CALGARY, Alberta – Razor Energy Corp. (“Razor” or the “Company”) (TSXV: RZE) announces its second-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 June 30, 2021 which are available on SEDAR at www.sedar.com and the Company’s website www.razor-energy.com.
- On August 12, 2021, the Company completed an agreement to acquire certain non-operated working interest assets in its Swan Hills, Alberta core region for a total purchase price of $5 million cash, subject to certain closing adjustments. The Assets consist of Swan Hills Unit No.1, Judy Creek Gas Plant and South Swan Hills Unit Gas Gathering System at 32.5%, 8.6% and 27.6% working interest, respectively.
- The August 12, 2021, acquisition was funded by Arena Investors, LP. Razor has signed an amended term loan agreement (“Amended Term Loan”) with Arena for an increase of US$8.8 million (CAD $11.0 million) resulting in an amended total principal amount of US$18.1 million (CAD $22.7 million). The Amended Term Loan will be amortized and repaid over a total of 37 months and will conclude in April 2024. The increase in principal will fund the purchase of the Assets, associated joint account liability and interim purchase price adjustments. The funded principal amount, after the original issuer discount is US$8.0 million (CAD $10.0 million) less related fees and expenses. Other terms of the Amended Term Loan are materially unchanged from the initial term loan.
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, has commenced project execution of its Co-produced Geothermal Power Generation Project in Swan Hills, Alberta (“Geothermal Project”). Stage Gate 1 is fully funded and FutEra is securing additional financing to complete Stage Gate 2. Construction of the power plant has commenced with estimated completion within the first quarter of 2022.
- Razor operates a new and responsible crypto mining operation in Swan Hills, Alberta. The project is built entirely on pre-existing assets to limit our environmental footprint. The project hosts leading energy-efficient miners and relies on natural gas generators for cleaner and more economic power than is available through the local grid and has 10 Petahash of nameplate hashing capacity.
- 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 and has reduced electricity costs by $7.1 million since the program was implemented in 2018.
- 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 $1.3 million of services on behalf of Razor during the second quarter of 2021 (Q2 2020 – $0.8 million) and $2.4 million of services during the first six months of 2021 (2020 – $1.1 million).
- The Company completed construction during Q2 2021 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 will begin treating its first soil in Q3 2021. FutEra is developing a pure green power supply solution for the waste management facility.
- Production volumes in the second quarter of 2021 averaged 3,145 boe/d, down 17% from the production volumes in the same period of 2020. Decreased production volumes in Q2 2021 are largely due to non-operated production temporarily shut-in at Kaybob and Southern Alberta, operated and non-operated facility turnarounds in June, temporary curtailment at South Swan Hills pending a pipeline repair, reduced spending on well reactivations and repairs throughout 2020 and into early 2021, and natural 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 which resulted in an average production increase during the second quarter 2021 of 638 boe/d and an exit rate production increase as at June 30, 2021 of 637 boe/d.
- Net revenues were 73% higher compared to the second quarter of 2020. The decline in production in the second quarter of 2021 was offset by a 126% increase in commodity prices as compared to the same period in 2020.
- Progressed our Geothermal Project, which will be capable of generating 18 MW of grid connected power, of which up to 30 percent will be sustainable clean power generation.
- In the first six months of 2021, the Company settled $1,208 thousand (twelve months 2020 – $538 thousand) of decommissioning obligations which includes $925 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. There were no additional proceeds received from the AIMCo Term Loan. 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) which was subsequently amended on August 12, 2021, with the principal amount increasing to US$18.1 million ($CAD 22.7 million).
The Arena Term Loan amendment on August 12, 2021, was used to fund the acquisition of certain non-operated working interest assets in the Company’s Swan Hills, Alberta core region. Razor has intimate knowledge of the Assets through its existing working interest positions and is excited with the opportunity to consolidate assets in their core region. Razor now owns a 49.7 percent non-operated working interest in the Unit while the Operator, Canadian Natural Resources Ltd., maintains its 41.9 percent working interest. The Company will also benefit from increasing its working interest in critical area infrastructure, including the Plant and Gathering System to 38.1 and 43.9 percent, respectively. The Acquisition enables the Company to cost-effectively add long-life, industry-leading ten percent annual base decline, low-risk, light oil reserves (41o API), production and cash flow underpinned by an improving commodity price environment as crude oil supply/demand returns to balance in the post-COVID era.
A portion of the proceeds from the Amended Arena Term Loan will continue to be required to be used to invest US$6.7 million (CAD$8.4 million) in 2021 and 2022 on production enhancement. 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 boe/d and it expects that this program will result in similar favorable metrics. The production enhancement program has resulted in an average production increase during Q2 2021 of 638 boe/d and an exit rate production increase as at June 30, 2021 of 637 boe/d.
The Company continues to focus on cost control on its operated properties. In addition to the planned production enhancement 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 Power Corp. (“FutEra”), a subsidiary of Razor entered the project execution stage of its Geothermal Project. FutEra expects the total capital cost of the Geothermal Project to be $34 million. Stage Gate 1 is fully funded. Stage Gate 2 requires additional financing which FutEra continues to seek. With both Stage Gate 1 and 2 of the Geothermal Project complete, the total nameplate electricity output will be 18 MW, of which up to 30% will be sustainable clean power generation. 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 $8.6 million in government grants to support this power generation project.
FutEra has identified and is in the process of reviewing and capturing additional projects including solar, wind, and well head geothermal. As at June 30, 2021, FutEra has installed and is operating a 10 Petahash Bitcoin mining operation supplying both power generation and the behind-the-fence mining offtake installation. In addition, FutEra is in discussions with an industry resource partner to evaluate its renewable energy options and to develop a long term Environmental, Social and Governance plan.
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 June 30,||Six Months Ended June 30,|
|($000’s, except for per share amounts and production)||2021||2020||2021||2020|
|Light Oil (bbl/d)||1,983||1,996||1,968||2,319|
|Gas (mcf/d) 1||3,673||5,528||3,707||4,602|
|Light Oil (bbl/d)||2,010||1,971||1,959||2,254|
|Oil inventory volumes (bbls)||9,784||21,111||9,784||21,111|
|Oil and NGLs sales||15,320||7,896||27,813||20,372|
|Natural gas sales||940||742||1,831||1,366|
|Blending and processing income||776||1,061||2,144||2,674|
|Cash flows from (used in) operating activities||403||(540||)||(3,115||)||1,714|
|Per share -basic and diluted||0.02||(0.03||)||(0.15||)||0.08|
|Funds flow 2||339||1,985||(1,085||)||(1,673||)|
|Per share -basic and diluted||0.03||0.09||(0.05||)||(0.08|
|Adjusted funds flow 2||578||2,010||(285||)||(1,303||)|
|Per share -basic and diluted||0.03||0.10||(0.01||)||(0.06|
|Net income (loss)||(5,544||)||(4,083||)||(11,179||)||(38,311||)|
|Per share – basic and diluted||(0.26||)||(0.19||)||(0.53||)||(1.82||)|
|Dividends per share||–||–||–||0.01|
|Weighted average number of shares outstanding (basic and diluted)||21,064||21,064||21,064||21,064|
|Oil and gas sales 3||56.81||25.10||53.22||29.95|
|Adjusted operating expenses 2 4||(37.67||)||(21.14||)||(38.08||)||(26.44||)|
|Production enhancement expenses 2||(4.94||)||(0.24||)||(6.41||)||(2.18||)|
|Transportation and treating||(2.04||)||(1.69||)||(2.19||)||(1.72||)|
|Operating netback 2||4.50||(0.50||)||0.34||(3.77||)|
|Net blending and processing income 2||0.89||3.34||2.12||3.23|
|Realized loss on commodity contracts settlement 3||(0.18||)||(2.72||)||(0.09||)||(2.41||)|
|Unrealized gain/(loss) on commodity risk management||(3.43||)||0.29||(1.61||)||0.05|
|General and administrative||(3.45||)||(2.19||)||(3.95||)||(3.66||)|
|Corporate netback 2||(4.60||)||1.54||(5.76||)||(39.58||)|
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)
|June 30,||December 31,|
|($000’s, except for share amounts)||2021||2020|
|Long-term debt (principal)||62,678||50,878|
|Minimum lease obligation||2,737||3,469|
|Net debt 1||83,260||72,789|
|Number of shares outstanding||21,064,466||21,064,466|
1) Refer to “Non-IFRS measures.”
Production volumes in the second quarter of 2021 averaged 3,145 boe/d, down 17% from the production volumes in the same period of 2020. Decreased production volumes in Q2 2021 are largely due to a number of factors including: non-operated production temporarily shut-in at Kaybob (anticipated to resume production in September) and Southern Alberta (anticipated to resume production in the fourth quarter of 2021), operated and non-operated facility turnarounds in June in Swan Hills resulting in an approximate 850 boe/day reduction for the month, temporary curtailment at South Swan Hills pending a pipeline repair anticipated to be completed in early Q4 2021, reduced spending on well and pipeline reactivations and repairs throughout 2020 and into early 2021, and natural annual base decline.
Net revenues were 73% higher compared to the second quarter of 2020. The decline in production in the second quarter of 2021 was offset by a 126% 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 5% in the second quarter of 2021 compared to 23% in the same quarter of 2020. Realized NGL prices increased 139% in the second quarter of 2021 from the same period in 2020.
During the second quarter of 2021, the Company realized an operating netback of $4.50/boe, a significant improvement from the operating loss of ($0.50)/boe in the second quarter of 2020. Realized prices increased by $31.71/boe, however the impact of increased prices was offset by a significant royalty increase of $5.13/boe which is tied to the higher commodity prices, an increase in adjusted operating expenses of $16.53/boe as well as an increase in production enhancement expenses of $4.70/boe in comparison to the same period in 2020. For the six months ended June 30, 2021, the operating netback was $0.34/boe compared to an operating loss of $3.77/boe for the same period in 2020 mainly as a result of a $23.27/boe increase in realized prices which were up 78%, offset by royalty rate increases of $2.82/boe, increased adjusted operating expenses of $11.64/boe and increased production enhancement expenses of $4.23/boe.
Royalty rates averaged 13% in the second quarter of 2021 as compared to 10% for the same period in 2020 due to an increase in the Government of Alberta’s PAR prices used in the calculation of crown royalties in Q2 2021 as compared to Q2 2020 and offset somewhat by lower production in Q2 2021 compared to Q2 2020. For the six months ended June 30, 2021, royalties averaged 12% compared to 11% in the same period in 2020 mainly due to an increase in PAR prices and lower production.
Adjusted operating expenses increased $3.5 million or 48% on a total dollar basis but increased 78% on a per boe basis in the second quarter of 2021 compared to the same period in 2020 due to a 17% decrease in production. The increase in the adjusted operating expense per boe was due primarily to surface repairs and maintenance (including non-capitalized turnaround costs) which averaged $5.45/boe in Q2 2021 versus $0.17/boe in Q2 2020, fuel and electricity costs which averaged $12.01/boe in Q2 2021 as compared to $7.61/boe in 2020 and transportation and treating costs which averaged $2.44/boe in Q2 2021 as compared to ($0.10)/boe in 2020. Chemical costs were consistent and averaged $1.17/boe in Q2 2021 as compared to $0.99/boe in 2020. For the six months ended June 30, 2021, adjusted operating expenses increased $2.0 million or 10% on a total dollar basis but increased 44% on a per boe basis primarily driven by a 23% decrease in production compared to the same period in 2020.
The Company continued its production enhancement activity in Q2 2021 in response to the stronger commodity price environment. Production enhancement expenses per boe averaged $4.94/boe in the second quarter 2021 as compared to $0.24/boe in 2020. The production enhancement program has resulted in an average production increase during Q2 2021 of 638 boe/d and an exit rate production increase as at June 30, 2021, of 637 boe/d. For the six months ended June 30, 2021, production enhancement expenses averaged $6.41/boe as compared to $2.18/boe for the same period in 2020.
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. Blade Energy Services Corp. (“Blade”), a wholly owned subsidiary of Razor, provides services such as crude oil hauling, earthworks and environmental services. Blade conducted $1.3 million of services on behalf of Razor during Q2 2021 (Q2 2020 – $0.8 million) and $2.4 million of services during the first six months of 2021 (2020 – $1.1 million).
The top cost drivers of the adjusted operating expenses consist of fuel and electricity, labour, property taxes, lease rentals, fluid hauling and chemicals pipeline repairs and maintenance and environmental work. The top cost drivers accounted for 54% of the adjusted operating expenses in the second quarter of 2021 (comparable costs in Q2 2020 – 72%). For the six months ended June 30, 2021, the same top cost drivers accounted for 57% of the adjusted operating expenses (comparable costs for the same period in 2020 – 79%).
The cost of electricity and fuel increased 31% in Q2 2021 as compared to the same quarter of last year mostly due to a 249% increase in average electricity pool prices which was offset by a 40% decrease in consumption, decreased reliance on non-operated fuel gas and lower production levels. For the six months ended June 30, 2021, the cost of electricity and fuel increased 13% as compared to the same period of last year mostly due to a 110% increase in average electricity pool prices offset by a 37% decrease in consumption.
Other revenue and income received during the three months ended June 30, 2021, was $0.7 million which primarily consisted of $0.5 million SRP grant income and a combined $0.2 million of road use, road maintenance and other revenue. For the six months ended June 30, 2021, other revenue and income received was $1.7 million compared to $3.3 million for the same period in 2020. The decrease for the six months is mainly due to insurance proceeds received in 2020 offset somewhat by SRP grant income received in 2021.
During the second quarter of 2021, the Company received funds from Canada Emergency Wage Subsidy of $0.3 million. These grants were recognized as a $0.15 million reduction to both general and administrative expense and a reduction of operating expenses.
For the six months ended June 30, 2021, the Company received $0.5 million ($0.7 million for six months ended June 2020) and the grants were recognized as a $0.3 million reduction to general and administrative expense and a $0.2 million reduction of operating expenses ($0.5 million and $0.2 million respectively for the six month period ended June 30 2020).
During the second quarter of 2021, Razor invested $0.5 million in field equipment for its service company subsidiary, $1.1 million on its Geothermal Project and $0.3 million in its Bitcoin mining project. The company also capitalized $3.9 million of turnaround costs related to operated turnaround activities and non-operated turnaround activities in the quarter. As of June 30, 2021, Razor has received $7.2 million since inception in government grants to support its Geothermal Project, with an additional $1.4 million funding received in July 2021.
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 production enhancement program to increase 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”. www.razor-energy.com
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 an 18 MW co-produced geothermal and natural gas hybrid power project in Swan Hills, Alberta.
Blade Energy Services is a 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.