CALGARY, Alberta – Razor Energy Corp. (“Razor” or the “Company”) (TSXV: RZE) announces its first quarter 2022 financial and operating results and the appointment of Michael Blair as Chief Operating Officer. Selected financial and operational information is outlined below and should be read in conjunction with Razor’s unaudited interim condensed consolidated financial statements and management’s discussion and analysis for the three months ended March 31, 2022 which are available on SEDAR at www.sedar.com and the Company’s website www.razor-energy.com.
All amounts are expressed in Canadian dollars. Certain metrics, including those expressed on an adjusted basis, are non-IFRS and other financial measures. See “ Non-IFRS and Other Financial Measures” below.
- Rights Offering: On May 11, 2022, the Company closed an oversubscribed rights offering for common shares of Razor (“Common Shares”) issued on a “flow-through” basis within the meaning of the Income Tax Act (Canada). A total of 23,314,466 rights were exercised, resulting in the issuance of 1,960,784 Common Shares for gross proceeds of approximately $5.0 million. The Company intends to use the proceeds to fund certain eligible expenses yet to be incurred for its co-produced Geothermal Power Generation Project in Swan Hills, Alberta (“Geothermal Project”), and eligible expenses on various early stage power projects including additional geothermal initiatives.
Q1 2022 FINANCIAL AND OPERATIONAL HIGHLIGHTS
- Production: Averaged 4,457 boe/d in Q1 2022, representing a 48% increase from Q1 2021 and a 2% increase from Q4 2021.
- Adjusted Funds Flow1: Generated adjusted funds flow of $9.7 million ($0.41/share (basic and diluted)) in Q1 2022, representing an increase of $10.5 million from Q1 2021 and an increase of $7.3 million from Q4 2021 driven by improved operating netbacks and higher production.
- Operating Netback1: Achieved an operating netback of $26.00/boe in Q1 2022, compared to ($0.66/boe) in Q1 2021 and $8.93/boe in Q4 2021.
- Geothermal Project: The fully financed Geothermal Project is in the final construction phase. The Geothermal Project will be capable of generating up to 21 MW of grid connected power, of which up to 30% will be sustainable clean power generation.
- Net Debt1: Net debt was reduced by $2.1 million in Q1 2022 to $96.9 million and further reductions are expected over the balance of the year.
1) Refer to “Non-IFRS and other financial measures.”
NEAR AND MEDIUM-TERM OBJECTIVES
- Safely execute our production enhancement programs and Geothermal Project.
- Reduce net debt through a measured investment in production enhancement while continuing to optimize operational and administrative costs.
- Actively identify and consider asset acquisitions and business combinations with other oil and gas producers, energy related service companies, and lower carbon electricity producers and technologies.
SELECT QUARTERLY HIGHLIGHTS
The following tables summarizes key financial and operating highlights associated with the Company’s financial performance.
|Three Months Ended Mar 31,
|($000’s, except for per share amounts and production)||2022||2021|
|Light Oil (bbl/d)||2,830||1,952|
|Natural gas (mcf/d) 1||4,350||3,741|
|Light Oil (bbl/d)||2,876||1,907|
|Natural gas (mcf/d)1||3,906||3,463|
|Oil inventory volumes (bbls)||11,058||12,197|
|Oil and NGLs sales||32,924||12,367|
|Natural gas sales||1,710||1,017|
|Blending and processing income||903||1,368|
|Cash flows from operating activities||2,404||(3,518||)|
|Funds flow 2||9,883||(1,424||)|
|Adjusted funds flow 2||9,661||(863||)|
|Per share – basic and diluted||(0.03||)||(0.27||)|
|Weighted average number of shares outstanding (basic and diluted)||23,314||21,064|
|Netback ($/boe) 2|
|Oil and gas sales||86.34||49.43|
|Adjusted net operating expenses 2 3||(32.99||)||(35.09||)|
|Production enhancement expenses 2||(7.50||)||(7.98||)|
|Transportation and treating||(2.39||)||(2.36||)|
|Realized derivative gain (loss) on settlement||1.57||–|
|Operating netback 2||26.00||(0.66||)|
1) Natural gas production includes internally consumed natural gas primarily used in power generation.
2) Refer to “Non-IFRS and other financial measures”.
3) Excludes production enhancement expenses incurred in the period.
|March 31,||December 31,|
|($000’s, except for share amounts)||2022||2021|
|Long-term debt (principal)||84,003||73,192|
|Net debt 1||96,940||99,020|
|Number of shares outstanding||23,314,466||23,314,466|
1) Refer to “Non-IFRS and other financial measures”.
FIRST QUARTER OPERATIONAL UPDATE
Production volumes for the first quarter of 2022 averaged 4,457 boe/d, representing an increase of 48% from production volumes in the first quarter of 2021 and a 2% production increase from the last quarter of 2021. Highlights of the causes for the increase in production volumes from Q1 2021 to Q1 2022 are as follows:
- Swan Hills – production volumes increased 79% from Q1 2021. Production in Q1 2022 was positively impacted by increased production as a result of the working interest acquisition of Swan Hills Unit No.1 in August 2021.
The Company is continuing with its production enhancement program beginning in Q2 2022, to increase production in Swan Hills. In addition, the operator in Swan Hills Unit No.1 has embarked on various production enhancement activities and the Company anticipates these production enhancement activities will continue throughout 2022.
- Kaybob – production volumes increased 9% from the same period in 2021 as the Company’s production enhancement program focused in the Kaybob area in March and April 2022.
- Southern Alberta – production volumes decreased 1% from Q1 2021 primarily due to natural production declines. The Company is conducting a small production enhancement program in Q2 2022.
Adjusted net operating expenses1 increased $3.4 million or 32% on a total dollar basis and decreased 6% on a per boe basis in Q1 2022 compared to the same period in 2021. The increase in the adjusted net operating expense on a total dollar basis was due primarily to fuel and electricity costs which increased $1.9 million in Q1 2022 as compared to Q1 2021, surface repairs and maintenance costs which increased $0.6 million in Q1 2022 as compared to Q1 2021 and labour costs which increased $0.2 million in Q1 2022 as compared to Q1 2021. Adjusted net operating expenses on a per boe basis in Q1 2022 were $2.09/boe lower than Q1 2021 due to higher production boe/d rates in Q1 2022 compared to Q1 2021.
The primary factors affecting operating costs on a $/boe basis are production levels, workover activity and electricity pricing. Inherent within the Company’s hydrocarbon operations is a prominent fixed cost element, or those costs that are not correlated to production levels. On a relative basis these costs are higher with lower production. Razor’s reactivation program continued during Q1 2022 and will extend into 2022 with the majority of the costs being expensed. Furthermore, the electricity market has seen a continual rise in prices, that has recently stabilized.
1) Refer to “Non-IFRS and other financial measures.”
During Q1 2022, Razor invested $0.3 million in upstream oil and gas projects, $0.4 million in oilfield services equipment and $3.6 million in the Geothermal Project ($4.7 million less $1.1 million of government grants).
Razor continues to look forward and plan for the future while remaining focused on its long-term sustainability. The Company has an extensive opportunity set of high-quality wells requiring reactivation, many of which have payout metrics which exceed the Company’s economic thresholds. Razor will continue the production enhancement activity throughout 2022. Most activities involve repairs and maintenance work which will be expensed for accounting purposes and operating netbacks will be reduced during this timeframe. In aggregate, the annual base decline of these wells is anticipated to be consistent with the Company’s current corporate rate of approximately 12%.
The Company continues to focus on cost control on its operated properties. In addition to the planned production enhancement program, Razor will take a cautious and case-by-case approach to capital spending in 2022, focusing on low risk, capital efficient investment opportunities to increase field efficiencies and corporate netbacks.
The significant improvement in oil prices thus far in 2022 combined with a strong price outlook in the medium term, provides Razor with improved cash flow from operations and the Company anticipates reducing its net debt throughout 2022.
Razor has high reservoir quality, low decline, isolate carbonate Swan Hills reef light oil pools that contain large original oil in place with over 60 years of production history. Razor believes these reefs are ideally suited for carbon capture, utilization and storage (“CCUS”) and enhanced oil recovery (“EOR”) purposes1, in addition to geothermal power production and conventional open-hole horizontal development drilling upside.
Razor recognizes multiple deep value streams in its assets and is actively engaged in liberating them for the benefit of shareholders.
1 These programs have been successfully demonstrated by the previous operator’s South Swan Hills Unit CO2 EOR Injection Pilot which ran from 2008 to 2010 in addition to CO2 injection programs carried out in the Swan Hills Unit No. 1 and Judy Creek oil pools from 2004 to 2010.
In May 2021, FutEra, a wholly owned subsidiary of Razor entered the project execution stage of its Geothermal Project. On March 9, 2022, FutEra announced that it is fully financed and in final construction of the Geothermal Project, of which up to 30% will be sustainable clean power generation. FutEra has successfully partnered with provincial and federal government agencies to invigorate the emerging geothermal industry. To date, Razor has received $14.1 million in government grants to support this power generation project. The total construction and commissioning budget for the Geothermal Project is $42.0 million.
Legacy oil and gas fields face economic challenges with lower production levels and high fixed costs. However, these fields also have practical advantages when considering the existing infrastructure, pipelines, wells and operational footprints. To meet the objectives of creating lower carbon electricity and leveraging oil and gas operations, FutEra and Razor have successfully designed a geothermal/natural gas hybrid power plant in an operational oil and gas facility. Razor and FutEra continue to demonstrate the synergies and cooperation needed to define a type of transition energy and sets the standard of how traditional oil and gas companies can evolve into ‘energy and technology’ companies necessary for the future of the Alberta energy complex.
FutEra’s next phase of the Geothermal Project will be the design and implementation of a Carbon Capture with Usage and/or Sequestration (“CCUS”) solution with the objective to create a net negative carbon emitting power generation facility.
With Razor’s strategic acquisition of additional working interest in the Swan Hills area in the third quarter of 2021, FutEra has identified the potential for additional geothermal and/or natural gas power generation projects in Swan Hills Unit No.1. The volume and temperature of the produced fluids processed through two of the Unit’s main facilities are highly analogous to FutEra’s current Geothermal Project.
FutEra has identified and is in the process of reviewing and capturing additional projects including solar, geothermal, CCUS and other low carbon technologies.
Razor has appointed Michael Blair to the position of Chief Operating Officer (“COO”). Mr. Blair is a Professional Engineer with over 20 years’ experience in the oil and gas upstream industry. With a particular focus on production and operations, Mr. Blair has worked within organizations such as Baker Hughes, Penn West, Legacy Oil + Gas, Ventura Resources, and Sproule. Mr. Blair has direct operational experience with Razor’s Swan Hills assets.
The Company also announces that Frank Muller has retired from the COO and Senior Vice President roles due to health reasons. Mr. Muller is a founder and Director of Razor, and a steadfast partner in our success. Mr. Muller will continue in the capacity as a Director of Razor.
GRANT OF INCENTIVE STOCK OPTIONS
The Company also announces the granting of 167,000 incentive stock options (“Options”) to acquire Common Shares under the Company’s stock option plan. An aggregate of 117,000 Options were granted to certain officers and 50,000 Options were granted to certain employees.
All of the Options are exercisable for a period of five years at an exercise price of $3.25 per Common Share, which is a premium to the last closing price of $3.07 of the Common Shares on the TSX Venture Exchange. One-third of the Options will vest on the date that is one year after the date of the grant of such Options and the remainder will vest one-third per year thereafter.
Razor is a publicly traded junior oil and gas development and production company headquartered in Calgary, Alberta, concentrated on acquiring, and subsequently enhancing, and producing oil and gas from properties primarily in Alberta. The Company is led by experienced management and a strong, committed Board of Directors, with a long-term vision of growth focused on efficiency and cost control in all areas of the business. Razor currently trades on TSX Venture Exchange under the ticker “RZE.V”. www.razor-energy.com
FutEra leverages Alberta’s resource industry innovation and experience to create transitional power and sustainable infrastructure solutions to commercial markets and communities, both in Canada and globally. Currently, it is developing a 21 MW co-produced geothermal and natural gas hybrid power project in Swan Hills, Alberta.
Blade Energy Services is a subsidiary of Razor. Operating in west central Alberta, Blade’s primary services include fluid hauling, road maintenance, earth works including well site reclamation and other oilfield services.
|For additional information please contact:|
President and Chief Executive Officer
Chief Financial Officer
|Razor Energy Corp.
800, 500-5th Ave SW
Calgary Alberta T2P 3L5