CALGARY, Alberta – Razor Energy Corp. (“Razor” or the “Company”) (TSXV: RZE) announces its first quarter 2021 financial and operating results. Selected financial, operational and reserves information is outlined below and should be read in conjunction with Razor’s unaudited condensed consolidated interim financial statements and management’s discussion and analysis for the quarter ended March 31, 2021 which are available on SEDAR at www.sedar.com and the Company’s website www.razor-energy.com.
Q1 2021 HIGHLIGHTS
- The Company renewed the Amended Term Facility with AIMCo (the “AIMCo Term Loan”) on February 16, 2021. The maturity date of the AIMCo Term Loan was extended to January 31, 2024. There were no additional proceeds received as part of this renewal.
- The Company also entered into a new term loan with Arena Investors, LP (“the Arena Term Loan”) to provide additional funding of US$11.0 million (CAD$14.0 million) which can only be utilized for specific purposes and requires monthly amortized repayments commencing April 1, 2021 and extends to August 1, 2023.
Razor continues to identify opportunities to alternative sources of energy and manage the environmental and social impacts of our business.
- FutEra Power Corp. (“FutEra”), a subsidiary of Razor, proceeded toward successfully financing the first stage of its Co-produced Geothermal Power Generation Project in Swan Hills, Alberta (“Geothermal Project”). FutEra has partnered with our provincial and federal governments to complete the first stage which intends to construct a 3MW geothermal electric power plant from its existing producing field. See May 4, 2021 Razor press release and www.futerapower.com for more details.
- Continued operation of six natural gas-powered generators which reduced the Company’s reliance on grid electric power which resulted in cumulative savings of $6.7 million since July 2018. For the three months ended March 31, 2021, Razor has generated saving of $0.6 million (Q1 2020 – $0.9 million) in electricity costs.
- Razor implemented cost saving measures by internalizing 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 $1.0 million of services on behalf of Razor during the first three months of 2021 (Q1 2020 – $0.3 million).
- The Company has commenced construction 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.
- Production volumes in the first quarter of 2021 averaged 3,009 boe/d, down 28% from the production volumes in the same period of 2020. Decreased production volumes in Q1 2021 are largely due to reduced spending on well reactivations and repairs throughout 2020 and into early 2021, non-operated production shut-in at Kaybob and natural 12% annual base decline.
- Razor commenced its 2021 operated production enhancement program in February 2021 with funds acquired from the Arena Term Loan. The Company is required to use at least US$6.7 million (CAD$8.4 million) to complete the activities outlined in an agreed upon development plan for the fiscal year ended December 31, 2021. In Q1 2021, the Company invested $1.8 million on the development plan which resulted in an average production increase during Q1 2021 of 164 boe/d and an exit rate production increase as at March 31, 2021 of 435 boe/d.
- Net revenues were consistent as compared to the first quarter of 2020. The decline in production in the first quarter of 2021 was offset by a 46% increase in commodity prices as compared to the same period in 2020.
- Progressed our Geothermal Project, which will be capable of generating 21 MW of grid connected power, of which up to 3MW will be sustainable clean power generation.
- In the first three months of 2021, the Company settled $452 thousand (twelve months 2020 – $538 thousand) of decommissioning obligations which includes $399 thousand (twelve months 2020 – $198 thousand) related to government grants received for well site rehabilitation through Alberta’s Site Rehabilitation Program (“SRP”).
Razor continues to look forward and plan for the future while remaining focused on its long-term sustainability. On February 16, 2021 Razor secured an extension to the AIMCo Term Loan, for an amended principal amount of $50.1 million. On the same date, a subsidiary of Razor entered into the Arena Term Loan in the 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 US$6.7 million (CAD$8.4 million) in 2021 on production enhancement. The production enhancement activity started in February 2021 and will continue into 2022. The Company has an extensive opportunity set of high-quality wells requiring reactivation. Most activities involve repairs and maintenance work which will be expensed for accounting purposes and operating netbacks will be reduced during this timeframe. 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 metrics. The production enhancement program has resulted in an average production increase during Q1 2021 of 164 boe/d and an exit rate production increase as at March 31, 2021 of 435 boe/d.
The Company continues to focus on cost control on its operated properties. In addition to the planned 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.
In May 2021, FutEra entered the project execution stage of its Geothermal Project. FutEra expects the total capital cost of the Geothermal Project to be $37 million. Stage Gate 1 is fully funded and will produce up to 3 MW of green geothermal electricity. Stage Gate 2 requires additional financing of $10 million which the FutEra continues to seek. With both Stage Gate 1 and 2 of the Geothermal Project complete, the total nameplate electricity output will be 21 MW. FutEra has partnered with provincial and federal government agencies to invigorate the emerging geothermal industry. Provincially, Alberta Innovates (“AI”) and Emissions Reduction Alberta (“ERA”), and federally, Natural Resources Canada (“NRCan”), have provided grants to complete funding. To date, Razor has received $5.9 million in government grants to support this power generation project.
FutEra has identified and is in process of reviewing and capturing additional projects including solar, wind and well head geothermal. As at March 31, 2021, FutEra is executing a 10 Petahash Bitcoin mining operation supplying both power generation and behind-the-fence mining offtake installation. In addition, FutEra is under contract with an industry resource partner to evaluate a geothermal direct heat use program.
NEAR AND MEDIUM-TERM OBJECTIVES
- Safely execute our production enhancement program and Geothermal Project.
- 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.
- Further analyze ancillary opportunities including power generating projects, oil blending and vertical services integration.
SELECT QUARTERLY HIGHLIGHTS
The following tables summarizes key financial and operating highlights associated with the Company’s financial performance.
|Three Months Ended March 31
|($000’s, except for per share amounts and production)||2021||2020|
|Crude oil (bbl/d)||1,952||2,642|
|Natural gas (mcf/d) 1||3,741||3,676|
|Crude oil (bbl/d)||1,907||2,537|
|Natural gas (mcf/d)||3,463||2,954|
|Oil inventory volumes (bbls)||12,197||18,848|
|Oil and NGLs sales||12,367||12,476|
|Natural gas sales||1,017||624|
|Blending and processing income||1,368||1,613|
|Cash flows (used in) from operating activities||(3,518||)||2,253|
|Per share -basic and diluted||(0.17||)||0.11|
|Funds flow 2||(1,424||)||(3,659||)|
|Per share -basic and diluted||(0.07||)||(0.17||)|
|Adjusted funds flow 2||(863||)||(3,314||)|
|Per share -basic and diluted||(0.04||)||(0.16||)|
|Per share – basic and diluted||(0.27||)||(1.62||)|
|Dividends per share||–||0.01|
|Weighted average number of shares outstanding (basic and diluted)||21,064||21,064|
|Oil and gas sales 3||49.43||34.32|
|Adjusted operating expenses 2 4||(38.51||)||(31.22||)|
|Production enhancement expenses2||(7.98||)||(3.93||)|
|Transportation and treating||(2.36||)||(1.75||)|
|Operating netback 2||(4.08||)||(6.73||)|
|Net blending and processing income 2||3.42||3.13|
|Realized loss on commodity contracts settlement 3||–||(2.14||)|
|Unrealized gain/(loss) on commodity risk management||0.30||(0.17||)|
|Other revenue and income||3.59||2.43|
|General and administrative||(4.49||)||(4.98||)|
|Corporate netback 2||(7.02||)||(76.68||)|
|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) Excludes production enhancement expenses incurred in the period.
SELECT QUARTERLY HIGHLIGHTS (continued)
|March 31,||December 31,|
|($000’s, except for share amounts)||2021||2020|
|Long-term debt (principal)||62,182||50,878|
|Minimum lease obligation||3,193||3,469|
|Net debt 1||76,622||72,789|
|Number of shares outstanding||21,064,466||21,064,466|
|1) Refer to “Non-IFRS measures.”|
Production volumes in the first quarter of 2021 averaged 3,009 boe/d, down 28% from the production volumes in the same period of 2020. Decreased production volumes in Q1 2021 are largely due to reduced spending on well and pipeline reactivations and repairs throughout 2020 and into early 2021, non-operated production shut-in at Kaybob and natural 12% annual base decline.
Net revenues were consistent as compared to the first quarter of 2020. The decline in production in the first quarter of 2021 was offset by a 46% increase in commodity prices as compared to the same period in 2020. The Edmonton light sweet crude oil differential to West Texas Intermediate (“WTI”) was 9% in the first quarter of 2021 compared to 17% in the same quarter of 2020. Realized NGL prices increased 108% in the first quarter of 2021 from the same period in 2020.
During the first quarter of 2021, the Company realized an operating loss of ($4.08)/boe, an improvement from the operating loss of ($6.73)/boe in the first quarter of 2020. Realized prices increased by $15.11/boe, however, the impact of increased prices was offset by royalty increases of $0.51/boe due to significantly higher commodity prices and an increase in operating expenses of $7.29/boe as well as an increased in reactivation expenses of $4.05/boe in comparison to the same period as in 2020.
Royalty rates averaged 9% in the first quarter of 2021 as compared to 12% for the same period in 2020 due to lower production and as a result of a reduction in the Government of Alberta’s PAR prices used in the calculation of crown royalties in Q1 2021 as compared to Q1 2020.
Adjusted operating expenses decreased $1.5 million or 13% on a total dollar basis but increased 23% on a per boe basis in the first quarter of 2021 compared to the same period in 2020 due to a 28% decrease in production. The largest increase in the adjusted operating expense per boe was fuel and electricity costs which averaged $13.55/boe in the first quarter 2021 as compared to $9.59/boe in 2020. Other operating expense changes from Q1 2020 to Q1 2021 included chemicals which averaged $0.90/boe in Q1 2021 compared to $2.04/boe in Q1 2020, repairs and maintenance decreased by 14% from $3.76/boe to $3.24/boe and a decrease of 69% for road and lease maintenance compared to Q1 2020.
The Company has increased its production enhancement activity in Q1 2021 in response to the stronger commodity price environment which reflects an increase of 103%, production enhancement expenses per boe averaged $7.98/boe in the first quarter 2021 as compared to $3.93/boe in 2020. The production enhancement program initiated in February 2021 has resulted, on average, a production increase of 164 boe/d during Q1 2021 and an exit rate production increase as at March 31, 2021 of 435 boe/d.
The top cost drivers of the adjusted operating expenses consist of fuel and electricity, labour, property taxes, lease rentals, fluid hauling, pipeline repairs and maintenance and environmental work. The top cost drivers accounted for 61% of the adjusted operating expenses in the first quarter of 2021 (comparable costs in Q1 2020 – 85%).
The cost of electricity and fuel decreased 7% in Q1 2021 as compared to the same quarter of last year mostly due a 34% decrease in consumption, decreased reliance on non-operated fuel gas and lower production levels partially offset by a 44% increase in average electricity pool prices.
Other revenue and income received during the three months ended March 31, 2021 was $1.0 million which primarily consisted of $0.4 million SRP grant income $0.1 million each of insurance proceeds, road use, road maintenance and other revenue.
During the first quarter of 2021, the Company received funds from Canada Emergency Wage Subsidy of $0.2 million. These grants were recognized as a $0.1 million reduction to both general and administrative expense and a reduction of operating expenses.
During the first quarter of 2021, Razor invested $0.5 million in field equipment for its service company subsidiary and $0.2 million on its Geothermal Project. As of March 31, 2021, Razor has received $5.9 million since inception in government grants to support this power generation project.
Razor did not initiate any projects related to finding and development capital and minimal capital reactivations were conducted during this period as the Company’s focus is on investing in its 2021 workover reactivation program to enhance production and cash flow.
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 is following all applicable rules and regulations as set out in Alberta Health and Health Canada guidelines to protect the well-being of all stakeholders.
Razor is a publicly traded junior oil and gas development and production company headquartered in Calgary, Alberta, concentrated on acquiring, and subsequently 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 currently trades on TSX Venture Exchange under the ticker “RZE.V”.
FutEra leverages Alberta’s resource industry innovation and experience to create transitional power and sustainable infrastructure solutions to commercial markets and communities, both in Canada and globally. Currently it is developing a 21 MW co-produced geothermal and natural gas hybrid power project in Swan Hills, Alberta.
Blade Energy Services is as subsidiary of Razor. Operating in west central Alberta, Blade’s primary services include fluid hauling, road maintenance, earth works including well site reclamation and other oilfield services.
|For additional information please contact:|
|Doug Bailey||Kevin Braun|
|President and Chief Executive Officer||Chief Financial Officer|
|Razor Energy Corp.|
|800, 500-5th Ave SW Calgary, Alberta T2P 3L5|
|Telephone: (403) 262-0242|