CALGARY, Alberta – Crew Energy Inc. (TSX: CR) (“Crew” or the “Company”) is pleased to announce our operating and financial results for the three and six month periods ended June 30, 2021, and the release of our inaugural Environmental, Social and Governance (“ESG”) Report. Crew’s Financial Statements and Notes, as well as Management’s Discussion and Analysis (“MD&A”) for the three and six month periods ended June 30, 2021 are available on Crew’s newly designed website at www.crewenergy.com and filed on SEDAR at www.sedar.com.
Two-year sustainability plan on track1: Crew is now targeting adjusted funds flow (“AFF”)3 in 2021 and 2022 between $310 and $350 million on spending of $220 to $265 million, supporting the generation of $95 to $140 million of 2022 annual AFF3 in excess of capital expenditures. These updated targets are based on estimated future commodity prices, and are expected to result in last-twelve month (”LTM”) EBITDA3 to debt of 1.3 to 1.5x at the end of 2022.
“In the second quarter of 2021, we continued steadfast in the advancement of our two-year plan, designed to increase the pace of development of our world-class Montney resource, with a goal to optimize throughput of our 40,000 boe per day infrastructure capacity and improve debt metrics,” said Dale Shwed, President and CEO of Crew. “We are excited to continue with our plan to increase production, reduce unit costs to expand margins and to create sustainable value for all stakeholders, while playing an important role in the production of responsible energy. Today we are proud to unveil Crew’s inaugural ESG Report, presented in digital format as a reflection of our commitment to adopt new technologies while adapting to the evolving needs of our stakeholders. Join us on our ESG journey here.”
Q2 2021 HIGHLIGHTS
- 26,712 boe per day2 (160.3 mmcfe per day) average production in Q2/21, a 21% increase over Q2/20. First half 2021 volumes averaged 26,486 boe per day2 (158.9 mmcfe per day), a 15% increase over the same period in 2020.
- $25.5 million of AFF3 ($0.16 per fully diluted share) was generated in the quarter, a 451% increase over Q2/20, with year-over-year growth being bolstered by higher production, lower cash costs and a significantly improved commodity price environment. First half 2021 AFF3 of $59.5 million ($0.37 per share) was nearly 3.5 times higher than the first half of 2020.
- 16% reduction in net operating costs3 in Q2/21, totaling $4.79 per boe in the quarter compared to $5.68 per boe in Q2/20, reflecting new production added at West Septimus which yields lower net operating costs, combined with improved operational efficiencies. General and administrative (“G&A”) costs of $0.93 per boe for the first half of 2021 were 3% lower than the same period in the prior year.
- $21.2 million of net capital expenditures3 in Q2/21, above our previously forecast range of $15 to $18 million, due to favorable spring break-up conditions that allowed for an early start to our capital program in June. The majority of expenditures were directed towards the continued development at Septimus and West Septimus (“Greater Septimus”), with $10.4 million invested in drilling and completions, $8.5 million directed to facilities, equipment and pipelines, and $2.3 million on land, seismic and other miscellaneous items.
- Four natural gas wells were drilled in Q2/21 at West Septimus, and three oil wells were recompleted in the Lloydminster area. The four ultra-extended reach horizontal (“U-ERH”) natural gas wells have a combined average lateral length exceeding 3,800 metres, with one of the wells being drilled to a total measured depth of 6,425 metres, the longest in the Company’s history.
- $373.1 million of net debt4 at June 30, 2021, in-line with the prior quarter, with no near-term maturities and no financial covenants or repayment requirements on the $300 million of senior notes termed out until 2024, and 43% drawn on our $150 million credit facility. Crew’s strengthening financial prospects and improved liquidity in North American bond markets have improved the potential for refinancing of the notes prior to their maturity in 2024.
FINANCIAL & OPERATING HIGHLIGHTS
($ thousands, except per share amounts)
June 30, 2021
June 30, 2020
June 30, 2021
June 30, 2020
|Petroleum and natural gas sales||68,550||24,889||154,067||62,983|
|Adjusted funds flow 1||25,530||4,633||59,525||17,033|
|Per share – basic||0.17||0.03||0.39||0.11|
|Per share – basic||(0.15||)||(0.16||)||(0.14||)||(1.42||)|
|Exploration and development expenditures||21,198||5,348||71,288||23,377|
|Property acquisitions (net of dispositions)||–||44||–||(34,896||)|
|Net capital expenditures||21,198||5,392||71,288||(11,519||)|
June 30, 2021
Dec. 31, 2020
|Working capital deficiency 1||11,282||24,361|
|Senior Unsecured Notes||297,343||296,851|
|Total net debt 1||373,140||357,206|
|Common shares outstanding (thousands)||156,557||156,449|
(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.
June 30, 2021
June 30, 2020
June 30, 2021
June 30, 2020
|Light crude oil (bbl/d) 1||171||191||163||203|
|Heavy crude oil (bbl/d)||1,153||1,175||1,104||1,351|
|Natural gas liquids (“ngl”) 2 (bbl/d)||2,687||2,147||2,545||2,218|
|Conventional natural gas (mcf/d)||118,089||95,564||118,858||97,354|
|Total (boe/d @ 6:1)||26,712||22,074||26,486||22,985|
|Average prices 3|
|Light crude oil ($/bbl)||71.65||24.04||68.02||35.05|
|Heavy crude oil ($/bbl)||60.03||18.08||56.54||19.20|
|Natural gas liquids ($/bbl)||11.85||7.74||12.65||6.26|
|Conventional natural gas ($/mcf)||3.49||1.76||4.52||1.81|
|Oil equivalent ($/boe)||28.20||12.39||32.14||15.06|
(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.
June 30, 2021
June 30, 2020
June 30, 2021
June 30, 2020
|Petroleum and natural gas sales||28.20||12.39||32.14||15.06|
|Realized commodity hedging (loss) gain||(3.46||)||3.34||(5.37||)||2.51|
|Marketing loss 1||–||(0.26||)||–||(0.07||)|
|Net operating costs 2,3||(4.79||)||(5.68||)||(4.72||)||(5.70||)|
|Operating netback 3||13.94||5.91||15.86||7.75|
|Financing costs on long-term debt||(2.51||)||(2.85||)||(2.51||)||(2.71||)|
|Adjusted funds flow 3||10.50||2.30||12.42||4.08|
(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 commitment to progressing our ESG initiatives remained a primary focus in Q2/21, as we continued to invest in finding sustainable solutions and initiatives to ensure corporate growth while also supporting our diverse group of stakeholders and the environment. Crew is proud to have released our inaugural 2020 ESG report today along with the launch of a new corporate website. Please visit us at www.crewenergy.com to learn more, and to see a full list of our new ESG goals and targets.
- Crew’s 2020 ESG report highlights our efforts to:
- Apply innovation and increase operational efficiencies to reduce emissions; an example of which is the installation of a waste heat recovery unit at our West Septimus plant that is expected to reduce GHG emissions by over 10% at the facility. Crew gratefully acknowledges assistance from the Province of British Columbia’s CleanBC Industry Fund for their support of this project.
- Reduce our environmental footprint through responsible pad development and abandonment and reclamation activities.
- Strengthen existing relationships and foster new relationships in the communities in which we live and work.
- Protect our “crew” through robust health and safety standards and protocols.
- Crew continued to participate in provincially funded dormant well programs, abandoning 27 wells in Q2/21. Crew expects to abandon approximately 16% of the Company’s idle wells during 2021.
- In Q2/21, Crew’s regulatory compliance record remained strong, achieving a 95% compliance rating with 137 regulatory inspections completed across the three provinces in which we operate.
- No workforce recordable or lost time injuries occurred, and zero reportable spills occurred in Q2/21.
TWO-YEAR PLAN UPDATE6
During the second quarter of 2021, Crew advanced our two-year development plan that was announced in late 2020, with annual production trending in-line and AFF trending higher than initial guidance.
- Production Growth – Q2/21 production averaged 26,712 boe per day5, within the previously announced forecasted annual average 2021 range of 26,000 to 28,000 boe per day, representing another period of growth supported by new completions and continued drilling. Average annual production in 2022 is now targeted to be 32,000 to 34,000 boe per day5,6, up from initial estimates of 31,000 to 33,000 boe per day.
- AFF Supported by Improved Pricing Environment – AFF7 of $59.5 million in the first half of 2021 has been bolstered by an improved commodity price environment which has continued into the second half of 2021. Our full year 2021 AFF7 forecast has been increased to between $120 to $140 million which compares to initial guidance between $85 to $105 million. Full year AFF6,7 in 2022 is now targeted at $190 to $210 million, an increase from initial estimates of $120 to $150 million.
- Capital Program Expanded – Our initial 2021 capital program of $120 to $145 million contemplated the drilling of 19 wells and completing between 14 wells and 21 wells, with an exit rate of over 30,000 boe per day. Updated guidance of $150 to $170 million of capital expenditures with an exit rate of over 32,500 boe per day5 now includes the drilling of 21 wells and the completion of 21 wells. The two additional wells are planned to be drilled on the 4-14 pad at North Septimus, and three wells at Groundbirch that were drilled in Q1/21 are planned to be completed, equipped and tied-in through a new six kilometre 12-inch pipeline connecting to our West Septimus gathering system. Production related to the incremental capital expenditures will start later in the fourth quarter of 2021 and will allow the Company to utilize services in a time of less demand and increase volumes into the winter heating season, providing production momentum entering 2022. Crew’s targeted capital expenditures in 2022 remain at $70 to $95 million6.
- 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 between $9.50 and $10.50 per boe in 20228. Crew has reduced net operating costs from $5.70 per boe in H1/20 to $4.72 per boe in H1/21.
- Balanced Hedging Program – An important step in executing our two-year plan was to prudently ensure the Company had adequate AFF to execute our planned capital programs, and as such, we have embarked on an active risk management 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 $2.47 per GJ (or $3.06 per mcf using Crew’s heat content factor). Crew also has approximately 65% of our 2021 condensate production hedged at $61.24 per bbl, and 50% of our heavy oil production hedged at $46.00 per bbl, with limited 2022 liquids hedging currently in place.
- Forecasted Debt Reduction Metrics Ahead of Plan – Crew’s original projection in the two-year plan was for debt to LTM EBITDA9 to be between 2.0 and 2.5x at the end of 20228, and this is now projected to be between 1.3 and 1.5x.
OPERATIONS & AREA OVERVIEW
NE BC Montney (Greater Septimus)
- Production at Greater Septimus totaled 23,062 boe per day10 in Q2/21, in line with the prior quarter and a 24% increase year-over-year, supported by Crew’s 3-32 pad which came on-stream mid-April and is flowing through permanent facilities.
- Favorable spring break-up conditions allowed for an advanced start to Crew’s second quarter capital program, allowing for the successful drilling of four U-ERH wells on the Company’s 4-14 pad. The four wells drilled achieved a combined average lateral length exceeding 3,800 metres, with one of the wells being drilled to a total measured depth of 6,425 metres, the longest in the Company’s history.
- Crew commenced construction of a five-kilometre 12-inch trunkline into North Septimus to allow for further development into that area, which is expected to represent another extension of the West Septimus ultra condensate rich play. Crew’s 4-14 pad will be the anchor development in this area, with completion operations expected to commence in late Q3/21 on the first group of wells on this ten well pad.
- Mobilization towards the completion of seven wells on the Company’s 1-8 pad at Greater Septimus started earlier than anticipated, with fracturing operations having commenced on the pad in early July. These wells have since been completed and are now flowing back at encouraging initial rates.
- Crew has 118 permitted well authorizations in the Montney in northeast BC, and with our current pace of development, would require five to six years to develop. The Company also has 277 sections of land that are on private property or are outside of the region claimed in an action by the Blueberry River First Nation against the province of British Columbia. Crew continues to foster strong relationships in the communities in which we live and work and we are proud to work together to achieve common objectives.
Other NE BC Montney
- At Groundbirch, Crew has elected to increase the scope of our 2021 budget. The Company now expects to complete and tie-in the three land tenure extension wells that were drilled in Q1/21, which was not originally planned in the 2021 budget. If successful, these wells would help de-risk over 35,000 acres of prospective Montney acreage and provide confidence in another core area of future development where the Company has over 300 potential extended reach horizontal (“ERH”) well locations11 identified.
- The Company has begun construction of a six-kilometre 12-inch pipeline in Q3/21 in anticipation of these wells being completed in the fourth quarter of 2021, with production being routed to our West Septimus gas plant.
- Crew continues to evaluate encouraging offset operator activity in the Attachie and Oak/Flatrock areas.
Lloydminster Heavy Oil
- During the second quarter, Crew recompleted three heavy crude oil wells in the Lloydminster area to optimize value creation from existing assets and capitalize on an improved outlook for heavy crude oil prices.
- In Q2/21, Crew successfully executed 27 well abandonments in the Lloydminster area.
- Updated Full Year 2021 Guidance Designed to:
- Invest in capital projects with robust rates of return and payouts of less than 12 months, which can be supported by an active hedging program and by producing flush volumes into the winter heating season while maintaining the option to rapidly pivot in response to changing market conditions;
- Respond to positive market conditions by expediting our goal of optimizing transportation and processing capacity through an expansion of the 2021 capital program to include the completion, equipping and six-kilometre tie-in of three Groundbirch wells and the drilling of two additional wells at our North Septimus 4-14 pad;
- Validate the future development potential of two strategic areas at Groundbirch and North Septimus;
- Test new zones in the Upper Montney ”C” and the Lower Montney at the North Septimus 4-14 pad, evaluating their long-term future development potential; and
- Enter 2022 with five drilled and uncompleted wells.
|Annual Production (boe/d)||26,000 to 28,000||26,000 to 28,000||32,000 to 34,000||31,000 to 33,000|
|Exit Production (boe/d)||>32,500||>30,000|
|Capital Expenditures ($MM)||$150 to $170||$120 to $145||$70 to $95||$70 to $95|
|AFF2||$120 to $140||$85 to $105||$190 to $210||$120 to $150|
|Wells Completed||21||14 to 21|
(1) Initial guidance provided in the December 10, 2020, Capital Budget press release.
(2) 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.
(3) Crew’s plans for 2022 and associated targets remain preliminary in nature and do not reflect a Board approved capital expenditures budget.
- Q3 2021 Production & Capital Expenditures – During Q3/21, scheduled plant turnarounds, including at our West Septimus facility for the installation of a waste heat recovery unit, coupled with shut-in production volumes related to adjacent well completions, will result in lower average volumes during the period as compared to Q2 and Q1, with volumes anticipated to range between 20,000 and 22,000 boe per day13 and capital spending forecast at $60 to $70 million in the quarter. This was budgeted in Crew’s full year 2021 plans and is not expected to impact full year average volumes as fourth quarter production volumes are expected to average over 30,000 boe per day13.
- Debt Reduction Advanced – 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 between 1.3 and 1.5x LTM EBITDA14 by the end of 202215, compared to initial estimates of 2.0 and 2.5x, representing a 38% improvement at the midpoint.
As global markets recover from the impact of the COVID-19 pandemic and demand for energy increases, Crew anticipates that Canadian natural gas will play an increasingly important role in the global energy mix as the world looks to diversify energy sources and reduce emissions. Accordingly, we remain excited to execute on our business plan to produce responsible energy while creating meaningful value and corporate growth. We thank all of our stakeholders, including employees, directors, partners, communities and shareholders, for their contribution and dedication to the success of Crew.