CALGARY, AB – Hammerhead Resources Inc. (“Hammerhead” or the “Company”) announces record operating results in 2022 with annual average production of 32,100 boe/d (approx. 43% liquids), representing 15% growth over 2021.
In the month of January, 2023, the Company reported a realized record peak production rate of over 41,000 boe/d (49% liquids) and average production for the first 10 days of January of 39,050 boe/d (50% liquids), following the recent start-up of a 9-well pad at North Karr. Average production rates for the 9-well pad for the first 10 days of January are in excess of 13,100 boe/d (68% liquids) flowing through the recently expanded infrastructure completed in Q4 2022. This pad follows up a 3-well pad in North Karr, which since being brought on stream in December 2021, has established an IP365 of 3,400 boe/d (53% liquids). Additional infrastructure expansion in the area is expected to be completed in Q1-23 as the Company continues development within this high-performing asset, with 7 additional North Karr wells expected to be brought on-stream in April 2023.
Hammerhead intends to deliver substantial production and cash flow growth over the next several years with a development-focused program across its top-tier asset base. It is expected that a continuous 2-rig program will be utilized in 2023 to drill approximately 40 wells, with 75% of drilling planned within the North and South Karr assets, directly offsetting recent strong well results. The Company continues to realize significant operational efficiency gains while maintaining key services, recently delivering a 12-day drill (3000m lateral length) in North Karr. Hammerhead expects significant growth while targeting free cash flow neutrality in 2023, inclusive of completing facility expansions in North and South Karr. In-field infrastructure capability by the end of 2023 is expected to be over 80,000 boe/d, and the Company expects to have ample egress capacity to support this infrastructure.
Throughout 2022, the Company entered into natural gas hedges to take advantage of what it viewed as opportunistic risk mitigation decisions given the movement in the natural gas markets. As a result of those decisions made prior to the recent correction in natural gas prices, the Company has hedged approximately 43% of its estimated AECO-exposed gas in 2023 with a collar that ranges from $4.51/GJ to $10.65/GJ for all of calendar year 2023. In addition, the Company has financially swapped approximately 41% of its AECO-exposed gas for April to September 2023 for $4.96/GJ. Approximately 51% of Hammerhead gas sales are physically diversified with firm egress contracts to Chicago, Dawn, Malin and Stanfield. The Company has hedged approximately 12% of estimated light oil production and no natural gas liquids production, providing upside exposure to expected potential strength in liquids pricing.
Hammerhead has also completed the semi-annual redetermination of its credit facilities with its syndicate of lenders effective December 15, 2022, which resulted in an increase in its borrowing base to $350 million from $300 million, and the addition of the Royal Bank of Canada (“RBC”) to the lending syndicate. The addition of RBC bolsters an already strong lending syndicate and has the potential to increase Hammerhead’s capital markets presence globally. Hammerhead’s leverage of 0.6x LQA EBITDA as at September 30, 2022 and continued balance sheet strength are expected to provide the liquidity necessary to execute on Hammerhead’s growth plans.
In December 2022, Hammerhead assets were certified under the EO100™ Standard for Responsible Energy Development, covering more than 100,000 net acres in the Montney formation. The EO100™ Standard encompasses the following five principles with a commitment for continuous improvement to each: Corporate Governance, Transparency & Ethics; Human Rights, Social Impact & Community Development; Indigenous People’s Rights; Fair Labor & Working Conditions; and Climate Change, Biodiversity & Environment.
Business Combination Update
On January 13, 2023, Hammerhead mailed its information circular and proxy statement (the “Information Circular”) for its annual and special meeting of shareholders and certain warrantholders to its shareholders and certain warrantholders to consider, among other matters, a resolution approving the previously announced plan of arrangement with Decarbonization Plus Acquisition Corporation IV (Nasdaq: DCRD, DCRDW, DCRDU) (“DCRD”) (the “Meeting”).
The Meeting is scheduled to be held on February 3, 2023 at 8:30 a.m. Mountain Time at the offices of Burnet, Duckworth & Palmer LLP located at 2400, 525 – 8th Avenue SW, Calgary, AB T2P 1G1. If the resolution approving the plan of arrangement is approved at the Meeting, the parties anticipate that the business combination will close in February 2023, subject to the satisfaction or waiver, as applicable, of all other closing conditions. The combined entity will continue to be managed by Hammerhead’s current executive team, led by President & CEO Scott Sobie.
Hammerhead has applied to have the Class A common shares and warrants of Hammerhead Energy Inc. (“New SPAC”) listed on the NASDAQ and the Toronto Stock Exchange (the “TSX”). Listing is subject to the approval of the TSX and the NASDAQ, respectively, in accordance with their respective original listing requirements. The TSX has not conditionally approved the listing application and there is no assurance that the TSX or the NASDAQ will approve the listing applications. Any such listing of the Class A common shares and warrants will be conditional upon New SPAC fulfilling all of the listing requirements and conditions of the TSX and the NASDAQ, respectively. If such applications are approved, it is anticipated that the Class A common shares and warrants of New SPAC will be listed on the NASDAQ under the ticker symbols “HHRS” and “HHRSW,” respectively, and on the TSX under the ticker symbols “HHRS” and “HHRS.WT,” respectively.
Every vote by a shareholder and warrantholder entitled to vote at the Meeting is important, regardless of the number of securities held. Accordingly, Hammerhead requests that each registered shareholder and warrantholder complete, sign, date and return the form of proxy included with the Information Circular as soon as possible so that their votes arrive no later than 48 hours (excluding Saturdays, Sundays and statutory holidays in the Province of Alberta) prior to the commencement of the Meeting or any adjournment(s) or postponement(s) thereof, to ensure that their securities will be represented at the Meeting. Shareholders and warrantholders that hold shares and/or warrants in “street name” (i.e., held of record by a broker, bank or other nominee) should contact their broker, bank or nominee to provide instructions on how to vote their shares and/or warrants and ensure that their shares and warrants are voted.
DCRD Extraordinary General Meeting
DCRD has mailed its definitive proxy statement (the “Proxy Statement”) relating to the extraordinary general meeting of DCRD shareholders (the “Extraordinary General Meeting”) to DCRD shareholders of record as of the close of business on December 14, 2022, who will be entitled to attend and participate in the Extraordinary General Meeting.
Based on proxies submitted through January 12, 2023, which may be changed at or before the Extraordinary General Meeting to be held on Monday, January 23, 2023, DCRD has advised the Company that approximately 37.4% of the outstanding shares and over 99% of the voted shares have already voted in favor of each of the proposals, including the proposal in respect of the business combination and plan of arrangement.
DCRD has advised the Company that it expects that all proposals will be approved at the Extraordinary General Meeting, which is scheduled to be held on Monday, January 23, 2023, at 10:00 a.m., Eastern time at the offices of Vinson & Elkins L.L.P. located at 1114 Avenue of the Americas, 32nd Floor, New York, NY 10036 and virtually via live webcast at https://www.cstproxy.com/decarbonizationplusacquisitioniv/2023, as described in the Proxy Statement.