CALGARY, Alberta – Hammerhead Energy Inc. (“Hammerhead” or the “Company”) (TSX: HHRS, HHRS.WT; NASDAQ: HHRS, HHRSW) is pleased to announce record financial and operating results for the first quarter of 2023. The Company continued to progress critical investments in infrastructure expansions that should allow for continuing record performance, achievement of half-cycle economics from new wells and material free cash flow generation going forward. The Company expects its oil production growth rates to exceed total corporate production growth, given the continued strength of the higher liquids-weighted Karr asset, which remains the Company’s key area of focus for development.
To date, Hammerhead production operations have not been meaningfully impacted by the wildfires in Alberta. Hammerhead is extremely thankful for all the efforts of those fighting these dangerous fires and supporting the people and communities directly impacted by the fires. Hammerhead will be active in supporting our communities and hopes for the continued safety for all those affected.
Scott Sobie, President and CEO of Hammerhead, notes “Hammerhead is delivering peer-leading growth while investing in infrastructure to provide operational flexibility in the future. Surface infrastructure expansions throughout our Karr core area are on schedule to being completed in 2023 which will allow for peer-leading production and cash flow per share growth in 2023 and 2024. Hammerhead is well on its way to commence generation of significant annual free cash flow that we intend to return to our shareholders. Continued improvement in our drilling and completions efficiencies and heightened focus on the Lower Montney are critical innovations for the second half of 2023.”
First Quarter 2023 Highlights:
- Produced a record 39,992 boe/d (47% liquids)1, in line with annual guidance for 2023. This quarterly production represents 35% and 22% growth on a sequential and year over year (“y-o-y”) basis, respectively. Crude oil production of 14,813 bbl/d in the quarter represents 65% and 50% growth on a sequential and y-o-y basis, respectively.
- Generated record adjusted funds from operations2 of $128.8 million, representing a corporate netback3 of $35.78/boe which reflects the combined benefit of the production performance highlighted above and achievement of outstanding natural gas pricing realizations due to the Company’s marketing strategy for natural gas. Adjusted funds from operations during the quarter represented 18% and 28% growth on a sequential and y-o-y basis, respectively. Net cash from operating activities for the quarter was $115.5 million.
- Continued a two-rig development program with quarterly capital expenditures4 and net cash used in investing activities of $172.4 million and $142.3 million, respectively. The capital program included (i) the drilling of 12.0 gross (12.0 net), completion of 10.0 gross (8.1 net), and on-stream of 10.0 gross (8.1 net) Montney crude oil wells, (ii) continued investments in new surface infrastructure at Karr, and (iii) new water disposal wells throughout the land base. Surface infrastructure expansion at North Karr (to allow for production capacity to exceed 30,000 boe/d) has been completed, and the South Karr infrastructure new-build (to allow for production capacity to exceed 20,000 boe/d) will be complete by the end of Q4 2023.
- The recent nine-well pad at North Karr 5-12 continues to materially exceed performance expectations, with average production of 14,733 boe/d (58% liquids)5 in the 90 day period of the quarter. Average well costs for the pad came in at $10.0 million for an average lateral length of 2,519 meters.
- Operationally the Company delivered a number of new drills at North Karr that have matched past pacesetter drill results. Continuous improvement in drilling and completions efforts at Karr remain at early stages, allowing for cost improvement potential in the future despite industry inflationary pressures.
- The Company exited the quarter with net debt6 of $379.8 million and a net debt to annualized adjusted EBITDA ratio of 0.7 times7.
- During the quarter the Company added 7,000 bbl/d of new crude oil hedges at an average price of US$75.28/bbl WTI for the period of March 1, 2023 to September 30, 2023. These hedges provide additional balance sheet protection for the large infrastructure and production growth that the Company is delivering in 2023. Hammerhead is exceptionally well hedged on oil and gas production in 2023.
- See ” Reader Advisory – Oil and Gas” for such production by product type.
- Adjusted funds from operations is a non-GAAP measure. Net cash from operating activities is the most directly comparable measure under generally accepted accounting principles (“GAAP”) to adjusted funds from operations. See “Non-GAAP and Other Financial Measures Advisory”.
- Corporate netback is calculated as adjusted funds from operations in the period divided by boe production in the period. Corporate netback is a non-GAAP measure, see “Non-GAAP and Other Financial Measures Advisory”. Net cash from operating activities per boe is the most directly comparable GAAP measure for corporate netback per boe.
- Capital expenditures is a non-GAAP measure. Net cash used in investing activities is the most directly comparable GAAP measure for capital expenditures. See “Non-GAAP and Other Financial Measures Advisory”.
- See “Reader Advisory – Oil and Gas” for such production by product type.
- Net debt is a non-GAAP measure. The Company’s third party debt obligations of the bank debt and the term debt are the most directly comparable GAAP measures for net debt. See “Non-GAAP and Other Financial Measures Advisory”.
- Net debt to annualized adjusted EBITDA is a non-GAAP measure, derived from the net debt non-GAAP measure and annualized adjusted EBITDA non-GAAP measure, where the directly comparable GAAP measures are the Company’s debt obligations of bank debt and term debt, and the Company’s net profit (loss), respectively. See “Non-GAAP and Other Financial Measures Advisory”.
Reaffirming 2023 Corporate Outlook and Guidance
Based on results to date, Hammerhead is well positioned to deliver on its 2023 annual guidance. Subsequent to the first quarter, the Company finished drilling and completion operations on new seven-well pads at each of Gold Creek and North Karr. Drilling has also commenced on a new 12-well pad at North Karr with a number of wells drilled to date matching past pacesetter results for various lateral well lengths at Karr.
Hammerhead is targeting greater than 25% production growth in 2023, with oil production growth expected to exceed 40%.
Hammerhead is reaffirming its 2023 annual guidance as outlined below:
Forward-looking information1 | Q1 results | 2023 annual guidance2 | |||
Annual average production | boe/d | 39,992 | 40,200 | ||
Crude oil3 | % | 37 | 33 | ||
Natural gas liquids (“NGLs”) | % | 10 | 12 | ||
Natural gas3 | % | 53 | 55 | ||
Expenses | |||||
Royalties | % | 11 | 13 | ||
Operating | $/boe | 8.30 | 8.50 | ||
Transportation | $/boe | 5.84 | 6.50 | ||
Net general and administrative | $/boe | 2.25 | 1.60 | ||
Cash interest and financing | $/boe | 1.14 | 1.40 | ||
Cash taxes | $/boe | – | – | ||
Capital expenditures4 | $MM | 172 | 525 |
- Forward looking information are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated with forward looking information. See “Forward-Looking Statements”.
- The Company’s 2023 annual guidance is unchanged from the guidance previously announced on March 28, 2023 in the Company’s 2022 Annual MD&A and accompanying press release.
- References in the table above to crude oil refer to the tight oil product type, and references to natural gas refer to the shale gas product type.
- Capital expenditures is a non-GAAP measure. Net cash used in investing activities is the most directly comparable GAAP measure to capital expenditures. See “Non-GAAP and Other Financial Measures Advisory”.
Hedging
As at March 31, 2023, the Company held the following outstanding risk management contracts:
Remaining Term | Reference | Total Daily Volume (bbls/d) |
Weighted Average (Price/bbls) |
||
Crude Oil Swaps | |||||
Apr 1, 2023 – Jun 30, 2023 | US$ WTI | 1,000 | 87.00 | ||
Apr 1, 2023 – Sep 30, 2023 | US$ WTI | 7,000 | 75.28 | ||
Apr 1, 2023 – Dec 31, 2023 | US$ WTI | 1,100 | 65.00 |
Remaining Term | Reference | Total Daily Volume (GJ/d) |
Total Daily Volume (MMbtu/d) |
Weighted Average (CDN$/GJ) |
Weighted Average (US$/MMbtu) |
|||||
Natural Gas Swaps | ||||||||||
Apr 1, 2023 – Sep 30, 2023 | CDN$ AECO | 30,000 | — | 4.96 | — | |||||
Apr 1, 2023 – Jun 30, 2023 | US$ Dawn | — | 30,000 | — | 3.04 | |||||
Apr 1, 2023 – Dec 31, 2023 | US$ AECO – NYMEX | — | 30,000 | — | (1.48) | |||||
Natural Gas Collar | ||||||||||
Apr 1, 2023 – Dec 31, 2023 | US$ NYMEX | — | 30,000 | — | 5.00 – 9.80 |
Complete Quarterly Filings
Hammerhead has filed its quarterly report on Form 6-K and the Company’s first quarter 2023 unaudited financial statements and management’s discussion and analysis (“Q1 2023 MD&A”) on SEDAR and EDGAR, along with posting these documents on its website www.hhres.com.
Operational and Financial Summary
Three Months Ended March 31, |
||||||||
(Cdn$ thousands, except per share amounts, production and unit prices) | 2023 | 2022 | % Change | |||||
Production volumes 1 | ||||||||
Crude oil (bbls/d) | 14,813 | 9,874 | 50 | |||||
Natural gas (Mcf/d) | 127,322 | 113,703 | 12 | |||||
Natural gas liquids (bbls/d) | 3,958 | 4,030 | (2 | ) | ||||
Total (boe/d) | 39,992 | 32,854 | 22 | |||||
Liquids weighting % | 47 | 42 | ||||||
Oil and gas revenue ($/boe) | 60.31 | 64.10 | (6 | ) | ||||
Operating netback ($/boe) 2 | 39.18 | 36.22 | 8 | |||||
Oil and gas revenue | 217,054 | 189,542 | 15 | |||||
Operating netback 3 | 141,023 | 107,108 | 32 | |||||
Net cash from operating activities | 115,541 | 70,463 | 64 | |||||
Per common share – basic 4 | 2.25 | 2.82 | (20 | ) | ||||
Per common share – diluted 4 | 2.25 | 2.82 | (20 | ) | ||||
Adjusted funds from operations 5 | 128,794 | 100,464 | 28 | |||||
Per common share – basic 4,6 | 2.51 | 4.02 | (38 | ) | ||||
Per common share – diluted 4,6 | 2.51 | 4.02 | (38 | ) | ||||
Corporate netback ($/boe) 7 | 35.78 | 33.98 | 5 | |||||
Net loss | (133,659 | ) | (6,442 | ) | 1,975 | |||
Net loss attributable to ordinary equity holders | (137,749 | ) | (12,325 | ) | 1,018 | |||
Per common share – basic 4 | (2.68 | ) | (0.49 | ) | 447 | |||
Per common share – diluted 4 | (2.68 | ) | (0.49 | ) | 447 | |||
Net cash used in investing activities | 142,323 | 95,514 | 49 | |||||
Capital expenditures 8 | 172,442 | 82,488 | 109 | |||||
Free funds flow 9 | (43,648 | ) | 17,853 | N/A | ||||
Weighted average common shares outstanding 10 | ||||||||
Basic 4 | 51,395 | 24,994 | 106 | |||||
Diluted 4 | 51,395 | 24,994 | 106 | |||||
As at March 31, | ||||||||
FINANCIAL | 2023 | 2022 | ||||||
Adjusted working capital deficit 11 | 93,699 | 16,470 | ||||||
Available funding 12 | 51,468 | 206,930 | ||||||
Net debt 13 | 379,755 | 277,549 |
- See “Reader Advisory – Oil and Gas” for such production by product type.
- Operating netback per boe is a non-GAAP measure. Oil and gas revenue per boe is the most directly comparable GAAP measure to operating netback per boe. Refer to the subsection “Non-GAAP and Other Financial Measures Advisory”.
- Operating netback is a non-GAAP measure. Oil and gas revenue is the most directly comparable GAAP measure to operating netback. Refer to the subsection “Non-GAAP and Other Financial Measures Advisory”.
- In comparative periods, per common share amounts are Hammerhead Resources Inc. The weighted average common shares outstanding in these periods has been scaled by the applicable exchange ratio following the completion of the business combination with Decarbonization Plus Acquisition Corporation IV.
- Adjusted funds from operations is a non-GAAP measure. Net cash from operating activities is the most directly comparable GAAP measure to adjusted funds from operations. Refer to the subsection “Non-GAAP and Other Financial Measures Advisory”.
- Adjusted funds from operations per basic and diluted common share are non-GAAP measures. Net cash from operating activities per basic and diluted share are the most directly comparable GAAP measure to adjusted funds from operations per basic and diluted common share. Refer to the subsection “Non-GAAP and Other Financial Measures Advisory”.
- Corporate netback is calculated as adjusted funds from operations in the period divided by boe production in the period. Corporate netback is a non-GAAP measure, see “Non-GAAP and Other Financial Measures Advisory”. Net cash from operating activities per boe is the most directly comparable GAAP measure for corporate netback per boe.
- Capital expenditures is a non-GAAP measure. Net cash used in investing activities is the most directly comparable GAAP measure to capital expenditures. Refer to the subsection “Non-GAAP and Other Financial Measures Advisory”.
- Free funds flow is a non-GAAP measure. Net cash from operating activities is the most directly comparable GAAP measure to free funds flow. Refer to the subsection “Non-GAAP and Other Financial Measures Advisory”.
- HEI has 90,973,622 Class A common shares, 28,549,991 warrants, 5,141,802 legacy RSUs, 664,328 legacy options, and 1,945,115 restricted share awards issued and outstanding as of the date of this press release.
- Adjusted working capital deficit is a capital management measure. Refer to the subsection “Non-GAAP and Other Financial Measures Advisory”.
- Available funding is a non-GAAP measure. Working capital deficit is the most directly comparable GAAP measure to available funding. Refer to the subsection “Non-GAAP and Other Financial Measures Advisory”.
- Net debt is a capital management measure. Refer to the subsection “Non-GAAP and Other Financial Measures Advisory”.