/NOT FOR DISSEMINATION IN THE U.S. OR THROUGH
U.S. NEWSWIRES./
CALGARY, April 30, 2019 /CNW/ - Highwood Oil Company Ltd.,
("HOCL" or the "Corporation") (TSXV: HOCL) is pleased
to announce financial and operating results for the three months
and twelve months ended December 31,
2018 and to provide the results of its independent oil and
gas reserves evaluation as of December 31,
2018, prepared by GLJ Petroleum Consultants Ltd.
("GLJ").
Associated Management's Discussion and Analysis
("MD&A") dated April 29,
2019 and audited financial statements as at and for the year
ended December 31, 2018, can be found
at www.sedar.com and www.highwoodoil.com.
Highlights
- Achieved production of 1,117 bbl/d of oil in the fourth quarter
of 2018, flat from 1,120 bbl/d in the fourth quarter of
2017.
- Acquired 62.5 gross (32.25 net) sections of Clearwater formation lands in 2018, bringing
total sections to 196 gross (99 net) at December 31, 2018. Subsequent to year-end the
Clearwater land position has grown
to 226 gross (115 net) sections and presents exciting drilling
opportunities with short cycle times. Minimal bookings for the
Clearwater formation have been
incorporated into the December 31,
2018 reserves providing significant reserve upside.
- Successfully drilled 4 gross (2 net) wells in the Clearwater
Formation in the fourth quarter which have performed as per
internal type curves. 3 gross (1.5 net) wells were drilled in Q1
2019, bringing total wells drilled to 7 gross (3.5 net). Assuming
WCS realized pricing remains in the range of current strip pricing,
Highwood would plan to drill another 6 to 10 gross (3 to 5 net)
wells in the Clearwater before the
end of 2019.
- Transportation and pipeline revenue from the Wabasca River
Pipeline of $3.9 million for the year
and $1.3 million for the quarter
ended December 31, 2018.
- Additionally, current production from Highwood is approximately
1,550 bbl/d of oil.
Reserves
All references to reserves are to gross company reserves,
meaning the Corporation's working interest reserves before
deductions of royalties. The reserves were evaluated by GLJ
Petroleum Consultants Ltd. ("GLJ") in accordance with National
Instrument 51-101 – Standards of Disclosure for Oil and Gas
Activities ("NI 51-101") dated March 29,
2019, and effective December
31, 2018. The Corporation filed their Annual
Information Form ("AIF") on April 30,
2019 which contains the Corporation's reserves data and
other oil and natural gas information required under NI 51-101.
All evaluations and summaries of future net revenue are stated
prior to provision for interest, debt service charges or general
and administrative expenses and after deduction of royalties,
operating expenditures, estimated abandonment liabilities and
estimated future development capital. The information included
as ("NPV10") in the tables below represents the net present value
of future net revenue before income taxes at a 10% discount rate
based on GLJ's January 1, 2019
forecast price deck. It should not be assumed that the
estimate of future net revenues reflected in the tables below
represents fair market value of the reserves.
Summary of Oil and Gas Reserves as of December 31, 2018(1)(2)
|
Total Oil
Equivalent Basis (3)
|
Reserves
Category
|
Company Gross
(Mboe)
|
Company Net
(Mboe)
|
Proved
|
|
|
Producing
|
3,235
|
2,884
|
Developed
Non-Producing
|
1,627
|
1,475
|
Undeveloped
|
1,236
|
1,110
|
Total
Proved
|
6,098
|
5,469
|
Total
Probable
|
3,803
|
3,380
|
Total Proved Plus
Probable
|
9,902
|
8,849
|
(1)
|
Forecast prices are
shown under the heading "Pricing Assumptions" in the Corporation's
AIF dated April 30, 2019.
|
(2)
|
Reserves information
may not add due to rounding.
|
(3)
|
Natural gas has been
converted to barrels of oil equivalent on the basis of six (6) Mcf
of natural gas being equal to one barrel of oil.
|
Summary of Net Present Value of Future Net Revenues as of
December 31,
2018(1)(2)(3)
|
Net Present Values
of Future Net Revenue
|
|
Before Income
Taxes Discounted At (%/year)
|
|
0%
|
5%
|
10%
|
15%
|
20%
|
Reserves
Category
|
M$
|
M$
|
M$
|
M$
|
M$
|
Proved
|
|
|
|
|
|
Producing
|
111,241
|
92,105
|
77,950
|
67,422
|
59,430
|
Developed
Non-Producing
|
52,389
|
41,550
|
33,352
|
27,309
|
22,808
|
Undeveloped
|
23,821
|
16,409
|
11,465
|
8,043
|
5,592
|
Total
Proved
|
187,452
|
150,064
|
122,767
|
102,775
|
87,831
|
Total
Probable
|
126,510
|
81,727
|
56,024
|
40,660
|
30,943
|
Total Proved Plus
Probable
|
313,962
|
231,791
|
178,790
|
143,435
|
118,774
|
(1)
|
Forecast prices are
shown under the heading "Pricing Assumptions" in the Corporation's
AIF dated April 30, 2019.
|
(2)
|
Reserves information
may not add due to rounding.
|
(3)
|
It should not be
assumed that the estimates of future net revenues presented in the
tables represent the fair market value of the reserves. There is
no assurance that the forecast prices and cost assumptions will be
attained, and variances could be material.
|
Summary of Financial & Operating Results
|
Three months ended
December 31,
|
Year ended
December 31,
|
|
2018
|
2017
|
2018
|
2017
|
Financial
|
|
|
|
|
Oil and natural gas
sales
|
$
3,159,126
|
$
6,276,681
|
$
24,985,489
|
$
28,289,467
|
Transportation
pipeline revenues
|
1,308,526
|
-
|
3,948,611
|
-
|
Total revenues, net
of royalties (1)
|
8,802,798
|
1,127,095
|
27,679,711
|
28,293,860
|
Income
(loss)
|
1,223,306
|
(1,073,072)
|
(1,809,819)
|
598,854
|
Capital
expenditures
|
6,419,621
|
4,657,830
|
23,248,021
|
36,440,187
|
Net debt
|
|
|
29,630,459
|
14,573,417
|
Shareholders' equity
(end of period)
|
|
|
24,579,552
|
26,863,521
|
Shares outstanding
(end of period)
|
|
|
5,744,204
|
5,538,674
|
Weighted-average
basic shares outstanding
|
5,695,056
|
5,538,674
|
5,578,091
|
5,538,674
|
|
|
|
|
|
Operations
(2)
|
|
|
|
|
Production
|
|
|
|
|
Natural gas
(Mcf/d)
|
12
|
73
|
30
|
2,403
|
Natural gas liquids
(NGL) (bbls/d)
|
0
|
1
|
0
|
144
|
Crude oil
(bbls/d)
|
1,117
|
1,111
|
1,120
|
1,214
|
Total
(boe/d)
|
1,119
|
1,124
|
1,125
|
1,759
|
Average realized
prices (3)
|
|
|
|
|
Natural gas (per
Mcf)(5)
|
2.01
|
1.30
|
1.35
|
2.86
|
NGL (per
bbl)(5)
|
72.03
|
43.79
|
71.30
|
23.25
|
Crude oil (per
bbl)
|
30.27
|
61.30
|
61.06
|
55.42
|
Operating netback
(per boe)(4)
|
(3.38)
|
23.83
|
7.21
|
13.28
|
|
|
|
|
|
Wells
drilled:
|
|
|
|
|
Gross
|
4
|
-
|
6
|
-
|
Net
|
2
|
-
|
3.5
|
-
|
Success (%)
|
100
|
-
|
100
|
-
|
|
|
|
|
|
(1)
|
Includes gain and
losses on commodity contracts
|
(2)
|
For a description of
the boe conversion ratio, see "Basis of Barrel of Oil
Equivalent".
|
(3)
|
Before
hedging.
|
(4)
|
See "Non-GAAP
measures".
|
(5)
|
For 2018, natural gas
and NGL production and revenues are immaterial to the
Company
|
Saskatchewan Transaction
On April 29, 2019, the Corporation
completed the acquisition of an arm's-length private company with
production in Saskatchewan, for a
total purchase price of $5.0
million.
Acquired production of approximately 225 bbl/day of light sweet
crude oil produced from 7 gross (5.5 net) wells in the Tilston formation. The acquisition
provides an additional 2 to 3 horizontal locations and secondary
waterflood potential.
Subject to ordinary closing adjustments, the purchase price
comprised $3,450,000 of cash and
$1,550,000 of Highwood shares valued
at $23.51 per share (total of 65,935
Highwood Shares). Fifty percent of the Highwood shares are
subject to a contractual 90-day hold period from the date of
closing and the remaining fifty percent of the Highwood shares are
subject to a contractual 180-day hold period from the closing
date.
The Acquisition is an arm's length transaction an constitutes an
Expedited Acquisition pursuant to TSX Venture Exchange Policy 5.3 –
Acquisitions and Disposition of Non-Cash Assets.
Outlook
The fourth quarter pricing environment was challenging for
Highwood, but the Corporation is encouraged by current pricing and
market sentiment. Our Clearwater land position has grown to
226 gross (115 net) sections and presents exciting drilling
opportunities with short cycle times. Assuming WCS realized
pricing remains in the range of current strip prices, Highwood
would plan to drill another 6 to 10 gross (3 to 5 net) wells in the
Clearwater before the end of 2019.
In Q1 2019, 3 gross (1.5 net) Clearwater wells were drilled in the Nipisi
area bringing a total of 7 gross (3.5 net) Clearwater wells drilled to date. The wells
are on flow back and being evaluated for production results.
Our Red Earth asset continues to provide a solid below 15%, low
decline production base which can be mitigated through the
introduction of proppant fractures in both the vertical and
horizontal wellbores in the area. Management anticipates that
through modest annual capital we will be able to hold production
flat. The premium to MSW pricing received on the Red Earth
production drives an attractive netback and provides an excellent
source of cash flow to redeploy into the Clearwater assets. Focus in 2019 will be to
continue to drive down operating costs in the field which are
challenged by year-round accessibility and geographic spread.
The Corporation remains focused on evaluating opportunities in
the M&A market and completing accretive acquisitions through
the duration of 2019.
Current production for Highwood is approximately 1,550 bbl/d of
oil following the Saskatchewan Transaction.
Oil and Gas Measures
Readers should see the "Selected Technical Terms" in the
Annual Information Form filed on April 30,
2019 for the definition of certain oil and gas
terms.
Basis of Barrels of Oil Equivalent – This news release
discloses certain production information on a barrels of oil
equivalent ("boe") basis with natural gas converted to barrels of
oil equivalent using a conversion factor of six thousand cubic feet
of gas (Mcf) to one barrel (bbl) of oil (6 Mcf:1 bbl). Condensate
and other NGLs are converted to boe at a ratio of 1 bbl:1 bbl. Boe
may be misleading, particularly if used in isolation. A boe
conversion ratio of 6 Mcf:1 bbl is based roughly on an energy
equivalency conversion method primarily applicable at the burner
tip and does not represent a value equivalency at sales point.
Although the 6:1 conversion ratio is an industry-accepted norm, it
is not reflective of price or market value differentials between
product types. Based on current commodity prices, the value ratio
between crude oil, NGLs and natural gas is significantly different
from the 6:1 energy equivalency ratio. Accordingly, using a
conversion ratio of 6 Mcf:1 bbl may be misleading as an indication
of value.
Mcfe Conversions: Thousands of cubic feet of gas equivalent
("Mcfe") amounts have been calculated by using the conversion ratio
of one barrel of oil (1 bbl) to six thousand cubic feet (6 Mcf) of
natural gas. Mcfe amounts may be misleading, particularly if used
in isolation. A conversion ratio of 1 bbl to 6 Mcf 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
natural gas as compared to oil is significantly different from the
energy equivalent of 1:6, utilizing a conversion on a 1:6 basis may
be misleading as an indication of value.
Non-GAAP Measures
"Netback" is a non-GAAP financial measure and is calculated
as revenues net of royalties, less transportation and processing
charges and operating expenses and then divided by BOE or Mcf
sold.
Other Warnings
The Exchange has in no way passed upon the merits of the
proposed transaction and has neither approved nor disapproved the
contents of this press release.
Neither the TSX Venture Exchange nor its Regulation Services
Provider (as that term is defined in the policies of the Exchange)
accepts responsibility for the adequacy or accuracy of this press
release.
This news release contains forward-looking statements
relating to the future operations of the Corporation and other
statements that are not historical facts. Forward-looking
statements are often identified by terms such as "will", "may",
"should", "anticipate", "expects" and similar expressions. All
statements other than statements of historical fact, included in
this release, including, without limitation, statements regarding
the future plans and objectives of the Corporation, are
forward-looking statements that involve risks and uncertainties.
There can be no assurance that such statements will prove to be
accurate and actual results and future events could differ
materially from those anticipated in such statements. Important
factors that could cause actual results to differ materially from
the Corporation's expectations include risks detailed from time to
time in the filings made by the Corporation with securities
regulations.
The reader is cautioned that assumptions used in the
preparation of any forward-looking information may prove to be
incorrect. Events or circumstances may cause actual results to
differ materially from those predicted, as a result of numerous
known and unknown risks, uncertainties, and other factors, many of
which are beyond the control of the Corporation. The reader
is cautioned not to place undue reliance on any forward-looking
information. Such information, although considered reasonable by
management at the time of preparation, may prove to be incorrect
and actual results may differ materially from those anticipated.
Forward-looking statements contained in this news release are
expressly qualified by this cautionary statement. The
forward-looking statements contained in this news release are made
as of the date of this news release and the Corporation will update
or revise publicly any of the included forward-looking statements
as expressly required by Canadian securities law.
SOURCE Highwood Oil Company Ltd.