CALGARY, Alberta – Crew Energy Inc. (TSX: CR, OTCQB: CWEGF) (“Crew” or the “Company”), a growth-oriented natural gas weighted producer operating exclusively in the world-class Montney play in northeast British Columbia, is pleased to confirm that our Board of Directors (the “Board”) has approved a 2022 capital expenditure budget ranging between $70 and $95 million, in-line with our established two-year plan. In 2022, Crew plans to continue targeting increased annual average daily production, expand our adjusted funds flow (“AFF”), and generate free AFF1 for ongoing debt repayment designed to significantly improve leverage metrics (the “Two-Year Plan”). In 2022, we expect to produce enough natural gas to heat over 750,000 average Canadian households for one year2, an achievement of which Crew is extremely proud.
“The successful execution of our Two-Year Plan to date is reflected in our performance through 2021, which has placed Crew in a stronger position than originally anticipated. The positive impact of new production volumes coming on-stream into a stronger commodity price environment, complemented by unit cost reductions that expand margins, is expected to generate meaningful AFF1 in excess of capital expenditures (“Free AFF”),” said Dale Shwed, President and CEO of Crew. “In 2022, we expect to increase production per share by approximately 20% and AFF1 per share by approximately 54% at the midpoint over 2021, while generating significant Free AFF1 to pay down bank debt and improve leverage metrics.”
TWO YEAR PLAN 2020-2022
|Average Production (boe/d)||21,955||26,000 – 27,000||21 ▲||31,000 – 33,000||21 ▲|
|Production per Share (MM)||144||170 – 175||20 ▲||200 – 213||20 ▲|
|Unit Costs per Boe3 ($/boe)||13.19||11.75 – 12.75||(7) ▼||9.00 – 10.00||(22) ▼|
|AFF1 ($MM)||41.2||120 – 140||216 ▲||190 – 210||54 ▲|
|AFF1 per Share ($/sh)||0.27||0.77 – 0.90||209 ▲||1.22 – 1.35||54 ▲|
|Net Debt to LTM EBITDA1||5.5x||2.5x – 2.7x||(53) ▼||1.3x – 1.5x||(46) ▼|
Crew anticipates that our 2022 capital budget of $70 to $95 million will be allocated to the drilling and completion of five wells in our promising new Groundbirch development area and the completion of seven wells in the Ultra-Condensate Rich (“UCR”)4 area of northeast British Columbia. This investment is expected to result in average annual production of 31,000 to 33,000 boe per day5 and enable the Company to maintain production at these levels throughout 2022. Crew is maintaining our net capital expenditure forecast of $150 to $170 million for 2021. Seven of our 15 UCR drilled and uncompleted wells are expected to be brought on production through December 2021 and the remaining eight wells are forecasted to come online before the end of Q1/22, which is expected to lead to an increase in excess of 20% in condensate production over 2021. Five of these wells are located at our 4-21 pad, and ten are located at our 4-14 pad. The operating environment and market conditions will be actively monitored through 2022 to assess the merits of maintaining the planned capital program.
Crew’s 2022 capital program benefits from the Company’s previously announced sale of our Lloydminster heavy crude oil property on multiple fronts. Not only were we able to direct proceeds from the sale into our ongoing Montney development, but the transaction has also had a positive impact on our overall environmental footprint by eliminating 46% of our direct 2020 GHG (“Greenhouse Gas”) emissions (Scope 1) while only divesting of approximately 4% of total corporate production. Approximately $34.5 million of capital that was previously earmarked for the abandonment of over 609 gross (539 net) wellbores at Lloydminster can now be allocated to high value add projects at Greater Septimus and Groundbirch. Crew’s commitment to reducing GHG emissions is a top priority, which will significantly improve in 2022 and beyond as a result of the sale of our heavy oil assets combined with continuous improvements of operational processes and facility upgrades.
Entering the second half of Crew’s Two-Year Plan, we expect to capitalize on the increased production and improved margins generated in 2021 to drive Free AFF6 and improve debt metrics, which are expected to meaningfully improve Crew’s long-term sustainability. The supportive pillars underlying our 2022 plan include8:
- AFF Driven by Higher Production and Prices – Our full year 2022 AFF6 forecast of between $190 to $210 million has been bolstered by the strengthening in commodity markets during 2021, coupled with higher margins and increased production levels generated in the first year of our Two-Year Plan.
- Production Growth – Annual 2022 average production is anticipated to be between 31,000 to 33,000 boe per day7, representing increases of 45% and 19% over 2020 and 2021, respectively (at forecasted midpoints). The production volume increases realized to date are the result of a successful drilling and completions program throughout 2021, supported by longer lateral wells and enhanced drilling and completion efficiencies. Production additions in the fourth quarter of 2021 and the first half of 2022 are focused on the completion of 15 wells in the UCR area at Greater Septimus which is expected to lead to an increase in excess of 20% in condensate production over 2021. In the second half of 2022, production additions are expected from the drilling and completion of five wells in our promising new development area in Groundbirch with over 70,000 acres of contiguous land. Initial production rates from this new development area are encouraging, with the first three wells currently producing at a combined rate of approximately 32 mmcf per day after 45 days on production.
- Reduced Costs – Crew’s strategy to reduce per unit costs through our two-year plan is primarily based on increasing production volumes into existing infrastructure and transportation capacity, as over 50% of the Company’s expenses are fixed. As production continues to increase, per unit costs associated with operating, transportation, G&A and interest expenses are forecast to decline to between $9.00 and $10.00 per boe in 20228, representing decreases of approximately 30% from 2020 and approximately 22% from 2021. The Company is on track to achieve these goals, supported by the recent disposition of our Lloydminster heavy crude oil assets, in addition to new production from the 1-8 West Septimus and 4-17 Groundbirch pads and upcoming production from our 4-21 and 4-14 pads9. Combined, these factors are expected to result in more efficient use of the 120 mmcf per day of sales gas capacity at our West Septimus plant and the 60 mmcf per day of sales gas capacity at the Septimus gas plant.
- Debt Reduction – Based on our 2022 budget, current forward commodity prices and our commitment to paying down outstanding debt, the Company’s last twelve-month (“LTM”) EBITDA6 to net debt ratio is on track to be approximately 1.3 to 1.5x by the end of 2022. This improved balance sheet position is expected to support our long-term financial health from a debt coverage perspective, putting the Company in a strong position to continue expanding reserves and production.
- Strategic Hedging – A balanced risk management program ensures the Company generates sufficient AFF to cover our planned capital program under various pricing environments. Crew currently has over 79,000 GJ’s per day (approximately 42%) of forecasted natural gas production for 2022 hedged at an average price of $2.67 per GJ (or $3.26 per mcf using Crew’s heat content factor).
An infographic accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/bb580a09-cd71-4ef7-815c-2280855a75b2
|100 bbl per day Condensate1||$2.8||$ 0.02||$ 0.02|
|C$1.00 per bbl WTI||$1.3||$ 0.01||$ 0.01|
|US $0.10 NYMEX (per mmbtu)||$1.1||$ 0.01||$ 0.01|
|1 mmcf per day natural gas||$1.5||$ 0.01||$ 0.01|
|$0.10 AECO 5A (per GJ)||$2.4||$ 0.02||$ 0.02|
|$0.01 FX CAD/US||$1.8||$ 0.01||$ 0.01|
As economies recover from COVID-19 and commodity markets continue to strengthen, Crew expects that Canadian natural gas will play an important role for the world as governments seek to diversify energy sources to achieve meaningful emissions reductions. With this reaffirmation of our 2022 plans, we are excited to continue executing on our strategy to expand on the production of responsible energy while leveraging a positive operating environment in which we can strive to create value and generate profitable and sustainable growth. We thank all of our stakeholders, including employees, directors, partners, communities, bondholders and shareholders, for their contribution and dedication to the success of Crew.
Certain financial measures referred to in this press release, such as adjusted funds flow or AFF, EBITDA, net capital expenditures, net debt, net operating costs and working capital deficiency and are not prescribed by IFRS. Crew uses these measures to help evaluate its financial and operating performance as well as its liquidity and leverage. These non-IFRS financial measures do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers.
“Adjusted funds flow” or “AFF”, presented herein is equivalent to funds from operations before decommissioning obligations settled. The Company considers this metric as a key measure that demonstrate the ability of the Company’s continuing operations to generate the cash flow necessary to maintain production at current levels and fund future growth through capital investment and to service and repay debt. Crew also presents AFF per share in this presentation whereby per share amounts are calculated using fully diluted shares outstanding.
“Free AFF” is calculated by taking adjusted funds flow and subtracting capital expenditures, excluding acquisitions and dispositions. Management believes that free adjusted funds flow provides a useful measure to determine Crew’s ability to improve sustainability and to manage the long-term value of the business.
“EBITDA” is calculated as consolidated net income (loss) before interest and financing expenses, income taxes, depletion, depreciation and amortization, adjusted for certain non-cash, extraordinary and non-recurring items primarily relating to unrealized gains and losses on financial instruments and impairment losses. Crew utilizes EBITDA as a measure of operational performance and cash flow generating capability. EBITDA impacts the level and extent of funding for capital projects investments. This measure is consistent with the EBITDA formula prescribed under the Company’s Credit Facility and allows Crew and others to assess its ability to fund financing expenses, net debt reductions and other obligations.
“Net Capital Expenditures” equals exploration and development expenditures plus property acquisitions or less property dispositions.
“Net Debt” is defined as bank debt plus working capital deficiency or surplus, excluding the current portion of the fair value of financial instruments.
“Net Debt to LTM EBITDA” is calculated as net debt at a point in time divided by EBITDA earned from that point back for the trailing twelve months.
“Net Operating Costs” equals operating costs net of processing revenue.
Please refer to Crew’s most recently filed MD&A for additional information relating to Non-IFRS measures including a reconciliation of AFF to its most closely related IFRS measure. The MD&A can be accessed either on Crew’s website at www.crewenergy.com or under the Company’s profile on www.sedar.com.