CALGARY, Alberta – NuVista Energy Ltd. (“NuVista” or the “Company”) (TSX:NVA) is pleased to announce strong financial and operating results for the three months ending March 31, 2023, and to provide an update on a number of key strategic initiatives. Commodity prices were volatile in the first quarter, but the quality and capacity of our asset base allowed us to continue to deliver outsized returns. We continued to invest in a disciplined manner in new high-return wells to fill and optimize existing facilities. We made meaningful progress on returning capital to shareholders under our existing Normal Course Issuer Bid (“NCIB”) while continuing with the reduction of debt. We have also achieved another new corporate milestone, improving our financial flexibility further by moving to a covenant-based credit facility.
First Quarter 2023 Operational and Financial Highlights
During the first quarter of 2023, NuVista:
- Produced 71,209 Boe/d in the quarter as expected, despite the impact of unplanned outages at three separate third party midstream facilities which impacted quarterly production by approximately 1,500 Boe/d. This represented a 7% increase in production from the first quarter of 2022. First quarter production consisted of 32% condensate, 9% NGLs and 59% natural gas;
- Generated adjusted funds flow(1) of $207.5 million ($0.95/share, basic(3)) in the quarter, a 9% increase from the first quarter of 2022;
- Achieved net earnings of $80.7 million ($0.37/share, basic) in the quarter, compared to $70.3 million ($0.31/share, basic) in the first quarter of 2022;
- Delivered positive free adjusted funds flow(2) of $27.9 million despite a high activity and capital spending quarter, with net capital expenditures(2) of $169.9 million and ARO spending of $9.7 million;
- Executed a successful capital expenditure(2) program, investing $195.9 million in well and facility activities including the drilling of 12 gross (11.7 net) wells and the completion of 17 gross (16.2 net) wells in our condensate rich Wapiti Montney play;
- Received cash proceeds of $26.0 million for the disposal of a non-operated working interest in an underutilized gas processing facility. Approximately half of the proceeds are being reinvested this year to replace the sold processing capacity with higher efficiency operated capacity as part of our larger Elmworth compressor station expansion;
- Managed our exposure to commodity price fluctuations through our natural gas diversification strategy, in this quarter benefiting primarily from our Malin, California exposure. We realized an average natural gas price of $7.02/Mcf, an improvement of 62% compared to the average AECO monthly 7A index price of $4.34/Mcf for the first quarter;
- Exited the quarter with $65.6 million held in cash deposits and zero drawn on our $440 million credit facility. Net debt(1) at the end of the quarter was $169.0 million, a 59% reduction from the first quarter of 2022 and 2% lower than year end 2022. We maintained a favorable net debt to annualized first quarter adjusted funds flow(1) of 0.2x;
- Improved our financial flexibility through the successful transition from a reserve-based credit facility to a $450 million three-year covenant-based credit facility with our existing banking syndicate effective May 9, 2023. The credit facility has an accordion feature of an additional $300 million; and
- Repurchased and subsequently cancelled 1.1 million common shares for an aggregate cost of $12.2 million or $11.54/share under the terms of our NCIB. As of today, we have repurchased and subsequently cancelled 16.5 million common shares, completing 91% of the NCIB.
|(1)||Each of “adjusted funds flow”, “net debt” and “net debt to annualized first 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.|
|(2)||Each of “free adjusted funds flow”, “capital expenditures” and “net 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.|
|(3)||“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.|
Excellence in Operations
Operations in the field proceeded as planned again in the first quarter. Production in the Wapiti area averaged over 28,000 Boe/d (32% condensate, 7% NGLs and 61% natural gas), down 2,000 Boe/d versus the previous quarter due primarily to the unplanned third party outages reported earlier. At Gold Creek we brought online our second multi-bench pad including a Lower Montney target. Initial results are very encouraging with the Lower Montney well achieving an IP30 average of 1,730 Boe/d, including 45% condensate. Drilling operations are proceeding with one rig in the Wapiti area which is currently finishing a five-well pad on the Bilbo block. This pad is expected to be completed and on-stream early in the third quarter. The remainder of 2023 drilling activity in the Wapiti area includes two additional six-well pads, which will increase area volumes to approximately 40,000 Boe/d toward the end of the year.
Production in the Pipestone area averaged over 42,000 Boe/d in the first quarter (32% condensate, 10% NGLs and 58% natural gas), similar to the previous quarter. Spot rates with the addition of our latest six-well pad have filled the area to its approximate capacity of 45,000 Boe/d. This pad has reached its IP30 milestone with per-well rates averaging 1,880 Boe/d, including 50% condensate. These rates fully meet expectations. The balance of 2023 activity will include turning inline the recently completed six-well pad at Pipestone South late in the second quarter, and the drilling of two additional pads (18 wells total) to hold volumes around 45,000 Boe/d for the second half of the year and into 2024.
Inflation continues with some persistence in 2023. Our most effective partial hedge against inflation is continued improvement in execution. New fraccing records continue to be set, completing an average of 17 stages per day on a six-well pad in Pipestone while achieving over 60% fuel gas substitution as we gradually continue our transition into a full Tier IV fleet. On the drilling side the latest 8-well Pad at Pipestone North averaged 11 days per well, from spud to rig-release for all wells, resulting in an average cost of approximately $900 per horizontal meter which is 22% lower than the pre-inflation 2019 average for the area.
Balance Sheet Strength, Return of Capital to Shareholders, and Transition to Covenant Based Credit Facility
We increased our return of capital to shareholders for 2023 to approximately 75% of free adjusted funds flow, with the remainder to be allocated primarily to further reducing net debt. Since the inception of the NCIB, repurchases represent a 7.2% reduction in common shares outstanding with 91% of the approved NCIB complete. As the current NCIB will expire on June 13, 2023, our Board of Directors has approved the filing of a renewal application of the NCIB. The application for the renewal of the NCIB (including the number of shares available for purchase thereunder) is subject to review and approval of the TSX. If approved, this will allow us to once again buy back up to 10% of the public float (as defined by the TSX) from June onwards over a one-year period.
We continue to believe that the best method for return of capital to shareholders is initially to repurchase shares, however we will re-evaluate over the next year as our growth plan proceeds. This evaluation will consider commodity prices, the economic and tax environment, and will include all options including continued disciplined growth to facility capacity of 105,000 Boe/d, share repurchases, and dividend payments.
As our net debt has already progressed below our long term target, the remaining 25% of free adjusted funds flow will be used opportunistically for a combination of continued debt reduction, facility repurchases, or tuck-in acquisitions.
Subsequent to the first quarter, we achieved a key corporate milestone through the successful transition from a sustainability-linked (SLL) reserve-based credit facility to a SLL covenant-based credit facility. Supported by our existing banking syndicate, we now have in place a $450 million three-year SLL covenant-based credit facility, with an accordion feature of an additional $300 million.
Board of Director Changes
With sincere appreciation, we bid Mr. Sheldon Steeves a fond farewell as he retires from our Board after ten years of dedicated service and leadership. Sheldon has always provided calm and deft advice through the many industry challenges of the past decade, and we thank him deeply as we wish him and his family all the very best in the future. With Sheldon’s retirement, we welcome Ms. Mary Ellen Lutey who will be joining our Board. Ms. Lutey has deep experience in the leadership, production and development of resource plays, and we look forward to working with her as she brings her insights to growing shareholder value over the years to come.
2023 Guidance Update
We are in an extremely fortunate position of having top tier assets and economics. With disciplined execution we are able to grow production and adjusted funds flow while generating significant positive free adjusted funds flow, despite the significant moderation of natural gas pricing during the first quarter of 2023. We have hedged approximately 35% of projected natural gas production for this summer with floor and ceiling prices of C$4.17/Mcf and $7.31/Mcf (hedged and exported volumes converted to an AECO equivalent price). We have less than 2% exposure to AECO prices this summer due our hedges and our diversified sales portfolio.
Due to our high condensate weighting, our execution economics remain very strong. As such, we will continue with our capital execution plans unchanged at present, however we will remain nimble to adjust our activity levels downward should condensate and gas prices reach sustained lower levels.
We anticipate that the cost inflation we have encountered over the past year will ease through the coming summer. It has remained limited but persistent through the first quarter of 2023, partially offset by improving execution and capital efficiency. The softening of natural gas prices is expected to affect gas-directed activity levels, reducing the competition for services. In addition, inventories of steel products and raw materials are building, and fuel costs have already moderated. We also retain the pricing certainty provided in our long-term pressure pumping and sand contract. At this time, we are maintaining our outlook for full year spending by optimizing phasing toward the end of the year. We plan to reassess our budget in August in the context of commodity and service prices at that time.
Our full year production and net capital expenditure guidance range is unchanged at 79,000 – 83,000 Boe/d and $425 to $450 million, respectively. Our guidance on capital expenditures is based on “net capital expenditures” which includes proceeds received on property dispositions which will be reinvested into our development plan to replace the sold production capacity. As a result of the wildfire situation in Grande Prairie region and the related production impacts, we are choosing not to provide guidance for the second quarter production at this time. Once the situation has stabilized and facilities are restarted, we intend to provide quarterly guidance.
We intend to continue our track record of carefully directing free adjusted funds flow towards a prudent balance of return to shareholders and debt reduction, while investing in production growth until our existing facilities are filled and debottlenecked to maximum efficiency. NuVista has an exceptional business plan that maximizes free adjusted funds flow and the return of capital to shareholders when our existing facilities are debottlenecked and filled to maximum efficiency at production levels of approximately 100,000 Boe/d through 2025.
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 the 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 will be available at www.nuvistaenergy.com on May 9, 2023. NuVista’s management’s discussion and analysis, condensed consolidated interim financial statements for the three months ended March 31, 2023 and notes thereto, will be filed on SEDAR (www.sedar.com) under NuVista Energy Ltd. on May 9, 2023 and can also be accessed on NuVista’s website.
|FINANCIAL AND OPERATING HIGHLIGHTS|
|Three months ended March 31|
|($ thousands, except otherwise stated)||2023||2022||% Change|
|Petroleum and natural gas revenues||390,163||381,827||2|
|Cash provided by operating activities||215,221||162,442||32|
|Adjusted funds flow (3)||207,464||189,869||9|
|Per share, basic (6)||0.95||0.83||14|
|Per share, diluted (6)||0.91||0.80||14|
|Per share, basic||0.37||0.31||19|
|Per share, diluted||0.36||0.30||20|
|Net capital expenditures (1)||169,870||119,964||42|
|Net debt (3)||168,985||412,932||(59||)|
|Natural gas (MMcf/d)||253.3||229.0||11|
|Condensate & NGLs weighting||41||%||43||%|
|Average realized selling prices (5)|
|Natural gas ($/Mcf)||7.02||5.79||21|
|NGLs ($/Bbl) (4)||39.30||49.30||(20||)|
|Petroleum and natural gas revenues||60.88||63.71||(4||)|
|Realized loss on financial derivatives||(1.42||)||(7.54||)||(81||)|
|Operating netback (2)||35.58||35.14||1|
|Corporate netback (2)||32.36||31.69||2|
|SHARE TRADING STATISTICS|
|Average daily volume (thousands of shares)||677||1,576||(57||)|
|Common shares outstanding (thousands of shares)||218,764||228,472||(4||)|
|(1)||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 “Specified Financial Measures”.|
|(2)||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 “Specified Financial Measures”.|
|(3)||Capital management measure. Reference should be made to the section entitled “Specified Financial Measures”.|
|(4)||Natural gas liquids (“NGLs”) include butane, propane and ethane revenue and sales volumes, and sulphur revenue.|
|(5)||Product prices exclude realized gains/losses on financial derivatives.|
|(6)||Supplementary financial measure. Reference should be made to the section entitled “Specified Financial Measures”.|