The associated Management’s Discussion and Analysis (“MD&A”) dated March 14, 2022 and audited financial statements as at and for the year ended December 31, 2021 can be found at www.sedar.com or www.petroshaleinc.com.
All dollar amounts in this news release are stated in Canadian dollars unless otherwise noted.
HIGHLIGHTS
FINANCIAL |
Three months ended |
Year ended |
||
|
Dec 31, |
Dec 31, |
Dec 31, |
Dec 31, |
Petroleum and natural gas revenue |
$72,883 |
$37,268 |
$229,340 |
$143,506 |
Adjusted EBITDA(1) |
$22,409 |
$15,204 |
$75,580 |
$58,726 |
Per share – basic |
$0.04 |
$0.08 |
$0.17 |
$0.31 |
Per share –diluted |
$0.04 |
$0.08 |
$0.17 |
$0.30 |
Cash provided by operating activities |
$17,449 |
$13,326 |
$72,230 |
$69,991 |
Net income (loss) |
$25,065 |
($12,417) |
($828) |
($61,985) |
Per share – basic and diluted |
$0.05 |
($0.07) |
– |
($0.33) |
Capital expenditures, net(1) |
$29,929 |
$2,743 |
$63,028 |
$35,174 |
Net debt(1) |
$196,067 |
$326,906 |
$196,067 |
$326,906 |
Common shares outstanding |
523,387,831 |
188,528,453 |
523,387,831 |
188,528,453 |
Weighted average – basic |
521,800,232 |
188,459,513 |
431,950,365 |
188,240,502 |
Weighted average – diluted |
532,490,737 |
196,003,279 |
442,640,870 |
195,784,268 |
OPERATIONS |
Three months ended |
Year ended |
|||
Daily production volumes(2) |
Dec 31, |
Dec 31, |
Dec 31, |
Dec 31, |
|
Tight oil (Bbl/d) |
7,342 |
7,814 |
6,930 |
8,836 |
|
Shale gas (Mcf/d) |
11,615 |
12,772 |
11,226 |
11,870 |
|
NGLs (Bbl/d) |
1,628 |
2,262 |
1,747 |
2,113 |
|
Barrels of oil equivalent (Boe/d) |
10,906 |
12,205 |
10,548 |
12,928 |
|
Average realized prices(2) |
|||||
Tight oil ($/Bbl) |
$94.72 |
$52.25 |
$83.16 |
$45.69 |
|
Shale gas ($/Mcf) |
$4.71 |
($0.10) |
$2.15 |
($0.71) |
|
NGLs ($/Bbl) |
$25.81 |
($0.85) |
$16.00 |
($1.55) |
Three months ended |
Year ended |
|||
Operating netback ($/Boe)(1) |
Dec 31, |
Dec 31, |
Dec 31, |
Dec 31, |
Petroleum and natural gas revenue |
$72.64 |
$33.19 |
$59.57 |
$30.33 |
Royalties |
($13.74) |
($5.97) |
($11.09) |
($5.55) |
Realized loss on financial derivatives |
($19.97) |
($2.73) |
($13.69) |
($1.00) |
Lease operating costs |
($7.65) |
($3.78) |
($6.44) |
($4.59) |
Workover expense |
($0.32) |
($0.78) |
($0.98) |
($0.75) |
Production taxes |
($5.37) |
($2.53) |
($4.41) |
($2.46) |
Transportation expense |
($1.82) |
($2.44) |
($1.91) |
($2.42) |
Operating netback(1) |
$23.77 |
$14.96 |
$21.05 |
$13.56 |
Operating netback prior to hedging(1) |
$43.74 |
$17.69 |
$34.74 |
$14.56 |
(1) |
See “Non-IFRS Measures” within this press release. |
(2) |
See “Oil and Gas Advisories” within this press release |
MESSAGE TO SHAREHOLDERS
On January 13, 2022, PetroShale announced the appointment of a new management team (the “New Management Team”), led by Brett Herman as President & Chief Executive Officer, comprised of a group of skilled and experienced operations and finance professionals, as outlined more fully below. As this occurred after year-end 2021, the New Management Team has set PetroShale’s go forward strategy, operational approach, financial management and capital allocation priorities.
During 2021, PetroShale maintained a disciplined approach amid a strengthening commodity price environment. The Company focused on prudent capital allocation to achieve a balance of managing the pace of development and generating EBITDA while prioritizing debt reduction to provide financial flexibility.
PetroShale achieved several strategic operational objectives through the execution of the Company’s $63 million capital expenditure1 program in 2021, including efficiently executing on 6 (4.95 net) operated wells and maximizing free cash flow1 from the Company’s high quality assets focused in the North Dakota Bakken and Three Forks play.
The Company continued to operate in accordance with the highest standards of environmental, social and governance (“ESG”) principles. PetroShale’s long-standing culture of governance, oversight and accountability is responsible for a strong track record and commitment to meet or exceed ESG regulations and principles across all aspects of the Company’s business.
HIGHLIGHTS
PetroShale’s achievements in the fourth quarter and year ended 2021 include the following:
Fourth quarter of 2021
- Production averaged 10,906 boepd, compared to 12,205 boepd in the same period of 2020;
- Invested $29.9 million in capital expenditures1; drilled 4 (3.95 net) operated wells and completed 5 (4.45 net) operated wells;
- Increased operating netback prior to hedging1 by 147% to $43.74 per Boe, compared to $17.69 per Boe in the same period in 2020;
- Increased Adjusted EBITDA1 by 47% to $22.4 million, as compared to $15.2 million during the same period in 2020; and
- Generated net income of $25.1 million, compared to a net loss of $12.4 million during the same period in 2020.
Full Year 2021
- Production averaged 10,548 boepd, compared to 12,928 boepd in 2020;
- Successfully drilled 6 (4.95 net) operated wells, of which 5 (4.45 net) wells were completed, and completed 5.75 net previously drilled but uncompleted wells (“DUCs”), for a total capital program of $63.0 million;
- Operating netback prior to hedging1 increased 139% to $34.74 per Boe, compared to $14.56 per Boe in 2020;
- Adjusted EBITDA1 totaled $75.6 million in 2021, up 29% from $58.7 million in 2020;
- Realized a net loss of $0.8 million in 2021 compared to a net loss of $62.0 million in 2020;
- Exited 2021 with net debt1 of $196.1 million, a 40% reduction from year-end 2020; and
- Subsequent to 2021, successfully raised total gross proceeds of $54.5 million from an equity offering concurrent with the appointment of the New Management Team.
_____________ |
|
1 |
See “Non-IFRS Measures” within this press release. |
Year End 2021 Reserves
- Proved developed producing (“PDP”) reserves increased to 31.0 mmboe, from 25.5 mmboe at year-end 2020;
- Proved reserves (“TP”) decreased to 55.6mmboe, from 56.9 mmboe at year-end 2020;
- Proved plus probable (“P+P”) reserves were 72.0 mmboe compared to 72.3 mmboe at year-end 2020;
- P+P reserve life index was 13.1 years;
- PDP finding & development costs (“F&D”) of $8.25 per Boe resulted in a recycle ratio of 4.2x (2021 operating netback prior to hedging); and
- P+P F&D (including future development costs) of $(0.55) per Boe.
OPERATIONAL UPDATE
With the initial economic volatility and uncertainty in 2021, PetroShale moderated the Company’s capital expenditure1 program investing $63 million, drilling 6 (4.95 net) wells and completing 5.75 net wells that were drilled in prior years. The wells were brought on production with encouraging initial results. The Company has 1 (0.5 net) DUC well that will be completed in 2022.
Average production profile of 10,548 boepd in 2021 was lower than the previous year as a result of prudent capital expenditure1 reductions as the Company sought to preserve long term value by deferring capital spending during the initial lower commodity price environment.
PetroShale exited 2021 with net debt1 of $196.1 million, a 40% reduction from year-end 2020 due to the closing of a transformative recapitalization transaction in the second quarter of 2021 along with the strengthening of commodity prices which reduced net debt and enhanced financial flexibility.
PetroShale’s North Dakota assets are characterized by their low risk nature and high rates of return driven by high operating netbacks, high initial production rates and high estimated recoveries. With an estimated corporate production decline profile of 30% in 2022, and high operating netbacks, the assets yield significant free cash flow1 in the current commodity price environment.
RESERVES
In this press release, all references to reserves are to gross Company reserves, meaning PetroShale’s working interest reserves before deductions of royalties and before consideration of PetroShale’s royalty interests. The reserves were evaluated by Netherland, Sewell & Associates, Inc. (“NSAI”) in accordance with National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (“NI 51-101”) effective December 31, 2021. PetroShale’s annual information form for the year ended December 31, 2021 (the “AIF”) will contain PetroShale’s reserves data and other oil and natural gas information as mandated by NI 51-101. PetroShale expects to file the AIF on SEDAR by March 31, 2022.
The following tables are a summary of PetroShale’s petroleum and natural gas reserves, as evaluated by NSAI, effective December 31, 2021. As a reporting issuer in Canada, PetroShale is required to report its reserves and net present value estimates using forecast pricing and costs, as stipulated under NI 51-101. The forecast prices reflected in the net present values are based on an average of the price decks of three independent engineering firms (GLJ Ltd., Sproule Associates Limited and McDaniel & Associates Consultants Ltd.). It should not be assumed that the estimates of future net revenues presented in the tables below represent the fair market value of the reserves. There is no assurance that the forecast prices and cost assumptions will be attained and variances could be material. The recovery and reserve estimates of our crude oil, natural gas liquids and natural gas reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. It is important to note that the recovery and reserves estimates provided herein are estimates only. Actual reserves may be greater or less than the estimates provided herein. Reserves information may not add due to rounding.
_____________ |
|
1 |
See “Non-IFRS Measures” within this press release. |
Reserves Summary
Tight Oil (mbbl) |
Shale Gas |
NGLs (mbbl) |
Total Oil (mboe) |
|
Proved |
||||
Developed Producing |
20,243 |
31,437 |
5,481 |
30,964 |
Developed Non-Producing |
1,015 |
1,294 |
285 |
1,516 |
Undeveloped |
17,518 |
15,736 |
2,935 |
23,076 |
Total Proved |
38,776 |
48,468 |
8,701 |
55,556 |
Probable |
11,175 |
15,437 |
2,671 |
16,419 |
Total Proved plus Probable |
49,951 |
63,905 |
11,372 |
71,974 |
Net Present Value of Future Net Revenue (in Canadian dollars)
Before Future Income Tax Expenses and Discounted at |
|||||
0% |
5% |
10% |
15% |
20% |
|
(C$mm) |
(C$mm) |
(C$mm) |
(C$mm) |
(C$mm) |
|
Proved |
|||||
Developed Producing |
1,151 |
800 |
623 |
518 |
450 |
Developed Non-Producing |
53 |
35 |
26 |
21 |
17 |
Undeveloped |
808 |
498 |
342 |
251 |
192 |
Total Proved |
2,013 |
1,334 |
991 |
790 |
659 |
Probable |
697 |
402 |
272 |
203 |
161 |
Total Proved plus Probable |
2,710 |
1,736 |
1,263 |
993 |
820 |
Values have been converted to Canadian dollars using the year-end 2021 exchange rate of US$1.00 = Cdn$1.2637 |
Net Present Value of Future Net Revenue (in US dollars)
Before Future Income Tax Expenses and Discounted at |
|||||
0% |
5% |
10% |
15% |
20% |
|
(US$mm) |
(US$mm) |
(US$mm) |
(US$mm) |
(US$mm) |
|
Proved |
|||||
Developed Producing |
911 |
633 |
493 |
410 |
356 |
Developed Non-Producing |
42 |
28 |
21 |
16 |
13 |
Undeveloped |
640 |
394 |
271 |
199 |
152 |
Total Proved |
1,593 |
1,056 |
784 |
625 |
521 |
Probable |
552 |
318 |
215 |
161 |
127 |
Total Proved plus Probable |
2,145 |
1,374 |
999 |
786 |
649 |
Capital Expenditures and Finding, Development, and Acquisition Costs
Finding, Development & Acquisition |
Finding & Development (“F&D”) (1) |
|||||
PDP |
Total Proved |
Total Proved plus Probable |
PDP |
Total Proved |
Total Proved plus Probable |
|
Capital Costs ($000s) |
||||||
Capital expenditures |
63,028 |
63,028 |
63,028 |
63,028 |
63,028 |
63,028 |
Acquisitions |
– |
– |
– |
– |
– |
– |
Change in future development capital (“FDC”) |
13,746 |
(63,687) |
(64,973) |
13,746 |
(63,687) |
(64,973) |
Total FD&A / F&D costs |
76,774 |
(659) |
(1,945) |
76,774 |
(659) |
(1,945) |
Reserves Additions (MBoe) |
||||||
Net change in reserve volumes |
5,458 |
(1,305) |
(337) |
5,458 |
(1,305) |
(337) |
Add back production |
3,850 |
3,850 |
3,850 |
3,850 |
3,850 |
3,850 |
Reserves associated with acquisitions |
– |
– |
– |
– |
– |
– |
Total additions |
9,308 |
2,545 |
3,513 |
9,308 |
2,545 |
3,513 |
F&D ($/Boe) |
8.25 |
(0.26) |
(0.55) |
8.25 |
(0.26) |
(0.55) |
Three year F&D ($/Boe) (2) |
10.21 |
8.79 |
6.58 |
10.82 |
10.06 |
7.01 |
Recycle ratio(3) |
4.2 |
(134.2) |
(62.7) |
4.2 |
(134.2) |
(62.7) |
(1) |
The calculation of F&D and FD&A costs incorporates the change in FDC required to bring proved undeveloped and probable reserves into production. The FDC was converted to Canadian dollars using the average 2021 exchange rate of US$1.00 = Cdn$1.2537. |
(2) |
Calculation of the three year FD&A and F&D costs per Boe reflect the sum of capital costs and net reserve additions for the years 2019 through 2021. |
(3) |
Recycle ratio is defined as 2021’s operating netback prior to hedging, divided by F&D or FD&A costs, as applicable, on a per Boe basis. Operating netback prior to hedging is calculated as revenue (excluding realized gain or loss on financial derivatives) minus royalties, lease operating costs, workover expense, production taxes and transportation expense. PetroShale’s operating netback prior to hedging in 2021 averaged $34.74 per Boe. |
Net Asset Value per Share as at December 31, 2021
($ millions except share and per share amounts) |
|
Proved Plus Probable Reserve Value NPV10 (before tax) |
1,263 |
Net Debt |
(196) |
Total Net Assets (basic) |
1,067 |
Basic Common Shares Outstanding (mm) |
523 |
Estimated NAV per Basic Common Share |
$2.04 |
CAPITAL PROGRAM AND PRODUCTION GUIDANCE
PetroShale’s 2022 capital program of US$45 million (CDN$58 million), is focused on light oil development projects, with the majority of the capital directed to drilling, completions and tie-ins (greater than 85%) with the remainder allocated to operational and facility optimization to maximize production efficiency.
PetroShale continues to diligently focus on capital efficiency enhancements through operational improvements. The Company’s US$45 million (CDN$58 million) 2022 capital budget is based on current capital cost realizations and known cost increases due to inflation.
With the continued strong performance of the Company’s underlying production base, PetroShale anticipates that the 2022 capital budget will result in average 2022 production between 10,500-11,000 boepd (85% light oil & natural gas liquids) with exit guidance forecast at 11,000 boepd (85% light oil and natural gas liquids), all of which is expected to be realized while improving the production decline profile to less than 25% by year-end.
PetroShale has identified more than 45 net undrilled locations, providing several years of high quality drilling inventory. In 2022, the Company plans to drill 11 (6.8 net) wells, of which 5 (4.9 net) will be completed in 2023. PetroShale intends to reduce the corporate production decline profile below 25% by year-end 2022 for a more resilient and sustainable business, focusing on long term objectives of delivering disciplined per share growth in combination with maintaining financial flexibility.
At current commodity prices, net debt is expected to be less than CDN$50 million at the end of 2022.
EVENTS SUBSEQUENT TO YEAR-END 2021
On January 13, 2022 PetroShale announced the appointment of the New Management Team led by Brett Herman as President & Chief Executive Officer, Jason Skehar as Chief Operating Officer, Marvin Tang as Vice President, Finance & Chief Financial Officer, Sandy Brown as Vice President, Geosciences, Kristine Lavergne as Vice President, Engineering, and Shane Manchester as Vice President, Operations. On February 22, 2022 the Company announced the appointment of Anthony Baldwin as Vice President, Business Development.
Concurrent with the appointment of the New Management Team, PetroShale successfully raised total gross proceeds of $54.5 million from an equity offering. Proceeds were used to reduce debt levels positioning the Company to execute on a disciplined corporate strategy of acquiring and exploiting assets.
It is anticipated that the shareholders of PetroShale will be asked to approve a change of the Company’s name to “Lucero Energy Corp.” at the next annual general meeting of shareholders.
OUTLOOK AND SUSTAINABILITY
PetroShale has built a sustainable growth platform of light oil focused assets. The stability of the high quality, lower decline, light oil assets in the Bakken resource play in North Dakota positions PetroShale to provide value creation through a disciplined, long term focused growth strategy.
Building on the momentum generated in 2021, PetroShale’s plans for 2022 include investing in higher rate-of-return, low-risk light oil opportunities across the Company’s high quality, low-risk development inventory. PetroShale will direct the pace of the capital program to moderate the Company’s production decline profile while maintaining a strong financial position to take advantage of additional growth opportunities as they arise. PetroShale has also prepared an updated corporate presentation, available at www.petroshaleinc.com.
Following are key operational and financial attributes of PetroShale:
Production Guidance |
2022E Average: 10,500 – 11,000 boepd (85% light oil and liquids) 2022E Exit: 11,000 boepd (85% light oil and liquids) |
Total Proved plus Probable Reserves (1) |
Approximately 72 MMboe (85% light oil and liquids) |
Sustainability Assumptions
|
Corporate Production Decline: 30% (2022E) Capital Efficiency(2),(3): C$17,000/boepd (IP 365) |
2022 Capital Program(3) |
US$45 million (C$58 million) |
Net Debt as at Dec 31, 2021(4) |
C$144 million |
Common Shares Outstanding (basic) |
660 million |
(1) |
All reserves information in this press release are gross Company reserves, meaning PetroShale’s working interest reserves before deductions of royalties and before consideration of PetroShale’s royalty interests. The reserve information for PetroShale in the foregoing table is derived from the independent engineering report effective December 31, 2021 prepared by NSAI evaluating the oil, NGL and natural gas reserves attributable to all of the Company’s properties. |
(2) |
Capital efficiency is a measure of all-in corporate forecast capital expenditures divided by forecast production additions. |
(3) |
Assumes a foreign exchange rate of US$1.00 = CDN$1.28. |
(4) |
Pro forma the net proceeds of $52.25 million in connection with the private placement equity financings announced on January 13, 2022. |