/NOT FOR DISSEMINATION IN THE U.S. OR THROUGH
U.S. NEWSWIRES/
CALGARY,
AB, Nov. 29, 2023 /CNW/ - Highwood Asset
Management Ltd., ("Highwood" or the "Company") (TSXV:
HAM) is pleased to announce financial and operating results for the
three and nine months ended September 30,
2023. The Company also announces that its unaudited
financial statements and associated Management's Discussion and
Analysis ("MD&A") for the period ended September 30, 2023, can be found at
www.sedarplus.ca and www.highwoodmgmt.com.
Highlights
- Highwood anticipates allocating its organic Free Cash Flow
after sustaining capital on a 50:50 basis to support organic
production growth of approximately 25% while also expecting to
reduce Net Debt by approximately 25%, achieving Net Debt / 2024E
EBITDA of under 0.8x in the next 12 months.
- The focus of the third quarter of 2023 for the Company was on
the transformational acquisitions that the Company announced early
in the third quarter of 2023 and the corresponding financing. On
August 3, 2023, the Company closed
the acquisitions of Castlegate Energy Ltd., Boulder Energy Ltd. and
Shale Petroleum Ltd. (collectively, the "Acquisitions") for
a gross purchase price of approximately $143
million. The Acquisitions brought a combined ~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 ("Next Twelve
Months" or "NTM")
- Highwood commenced its drilling program on September 16, 2023, spudding the
102/13-09-048-14W5 multi-lateral open hole ("MLOH") well
(the "13-09 well") at Brazeau, which offsets the
12-09-048-14W5 MLOH well. After approximately 25 days of cleaning
up post drilling operations, the 13-09 well has averaged
approximately 350 bbls/d of oil over the past seven days which is
slightly above the projected type curve for this well.
- On October 21, 2023, the Company
spud a second MLOH well at Brazeau 14-09-048-14W5 (the "14-09
well"), with the rig being released on November 19, 2023. The 14-09 well is expected to
be onstream prior to the end of November
2023. Total capital costs for the 13-09 well and the 14-09
well was in line with the projected budget forecasts for these
wells.
- On November 21, 2023, the Company
spud a third well, 04-10-043-05W5 (the "04-10 well"), at
Wilson Creek which is a follow up
to the successful 102/06-04-043-05W5 (the "102/06-04 well")
well that achieved payout in under six months. Following the
drilling of the 04-10 well, Highwood intends to drill a second well
at Wilson Creek, a direct offset
to the 102/06-04 well, the 100/03-04-043-05W5 well (the "03-04
well").
- Highwood reiterates its expected average production guidance of
approximately 5,200 boe/d, representing growth of approximately
25%, on expected drilling, completion and tie-in capital
expenditures of approximately $40
million in 2024. Highwood also expects to reduce Net Debt
by approximately 25% reducing Net Debt / 2024E EBITDA to under
0.8x in the next 12 months, based on an US$70/bbl WTI and C$2.75/GJ
AECO.(1)(2)(3)
- Following the acquisition of each of Castlegate Energy Ltd.,
Boulder Energy Ltd. and Shale Petroleum Ltd. early in the third
quarter of 2023, Highwood continued to hedge oil production as oil
reached 2023 highs through September
2023 and is pleased it was able to secure hedges that are
over US$10/bbl higher than the
forecasted realized crude oil pricing versus the forecasted
pricing on the announcement of the Acquisitions on July 5, 2023, with the average WTI hedge price
at over C$100/bbl. Highwood has
hedged approximately 38% of gross forecasted production for 2024 at
an average WTI oil price of approximately $103 CAD/bbl and an average AECO gas price of
$3.03 per gigajoule.
- Highwood conducted a workover program during the third quarter
of 2023 which added approximately 180 bbls/day of oil production
for capital of approximately $500,000.
- Pursuant to the Acquisitions, Highwood is positioned as a
growth focused oil-weighted producer with strong insider ownership
which remains committed to supporting the Company's long-term
growth trajectory and prudent use of debt capital.
Notes to Highlights:
|
(1)
|
See "Caution
Respecting Reserves Information" and "Non-GAAP and other
Specified Financial Measures".
|
(2)
|
Based on
Management's projections (not Independent Qualified Reserves
Evaluators' forecasts) and applying the following pricing
assumptions: WTI: US$70.00/bbl; WCS Diff: US$14.00/bbl; MSW
Diff: US$3.50/bbl; AECO: C$2.75/GJ; 0.74 CAD/USD. Management
projections are used in place of Independent Qualified Reserves
Evaluators' forecasts as Management believes it provides
investors with valuable information concerning the liquidity of
the Company. Cash flow figures assume completion of the
Acquisitions on July 1, 2023 and illustrative hedges for total of
65% of net after royalty Proved Developed Producing reserves
production.
|
Summary of Financial & Operating Results
|
Three months
ended September 30,
|
|
Nine months
ended September 30,
|
|
2023
|
|
2022
|
%
|
|
2023
|
|
2022
|
%
|
Financial (in
thousands)
|
|
|
|
|
|
|
|
|
|
Petroleum and
natural gas sales
|
$
15,894
|
$
|
$ 1,135
|
1,300
|
|
$
17,580
|
|
$ 3,411
|
415
|
Transportation
pipeline revenues
|
774
|
|
842
|
(8)
|
|
2,203
|
|
2,486
|
(11)
|
Total revenues,
net of royalties(1)
|
8,870
|
|
1,720
|
416
|
|
12,121
|
|
4,791
|
153
|
Income
(Loss)
|
(1,014)
|
|
241
|
(521)
|
|
(1,641)
|
|
2,184
|
(175)
|
Funds flow from
operations(5)
|
5,916
|
|
485
|
1,120
|
|
6,060
|
|
1,086
|
453
|
Adjusted
EBITDA(6)
|
7,489
|
|
368
|
1,935
|
|
7,406
|
|
1,289
|
475
|
Capital
expenditures
|
2,917
|
|
1,526
|
91
|
|
4,030
|
|
1,683
|
139
|
Net debt
(2)
|
|
|
|
|
|
89,696
|
|
(367)
|
-
|
Shareholder's
equity (end of period)
|
|
|
|
|
|
56,676
|
|
10,508
|
439
|
Shares
outstanding (end of period)
|
|
|
|
|
|
15,013
|
|
6,014
|
150
|
Weighted-average
basic shares
|
|
|
|
|
|
7,955
|
|
6,014
|
32
|
outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
(3)
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
|
|
|
|
|
|
|
Crude oil
(bbls/d)
|
1,359
|
|
116
|
1,071
|
|
530
|
|
111
|
378
|
NGLs
(boe/d)
|
305
|
|
-
|
-
|
|
103
|
|
-
|
-
|
Natural
gas (mcf/d)
|
4,785
|
|
-
|
-
|
|
1,613
|
|
-
|
-
|
Total
(boe/d)
|
2,425
|
|
116
|
1,989
|
|
889
|
|
111
|
702
|
Average realized
prices (4)
|
|
|
|
|
|
|
|
|
|
Crude oil
(Cdn$/bbl)
|
109.07
|
|
106.27
|
3
|
|
105.87
|
|
112.65
|
(6)
|
NGL
(Cdn$/boe)
|
39.75
|
|
-
|
-
|
|
39.75
|
|
-
|
-
|
Natural
gas (Cdn$/mcf)
|
2.59
|
|
-
|
-
|
|
2.59
|
|
-
|
-
|
Upstream
Operating netback (per BOE)
|
41.01
|
|
45.79
|
(10)
|
|
40.29
|
|
48.41
|
(17)
|
(1)
|
Includes unrealized
gain and losses on commodity contracts
|
(2)
|
Net debt consists of
bank debt, promissory note, long-term accounts payable and accrued
liabilities and working capital surplus (deficit) excluding
commodity contract assets and/or liabilities, current portion of
decommissioning liabilities and lease liabilities
|
(3)
|
For a description of
the boe conversion ratio, see "Basis of Barrel of Oil
Equivalent".
|
(4)
|
Before
hedging.
|
(5)
|
See "Non-GAAP and other
Specified Financial measures".
|
The operating results of the three and nine months ended
September 30, 2023 include the impact
of the Acquisitions from the closing date of August 3, 2023.
2023 Third Quarter Operations
With the continued strong commodity prices and increased
interest in Canadian energy, the Company's primary focus in the
third quarter was closing the Acquisitions and transitioning the
acquired assets into Highwood. The Company also focused on
beginning the execution of Highwood's capital development program
and spud the initial MLOH well in September. The Company will
continue to review and assess opportunities which are accretive to
the Company as Highwood seeks to grow this segment of its
operations. The Company will also assess land offerings in
strategic areas where the Company sees significant growth
opportunities.
Outlook
Highwood anticipates allocating its organic Free Cash Flow after
sustaining capital on a 50:50 basis to support organic production
growth of approximately 25% while also expecting to reduce Net Debt
by approximately 25%, achieving Net Debt / 2024E EBITDA of under
0.8x in the next 12 months.
The primary focus over the near term is the execution of the
Company's capital program and growth strategy while reducing the
Company's Net Debt.
As of the date of this MD&A, the Company is drawn
approximately $73.5 million on its
new credit facility which provides considerable financial and
operational flexibility. As the Company continues to see a
generational opportunity to acquire high quality producing
assets at cyclically low valuations, which have
considerable unbooked upside that can be unlocked using horizontal
multi-lateral and stage fracking technologies, it remains dedicated
to pursuing accretive acquisitions through the balance of the year
and into 2024. The Company is currently engaged in several
encouraging dialogues regarding various other acquisitions and
potential strategic partnership opportunities.
Corporately, the Company is dedicated to building a growing
profile of Free Cash Flow, on a per share basis, while using
prudent leverage, to provide it maximum flexibility for
organic growth and / or other strategic M&A opportunities.
Highwood is continuing to evaluate its undeveloped lands for
drilling opportunities and is planning to actively drill while
commodity prices support the capital.
Neither TSX Venture Exchange nor its Regulation Services
Provider (as that term is defined in the policies of the TSX
Venture Exchange) accepts responsibility for the adequacy or
accuracy of this release.
Cautionary Note Regarding Forward-Looking Information
This news release contains certain statements and
information, including forward-looking statements within the
meaning of the "safe harbor" provisions of applicable securities
laws, and which are collectively referred to herein as
"forward-looking statements". The forward-looking statements
contained in this news release are based on Highwood's current
expectations, estimates, projections and assumptions in light of
its experience and its perception of historical trends. When used
in this news release, the words "seek", "anticipate",
"plan", "continue", "estimate", "expect", "may", "will", "project",
"predict", "potential", "targeting", "intend", "could",
"might", "should", "believe" and similar expressions, as they
relate to Highwood or the Acquisitions, are intended to identify
forward-looking statements. These statements involve known and
unknown risks, uncertainties and other factors that may cause
actual results or events to differ materially from those
anticipated in such forward-looking statements. Actual operational
and financial results may differ materially from Highwood's
expectations contained in the forward-looking statements as a
result of various factors, many of which are beyond the control of
the Company.
Undue reliance should not be placed on these forward-looking
statements, as there can be no assurance that the plans, intentions
or expectations upon which they are based will occur. By its
nature, forward-looking information involves numerous assumptions,
known and unknown risks and uncertainties, both general and
specific, that contribute to the possibility that the predictions,
forecasts, projections and other forward-looking statements will
not occur and may cause actual results or events to differ
materially from those anticipated in such forward-looking
statements. Forward-looking statements may include, but are not
limited to, statements with respect to:
- anticipated benefits of the Acquisitions, including
anticipated acquisition metrics used in this news release;
- the Company's expectations with respect to Highwood's
financial and operational results following completion of the
Acquisitions;
- the Company's estimates of the drilling locations inventory
and tax pools associated with the Acquisitions;
- the Company's expectations regarding capacity of
infrastructure associated with its business and the businesses of
Shale, Boulder and Castlegate;
- anticipated operational results for 2023 and 2024 and
beyond, including, but not limited to, estimated or anticipated
production levels, decline rates, capital expenditures and sources
of funding thereof, drilling plans and other information discussed
in this news release;
- anticipated financial results of the Company in 2023 and
2024 and beyond following completion of the Acquisitions, including
but not limited to, Adjusted EBITDA, Free Cash Flow, field net
operating income, and net debt;
- the performance characteristics of the Company and the oil
and natural gas properties subject to the Acquisitions and new
wells;
- the quantity of the Company's and the acquired businesses'
oil and natural gas reserves and anticipated future cash flows from
such reserves;
- the Company's expectations regarding commodity prices and
costs;
- the Company's expectations regarding supply and demand for
oil and natural gas;
- expectations regarding the Company's ability to raise
capital and to continually add to reserves through acquisitions and
development;
- the Company's expectation regarding its ability to return of
capital to shareholders;
- treatment under governmental regulatory regimes and tax
laws;
- fluctuations in depletion, depreciation, and accretion
rates;
- expected changes in regulatory regimes in respect of royalty
curves and regulatory improvements and the effects of such changes;
and
- Highwood's business and acquisition strategy, the criteria
to be considered in connection therewith and the benefits to be
derived therefrom.
These forward-looking statements are not guarantees of future
performance and are subject to a number of known and unknown risks
and uncertainties that could cause actual events or results to
differ materially, including, but not limited to:
- failure to realize the anticipated benefits of acquisitions,
including results and/or synergies of each of the
Acquisitions;
- unexpected costs or liabilities related to each of the
Acquisitions;
- volatility in market prices for oil and natural
gas;
- operational risks and liabilities inherent in oil and
natural gas operations;
- uncertainties associated with estimating oil and natural gas
reserves;
- changes in royalty regimes;
- competition for, among other things, capital, acquisitions
of reserves, undeveloped lands and skilled personnel;
- incorrect assessments of the value of benefits to be
obtained from acquisitions and exploration and development
programs;
- unforeseen difficulties in integrating assets acquired
through acquisitions (including each of the Acquisitions) into the
Company's operations;
- that the Company's ability to maintain strong business
relationships with its suppliers, service providers and other third
parties will be maintained;
- geological, technical, drilling and processing
problems;
- fluctuations in foreign exchange or interest rates and stock
market volatility;
- liquidity;
- commodity price volatility and adverse general economic,
political and market conditions;
- the accuracy of oil and gas reserves estimates and estimated
production levels as they are affected by exploration and
development drilling and estimated decline rates;
- the uncertainties in regard to the timing of Highwood's
exploration and development program;
- fluctuations in the costs of borrowing;
- political or economic developments;
- uncertainty related to geopolitical conflict;
- ability to obtain regulatory approvals; and
- the results of litigation or regulatory proceedings that may
be brought against the Company;
- changes in income tax laws or changes in tax laws and
incentive programs relating to the oil and gas industry.
In addition, statements relating to "reserves" are deemed to
be forward-looking statements, as they involve the implied
assessment, based on certain estimates and assumptions that the
reserves described can be profitably produced in the
future.
There are numerous uncertainties inherent in estimating
quantities of oil and natural gas and the future cash flows
attributed to such reserves. The reserves and associated cash flow
information set forth herein are estimates only. In general,
estimates of economically recoverable oil and natural gas and the
future net cash flows therefrom are based upon a number of variable
factors and assumptions, such as historical production from the
properties, production rates, ultimate reserves and resources
recovery, timing and amount of capital investments, marketability
of oil and natural gas, royalty rates, the assumed effects of
regulation by governmental agencies and future operating costs, all
of which may vary materially. For these reasons, estimates of the
economically recoverable oil and natural gas attributable to any
particular group of properties, classification of such reserves
based on risk of recovery and estimates of future net revenues
associated with reserves prepared by different evaluators, or by
the same evaluators at different times, may vary. The actual
production, revenues, taxes and development and operating
expenditures of the Company with respect to its reserves will vary
from estimates thereof and such variations could be material. This
news release contains future-oriented financial information and
financial outlook information (collectively, "FOFI") about
the Company's prospective Adjusted EBITDA, Free Cash Flow, Field
Cash Flow and Field NOI, all of which are subject to the same
assumptions, risk factors, limitations, and qualifications as set
forth in the above paragraphs. FOFI contained in this news release
was made as of the date of this news release and was provided for
the purpose of describing the anticipated effects of the Offering
and each of the Acquisitions on the Company's business operations.
Highwood's actual results, performance or achievement could differ
materially from those expressed in, or implied by, such FOFI. The
Company disclaims any intention or obligation to update or revise
any FOFI contained in this news release, whether as a result of new
information, future events or otherwise, unless required pursuant
to applicable law. Readers are cautioned that the FOFI contained in
this Prospectus Supplement should not be used for purposes other
than for which it is disclosed herein.
Changes in forecast commodity prices, differences in the
timing of capital expenditures and variances in average production
estimates can have a significant impact on the key performance
metrics included in the Company's guidance for the fourth quarter
of 2023 and full year 2024 contained in this news release. The
Company's actual results may differ materially from such
estimates.
With respect to forward-looking statements contained in this
news release, the Company has made assumptions regarding, among
other things: the ability of the Company to achieve anticipated
benefits from the Acquisitions; that commodity prices will be
consistent with the current forecasts of its engineers; field
netbacks; the accuracy of reserves estimates; average production
rates; costs to drill, complete and tie-in wells; ultimate recovery
of reserves; that royalty regimes will not be subject to material
modification; that the Company will be able to obtain skilled
labour and other industry services at reasonable rates; the
performance of assets and equipment; that the timing and amount of
capital expenditures and the benefits therefrom will be consistent
with the Company's expectations; the impact of increasing
competition; that the conditions in general economic and financial
markets will not vary materially; that the Company will be able to
access capital, including debt, on acceptable terms; that drilling,
completion and other equipment will be available on acceptable
terms; that government regulations and laws will not change
materially; that royalty rates will not change in any material
respect; and that future operating costs will be consistent with
the Company's expectations.
Although Highwood believes the expectations and material
factors and assumptions reflected in these forward-looking
statements are reasonable as of the date hereof, there can be no
assurance that these expectations, factors and assumptions will
prove to be correct.
Readers are cautioned not to place undue reliance on such
forward-looking statements, as there can be no assurance that the
plans, intentions or expectations upon which they are based will
occur and the predictions, forecasts, projections and other
forward-looking statements may not occur, which may cause
Highwood's actual performance and financial results in future
periods to differ materially from any estimates or projections of
future performance or results expressed or implied by this news
release.
A more complete discussion of the risks and uncertainties
facing Highwood is disclosed in Highwood's continuous disclosure
filings with Canadian securities regulatory authorities at
www.sedarplus.ca. All forward-looking information herein is
qualified in its entirety by this cautionary statement, and
Highwood disclaims any obligation to revise or update any such
forward-looking information or to publicly announce the result of
any revisions to any of the forward-looking information contained
herein to reflect future results, events, or developments, except
as required by law.
Caution Respecting Reserves Information
Basis of Barrels of Oil Equivalent – In this news
release, the abbreviation boe means a barrel of oil equivalent on
the basis of 1 boe to 6.29 Mcf of natural gas when converting
natural gas to boes. Boes may be misleading, particularly if used
in isolation. A boe conversion ratio of 6.29 Mcf to 1 boe 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 the value ratio based on the current
price of crude oil as compared to natural gas is significantly
different from the energy equivalency of 6.29:1, utilizing a
conversion ratio at 6:1 may be misleading.
References to "liquids" in this news release refer to,
collectively, heavy crude oil, light crude oil and medium crude oil
combined, and natural gas liquids.
Non-GAAP and other Specified Financial Measures
This news release may contain financial measures commonly
used in the oil and natural gas industry, including "Field Net
Operating Income" and "Adjusted EBITDA". These financial measures
do not have any standardized meaning under IFRS and therefore may
not be comparable to similar measures presented by other companies.
Readers are cautioned that these non-IFRS measure should not be
construed as an alternative to other measures of financial
performance calculated in accordance with IFRS. These non-IFRS
measures provides additional information that Management believes
is meaningful in describing the Company's operational
performance, liquidity and capacity to fund capital expenditures
and other activities. Management believes that the presentation
of these non-IFRS measures provide useful information to investors
and shareholders as the measures provide increased transparency
and the ability to better analyze performance against prior
periods on a comparable basis.
"Adjusted EBITDA" is calculated as cash flow from (used in)
operating activities, adding back changes in non-cash working
capital, decommissioning obligation expenditures, transaction
costs and interest expense. The Company considers Adjusted EBITDA
to be a key capital management measure as it is both used within
certain financial covenants anticipated to be prescribed under
the New Credit Facilities and demonstrates Highwood's standalone
profitability, operating and financial performance in terms of
cash flow generation, adjusting for interest related to its capital
structure. The most directly comparable GAAP measure is cash flow
from (used in) operating activities.
"EBITDA" is a non-GAAP financial measure and may not be
comparable with similar measures presented by other companies.
EBITDA is used as an alternative measure of profitability
and attempts to represent the cash profit generated by the
Company's operations. The most directly comparable GAAP measure is
cash flow from (used in) operating activities. EBITDA is calculated
as cash flow from (used in) operating activities, adding back
changes in non-cash working capital, decommissioning obligation
expenditures and interest expense.
"Field Cash Flow" Field Cash Flow is used to assess the
profitability of the Company's operations on a unit basis. The
most directly comparable GAAP measure is cash flow from (used
in) operating activities. Field Cash Flow is calculated as cash
flow from (used in) operating activities, adding back
decommissioning obligation expenditures and any costs incurred at
the corporate level, divided by production. There are no general
and administrative expenses included in Field Cash Flow as those
costs are incurred at the corporate level.
"Field Net Operating Income" or "Field NOI" is used a
measure to calculate NOI at the field level. The most directly
comparable GAAP measure is cash flow from (used in) operating
activities. Field NOI is calculated as cash flow from (used in)
operating activities, adding back decommissioning obligation
expenditures and any costs incurred at the corporate level. There
are no general and administrative expenses included in Field Cash
Flow as those costs are incurred at the corporate level.
"Free Cash Flow" or "FCF" is used as an indicator of the
efficiency and liquidity of the Company's business, measuring its
funds after capital expenditures available to manage debt levels,
pursue acquisitions and assess the optionality to pay dividends
and/or return capital to shareholders though activities such as
share repurchases. The most directly comparable GAAP measure is
cash flow from (used in) operating activities. Free Cash Flow is
calculated as cash flow from (used in) operating activities, less
interest, office lease expenses, cash taxes and capital
expenditures.
"Net Debt" represents the carrying value of the Company's
debt instruments, including outstanding deferred acquisition
payments, net of Adjusted working capital. The Company uses Net
Debt as an alternative to total outstanding debt as Management
believes it provides a more accurate measure in assessing the
liquidity of the Company. The Company believes that Net Debt can
provide useful information to investors and shareholders in
understanding the overall liquidity of the Company.
"Net Debt / 2024E EBITDA" is calculated as net debt at the
ending period of each financial quarter divided by the 2024E
Adjusted EBITDA. The Company believes that Net Debt / 2024E
Adjusted EBITDA is useful information to investors and
shareholders in understanding the time frame, in years, it would
take to eliminate Net Debt based on 2024E Adjusted
EBITDA.
"NOI" is calculated as Net Income plus taxes, interest and
excluding gains (losses) on disposals. The most directly
comparable GAAP measure is Net Income. NOI provides a useful
measure of the profitability of the Company's regular
operations.
"Upstream Operating netback (per BOE)" is calculated as the
realized price per boe, less royalties associated with the sale of
petroleum and natural gas products on a per boe basis, less the
operating costs associated with the production on a per boe basis.
The Company believes that Upstream Operating netback (per BOE) is a
useful measure of the profit that is made from each barrel of
production.
All dollar figures included herein are presented in
Canadian dollars, unless otherwise noted.
SOURCE HIGHWOOD ASSET MANAGEMENT LTD.