CALGARY, AB – Headwater Exploration Inc. (the “Company” or “Headwater“) (TSX: HWX) is pleased to announce successful exploration well results, fourth quarter 2021 production details and a material expansion of its land base and prospect inventory. Highlights include:
- Q4 2021 average production of 10,400 boe/d consisting of 9,400 bbls/d of heavy oil and 6 mmcf/d of natural gas
- 2021 exit working capital is estimated at $90 million and 2021 exit adjusted working capital1 is estimated at $93 million
- Current production is approximately 12,400 boe/d (85% heavy oil) which is on track with our first quarter 2022 expectations
- Three successful exploration wells
- Material growth in our prospect inventory with the addition of 75 net sections of unburdened land
- Ongoing three-rig program with two rigs drilling on our core acreage and one rig dedicated to exploration wells
- Headwater’s 100% owned 15,000 bbls/d oil processing facility is on-line, on time and on budget
|1||This press release presents certain measures that do not have standardized meanings under Canadian generally accepted accounting principles (“GAAP”) to assist readers in understanding the Company’s performance. Further details on these measures are included under the heading “Non-GAAP Measures” in this press release.|
Preliminary Fourth Quarter 2021 Results
Based on field estimates, fourth quarter 2021 production averaged approximately 10,400 boe/d consisting of 9,400 bbls/d of heavy oil and 6 mmcf/d of natural gas. Current production is approximately 12,400 boe/d (85% heavy oil) which is on track with our first quarter 2022 expectations. Core area heavy oil production has recently exceeded 10,000 bbls/d.
On December 23, 2021, a subsidiary of Cenovus Energy Inc. exercised warrants to purchase 15,000,000 common shares of the Company at an exercise price of $2.00 per share resulting in $30 million of cash proceeds received by Headwater increasing our anticipated exit adjusted working capital balance to approximately $93 million as at December 31, 2021.
Marten Hills West Exploration Update
Three exploration wells were drilled, completed, and brought on production in Marten Hills West during the fourth quarter of 2021. The results, in all cases, exceeded our expectations and we are pleased to provide the following initial production details.
The 00/08-34-075-03W5/03 well was drilled with 8 one-mile laterals in the Clearwater B (lower Clearwater sand) and finished recovering load fluid on December 20, 2021. On its initial 42 days of production, post load recovery, it has averaged 155 bbls/d of 19 degree API oil at an average water cut of 11%. This well represents Headwater’s first test of the Clearwater B formation and is anticipated to have unlocked a significant Clearwater B resource in the Marten Hills West area. A follow up well is expected to be drilled late in the first quarter of 2022.
Two additional exploration wells targeting the Clearwater A (upper Clearwater sand) were drilled in the fourth quarter of 2021 as follow ups to the successful 00/11-32-075-02W5/06 well placed on production in September 2021. The first well, 00/11-05-076-02W5/03, was drilled with 6 one-mile laterals and has produced at an average rate of 275 bbls/d of 21 degree API oil at a water cut of 13% over its first 31 days of production post load recovery. The second well, 02/13-07-076-02W5/00, was drilled with 6 one-mile laterals and has produced at an average rate of 215 bbls/d of 19 degree API oil at an average water cut of 6% over its first 19 days of production post load recovery. These two wells, in conjunction with our previous tests of the same pool have provided confirmation of a substantial new pool discovery in the Clearwater A formation. Additional drilling, including two stratigraphic tests and two follow up locations, is currently scheduled to occur in the first quarter of 2022.
One of our three drilling rigs continues to drill exploration prospects with four additional distinct drilling prospects being evaluated prior to the end of the first quarter of 2022. The first two of these prospects, 00/15-29-075-01W5 and 00/16-27-074-01W5 were drilled with 6 one-mile laterals and were placed on production at the end of January. They continue to recover load fluid with first production results available in conjunction with our fourth quarter and audited year end 2021 financial results press release on March 10, 2022.
Undeveloped Land Update
Headwater has continued to be active with our land expansion strategy as recent exploration success has increased technical confidence in various play-types. Since October 1, 2021, we have been successful at adding 75 net sections of unburdened exploration lands. This increases our total exploration land holdings to greater than 350 net sections. Five new exploration prospects have been identified on these recently acquired lands. We continue to work through the logistics of drilling these prospects and anticipate five wells will be drilled on four distinct prospects during the fourth quarter of 2022.
2022 Guidance Update
Headwater’s Board of Directors has approved an increase in the 2022 capital budget from $120 million to $145 million to allow for the drilling of the newly acquired exploration prospects. The resulting increase in capital is expected to have a nominal increase on 2022 production from the Company’s previously released 2022 production guidance of 12,500 boe/d (11,500 bbls/d of heavy oil and 6.2 mmcf/d of natural gas) but with success could have meaningful impacts on location inventory and production in 2023 and beyond.
At US$75/bbl WTI and Cdn$78.50/bbl WCS, the Company has increased its forecasted 2022 adjusted funds flow from operations1 from $207 million to $223 million, resulting in estimated 2022 exit adjusted working capital1 of $171 million.
|1||Adjusted funds flow from operations and adjusted working capital are Non-GAAP Measures. Further details on these measures are included under the heading “Non-GAAP Measures” in this press release. Forecasted exit adjusted 2022 working capital, which is a non-GAAP measure, is equivalent to forecasted working capital as determined under GAAP as the Company estimates the current impact of the financial derivative receivable/liability to be nil in 2022.|
Our oil processing facility was brought online on January 14, 2022. This facility has seen peak inflow days of greater than 12,000 bbls/d of oil and continues to operate seamlessly, resulting in an immediate $2.00/bbl reduction in transportation costs. Field commissioning work will be ongoing through February, with approximately 90% of Headwater’s volumes expected to be pipeline connected by March 1, 2022, resulting in an additional $2.00/bbl reduction in transportation costs. Commissioning of the water injection facilities is expected to occur in March, with 6 additional injection wells placed on injection prior to April 1, 2022.
The Company continues to rapidly grow from a combination of its base assets and continued exploration success. The significant growth continues to occur while spending less than our cash flow. As the business strategy continues to evolve, there will be an increased focus on returning excess free cash flow to shareholders. While it is early, Headwater looks forward to providing clarity on these elements over the next 12 months.
Headwater’s guiding principles of shareholder value creation, sustainability, asset development with an emphasis on environmental, social, and governance goals, and maintaining a pristine balance sheet continue to be unwavering.
Additional corporate information can be found in the Company’s corporate presentation and on Headwater’s website at www.headwaterexp.com