Razor Energy Corp. (“Razor” or the “Company”) (TSXV: RZE) announces
its first quarter 2020 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 March 31, 2020
which are available on SEDAR at www.sedar.com and the
Company’s website www.razor-energy.com.
Q1 2020 HIGHLIGHTS
Operating
- Production volumes in the first
quarter of 2020 averaged 4,195 boe/d, down 4% from the production
volumes in the same period of 2019, impacted by non-operated
production interruptions in the Swan Hills and Simonette
areas.
- Reported $2.3 million of cash flows
from operating activities in the first quarter of 2020 compared to
$4.1 million of cash flows from operating activities in the first
quarter of 2019.
- Reported a $34.2 million net loss
in the first quarter of 2020 compared to a $9.8 million net loss in
the same period last year. The net loss in the first quarter of
2020 included an impairment expense of $24.7 million due to
significantly lower commodity prices.
- The Company continues to operate
its six natural gas-powered generators which has reduced its
reliance on grid electric power and resulted in savings of $0.9
million in Q1 2020 (Q1 2019 - $0.8 million). Electricity and fuel
increased 20% in Q1 2020 as compared to the same quarter of last
year mostly due to a 25% increase in average electricity pool
prices.
Capital
- Eliminated all operated capital
investment with the exception of critical end of life
expenditures.
- Invested $0.5 million on its
capital program in the first quarter of 2020, mainly on the South
Swan Hills co-produced geothermal power generation project.
- No capital reactivations were
conducted in Q1 2020.
Strategy
- Razor is utilizing its crude oil
storage capacity of 96,000 bbls to manage the realized value of its
oil due to the current environment of low commodity prices. The
Company increased inventory volumes of crude oil in Q1 2020 to
18,848 bbls of light oil inventory (December 31, 2019 - 9,251
bbls).
- The Company uses in house marketing
expertise to take advantage of pricing opportunities and enhance
returns.
- Razor implemented cost saving
measures by internalizing certain oilfield services through its
subsidiary, Blade Energy Services Corp. ("Blade"), which provides
services such as crude oil hauling along with earthworks and
environmental services. Blade conducted $0.6 million of services on
behalf of Razor during Q1 2020.
2020 OUTLOOK
The recent volatility in both West Texas
Intermediate (“WTI”) and Edmonton light sweet crude oil
differentials has resulted in limited capital spending in 2020.
Razor will take a cautious and case-by-case approach to spending in
2020, focusing on low risk, low capital opportunities to increase
operating and corporate netbacks. Production levels will not be a
priority with the significant decrease in oil prices resulting from
the COVID-19 virus, lowered global demand, and uncertainty related
to supply.
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 press release, 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. In
recent weeks, WTI pricing and local price differentials have
improved as global demand for oil has rebounded as countries
gradually ease COVID-19 lockdown restrictions.
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.
RAZOR'S RESPONSE TO
COVID-19
Razor is committed to conducting our operations
safely and with proper policies, procedures, standards, training,
equipment and emergency response procedures in accordance with all
government regulations and industry practices.
In response to the COVID-19 pandemic, Razor
quickly established work at home protocols in mid-March resulting
in 100% of our head office employees being able to work remotely
within days of Alberta declaring a state of emergency and
proceeding with the shut-down of the province. The immediate
response by the company and employees to set up working from home
resulted in having minimal impact on operations or
productivity.
We have also implemented social distancing
protocols throughout our field operations that help to protect our
field staff, contractors and the communities that we work in. As a
result of the actions taken by both the Company and all of our
staff, we are pleased to report that Razor has not lost any time as
a result of COVID-19.
SELECT QUARTERLY HIGHLIGHTS
The following tables summarizes key financial
and operating highlights associated with the Company’s financial
performance.
|
Three Months Ended March 31, |
|
($000's, except for per share amounts and production) |
2020 |
|
2019 |
|
Production |
|
|
Light Oil (bbl/d) |
2,642 |
|
2,664 |
|
Gas (mcf/d) 1 |
3,676 |
|
3,929 |
|
NGL (boe/d) |
940 |
|
1,036 |
|
Total
(boe/d) |
4,195 |
|
4,355 |
|
Sales
volumes |
|
|
Light Oil (bbl/d) |
2,537 |
|
2,741 |
|
Gas (mcf/d)1 |
3,676 |
|
3,929 |
|
NGL (bbl/d) |
940 |
|
1,036 |
|
Total (boe/d) |
4,089 |
|
4,432 |
|
Oil inventory volumes (bbls) |
18,848 |
|
28,360 |
|
Oil and natural gas
revenue |
|
|
Oil and NGLs sales |
12,476 |
|
18,855 |
|
Natural gas sales |
624 |
|
760 |
|
Sales of commodities purchased
from third parties 4 |
— |
|
6,041 |
|
Blending and processing |
1,613 |
|
2,241 |
|
Other
revenues |
928 |
|
353 |
|
Total
revenue |
15,641 |
|
28,250 |
|
Cash flows from (used in)
operating activities |
2,253 |
|
4,099 |
|
Per share -basic and diluted |
0.11 |
|
0.27 |
|
Funds flow 2 |
(3,659 |
) |
1,165 |
|
Per share -basic and diluted |
(0.17 |
) |
0.08 |
|
Adjusted funds flow 2 |
(3,314 |
) |
1,377 |
|
Per share -basic and diluted |
(0.16 |
) |
0.09 |
|
Net income (loss) |
(34,228 |
) |
(9,791 |
) |
Per share - basic and diluted |
(1.62 |
) |
(0.64 |
) |
Dividends paid |
263 |
|
570 |
|
Dividends paid per share |
0.01 |
|
0.04 |
|
Weighted average number of shares outstanding (basic and
diluted) |
21,064,466 |
|
15,188,834 |
|
Capital expenditures |
450 |
|
4,075 |
|
Netback ($/boe) |
|
|
Oil and gas sales 3 |
35.20 |
|
49.17 |
|
Royalty |
(4.26 |
) |
(7.01 |
) |
Operating expenses |
(36.06 |
) |
(34.05 |
) |
Transportation and treating |
(1.79 |
) |
(1.96 |
) |
Operating netback 2 |
(6.91 |
) |
6.15 |
|
Gain/(Loss) on sale of commodities purchased from third parties
4 |
— |
|
(0.67 |
) |
Net blending and processing income 2 |
3.21 |
|
3.55 |
|
Realized gain/(loss) on commodity contracts settlement 3 |
(2.19 |
) |
(0.74 |
) |
Other revenues |
2.49 |
|
0.88 |
|
General and administrative |
(5.11 |
) |
(5.67 |
) |
Other expenses |
0.01 |
|
— |
|
Impairment |
(67.45 |
) |
— |
|
Interest |
(3.52 |
) |
(3.00 |
) |
Corporate netback 2 |
(79.47 |
) |
0.50 |
|
1) Gas production and sales volumes include
internally consumed gas used in power generation.2) Refer to
"Non-IFRS measures".3) Excludes the effects of financial risk
management contracts but includes the effects of fixed price
physical delivery contracts.4) From time to time, Razor purchases
commodity products from third parties to fulfill sales commitments,
and subsequently sells these products to its customers.
SELECT QUARTERLY HIGHLIGHTS
(continued)
|
March 31, |
|
December 31, |
|
($000's, except for share amounts) |
2020 |
|
2019 |
|
Total assets |
151,031 |
|
189,158 |
|
Cash |
2,322 |
|
1,905 |
|
Long-term debt
(principal) |
45,803 |
|
45,874 |
|
Minimum lease obligation |
4,469 |
|
4,744 |
|
Net debt 1 |
72,875 |
|
66,911 |
|
Number
of shares outstanding |
21,064,466 |
|
21,064,466 |
|
1) Refer to "Non-IFRS measures".
OPERATIONAL UPDATE
Sales volumes in the first quarter of 2020
averaged 4,089 boe/d, down 8% from the sales volumes in the same
period in 2019 as Razor was building up inventory volumes in
existing surface tanks due to low commodity prices in Q1 2020. As
at March 31, 2020, Razor had 18,848 bbls of light oil
inventory (December 31, 2019 - 9,251 bbls).
Production averaged 4,195 boe/d in Q1 2020 down
4% from the same quarter in 2019. Production in the first quarter
of 2020 was adversely impacted by non-operated production
interruptions in the Swan Hills and Simonette areas. In the
Simonette area, roughly 350 boe/d was curtailed for the quarter as
a result of non-operated pipeline integrity concerns. This
production was brought back online late in Q1, however was shut in
early in Q2 due to weak pricing. In the Swan Hills area, roughly
150 boe/d was curtailed for the quarter as a result of non-operated
pipeline repairs. These repairs were completed in late Q1 however,
volumes were not brought back onstream due to weak pricing. It is
expected that those volumes will be brought on in Q2 pending
stronger pricing.
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 months ended
March 31, 2020 was 1,328 mcf/d.
Razor realized an oil price of $48.08/bbl during
the first quarter of 2020, which was a 22% discount to the WTI
(CAD) price and is up from the 10% and 11% discounts in Q4 2019 and
Q1 2019, respectively. These discounts were partially due to lower
average oil quality realized by the Company as a result of the
Little Rock acquisition in Q3 2019, which added WCS exposure to
Razor's oil pricing portfolio, as well as timing of monthly sales
contracts.
During the first quarter of 2020, the Company
realized an operating loss of $6.91/boe down from operating income
of $6.15/boe in the first quarter of 2019 due to lower realized
prices, decreased production and sales volumes.
Royalty rates averaged 12% in the first quarter
of 2020 as compared to 14% for the same period in 2019. This
decrease in royalties is mostly due to the decrease in commodity
prices and production volumes.
Operating expenses increased 6%, on a per boe
basis, in the first quarter of 2020 compared to the same period in
2019,and was on par on a total dollar basis. Workovers, facility
and pipeline integrity expenses averaged $5.15/boe in the first
quarter of 2020 down 30% from $7.33/boe in the same quarter of 2019
due to reduced well intervention activity given the weaker
commodity price environment. Non-operated pipeline repairs
accounted for 12% of total operating expenses in Q1 2020 (Q1 2019 -
1%) and downhole workovers accounted for 3% of total operating
expenses in Q1 2020 (Q1 2019 - 17%).
The top cost drivers, fuel and electricity,
labour, property taxes, facility repairs and non-operated pipeline
repairs accounted for 73% of total operating expenses in the first
quarter of 2020 (Q1 2019 - 73%).
Electricity and fuel increased 20% in Q1 2020 as
compared to the same quarter of last year mostly due to a 25%
increase in average electricity pool prices, which usage decreased
9% in the same period with decreased reliance on compressed gas and
lower production levels. The Company continues to operate its six
natural gas-powered generators which reduced its reliance on grid
electric power and resulted in savings of $0.9 million in Q1 2020
(Q1 2019 - $0.8 million).
CAPITAL PROGRAM
In the first quarter of 2020, due to the
volatile commodity price environment, the Company did not initiate
any projects related to finding and development capital. Amounts
recorded in the first quarter of 2020 related to final cost true
ups on projects from 2019.
During the first quarter of 2020, Razor invested
$0.3 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.
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 original spend target in 2020 under the
ABC program was anticipated to be $2.3 million but on May 14, 2020,
the AER reduced all liability reduction targets for 2020 to zero in
response to COVID-19 and the decline in oil prices. The 2021
liability reduction target will be announced later in 2020. Razor
plans to continue to participate in the ABC program as future
requirements are announced.
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, concentrated on acquiring, and subsequently 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
currently trades on TSX Venture Exchange under the ticker
“RZE.V”.
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
potential and uncertain impact of COVID-19 on the Company's
operations and results, the Company’s objectives, including the
Company’s capital program and other activities, shutting in and
restarting wells, future rates of production, service integration,
anticipated abandonment, reclamation and remediation costs for
2020, commitments under the ABC program and other environmental,
social and governance initiatives. 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", "gain (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. Gain (loss) 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. Gain (loss) on sale of
commodities purchased from third parties may not be comparable to
similar measures used by other companies. Operating netback equals
total petroleum and natural gas sales less royalties and operating
costs calculated on a boe basis. 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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