/NOT FOR DISSEMINATION IN THE U.S. OR THROUGH
U.S. NEWSWIRES/
CALGARY, Feb. 18, 2020 /CNW/ - Highwood Oil Company Ltd.
("Highwood" or the "Company") (TSXV:HOCL) is pleased
to announce successful drilling results from its Q4 2019 Clearwater
drilling program.
Additionally, the Company is also pleased to announce that it
has entered into an agreement with an arm's-length private oil and
gas exploration and production company (the "Purchaser") to
divest of the majority of the Company's Red Earth
asset, comprised of cash of $8.0 million and equity consideration of 10%
of the Purchaser's outstanding common shares (the
"Divestiture"). Under the terms of the Divestiture, Highwood
is entitled to reserve against the Red Earth assets an overriding
royalty of 5%. Current production from the subject Red Earth field
is approximately 950 bbl/d of oil.
Current net Company production is approximately 1,000 bbl/d of
oil pro forma the Red Earth Divestiture.
Q4 2019 Drilling Results and 2020 Activity
- Drilled 5 wells (2.5 net) in the Clearwater play at Nipisi during the fourth
quarter of 2019. The drilling activity included delineation of the
company's 24,320 acre gross Nipisi land position, further
validating additional Nipisi drilling inventory. All wells are on
production and meeting and/or exceeding the production expectations
of the Company.
- Since the Company began its Clearwater development program in the fourth
quarter of 2018, it has drilled 14 wells (7 net) to the end of
2019.
- Current Clearwater production
is 1,500 bbl/d of oil (750 bbl/d net). The Company's 2020 drilling
program is underway, with further cashflow generation a focus at
Nipisi while delineating additional acreage.
- Current operations include drilling our 3rd well
(1.5 net) in 2020. The Company intends to remain active in the
remainder of the year drilling 12-18 gross wells (6-9 net wells to
Highwood).
Red Earth Divestiture Details
With the recent success of the Clearwater Fairway and the
Company's Clearwater drilling
program, the Company has deemed the Red Earth assets to be non-core
in nature. The Divestiture allows the Company to remove 87%
or $31.7 million of decommissioning
obligations from its statement of financial position (value as of
September 30, 2019). Subsequent
to regulatory approvals, the Company will have a pro-forma
Liability Management Ratio (LMR) of 4.8 and anticipates a reduction
to G&A expenses of 30 to 40%.
The Divestiture is closed in escrow subject to regulatory
approval and license transfers. Upon receipt of regulatory and
license transfers approvals, closing documents will be released
from escrow and the transaction will close. The Company
anticipates escrow release conditions being satisfied on or around
April 2020. The effective date of the Divestiture is
February 18, 2020. The
Divestiture does not include any working interest in the Company's
Wabasca Crude Oil Transmission Pipeline which will remain within
Highwood. Upon close of the transaction, Highwood will
reserve a 5% overriding royalty over all wells and lands vended to
the Purchaser.
Bank Facility
Cash proceeds from the Divestiture will be used to pay down the
Company's bank line. Subsequent to regulatory approval and
closing conditions of the Red Earth Divestiture being satisfied,
the bank will reduce the Company's credit facility from
$38.0 million to $30.0 million. The Company's next renewal
date will remain at May 1,
2020.
2020 Guidance
The Company anticipates capital spending of $10-$15 million in
2020 mainly focused on production and reserve adding activities in
the Clearwater. The company will remain focused on a balanced
approach to infill cash flow generating opportunities and a few
select step-out wells to further delineate the Company's land
position. Pro-forma the Red Earth Divestiture, the Company
anticipates operating cash flow in 2020 to be comprised of
approximately 25% midstream operations, approximately 10% royalty
revenues, approximately 10% light oil production and approximately
55% Clearwater production
providing for a balanced revenue stream.
Outlook
The Company has, and will continue to, evaluate acquisition
opportunities in the M&A market, but will remain disciplined to
pursue only those opportunities that are accretive and deleveraging
with a drilling inventory that is economic at current strip
pricing. The Company intends to build a growing profile of
recurring free funds flow that will provide maximum flexibility
fund growth, debt repayment and / or other strategic M&A
opportunities in a non-dilutive fashion.
The Clearwater oil resource
play continues to deliver positive delineation results which
underpin an expanding opportunity set for Highwood to pursue lower
risk, highly economic, oil-weighted growth. Since early 2017,
industry continues to delineate and grow the Clearwater play to achieve production in
excess of 27,000 bbl/d. Highwood will continue to focus its
efforts throughout 2020 on delineating its Clearwater lands in a capital-efficient
manner, while mainly pursuing infill and pad drilling development
opportunities offsetting positive initial production
results.
Advisor
National Bank Financial Inc. is acting as financial advisor to
Highwood with respect to the Red Earth Divestiture.
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
This press release refers to certain financial measures that
are not determined in accordance with GAAP. Since non-GAAP measures
do not have a standardized meaning prescribed by IFRS and are
therefore unlikely to be comparable to similar measures presented
by other companies, securities regulations require that non- GAAP
measures are clearly defined, qualified and reconciled to their
nearest GAAP measure. Except as otherwise indicated, these non-GAAP
measures are calculated and disclosed on a consistent basis from
period to period. Specific adjusting items may only be relevant in
certain periods.
The intent of non-GAAP measures is to provide additional
useful information with respect to Highwood's operational and
financial performance to investors and analysts though the measures
do not have any standardized meaning under IFRS. The measures
should not, therefore, be considered in isolation or used in
substitute for measures of performance prepared in accordance with
IFRS. Other issuers may calculate these non-GAAP measures
differently.
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 Company 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 Company, 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 Company's expectations
include risks detailed from time to time in the filings made by the
Company with securities regulatory authorities.
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 Company and certain of may be
found under the heading "Risk Factors" in the Company's AIF.
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 Company will update or
revise publicly any of the included forward-looking statements as
expressly required by Canadian securities law.
SOURCE Highwood Oil Company Ltd.