CALGARY, Alberta – Razor Energy Corp. (“Razor” or the “Company”) (TSXV: RZE) announces its third quarter 2022 financial and operating results. 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 and nine months ended September 30, 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.
- Geothermal Project: FutEra Power Corp. (“FutEra”), a subsidiary of Razor Energy, has partially commissioned the first co-produced geothermal power plant in Canada (“Swan Hills Geothermal Power Project”), with a nameplate capacity of 21 MW of which up to 30% will be sustainable clean power generation. The Swan Hills Geothermal Power Project began producing power to the grid on September 9th, 2022 and generated revenue of $1.9 million in September. The final stages of construction and commissioning are ongoing, with the Swan Hills Geothermal Power Project anticipated to be fully operational by the end of 2022.
- CO2 Enhanced Oil Recovery Engineering Review: Sproule Associates Limited (“Sproule”) completed an engineering review of the results of a previous operator’s CO2 enhanced oil recovery (“EOR”) pilot (the “CO2 Pilot”) in Razor’s South Swan Hills Unit (“SSHU”) and Sproule’s work confirmed additional and continued injection of CO2 should result in incremental recoverable reserves.
- CO2 Enhanced Oil Recovery Scheme Approval: Razor received approval from the Alberta Energy Regulator for a miscible CO2 EOR scheme in the Beaverhill Lake U and V Pools located in the SSHU. Razor is actively developing a long-term plan to inject CO2 and expects incremental recovery of hydrocarbons when CO2 is injected into the reservoir.
Q3 2022 FINANCIAL AND OPERATIONAL HIGHLIGHTS
- Production: Averaged 4,514 boe/d, an increase of 27% from Q3 2021 and 4% from Q2 2022. Average production was 4,437 boe/d for the nine months ended September 30, 2022, an increase of 37% compared to the same period in 2021.
- Cash Flow From Operating Activities: Generated cash flow from operating activities of $12.2 million in Q3 2022, representing an increase of $14.6 million from Q3 2021.
- Capital Expenditures: Invested $6.7 million in Q3 2022, with $4.3 million attributed to the advance the Swan Hills Geothermal Power Project and the remaining $2.4 million attributed to Razor and Blade Energy Services Corp.
NEAR AND MEDIUM-TERM OBJECTIVES
- Safely execute our production enhancement programs and commission the Swan Hills Geothermal Power 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
||Nine Months Ended
|($000s, except for per share amounts and production)||2022||2021||% Change||2022||2021||% Change|
|Light oil (bbl/d)||2,816||2,282||23||2,755||2,074||33|
|Natural gas (mcf/d)1||4,948||4,381||13||4,737||3,934||20|
|Light oil (bbl/d)||2,831||2,304||23||2,768||2,075||33|
|Natural gas (mcf/d)1||4,342||3,831||13||4,255||3,533||20|
|Oil inventory volumes(bbls)||11,645||7,752||50||11,645||7,752||50|
|Oil and NGL sales||33,158||19,295||72||102,706||47,108||118|
|Natural gas sales||1,979||1,348||47||6,931||3,179||118|
|Blending and processing income||873||455||92||2,692||2,599||4|
|Cash flow from (used in) operating activities||12,235||(2,340||)||623||15,954||(5,454||)||393|
|Adjusted funds flow2||2,929||1,113||163||18,637||852||2,087|
|Net income (loss)||(8,788||)||9,669||(191||)||(11,842||)||(1,510||)||684|
|Per share – basic and diluted||(0.36||)||0.46||(178||)||(0.50||)||(0.07||)||614|
|Common shares outstanding, end of period||25,275||21,064||20||25,275||21,064||20|
|Weighted average, basic||25,275||21,064||20||24,334||21,064||16|
|Weighted average, diluted||25,275||21,064||20||24,334||21,064||16|
|Long-term debt (principal)||84,750||72,251||17||84,750||72,251||17|
|Oil and gas sales||84.61||62.91||34||90.51||56.81||59|
|Adjusted net operating expenses2 3||(42.99||)||(39.52||)||9||(39.41||)||(38.61||)||2|
|Production enhancement expenses2||(6.23||)||(3.87||)||61||(7.38||)||(5.47||)||35|
|Transportation and treating||(2.75||)||(2.65||)||4||(2.56||)||(2.36||)||8|
|Realized gain (loss) on commodity contracts||(2.73||)||(0.42||)||550||(0.83||)||(0.21||)||295|
|1) Natural gas production includes internally consumed natural gas primarily used in power generation.|
|2) See “Non-IFRS and other financial measures”.|
|3) Excludes production enhancement expenses incurred in the period.|
THIRD QUARTER OPERATIONAL UPDATE
Production volumes in Q3 2022 averaged 4,514 boe/d, an increase of 27% from Q3 2021 volumes of 3,567 boe/d and represents a 4% increase from Q2 2022 of 4,340 boe/d. Production volumes averaged 4,437 boe/d for the nine months ended September 30, 2022, an increase of 37% from the same period in the prior year. Highlights of the causes for the differences in production volumes are as follows:
- Swan Hills – production volumes increased 25% from the same period of 2021. Production in both Q2 and Q3 2022 was negatively impacted by decreased production of approximately 500 boe/d as a result of a non-operated partner reclaiming their working interest in certain properties. This decrease was partially offset by the Company beginning a production enhancement program in Swan Hills in Q2 2022 which extended into Q3 2022. This program has increased production by approximately 216 boe/d in Q3 2022 and 348 boe/d for the nine months ended September 30, 2022. In addition, the operator in Swan Hills Unit No.1 has embarked on various production enhancement activities and the Company anticipates production enhancement activities to continue throughout Q4 2022.
- Kaybob – production volumes increased 30% from the same period in 2021 as the Company’s production enhancement program was focused in the Kaybob area in the first half of 2022 increasing production by 4 boe/d in Q3 2022 and 238 boe/d for the nine months ended September 30, 2022.
- Southern Alberta – production volumes increased 27% from the same period in 2021 as the result of the Company’s production enhancement program positively impacting volumes by 12 boe/d for the nine months ended September 30, 2022.
The increase in production volumes for both the three and nine months ended September 30, 2022, as compared to the three and nine months ended September 30, 2021, is largely due to production enhancement activities increasing production 220 boe/d in Q3 2022 and 598 boe/d for the nine months ended September 30, 2022, offset by natural declines, various third-party operational downtime, temporary infrastructure issues and reclaimed working interest by a non-operated partner as discussed above.
Adjusted net operating expenses increased $5.0 million or 39% on a total dollar basis and increased 9% on a per boe basis in Q3 2022 compared to the same period in 2021. The increase in the adjusted net operating expense on a both a total dollar basis and a per boe basis was due primarily to fuel and electricity costs which increased $3.5 million in Q3 2022 as compared to Q3 2021 as well as additional operating costs incurred due to increase in operating activity with the improved price environment.
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 Q3 2022 and will extend into 2022/2023 with the majority of the costs being expensed. Furthermore, the electricity market has seen a continual rise in prices.
In the nine months ended September 30, 2022, Razor experienced more than expected operational spending in both operated and non-operated areas. Over the last couple of years, due to lower commodity prices, Razor and its operating partners deferred certain operations where possible. These operations were deferable at the time but had to be executed in the 2022 year. A majority of these deferred projects will be completed in the 2022 year, which will allow for normal operations and spending in future years.
Total capital expenditures, before grant proceeds was $6.7 million in Q3 2022 and $18.2 million for the nine months ended September 30, 2022. For the nine months ended September 30, 2022, Razor invested $17.4 million on its Swan Hills Geothermal Power Project.
CO2 ENHANCED OIL RECOVERY
Sproule Associates Limited has completed an engineering review of the results of a previous operator’s CO2 Pilot in Razor’s SSHU. The CO2 Pilot ran from June 2008 to August 2010 with 2 injectors and 6 oil producers. The review of the CO2 Pilot indicated the project appears to have resulted in incremental oil recovery of 4% in the CO2 Pilot area from the lower reservoir layers with total CO2 injection during the CO2 Pilot totaling approximately 7% of the original hydrocarbon pore volume in the flooded layers. Additional and continued CO2 injection should result in higher recoveries. It is expected the CO2 flood could be expanded to additional regions of SSHU in future years to increase overall unit recoveries.
In addition, Razor recently received approval from the Alberta Energy Regulator for a miscible CO2 EOR scheme in the Beaverhill Lake U and V Pools located in the SSHU. Razor is actively developing a plan to inject CO2 and expects incremental recovery of hydrocarbons when CO2 is injected into the reservoir. Currently, Razor is evaluating local, pipelined supplies of CO2 as potential sources to possibly restart CO2 injection in the original CO2 Pilot project region within the SSHU, which includes the possible use of emissions from FutEra’s Swan Hills Geothermal Power Project.
The overall objectives of reactivating the CO2 Pilot and expanding thereafter are to economically reduce CO2 emissions and increase oil recovery in SSHU.
Razor continues to look forward with plans for the future while remaining focused on its mid to long-term sustainability. Razor recognizes multiple deep value streams in its assets and is actively engaged in liberating them for the benefit of shareholders. 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 production enhancement activity into 2023. 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 2023, focusing on low risk, capital efficient opportunities to increase field efficiencies and corporate netbacks.
The significant improvement in oil prices in 2022, combined with a strong price outlook in the medium term, offset by historically high electricity prices, provides Razor with improved cash flow from operations and the Company anticipates reducing its net debt over time.
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 and EOR purposes1, in addition to geothermal power production and conventional open-hole horizontal development drilling upside.
1These 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.
FutEra, a subsidiary of Razor Energy, has partially commissioned the first co-produced geothermal power plant in Canada, with a nameplate capacity of 21 MW of which up to 30% will be sustainable clean power generation. The Swan Hills Geothermal Power Project began producing power to the grid on September 9th, 2022. The final stages of construction and commissioning are ongoing, with the Power Plant anticipated to be fully operational by the end of 2022.
Power generation revenue for September 2022 from the natural gas turbine was $1.9 million, which exceeded expectations due to a historically higher than average merchant power price of $280/MWH. FutEra has successfully partnered with provincial and federal government agencies to invigorate the emerging geothermal industry. To date, Razor has received $16.3 million in government grants to support this power generation project. The total construction and commissioning budget for the Swan Hills Geothermal Power Project is project to be $48 million.
Legacy oil and gas fields can 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. The Swan Hills Geothermal Power Project is an example of leveraging existing assets to lower carbon economic outcomes. Razor and FutEra continue to demonstrate the synergies and cooperation needed to define a type of transformation energy and sets the standard of how oil and gas companies can evolve into the ‘energy and technology’ companies necessary for the future of the Alberta energy complex.
Continuing on the transition energy theme, on May 11, 2022, Razor closed a rights offering for $5.0 million of common shares (“Rights Offering”). The common shares were issued on a flow-through basis in respect of Canadian Renewable and Conservation Expense (“CRCE”) within the meaning of the Income Tax Act (Canada). The proceeds will be used to fund certain eligible expenses on the Swan Hills Geothermal Power Project, solar and eligible expenses on various early-stage power projects including additional geothermal initiatives in 2022 and 2023 of which $0.8 million was spent in Q3 2022.