CALGARY, Alberta – NuVista Energy Ltd. (“NuVista” or the “Company”) (TSX:NVA) is pleased to announce record-setting financial and operating results for the three and six months ended June 30, 2022, and to provide a number of updates which demonstrate continued material advancement of our Pipestone and Wapiti Montney development. Commodity prices in 2022 have remained volatile but strong. Adjusted funds flow and production growth continues to set new records, well returns are very high, rapid debt reduction continues, and we have begun to buy back shares. NuVista is continuing through 2022 with strength and increasing momentum.
During the quarter ended June 30, 2022, NuVista:
- Produced 65,032 Boe/d, slightly above the guidance range of 62,500 – 65,000 Boe/d, and similar to the first quarter level. This was achieved despite planned downtime associated with six maintenance outages at NuVista and midstreamer facilities during the quarter. Production was 26% higher than the second quarter of 2021;
- Achieved a record $200 million of adjusted funds flow(1) in the second quarter ($0.87/share, basic(4)), including $84 million of free adjusted funds flow(2). This represents a free adjusted funds flow increase of 30% over the prior quarter;
- Achieved net earnings of $178 million ($0.78/share, basic) compared to $70.3 million ($0.31/share, basic) in the prior quarter;
- Delivered a corporate netback(3) of $33.76/Boe for the quarter, an improvement of 7% and 185% compared to the prior quarter and the second quarter of 2021, respectively;
- Closed the quarter with $57 million drawn on our long term credit facility and a favorable net debt(1) to annualized second quarter adjusted funds flow(1) ratio of 0.4x;
- Commenced for the first time in our corporate history the execution of a Normal Course Issuer Bid (“NCIB”) with approval from the TSX received in June. During the second quarter, NuVista repurchased and canceled 2.56 million shares, and subsequent to the quarter have now increased the total to 4.61 million shares at an aggregate cost of $47.6 million. This represents a total of 2.0% of all shares outstanding, and satisfaction of 25% of the NCIB to date;
- Executed a successful second quarter capital expenditure(2) program of $115 million, including the drilling of 12 (11.5 net) wells and the completion of 16 (16.0 net) wells in our condensate rich Wapiti Montney play; and
- Continued to significantly advance our progress in the areas of environmental, social and governance (“ESG”), including continued positive strides in reducing GHG and methane emissions.
|(1)||Each of “adjusted funds flow”, “net debt” and “net debt to annualized second quarter adjusted funds flow” are capital management measures. Reference should be made to the section entitled “Non-GAAP and Other Financial Measures” in this press release for further information.|
|(2)||Each of “free adjusted funds flow” and “capital expenditures” are non-GAAP financial measures that do not have any standardized meanings under IFRS and therefore may not be comparable to similar measures presented by other companies where similar terminology is used. Reference should be made to the section entitled “Non-GAAP and Other Financial Measures” in this press release for further information.|
|(3)||Each of “corporate netback” and “cash costs” are non-GAAP financial ratios that do not have any standardized meanings under IFRS and therefore may not be comparable to similar measures presented by other companies where similar terminology is used. Reference should be made to the section entitled “Non-GAAP and Other Financial Measures” in this press release for further information.|
|(4)||“Adjusted funds flow per share” is a supplementary financial measure. Reference should be made to the section entitled “Non-GAAP and Other Financial Measures” in this press release for further information.|
We are pleased to report that production and operational performance exceeded our expectations again this quarter. Production reached the top end of our guidance range at 65,032 Boe/d during a period where planned facility maintenance occurred in all of our development areas. The continued strength in our well results coupled with sound execution on the maintenance projects by ourselves and our mid-stream partners allowed us to successfully navigate through a complex period. Inflationary pressures and supply chain constraints have not moderated throughout the second quarter and early into the third quarter. Our steady and predictable activity level has allowed us to manage these pressures throughout the quarter within budget, as average Drill, Complete and Equip (“DCE”) costs met our expectations which included 15% inflation (10% net of performance efficiency gains). We have also been implementing extra measures to combat inflation and supply change management issues as much as possible. These measures include early purchases of selected tubulars and goods, as well as longer term contracting with selected service providers where appropriate.
We have updated our lookback at payout multiples(5)(6) to include our second quarter activity which includes two new pads. Based on an assumed price forecast of US$85/Bbl WTI and US$4.00/MMBtu NYMEX we anticipate these pads achieving a first year payout multiple(5)(6) of approximately 1.8x, which is in line with the pad average of our 2021 capital program.
Activity levels in the Pipestone area were high, with Pads #9 and #10 coming on-stream in the quarter. Pad #9, which is our shortest pad at an average horizontal length of 1,850 meters, reached IP90(7) at 1,110 Boe/d per well(8) including 50% condensate. Pad #10 has reached IP30 with volumes averaging 2,000 Boe/d including 50% condensate. Final Costs for pad #9 were reported in the first quarter, while DCE costs for the 7 wells on Pad #10 averaged a favorable $6.6 million per well, or $2,180 per horizontal meter, which was inline with what we achieved in 2021.
Pad #11 finished drilling and has been successfully completed at the beginning of Q3. Final drill costs for the 5 wells on this pad averaged $710 per horizontal meter which is within 2% of our previous record pad cost, providing more evidence of our ability to partially offset inflationary pressures with continued excellence in operational performance. We are currently drilling Pad #12 and preparing to drill Pad #13 which will wrap up drilling the Pipestone area for the year as facilities will be nearing capacity throughout the fourth quarter.
With our return to drilling in the Wapiti area we are pleased to see performance at Gold Creek continuing to surprise to the upside, and importantly drilling inventory expansion is being underpinned by new results from the Lower Montney. The 7-14 Gold Creek pad which came on production in May was on budget with DCE costs of $2,390 per horizontal meter. The IP30 milestone has been reached on this pad with volumes averaging 1,420 Boe/d(8) including 40% condensate. Of particular note, this 4-well pad included our first Lower Montney test in the Gold Creek area. IP30 for this well was 1,340 Boe/d(8) including 48% condensate. This is extremely encouraging as our previous Gold Creek plans were based on single-zone development in the Middle Montney. As of the end of 2021, 94 Contingent Resource locations(8) had been booked in the Lower Montney at Gold Creek, but no Proved Plus Probable locations had yet been booked in our reserve report.
|(5)||“Payout multiple” is a non-GAAP financial ratio that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other companies where similar terminology is used. Reference should be made to the section entitled “Non-GAAP and Other Financial Measures” in this press release for further information.|
|(6)||“Payout multiple” is calculated as: (i) the product of operating netbacks (excluding realized gains (losses) on financial derivatives) multiplied by production; divided by (ii) DCET capital invested.|
|(7)||Five of the seven wells on this pad have reached IP90 to date.|
|(8)||See “Advisories Regarding Oil and Gas Information” in this press release.|
ESG Progress Continues
During the quarter NuVista continued to progress key items in the area of ESG performance improvement, including the previously announced conversion of our credit facility to a sustainability linked loan with specific sustainability performance targets. We have been preparing our 2021 ESG report update, and we look forward to releasing details of our significant progress with that report in August.
Ross Andreachuk, our VP Finance and CFO, has elected to retire effective Dec 31, 2022 after 16 years with NuVista. On behalf of the board of directors and the NuVista management team we would like to extend our sincere appreciation for the dedication and steady financial leadership Ross has provided through the many years of NuVista growth and industry cycles. We wish Ross and family every success and happiness in retirement.
We are pleased to announce the promotion of our Controller, Ivan J. Condic, to the role of VP Finance and CFO, effective January 1, 2023. Ivan has been our Controller since 2014 and has worked closely with Ross and our executive team and the board throughout the period to ensure his readiness as part of our ongoing executive and staff succession planning process. Prior to NuVista, Ivan began his career as a staff accountant at KPMG and then has held a variety of roles including controller and CFO at smaller companies in our industry. Ivan will be joining our CEO and CFO at investor and board meetings throughout the planned fall transition period. We wish Ivan every success in the new role.
2022 Guidance Update
As discussed above, NuVista is pleased to note that operations and performance have been strong while both condensate and natural gas prices have continued at highly profitable levels. This results in a material increase to projected adjusted funds flow, tremendous progress in reducing our net debt, and high velocity of capital investment return. Capital spending and inflationary assumptions have been on track to prior estimates thus far.
NuVista’s capital expenditure guidance for 2022 is re-affirmed at a range of $355 – $375 million. We will revisit this in the fall to assess any changes to inflationary pressures. Additionally, if commodity pricing and production continue to perform well, we will review the optionality of moving some planned activities from the first quarter of 2023 to the fourth quarter of 2022 to again optimize supply chain management and execution outcomes.
NuVista’s recent well performance has been strong, and all planned outages for the year have been concluded. We have set our third quarter production guidance range at 67,000 to 69,000 Boe/d. Full year 2022 guidance is reaffirmed at 67,000 – 69,000 Boe/d.
Free Adjusted Funds Flow Allocation Framework
Our Board has approved a long term sustainable target net debt to adjusted funds flow of less than 1.0 times in the stress test price environment of US$45/Bbl WTI and US$2.00/MMBtu NYMEX natural gas. In the context of our 2022 plan, this represents the target base net debt level of $200 million or less. We believe that the best method for return of capital to shareholders is initially to repurchase shares, however we will re-evaluate the uses of free adjusted funds flow closer to year end when the base targeted net debt level is expected to be achieved. The re-evaluation will take into account the supply and demand and pricing environment, and will include all options including continued disciplined growth beyond existing facility capacity of 90,000 Boe/d, share repurchases, prudent targeted M&A, and dividend payments.
At current strip prices, NuVista anticipates being able to direct approximately 50% of remaining 2022 free adjusted funds flow towards the return of capital to shareholders while at the same time reaching our targeted net debt of $200 million before or near year end. This is anticipated to result in the substantial satisfaction of the NCIB prior to year end at the current strip commodity pricing and share price. Our board of directors has approved share repurchases targeting a range of 25% to 50% of quarterly free adjusted funds flow, with the remainder directed towards debt reduction. The order of priority for free adjusted funds flow allocation shall be achieving debt reduction progress, followed by share repurchases. Combined with significant production and free adjusted funds flow growth, we are confident the share repurchases will bring significant additional value per share while returning capital to shareholders.
NuVista has top quality assets and a management team focused on relentless improvement. We have the necessary foundation and liquidity to continue adding significant value for our shareholders. We will continue to adjust to this environment in order to maximize the value of our asset base and ensure the long-term sustainability of our business. We would like to thank our staff, contractors, and suppliers for their continued dedication and delivery, and we thank our board of directors and our shareholders for their continued guidance and support. Please note that our corporate presentation is being updated and will be available at www.nuvistaenergy.com on August 3, 2022. NuVista’s financial statements, notes to the financial statements and management’s discussion and analysis for the quarter ended June 30, 2022, will be filed on SEDAR (www.sedar.com) under NuVista Energy Ltd. on August 3, 2022 and can also be accessed on NuVista’s website.
|Financial and Operating Highlights|
|Three months ended June 30||Six months ended June 30|
|($ thousands, except otherwise stated)||2022||2021||% Change||2022||2021||% Change|
|Petroleum and natural gas revenues||463,273||187,925||147||845,100||339,334||149|
|Cash provided by operating activities||227,668||58,357||290||390,110||104,508||273|
|Adjusted funds flow (1) (4)||199,833||55,452||260||389,702||88,709||339|
|Per share, basic||0.87||0.25||248||1.70||0.39||336|
|Per share, diluted||0.83||0.25||232||1.63||0.38||329|
|Net earnings (loss)||177,954||(10,941||)||1,726||248,209||4,447||5,481|
|Per share, basic||0.78||(0.05||)||1,660||1.08||0.02||5,300|
|Per share, diluted||0.74||(0.05||)||1,580||1.04||0.02||5,100|
|Capital expenditures (2)||115,023||44,344||159||234,987||125,292||88|
|Net proceeds on property dispositions||—||—||—||—||93,578||(100||)|
|Net debt (1) (4)||349,192||547,314||(36||)|
|Natural gas (MMcf/d)||225.1||178.3||26||227.0||173.4||31|
|Condensate & NGLs weighting||42||%||42||%||43||%||41||%|
|Average realized selling prices (6)|
|Natural gas ($/Mcf)||7.83||3.48||125||6.80||3.63||87|
|NGLs ($/Bbl) (5)||73.09||28.73||154||61.00||28.76||112|
|Petroleum and natural gas revenues||78.28||40.11||95||70.94||38.50||84|
|Realized loss on financial derivatives||(12.77||)||(6.13||)||108||(10.14||)||(5.65||)||79|
|Operating netback (3)||36.26||15.76||130||35.69||14.36||149|
|Corporate netback (3)||33.76||11.84||185||32.71||10.06||225|
|SHARE TRADING STATISTICS|
|Average daily volume (‘000s)||1,219||1,350||(10||)||1,396||1,413||(1||)|
|Common shares outstanding (‘000s)||228,460||226,256||1|
|(1)||Refer to Note 15 “Capital management” in NuVista’s financial statements and to the sections entitled “Adjusted funds flow” and “Liquidity and capital resources” contained in this MD&A.|
|(2)||Non-GAAP financial measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other companies where similar terminology is used. Reference should be made to the section entitled “Non-GAAP and Other Financial Measures”.|
|(3)||Non-GAAP ratio that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other companies where similar terminology is used. Reference should be made to the section entitled “Non-GAAP and Other Financial Measures”.|
|(4)||Capital management measure. Reference should be made to the section entitled “Non-GAAP and Other Financial Measures”.|
|(5)||Natural gas liquids (“NGLs”) include butane, propane and ethane revenue and sales volumes, and sulphur revenue.|
|(6)||Product prices exclude realized gains/losses on financial derivatives.|