After over 2 years of lying (mostly) in wait, Highwood Asset Management is back on the map. Through a series of acquisitions that closed in August 2023, Highwood increased its corporate production from 95 BOE/d in Q2 2023 to 2,462 BOE/d in Q3 2023. Taking a longer term view, the company indicated in its Q3 2023 release that the acquisitions brought “~4,500+ boe/d (approximately 75% oil and natural gas liquids (“NGLs“)) of expected average production of the 12-month period commencing July 1, 2023″. But what and where are these assets? With Q4 earnings season around the corner, we decided to take a look at Highwood’s acquired assets and summarize the recent activity of this ambitious small-cap.
Highwood Asset Management Corporate Production Graph, Q1 2018 – Q3 2023
Searching for the right opportunity?
Highwood may seem to have come out of nowhere, but the company’s public story started back in Q1 2019 shortly after changing its name from Predator Oil Ltd. in October 2018. Highwood went public through an amalgamation transaction with a public capital pool company. The company’s Q1 2019 release (accessible on BOE Intel) indicates that it operated in the Clearwater play with core lands at Nipisi and Marten Hills. The company delineated and developed its assets until the end of 2020, when Highwood sold off the majority of its producing assets through transactions in December 2020 and March 2021. Interestingly, the company’s Clearwater assets appear to have been sold to Tamarack Valley. Journey and Blue Sky Resources both own significant portions of the company’s divested assets, with the two companies holding 192 and 262 of Highwood’s former licences respectively.
Highwood Asset Management Current and Former Active and Location Licences With Select Acquirers Indicated (Current in Purple, Historical in Green)
After just over 2 years of producing around 95 BOE/d from the company’s relatively small Saskatchewan asset base, the company announced its acquisition of three private producers: Castlegate Energy Ltd., Boulder Energy Ltd. and Shale Petroleum Ltd. These assets constitute virtually the company’s entire current production base, and we have summarized each of them individually later in the article.
Highwood Crown Petroleum Mineral Rights with Acquisitions and Retained Saskatchewan Producing Assets Highlighted
These acquisitions have enabled Highwood to establish an asset base that’s much larger than it’s position prior to the 2020 dispositions; the company’s PDP, Total Proved and 2P reserves are roughly 4x larger now than they were in 2019. According to the company’s December 2023 corporate presentation, the company’s PDP reserves are worth $186 million. This acquisition spree didn’t come without a cost, however; the company’s financial statements from Q3 2023 suggest Highwood took on around $27 million in decommissioning liabilities through these transactions.
Asset Groups
Brazeau is the company’s most significant asset, accounting for around 3,346 BOE/d in gross licensed production in December 2023. Obtained via the Boulder Energy transaction, production from the Brazeau assets appears to be split fairly evenly between oil and natural gas. Of the company’s wells at Brazeau with producing formation data available, just under 91% of the licences target the Belly River.
Highwood’s Non-Abandoned Brazeau-area Licences
The company’s assets from the Castlegate transaction are smaller in scale, accounting for gross licensed production of just over 1,015 BOE/d. The wells are mostly split between Pembina and Willesden Green. Similar to the company’s Brazeau assets, most of the company’s wells in the Castlegate asset group target the Belly River. Highwood’s production from these assets is oil-weighted, with gas only accounting for around 28% of gross licensed production.
Highwood’s Non-Abandoned Castlegate Licences
The company’s assets from the Shale Petroleum acquisition are spread over a larger geographic area, but appear to be generating less production overall. These assets are gassier than Brazeau or Castlegate, with oil accounting for just under 5% of the 295 BOE/d produced in December 2023. The company’s current licences in this area predominantly target the Cardium, with a number of Belly River and Colorado formation wells for good measure.
Highwood’s Non-Abandoned Shale Petroleum Licences
Drilling Update
The company has spud 7 wells (associated with 15 UWIs) in the past 6 months, split evenly between the Brazeau and Castlegate asset groups. This includes a number of multi-lateral open hole (MLOH) licences at Brazeau and Wilson Creek. In a November 2023 press release, the company provided an operational update indicating that the wells were performing in line with the company’s projected type curves. The company also brought its second Wilson Creek well online on January 27 and has announced strong initial production. Access a Petro Ninja list with the company’s recent spuds here.
Highwood Licences with Spuds From Last 6 Months Highlighted (All Highwood Licences in Black, Spuds Since August 2023 in Red)
Financial Performance
We only have one post-acquisition quarter to go off, but the new additions appear to be helping Highwood generate positive operating cashflow. After generating an average of just over $61,000 in operating cash flow between Q2 2021 and Q2 2023, a period which also saw the company turn in multiple quarters of negative operating cash flow, the company generated $8.56 million in cash from operations in Q3 2023. This is the highest operating cash flow generation in the company’s history and, with a full quarter of production from the acquired assets in Q4, we will see if production growth will lead to another record performance when the company releases its Q4 2023 results.
Highwood’s Q3 2023 average netback ($41.01/BOE) compares favorably to some of its public company peers. As shown in the chart below, Highwood’s Q3 2023 netback exceeded both Bonterra and Yangarra’s netbacks. While there is always an “apples-to-oranges” risk when it comes to comparing netbacks between companies, Highwood’s relative netback strength is notable given the geographic similarities between it, Bonterra and Yangarra. As the company proceeds to exploit its inventory and expand production, we will be keeping an eye on how its netbacks and other financial metrics evolve compared to its competition.
Non-Abandoned Wells for Highwood, Bonterra Energy and Yangarra Resources (Highwood Licences in Red, Bonterra Licences in Green, Yangarra Licences in Blue)
Given that Highwood has now fully integrated the acquired assets, we’ll be interested to see the company’s performance in the year ahead. The company recently reiterated its 2024 production guidance of approximately 5,200 BOE/d, a noteworthy jump from its 2023 exit production. To keep tabs on Canadian producers of all shapes and sizes, check out BOE Intel and Petro Ninja.