CALGARY, Alberta – NuVista Energy Ltd. (“NuVista” or the “Company”) (TSX:NVA) is pleased to announce financial and operating results for the three and six months ended June 30, 2021, and provide a number of updates which demonstrate continued successful advancement of our Pipestone and Wapiti Montney play development. This was a successful quarter for NuVista, with results that included the continued ramp-up of production in the new Pipestone North compressor station facility, the completion and startup of 6 new wells, and the delivery of production and cash flow results which were ahead of expectations.
All of the aforementioned actions have placed NuVista in the solid position of moving forward to 2022 with strength and increasing momentum in the significantly improved commodity price environment.
During the quarter ended June 30, 2021, NuVista:
- Produced 51,485 Boe/d, near the top of guidance range of 50,000 – 52,000 Boe/d. This figure represented an increase of 12% as compared to the prior quarter. The average production included the effect of approximately 2,000 Boe/d of planned midstream maintenance downtime, and approximately 1,000 Boe/d of unplanned downtime which included midstream repairs and temporary company and midstream production curtailment due to the unusually hot weather in June;
- Achieved $55.5 million of cash flow in the quarter ($0.25/share), above expectations due to increased production and commodity pricing, partially offset by the associated increase in realized hedging losses;
- Executed a successful capital program of $44.3 million, including 6 new wells completed and brought online early in the quarter at an overall cost which was 20% below the 2020 average on a length and tonnage normalized basis;
- Continued our focus upon reducing net debt, ending the quarter with reduced credit facility drawings of $286 million against our successfully redetermined credit facility capacity of $440 million;
- Continued to significantly advance our progress and plans in environmental, social and governance items (“ESG”); and
- In July, successfully refinanced and redeemed our $220 million of senior unsecured notes which were due 2023, with the issuance of $230 million 5 year senior unsecured notes due July 2026, at a coupon rate of 7.875%.
Excellence in Operations and Cost Reductions
Activity levels are high and a number of production milestones have been reached on our recent wells. Drilling is complete on the first of three 6-well pads in Pipestone; drilling costs averaged $2.1 million or $830 per Hz meter. On the second 6-well pad we achieved a new NuVista record, reaching total depth in 9 days (2,960 Hz meters) at a cost of $620 per Hz meter. Completion activities have already commenced at Pipestone North and we expect cycle time on the next pad from spud to first sales to be approximately 90 days, which is a 45% improvement over our prior best. Two 6-well pads at Pipestone North and a 4-well Pad at Elmworth are all expected to be onstream over the next 3-4 months.
IP365 milestones have been achieved on our first three pads drilled on the Pipestone South block. All four benches in the Montney have been tested. First year average production per well was 750 Boe/d including 200 Bbls/d of condensate with a Condensate Gas Ratio (“CGR”) of 55 Bbls/MMcf. This compares well to management expectations and the IP30 which was 1,615 Boe/d with 630 Bbls/d of condensate and a CGR of 88 Bbls/Mmcf. All-in well costs averaged $6.4 MM per well. In a flat $65 WTI and $3 NYMEX environment these wells provide an average of one-year payout. In addition, our most recent 6-well pad achieved all-in well costs of $6.0 MM per well which is over 20% lower than our 2020 average on a length and per tonne normalized basis. These wells have reached the IP60 milestone averaging 1,460 Boe/d including 600 Bbls/d of condensate (CGR of 99 Bbls/MMcf), which is 25% above the historic average in Pipestone South due to well spacing, CGR, and zonal optimization implemented upon learnings from earlier pads.
In addition, the IP90 milestone was reached at our first 12-well pad at Pipestone North which tested each of the four horizons and delineated the Northwest corner of the block. IP90 volumes per well averaged 1,100 Boe/d including 450 Bbls/d of condensate (initial CGR >200 Bbls/MMcf). As expected, there was a range of average IP90 CGR’s encountered on this pad; from 75 to 165 Bbls/MMcf, and we have seen pad average CGR stabilize at ~100 Bbls/MMcf, in-line with our expectations. With well-established decline rates to date, similar to the three pads at Pipestone South, this pad is expected to reach payout within its first year. Payout periods are expected to be improved further with the benefit of continued well cost reductions which have already been realized on new wells as noted above. With data now in hand for all four zones, further optimization of economics through well spacing, CGR, and zonal highgrading is being implemented similar to Pipestone South.
Significant Commodity Price Diversification and Risk Management
Global oil prices continued to strengthen through the second quarter as advances in vaccine delivery have spurred increased demand expectations. The supply outlook looks tight as a consequence of reduced global capital spending and OPEC production discipline. With natural gas storage levels reducing partially due to a significant increase in LNG shipments, improved and sustained strength in NYMEX gas pricing has been occurring and is expected to continue through 2021. Propane and butane are also experiencing improved pricing levels. As commodity prices have now returned to levels in excess of what we require to drive our near term strategic priorities, we have re-engaged our rolling hedge program to ensure attenuation of future price volatility.
We have primarily been using a combination of collars, swaps and three-way collars in order to provide downside protection while maintaining upside for price growth. We currently possess hedges which, in aggregate, cover approximately 68% of third quarter projected liquids production and 50% of fourth quarter projected liquids production at an average WTI floor price of C$66.05/Bbl and an average ceiling of C$76.99/Bbl. We have hedged approximately 38% of projected remaining 2021 gas production at an average floor and ceiling price of C$2.12/Mcf and C$2.44/Mcf, respectively (hedged and exported volumes converted to an AECO equivalent price) using a combination of swaps and collars.
For the first half of 2022, we have hedged approximately 38% of projected liquids production at an average floor price of C$67.32/Bbl using three-way collars, with hedged volumes declining thereafter. The average ceiling price is C$80.22/Bbl. We have hedged approximately 12% of projected natural gas production for 2022 with floor and ceiling prices of $2.60/Mcf and $2.93/Mcf. All of the preceding percentage figures relate to production net of royalty volumes.
ESG Progress Continues
We continue to execute upon our stated GHG and methane emission reduction projects, and we look forward to providing a significant update on these and other items in our 2019-2020 ESG report which will be published within the next few weeks.
2021 Guidance Re-affirmed
As discussed above, NuVista is pleased to note that both condensate and natural gas future strip prices have increased significantly, resulting in a material increase to projected cash flows and decreasing debt levels. Our continuing efforts will be to focus on a disciplined capital program to maximize economic returns from our existing facilities, and rapid debt repayment.
NuVista’s capital spending guidance for 2021 remains at $230 – $250 million. Keeping the schedule smooth and full for existing rigs is increasingly fundamental to retaining high quality rigs and crews in this tightening and inflationary environment. This leads to the maximization of efficiency, cost, and safety performance. Full year 2021 production guidance is re-affirmed at 50,000 – 52,000 Boe/d, and third quarter production guidance is 50,000 – 52,000 Boe/d prior to the fourth quarter ramp-up in production as our post spring breakup wells begin to come online.
We continue to forecast significant ongoing reduction of net debt as well as dramatic reduction in net debt to cash flow ratio. At strip prices*, we anticipate exiting 2021 with a net debt to annualized fourth quarter cash flow ratio of less than 1.2x. Net debt at year end 2021 is anticipated to be below $520 million, a reduction of almost $140 million from the peak during the 2020 pandemic, with free cash flow driving a further reduction to approximately $400 million by the end of 2022.
* 2021 full year pricing projection incorporating actual year to date pricing and July 30th strip pricing: WTI US$67.00/Bbl, NYMEX US$3.65/MMBtu, AECO $3.20/GJ, CAD:USD FX 1.25
We intend to continue our track record of carefully directing additional available cash flow towards a prudent balance of net debt reduction and production growth until our existing facilities are filled to maximum efficiency, and net debt to cash flow levels reach 1.0x or less. Capital spending will continue to be weighted heavily towards Pipestone, as our highest return area, with expected well payouts well below a year. NuVista retains the flexibility to adjust capital spending should commodity prices increase or retreat significantly from the current positive trend.
NuVista has a solid business plan that maximizes free cash flow and the return of capital to shareholders when our existing facilities are filled to capacity and maximum efficiency at flattened production levels of approximately 80,000 – 90,000 Boe/d. We are confident that the actions described above accelerate the Company towards that goal by as early as 2023, while still providing free cash flow and net debt reduction while growing through 2021-2023. With facilities filled, returns and netbacks are enhanced significantly due to efficiencies of scale, with overall cash costs which are expected to reduce by over 25%, or approximately $6/Boe by 2023 as compared to the first quarter of 2021.
NuVista has top quality assets and a management team focused on value and relentless improvement. We have the necessary foundation and liquidity to add significant value as commodity prices continue to recover. We have set the table for returns-focused profitable growth to between 80,000 – 90,000 Boe/d with only half-cycle spending, since the required facility infrastructure is now in place. We will continue to adjust to this environment in order to maximize the value of our asset base and ensure the long term sustainability of our business. We would like to thank our staff, contractors, and suppliers for their continued dedication and delivery, and we thank our board of directors and our shareholders for their continued guidance and support. Please note that our corporate presentation, including our outlook for 2022 and beyond, is being updated and will be available at www.nuvistaenergy.com on August 4, 2021. NuVista’s financial statements, notes to the financial statements and management’s discussion and analysis (“MD&A”) for the quarter ended June 30, 2021, will be filed on SEDAR (www.sedar.com) under NuVista Energy Ltd. on August 4, 2021 and can also be accessed on NuVista’s website.
|Financial and Operating Highlights|
|Three months ended June 30||Six months ended June 30|
|(Cdn $000s, except otherwise indicated)||2021||2020||% Change||2021||2020||% Change|
|Petroleum and natural gas revenues||187,925||67,399||179||339,334||194,552||74|
|Adjusted funds flow (1) (2)||55,452||15,115||267||88,709||65,983||34|
|Per share – basic||0.25||0.07||257||0.39||0.29||34|
|Per share – diluted||0.25||0.07||257||0.38||0.29||31|
|Net income (loss)||(10,941||)||(80,422||)||(86||)||4,447||(869,169||)||101|
|Per share – basic||(0.05||)||(0.36||)||(86||)||0.02||(3.85||)||101|
|Per share – diluted||(0.05||)||(0.36||)||(86||)||0.02||(3.85||)||101|
|Capital expenditures (2)||44,344||20,765||114||125,292||149,497||(16||)|
|Proceeds on property dispositions||—||—||—||93,578||—||—|
|Net debt (1) (2)||547,314||656,889||(17||)|
|Natural gas (MMcf/d)||178.3||187.1||(5||)||173.4||188.0||(8||)|
|Condensate & oil (Bbls/d)||16,296||14,231||15||14,472||14,783||(2||)|
|Condensate, oil & NGLs weighting||42%||39%||41%||39%|
|Condensate & oil weighting||32%||28%||30%||29%|
|Average realized selling prices (4)|
|Natural gas ($/Mcf)||3.48||1.98||76||3.63||2.21||64|
|Condensate & oil ($/Bbl)||79.00||22.46||252||75.47||40.67||86|
|NGLs ($/Bbl) (3)||28.73||9.31||209||28.76||9.68||197|
|Petroleum and natural gas revenues||40.11||14.54||176||38.50||20.76||85|
|Realized gain (loss) on financial derivatives||(6.13||)||5.84||(205||)||(5.65||)||4.32||(231||)|
|Operating netback (2)||15.76||6.26||152||14.36||9.84||46|
|Corporate netback (2)||11.84||3.27||262||10.06||7.04||43|
|SHARE TRADING STATISTICS|
|Average daily volume (‘000s)||1,350||3,401||(60||)||1,413||2,490||(43||)|
|Common shares outstanding (‘000s)||226,256||225,716||—|
(1) Refer to Note 15 “Capital management” in NuVista’s financial statements and to the sections entitled “Adjusted funds flow” and “Liquidity and capital resources” contained in NuVista’s MD&A.
(2) Non-GAAP measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other companies where similar terminology is used. Reference should be made to the “Non-GAAP measurements”.
(3) Natural gas liquids (“NGLs”) include butane, propane and ethane and an immaterial amount of sulphur revenue.
(4) Product prices exclude realized gains/losses on financial derivatives.