Razor Energy Corp. (“Razor” or the “Company”) (TSXV: RZE) is
pleased to announce its third quarter 2019 financial and operating
results. Selected financial and operational information is outlined
below and should be read in conjunction with Razor’s unaudited
condensed consolidated interim financial statements and
management’s discussion and analysis for the quarter ended
September 30, 2019 which are available on SEDAR at
www.sedar.com and the Company’s website www.razor-energy.com.
NEAR AND MEDIUM-TERM
OBJECTIVES
- Strengthening the balance sheet by reducing capital spend for
the remainder of 2019 while also actively seeking and considering
financing options along with business combinations with other oil
and gas producers, as well as service companies;
- Continued investment in infrastructure and equipment, and
increased efficiencies;
- Improving production efficiency through low risk, lower cost
capital activities which include waterflood optimization,
stimulations, recompletions, and workovers;
- Developing a technically viable and commercially sustainable
solution to recover geothermal waste heat;
- Analyzing further ancillary opportunities including various
power generation projects, oil blending and service
integration;
- Maintaining the monthly dividend; and
- Acquiring and consolidating complementary assets, while
disposing of assets where and when appropriate.
Q3 2019 HIGHLIGHTS
OPERATING
- Production averaged 4,368 boe/d in Q3 2019 down 17% from the
same quarter in 2018 and up 5% in comparison to Q2 2019 due to a
one-time third-party gas volume adjustment in Q3 2019. Production
in the third quarter was adversely impacted by non-operated
production interruptions in the Swan Hills and Kaybob areas.
Production is expected to resume early in Q1 2020.
- Reported $46 thousand of cash flows used in operating
activities in the third quarter of 2019 compared to $6.4 million
cash flows from operating activities in the third quarter of
2018.
- Reported funds flow of $2.6 million in the third quarter of
2019 compared to $2.5 million in the third quarter of 2018.
- Reported a $6.2 million net loss in the third quarter of 2019
compared to $2.3 million net income in the same period last
year.
CAPITAL
- Invested $2.5 million on its capital program in the third
quarter of 2019, mainly on the well reactivation program and power
generation project offset by $2.0 million of government
grants.
- Reactivated a total of 4 gross (4 net) wells, resulting in
production of 70 boe/d. The reactivations included 2 Swan
Hills reactivations and 2 Kaybob reactivations.
DIVIDENDS
- Paid a monthly cash dividend of $0.0125 per share, for a total
of $0.6 million in dividends paid in the quarter. The dividend is
paid monthly and is subject to commodity prices, production levels,
and other factors.
SELECT QUARTERLY HIGHLIGHTS
The following tables summarizes key financial
and operating highlights associated with the Company’s financial
performance.
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
($000's, except for per share amounts and production) |
2019 |
|
2018 |
|
2019 |
|
2018 |
|
Production
2 |
|
|
|
|
Light Oil (bbl/d) |
2,600 |
|
3,271 |
|
2,669 |
|
3,193 |
|
Gas (mcf/d) 1 |
6,206 |
|
4,505 |
|
4,524 |
|
3,953 |
|
NGL (boe/d) |
734 |
|
1,238 |
|
866 |
|
1,030 |
|
Total
(boe/d) |
4,368 |
|
5,260 |
|
4,289 |
|
4,882 |
|
Sales volumes
3 |
|
|
|
|
Light Oil (bbl/d) |
2,598 |
|
3,271 |
|
2,756 |
|
3,193 |
|
Gas (mcf/d)1 |
6,206 |
|
4,505 |
|
4,524 |
|
3,953 |
|
NGL (bbl/d) |
734 |
|
1,238 |
|
866 |
|
1,030 |
|
Total (boe/d) |
4,367 |
|
5,260 |
|
4,377 |
|
4,882 |
|
Closing oil inventory volumes (bbls) |
11,378 |
|
— |
|
11,378 |
|
— |
|
Revenue |
|
|
|
|
Oil and gas sales |
17,548 |
|
28,964 |
|
60,016 |
|
79,105 |
|
Sale of commodities purchased from third parties |
122 |
|
4,256 |
|
8,576 |
|
11,287 |
|
Blending and processing income |
2,395 |
|
2,625 |
|
6,968 |
|
8,560 |
|
Other revenue |
1,232 |
|
189 |
|
1,857 |
|
2,064 |
|
Total
revenue |
21,297 |
|
36,034 |
|
77,417 |
|
101,016 |
|
Cash flows from (used in)
operating activities |
(46 |
) |
6,424 |
|
12,316 |
|
15,664 |
|
Per share -basic and diluted |
— |
|
0.41 |
|
0.79 |
|
1.00 |
|
Funds flow 4 |
2,639 |
|
2,511 |
|
7,682 |
|
16,297 |
|
Per share -basic and diluted |
0.16 |
|
0.16 |
|
0.49 |
|
1.04 |
|
Adjusted funds flow 4 |
2,653 |
|
4,198 |
|
7,654 |
|
18,461 |
|
Per share -basic and diluted |
0.16 |
|
0.27 |
|
0.49 |
|
1.18 |
|
Net income (loss) |
(6,183 |
) |
(2,305 |
) |
(17,720 |
) |
466 |
|
Per share - basic and diluted |
(0.38 |
) |
(0.15 |
) |
(1.14 |
) |
0.03 |
|
Dividends per share |
0.04 |
|
— |
|
0.11 |
|
— |
|
Capital expenditures |
2,518 |
|
4,060 |
|
11,212 |
|
30,443 |
|
Netback
($/boe) |
|
|
|
|
Oil and gas sales 5 |
43.68 |
|
59.85 |
|
50.23 |
|
59.35 |
|
Royalties |
(8.07 |
) |
(13.96 |
) |
(7.96 |
) |
(11.75 |
) |
Operating expenses |
(29.34 |
) |
(32.96 |
) |
(32.49 |
) |
(30.74 |
) |
Transportation and treating |
(1.82 |
) |
(1.95 |
) |
(2.16 |
) |
(2.16 |
) |
Operating netback 4 |
4.45 |
|
10.98 |
|
7.62 |
|
14.70 |
|
Income (loss) on sale of commodities purchased from third parties
4 |
0.30 |
|
0.62 |
|
0.01 |
|
0.29 |
|
Net blending and processing income 4 |
4.11 |
|
2.57 |
|
3.56 |
|
3.41 |
|
Realized loss on commodity contracts settlement |
(1.64 |
) |
(1.90 |
) |
(2.36 |
) |
(2.73 |
) |
Other revenues |
3.07 |
|
0.39 |
|
1.55 |
|
1.55 |
|
General and administrative |
(3.24 |
) |
(3.98 |
) |
(3.66 |
) |
(3.35 |
) |
Interest |
(3.08 |
) |
(2.49 |
) |
(3.07 |
) |
(2.54 |
) |
Corporate netback 4 |
3.97 |
|
6.19 |
|
3.65 |
|
11.33 |
|
1) Gas production and sales volumes
include internally consumed gas used in power generation.2)
Production volumes for the three and nine months ended September
30, 2019 includes Little Rock's daily average production from
September 11 to September 30, 2019.3) Sales volumes for the
three and nine months ended September 30, 2019 includes Little
Rock's daily average sales from September 11 to September 30, 2019.
Sales volumes include change in inventory volumes.4) Refer to
"Non-IFRS measures".5) Excludes the effects of financial risk
management contracts but includes the effects of fixed price
physical delivery contracts.
|
September 30, |
December 31, |
($000's, except for share amounts) |
2019 |
2018 |
Total assets |
205,873 |
166,120 |
Cash |
3,443 |
4,540 |
Long-term debt
(principal) |
46,690 |
46,311 |
Minimum lease obligation |
5,150 |
5,042 |
Net debt 1 |
66,939 |
57,213 |
Number
of shares outstanding |
20,782,966 |
15,188,834 |
1) Refer to "Non-IFRS measures".
OPERATIONAL UPDATE
Sales volumes in the third quarter of 2019
averaged 4,367 boe/d, down 17% from the sales volumes in the same
period in 2018 as production volumes declined due to operational
challenges.
Production averaged 4,368 boe/d in Q3 2019 down
17% from the same quarter in 2018 and up 5% in comparison to Q2
2019 due to a one-time third-party gas volume adjustment in Q3
2019. Production in the third quarter of 2019 was adversely
impacted by non-operated production interruptions in the Swan Hills
and Kaybob areas. In the Kaybob area, roughly 350 boe/d was
curtailed for the quarter as a result of non-operated pipeline
integrity concerns. In the Swan Hills area, roughly 150 boe/d
was curtailed for the quarter as a result of non-operated pipeline
repairs. These pipelines are in the process of being repaired
and production is expected to resume early in Q1 2020.
Effective July 2018, Razor began utilizing a
portion of its own gas production to generate electrical
power. Gas production of internally consumed gas for the
three and nine months ended September 30, 2019 was 1,315 mcf/d
and 1,185 mcf/d, respectively.
Razor realized an oil price of $64.19 per barrel
during the third quarter of 2019, which was a 14% discount to the
WTI (CAD) price and is up from the 4% and 11% discounts in Q1 2019
and Q2 2019, respectively, mostly due to lower average oil quality
realized by the Company as a result of the acquisition of Little
Rock Resources Ltd. ("Little Rock") in Q3 2019. For the nine months
ending September 30, 2019 the Company realized oil price was down
12% from the same period of 2018 mostly due to a lower WTI index
price
During the third quarter of 2019, the Company
realized an average operating netback of $4.45/boe down 59% from
the third quarter of 2018 due to lower realized prices, decreased
production volumes and higher per boe operating expenses. For the
first nine months of 2019 operating netback was down 49% from the
same period in 2018, as a result of lower realized prices which
were down 13% and a decrease in sales volumes of 10%.
Royalty rates averaged 18% in the third quarter
of 2019 as compared to 23% for the same period in 2018.
For the first nine months of the year, royalties averaged 16%, down
from 20% the same period last year. This decrease in royalties is
mostly due to the decrease in commodity prices and production
volumes.
Operating expenses decreased 11%, on a per boe
basis, in the third quarter of 2019 compared to the same period in
2018, and decreased 26% on a total dollar basis, mostly due to
lower workover and facility and pipeline integrity work. Workovers
and facility and pipeline integrity expenses averaged $6.98/boe in
the third quarter of 2019 down 25% from $9.26/boe in the same
quarter of 2018. For the nine months of the year, operating costs
averaged 6% higher, on a per boe basis, as compared to the same
period last year, mostly due to decreasing production volumes. On a
dollar basis, operating expenses were down 5%, due to lower
workovers and facility and pipeline integrity expenses which
decreased 9%.
The top cost drivers, fuel and electricity,
labour, property taxes, and repairs and workovers, accounted for
66% of total operating expenses in the third quarter of 2019 (82%
in Q3 2018). Environmental cleanup costs accounted for 15% of
operating costs in Q3 2019 as compared to less than 1% in the same
quarter of 2018, mostly due to cleanup costs as a result of an
injection line failure.
Electricity and fuel decreased 27% in Q3 2019 as
compared to the same quarter of last year mostly due to lower
average electricity pool prices, which decreased 14% in the same
period, and decreased reliance on compressed gas and lower
production levels.
Downhole workover costs accounted for only 3% of
operating expenses in Q3 2019 down from 19% in Q3 2018. Similarly,
facility and pipeline maintenance costs decreased 47% in Q3 2019
from Q3 2018, accounting for 16% of operating expenses in Q3
2019.
CAPITAL PROGRAM
In the third quarter of 2019, the Company
reactivated a total of 4 gross (4 net) wells, resulting in
production of 70 boe/d. The reactivation capital includes 2
Swan Hills reactivations and 2 Kaybob reactivations.
During third quarter of 2019, Razor invested
$4.0 million on its South Swan Hills co-produced geothermal power
generation project. The Company expects the capital cost of
the project to be $35 million, generating 21 MW of grid connected
power, of which 6MW will be from geothermal power generation.
Natural Resources Canada’s Clean Growth Program ("NRCAN") will
contribute $5.0 million toward the project, and Alberta Innovates
has committed $2.0 million. The company received $2.0 million from
NRCAN in the quarter.
FINANCING UPDATE
Razor has cancelled its best efforts private
placement of Flow-Through Shares that was announced on October 1,
2019 due to unfavourable market conditions. The Company continues
to explore alternative financing options.
ENVIRONMENTAL, SOCIAL AND
GOVERNANCE
Starting in 2020, Razor has committed to the
Alberta Energy Regulator’s (“AER”) Area Based Closure program (“ABC
program”), which requires companies to commit to an inactive
liability reduction target. The program encourages the oil
and gas industry to abandon and reclaim inactive sites, thereby
de-risking future liabilities to the general public. Benefits to
companies joining the program include focused expenditures on
end-of-life activities and as well as enabling companies to
maintain compliance on low risk infrastructure through regular
inspection rather than allocating funds to well suspension
activities which provide no actual reduction in liability.
Razor’s spend target in 2020 under the ABC
program is anticipated to be $2.3 million. Planned work will
consist of well, facility and pipeline abandonment, site
remediation and reclamation. Pending A&D activity, Razor
anticipates a consistent annual spend for the next five years of
approximately $2.5 million on end of life activities.
Furthermore, Razor will focus activities in a concentrated area to
focus on efficiency and the greatest reduction in liability for its
expenditures.
Razor is actively involved in community
engagement and recognizes the importance of supporting charitable
organizations in the communities in which the Company operates.
Since commencing operations in 2017, Razor has supported STARS air
ambulance, the Swan Hills school, The Terry Fox Foundation, Kids
Cancer Care, Ovarian Cancer Canada, Movember Foundation, and
Crohn’s and Colitis Canada. In addition, the Company has
provided sponsorship funds to community events and initiatives, as
well as community sporting events.
ABOUT RAZOR
Razor is a publicly-traded junior oil and gas
development and production company headquartered in Calgary,
Alberta, focused on shareholder returns through sustainable monthly
dividends, production and margin growth through a combination of
acquiring, enhancing, and producing oil and gas from properties
primarily in Alberta. The Company is led by experienced management
and a strong, committed Board of Directors, with a long-term vision
of growth focused on efficiency and cost control in all areas of
the business.
Razor started operations in the first quarter of
2017, through an acquisition of producing assets in the Swan Hills
area. In the second quarter of 2017, Razor added to its asset
base with the acquisition of complementary assets in the Kaybob
area. These predominantly light oil assets provide a foundation for
strong shareholder return through abundant low risk operations. In
the third quarter of 2019, Razor acquired producing assets in
Southern Alberta. Razor plans to concurrently grow Swan Hills,
Kaybob, and Southern Alberta and execute on similar acquisitions,
using its experience to extract upside value.
Razor is a pivotal leading-edge enterprise,
balancing creativity and discipline, focused on growing an enduring
energy company. Razor currently trades on TSX Venture
Exchange under the ticker “RZE”.
For additional information please
contact:
Doug BaileyPresident and Chief Executive Officer |
OR |
Kevin BraunChief Financial Officer |
|
|
|
Razor Energy Corp.800, 500-5th
Ave SWCalgary, Alberta T2P 3L5Telephone: (403)
262-0242www.razor-energy.com |
|
Alliance Capital
PartnersGordon
Aldcornwww.alliancecapitalpartners.ca403-618-6507 |
READER ADVISORIES
FORWARD-LOOKING STATEMENTS:
This press release may contain certain statements that may be
deemed to be forward-looking statements. Such statements relate to
possible future events, including, but not limited to, the
Company’s objectives, including near and medium term objectives,
the Company’s capital program and budget, reactivation, workover,
stimulation, water and other activities, future rates of
production, maintaining a dividend, financing options, capital
investments and sources of funding relating to the installation of
natural gas power generation, and the capacity thereof, geothermal
waste heat recovery, the partnership with NRCan and Alberta
Innovates, oil blending and service integration, potential future
business combinations and asset acquisitions and dispositions,
anticipated abandonment, reclamation and remediation costs for
2019, commitments under the ABC program and other environmental,
social and governance initiatives, production guidance and
shareholder returns. All statements other than statements of
historical fact may be forward-looking statements. Forward-looking
statements are often, but not always, identified by the use of
words such as “anticipate”, “believe”, "expect", “plan”,
“estimate”, “potential”, “will”, “should”, “continue”, “may”,
“objective” and similar expressions. The forward-looking statements
are based on certain key expectations and assumptions made by the
Company, including but not limited to expectations and assumptions
concerning the availability of capital, current legislation,
receipt of required regulatory approvals, the timely performance by
third-parties of contractual obligation, the success of future
drilling and development activities, the performance of existing
wells, the performance of new wells, the Company’s growth strategy,
general economic conditions, availability of required equipment and
services prevailing commodity prices, price volatility, price
differentials and the actual prices received for the Company's
products. Although the Company believes that the expectations and
assumptions on which the forward-looking statements are based are
reasonable, undue reliance should not be placed on the
forward-looking statements because the Company can give no
assurance that they will prove to be correct. Since forward-
looking statements address future events and conditions, by their
very nature they involve inherent risks and uncertainties. Actual
results could differ materially from those currently anticipated
due to a number of factors and risks. These include, but are not
limited to, risks associated with the oil and gas industry and
geothermal electricity projects in general (e.g., operational risks
in development, exploration and production; delays or changes in
plans with respect to exploration or development projects or
capital expenditures; variability in geothermal resources; as the
uncertainty of reserve estimates; the uncertainty of estimates and
projections relating to production, costs and expenses, and health,
safety and environmental risks), electricity and commodity price
and exchange rate fluctuations, changes in legislation affecting
the oil and gas and geothermal industries and uncertainties
resulting from potential delays or changes in plans with respect to
exploration or development projects or capital expenditures. Please
refer to the risk factors identified in the annual information form
and management discussion and analysis of the Company which are
available on SEDAR at www.sedar.com. The forward-looking statements
contained in this press release are made as of the date hereof and
the Company undertakes no obligation to update publicly or revise
any forward-looking statements or information, whether as a result
of new information, future events or otherwise, unless so required
by applicable securities laws.
This press release contains future-oriented
financial information and financial outlook information
(collectively, "FOFI") about Razor's prospective results of
operations, sales volumes, production and production efficiency,
balance sheet, capital spending, future financings, investment
infrastructure and components thereof, all of which are subject to
the same assumptions, risk factors, limitations, and qualifications
as a set forth in the above paragraph. FOFI contained in this
document was approved by management as of the date of this document
and was provided for the purpose of providing further information
about Razor's future business operations. Razor disclaims any
intention or obligation to update or revise any FOFI contained in
this document, 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 document
should not be used for purposes other than for which it is
disclosed herein.
NON-IFRS MEASURES: This press
release contains the terms "funds flow", "adjusted funds flow",
"net blending and processing income", "net debt", "income (loss) on
sale of commodities purchased from third parties", "operating
netback" and "corporate netback", which do not have standardized
meanings prescribed by International Financial Reporting Standards
("IFRS") and therefore may not be comparable with the calculation
of similar measures by other companies. Funds flow represents cash
generated from operating activities before changes in non-cash
working capital. Adjusted funds flow represents cash flow from
operating activities before changes in non-cash working capital and
decommissioning obligation expenditures incurred. Management uses
funds flow and adjusted funds flow to analyze operating performance
and leverage, and considers funds flow and adjusted funds flow from
operating activities to be key measures as it demonstrates the
Company's ability to generate cash necessary to fund future capital
investments and repay debt. Net blending and processing income is
calculated by adding blending and processing income and deducting
blending and processing expense. Net debt is calculated as the sum
of the long-term debt and lease obligations, less working capital
(or plus working capital deficiency), with working capital
excluding mark-to-market risk management contracts. Razor believes
that net debt is a useful supplemental measure of the total amount
of current and long-term debt of the Company. Operating netback
equals total petroleum and natural gas sales less royalties and
operating costs calculated on a boe basis. Income on sale of
commodities purchased from third parties is calculated by adding
sales of commodities purchased from third parties and deducting
commodities purchased from third parties. Income on sale of
commodities purchased from third parties may not be comparable to
similar measures used by other companies. Razor considers operating
netback as an important measure to evaluate its operational
performance as it demonstrates its field level profitability
relative to current commodity prices. Corporate netback is
calculated by deducting general & administration, acquisition
and transaction costs, and interest from operating netback.
Razor considers corporate netback as an important measure to
evaluate its overall corporate performance.
ADVISORY PRODUCTION
INFORMATION: Unless otherwise indicated herein, all
production information presented herein is presented on a gross
basis, which is the Company's working interest prior to deduction
of royalties and without including any royalty interests.
BARRELS OF OIL EQUIVALENT: The
term "boe" or barrels of oil equivalent may be misleading,
particularly if used in isolation. A boe conversion ratio of six
thousand cubic feet of natural gas to one barrel of oil equivalent
(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. Additionally, given that the
value ratio based on the current price of crude oil, as compared to
natural gas, is significantly different from the energy equivalency
of 6:1; utilizing a conversion ratio of 6:1 may be misleading as an
indication of value.
Neither the 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 news release.
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