Razor Energy Corp. (“Razor” or the “Company”) (TSXV: RZE)
(www.razor-energy.com) is pleased to announce its fourth quarter
and year end 2019 financial and operating results. Selected
financial, operational and reserves information is outlined below
and should be read in conjunction with Razor’s audited consolidated
financial statements, management’s discussion and analysis
and annual information form ("AIF") for the year ended
December 31, 2019, which are available on SEDAR at
www.sedar.com and the Company’s website.
2019 HIGHLIGHTS
Operating
- Production during the year averaged 4,387 boe/d, representing a
decrease of 10% in comparison to 2018 when production averaged
4,888 boe/d. The decrease was due to the Company's reduced
reactivation program in 2019, reduced workover activity, issues
with third party fuel gas supply and composition, as well as
non-operated pipeline outages, partially offset by production from
the properties of Little Rock Resources Ltd. ("Little Rock")
properties acquired during Q3 2019 (the "Little Rock
Acquisition");
- Achieved 2019 operating netback of $6.92/boe, down 39% from
2018;
- Achieved adjusted funds flow of $8.0 million in 2019 a 58%
decrease from 2018, mainly driven by a 18% decrease in total
revenues from 2018.
Capital
- Invested a total of $13.6 million in 2019, comprised mainly of
the continuation of the well reactivation program and the South
Swan Hills co-produced geothermal power generation project;
and
- Reactivated 24 gross (23.3 net) wells during 2019, resulting in
422 boe/d of additional initial production.
Acquisitions
- Completed the Little Rock Acquisition, providing Razor with a
second core region in southern Alberta, comprised of the Jumpbush,
Majorville, Badger, Enchant and Chin Coulee areas. The acquisition
added approximately 800 boe/d of production.
2020 OUTLOOK
Production in Q1 2020 is anticipated to average
4,200 boe/d due to impacts from the significant decrease in
realized oil prices, leading to a reduction of reactivation and
workover spending in Q1 2020. These wells will be brought back
online when economics justify, with spending being focused on the
highest capital efficiency projects. As well, Q1 production has
been adversely affected by non-operated pipeline outages.
These outages were rectified by the end of Q1 2020.
In response to the aforementioned decrease
in oil prices, the Company has shut in all
of its operated heavy oil production, along
with certain light oil wells which are sub-economic
at current prices. As of the date of this announcement, the
Company is forecasting Q2 2020 production to be approximately 3,600
boe/d. The Company actively monitors the economics for all of its
operated production and may shut in additional wells. The timing to
restart shut in oil wells is dependent on improvements
in both WTI prices and local price differentials. The
Company currently forecasts WTI pricing and local price
differentials will improve starting in Q3 2020. However, the timing
of an improvement depends on successful
progress with the COVID-19 virus and an increase
in the global demand for oil.
The preparation of financial forecasts is
challenging at this time; however, the
Company anticipates negative cash flow from
operations during Q2 2020 and into the second half of
2020 if oil prices remain depressed. The Company is working to
mitigate losses by limiting field spending and applying for
government assistance programs where available, including the
Canada Emergency Wage Subsidy.
SELECT QUARTERLY AND ANNUAL
HIGHLIGHTS
The following tables summarize key financial and
operating highlights associated with the Company’s financial
performance.
|
Three Months Ended December 31, |
Twelve months ended December 31, |
($000's, except for per share amounts and volumes) |
2019 |
2018 |
2019 |
2018 |
Production
volumes2 |
|
|
|
|
Oil (bbl/d) |
2,839 |
|
2,995 |
|
2,712 |
|
3,143 |
|
Gas (mcf/d)1 |
4,962 |
|
3,225 |
|
4,635 |
|
3,770 |
|
NGL (bbl/d) |
1,011 |
|
1,374 |
|
903 |
|
1,117 |
|
Total (boe/d) |
4,677 |
|
4,907 |
|
4,387 |
|
4,888 |
|
Sales volumes
3 |
|
|
|
|
Oil (bbl/d) |
2,862 |
|
2,611 |
|
2,783 |
|
3,046 |
|
Gas (mcf/d)1 |
4,962 |
|
3,225 |
|
4,635 |
|
3,770 |
|
NGL (bbl/d) |
1,011 |
|
1,374 |
|
903 |
|
1,117 |
|
Total (boe/d) |
4,700 |
|
4,523 |
|
4,458 |
|
4,792 |
|
Oil inventory volumes (bbls) |
9,251 |
|
35,267 |
|
9,251 |
|
35,267 |
|
Oil and natural gas
revenue |
|
|
|
|
Oil and NGLs sales |
20,013 |
|
14,712 |
|
78,365 |
|
91,901 |
|
Natural gas sales |
774 |
|
565 |
|
2,438 |
|
2,481 |
|
Sales of commodities purchased
from third parties 7 |
(25 |
) |
4,352 |
|
8,551 |
|
15,639 |
|
Blending and processing |
1,874 |
|
1,912 |
|
8,842 |
|
10,472 |
|
Other revenues |
119 |
|
342 |
|
1,976 |
|
2,406 |
|
Total revenue |
22,755 |
|
21,883 |
|
100,172 |
|
122,899 |
|
Cash flows from operating
activities |
3,922 |
|
6,696 |
|
16,238 |
|
22,360 |
|
Per share -basic and diluted |
0.19 |
|
0.06 |
|
0.96 |
|
1.10 |
|
Funds flow 4 |
37 |
|
903 |
|
7,719 |
|
17,200 |
|
Per share -basic and diluted |
— |
|
0.06 |
|
0.46 |
|
1.10 |
|
Adjusted funds flow 4 |
305 |
|
1,974 |
|
7,959 |
|
20,435 |
|
Per share -basic and diluted |
0.01 |
|
0.13 |
|
0.47 |
|
1.31 |
|
Net income (loss) |
(11,853 |
) |
3,773 |
|
(29,573 |
) |
4,239 |
|
Per share - basic and diluted |
(0.56 |
) |
0.25 |
|
(1.75 |
) |
0.27 |
|
Dividends paid |
790 |
|
3,126 |
|
2,564 |
|
3,126 |
|
Dividends paid per share |
0.04 |
|
0.20 |
|
0.15 |
|
0.20 |
|
Weighted average number of
shares outstanding (basic and diluted) |
21,056,770 |
|
15,360,729 |
|
16,926,491 |
|
15,622,374 |
|
Capital expenditures |
2,378 |
|
3,315 |
|
13,590 |
|
33,758 |
|
Net
assets acquired 5 |
— |
|
43 |
|
256 |
|
3,921 |
|
Netback
($/boe) |
|
|
|
|
Oil and gas sales 6 |
48.07 |
|
36.71 |
|
49.66 |
|
53.97 |
|
Royalty |
(10.80 |
) |
(9.34 |
) |
(8.72 |
) |
(11.18 |
) |
Operating expenses |
(29.90 |
) |
(24.53 |
) |
(31.80 |
) |
(29.26 |
) |
Transportation and treating |
(2.37 |
) |
(2.17 |
) |
(2.22 |
) |
(2.17 |
) |
Operating netback 4 |
5.00 |
|
0.67 |
|
6.92 |
|
11.36 |
|
Gain/(Loss) on sale of commodities purchased from third parties
7 |
(0.06 |
) |
1.07 |
|
(0.01 |
) |
0.47 |
|
Net blending and processing income 4 |
2.74 |
|
1.74 |
|
3.34 |
|
3.01 |
|
Realized gain/(loss) on commodity contracts settlement 6 |
0.46 |
|
2.38 |
|
(1.61 |
) |
(1.51 |
) |
Other revenues |
0.28 |
|
0.82 |
|
1.21 |
|
1.38 |
|
General and administrative |
(4.52 |
) |
(2.91 |
) |
(3.89 |
) |
(3.24 |
) |
Other expenses |
(3.13 |
) |
— |
|
(0.83 |
) |
— |
|
Impairment |
(9.25 |
) |
— |
|
(2.46 |
) |
— |
|
Acquisition and transaction costs |
— |
|
— |
|
(0.13 |
) |
(0.01 |
) |
Interest |
(2.87 |
) |
(2.87 |
) |
(3.02 |
) |
(2.62 |
) |
Corporate netback 4 |
(11.35 |
) |
0.90 |
|
(0.48 |
) |
8.84 |
|
1) Gas production and sales volumes
include internally consumed gas used in power generation.2)
Production volumes for the twelve months ended December 31, 2019
includes Little Rock's daily average production from September 11
to December 31, 2019.3) Sales volumes for the twelve months
ended December 31, 2019 includes Little Rock's daily average sales
from September 11 to December 31, 2019. Sales volumes include
change in inventory volumes.4) Refer to "Non-IFRS
measures".5) Net acquisitions exclude non-cash items and is
net of post-closing adjustments.6) Excludes the effects of
financial risk management contracts but includes the effects of
fixed price physical delivery contracts.7) Since 2018, Razor
started to purchase commodity products from third parties to
fulfill sales commitments, and subsequently sell these products to
its customers.
|
December 31, |
($000's
unless otherwise stated) |
2019 |
2018 |
Total assets |
189,158 |
|
157,937 |
|
Cash |
1,905 |
|
2,239 |
|
Long-term debt
(principal) |
45,876 |
|
46,155 |
|
Net
debt 1 |
66,911 |
|
54,244 |
|
Number
of shares outstanding |
21,064,466 |
|
15,188,834 |
|
1) Refer to "Non-IFRS measures".
2019 YEAR-END RESERVES
In October 2019, the Calgary Chapter of the
Society of Petroleum Evaluation Engineers ( SPEE ) and associated
industry professionals updated the Canadian Oil and Gas Evaluation
Handbook ("COGEH"). These updates clarify and streamline
previous guideline recommendations initiated in 2018 and offer
additional guidance regarding Canadian reserves evaluations.
For the second year in a row, Razor continues to
be an industry leader, alongside Sproule Associates Limited
("Sproule"), by incorporating industry best practice by including
all abandonment, decommissioning and reclamations costs (ADR) and
inactive well costs (“IWC”) into the Company's 2019 year-end
reserves report.
For 2019, the net present value of before tax
cash flows discounted at 10% ("NPV10") for each reserve category
disclosed below includes all abandonment, decommissioning and
reclamation costs, and inactive well costs totaling $61.3
million.
|
December 31, |
Reserves Summary1 |
|
|
($000's
unless otherwise stated) |
2019 |
2018 |
Proved developed producing (Mboe) |
11,144 |
|
12,194 |
|
Total Proved (Mboe) |
16,258 |
|
15,397 |
|
Total Proved plus probable (Mboe) |
20,750 |
|
20,223 |
|
Proved developed producing - NPV102 |
116,832 |
|
148,671 |
|
Total Proved - NPV102 |
189,257 |
|
197,733 |
|
Total Proved plus probable - NPV102 |
242,719 |
|
209,047 |
|
1) The table summarizes the data contained
in an independent report of Razor's gross reserves, as evaluated by
Sproule, qualified reserves evaluators, dated February 24, 2020.
The figures have been prepared in accordance with the standards
contained in the COGEH and the reserve definitions contained in
National Instrument 51-101 - Standards of Disclosure for Oil and
Gas Activities. Gross reserves means the total working interest
(operating and non-operating) share of remaining recoverable
reserves owned by Razor before deductions of royalties payable to
others and without including any royalty interests owned by Razor.
Additional reserve information is included in the AIF.2) NPV
10 is net present value of before tax cash flows discounted at
10%.
OPERATIONAL UPDATE
In 2019, Razor's average production decreased
10% to 4,387 boe/d, from 4,888 boe/d average production in 2018, of
which approximately 82% was light oil and NGLs.
As at December 31, 2019, Razor had 9,251 bbls of
light oil inventory (2018 - 35,267 bbls). MSW differentials and WTI
pricing improved significantly during 2019 and the Company sold a
portion of its light oil inventory throughout the year. The Company
continues to improve the effectiveness of sales and production
management through more advanced inventory, blending and
transportation processes and controls.
In Q4 2019, production of 4,677 boe/d was down
4% from the same quarter of 2018 due to the decrease in general
reactivation and optimization activities, as well as due to
non-operated pipeline outages in effect for Q4 2019.
However, Q4 2019 production was up 7% from Q3
2019 due to a strategic acquisition of a second core region in
southern Alberta, comprised of the Jumpbush, Majorville, Badger,
Enchant and Chin Coulee areas. This strategic acquisition provided
additional average daily production of 716 boe/d during Q4
2019.
During the fourth quarter of 2019, the Company
realized an average operating netback of $5.00/boe, up 857% as
compared to Q4 2018, primarily attributable to the sharp decrease
in MSW differentials to WTI in the fourth quarter of 2018.
For the year ended December 31, 2019, the average operating
netback of $6.92/boe was a 39% decrease from the same period in
2018, due to lower realized oil and gas sales and higher operating
expenses during 2019.
Royalty rates averaged 22% in the fourth quarter
of 2019, up from 18% in the third quarter of 2019, and down from
25% in the same quarter of 2018, primarily due to the timing of
realized oil prices as compared to the reference oil price used by
the Government of Alberta as the basis for calculating royalties.
As the index price is set a month in advance, periods of sharp
price decreases will result in higher than expected royalty rates,
conversely in periods of price increases, due to the pricing lag,
realized royalties will be lower than expected.
In the fourth quarter of 2019, operating
expenses increased by 22% as compared to Q4 2018 and stayed on par
as compared to Q3 2019 due to decreased production, as well as
non-operated pipeline expenditures, and the incremental operating
costs associated with the Little Rock Acquisition during Q3
2019.
The top five cost drivers are fuel and
electricity, labour, taxes and licenses, facility and pipeline
repairs which accounted for 76% of total operating expenses in 2019
(2018 - 80%). Facility and pipeline repairs, and workovers
accounted for 28% (2018 - 33%) of operating expenses while fuel and
electricity followed closely at 26% (2018 - 29%) of operating
expenses.
Management is focused on continuous improvement
of operational efficiencies to drive down key cost drivers.
CAPITAL PROGRAM
In 2019, Razor invested $13.6 million (before
$6.1 million of government grants) through its capital program,
comprised mainly of the continuation of the well reactivation
program and on its South Swan Hills co-produced geothermal power
generation project.
The Company reactivated 24 gross (23.3 net)
wells during 2019, resulting in 422 boe/d of additional initial
production.
During 2019, Razor invested $4.5 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 renewable and sustainable 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 million. The Company received $4.3 million of
grants related to the project in 2019.
Razor, through its wholly-owned subsidiary Blade
Energy Services Corp., has been building up its field equipment
fleet since Q4 2018 in order to internalize certain field services
such as road maintenance and trucking.
Corporate capital expenditures related to an
upgrade of the corporate information technology infrastructure and
the purchase of corporate vehicles.
ABANDONMENT, RECLAMATION, AND REMEDIATION
EXPENDITURES
Razor inherited decommissioning liabilities
included in its Swan Hills, Kaybob and Little Rock
acquisitions. In Q4 2019, the Company spent $0.3 million on
abandonment, reclamation, and remediation expenditures (Q4 2018 -
$1.1 million).
The Company voluntarily opted in to the Alberta
Energy Regulator’s (AER) Area Based Closure (ABC) program.
Accordingly, Razor has committed to an annual spend target
dedicated to asset retirement which includes decommissioning,
abandonment and reclamation of inactive wells and facilities.
Through this commitment, low-risk wells included in the Inactive
Well Compliance Program (IWCP) are now exempt from requiring
suspension allowing for greater focus on end of life
activities.
ABOUT RAZOR
Razor is a publicly-traded junior oil and gas
development and production company headquartered in Calgary,
Alberta, concentrated on acquiring, and subsequently enhancing,
producing oil and gas 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 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 |
|
|
|
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, applications for government
assistance programs, reactivation, workover, stimulation, shut-ins,
water and other activities, future rates of production, 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, anticipated
abandonment, reclamation and remediation costs for 2020,
commitments under the ABC program and other environmental, social
and governance initiatives, production guidance and shareholder
returns. Statements relating to “reserves” are also deemed to
be forward-looking statements, as they involve the implied
assessment, based on certain estimates and assumptions, that the
reserves described exist in the quantities predicted or estimated
and that the reserves can be profitably produced in the future. 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 obligations, 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. In
addition, the Company cautions that current global uncertainty with
respect to the spread of the COVID-19 virus and its effect on the
broader global economy may have a significant negative effect on
the Company. While the precise impact of the COVID-19 virus on the
Company remains unknown, rapid spread of the COVID-19 virus may
continue to have a material adverse effect on global economic
activity, and may continue to result in volatility and disruption
to global supply chains, operations, mobility of people and the
financial markets, which could affect interest rates, credit
ratings, credit risk, inflation, business, financial conditions,
results of operations and other factors relevant to the Company.
Please refer to the risk factors identified in the most recent AIF
and management's 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, investment infrastructure and
components thereof, all of which are subject to the same
assumptions, risk factors, limitations, and qualifications as 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 noncash
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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