Crew Energy Inc. (TSX: CR, OTCQB: CWEGF) (“Crew” or the “Company”),
a growth-oriented natural gas weighted producer operating
exclusively in the world-class Montney play in northeast British
Columbia, is pleased to confirm that our Board of Directors (the
“Board”) has approved a 2022 capital expenditure budget ranging
between $70 and $95 million, in-line with our established two-year
plan. In 2022, Crew plans to continue targeting increased annual
average daily production, expand our adjusted funds flow (“AFF”),
and generate free AFF1 for ongoing debt repayment designed to
significantly improve leverage metrics (the “Two-Year Plan”). In
2022, we expect to produce enough natural gas to heat over 750,000
average Canadian households for one year2, an achievement of which
Crew is extremely proud.
“The successful execution of our Two-Year Plan
to date is reflected in our performance through 2021, which has
placed Crew in a stronger position than originally anticipated. The
positive impact of new production volumes coming on-stream into a
stronger commodity price environment, complemented by unit cost
reductions that expand margins, is expected to generate meaningful
AFF1 in excess of capital expenditures (“Free AFF”),” said Dale
Shwed, President and CEO of Crew. “In 2022, we expect to increase
production per share by approximately 20% and AFF1 per share by
approximately 54% at the midpoint over 2021, while generating
significant Free AFF1 to pay down bank debt and improve leverage
metrics.”
TWO YEAR PLAN 2020-2022
|
2020 |
2021 |
YoY % Change |
2022 |
YoY % Change |
Average Production (boe/d) |
21,955 |
26,000 - 27,000 |
21 ▲ |
31,000 - 33,000 |
21 ▲ |
Production per Share (MM) |
144 |
170 - 175 |
20 ▲ |
200 - 213 |
20 ▲ |
Unit Costs per Boe3 ($/boe) |
13.19 |
11.75 - 12.75 |
(7) ▼ |
9.00 - 10.00 |
(22) ▼ |
AFF1 ($MM) |
41.2 |
120 - 140 |
216 ▲ |
190 - 210 |
54 ▲ |
AFF1 per Share ($/sh) |
0.27 |
0.77 - 0.90 |
209 ▲ |
1.22 - 1.35 |
54 ▲ |
Net Debt to LTM EBITDA1 |
5.5x |
2.5x - 2.7x |
(53) ▼ |
1.3x - 1.5x |
(46) ▼ |
CAPITAL PROGRAM
Crew anticipates that our 2022 capital budget of
$70 to $95 million will be allocated to the drilling and completion
of five wells in our promising new Groundbirch development area and
the completion of seven wells in the Ultra-Condensate Rich (“UCR”)4
area of northeast British Columbia. This investment is expected to
result in average annual production of 31,000 to 33,000 boe per
day5 and enable the Company to maintain production at these levels
throughout 2022. Crew is maintaining our net capital expenditure
forecast of $150 to $170 million for 2021. Seven of our 15 UCR
drilled and uncompleted wells are expected to be brought on
production through December 2021 and the remaining eight wells are
forecasted to come online before the end of Q1/22, which is
expected to lead to an increase in excess of 20% in condensate
production over 2021. Five of these wells are located at our 4-21
pad, and ten are located at our 4-14 pad. The operating environment
and market conditions will be actively monitored through 2022 to
assess the merits of maintaining the planned capital program.
Crew’s 2022 capital program benefits from the
Company’s previously announced sale of our Lloydminster heavy crude
oil property on multiple fronts. Not only were we able to direct
proceeds from the sale into our ongoing Montney development, but
the transaction has also had a positive impact on our overall
environmental footprint by eliminating 46% of our direct 2020 GHG
(“Greenhouse Gas”) emissions (Scope 1) while only divesting of
approximately 4% of total corporate production. Approximately $34.5
million of capital that was previously earmarked for the
abandonment of over 609 gross (539 net) wellbores at Lloydminster
can now be allocated to high value add projects at Greater Septimus
and Groundbirch. Crew’s commitment to reducing GHG emissions is a
top priority, which will significantly improve in 2022 and beyond
as a result of the sale of our heavy oil assets combined with
continuous improvements of operational processes and facility
upgrades.
OVERVIEW
Entering the second half of Crew’s Two-Year
Plan, we expect to capitalize on the increased production and
improved margins generated in 2021 to drive Free AFF6 and improve
debt metrics, which are expected to meaningfully improve Crew’s
long-term sustainability. The supportive pillars underlying our
2022 plan include8:
-
AFF Driven by Higher Production and Prices – Our
full year 2022 AFF6 forecast of between $190 to $210 million has
been bolstered by the strengthening in commodity markets during
2021, coupled with higher margins and increased production levels
generated in the first year of our Two-Year Plan.
-
Production Growth – Annual 2022 average production
is anticipated to be between 31,000 to 33,000 boe per day7,
representing increases of 45% and 19% over 2020 and 2021,
respectively (at forecasted midpoints). The production volume
increases realized to date are the result of a successful drilling
and completions program throughout 2021, supported by longer
lateral wells and enhanced drilling and completion efficiencies.
Production additions in the fourth quarter of 2021 and the first
half of 2022 are focused on the completion of 15 wells in the UCR
area at Greater Septimus which is expected to lead to an increase
in excess of 20% in condensate production over 2021. In the second
half of 2022, production additions are expected from the drilling
and completion of five wells in our promising new development area
in Groundbirch with over 70,000 acres of contiguous land. Initial
production rates from this new development area are encouraging,
with the first three wells currently producing at a combined rate
of approximately 32 mmcf per day after 45 days on production.
-
Reduced Costs – Crew’s strategy to reduce per unit
costs through our two-year plan is primarily based on increasing
production volumes into existing infrastructure and transportation
capacity, as over 50% of the Company’s expenses are fixed. As
production continues to increase, per unit costs associated with
operating, transportation, G&A and interest expenses are
forecast to decline to between $9.00 and $10.00 per boe in 20228,
representing decreases of approximately 30% from 2020 and
approximately 22% from 2021. The Company is on track to achieve
these goals, supported by the recent disposition of our
Lloydminster heavy crude oil assets, in addition to new production
from the 1-8 West Septimus and 4-17 Groundbirch pads and upcoming
production from our 4-21 and 4-14 pads9. Combined, these factors
are expected to result in more efficient use of the 120 mmcf per
day of sales gas capacity at our West Septimus plant and the 60
mmcf per day of sales gas capacity at the Septimus gas plant.
-
Debt Reduction – Based on our 2022 budget, current
forward commodity prices and our commitment to paying down
outstanding debt, the Company’s last twelve-month (“LTM”) EBITDA6
to net debt ratio is on track to be approximately 1.3 to 1.5x by
the end of 2022. This improved balance sheet position is expected
to support our long-term financial health from a debt coverage
perspective, putting the Company in a strong position to continue
expanding reserves and production.
-
Strategic Hedging – A balanced risk management
program ensures the Company generates sufficient AFF to cover our
planned capital program under various pricing environments. Crew
currently has over 79,000 GJ’s per day (approximately 42%) of
forecasted natural gas production for 2022 hedged at an average
price of $2.67 per GJ (or $3.26 per mcf using Crew’s heat content
factor).
An infographic accompanying this announcement is available at
https://www.globenewswire.com/NewsRoom/AttachmentNg/bb580a09-cd71-4ef7-815c-2280855a75b2
BUDGET SENSITIVITIES
2022 Sensitivities |
|
|
|
|
AFF ($MM) |
|
AFF/Share |
|
FD AFF/Share |
|
100 bbl per day
Condensate1 |
$2.8 |
|
$ 0.02 |
|
$ 0.02 |
|
C$1.00 per bbl WTI |
$1.3 |
|
$ 0.01 |
|
$ 0.01 |
|
US $0.10 NYMEX (per
mmbtu) |
$1.1 |
|
$ 0.01 |
|
$ 0.01 |
|
1 mmcf per day natural
gas |
$1.5 |
|
$ 0.01 |
|
$ 0.01 |
|
$0.10 AECO 5A (per GJ) |
$2.4 |
|
$ 0.02 |
|
$ 0.02 |
|
$0.01
FX CAD/US |
$1.8 |
|
$ 0.01 |
|
$ 0.01 |
|
SUMMARY
As economies recover from COVID-19 and commodity
markets continue to strengthen, Crew expects that Canadian natural
gas will play an important role for the world as governments seek
to diversify energy sources to achieve meaningful emissions
reductions. With this reaffirmation of our 2022 plans, we are
excited to continue executing on our strategy to expand on the
production of responsible energy while leveraging a positive
operating environment in which we can strive to create value and
generate profitable and sustainable growth. We thank all of our
stakeholders, including employees, directors, partners,
communities, bondholders and shareholders, for their contribution
and dedication to the success of Crew.
ADVISORIES
Non-IFRS Measures
Certain financial measures referred to in this
press release, such as adjusted funds flow or AFF, EBITDA, net
capital expenditures, net debt, net operating costs and working
capital deficiency and are not prescribed by IFRS. Crew uses these
measures to help evaluate its financial and operating performance
as well as its liquidity and leverage. These non-IFRS financial
measures do not have any standardized meaning prescribed by IFRS
and therefore may not be comparable to similar measures presented
by other issuers.
“Adjusted funds flow”
or “AFF”, presented herein is equivalent to funds from operations
before decommissioning obligations settled. The Company considers
this metric as a key measure that demonstrate the ability of the
Company’s continuing operations to generate the cash flow necessary
to maintain production at current levels and fund future growth
through capital investment and to service and repay debt. Crew also
presents AFF per share in this presentation whereby per share
amounts are calculated using fully diluted shares outstanding.
“Free AFF” is
calculated by taking adjusted funds flow and subtracting capital
expenditures, excluding acquisitions and dispositions. Management
believes that free adjusted funds flow provides a useful measure to
determine Crew's ability to improve sustainability and to manage
the long-term value of the business.
“EBITDA” is
calculated as consolidated net income (loss) before interest and
financing expenses, income taxes, depletion, depreciation and
amortization, adjusted for certain non-cash, extraordinary and
non-recurring items primarily relating to unrealized gains and
losses on financial instruments and impairment losses. Crew
utilizes EBITDA as a measure of operational performance and cash
flow generating capability. EBITDA impacts the level and extent of
funding for capital projects investments. This measure is
consistent with the EBITDA formula prescribed under the Company's
Credit Facility and allows Crew and others to assess its ability to
fund financing expenses, net debt reductions and other
obligations.
“Net Capital
Expenditures” equals exploration and development expenditures plus
property acquisitions or less property dispositions.
“Net Debt” is defined
as bank debt plus working capital deficiency or surplus, excluding
the current portion of the fair value of financial instruments.
“Net Debt to LTM
EBITDA” is calculated as net debt at a point in time divided by
EBITDA earned from that point back for the trailing twelve
months.
“Net Operating Costs”
equals operating costs net of processing revenue.
Please refer to Crew’s most recently filed
MD&A for additional information relating to Non-IFRS measures
including a reconciliation of AFF to its most closely related IFRS
measure. The MD&A can be accessed either on Crew’s website at
www.crewenergy.com or under the Company’s profile on
www.sedar.com.
Forward-Looking Information and
Statements
This news release contains certain
forward–looking information and statements within the meaning of
applicable securities laws. The use of any of the words "expect",
"anticipate", "continue", "estimate", "may", "will", "project",
"should", "believe", "plans", "intends", “forecast” and similar
expressions are intended to identify forward-looking information or
statements. In particular, but without limiting the foregoing, this
news release contains forward-looking information and statements
pertaining to the following: the ability to execute on its two-year
development plan and underlying strategy and targets as described
herein; as to our plan to optimize and increase production and
infrastructure utilization, reduce unit and net operating costs and
enhance margins, streamline operations and improve efficiencies;
our 2022 annual capital budget range, associated drilling and
completion plans and all associated guidance and underlying
assumptions; production estimates including forecast 2021 and 2022
annual average production volumes; our ability to maintain
production levels throughout 2022; our plan to produce enough
natural gas to heat over 750,000 average Canadian households for
one year; our expectation to increase production per share by
approximately 20% and AFF per share by approximately 55% at the
midpoint over 2021; 2021 and 2022 AFF estimates and targeted
significant free AFF and improvement in debt metrics; commodity
price expectations including Crew’s estimates of natural gas
pricing exposure; Crew's commodity risk management programs and
future hedging opportunities; well abandonment plans; marketing and
transportation and processing plans and requirements; estimates of
processing capacity and requirements; anticipated reductions in GHG
emissions and decommissioning obligations; future liquidity and
financial capacity; future results from operations and operating
and leverage metrics; anticipated reductions in expenses and
associated estimates including forecast unit costs in 2022; our
targeted Net Debt to LTM EBITDA ratio of approximately 1.3 to 1.5x
by the end of 2022; efficiencies and enhanced returns going
forward; world supply and demand projections and long-term impact
on pricing; future development, exploration, acquisition and
disposition activities (including drilling and completion plans,
anticipated on-stream dates and associated development timing and
cost estimates); the potential of our Groundbirch area to be a core
area of future development and the number of potential and prolific
nature of wells to be drilled; infrastructure investment plans; the
successful implementation of our ESG initiatives, and significant
emissions intensity improvements going forward; the amount and
timing of capital projects; and anticipated improvement in our
long-term sustainability and the expected positive attributes
discussed herein attributable to our two-year development plan.
The internal projections, expectations, or
beliefs underlying our Board approved 2022 capital budget and
associated guidance are subject to change in light of the impact of
the COVID-19 pandemic, and any related actions taken by businesses
and governments, ongoing results, prevailing economic
circumstances, commodity prices, and industry conditions and
regulations. Crew's financial outlook and guidance provides
shareholders with relevant information on management's expectations
for results of operations, excluding any potential acquisitions or
dispositions, for such time periods based upon the key assumptions
outlined herein. Such information reflects internal targets
used by management for the purposes of making capital investment
decisions and for internal long-range planning and budget
preparation. Readers are cautioned that events or circumstances
could cause capital plans and associated results to differ
materially from those predicted and Crew's guidance for 2022 and
may not be appropriate for other purposes. Accordingly, undue
reliance should not be placed on same.
In addition, forward-looking statements or
information are based on a number of material factors, expectations
or assumptions of Crew which have been used to develop such
statements and information but which may prove to be incorrect.
Although Crew believes that the expectations reflected in such
forward-looking statements or information are reasonable, undue
reliance should not be placed on forward-looking statements because
Crew can give no assurance that such expectations will prove to be
correct. In addition to other factors and assumptions which may be
identified herein, assumptions have been made regarding, among
other things: that Crew will continue to conduct its operations in
a manner consistent with past operations; results from drilling and
development activities consistent with past operations; the quality
of the reservoirs in which Crew operates and continued performance
from existing wells; the continued and timely development of
infrastructure in areas of new production; the accuracy of the
estimates of Crew’s reserve volumes; certain commodity price and
other cost assumptions; continued availability of debt and equity
financing and cash flow to fund Crew’s current and future plans and
expenditures; the impact of increasing competition; the general
stability of the economic and political environment in which Crew
operates; the general continuance of current industry conditions;
the timely receipt of any required regulatory approvals; the
ability of Crew to obtain qualified staff, equipment and services
in a timely and cost efficient manner; drilling results; the
ability of the operator of the projects in which Crew has an
interest in to operate the field in a safe, efficient and effective
manner; the ability of Crew to obtain financing on acceptable
terms; field production rates and decline rates; the ability to
replace and expand oil and natural gas reserves through
acquisition, development and exploration; the timing and cost of
pipeline, storage and facility construction and expansion and the
ability of Crew to secure adequate product transportation; future
commodity prices; currency, exchange and interest rates; regulatory
framework regarding royalties, taxes and environmental matters in
the jurisdictions in which Crew operates; and the ability of Crew
to successfully market its oil and natural gas products.
The forward-looking information and statements
included in this news release are not guarantees of future
performance and should not be unduly relied upon. Such information
and statements, including the assumptions made in respect thereof,
involve known and unknown risks, uncertainties and other factors
that may cause actual results or events to defer materially from
those anticipated in such forward-looking information or statements
including, without limitation: the continuing and uncertain impact
of COVID-19; changes in commodity prices; changes in the demand for
or supply of Crew's products, the early stage of development of
some of the evaluated areas and zones the potential for variation
in the quality of the Montney formation; interruptions,
unanticipated operating results or production declines; changes in
tax or environmental laws, royalty rates; climate change
regulations, or other regulatory matters; changes in development
plans of Crew or by third party operators of Crew's properties,
increased debt levels or debt service requirements; inaccurate
estimation of Crew's oil and gas reserve volumes; limited,
unfavourable or a lack of access to capital markets; increased
costs; a lack of adequate insurance coverage; the impact of
competitors; and certain other risks detailed from time-to-time in
Crew's public disclosure documents (including, without limitation,
those risks identified in this news release and Crew's Annual
Information Form).
This press release contains future-oriented
financial information and financial outlook information
(collectively, "FOFI") about Crew's prospective capital
expenditures, all of which are subject to the same assumptions,
risk factors, limitations, and qualifications as set forth in the
above paragraphs. The actual results of operations of Crew and the
resulting financial results will likely vary from the amounts set
forth in this press release and such variation may be material.
Crew and its management believe that the FOFI has been prepared on
a reasonable basis, reflecting management's best estimates and
judgments. However, because this information is subjective and
subject to numerous risks, it should not be relied on as
necessarily indicative of future results. Except as required by
applicable securities laws, Crew undertakes no obligation to update
such FOFI. FOFI contained in this press release was made as of the
date of this press release and was provided for the purpose of
providing further information about Crew's anticipated future
business operations. Readers are cautioned that the FOFI contained
in this press release should not be used for purposes other than
for which it is disclosed herein.
The forward-looking information and statements
contained in this news release speak only as of the date of this
news release, and Crew does not assume any obligation to publicly
update or revise any of the included forward-looking statements or
information, whether as a result of new information, future events
or otherwise, except as may be required by applicable securities
laws.
Key Budget and Underlying Material
Assumptions1
|
2022 |
Net Capital Expenditures ($MM) |
70-95 |
Annual Average Production (boe/d) |
31,000-33,000 |
Adjusted Funds Flow ($MM)2 |
190-210 |
EBITDA2 ($MM) |
214-234 |
Oil price (WTI) ($US per bbl) |
$65.00 |
Natural gas price (AECO 5A) ($C per mcf) |
$3.50 |
Natural gas price (NYMEX) ($US per mmbtu) |
$4.00 |
Natural gas price (Crew est. wellhead) ($C per mcf) |
$4.00 |
Foreign exchange ($US/$CAD) |
$0.78 |
Royalties |
4-6% |
Net operating costs2 ($ per boe) |
$3.50-$4.00 |
Transportation ($ per boe) |
$2.50-$3.00 |
G&A ($ per boe) |
$0.80-$1.00 |
Interest rate – bank debt |
6.0% |
Interest rate – high yield |
6.5% |
Notes:
(1) The actual results of operations of Crew and
the resulting financial results will likely vary from the estimates
and material underlying assumptions set forth in this guidance by
the Company and such variation may be material. The guidance and
material underlying assumptions have been prepared on a reasonable
basis, reflecting management's best estimates and judgments.
(2) Non-IFRS measure that does not have any
standardized meaning as prescribed by International Financial
Reporting Standards, and therefore, may not be comparable with the
calculations of similar measures for other entities. See “Non-IFRS
Measures” contained within this Press Release.
Supplemental Information Regarding
Product Types
The following is intended to provide the product
type composition for each of the boe/d production figures provided
herein, where not already disclosed within tables above:
Corporate Production Volume
Breakdown2
|
Crude Oil1 |
Natural gas liquids3 |
Condensate |
Conventional Natural gas |
Total (boe/d) |
2020 Annual Average |
1,549 bbl/d |
2,070 bbl/d |
2,583 bbl/d |
94,519 mcf/d |
21,955 |
2021 Annual Average |
4% |
9% |
10% |
77% |
26,000-28,000 |
2022 Annual Average |
0% |
9% |
11% |
80% |
31,000-33,000 |
Notes:(1) Crude oil is comprised primarily
of Heavy crude oil, with an immaterial portion of Light and Medium
crude oil.(2) With respect to forward looking production
guidance, given the potential for variability in actual product
type results, the issuer approximates percentages for budget
planning purposes based on management's reasonable assumptions
including, without limitation, historical well
results.(3) Excludes condensate volumes which have been
reported separately.
Test Results and Initial Production
Rates
A pressure transient analysis or well-test
interpretation has not been carried out and thus certain of the
test results provided herein should be considered to be preliminary
until such analysis or interpretation has been completed. Test
results and initial production (“IP”) rates disclosed herein,
particularly those of short duration may not necessarily be
indicative of long term performance or of ultimate recovery.
Initial Production ("IP") rates indicate the average daily
production over the indicated daily period.
BOE and MMCFE Conversions
Barrel of oil equivalents or BOEs may be
misleading, particularly if used in isolation. A BOE conversion
ratio of 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. Given that the value
ratio based on the current price of crude oil as compared to
natural gas is significantly different than the energy equivalency
of 6:1, utilizing the 6:1 conversion ratio may be misleading as an
indication of value.
Crew Energy Inc. is a liquids-rich natural gas
producer, committed to pursuing sustainable per share growth
through a balanced mix of financially responsible exploration and
development complemented by strategic acquisitions. The Company’s
operations are primarily focused in the vast Montney resource,
situated in northeast British Columbia, and include a large
contiguous land base. Crew's liquids-rich natural gas areas of
Septimus and West Septimus and Groundbirch in British Columbia
offer significant development potential over the long-term. The
Company has access to diversified markets with operated
infrastructure and access to multiple pipeline egress options. Crew
adheres to safe and environmentally responsible operations while
remaining committed to sound environmental, social and governance
practices which underpin Crew’s fundamental business tenets. Crew’s
common shares are listed for trading on the Toronto Stock Exchange
(“TSX”) under the symbol “CR”.
FOR DETAILED INFORMATION, PLEASE
CONTACT:
Dale Shwed, President and CEO |
Phone: (403) 266-2088 |
John Leach, Executive Vice President and CFO |
Email: investor@crewenergy.com |
|
|
1 Non-IFRS Measure. See “Advisories - Non-IFRS Measures”. 2
Based on average Canadian household usage of 88.4 GJ/year
(StatsCan; 2015)3 Includes operating costs, transportation costs,
interest, general and administrative expenses4 “Ultra-Condensate
Rich” or “UCR” is not defined in NI 51-101 and means a fairway of
land at Crew’s Greater Septimus area of operations where productive
zones have high condensate rates (initial 30-day condensate / gas
ratio rates of greater than 75 bbls per mmcf).5 See table in the
Advisories for production breakdown by product type as defined in
NI 51-101.6 Non-IFRS Measure. See “Advisories - Non-IFRS
Measures”.7 See table in the Advisories for production breakdown by
product type as defined in NI 51-101.8 See table in the Advisories
for key budget and underlying material assumptions related to
Crew’s development plan and associated guidance.9 Crew’s 2020 and
2021 counter cyclical execution strategy has enabled lower cost
development of our resources and reduced overall per unit operating
costs. This strategy has also enabled Crew to maintain higher
volumes in 2022 without significant additional capital. 10
Condensate is defined as a mixture of pentanes and heavier
hydrocarbons recovered as a liquid at the inlet of a gas processing
plant before the gas is processed and pentanes and heavier
hydrocarbons obtained from the processing of raw natural gas.
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