Fotis Kalantzis, President and Chief Executive Officer of Spartan, commented, “We are pleased to report Spartan’s 2021 highlights, showcasing efficient and highly economic organic development alongside expanding our operations and opportunity set with almost one billion dollars of targeted acquisitions. We established a significant Montney core area that repositioned the Company with oil weighted production and development opportunities which provide further commodity diversification to the Spartan portfolio, complimenting the Company’s liquids-rich natural gas properties in the central Alberta Deep Basin. Both core areas enable our strategy in generating long term sustainable free funds flow and organic growth. Through the effective integration of our people and assets and the successful execution of the Company’s Montney and Deep Basin drilling programs, Spartan delivered strong financial and operating results for 2021 which exceeded full year guidance and built an extensive reserve book with over fifteen years of inventory to develop in each of our two core areas.”
FOURTH QUARTER AND YEAR-END 2021 RESULTS
The Company anticipates announcing its fourth quarter and audited year-end financial results and filing of its Annual Information Form (“AIF“) for the year-ended December 31, 2021 on or around March 8, 2022. The following are unaudited highlights which should be read in conjunction with the Reader Advisories in this press release:
- Spartan achieved record average production for the fourth quarter of 72,428 BOE per day(1), a 56% increase from the third quarter and 17% higher than the midpoint of guidance for the quarter, driving full year average production of 47,674 BOE per day(2) which exceeded annual guidance for 2021 by 6%
- The Company’s fourth quarter production significantly outpaced previous estimates due to earlier than forecasted on-stream dates for several wells through successful execution of its Montney and Deep Basin drilling campaigns and acceleration of certain projects
- Through a series of targeted acquisitions and continued development of its new Montney core assets, Spartan has diversified its production mix and materially increased the crude oil weighting of the Company’s reserves and sales revenue, contributing to higher operating netbacks in 2021
- Crude oil and condensate represented 19% of total production in the fourth quarter, up from 14% in the third quarter of 2021 and compared to 5% of total production in 2020
- Spartan’s Operating Netback(3) before hedging was $30.00/BOE in the fourth quarter and averaged $23.05/BOE for the year ended December 31, 2021
- Capital Expenditures, before acquisitions and dispositions (“A&D“)(3), were $189 million in 2021, of which $116 million was spent in the fourth quarter inclusive of a $10 million land acquisition which was incremental to Spartan’s previously announced 2021 capital expenditure budget of $175 million
- Spartan generated record Adjusted Funds Flow(3) of $137 million in the fourth quarter ($0.80 per share, diluted)(4) and $294 million ($2.18 per share, diluted)(4) for the year which exceeded 2021 guidance of $251 million by 17%. The outperformance was primarily driven by fourth quarter production in conjunction with strong oil prices. Fourth quarter annualized Adjusted Funds Flow(3) was $3.20 per share, diluted(5)
- Spartan’s Free Funds Flow(3) was $21 million for the fourth quarter and $105 million for the year, after deducting Capital Expenditures before A&D(3) from Adjusted Funds Flow(3). Free Funds Flow(3) for 2021 exceeded guidance of $76 million by 38%
- Reduced indebtedness by $23 million during the fourth quarter and exited the year with $458 million of Net Debt(3)
- During 2021, the Company drilled and brought 22 net wells on production in the Deep Basin. Spartan drilled 10 net wells in the Montney, of which 7 wells were brought on production during the fourth quarter and 3 wells will be completed in the first quarter of 2022. Additionally, 7 net Montney wells previously drilled by Velvet Energy Ltd. (“Velvet“) were brought on production
The table below summarizes Spartan’s unaudited results for the year ended December 31, 2021, compared to the Company’s financial and operating guidance published in the press release dated August 31, 2021 (“2021 Guidance“):
UNAUDITED HIGHLIGHTS |
2021 |
2021 |
Variance (a) |
|
Year ended December 31, 2021 |
Results |
Guidance |
Amount |
% |
Average Production (BOE/d) (a) |
47,674 |
44,000 – 46,000 |
2,674 |
6 |
% Oil and NGLs |
33% |
33% |
– |
– |
Benchmark Average Commodity Prices |
||||
WTI oil price (US$/bbl) |
67.91 |
66.45 |
1.46 |
2 |
AECO 5A natural gas price ($/GJ) |
3.44 |
3.45 |
(0.01) |
– |
Average exchange rate (CA$/US$) |
1.25 |
1.25 |
– |
– |
Operating Netback, before hedging ($/BOE) (b) |
23.05 |
21.43 |
1.62 |
8 |
Operating Netback, after hedging ($/BOE) (b) |
19.40 |
18.05 |
1.35 |
7 |
Settlements on Commodity Derivative Contracts (b) |
(61) |
(56) |
(5) |
9 |
Adjusted Funds Flow ($MM) (b) |
294 |
251 |
43 |
17 |
Capital Expenditures, before A&D ($MM) (b) |
189 |
175 |
14 |
8 |
Free Funds Flow ($MM) (b) |
105 |
76 |
29 |
38 |
Acquisitions, net of dispositions ($MM) (b)(c) |
424 |
424 |
– |
– |
Net Debt, end of year ($MM) (b) |
458 |
483 |
(25) |
(5) |
Common shares outstanding, end of year (MM) (d) |
153 |
147 |
6 |
4 |
a) |
The financial performance measures included in the Company’s 2021 Guidance were based on the midpoint of the average production forecast of 45,000 BOE/d. |
b) |
“Operating Netback”, “Settlements on Commodity Derivative Contracts”, “Adjusted Funds Flow”, “Capital Expenditures, before A&D”, “Free Funds Flow”, “Acquisitions, net of dispositions” and “Net Debt” do not have standardized meanings under IFRS, see “Non-GAAP Measures and Ratios”. |
c) |
Includes cash consideration for the acquisitions, net of $0.5 million of proceeds from minor dispositions. Total consideration for the acquisitions was approximately $957 million inclusive of approximately $387 million of estimated Net Debt assumed on corporate acquisitions. See also, “Non-GAAP Measures and Ratios – Adjusted Net Capital Acquisitions”. |
d) |
Basic common shares outstanding as at December 31, 2021 does not include common shares potentially issuable in respect of dilutive securities (see also, “Share Capital”). The variance from prior guidance reflects the previously announced conversion of a $50 million convertible promissory note which resulted in the issuance of 5.9 million common shares on September 29, 2021. |
UPDATES TO CORPORATE GUIDANCE FOR 2022
With the strong outlook for commodity prices, Spartan is pleased to update its financial and operating guidance for 2022.
Based on forecast average production of between 68,500 to 72,500 BOE/d and commodity price assumptions of US$80/bbl for WTI crude oil and $3.75/GJ for AECO natural gas, Spartan expects to generate $589 million of Adjusted Funds Flow(3) in 2022 (previously $434 million). Free Funds Flow(3) is now forecast to be $259 million, an increase of 93% from previous guidance on an expanded capital expenditure budget of $330 million (previously $300 million).
As part of the Company’s revised 2022 capital budget of $330 million, Spartan plans to complete three Montney wells drilled in the fourth quarter of 2021, drill an additional 19 net wells in the Montney focused in the oil-weighted areas of Gold Creek and Karr and 18.5 net wells targeting both light oil and liquids-rich gas in the Spirit River and Cardium horizons within the Deep Basin. The addition of $30 million of capital to the budget for 2022 compared to prior guidance of $300 million will be used primarily for facility preparation ahead of the 2023 program and the drilling of two wells at Simonette, which are expected to demonstrate the property’s unrecognized value through an improved development strategy and will produce to Spartan owned infrastructure with excess capacity.
In addition to the positive effects of higher commodity prices, the revised budget also reflects rising operating and capital costs due to inflationary pressures (actual and anticipated) impacting both the global economy and oil and gas industry specifically, which have resulted in supply shortages and longer lead times in conjunction with higher activity levels. Notwithstanding these challenges, Spartan’s updated guidance reflects Adjusted Funds Flow per share(3) growth of 28%(6) from Q4 2021 to Q4 2022.
Spartan’s updated 2022 guidance is summarized below along with a comparison to previous guidance published as of August 31, 2021:
Updated |
Previous |
Variance (a) |
||
Year ending December 31, 2022 |
2022 Guidance |
2022 Guidance |
Amount |
% |
Average Production (BOE/d) (a)(c) |
68,500 – 72,500 |
67,500 – 72,500 |
500 |
1 |
% Oil and NGLs |
40% |
41% |
(1%) |
(2) |
Benchmark Average Commodity Prices |
||||
WTI oil price (US$/bbl) |
80.00 |
60.00 |
20.00 |
33 |
AECO 5A natural gas price ($/GJ) |
3.75 |
3.25 |
0.50 |
15 |
Average exchange rate (CA$/US$) |
1.26 |
1.28 |
(0.02) |
(2) |
Operating Netback, before hedging ($/BOE) (b)(c) |
27.73 |
21.68 |
6.05 |
28 |
Operating Netback, after hedging ($/BOE) (b)(c) |
25.58 |
19.94 |
5.64 |
28 |
Settlements on Commodity Derivative Contracts ($MM) (b) |
(55) |
(45) |
(10) |
22 |
Adjusted Funds Flow ($MM) (b)(c) |
589 |
434 |
155 |
36 |
Capital Expenditures, before A&D ($MM) (b) |
330 |
300 |
30 |
10 |
Free Funds Flow ($MM) (b) |
259 |
134 |
125 |
93 |
Acquisitions, net of dispositions ($MM) (b) |
– |
– |
– |
– |
Net Debt, end of year ($MM) (b)(d) |
199 |
349 |
(150) |
(43) |
Common shares outstanding, end of year (MM) (e) |
154 |
147 |
7 |
5 |
a) |
The financial performance measures included in the Company’s updated guidance for 2022 is based on the midpoint of the average production forecast of 70,500 BOE/d (previously 70,000 BOE/d). |
b) |
“Operating Netback”, “Settlements on Commodity Derivative Contracts”, “Adjusted Funds Flow”, “Capital Expenditures, before A&D”, “Free Funds Flow”, “Acquisitions, net of dispositions” and “Net Debt” do not have standardized meanings under IFRS, see “Non-GAAP Measures and Ratios”. |
c) |
Additional information regarding the assumptions used in the forecasted Average Production, Operating Netbacks and Adjusted Funds Flow for 2022 are provided in the Reader Advisories section of this press release. |
d) |
The change in forecast Net Debt at December 31, 2022 reflects the increase in forecasted Free Funds Flow for 2022 plus the decrease in estimated opening Net Debt as at December 31, 2021 compared to previous guidance. |
e) |
The forecast of common shares outstanding at the end of 2022 includes restricted share awards expected to be released upon vesting but does not include common shares potentially issuable in respect of stock options and warrants for which the exercise is discretionary on behalf of the holder (refer to “Share Capital” for additional information regarding dilutive securities). |
2021 RESERVE EVALUATION HIGHLIGHTS
Spartan is pleased to provide select highlights from the McDaniel Report on the Company’s proved developed producing (“PDP“), total proved (“TP“), and total proved plus probable (“TPP“) reserves as at December 31, 2021:
- Relative to year-end 2020, Spartan increased PDP reserves 85% to 124 MMBOE, TP reserves 118% to 294 MMBOE, and TPP reserves 164% to 546 MMBOE at year-end 2021. Based on Q4 2021 annualized production of 72,428 BOE/d(1), Spartan’s TP Reserve Life Index (“RLI“) is 11.1 years with a TPP RLI of 20.6 years(11)
- Excluding the impact of acquisitions, Spartan replaced production and grew proved reserves organically 10% and proved plus probable reserves by 9%
- Spartan’s before-tax net present value (“NPV“) of reserves, discounted at 10%, is $1.2 billion for PDP reserves, $2.4 billion for TP reserves, and $4.0 billion for TPP reserves as at December 31, 2021
- On a debt adjusted per share basis, Spartan’s PDP reserves result in a Net Asset Value (“NAV“) per share(3)(7) of $4.13, TP of $11.12 per share and TPP reserves of $20.23 per share
- The commodity prices used for the calculation of NPV is the three-consultant average pricing(8); the 10-year average for WTI is US$71.46/bbl and $3.12/GJ for AECO
- The future development costs (“FDC“) are $1.6 billion for TP reserves and $3.0 billion for TPP reserves; the average annual FDC is $319 million per year for TP reserves(9) and $304 million per year for TPP reserves(9), which is approximately consistent with Spartan’s stated capital budget
- There are 278 net booked undeveloped Montney locations (of >1000 Company identified Montney drilling locations) and 121 net booked undeveloped locations in the Deep Basin (of the >450 Company identified Deep Basin drilling locations)(10)
- The Company increased the crude oil weighting of its TPP reserves to 20% through a series of Montney acquisitions, up from 2% at year-end 2020
- Spartan’s finding and development (“F&D“) costs(11), inclusive of changes to FDC, were $4.04/BOE, $6.93/BOE and $6.69/BOE for PDP, TP and TPP reserves, respectively, resulting in a TPP F&D Recycle Ratio of 3.4x based on the 2021 average Operating Netback before hedging(3) of $23.05/BOE or 4.5x based on fourth quarter Operating Netback before hedging(3) of $30.00/BOE
- Finding, development and acquisition (“FD&A“) costs(11), including FDC, averaged $15.84/BOE for PDP reserves, $14.05/BOE for TP reserves and $10.58/BOE from the addition of 356 MMBOE of TPP reserves in 2021 through development and acquisitions
- Spartan achieved an FD&A Recycle Ratio(11) of 1.9x, 2.1x and 2.8x for PDP, TP and TPP reserves, respectively, based on its fourth quarter Operating Netback before hedging(3) of $30.00/BOE which included a full quarter of results from the Velvet acquisition
2021 INDEPENDENT QUALIFIED RESERVE EVALUATION
The following tables highlight the findings of the McDaniel Report, which has been prepared in accordance with the definitions, standards and procedures contained in National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (“NI 51-101“) and the most recent publication of the Canadian Oil and Gas Evaluation Handbook (“COGEH“). The McDaniel Report was based on the average forecast pricing of McDaniel, GLJ Ltd. and Sproule Associates Limited. See “Reader Advisories – Oil and Gas Advisories” for more information. Additional reserves information as required under NI 51-101 will be included in Spartan’s AIF, which will be filed on SEDAR on or before March 8, 2022. The numbers in the tables below may not add due to rounding.
Summary of Reserves Volumes as at December 31, 2021
The Company’s reserves volumes and undiscounted future development capital costs are summarized below as at December 31, 2021:
SUMMARY OF RESERVE VOLUMES(a) |
Crude Oil (Mbbls) |
NGL (Mbbls) |
Natural Gas (MMcf) |
Combined (MBOE) |
FDC Costs ($MM) |
Proved developed producing |
11,720 |
32,675 |
479,486 |
124,309 |
33 |
Proved developed non-producing |
165 |
711 |
8,628 |
2,314 |
2 |
Proved undeveloped |
39,628 |
35,158 |
554,036 |
167,126 |
1,561 |
Total Proved |
51,513 |
68,545 |
1,042,150 |
293,749 |
1,596 |
Probable |
57,230 |
47,339 |
884,491 |
251,984 |
1,446 |
Total Proved plus Probable |
108,743 |
115,884 |
1,926,641 |
545,734 |
3,042 |
a) Gross working interest reserves before royalty deductions. Crude oil is the combination of Light & Medium Oil and Tight Oil. Natural gas liquids include condensate volumes. |
The following table outlines the change in Spartan’s reserves and reserve life index as at December 31, 2021 compared to December 31, 2020:
CHANGE IN RESERVES AND RESERVE LIFE INDEX |
2021 |
2020 |
% Change |
|
Reserves (MBOE) |
||||
Proved Developed Producing |
124,309 |
67,289 |
85% |
|
Total Proved |
293,749 |
134,977 |
118% |
|
Total Proved plus Probable |
545,734 |
206,942 |
164% |
|
PDP as % of TPP |
23% |
33% |
(10%) |
|
TP as % of TPP |
54% |
65% |
(11%) |
|
Reserve Life Index (a) (years) |
||||
Proved Developed Producing |
4.7 |
7.1 |
(34%) |
|
Total Proved |
11.1 |
14.2 |
(22%) |
|
Total Proved plus Probable |
20.6 |
21.8 |
(6%) |
|
a) The Reserve life index (“RLI”) as at December 31, 2021 is calculated as total Company Share reserves divided by the annualized actual production of 72,428 BOE/d for the fourth quarter of 2021. See “Reader advisories – Oil and Gas Advisories”. |
Spartan’s total TPP reserves increased by 164% to 546 million BOE resulting in a TPP reserve life index of 20.6 years based on annualized fourth quarter production of 72,428 BOE/d. Spartans 2021 development program and acquisition strategy has resulted in an 85% increase in PDP reserves to over 124 million BOE. The crude oil and natural gas liquids weighting of the Company’s reserves is approximately 36%, 41% and 41% on a PDP, TP, and TPP basis, respectively, representing the focus on Montney development which will continue to increase the corporate liquids weighting in future years.
Net Present Value of Future Net Revenue as at December 31, 2021
The following table summarizes the net present value of the Company’s reserves (before-tax) as at December 31, 2021. The reserves value on a $/BOE basis, discounted at 10% per year, is also summarized for each category.
NET PRESENT VALUE BEFORE-TAX |
0% |
10% |
20% |
Unit Value (a) Before Tax |
($MM) |
($MM) |
($MM) |
||
Developed Producing |
1,421 |
1,152 |
949 |
10.61 |
Developed Non-Producing |
43 |
31 |
25 |
15.18 |
Undeveloped |
2,323 |
1,194 |
694 |
8.09 |
Total Proved |
3,787 |
2,377 |
1,668 |
9.21 |
Probable |
4,106 |
1,596 |
824 |
7.37 |
Total Proved plus Probable |
7,893 |
3,973 |
2,493 |
8.37 |
a) Unit values are based on net reserves. Net reserves are the Company’s working interest reserves after deduction of royalties, plus its royalty interests in reserves. |
Reserves Reconciliation
The following table sets out the reconciliation of Spartan’s gross reserves based on forecast prices and costs by principal product type as at December 31, 2021 relative to December 31, 2020. The majority of TPP reserves increases, year over year, came from acquisitions in the Montney. Spartan was able to replace 2021 drilled locations and add an additional 28 net locations to the Deep Basin, for positive revisions attributed to extension and improved recovery which more than offset the decrease due to minor technical revisions for the year.
RESERVES(a) RECONCILIATION (MBOE) |
PDP Reserves |
TP Reserves |
Probable |
TPP Reserves |
December 31, 2020 |
67,289 |
134,977 |
71,964 |
206,942 |
Extensions & Improved Recovery |
745 |
33,758 |
14,174 |
47,931 |
Technical Revisions (b) |
22,199 |
(2,423) |
(9,930) |
(12,353) |
Discoveries |
– |
– |
– |
– |
Acquisitions |
48,988 |
142,356 |
175,051 |
317,408 |
Dispositions |
(79) |
(79) |
(17) |
(96) |
Economic Factors |
2,567 |
2,561 |
741 |
3,303 |
Production (c) |
(17,401) |
(17,401) |
– |
(17,401) |
December 31, 2021 |
124,309 |
293,749 |
251,984 |
545,734 |
a) Gross working interest reserves before royalty deductions. b) Technical revisions also include changes in reserves associated with changes in operating costs, capital costs and commodity price offsets. c) Produced volumes for the year ended December 31, 2021 are internally estimated. |
Key Performance Measures
The table below highlights Spartan’s “F&D costs” and total “FD&A costs” based on capital expenditures incurred in the period inclusive of the change in FDC required to develop reserves. While NI 51-101 requires that the effect of acquisitions and dispositions be excluded from the calculation of finding and development costs, Spartan has presented both measures because acquisitions are a significant component of the Company’s total reserve replacement costs. Spartan also uses “Recycle Ratio” as a measure for evaluating the efficiency of its capital investment program by comparing the Company’s average Operating Netback(3) to its F&D and FD&A costs per BOE.
F&D, FD&A, and Recycle Ratios (11) |
2021 |
Two-Year Average (d) |
||||
PDP |
TP |
TPP |
PDP |
TP |
TPP |
|
F&D Costs, including FDC ($/BOE) (a)(b) |
4.04 |
6.93 |
6.69 |
3.54 |
5.94 |
5.89 |
Acquisition costs, net including FDC ($/BOE) (c) |
22.00 |
15.75 |
11.06 |
10.21 |
9.45 |
7.71 |
FD&A Costs, including FDC ($/BOE) (a)(c) |
15.84 |
14.05 |
10.58 |
8.89 |
9.04 |
7.57 |
Operating Netback, before hedging ($/BOE) (a) |
23.05 |
23.05 |
23.05 |
19.52 |
19.52 |
19.52 |
F&D Recycle Ratio (a) |
5.7 x |
3.3 x |
3.4 x |
5.5 x |
3.3 x |
3.3 x |
FD&A Recycle Ratio (a) |
1.5 x |
1.6 x |
2.2 x |
2.2 x |
2.2 x |
2.6 x |
Q4 2021 Operating Netback, before hedging ($/BOE) (a) |
30.00 |
30.00 |
30.00 |
|||
F&D Recycle Ratio – pro forma Q4 2021 (a) |
7.4 x |
4.3 x |
4.5 x |
|||
FD&A Recycle Ratio – pro forma Q4 2021 (a) |
1.9 x |
2.1 x |
2.8 x |
a) |
“F&D cost”, “FD&A cost”, “Recycle Ratio” and “Operating Netback” do not have standardized meanings under IFRS or NI-51-101. Readers are cautioned that these amounts may not be directly comparable to other companies. Refer to additional information under the heading “Reader Advisories – Oil and Gas Measures”. |
b) |
The aggregate of capital expenditures incurred in the year, comprised of exploration and development costs and the change in estimated FDC generally will not reflect total F&D costs related to reserves additions in the year. |
c) |
Calculations use Company Gross Reserves which exclude royalty volumes. |
d) |
The two-year average reflects cumulative results for the years ended December 31, 2021 and December 31, 2020. Prior to the June 1, 2020 acquisition of assets in the Deep Basin for total consideration of $109 million, the Company did not have significant assets or operations. |
During 2021, Spartan’s exploration and development capital expenditures were $189 million and total consideration for the acquisitions was approximately $957 million inclusive of net debt assumed on corporate transactions. Approximately 80% of the acquisition cost was incurred for the Velvet acquisition which materially increased the crude oil weighting of the Company’s production and reserves, in addition to adding an extensive undeveloped land position comprised of high-working interest prospective Montney acreage. Spartan highlights its FD&A Recycle Ratio of 2.1x for proved reserves and 2.8x for total proved plus probable reserves based on its Operating Netback(3) for the fourth quarter of 2021, as operations from the Velvet assets are only reflected in Spartan’s results for the period following closing of the acquisition.
Spartan has positioned itself to achieve efficiencies in production additions and finding and development costs over the upcoming years as the Company continues to develop its asset base through pad drilling and utilization of excess capacity of owned infrastructure.
ABOUT SPARTAN DELTA CORP.
Spartan is committed to creating a modern energy company, focused on sustainability both in operations and financial performance. The Company’s ESG-focused culture is centered on generating sustainable Free Funds Flow through responsible oil and gas exploration and development. The Company has established a portfolio of high-quality production and development opportunities in the Deep Basin and Montney. Spartan is focused on the execution of the Company’s organic drilling program, delivering operational synergies in a respectful and responsible manner to the environment and communities it operates in. The Company is well positioned to continue pursuing immediate production optimization, responsible future growth with organic drilling, opportunistic acquisitions and the delivery of Free Funds Flow. Further detail is available in Spartan’s investor presentation, which can be accessed on its website at www.spartandeltacorp.com.
Spartan’s corporate presentation as of February 2022 can be accessed on the Company’s website at www.spartandeltacorp.com.
READER ADVISORIES
Notes to the Press Release:
- Production for Q4 2021 consists of approximately 16% crude oil, 3% condensate, 19% NGLs and 62% natural gas. See “Average Daily Production” table below.
- Production for YE 2021 consists of approximately 10% crude oil, 4% condensate, 19% NGLs and 67% natural gas. See “Average Daily Production” table below.
- See “Non-GAAP Measures and Ratios”.
- Adjusted Funds Flow is a non-GAAP financial measure and Adjusted Funds Flow per share is a non-GAAP financial ratio, both of which do not have standardized meanings under IFRS. The most directly comparable GAAP measure to Adjusted Funds Flow is cash provided by operating activities which was $148.0 million for the fourth quarter and $279.8 million for the year ended December 31, 2021. Refer to additional information under the heading “Non-GAAP Measures and Ratios” for a reconciliation of Adjusted Funds Flow and calculation of Adjusted Funds Flow per share.
- Fourth quarter Adjusted Funds Flow of $0.80 per share, diluted, is annualized by multiplying by a factor of 4, resulting in fourth quarter annualized Adjusted Funds Flow of $3.20 per share, diluted.
- 28% growth based on forecast Adjusted Funds Flow of $1.02 per diluted share in the fourth quarter of 2022 compared to $0.80 per share reported for the fourth quarter of 2021.
- NAV per share is a non-GAAP financial ratio calculated as the before-tax NPV for each of PDP, TP and TPP reserves discounted at a 10%, less $458 million of Net Debt, plus $30 million of proceeds from option and warrant exercise divided by the fully diluted common shares outstanding of 175 million as at December 31, 2021. Refer to details of calculation under the heading “Oil and Gas Advisories – Net Asset Value per share”.
- Average price forecasts as at December 31, 2021 of Sproule Associates Ltd., GLJ Ltd. and McDaniel & Associates Consultants Ltd.
- Details of forecast annual FDC expenditures per the McDaniel Report are provided under the heading “Reserves Disclosure”
- Of the 278 net booked Montney locations, 136 are proven locations and 142 are probable locations; this count excludes 4 net booked probable Charlie Lake locations in the Montney region. Of the 121 net booked Deep Basin locations, 87 are proven locations and 34 are probable locations.
- “Reserve life index”, “F&D cost”, “FD&A cost”, and “Recycle Ratio” are non-GAAP financial ratios which do not have standardized meanings under IFRS or NI-51-101. Readers are cautioned that these amounts may not be directly comparable to other companies. Refer to additional information under the heading “Oil and Gas Measures”.
Three months ended December 31 |
Year ended December 31 |
|||||
Average daily production |
2021 |
2020 |
% |
2021 |
2020 |
% |
Crude oil (bbls/d) |
11,450 |
332 |
3,349 |
4,697 |
196 |
2,296 |
Condensate (bbls/d) |
2,373 |
1,131 |
110 |
1,924 |
655 |
194 |
NGLs (bbls/d) |
13,576 |
6,728 |
102 |
9,120 |
3,965 |
130 |
Natural gas (mcf/d) |
270,176 |
106,912 |
153 |
191,596 |
63,625 |
201 |
Combined average (BOE/d) |
72,428 |
26,010 |
178 |
47,674 |
15,421 |
209 |
% Oil and NGLs |
38% |
31% |
33% |
31% |
Unaudited Financial Information
This preliminary financial information is not a comprehensive statement of our financial results for the fourth quarter and year ended December 31, 2021. Our actual results may differ materially from these estimates due to the completion of our financial closing procedures, final adjustments, and other developments that may arise between now and the time the closing procedures for the year ended December 31, 2021 are completed.
The Company’s audited financial results for the year ended December 31, 2021, are expected to be released on or around March 8, 2022 and will be in full compliance with National Instrument 52-112.
Non-GAAP Measures and Ratios
This press release contains certain financial measures and ratios, as described below, which do not have standardized meanings prescribed by International Financial Reporting Standards (“IFRS“) or Generally Accepted Accounting Principles (“GAAP“). As these non-GAAP financial measures and ratios are commonly used in the oil and gas industry, Spartan believes that their inclusion is useful to investors. The reader is cautioned that these amounts may not be directly comparable to measures for other companies where similar terminology is used. The non-GAAP measures and ratios used in this release, represented by the capitalized and defined terms outlined below, are used by Spartan as key measures of financial performance and are not intended to represent operating profits nor should they be viewed as an alternative to cash provided by operating activities, net income or other measures of financial performance calculated in accordance with IFRS.
Capital Expenditures, before A&D
Spartan uses “Capital Expenditures, before A&D” to measure its capital investment level compared to the Company’s annual budgeted capital expenditures for its organic drilling program, excluding acquisitions or dispositions. The directly comparable GAAP measure to capital expenditures is cash used in investing activities. The following table details the composition of capital expenditures and its reconciliation to cash flow used in investing activities:
UNAUDITED |
Three months ended December 31 |
Year ended December 31 |
||
(CA$ thousands) |
2021 |
2020 |
2021 |
2020 |
Exploration and evaluation assets |
10,434 |
151 |
18,140 |
1,302 |
Property, plant and equipment |
105,248 |
13,852 |
170,835 |
15,518 |
Capital Expenditures, before A&D |
115,682 |
14,003 |
188,975 |
16,820 |
Acquisitions |
253 |
431 |
423,972 |
109,213 |
Dispositions |
– |
(88) |
(453) |
(164) |
Total cash capital expenditures |
115,935 |
14,346 |
612,494 |
125,869 |
Corporate acquisitions, repayment of debt |
– |
– |
352,488 |
– |
Corporate acquisitions, cash acquired |
(1,570) |
– |
(24,634) |
– |
Change in non-cash investing working capital |
(16,140) |
(8,125) |
(14,635) |
(12,769) |
Cash used in investing activities |
98,225 |
6,221 |
925,713 |
113,100 |
Adjusted Net Capital Acquisitions
“Adjusted Net Capital Acquisitions” is a non-GAAP financial measure used in the determination of FD&A costs, which is a non-GAAP financial ratio. Adjusted net capital acquisitions is useful as it provides a measure of cash, debt, and share consideration used to acquire crude oil and natural gas assets during the period, net of cash provided by the disposal of any crude oil and natural gas assets during the period.
The most directly comparable GAAP measure to adjusted net capital acquisitions is acquisition of crude oil and natural gas assets. The following table details the calculation of adjusted net capital acquisitions and its reconciliation to acquisition of crude oil and natural gas assets.
UNAUDITED |
Three months ended December 31 |
Year ended December 31 |
||
(CA$ thousands) |
2021 |
2020 |
2021 |
2020 |
Acquisitions |
253 |
431 |
423,972 |
109,213 |
Add non-cash consideration: |
||||
Common share consideration |
– |
– |
120,494 |
– |
Convertible promissory note |
– |
– |
25,293 |
– |
Net Debt assumed on corporate acquisitions |
(1,691) |
– |
387,456 |
– |
Total consideration including Net Debt |
(1,438) |
431 |
957,215 |
109,213 |
Less: Dispositions |
– |
(88) |
(453) |
(164) |
Adjusted Net Capital Acquisitions |
(1,438) |
343 |
956,762 |
109,049 |
Adjusted Funds Flow and Free Funds Flow
“Funds from Operations” is calculated as cash provided by operating activities before changes in non-cash working capital. “Adjusted Funds Flow” is calculated as Fund from Operations, adjusted to add back transaction costs on acquisitions and to deduct cash lease payments. Spartan believes Adjusted Funds Flow is an appropriate metric to compare relative to Net Debt (Surplus) because it reflects the net cash flow generated from routine business operations and because Spartan does not include lease liabilities in its definition of Net Debt (Surplus). Transaction costs are added back to Adjusted Funds Flow because the Company’s definition of Free Funds Flow excludes acquisitions.
“Free Funds Flow” is calculated as Adjusted Funds Flow less Capital Expenditures, before A&D (both of which are non-GAAP financial measures). Spartan believes Free Funds Flow provides an indication to investors and Spartan shareholders of the amount of funds the Company has available for future capital allocation decisions such as to repay debt, reinvest in the business or return capital to shareholders.
The following table reconciles cash provided by operating activities, as determined in accordance with IFRS, to Adjusted Funds Flow and Free Funds Flow:
UNAUDITED |
Three months ended December 31 |
Year ended December 31 |
||||
(CA$ thousands, except as otherwise noted) |
2021 |
2020 |
% |
2021 |
2020 |
% |
Cash provided by operating activities |
147,975 |
16,064 |
821 |
279,766 |
32,209 |
769 |
Change in non-cash operating working capital |
(8,509) |
2,175 |
(491) |
18,078 |
1,385 |
1,205 |
Funds from Operations |
139,466 |
18,239 |
665 |
297,844 |
33,594 |
787 |
Add back: transaction costs |
(71) |
7 |
nm |
4,002 |
2,285 |
75 |
Deduct: lease payments |
(2,369) |
(1,450) |
63 |
(7,860) |
(3,392) |
132 |
Adjusted Funds Flow |
137,026 |
16,796 |
716 |
293,986 |
32,487 |
805 |
Deduct: Capital Expenditures, before A&D |
(115,682) |
(14,003) |
726 |
(188,975) |
(16,820) |
1,024 |
Free Funds Flow |
21,344 |
2,793 |
664 |
105,011 |
15,667 |
570 |
Adjusted Funds Flow per share
Adjusted Funds Flow (“AFF“) per share is calculated using the same methodology as net income per share (“EPS“), however the diluted weighted average common shares (“WA Shares“) outstanding for AFF may differ from the diluted weighted average determined in accordance with IFRS for purposes of calculating EPS due to non-cash items that impact net income only. The dilutive impact of stock options and share awards is more dilutive to AFF than EPS because the number of shares deemed to be repurchased under the treasury stock method is not adjusted for unrecognized share based compensation expense as it is non-cash. For periods in which the convertible promissory note was outstanding, it was always dilutive to AFF per share but could be antidilutive to EPS because of the non-cash change in fair value recognized through net income (see also, “Share Capital”).
UNAUDITED |
Three months ended December 31 |
Year ended December 31 |
||||
(CA$ thousands, except as otherwise noted) |
2021 |
2020 |
% |
2021 |
2020 |
% |
Adjusted Funds Flow |
137,026 |
16,796 |
716 |
293,986 |
32,487 |
805 |
WA Shares outstanding (000s) – basic |
153,128 |
58,220 |
163 |
115,555 |
44,848 |
158 |
WA Shares outstanding (000s) – diluted AFF |
170,220 |
68,859 |
147 |
134,787 |
55,403 |
143 |
AFF per share |
||||||
Basic ($ per common share) |
0.89 |
0.29 |
207 |
2.54 |
0.72 |
253 |
Diluted ($ per common share) |
0.80 |
0.24 |
233 |
2.18 |
0.59 |
269 |
Net Debt (Surplus)
“Net Debt (Surplus)” includes long-term debt under Spartan’s five-year term facility and revolving credit facility, net of Adjusted Working Capital. “Adjusted Working Capital” is calculated as current assets less current liabilities, excluding derivative financial instrument assets and liabilities and lease liabilities. As at December 31, 2021 and at December 31, 2020, the Adjusted Working Capital deficit (surplus) includes cash and cash equivalents, accounts receivable, prepaid expenses and deposits, other current assets, accounts payable and accrued liabilities and the current portion of decommissioning obligations.
Spartan uses “Net Debt (Surplus)” as a measure of the Company’s financial position and liquidity, however it is not intended to be viewed as an alternative to other measures calculated in accordance with IFRS.
NET DEBT RECONCILIATION – UNAUDITED (Assets) Liabilities – CA$ thousands |
December 31, 2021 |
December 31, 2020 |
Cash |
(1,245) |
(2,686) |
Accounts receivable |
(96,741) |
(20,475) |
Prepaid expenses and deposits |
(5,104) |
(1,529) |
Other current assets |
(6,800) |
– |
Accounts payable and accrued liabilities |
176,971 |
34,149 |
Current portion of decommissioning obligations |
3,614 |
2,833 |
Adjusted Working Capital deficit |
70,695 |
12,292 |
Long-term debt |
387,564 |
– |
Net Debt |
458,259 |
12,292 |
In addition, Spartan has various lease contracts in place for compression equipment, facilities, office buildings and vehicles. The Company’s total lease liability is $54.8 million (unaudited) as at December 31, 2021 (2020 – $49.8 million), of which $10.2 million is expected to be settled within the next twelve months. The Company’s reported “Adjusted Funds Flow” is net of cash lease payments in the period.
Operating Income and Operating Netback
“Operating Income, before hedging” is calculated as oil and gas sales, net of royalties, plus processing and other revenue, less operating and transportation expenses. “Operating Income, after hedging” is calculated by adjusting Operating Income for: (i) realized gains or losses on derivative financial instruments including settlements on acquired derivative financial instrument liabilities (together “Settlements on Commodity Derivative Contracts“), and (ii) pipeline transportation revenue, net of pipeline transportation expense (the “Net Pipeline Transportation Margin“).
The components of Spartan’s Operating Income for the fourth quarter and years ended December 31, 2021 and 2020 are summarized below:
UNAUDITED |
Three months ended December 31 |
Year ended December 31 |
||||||
(CA$ thousands) |
2021 |
2020 |
% |
2021 |
2020 |
% |
||
Oil and gas sales |
296,425 |
45,206 |
556 |
608,142 |
96,324 |
531 |
||
Processing and other revenue |
2,405 |
1,578 |
52 |
9,317 |
3,389 |
175 |
||
Royalties |
(32,738) |
(4,809) |
581 |
(66,639) |
(8,874) |
651 |
||
Operating expenses |
(50,125) |
(13,583) |
269 |
(115,011) |
(34,476) |
234 |
||
Transportation expenses |
(16,081) |
(3,288) |
389 |
(34,738) |
(7,665) |
353 |
||
Operating Income, before hedging |
199,886 |
25,104 |
696 |
401,071 |
48,698 |
724 |
||
Settlements on Commodity Derivative Contracts |
(42,551) |
(2,164) |
1,866 |
(61,376) |
(958) |
6,307 |
||
Net Pipeline Transportation Margin |
(1,685) |
– |
– |
(2,083) |
– |
– |
||
Operating Income, after hedging |
155,650 |
22,940 |
579 |
337,612 |
47,740 |
607 |
||
The Company refers to Operating Income expressed per unit of production as an “Operating Netback” and reports the Operating Netback before and after hedging. The components of Spartan’s Operating Netbacks for the fourth quarter and years ended December 31, 2021 and 2020 are summarized below:
UNAUDITED |
Three months ended December 31 |
Year ended December 31 |
||||||
($ per BOE) |
2021 |
2020 |
% |
2021 |
2020 |
% |
||
Oil and gas sales |
44.48 |
18.89 |
135 |
34.95 |
17.07 |
105 |
||
Processing and other revenue |
0.36 |
0.66 |
(45) |
0.54 |
0.60 |
(10) |
||
Royalties |
(4.91) |
(2.01) |
144 |
(3.83) |
(1.57) |
144 |
||
Operating expenses |
(7.52) |
(5.68) |
32 |
(6.61) |
(6.11) |
8 |
||
Transportation expenses |
(2.41) |
(1.37) |
76 |
(2.00) |
(1.36) |
47 |
||
Operating Netback, before hedging |
30.00 |
10.49 |
186 |
23.05 |
8.63 |
167 |
||
Settlements on Commodity Derivative Contracts |
(6.39) |
(0.90) |
610 |
(3.53) |
(0.17) |
1,976 |
||
Net Pipeline Transportation Margin |
(0.25) |
– |
– |
(0.12) |
– |
– |
||
Operating Netback, after hedging |
23.36 |
9.59 |
144 |
19.40 |
8.46 |
129 |
||
Assumptions for 2022 Guidance
The significant assumptions used in the forecast of Operating Netbacks and Adjusted Funds Flow for 2022 are summarized below. These key performance measures expressed per BOE are based on the midpoint of average production guidance for 2022 of 70,500 BOE/d (previously 70,000 BOE/d).
2022 production Guidance |
Updated Guidance |
Previous Guidance |
% Change |
Crude oil (bbls/d) |
12,700 |
13,500 |
(6) |
Condensate (bbls/d) |
2,200 |
1,400 |
57 |
Crude oil and condensate (bbls/d) |
14,900 |
14,900 |
– |
NGLs (bbls/d) |
13,200 |
13,500 |
(2) |
Natural gas (mcf/d) |
254,400 |
249,600 |
2 |
Combined average (BOE/d) |
70,500 |
70,000 |
1 |
% Oil and NGLs |
40% |
41% |
(2) |
2022 financial Guidance ($/BOE) |
Updated Guidance |
Previous Guidance |
% Change |
Oil and gas sales |
43.17 |
33.67 |
28 |
Processing and other revenue |
0.32 |
0.24 |
33 |
Royalties |
(5.17) |
(3.34) |
55 |
Operating expenses |
(7.91) |
(6.47) |
22 |
Transportation expenses |
(2.68) |
(2.42) |
11 |
Operating Netback, before hedging |
27.73 |
21.68 |
28 |
Settlements on Commodity Derivative Contracts |
(2.13) |
(1.74) |
22 |
Net Pipeline Transportation Margin |
(0.02) |
– |
– |
Operating Netback, after hedging |
25.58 |
19.94 |
28 |
General and administrative expenses |
(1.09) |
(1.12) |
(3) |
Cash financing expenses |
(0.92) |
(1.20) |
(23) |
Settlements of decommissioning obligations |
(0.14) |
(0.14) |
– |
Lease payments |
(0.47) |
(0.50) |
(6) |
Adjusted Funds Flow |
22.96 |
16.98 |
35 |
Share Capital
Spartan’s common shares are listed on the Toronto Stock Exchange (“TSX“) and trade under the symbol “SDE”. The volume weighted average trading price for Spartan’s shares was $6.04 and $5.02 per common share for the three months and year ended December 31, 2021, respectively. Spartan’s closing share price was $5.97 on December 31, 2021 compared to $2.98 on December 31, 2020.
As of the date hereof, there are 153.3 million common shares outstanding (153.2 million as at December 31, 2021). There are no preferred shares or special shares outstanding. The following securities are outstanding as of the date hereof: 15.8 million common share purchase warrants with an exercise price of $1.00 per common share; 2.0 million restricted share awards; and 4.3 million stock options outstanding with an average exercise price of $3.36 per common share and average remaining term of 3.5 years.