CALGARY, Alberta – Crew Energy Inc. (TSX: CR; OTCQB: CWEGF) (“Crew” or the “Company“) is a growth-oriented natural gas weighted producer operating exclusively in the world-class Montney play in northeast British Columbia. The Company is pleased to announce that we have established a new production record with average volumes estimated at 32,600 boe per day1 in December 2021, and are providing an operational update confirming that Crew’s two-year plan is on track to deliver greater than 20% production per share growth, over 50% Adjusted Funds Flow (AFF) growth and greater than a 45% reduction in net debt / EBITDA ratio in 2022.
Strong Q4 and Start to 2022
- Record Average Production: Crew’s December average production is estimated at 32,600 boe per day1 (based on field estimates) and represents a new record high for the Company.
- Q4/21 average production is estimated at 29,100 boe per day1, ahead of previous guidance of 28,000 to 29,000 boe per day1, and an increase of 34% over Q4/20 average production of 21,666 boe per day1.
- Full year 2021 production is estimated to average 26,400 boe per day1, near the midpoint of Crew’s 26,000 to 27,000 boe per day1 previous guidance, and a 20% increase over the prior year.
- Production volumes, based on field estimates, to date in January have averaged approximately 32,500 boe per day1.
- Capital Expenditures and Guidance on Track: While the original plan anticipated the drilling of 26 wells and completion of 21 wells during 2021, the Company elected to complete an additional three Ultra-Condensate Rich (“UCR”) wells in Q4/21 to capture the benefit of stronger commodity prices and mitigate the impact of shut-in production from offsetting wells at the 4-21 pad at West Septimus.
- Capital spending through Q4/21 is estimated at approximately $42 million2.
- Full year 2021 net capital expenditures5 are anticipated at approximately $170 million2, at the high end of Crew guidance of $150 to $170 million, and within the guided range despite completing three additional wells that were not included in the budget.
- First quarter 2022 production is expected to average 31,000 to 33,000 boe per day. Full year 2022 guidance is reconfirmed, for production to average 31,000 to 33,000 boe per day with capital expenditures of $70 to $95 million.
- Strong Liquids Rich Wells at Greater Septimus: Five liquids rich wells were brought on production at Greater Septimus in Q4/21.
- Three Extended Reach Horizontal (“ERH”) wells on the 4-14 pad were drilled to an average lateral length of 4,140 metres in the Upper Montney “B” zone. They were completed and brought on production into the Septimus gas plant on December 23rd and have now been shut-in while we complete the remaining wells on this pad.
- After an average of 27 days on production, following a short clean-up period, the three wells on the 4-14 pad were flowing at an average per well sales rate of 2,585 boe per day, comprised of 9,940 mcf per day of natural gas, 750 bbls per day of condensate and 180 bbls per day of ngl’s3. Comparative type curves for this pad are available within Crew’s updated February 2022 investor presentation available on Crew’s website.
- Two Upper Montney “B” zone wells were completed at Crew’s 4-21 pad with an average lateral length of 2,710 metres. After an average of 33 days on production and following a short clean-up period, the wells were flowing at an average per well sales rate of 1,755 boe per day, comprised of 7,070 mcf per day of natural gas, 404 bbls per day of condensate and 174 bbls per day of ngl’s3. Comparative type curves for this pad are available within Crew’s updated February 2022 investor presentation available on Crew’s website. These wells have been shut-in for facilities construction and are expected to resume production by the end of February.
- Operational Execution a Prime Focus: Currently, Crew has one drilling rig and one fracturing spread in operation.
- The drilling rig is on the second well on Crew’s five-well 4-17 Groundbirch pad, following up on the success of our first three wells that were drilled and completed in 2021. The first three wells at Groundbirch are exceeding Crew’s internal type curve with an initial production rate after 90 days (“IP90”) average raw gas rate of 9,910 mcf per day.
- The remaining seven wells on our ten-well 4-14 pad at Greater Septimus are currently being completed with initial production expected late in Q1/22.
- Leverage Metrics Improving while Retaining Strategic Optionality: Crew has ample liquidity to complete our two-year plan, with leverage metrics expected to continually improve with the Company planning to reduce indebtedness through 20224.
- Crew’s net debt5 to the last twelve-months’ (“LTM”) EBITDA5 ratio is budgeted to improve to a targeted 1.3 to 1.5 times at the end of 2022, declining from an estimated 2.5 to 2.7 times at the end of 20212.
- The Company’s Free AFF5 is targeted at a range of $95 million to $140 million in 20224 depending on commodity prices.
- Liquidity can be further enhanced given the Company has an option to dispose of an additional 11.43% working interest in our Greater Septimus facilities located in northeast B.C. for incremental proceeds of up to $37.5 million. Crew can elect to exercise this option at any time between now and June of 2023 and have not modeled these proceeds into our current guidance.
- Crew’s net debt5 to the last twelve-months’ (“LTM”) EBITDA5 ratio is budgeted to improve to a targeted 1.3 to 1.5 times at the end of 2022, declining from an estimated 2.5 to 2.7 times at the end of 20212.
- Focus on Environment, Social and Governance (“ESG”) Initiatives:
- With the sale of our Lloydminster assets in September of 2021, which represented Crew’s most emission-intensive asset, approximately 46% of Crew’s direct 2020 GHG emissions (Scope 1) have been removed and we anticipate the Company’s total GHG emissions intensity will be reduced significantly going forward, putting Crew on a path to reach our emissions reduction goals earlier than anticipated.
- Divesting of these assets sets the stage for Crew to streamline operations and improve efficiencies going forward while also reducing our overall Asset Retirement Obligation (“ARO”) liabilities by a targeted 40%, representing approximately $34.5 million associated with 609 gross (539 net) wellbores.
Crew’s team is excited about our future, especially with the progress made on the Company’s two-year asset development plan. We have identified numerous opportunities within our portfolio to expand margins through optimizing production and pricing while reducing unit costs, all while continuing to evaluate our large undeveloped land position, retaining optionality for our shareholders and bondholders. In 2022, we plan to reduce leverage metrics by reducing debt and increasing our AFF, driving enhanced financial flexibility. AFF will be enhanced through increasing production and reducing per unit costs by over 20% respectively. Underpinning these efforts is Crew’s unwavering focus on meeting or exceeding our ESG goals and remaining a safe and responsible operator and good corporate citizen.
1 See table in the Advisories for production breakdown by product type as detailed in NI 51-101.
2 All 2021 financial amounts are unaudited. See “Advisories – Unaudited Financial Information”.
3 Excludes condensate volumes which have been reported separately.
4 See table in the Advisories for key budget assumptions related to the two-year plan and associated guidance for 2021 and 2022.
5 Non-IFRS Measure. See “Advisories – Non-IFRS Measures”.
Advisories
Unaudited Financial Information
Certain financial and operating information included in this press release for the quarter and year ended December 31, 2021, including capital spending and net capital expenditures, and LTM EBITDA ratio, are based on estimated unaudited financial results for the quarter and year then ended, and are subject to the same limitations as discussed under Forward Looking Information set out below. These estimated amounts may change upon the completion of audited financial statements for the year ended December 31, 2021 and changes could be material.
Information Regarding Disclosure on Operational Information
All amounts in this news release are stated in Canadian dollars unless otherwise specified. This press release contains financial and performance metrics that are not defined in IFRS and do not have standardized meanings or standardized methods of calculation. As such, these terms may not be comparable to similar measures presented by other companies, and therefore should not be used to make such comparisons. Such metrics have been included herein to provide readers with additional information to evaluate the Company’s performance, however such metrics should not be unduly relied upon. Management uses oil and gas metrics for its own performance measurements and to provide shareholders with measures to compare Crew’s operations over time. Readers are cautioned that the information provided by these metrics, or that can be derived from the metrics presented in this press release, should not be relied upon for investment or other purposes.
With respect to the use of terms used in this press release identified as Non-IFRS Measures, see Non-IFRS Measures contained in Crew’s most recent MD&A for applicable definitions, calculations, rationale for use and, where applicable, reconciliations to the most directly comparable measure under IFRS.
Non-IFRS Measures
Certain financial measures referred to in this press release, such as adjusted funds flow or AFF, Free AFF, EBITDA, net capital expenditures, net debt, and net operating costs 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.