/NOT FOR DISSEMINATION IN THE U.S. OR THROUGH
U.S. NEWSWIRES/
CALGARY, May 29, 2019 /CNW/ - Highwood Oil Company Ltd.,
("Highwood" or the "Corporation") (TSXV: HOCL) is
pleased to announce financial and operating results for the quarter
ended March 31, 2019. The
Corporation also announces that its unaudited financial statements
and associated Management's Discussion and Analysis
("MD&A") for the quarter ended March 31, 2019, can be found at
www.sedar.com and www.highwoodoil.com.
Highlights
- Achieved record production of 1,354 bbl/d of oil in the first
quarter of 2019, increasing from 1,117 bbl/d in the fourth quarter
of 2018 due primarily from 2018 Clearwater production being brought
onstream.
- Highwood continued to delineate it's Clearwater position by successfully drilling 3
gross (1.5 net) wells in the formation in the first quarter which
have performed as per internal type curves. The wells are on flow
back with current gross well production of approximately 135 bbls/d
on average. Total Clearwater wells
drilled to date are 7 gross (3.5 net). Assuming WCS realized
pricing remains in the range of current strip pricing, the
Corporation would plan to drill another 6 to 10 gross (3 to 5 net)
wells in the Clearwater before the
end of 2019. Industry activity remains high surrounding
Highwood's core lands at Nipisi/Marten Hills and has shown
increasing activity in more exploratory areas of the Clearwater, expanding the play's fairway.
- Acquired 27 gross (13.5 net) sections of Clearwater Oil Sands
Leases in the Craigend area of East Central Alberta. Highwood
intends to drill one exploration well in Q1 2020 in the area.
- During the three-month period ended March 31, 2019, the Corporation completed an
amalgamation transaction (the "Amalgamation") with a public,
capital pool company. The public company received common shares of
the Corporation at a ratio of 53:1, resulting in 188,679 common
shares of the Corporation being issued to shareholders of the
public company at a deemed price of $9.00 per common share. The Corporation
began trading on the TSX Venture Exchange under the symbol "HOCL"
on January 30, 2019.
- Subsequent to March 31, 2019, and
as per its previous disclosure announced on May 16, 2019, the Corporation has entered into a
purchase and sale agreement to acquire the operated 55% working
interest in the Peace River Oil Partnership (the "PROP") (8,000
boe/d gross production, 4,400 boe/d net production to HOCL, 89% oil
and liquids) for a total transaction price of $93.8 million. The transaction is significantly
accretive to Highwood, provides exposure to considerable primary /
secondary recovery potential on the producing Bluesky assets, access to a large contiguous
block of undeveloped Clearwater
lands, strategic ownership of significant area infrastructure and
materially improves its Liability Management Rating.
- Current production from Highwood is approximately 1,700 bbl/d
of oil.
Summary of Financial & Operating Results
|
|
Three months
ended March 31,
|
|
Financial
|
|
2019
|
|
2018
|
% Change
|
Oil and natural gas
sales
|
$
|
6,928,968
|
$
|
6,430,452
|
8
|
Transportation
pipeline revenues
|
|
1,233,712
|
|
580,646
|
112
|
Total revenues, net
of royalties and commodity contracts (1)
|
|
5,572,594
|
|
5,649,920
|
(1)
|
Loss
|
|
(2,507,617)
|
|
(1,783,861)
|
(41)
|
Capital
expenditures
|
|
4,077,397
|
|
12,583,454
|
(68)
|
Net debt
(2)
|
|
(31,667,081)
|
|
(26,752,866)
|
18
|
Shareholders' equity
(end of period)
|
$
|
24,167,445
|
$
|
25,099,660
|
(4)
|
Shares outstanding
(end of period)
|
|
5,948,030
|
|
5,538,674
|
7
|
Weighted-average
basic shares outstanding
|
|
5,890,457
|
|
5,538,674
|
6
|
|
|
|
|
|
|
Operations
(3)
|
|
|
|
|
|
Production
|
|
|
|
|
|
Natural gas
(Mcf/d)
|
|
-
|
|
38
|
-
|
Natural gas liquids
(NGL) (bbls/d)
|
|
-
|
|
-
|
-
|
Crude oil
(bbls/d)
|
|
1,354
|
|
1,105
|
23
|
Total
(boe/d)
|
|
1,354
|
|
1,112
|
22
|
Average realized
prices (4)
|
|
|
|
|
|
Natural gas (per
Mcf) (6)
|
|
-
|
|
2.14
|
-
|
NGL (per
bbl) (6)
|
|
-
|
|
63.94
|
-
|
Crude oil (per
bbl)
|
|
56.85
|
|
64.55
|
(12)
|
Operating netback
(per boe) (5)
|
|
15.89
|
|
(1.99)
|
900
|
|
|
|
|
|
|
Wells
drilled:
|
|
|
|
|
|
Gross
|
|
3
|
|
1
|
|
Net
|
|
1.5
|
|
0.5
|
|
Success(%)
|
|
100
|
|
100
|
|
|
|
|
|
|
|
(1)
|
Includes unrealized
gain and losses on commodity contracts
|
(2)
|
Net debt consists of
bank debt and working capital surplus (deficit) excluding commodity
contract assets and/or liabilities
|
(3)
|
For a description of
the boe conversion ratio, see "Basis of Barrel of Oil
Equivalent".
|
(4)
|
Before
hedging.
|
(5)
|
See "Non-GAAP
measures".
|
(6)
|
Natural gas and NGL
production and revenues are immaterial to the
Corporation
|
2019 First Quarter Overview
The first quarter pricing environment showed significant
improvement from the challenged pricing Western Canadian producers
saw across Q4 2018. The Corporation is encouraged by current
pricing and market sentiment and accordingly continues to license
prospective wells in the Clearwater formation. Our Clearwater
land position has grown to 228 gross (116 net) sections and
continues to present exciting drilling opportunities with short
cycle times.
Stronger West Texas Intermediate ("WTI") oil prices combined
with reduced Canadian oil differentials led to an increase of
$19.27 to operating netbacks from the
fourth quarter of 2018. Given the traditionally higher
operating costs in the first quarter due to workover programs and
seasonal access, the Corporation anticipates seeing this netback
improve throughout the rest of 2019, ignoring moves in commodity
pricing.
2019 Outlook and PROP Acquisition
Subsequent to March 31, 2019, the
Corporation entered into a purchase and sale agreement with a
public oil and gas exploration and production company to acquire
the public company's 55% interest in the Peace River Oil
Partnership (the "PROP") (8,000 boe/d gross production, 4,400 boe/d
net production to HOCL, 89% oil and liquids) with petroleum and
natural gas assets in the Peace River region along with other
non-producing wells for a total transaction price of $93.8 million, comprised of cash considerations
of $88.8 million and equity
consideration of $5.0 million prior
to customary closing adjustments. The PROP asset is a world-class
resource with a large drilling inventory in the conventional
Bluesky and emerging Clearwater oil plays where significant low
risk development opportunities exist. The PROP assets also include
access to a large 2D / 3D seismic database license, and extensive
egress and infrastructure in place to facilitate self-sustaining
operations.
The acquisition of the Peace River Oil Partnership interest by
the Corporation would bring total Clearwater lands to 278 gross (143 net)
sections on a pro-forma basis. 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.
Our Red Earth asset continues to provide a 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 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 is 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. Highwood maintains a focus on free
funds flow generation as a means to provide maximum flexibility to
the Corporation for growth, debt repayment and strategic
M&A.
Current production for Highwood is approximately 1,700 bbl/d of
oil.
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.