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 six month periods ended June 30, 2022. Crew’s 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.
“The success of our two-year asset development plan (the “Two-Year Plan”) is clearly demonstrated by Crew’s Q2/22 performance, during which we significantly reduced bank debt, resulting in a net debt to annualized Q2/22 EBITDA1 measure of just 0.6 times. With production volumes of 35,044 boe per day outperforming internal forecasts by 10% and Adjusted Funds Flow2 (“AFF”) of $115 million up 48% over the previous quarter, we have set another corporate record,” said Dale Shwed, President and CEO of Crew. “Our standout performance in the first half of the year has led to increases in annual guidance for production, AFF2, Free AFF6, and investment while continuing to responsibly develop our world-class Montney assets, reduce per unit costs and grow natural gas and condensate production – all of which support our long-term sustainability goals.”
HIGHLIGHTS
- 35,044 boe per day3 (210 mmcfe) average production in Q2/22 was another new corporate record and 10% higher than Crew’s internal forecasts, representing a 31% increase over Q2/21 and a 5% increase sequentially from Q1/22. First half 2022 volumes averaged 34,225 boe per day3 (205 mmcfe), 29% above the same period in 2021.
- Natural gas production in the quarter increased 33% over Q2/21 to 158 mmcf per day.
- Condensate production increased 84% in the quarter to 5,570 bbls per day and natural gas liquids4,5 (“NGLs”) increased 16% to 3,108 bbls per day over Q2/21.
- $115.3 million of AFF2 ($0.76 per basic share and $0.71 per fully diluted share) was generated in Q2/22, a company record, a 48% increase from Q1/22 and a 352% increase over Q2/21, driven by significant production growth and robust operating netbacks6 of $38.92 per boe. First half 2022 AFF2 of $192.9 million was 224% higher than the first half of 2021.
- $108.2 million of Free AFF6 was generated in Q2/22, enabling Crew to accelerate deleveraging and significantly strengthen our financial flexibility.
- 89% reduction in bank debt relative to year end 2021, with only $8.1 million drawn on a $185 million credit facility at the end of June.
- $288.2 million of net debt2 at quarter-end, a 29% reduction from year-end 2021.
- 0.6 times net debt2 to annualized Q2/22 EBITDA measure1 at quarter-end.
- 22% reduction in cash costs per boe6 to $9.63 per boe in Q2/22 from $12.33 in Q2/21, with net operating costs6declining 27% over Q2/21 to $3.52 per boe.
- $7.1 million of net capital expenditures6 in Q2/22 were limited, as no wells were drilled or completed in the period, and Crew remained focused on bolstering our financial position during spring break-up.
- Exceeded corporate forecasts on the following wells:
- Five Upper Montney “B” zone ultra-condensate rich (“UCR”) wells at Septimus with average (IP60) rates of 1,323 mcf per day of natural gas and 915 bbls per day of condensate;
- Three Upper Montney “B” zone UCR wells at Septimus with average (IP120) rates of 8,614 mcf per day of natural gas and 574 bbls per day of condensate;
- Crew’s best upper Montney “C” zone UCR well to date with average (IP60) rates of 1,896 mcf per day of natural gas and 607 bbls per day of condensate; and
- One exploration well at Monias, which tested 1,197 mcf per day of natural gas and 405 bbls per day of condensate, proving the development potential of another area and enhancing corporate sustainability.
- Sustainability and ESG Report released today updating Crew’s performance and initiatives, which is accessible from our website.
FINANCIAL & OPERATING HIGHLIGHTS
FINANCIAL ($ thousands, except per share amounts) |
Three months ended June 30, 2022 |
Three months ended June 30, 2021 |
Six months ended June 30, 2022 |
Six months ended June 30, 2021 |
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Petroleum and natural gas sales | 198,329 | 68,550 | 328,671 | 154,067 | ||
Cash provided by operating activities | 117,363 | 24,890 | 172,445 | 55,337 | ||
Adjusted funds flow2 | 115,274 | 25,530 | 192,934 | 59,525 | ||
Per share1 – basic | 0.76 | 0.17 | 1.27 | 0.39 | ||
– diluted | 0.71 | 0.16 | 1.19 | 0.37 | ||
Net income (loss) | 88,695 | (23,138 | ) | 87,318 | (21,785 | ) |
Per share – basic | 0.58 | (0.15 | ) | 0.57 | (0.14 | ) |
– diluted | 0.55 | (0.15 | ) | 0.54 | (0.14 | ) |
Property, plant and equipment expenditures | 7,061 | 21,198 | 62,422 | 71,288 | ||
Net property dispositions6 | – | – | – | – | ||
Net capital expenditures6 | 7,061 | 21,198 | 62,422 | 71,288 |
Capital Structure ($ thousands) |
As at June 30, 2022 |
As at Dec. 31, 2021 |
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Working capital surplus (deficiency)2 | 18,222 | (33,068 | ) | |
Bank loan | (8,101 | ) | (75,067 | ) |
10,121 | (108,135 | ) | ||
Senior unsecured notes | (298,325 | ) | (297,834 | ) |
Net debt2 | (288,204 | ) | (405,969 | ) |
Common shares outstanding (thousands) | 152,807 | 152,480 |
OPERATIONAL | Three months ended June 30, 2022 |
Three months ended June 30, 2021 |
Six months ended June 30, 2022 |
Six months ended June 30, 2021 |
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Daily production | ||||||
Crude oil (bbl/d)7 | 108 | 1,324 | 112 | 1,267 | ||
Condensate (bbl/d) | 5,570 | 3,019 | 4,752 | 2,864 | ||
Natural gas liquids (“ngl”)4,5 (bbl/d) | 3,108 | 2,687 | 2,982 | 2,545 | ||
Conventional natural gas (mcf/d) | 157,547 | 118,089 | 158,273 | 118,858 | ||
Total (boe/d @ 6:1) | 35,044 | 26,712 | 34,225 | 26,486 | ||
Average realized1 | ||||||
Light crude oil price ($/bbl) | 130.66 | 71.65 | 118.68 | 68.02 | ||
Heavy crude oil price ($/bbl) | – | 60.03 | – | 56.54 | ||
Natural gas liquids price ($/bbl) | 49.09 | 11.85 | 48.91 | 12.65 | ||
Condensate price ($/bbl) | 130.07 | 75.36 | 124.40 | 72.72 | ||
Natural gas price ($/mcf) | 8.17 | 3.49 | 6.73 | 4.52 | ||
Commodity price ($/boe) | 62.16 | 28.20 | 53.06 | 32.14 |
Three months ended June 30, 2022 |
Three months ended June 30, 2021 |
Six months ended June 30, 2022 |
Six months ended June 30, 2021 |
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Netback ($/boe) | ||||||||
Petroleum and natural gas sales | 62.16 | 28.20 | 53.06 | 32.14 | ||||
Royalties | (3.98 | ) | (1.91 | ) | (3.40 | ) | (2.06 | ) |
Realized loss on derivative financial instruments | (12.41 | ) | (3.46 | ) | (8.89 | ) | (5.37 | ) |
Net operating costs6 | (3.52 | ) | (4.79 | ) | (3.51 | ) | (4.72 | ) |
Transportation costs | (3.33 | ) | (4.10 | ) | (3.23 | ) | (4.13 | ) |
Operating netback6 | 38.92 | 13.94 | 34.03 | 15.86 | ||||
General and administrative (“G&A”) | (0.83 | ) | (0.93 | ) | (0.89 | ) | (0.93 | ) |
Financing costs on debt6 | (1.95 | ) | (2.51 | ) | (1.99 | ) | (2.51 | ) |
Adjusted funds flow2 | 36.14 | 10.50 | 31.15 | 12.42 |
1 Supplementary 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.
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.
3 See table in the Advisories for production breakdown by product type as detailed in NI 51-101.
4 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.
5 Excludes condensate volumes which have been reported separately.
6 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 and in our most recently filed MD&A, available on SEDAR at www.sedar.com.
7 Throughout this news release, crude oil refers to light, medium and heavy crude oil product type as defined by National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (“NI 51-101”).
SUCCESSFUL EXECUTION OF TWO-YEAR PLAN
Crew is proud to showcase the successful execution of our Two-Year Plan, both to date in 2022 and since its launch in late 2020 and remains committed to furthering these efforts through the second half of this year. To date, we have realized the following accomplishments associated with our Two-Year Plan:
- Significant Deleveraging – Crew had an 89% reduction in outstanding bank debt quarter-over-quarter, which totaled $8.1 million at June 30, 2022, contributing to net debt2 of $288.2 million, 27% lower than the previous quarter end. With our deleveraging strategy in action, we are on track to achieve our target net debt2 to last twelve month (“LTM”) EBITDA1 ratio of under 1.0 times by the end of 2022, based on the forecast commodity prices referenced in the Outlook section, representing a significant improvement from 5.5 times at the end of 2020.
- Material Production Expansion – Average Q2/22 production of 35,044 boe per day3 (210 mmcfe per day) represents the highest quarterly production in Crew’s history, driven largely by strong well results from Septimus ultra condensate rich wells added in Q1/22 and the continued outperformance of the Groundbirch dry gas wells added in Q4/21. Condensate production increased 42% over the prior quarter, averaging 5,570 bbls per day, contributing to the Company’s strong financial performance for the quarter.
- Record AFF2 and Free AFF6 Levels – AFF2 of $115.3 million and Free AFF6 of $108.2 million in Q2/22 were supported by reduced cash costs per boe6, improved operating netbacks6 and higher production.
- Margin Enhancement Through Reduced Per Unit Cash Costs – Cash costs per boe6 associated with operating, transportation, G&A and interest expense totaled $9.63 per boe in Q2/22, a 22% decrease from $12.33 per boe in Q2/21, contributing to a 179% increase in operating netback6 to $38.92 in Q2/22 over Q2/21, aligning with the goals in our Two-Year Plan to decrease cash costs per boe6 by increasing production to match committed transportation and processing capacity, ultimately improving margins.
- 2022 Guidance Revised Upward – Given Crew’s outperformance through the first half of 2022, we are pleased to be revising full year 2022 guidance and assumptions across all metrics; notably AFF2 guidance is increased to between $300 and $320 million, Free AFF6 guidance is now between $160 to $190 million, with net capital expenditures increasing to $130 to $140 million and the bottom end of Crew’s production forecast increasing to 32,000 to 33,000 boe per day. See the Outlook section below for commodity prices, capital allocation and other material assumptions.
- Returns-Focused Capital Program – For the remainder of 2022, Crew’s expanded capital program will continue to be directed to high-return projects supported by a continued focus on technical efficiency improvements to help offset inflationary factors being experienced globally.
OPERATIONS & AREA OVERVIEW
NEBC Montney (Greater Septimus)
- Capital expenditures were focused on the equip and tie-in of the 4-14 pad during Q2/22, along with expansion of the infrastructure interconnectivity between Crew’s Septimus and West Septimus gas plants. These infrastructure enhancements have enabled the optimal utilization of the liquids handling component of our infrastructure at the West Septimus gas plant, allowing Crew to achieve the highest quarterly condensate production in our history, averaging 5,570 bbls per day.
- Supported by greater facility utilization, the five (5.0 net) extended reach horizontal (“ERH”) UCR wells drilled to the east in the Upper Montney “B” zone on our 4-14 pad produced IP60 volumes that exceeded internal expectations, with average wellhead rates of 1,323 mcf per day of natural gas and 915 bbls per day of condensate.
- The three (3.0 net) ERH UCR wells drilled to the west in the Upper Montney “B” zone on our 4-14 pad produced IP120 volumes that exceeded internal expectations, with average wellhead rates of 8,614 mcf per day of natural gas and 574 bbls per day of condensate.
- Successfully tested the new Upper Montney “C” zone on the 4-14 pad, with average wellhead IP60 rates of 1,896 mcf per day of natural gas and 607 bbls per day of condensate.
- Successfully tested the A14-34 exploration well in Q2/22 which flowed hydrocarbons for 187 hours (or 7.8 days) and at the end of the production test was producing at a wellhead rate of 1,197 mcf per day of natural gas and 405 bbls per day of condensate for a condensate to gas ratio (“CGR”) of 338 bbls per mmcf. This well is strategically important as it is two miles northwest of the Monias fault, is within the Fort St. John graben and provides support for another liquids-rich hydrocarbon development window on Crew’s acreage, further demonstrating the sustainable and high-quality nature of our asset base.
Groundbirch
- Early in 2022, Crew drilled five (5.0 net) wells that are expected to evaluate two additional zones on the Groundbirch 4-17 pad in the second half of the year, building on the success of our initial three wells previously established in the area. Completion operations have begun on these wells with testing to begin later in August.
- The initial three (3.0 net) wells drilled at Groundbirch are exceeding the Proved plus Probable area type curve forecasts reflected in Crew’s year-end 2021 independent reserves evaluation8, with an average per well raw gas production rate after 270 days (“IP270”) of 7,706 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 which have been tested on the initial three well pad. Two additional zones are expected to be evaluated in the last half of 2022 with the completion of our 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 WITH NEW REPORT RELEASED TODAY
Crew’s commitment to progressing our ESG initiatives remained a focus in the quarter as we continue to invest in developing sustainable solutions to complement our corporate growth. Crew is proud to launch our second annual digital ESG report today, which builds on the Company’s 2020 ESG report and features a new and streamlined structure. Please visit us at www.crewenergy.com to learn more and to read about our new sustainable solutions.
Our Q2/22 ESG highlights include:
- The Company continued to demonstrate our strong commitment to safety with no recordable injuries in Q2/22.
- The Company continued to participate in provincially-funded dormant well programs, having abandoned 20 wells to date in 2022. We expect to abandon a total of 39 wells, or approximately 30% of the Company’s remaining idle wells in 2022.
- A total of $4.5 million was directed to abandonment and reclamation activities during the first six months of 2022, allocated across well work, reclamation, facilities removal and remediation.
OUTLOOK
- Full Year 2022 Guidance
- As a result of the strong commodity price environment, better than forecasted well performance and AFF, combined with our deleveraging goal of exiting the year with a net debt2 to LTM EBITDA1 ratio of less than 1.0 times being on track, the Company has increased our 2022 AFF2, Free AFF6, production and capital investment guidance. We plan to invest between $130 and $140 million of net capital expenditures6, resulting in average annual production guidance of 32,000 to 33,000 boe per day3.
- The increase in planned annual capital investment will now include:
- the drilling of six ERH UCR wells at the Septimus 11-27 pad, following up on our highly successful 4-14 pad;
- a condensate stabilization infrastructure project at the Septimus gas plant to increase condensate capacity from 1,000 bbls per day to 4,700 bbls per day;
- pipeline infrastructure to tie-in the 11-27 pad, which is currently not expected to be on production until late Q1/23; and
- placing deposits on long lead items for our 2023 program.
- This program is expected to optimize condensate production through both gas plants while adding six ERH UCR drilled and uncompleted wells to our inventory. For additional information, an updated corporate presentation has been posted to our website at crewenergy.com. Guidance for 2022 annual AFF, Free AFF and EBITDA have also increased as outlined in the table below:
Previous 2022 Guidance and Material Assumptions | Updated 2022 Guidance and Material Assumptions9 | |
Net capital expenditures6 ($MM) | 80-95 | 130-140 |
Annual average production (boe/d) | 31,000-33,000 | 32,000-33,000 |
AFF2 ($MM) | 245-265 | 300-320 |
Free AFF6 ($MM) | 150-185 | 160-190 |
EBITDA6 ($MM) | 269-289 | 324-344 |
Oil price (WTI)($US per bbl) | 85.00 | 93.00 |
Natural gas price (NYMEX) ($US per mmbtu) | 5.10 | 6.15 |
Natural gas price (AECO 5A) ($C per mcf) | 4.50 | 5.45 |
Natural gas price (Crew est. wellhead) ($C per mcf) | 5.10 | 6.25 |
Foreign exchange ($US/$CAD) | 0.78 | 0.78 |
Royalties | 5-7% | 8-9% |
Net operating costs6 ($ per boe) | 3.50-4.00 | 3.50-4.00 |
Transportation ($ per boe) | 2.75-3.25 | 3.00-3.50 |
G&A ($ per boe) | 0.80-1.00 | 0.80-1.00 |
Effective interest rate on long-term debt | 6.0-6.5% | 6.0-6.5% |
Updated 2022 guidance and material assumptions in the table above reflect actuals for the six months ended June 30, 2022 and forecasts for the six months ended December 31, 2022. Selected forecasts for the six months ended December 31, 2022 are as follows: | ||
Oil price (WTI)($US per bbl) | 85.00 | |
Natural gas price (NYMEX) ($US per mmbtu) | 6.25 | |
Natural gas price (AECO 5A) ($C per mcf) | 4.95 | |
Natural gas price (Crew est. wellhead) ($C per mcf) | 5.80 |
8 Complete details of Crew’s year-end 2021 independent reserves evaluation are contained within our Annual Information Form, available on SEDAR at www.sedar.com.
9 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.
- Q3/22 Capital Program – Crew’s Q3/22 capital program is expected to range between $56 and $64 million, with quarterly production volumes expected to average between 30,000 and 32,000 boe per day3 as the three Groundbirch wells, which were producing approximately 2,800 boe per day, have been shut-in for offsetting completion operations.
- Near Term Initiatives
- Continue directing forecasted Free AFF6 to further reduce debt and improve leverage metrics;
- Advance the evaluation of refinancing options for the Company’s $300 million, 6.5% senior unsecured notes due March 14, 2024 (the “2024 Notes”), to further strengthen the balance sheet and position Crew for long-term sustainability;
- Invest in capital projects with strong rates of return and payouts expected in under 12 months, which can be supported by an active hedging program;
- Continue to optimize transportation and facilities throughput to sustain lower per unit costs; and
- Actively monitor service industry efficiencies, costs, supply chain trends and commodity prices to assess potential budget adjustments as market conditions change throughout the year.
- Near Term Initiatives
Our ‘Crew’ remains eager to continue advancing our momentum and strategic direction, driving our Two-Year Plan to completion in the second half of 2022 by further improving the balance sheet, maintaining a focus on increasing AFF5, and prioritizing our ongoing ESG initiatives. Through the balance of this year, Crew’s Board of Directors and management will be working to develop an updated strategic plan to build on the success of our initial Two-Year Plan and anticipate sharing details about our plan in the fourth quarter of 2022. We thank all stakeholders, including employees, directors, partners, communities, bond holders and shareholders, for their contribution and dedication to the success of Crew.