (or $3.08 per mcf calculated using Crew’s heat content factor), while approximately 35% of targeted natural gas production for 2022 is hedged at an average price of $2.46 per GJ (or $3.05 per mcf using Crew’s heat content factor).
- Reduced Costs – Crew’s plan to reduce unit costs by over 25% is largely based on increasing production volumes into existing infrastructure, as over 50% of the Company’s expenses are fixed. As production increases, per unit costs associated with operating, transportation, G&A and interest expenses are targeted to decline from $13.19 per boe in 2020 to approximately $10.00 per boe in 2022. Progress was made in achieving these goals in Q1, as per unit operating, transportation, G&A and interest costs declined by 11% from $13.80 per boe in Q4/20 to $12.25 per boe in Q1/21.
- Debt Reduction – Based on projected capital spending, current forward commodity prices and the production assumptions outlined in Crew’s most recent Corporate Presentation, we expect that debt metrics will improve to under 2x EBITDA6 by the end of 2022.
- Full Year 2021 Guidance – 2021 capital and production guidance remains unchanged, with plans to invest between $120 and $145 million of capital throughout the year, resulting in average annual production of 26,000 to 28,000 boe per day7 and an exit rate of over 30,000 boe per day7.
Our Crew remains enthusiastic and focussed on the efficient execution of the Company’s business plan. We have identified actionable opportunities to grow profitably while expanding margins and participating in the energy transition. With a history of low finding and development costs and high recycle ratios, with access to diversified markets, we are uniquely positioned to provide superior returns to our shareholders. Crew retains the financial flexibility and expertise to execute on our plans, with ample liquidity and the optionality to raise funds through asset transactions as needed. We commend the hard work of Crew’s employees, contractors and directors whose commitment and dedication are critical to our ongoing success and thank all shareholders and bondholders for your ongoing support.