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 (“NEBC”). The Company is pleased to announce our operating and financial results for the three and twelve month periods ended December 31, 2021. Crew’s audited consolidated Financial Statements and Notes, as well as Management’s Discussion and Analysis (“MD&A”) are available on Crew’s website and filed on SEDAR at www.sedar.com.
“Crew is excited to advance the Company’s previously announced two-year asset development plan (the “Plan”) as we further reduce unit costs, increase production and optimize pricing to expand margins. Building on the significant progress achieved towards this Plan during 2021, our objectives through 2022 include increasing production by 20% and generating Free Adjusted Funds Flow3 (“Free AFF”) to significantly reduce debt, with a goal of transferring enterprise value to our shareholders,” said Dale Shwed, President and CEO of Crew. “Underpinning our Plan is a steadfast commitment to meeting or exceeding environmental, social and governance (“ESG”) goals and upholding our track record as a safe and responsible operator.”
HIGHLIGHTS
- 29,142 boe per day1 (174.9 mmcfe per day) average production in Q4/21, 35% higher than Q4/20 and above guidance of 28,000 to 29,000 boe per day1, while average production in the month of December marked a new record high of 32,766 boe per day1. Annual average production in 2021 was 26,443 boe per day1, a 20% increase over the prior year.
- $46.8 million of Adjusted Funds Flow2 (“AFF”) ($0.29 per fully diluted share) was generated in Q4/21, a 201% increase over Q4/20, driven by significant production growth and strong operating netbacks3 of $20.70 per boe. AFF2 in 2021 totaled $132.9 million ($0.82 per fully diluted share), 223% higher than 2020.
- Before tax total proved plus probable reserve value per share of $11.954, and total proved reserve value of $5.85 per share5, net of debt, discounted at 10% before tax and based on Sproule’s December 31, 2021 escalated price forecast; the details of the associated reserves evaluation were outlined in Crew’s press release dated February 8, 2022.
- 20% reduction in net operating costs3 per boe in 2021, totaling $4.47 per boe compared to $5.61 per boe in 2020, reflecting the advancement of our Plan which aims to reduce per unit costs by over 25% from 2020 to 2022. Net operating costs3 per boe in Q4/21 were $3.49 per boe, 34% lower than Q4/20.
- 55% improvement in annualized Q4/21 net debt2 to EBITDA ratio6 which improved to 1.9x, compared to 4.2x at the end of 2020, while net debt2 to Q4/21 production declined 16% to $13,900 per boe, in-line with the Company’s Plan. Net debt2 at year-end 2021 was $406.0 million.
- $169.6 million of net capital expenditures3 in 2021, directed to an active exploration and development program that was largely focused on developing the Company’s Montney assets in NEBC, and resulted in Crew drilling 26 (24.7 net) wells and completing 24 (22.7 net) wells. The 2021 capital program realized continued cost and operational improvements, driving reduced drill times, strong capital efficiencies and enhanced returns. Q4/21 net capital expenditures3 totaled $41.9 million and were focused on the completion of eight (8.0 net) liquids rich wells at Greater Septimus.
FINANCIAL & OPERATING HIGHLIGHTS
FINANCIAL ($ thousands, except per share amounts) |
Three months ended Dec. 31, 2021 |
Three months ended Dec. 31, 2020 |
Year ended Dec. 31, 2021 |
Year ended Dec. 31, 2020 |
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Petroleum and natural gas sales | 103,153 | 42,604 | 332,848 | 137,931 | ||||
Cash provided by operating activities | 45,747 | 14,774 | 119,156 | 37,989 | ||||
Adjusted funds flow1 | 46,833 | 15,568 | 132,869 | 41,150 | ||||
Per share – basic | 0.31 | 0.10 | 0.87 | 0.27 | ||||
– diluted | 0.29 | 0.10 | 0.82 | 0.27 | ||||
Net Income (loss) | 50,901 | 34,668 | 205,299 | (203,180 | ) | |||
Per share – basic | 0.33 | 0.23 | 1.34 | (1.34 | ) | |||
– diluted | 0.31 | 0.22 | 1.27 | (1.34 | ) | |||
Property, plant and equipment expenditures | 42,341 | 41,007 | 177,924 | 86,260 | ||||
Property acquisitions (net of dispositions)2 | (460 | ) | (23,219 | ) | (8,276 | ) | (58,150 | ) |
Net capital expenditures2 | 41,881 | 17,788 | 169,648 | 28,110 |
Capital Structure ($ thousands) |
As at Dec. 31, 2021 |
As at Dec. 31, 2020 |
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Working capital deficiency1 | 33,068 | 24,361 | ||
Bank loan | 75,067 | 35,994 | ||
108,135 | 60,355 | |||
Senior unsecured notes | 297,834 | 296,851 | ||
Net debt1 | 405,969 | 357,206 | ||
Common shares outstanding (thousands) | 152,480 | 151,182 |
Notes:
1) Capital management measure that does not have any standardized meaning as prescribed by International Financial Reporting Standards, and therefore, may not be comparable with the calculations of similar measures for other entities. See “Advisories – Non-IFRS and Other Financial Measures” contained within this press release.
2) Non-IFRS financial measure that does not have any standardized meaning as prescribed by International Financial Reporting Standards, and therefore, may not be comparable with the calculations of similar measures for other entities. See “Advisories – Non-IFRS and Other Financial Measures” contained within this press release
OPERATIONAL | Three months ended Dec. 31, 2021 |
Three months ended Dec. 31, 2020 |
Year ended Dec. 31, 2021 |
Year ended Dec. 31, 2020 |
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Daily production | ||||||||
Light crude oil (bbl/d)1 | 157 | 182 | 158 | 187 | ||||
Heavy crude oil (bbl/d) | – | 1,281 | 802 | 1,362 | ||||
Natural gas liquids (“ngl”)2 (bbl/d) | 2,458 | 1,953 | 2,446 | 2,070 | ||||
Condensate (bbl/d) | 2,596 | 2,121 | 2,667 | 2,583 | ||||
Conventional natural gas (mcf/d) | 143,584 | 96,771 | 122,217 | 94,519 | ||||
Total (boe/d @ 6:1) | 29,142 | 21,666 | 26,443 | 21,955 | ||||
Average realized3 | ||||||||
Light crude oil price ($/bbl) | 89.98 | 47.38 | 75.95 | 39.97 | ||||
Heavy crude oil price ($/bbl) | – | 38.79 | 59.41 | 28.86 | ||||
Natural gas liquids price ($/bbl) | 34.50 | 13.20 | 20.75 | 9.01 | ||||
Condensate price ($/bbl) | 93.90 | 47.68 | 79.86 | 42.99 | ||||
Natural gas price ($/mcf) | 5.42 | 2.87 | 4.82 | 2.12 | ||||
Commodity price ($/boe) | 38.47 | 21.37 | 34.49 | 17.17 |
Notes:
1) The Company does not have any medium crude oil as defined by NI 51-101.
2) Throughout this news release, NGLs comprise all natural gas liquids as defined in National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities (“NI 51-101”), other than condensate, which is disclosed separately, and natural gas means conventional natural gas by NI 51-101 product type.
3) Supplementary measure that does not have any standardized meaning as prescribed by International Financial Reporting Standards, and therefore, may not be comparable with calculations of similar measures for other entities. See “Advisories – Non-IFRS and Other Financial Measures” contained within this press release.
Three months ended Dec. 31, 2021 |
Three months ended Dec. 31, 2020 |
Year ended Dec. 31, 2021 |
Year ended Dec. 31, 2020 |
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Netback ($/boe) | ||||||||
Petroleum and natural gas sales | 38.47 | 21.37 | 34.49 | 17.17 | ||||
Royalties | (2.70 | ) | (0.99 | ) | (2.39 | ) | (0.81 | ) |
Realized commodity hedging (loss) gain | (8.06 | ) | 1.27 | (6.31 | ) | 2.06 | ||
Marketing loss | – | (0.04 | ) | – | (0.11 | ) | ||
Net operating costs1 | (3.49 | ) | (5.30 | ) | (4.47 | ) | (5.61 | ) |
Transportation costs | (3.52 | ) | (4.23 | ) | (4.07 | ) | (3.67 | ) |
Operating netback1 | 20.70 | 12.08 | 17.25 | 9.03 | ||||
General and administrative (“G&A”) | (0.91 | ) | (1.30 | ) | (0.95 | ) | (1.01 | ) |
Financing costs on debt1 | (2.31 | ) | (2.97 | ) | (2.53 | ) | (2.90 | ) |
Adjusted funds flow2 | 17.48 | 7.81 | 13.77 | 5.12 |
Notes:
1) Non-IFRS financial measure or ratio that does not have any standardized meaning as prescribed by International Financial Reporting Standards, and therefore, may not be comparable with calculations of similar measures or ratios for other entities. See “Advisories – Non-IFRS and Other Financial Measures” contained within this press release.
2) Capital management measure that does not have any standardized meaning as prescribed by International Financial Reporting Standards, and therefore, may not be comparable with the calculations of similar measures for other entities. See “Advisories – Non-IFRS and Other Financial Measures” contained within this press release.
TWO-YEAR PLAN ON TRACK
In Q4/21 and into 2022, Crew continued to advance our Plan that was launched in late 2020:
- Continued Production Expansion – Production volumes in January 2022, based on field estimates, averaged over 32,500 boe per day7, supporting the forecast Q1/22 average production of between 31,000 to 33,000 boe per day7. Q4/21 production averaged 29,142 boe per day7 (174.9 mmcfe per day), 35% higher than Q4/20.
- AFF Propelled Higher – AFF8 of $46.8 million in Q4/21 was augmented by reduced unit costs, steadily improving netbacks and production growth. Our full year 2022 AFF8 is forecast between $190 to $210 million, while 2022 Free AFF9 is now targeted at the high end or above the range of $95 million to $130 million, depending on commodity prices and other underlying assumptions which are outlined in the Outlook section herein.
- Capital Program on Course – An active first quarter capital program is driving full year 2022 annual production guidance between 31,000 to 33,000 boe per day7 based on annual capital expenditures of $80 to $95 million, which has been refined from $70 to $95 million, a result of inflationary factors partially offset by capital program efficiency gains.
- Leverage Metrics Improving – Crew has ample liquidity to execute our two-year plan, with leverage metrics expected to improve as the Company plans to reduce indebtedness through 2022. Crew’s net debt8 to the last twelve-months’ (“LTM”) EBITDA10 ratio is forecast to improve to below 1.5 times at the end of 2022 at current strip commodity prices, declining from 2.6 times at the end of 2021 and 1.9 times Q4/21 annualized EBITDA.
- Improved Efficiencies – Crew’s plan to reduce per unit costs by over 25% from 2020 to 2022 is largely based on increasing production volumes into existing infrastructure and transportation capacity, as over 50% of the Company’s expenses are fixed. As production has increased, cash costs per boe9 associated with operating, transportation, G&A and interest expenses have already declined to $10.23 per boe as of Q4/21, representing a decrease of 26% from $13.80 per boe in Q4/20. Net operating costs9 were reduced to $3.49 per boe in Q4/21, down from $5.30 per boe in Q4/20, supported in large part by the planned increase in Montney production from West Septimus and Groundbirch, along with optimized field operations and the previously announced sale of Crew’s heavy oil assets which carried higher net operating costs per boe.
OPERATIONS & AREA OVERVIEW
NE BC Montney (Greater Septimus)
- Eight wells were completed across two different benches within the Montney in Q4/21, including three extended reach horizontal (“ERH”) wells on the 10 well 4-14 pad, which were drilled to an average lateral length of 4,140 meters.
- After an average of 32 days on production, the three ERH wells on the 4-14 pad were flowing at an average per well sales rate of 2,588 boe per day, comprised of 9,602 mcf per day of natural gas, 847 bbls per day of condensate and 140 bbls per day of NGL’s11. Comparative type curves for this pad are available within Crew’s February 2022 investor presentation on the Company’s website. The remaining seven wells on our 4-14 pads are currently being completed with initial production expected late in Q1/22.
Groundbirch
- Crew had one drilling rig in operation during Q1/22, which recently finished drilling the five-well 4-17 Groundbirch pad following the success of our first three wells that were drilled and completed in the area in 2021. The first three wells at Groundbirch are exceeding Crew’s internal type curve with an average raw gas production rate after 120 days (“IP120”) of 9,410 mcf per day.
- Crew owns over 70,000 net acres of contiguous land in the Greater Groundbirch area. The Upper Montney at Groundbirch is approximately 470 feet in thickness and has four prospective zones; two of these zones were tested on the initial three well pad, and the other two zones are planned to be tested on Crew’s follow-up five well pad.
Other NE BC Montney
- We continue to evaluate encouraging offset operator activity in the Tower, Attachie and Oak/Flatrock areas.
SUSTAINABILITY AND ESG INITIATIVES
Crew’s ESG initiatives continue to be a prime focus as we uphold our unwavering commitment to safe and responsible energy production. During 2021, Crew released our inaugural ESG report in an environmentally conscious online format, outlining our efforts to promote operational innovation, reduce our environmental footprint, support stakeholders and protect our employees’ health and safety. Please visit https://esg.crewenergy.com to learn more.
- 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 greenhouse gas (“GHG”) emissions (Scope 1) have been removed and we anticipate the Company’s total GHG emissions intensity will be reduced significantly, 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 while also reducing our overall decommissioning obligations by a targeted 40%, representing approximately $34.5 million associated with 609 gross (539 net) wellbores.
- In 2021, the Company maintained our strong regulatory compliance record, achieving a 94% compliance rating with 284 regulatory inspections completed.
- The Company recorded no spills of significance, no lost time injuries and no employee injuries in 2021.
- Crew successfully participated in the provincially funded dormant well programs in 2021, having abandoned 68 (62 net) wells and completed 145 site assessments throughout the year across three different provinces.
- Crew continued to use next generation, spoolable surface pipelines for produced water transfer, which removes trucks from the road, reduces CO2 emissions, and affirms Crew’s commitment to improving efficiencies and reducing our environmental impact. The Company’s spoolable pipeline resulted in the removal of 24,237 two-way truckloads from the road during 2021, which is the equivalent distance of approximately 4.5 trips around the globe.
OUTLOOK
- Full Year 2022 Guidance Reaffirmed – Forecast full year 2022 average volumes are expected to remain within our previously announced guidance range of 31,000 to 33,000 boe per day12 with full year net capital expenditures13 refined to between $80 and $95 million from $70 to $95 million, a result of inflationary factors partially offset by capital program efficiency gains. At current forward strip commodity prices, Free AFF14 is expected to be at the high end or above our guidance range of $95 to $130 million.
2022 Guidance and Assumptions1,4 | ||
Net capital expenditures2 ($MM) | 80-95 | |
Annual average production (boe/d) | 31,000-33,000 | |
AFF3 ($MM) | 190-210 | |
Free AFF2 | 95-130 | |
EBITDA2 ($MM) | 214-234 | |
Oil price (WTI)($US per bbl) | $65.00 | |
Natural gas price (AECO 5A) ($C per mcf) | $3.50 | |
Natural gas price (NYMEX) ($US per mmbtu) | $4.00 | |
Natural gas price (Crew est. wellhead) ($C per mcf) | $4.00 | |
Foreign exchange ($US/$CAD) | $0.78 | |
Royalties | 5-7% | |
Net operating costs2 ($ per boe) | $3.50-$4.00 | |
Transportation ($ per boe) | $2.75-$3.25 | |
G&A ($ per boe) | $0.80-$1.00 | |
Effective interest rate on long-term debt | 6.0-6.5% |
1) The actual results of operations of Crew and the resulting financial results will likely vary from the estimates and material underlying assumptions set forth in this guidance by the Company and such variation may be material. The guidance and material underlying assumptions have been prepared on a reasonable basis, reflecting management’s best estimates and judgments.
2) Non-IFRS financial measure or ratio that does not have any standardized meaning as prescribed by International Financial Reporting Standards, and therefore, may not be comparable with the calculations of similar measures or ratios for other entities. See “Advisories – Non-IFRS and Other Financial Measures” contained within this press release.
3) Capital management measure that does not have any standardized meaning as prescribed by International Financial Reporting Standards, and therefore, may not be comparable with the calculations of similar measures for other entities. See “Advisories – Non-IFRS and Other Financial Measures” contained within this press release.
4) Consistent with prior guidance except for (i) net capital expenditures range tightened from prior guidance of $70-95 MM, (ii) addition of Free AFF, (iii) transportation costs per boe increased from $2.50-3.00 per boe, and (iv) royalty rate increased from 4-6%.
- 2022 Guidance Sensitivities
AFF ($MM) | AFF/Share | FD AFF/Share | ||||
100 bbl per day Condensate1 | $3.6 | $0.02 | $0.02 | |||
C$1.00 per bbl WTI | $1.0 | $0.01 | $0.01 | |||
US $0.10 NYMEX (per mmbtu) | $3.5 | $0.02 | $0.02 | |||
1 mmcf per day natural gas | $1.8 | $0.01 | $0.01 | |||
$0.10 AECO 5A (per GJ) | $2.0 | $0.01 | $0.01 | |||
$0.01 FX CAD/US | $1.9 | $0.01 | $0.01 |
1) Condensate is defined as a mixture of pentanes and heavier hydrocarbons recovered as a liquid at the inlet of a gas processing plant before the gas is processed and pentanes and heavier hydrocarbons obtained from the processing of raw natural gas.
- Active Q1/22 Capital Program – Crew’s first quarter capital expenditures are expected to constitute approximately 60% of the program’s full year total, with the remainder to be directed to projects with superior returns at Greater Septimus or Groundbirch in the second half of 2022.
- Near Term Initiatives
- Use forecasted Free AFF in 2022 to reduce debt and improve leverage metrics;
- Invest in capital projects with strong rates of return and payouts under 12 months, which can be supported by an active hedging program;
- Continue to optimize transportation and facilities throughput to drive lower unit costs; and
- Actively monitor service industry efficiencies, cost trends and commodity prices to assess potential capital budget adjustments as market conditions change throughout the year.
In 2022, we will continue executing on our plan to increase production to expand margins and AFF, ultimately reducing leverage metrics to drive enhanced financial flexibility and corporate growth. We would like to thank our employees, Board of Directors, contractors and suppliers for their contribution and commitment to Crew, as well as our extended stakeholders for their ongoing support.