CALGARY, Alberta, Nov. 09, 2022 (GLOBE NEWSWIRE) — NuVista Energy Ltd. (“NuVista” or the “Company”) (TSX:NVA) is pleased to announce record-setting financial and operating results for the three and nine months ended September 30, 2022, and to provide a number of updates which demonstrate continued material advancement of our Pipestone and Wapiti Montney development areas. Commodity prices in 2022 have remained volatile but strong. Adjusted funds flow and production growth continues to set new records, well investment returns are very high, rapid debt reduction continues, and the repurchase of Company shares is well underway as part of the Normal Course Issuer Bid (“NCIB”). NuVista is progressing through 2022 and into 2023 with strength and increasing momentum.
During the quarter ended September 30, 2022, NuVista:
- Produced 68,792 Boe/d, at the top of the guidance range of 67,000 – 69,000 Boe/d, which was 6% higher than the prior quarter, and 35% higher than the third quarter of 2021;
- Achieved a record $246 million of adjusted funds flow(1) ($1.04/share, diluted(4)), including $133 million of free adjusted funds flow(2). This represents a free adjusted funds flow increase of 59% over the prior quarter;
- Achieved net earnings of $223 million ($0.95/share, diluted) compared to $178 million ($0.74/share, diluted) in the prior quarter;
- Delivered a corporate netback(3) of $38.89/Boe, an improvement of 15% and 126% compared to the prior quarter and the third quarter of 2021, respectively;
- Achieved an average natural gas realized price of $8.32/Mcf due to our significantly diversified natural gas sales strategy, an improvement of 43% compared to the AECO monthly 7A index price for the period;
- Closed the quarter with only $9 million drawn on our long term credit facility which has capacity of $440 million and a favorable net debt(1) to annualized third quarter adjusted funds flow(1) ratio of 0.3x;
- Repurchased and cancelled 4.28 million shares for an aggregate cost of $44.2 million or $10.32/share, under the terms of our NCIB. Including the shares subsequently repurchased in October, NuVista has now cancelled 8.6 million shares during 2022 for the aggregate cost of $93.0 million or $10.84/share. This represents a total of 3.9% of all shares outstanding, and achievement of 47% of the NCIB;
- Executed a successful capital expenditure(2) program of $112 million with favorable weather allowing rapid progress, including the drilling of 14 (13.8 net) wells and the completion of 13 (12.4 net) wells in our condensate rich Wapiti Montney play;
- Continued to significantly advance our progress in the areas of environmental, social and governance (“ESG”), including the release of our 2021 ESG report, which is available on our Company website. Importantly, the report contains continued evidence of our significant reductions in greenhouse gas emissions, a journey that we have committed to continuing; and
- Achieved approval by NuVista and all working interest owners for a cogeneration project at the NuVista Wembley Gas Plant for startup by early 2024, which will significantly reduce operating costs, fuel consumption, and greenhouse gas emissions.
(1) Each of “adjusted funds flow”, “net debt” and “net debt to annualized third 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) “Corporate netback” is a non-GAAP financial ratio that does 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.
During and subsequent to the end of the third quarter, NuVista reached a number of new milestones that reflect the repeatable and profitable nature of our business plan. Production for the quarter reached record levels at 68,792 Boe/d and importantly has peaked above 75,000 Boe/d on a weekly basis in October as we test the productive capacity of a number of our processing facilities. Production growth will continue in 2023 as our winter program comes online. Throughout 2022, we have been reiterating the efficiency and importance of a continuous three drilling rig operation due to the ability of our long-standing relationships with key services providers to assist with supply chain and cost challenges. Our staff and contractors in the field have once again allowed us to deliver excellent cost and operational results. In 2022 our average cost to drill, complete, equip, and tie-in (“DCET”) a typical 3000-meter well is expected to average $7.8 million, which is a 16% improvement over pre-pandemic levels in 2019. Our continued consistent emphasis on performance in the field has helped offset the industry inflation we have seen in services and materials, limiting the net 2022 increase of DCET costs to 10% as compared to 2021.
Payout Multiples and Milestones
We have updated the payout multiples(5)(6) shown in our Corporate Presentation to include three new pads that were brought online during the quarter, bringing the total number of pads to come onstream over the 2021-2022 timeframe to 14. It is important to note that DCET capital represents approximately 85% of the capital expenditures that NuVista will have invested over the two year period. Based on an assumed price forecast of US$85/Bbl WTI and US$4.00/MMBtu NYMEX we anticipate these latest investments will on average achieve a payout multiple(5)(6) of approximately 1.8x in the first year of production. In addition, two Pipestone North pads, have reached significant milestones. IP365 production from these pads averaged 1,100 Boe/d(8), including 45% condensate. The first year capital efficiency(7) averaged less than $6,000 per Boe/d and the payout multiples(5)(6) were realized at over 3.0x.
Pipestone remained the Company’s most active development area again this quarter. Two more pads have recently been brought online, while another is pending completion and will be brought on production toward the end of the first quarter of 2023. The final DCET cost for the two completed pads was $7.8 million per well or an average of $2,300 per horizontal meter, which is in line with budget expectations. IP30 production milestones for these two new pads averaged 1,575 Boe/d (45% condensate)(8) for a 5-well pad in Pipestone South and 2,200 Boe/d(8) (60% condensate) for an 8-well pad in Pipestone North.
Activity levels in the Greater Wapiti area are ramping up as we head into a major growth phase for this asset. Production for the area averaged 27,500 Boe/d in the quarter and is expected to grow by more than 35% in 2023. A new Bilbo pad has been brought online and has achieved an IP30 production milestone of 2,050 Boe/d(8) (55% condensate). We are currently drilling with two rigs on a 6-well pad in the Elmworth area and have just completed the drilling of another 3-well pad at Bilbo and a 5-well pad at Gold Creek. The Bilbo and Gold Creek pads will be completed and brought on production before the end of the first quarter of 2023.
(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) Capital efficiency is a measure calculated as capital expenditures divided by production additions in the first year.
(8) See “Advisories Regarding Oil and Gas Information” in this press release.
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 returns. Favorable weather and execution performance have allowed our three drilling rigs and associated completion and pipeline crews to move ahead of schedule, which provides the opportunity to fill in extra capital activity to maintain steady execution.
NuVista’s capital expenditure guidance for 2022 is increased to the range of $410 – $420 million from the previous estimate of approximately $375 million. The increase is attributed to the acceleration of planned first quarter 2023 activity into the fourth quarter of 2022 ($25 million), a small amount of inflation and maintenance capital activity ($10 – 15 million), and tuck-in land purchases.
NuVista’s recent well performance has been strong, and all planned outages for the year have been concluded. We have set our fourth quarter production guidance range at 72,000 – 74,000 Boe/d. Full year 2022 guidance is increased to 68,000 – 69,000 Boe/d from the prior range of 67,000 – 69,000 Boe/d.
For 2023 we have firmed up our plans and although we intend to continue with the steady three drilling rig program, we have adjusted our estimates to include minor changes to maximize value in this volatile but higher commodity price environment. Capital budget inflation through 2023 is estimated at approximately 5-10% assuming strip commodity prices (approximately 5% after efficiency gains), but obviously could be higher or lower depending on the economic and commodity price environment as it unfolds. We have also included additional tuck-in land and maintenance capital in the amount of approximately $15 million. As a result, the capital expenditure guidance for 2023 is set at a range of $425 – $450 million. Approximately 80% of our overall capital forecast will continue to be directed towards well capital (DCET), a high percentage which leads to high full cycle returns.
Production guidance for 2023 is premised on the continued filling of existing facilities with pads across all operating areas with the activity level as described above. Annual production guidance for 2023 is set at a range of 79,000 – 83,000 Boe/d. NuVista is delivering the short term production increases the world needs, while delivering exceptional value to shareholders and conducting early planning of the long term carbon reduction projects which the world seeks. Based on current strip prices, free adjusted funds flow for 2023 is expected to be approximately $440 million.
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 plans, this represents the target base net debt level of $200 million or less, which we expect to achieve prior to year end 2022. We will likely reduce debt below this level, however, the pace of debt reduction can be slowed and the rate of return of capital to shareholders can be increased.
Upon achievement of the net debt target above, our Board has approved an increase of the return of capital to shareholders to approximately 75% of free adjusted funds flow, with the remainder continuing to be allocated to the reduction of net debt. This is a significant increase in the return of capital as compared to the prior ratios of 25 – 50% allocated to the return of capital and 50 – 75% directed to the reduction of net debt. As our level of debt continues to decline in the future, we will consider further increases to the return of capital framework.
We believe that the best method for return of capital to shareholders is initially to repurchase shares, however we will continue to re-evaluate the uses of free adjusted funds flow through 2023 as our growth plan proceeds. This evaluation will take into account commodity pricing, the economic and tax environment, and will include all options including continued disciplined growth beyond existing facility capacity of 90,000 Boe/d, share repurchases, prudent targeted acquisitions, and dividend payments.
At current strip prices, NuVista expects to achieve approximately 75% of the total share repurchases allowed under our NCIB by year end 2022, with the remainder completed in the first half of 2023. Combined with the significant production growth, free adjusted funds flow growth, and debt reduction in our high-return 5-year plan, 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 changing 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 November 9, 2022.
NuVista’s Management Discussion and Analysis, condensed consolidated interim financial statements (the “financial statements”) and notes thereto for the three and nine months ended September 30, 2022, will be filed on SEDAR (www.sedar.com) under NuVista Energy Ltd. on November 9, 2022 and can also be accessed on NuVista’s website.
|Financial and Operating Highlights|
|Three months ended September 30||Nine months ended September 30|
|($ thousands, except otherwise stated)||2022||2021||% Change||2022||2021||% Change|
|Petroleum and natural gas revenues||445,007||222,601||100||1,290,107||561,935||130|
|Cash provided by operating activities||228,018||124,007||84||618,128||228,515||170|
|Adjusted funds flow (1) (4)||246,115||80,602||205||635,818||169,311||276|
|Per share, basic||1.09||0.36||203||2.79||0.75||272|
|Per share, diluted||1.04||0.35||197||2.67||0.73||266|
|Per share, basic||0.99||0.65||52||2.07||0.67||209|
|Per share, diluted||0.95||0.63||51||1.98||0.65||205|
|Capital expenditures (2)||111,746||77,152||45||346,733||202,444||71|
|Net proceeds on property dispositions||—||—||—||—||93,578||(100||)|
|Net debt (1) (4)||261,409||545,410||(52||)|
|Natural gas (MMcf/d)||244.7||184.1||33||233.0||177.0||32|
|Condensate & NGLs weighting||41||%||40||%||42||%||40||%|
|Average realized selling prices (6)|
|Natural gas ($/Mcf)||8.32||4.88||70||7.33||4.07||80|
|NGLs ($/Bbl) (5)||55.14||41.36||33||59.25||32.57||82|
|Petroleum and natural gas revenues||70.32||47.44||48||70.73||41.61||70|
|Realized loss on financial derivatives||(5.63||)||(6.04||)||(7||)||(8.57||)||(5.78||)||48|
|Operating netback (3)||41.11||22.02||87||37.58||17.03||121|
|Corporate netback (3)||38.89||17.18||126||34.87||12.54||178|
|SHARE TRADING STATISTICS|
|Average daily volume (‘000s)||826||781||6||1,205||1,201||—|
|Common shares outstanding (‘000s)||224,297||226,420||(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.