Three months ended | Percent | Nine months ended | Percent | ||||
2023 | 2022 | 2023 | 2022 | ||||
Financial (thousands of dollars except share data) | |||||||
Sales, net of blending (1) (4) | 144,003 | 94,949 | 52 | 351,133 | 327,073 | 7 | |
Adjusted funds flow from operations (2) | 80,887 | 58,441 | 38 | 206,279 | 207,899 | (1) | |
Per share - basic | 0.34 | 0.25 | 36 | 0.88 | 0.92 | (4) | |
- diluted | 0.34 | 0.25 | 36 | 0.87 | 0.89 | (2) | |
Cash flows provided by operating activities | 85,568 | 72,060 | 19 | 212,626 | 217,477 | (2) | |
Per share - basic | 0.36 | 0.31 | 16 | 0.90 | 0.96 | (6) | |
- diluted | 0.36 | 0.30 | 20 | 0.90 | 0.93 | (3) | |
Net income | 49,677 | 31,545 | 57 | 110,603 | 122,320 | (10) | |
Per share - basic | 0.21 | 0.14 | 50 | 0.47 | 0.54 | (13) | |
- diluted | 0.21 | 0.13 | 62 | 0.47 | 0.53 | (11) | |
Capital expenditures (1) | 70,208 | 71,001 | (1) | 203,796 | 183,818 | 11 | |
Adjusted working capital (2) | 35,921 | 117,967 | (70) | ||||
Shareholders' equity | 587,380 | 525,006 | 12 | ||||
Dividends declared | 23,638 | - | 100 | 70,763 | - | 100 | |
Per share | 0.10 | - | 100 | 0.30 | - | 100 | |
Weighted average shares (thousands) | |||||||
Basic | 236,191 | 229,909 | 3 | 235,305 | 225,794 | 4 | |
Diluted | 239,167 | 236,658 | 1 | 237,683 | 232,984 | 2 | |
Shares outstanding, end of period (thousands) | |||||||
Basic | 236,384 | 229,911 | 3 | ||||
Diluted (5) | 241,175 | 241,593 | - | ||||
Operating (6:1 boe conversion) | |||||||
Average daily production | |||||||
Heavy crude oil (bbls/d) | 16,902 | 10,842 | 56 | 15,775 | 10,695 | 47 | |
Natural gas (mmcf/d) | 6.1 | 4.3 | 42 | 9.1 | 7.2 | 26 | |
Natural gas liquids (bbl/d) | 103 | 55 | 87 | 100 | 43 | 133 | |
Barrels of oil equivalent (9)(boe/d) | 18,027 | 11,612 | 55 | 17,398 | 11,929 | 46 | |
Average daily sales (6) (boe/d) | 17,862 | 11,680 | 53 | 17,331 | 11,925 | 45 | |
Netbacks ($/boe) (3) (7) | |||||||
Operating | |||||||
Sales, net of blending (4) | 87.63 | 88.36 | (1) | 74.22 | 100.46 | (26) | |
Royalties | (16.26) | (21.93) | (26) | (13.06) | (20.21) | (35) | |
Transportation | (5.32) | (3.94) | 35 | (5.43) | (4.31) | 26 | |
Production expenses | (7.43) | (5.95) | 25 | (7.11) | (5.79) | 23 | |
Operating netback (3) | 58.62 | 56.54 | 4 | 48.62 | 70.15 | (31) | |
Realized gains (losses) on financial derivatives | 0.18 | - | 100 | 1.66 | (1.29) | (229) | |
Operating netback, including financial derivatives (3) | 58.80 | 56.54 | 4 | 50.28 | 68.86 | (27) | |
General and administrative expense | (1.52) | (1.46) | 4 | (1.46) | (1.49) | (2) | |
Interest income and other (8) | 0.85 | 1.18 | (28) | 0.98 | 0.58 | 69 | |
Current tax expense | (8.91) | (1.87) | 376 | (6.20) | (4.09) | 52 | |
Adjusted funds flow netback (3) | 49.22 | 54.39 | (10) | 43.60 | 63.86 | (32) |
(1) | Non-GAAP measure. Refer to "Non-GAAP and Other Financial Measures" within this press release. |
(2) | Capital management measure. Refer to "Non-GAAP and Other Financial Measures" within this press release. |
(3) | Non-GAAP ratio. Refer to "Non-GAAP and Other Financial Measures" within this press release. |
(4) | Heavy oil sales are netted with blending expense to compare the realized price to benchmark pricing while transportation expense is shown separately. In the interim financial statements blending expense is recorded within blending and transportation expense. |
(5) | In-the-money dilutive instruments as at |
(6) | Includes sales of unblended heavy crude oil, natural gas and natural gas liquids. The Company's heavy crude oil sales volumes and production volumes differ due to changes in inventory. |
(7) | Netbacks are calculated using average sales volumes. For the three months ended |
(8) | Excludes unrealized foreign exchange gains/losses, accretion on decommissioning liabilities, interest on lease liability and interest on repayable contribution. |
(9) | See '"Barrels of Oil Equivalent." |
HIGHLIGHTS FOR THREE MONTHS ENDED
- Achieved record production averaging 18,027 boe/d (consisting of 16,902 bbls/d heavy oil, 6.1 mmcf/d natural gas and 103 bbls/d natural gas liquids), representing an increase of 55% from the third quarter of 2022.
- Realized record adjusted funds flow from operations (1) of
$80.9 million ($0.34 per share basic) and cash flows from operating activities of$85.6 million ($0.36 per share basic). - Achieved an operating netback, including financial derivatives (2) of
$58.80 /boe and an adjusted funds flow netback (2) of$49.22 /boe. - Achieved record net income of
$49.7 million ($0.21 per share basic) equating to$30.23 /boe. - Executed a
$70.2 million capital expenditure (3) program focusing on development inMarten Hills West drilling a total of 26 crude oil wells in the area at a 100% success rate. - Returned
$0.10 /share to shareholders. Since announcing the Company's inaugural dividend inNovember 2022 , Headwater has returned a total of$0.40 /share to shareholders. - As at
September 30, 2023 , Headwater had adjusted working capital (1) of$35.9 million , working capital of$43.5 million and no outstanding bank debt.
(1) | Capital management measure. Refer to "Non-GAAP and Other Financial Measures" within this press release. |
(2) | Non-GAAP ratio that does not have any standardized meaning under IFRS and therefore may not be comparable with the calculation of similar measures of other entities. Refer to "Non-GAAP and Other Financial Measures" within this press release. |
(3) | Non-GAAP measure that does not have any standardized meaning under IFRS and therefore may not be comparable with the calculation of similar measures of other entities. Refer to "Non-GAAP and Other Financial Measures" within this press release. |
OPERATIONS UPDATE
In the primary producing formation, the Clearwater A, continuous step out drilling has now extended the pool boundaries to include greater than 35 sections. One of the most recent wells, 03/13-04-076-02W5, achieved a 30-day initial production ("IP30") rate of 231 bbls/d which extended our known pool boundaries by a further 3 miles to the west. Additional step-out tests scheduled over the next six months have the potential to expand the pool boundaries further. The two enhanced oil recovery pilots in
Development in the Clearwater B formation continued with the drilling of our first "StingWray" fan well at 02/01-03-076-03W5 which achieved an IP30 rate of 122 bbls/d. This result provides Headwater with the confidence that this 15-section pool can now be commercially developed with additional delineation wells planned for the 2024 budget.
Headwater also tested two previously untested
Building on our sustained achievements, which encompass pool extensions and the identification of new pools, the area is now believed to be significantly larger than our
Enhanced oil recovery efforts in the core continue to provide strong results with 3,000 bbls/d of stabilized oil production from the six sections currently under waterflood. To date, waterflood implementation in the core has reduced our corporate decline by approximately 5% resulting in a reduction to our annual maintenance capital of approximately
Seal
Three exploration wells were drilled in Seal late in the third quarter. The Fahler C was tested with the 02/13-06-083-15W5 well. The well encountered heavier oil than anticipated and has achieved an IP15 rate of 29 bbls/d. The Fahler B zone was tested with the well at 03/13-06-083-15W5. It has achieved an IP30 rate of 155 bbls/d validating a new pool discovery that covers approximately ten sections of Headwater lands. The third well was a "StingWray" fan well drilled in the Falher D horizon as a follow up test to the original discovery well at 00/13-06-83-15W5. The 00/07-07-083-15W5 "StingWray" fan recently came off load fluid recovery and has achieved a 10-day initial production rate of 150 bbls/d. Initially, this well is a 70% improvement over the discovery well at 13-06 which validates the commerciality of this pool that is estimated to cover 20 sections of Headwater lands. The favorable results of our exploration efforts during the third quarter have positioned us to embark on an ambitious program for the area's exploitation and development in 2024.
Exploration Land Update
The Headwater team continues to pursue organic growth opportunities in and beyond the
Year to date we have now added 65 net sections to our
Our land accumulation strategy will continue throughout these areas in 2024 and we intend to drill and test 5-7 wells on these prospects in 2024.
McCully Update
McCully is scheduled to be placed back on production at the end of November. We have hedged approximately 77% of McCully's estimated
(1) | Non-GAAP measure that does not have any standardized meaning under IFRS and therefore may not be comparable with the calculation of similar measures of other entities. Refer to "Non-GAAP and Other Financial Measures" within this press release. |
(2) | McCully's winter season is estimated to be |
FOURTH QUARTER DIVIDEND
The Board of Directors of Headwater has declared a quarterly cash dividend to shareholders of
2023 GUIDANCE UPDATE
Year to date in 2023 we have had extremely favorable drilling conditions allowing us to accelerate some of the planned 2024 drilling into the fourth quarter of 2023. As a result of these changes, the Board has approved a
(1) | Capital management measure. Refer to "Non-GAAP and Other Financial Measures" within this press release. |
(2) | For assumptions utilized in the above guidance see "Guidance and Future Oriented Financial Information" within this press release. |
Headwater expects to release 2024 guidance in early December.
HEADWATER SUCCESSION PLAN
As part of Headwater's ongoing long-term succession planning effective
Per
Additional corporate information can be found in the Company's corporate presentation and on Headwater's website at www.headwaterexp.com.
FORWARD LOOKING STATEMENTS: This press release contains forward-looking statements. The use of any of the words "guidance", "initial, "anticipate", "scheduled", "can", "will", "prior to", "estimate", "believe", "potential", "should", "unaudited", "forecast", "future", "continue", "may", "expect", "project", and similar expressions are intended to identify forward-looking statements. The forward-looking statements contained herein, include, without limitation, 2023 guidance related to expected annual average production, expected capital expenditures and the breakdown thereof, expected adjusted funds flow from operations, expected dividends, and expected exit adjusted working capital; the expectation new pool discoveries at Marten Hills West will add to the long-term growth profile of the area; the expectation that additional step-out tests of the Clearwater A in
GUIDANCE AND FUTURE ORIENTED FINANCIAL INFORMATION: Any financial outlook or future oriented financial information in this press release, as defined by applicable securities legislation, has been approved by management of the Company as of the date hereof. Readers are cautioned that any such future oriented financial information contained herein should not be used for purposes other than those for which it is disclosed herein. The Company and its management believe that the prospective financial information as to the anticipated results of its proposed business activities for 2023 have been prepared on a reasonable basis, reflecting management's best estimates and judgments, and represent, to the best of management's knowledge and opinion, the Company's expected course of action. However, because this information is highly subjective, it should not be relied on as necessarily indicative of future results. In this press release, the Company noted that it has increased its forecast for capital expenditures for 2023 by
DIVIDEND POLICY: The amount of future cash dividends paid by the Company, if any, will be subject to the discretion of the Board and may vary depending on a variety of factors and conditions existing from time to time, including, among other things, adjusted funds flow from operations, fluctuations in commodity prices, production levels, capital expenditure requirements, acquisitions, debt service requirements and debt levels, operating costs, royalty burdens, foreign exchange rates and the satisfaction of the liquidity and solvency tests imposed by applicable corporate law for the declaration and payment of dividends. Depending on these and various other factors, many of which will be beyond the control of the Company, the Board will adjust the Company's dividend policy from time to time and, as a result, future cash dividends could be reduced or suspended entirely.
BARRELS OF OIL AND CUBIC FEET OF NATURAL GAS EQUIVALENT: The term "boe" (or barrels of oil equivalent) and "Mcf" (or thousand cubic feet of natural gas equivalent) may be misleading, particularly if used in isolation. A boe and Mcf conversion ratio of six thousand cubic feet of natural gas to one barrel of oil equivalent (6 Mcf: 1 bbl) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Additionally, given that the value ratio based on the current price of crude oil, as compared to natural gas, is significantly different from the energy equivalency of 6:1; utilizing a conversion ratio of 6:1 may be misleading as an indication of value.
INITIAL PRODUCTION RATES: References in this press release to IP rates, other short-term production rates or initial performance measures relating to new wells are useful in confirming the presence of hydrocarbons; however, such rates are not determinative of the rates at which such wells will commence production and decline thereafter and are not indicative of long-term performance or of ultimate recovery. All IP rates presented herein represent the results from wells after all "load" fluids (used in well completion stimulation) have been recovered. While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production for the Company. Accordingly, the Company cautions that the test results should be considered to be preliminary.
NON-GAAP AND OTHER FINANCIAL MEASURES
In this press release, we refer to certain financial measures (such as total sales, net of blending and capital expenditures) which do not have any standardized meaning prescribed by IFRS. Our determinations of these measures may not be comparable with calculations of similar measures for other issuers. In addition, this press release contains the terms adjusted funds flow from operations and adjusted working capital, which are considered capital management measures. The term cash flow in this press release is equivalent to adjusted funds flow from operations.
Non-GAAP Financial Measures
Total sales, net of blending
Management utilizes total sales, net of blending expense to compare realized pricing to benchmark pricing. It is calculated by deducting the Company's blending expense from total sales. In the interim financial statements blending expense is recorded within blending and transportation expense.
Three months ended | Nine months ended | |||
2023 | 2022 | 2023 | 2022 | |
(thousands of dollars) | (thousands of dollars) | |||
Total sales | 149,632 | 99,587 | 372,808 | 349,002 |
Blending expense | (5,629) | (4,638) | (21,675) | (21,929) |
Total sales, net of blending expense | 144,003 | 94,949 | 351,133 | 327,073 |
Capital expenditures
Management utilizes capital expenditures to measure total cash capital expenditures incurred in the period. Capital expenditures represents capital expenditures – exploration and evaluation and capital expenditures – property, plant and equipment in the statement of cash flows in the Company's interim financial statements netted by the government grant.
Three months ended | Nine months ended | |||
2023 | 2022 | 2023 | 2022 | |
(thousands of dollars) | (thousands of dollars) | |||
Cash flows used in investing activities | 62,030 | 54,062 | 188,998 | 170,099 |
Proceeds from government grant | - | 1,208 | - | 1,208 |
Restricted cash | - | - | - | (5,000) |
Change in non-cash working capital | 8,178 | 15,731 | 14,798 | 20,102 |
Government grant | - | - | - | (2,591) |
Capital expenditures | 70,208 | 71,001 | 203,796 | 183,818 |
Free cash flow
Management utilizes free cash flow to assess the amount of funds available for future capital allocation decisions. It is calculated as adjusted funds flow from operations net of capital expenditures before dividends.
Three months ended | Nine months ended | |||
2023 | 2022 | 2023 | 2022 | |
(thousands of dollars) | (thousands of dollars) | |||
Adjusted funds flow from operations | 80,887 | 58,441 | 206,279 | 207,899 |
Capital expenditures | (70,208) | (71,001) | (203,796) | (183,818) |
Free cash flow | 10,679 | (12,560) | 2,483 | 24,081 |
Capital Management Measures
Adjusted Funds Flow from Operations
Management considers adjusted funds flow from operations to be a key measure to assess the Company's management of capital. Adjusted funds flow from operations is an indicator as to whether adjustments are necessary to the level of capital expenditures. For example, in periods where adjusted funds flow from operations is negatively impacted by reduced commodity pricing, capital expenditures may need to be reduced or curtailed to preserve the Company's capital and dividend policy. Management believes that by excluding the impact of changes in non-cash working capital and adjusting for current income taxes in the period, adjusted funds flow from operations provides a useful measure of Headwater's ability to generate the funds necessary to manage the capital needs of the Company.
Three months ended | Nine months ended | |||
2023 | 2022 | 2023 | 2022 | |
(thousands of dollars) | (thousands of dollars) | |||
Cash flows provided by operating activities | 85,568 | 72,060 | 212,626 | 217,477 |
Changes in non–cash working capital | 5,618 | (11,610) | (1,663) | 3,740 |
Current income taxes | (14,647) | (2,009) | (29,322) | (13,318) |
Current income taxes paid | 4,348 | - | 24,638 | - |
Adjusted funds flow from operations | 80,887 | 58,441 | 206,279 | 207,899 |
Adjusted working capital is a capital management measure which management uses to assess the Company's liquidity. Financial derivative receivable/liability have been excluded as these contracts are subject to a high degree of volatility prior to settlement and relate to future production periods. Financial derivative receivable/liability are included in adjusted funds flow from operations when the contracts are ultimately realized. Management has included the effects of the contribution receivable and repayable contribution to provide a better indication of Headwater's net financing obligations.
2023 |
| |||
(thousands of dollars) | ||||
Working capital | 43,496 | 109,433 | ||
Contribution receivable (long-term) | 1,104 | 1,104 | ||
Repayable contribution | (7,082) | (6,720) | ||
Financial derivative receivable | (1,794) | (419) | ||
Financial derivative liability | 197 | 1,520 | ||
Adjusted working capital | 35,921 | 104,918 |
Non-GAAP Ratios
Adjusted funds flow netback, operating netback and operating netback, including financial derivatives
Adjusted funds flow netback, operating netback and operating netback, including financial derivatives are non-GAAP ratios and are used by management to better analyze the Company's performance against prior periods on a more comparable basis. Adjusted funds flow netback is defined as adjusted funds flow from operations divided by sales volumes in the period.
Operating netback is defined as sales less royalties, transportation and blending costs and production expense divided by sales volumes in the period. The sales price, transportation and blending costs, and sales volumes exclude the impact of purchased condensate. Operating netback, including financial derivatives is defined as operating netback plus realized gains or losses on financial derivatives.
Adjusted funds flow per share
Adjusted funds flow per share is a non-GAAP ratio and is used by management to better analyze the Company's performance against prior periods on a more comparable basis. Adjusted funds flow per share is calculated as adjusted funds flow from operations divided by weighted average shares outstanding on a basic or diluted basis.
Per boe numbers
This press release represents various results on a per boe basis including Headwater average realized sales price, net of blending, financial derivative gains (losses) per boe, royalty expense per boe, transportation expense per boe, production expense per boe, general and administrative expenses per boe, interest income and other expense per boe and current taxes per boe. These figures are calculated using sales volumes.
SOURCE
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