Razor Energy Corp. (“Razor” or the “Company”) (TSXV: RZE) announces
its second 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 June 30, 2020 which
are available on SEDAR at www.sedar.com and the Company’s website
www.razor-energy.com.
Q2 2020 HIGHLIGHTS
OPERATING
- Achieved operating expenses of $21.52/boe in the second quarter
of 2020, down 33% from the same period in 2020 due to a strict
focus in cost reductions and operating efficiencies. Razor operated
properties realized operating expenses of $22.32/boe for the six
months ended June 30, 2020 while non-operated property operating
expenses averaged $58.91/boe during the same period.
- Production volumes in the second quarter of 2020 averaged 3,782
boe/d, down 9% from the production volumes in the same period of
2019, due to production curtailments and shut ins due to low crude
oil pricing as a result of COVID-19.
- Reported negative $0.5 million of cash flows from operating
activities in the second quarter of 2020 compared to positive $8.3
million of cash flows from operating activities in the second
quarter of 2019.
- 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 $0.4 million in Q2 2020 (Q2 2019 - $0.8
million). Electricity and fuel decreased 27% in Q2 2020 as compared
to the same quarter of last year mostly due to a 49% decrease in
average electricity pool prices.
- Received approval for $1.4 million in funding under the Alberta
government’s Site Rehabilitation Program (“SRP”) to assist with
abandonment and reclamation activities.
CAPITAL
- Eliminated all operated capital investment with the exception
of critical end of life expenditures.
- Invested $0.6 million on its capital program in the second
quarter of 2020, mainly on the South Swan Hills co-produced
geothermal power generation project.
STRATEGY
- Razor utilized its crude oil storage capacity of 96,000 bbls to
manage the realized value of its oil due to the low commodity
prices during most of the second quarter of 2020. The Company
increased inventory volumes of crude oil in Q2 2020 to 21,111 bbls
of light oil inventory (December 31, 2019 - 9,251 bbls) of
which a significant portion is anticipated to be sold in the third
quarter of 2020 due to improved oil prices.
- 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
$0.5 million of services on behalf of Razor during Q2 2020 and $1.1
million of services for the six months ended June 30, 2020.
NEAR AND MEDIUM-TERM
OBJECTIVES
- Reducing net debt through significantly reduced capital
spending, operating costs, and general and administrative
expenses.
- Actively identifying and considering business combinations with
other oil and gas producers as well as service companies.
- Developing a technically viable and commercially sustainable
solution to recover geothermal waste heat to power.
- Analyzing further ancillary opportunities including power
generating projects, oil blending and services integration.
2020 OUTLOOKThe 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 field and corporate netbacks. Cost
control will be prioritized over production levels 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, during the early part of second quarter of
2020 the Company shut in all
of its operated heavy oil production, along
with certain light oil wells which were sub-economic
at the time, and also built oil inventory in anticipation of
improved future crude oil prices. Since June 2020, WTI pricing and
local price differentials have improved as global demand for oil
has rebounded as countries gradually ease COVID-19 lockdown
restrictions. Starting in the later part of the second quarter, the
Company began the process of restarting the heavy oil and light oil
wells which were shut in and at June 30, 2020 the Company had
approximately 21,000 barrels of oil inventory which a significant
portion is anticipated to be sold in the third quarter. As of the
date of this press release, the Company is forecasting Q3 2020
production to be approximately 3,500 boe/d. The Company actively
monitors the economics for all its operated production and expects
to reactivate additional wells as prices further improve. The
timing to restart shut in oil wells is dependent on both WTI
prices and local price differentials.
The preparation of financial forecasts is
challenging at this time; however, the
Company anticipates minimal cash flow from
operations during the second half of 2020 if oil prices remain
at current levels. 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 which has provided the Company with
just over $725 thousand since the subsidy was introduced, of which
$454 thousand was accounted for as a reduction of general and
administrative expenses and $272 thousand was accounted for as a
reduction of operating expenses.
RAZOR'S RESPONSE TO
COVID-19
Razor is dedicated to ensuring the health,
safety and security of its employees, contractors, partners and
residents within all of its operating areas and communities. The
Company has implemented business procedures that comply with
Alberta Health Guidelines to protect the well-being of all
stakeholders. Razor has successfully transitioned the majority of
its corporate staff back to the head office and the field sites
continue to take site specific pre-cautionary measures related to
COVID-19. The Company has not experienced any COVID-19 cases in the
Calgary office or at its field sites.
SELECT QUARTERLY HIGHLIGHTS
The following tables summarizes key financial
and operating highlights associated with the Company’s financial
performance.
|
June 30, |
December 31, |
($000's, except for share amounts) |
2020 |
2019 |
Total assets |
162,412 |
189,158 |
Cash |
1,002 |
1,905 |
Long-term debt (principal) |
47,312 |
45,876 |
Minimum lease obligation |
4,703 |
5,329 |
Net debt 1 |
71,499 |
66,911 |
Number of shares outstanding |
21,064,466 |
21,064,466 |
1) Refer to "Non-IFRS measures". |
|
|
|
|
|
SELECT QUARTERLY HIGHLIGHTS
(continued)
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
($000's, except for per share amounts and production) |
2020 |
|
2019 |
|
2020 |
|
2019 |
|
Production |
|
|
|
|
|
|
|
|
Light Oil (bbl/d) |
1,996 |
|
2,744 |
|
2,319 |
|
2,704 |
|
Gas (mcf/d) 1 |
5,528 |
|
3,414 |
|
4,602 |
|
3,670 |
|
NGL (boe/d) |
865 |
|
831 |
|
902 |
|
933 |
|
Total (boe/d) |
3,782 |
|
4,143 |
|
3,989 |
|
4,249 |
|
Sales volumes 2 |
|
|
|
|
|
|
|
|
Light Oil (bbl/d) |
1,971 |
|
2,932 |
|
2,254 |
|
2,837 |
|
Gas (mcf/d) 1 |
5,528 |
|
3,414 |
|
4,602 |
|
3,670 |
|
NGL (bbl/d) |
865 |
|
831 |
|
902 |
|
933 |
|
Total (boe/d) |
3,757 |
|
4,332 |
|
3,923 |
|
4,382 |
|
Closing oil inventory volumes (bbls) |
21,111 |
|
11,228 |
|
21,111 |
|
11,228 |
|
Revenue |
|
|
|
|
|
|
|
|
Oil and gas sales |
7,896 |
|
22,525 |
|
20,372 |
|
41,380 |
|
Natural gas sales |
742 |
|
328 |
|
1,366 |
|
1,088 |
|
Sale of commodities purchased from third parties |
- |
|
2,413 |
|
- |
|
8,454 |
|
Blending and processing income |
1,061 |
|
2,332 |
|
2,674 |
|
4,573 |
|
Other revenue |
2,417 |
|
272 |
|
3,345 |
|
625 |
|
Total revenue |
12,116 |
|
27,870 |
|
27,757 |
|
56,120 |
|
Cash flows from (used in) operating activities |
(540 |
) |
8,263 |
|
1,714 |
|
11,867 |
|
Per share -basic and diluted |
(0.03 |
) |
0.54 |
|
0.08 |
|
0.78 |
|
Funds flow 3 |
1,985 |
|
3,878 |
|
(1,673 |
) |
5,043 |
|
Per share -basic and diluted |
0.09 |
|
0.26 |
|
(0.08 |
) |
0.33 |
|
Adjusted funds flow 3 |
2,010 |
|
3,624 |
|
(1,303 |
) |
5,001 |
|
Per share -basic and diluted |
0.10 |
|
0.24 |
|
(0.05 |
) |
0.33 |
|
Net income (loss) |
(4,083 |
) |
(1,746 |
) |
(38,311 |
) |
(11,537 |
) |
Per share - basic and diluted |
(0.19 |
) |
(0.12 |
) |
(1.82 |
) |
(0.76 |
) |
Dividends per share |
- |
|
0.04 |
|
0.01 |
|
— |
|
Weighted average number of shares outstanding (basic and
diluted) |
21,064 |
|
15,162 |
|
21,064 |
|
15,189 |
|
Capital expenditures |
268 |
|
4,619 |
|
718 |
|
8,694 |
|
Netback ($/boe) |
|
|
|
|
|
|
|
|
Oil and gas sales 4 |
25.26 |
|
57.98 |
|
30.44 |
|
53.55 |
|
Royalties |
(2.55 |
) |
(8.81 |
) |
(3.44 |
) |
(7.90 |
) |
Operating expenses |
(21.52 |
) |
(34.12 |
) |
(29.10 |
) |
(34.09 |
) |
Transportation and treating |
(1.70 |
) |
(2.72 |
) |
(1.75 |
) |
(2.34 |
) |
Operating netback 3 |
(0.51 |
) |
12.33 |
|
(3.85 |
) |
9.22 |
|
Income (loss) on sale of commodities purchased from third parties
3 |
- |
|
0.40 |
|
- |
|
(0.14 |
) |
Net blending and processing income 3 |
3.36 |
|
3.01 |
|
3.28 |
|
3.28 |
|
Realized loss on commodity contracts settlement |
(2.74 |
) |
(4.72 |
) |
(2.46 |
) |
(2.72 |
) |
Other revenues |
7.07 |
|
0.69 |
|
4.68 |
|
0.79 |
|
General and administrative |
(2.21 |
) |
(2.06 |
) |
(3.72 |
) |
(3.87 |
) |
Other expenses |
(0.02 |
) |
- |
|
- |
|
- |
|
Impairment |
1.05 |
|
- |
|
(34.65 |
) |
- |
|
Interest |
(3.70 |
) |
(3.13 |
) |
(3.61 |
) |
(3.06 |
) |
Corporate netback 3 |
2.30 |
|
6.52 |
|
(40.33) |
|
3.50 |
|
1) Gas production and sales volumes include
internally consumed gas used in power generation.2) Sales volumes
include change in inventory volumes.3) Refer to "Non-IFRS
measures".4) Excludes the effects of financial risk management
contracts but includes the effects of fixed price physical delivery
contracts.
OPERATIONAL UPDATE
Sales volumes in the second quarter of 2020
averaged 3,757 boe/d, down 13% 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 during Q2 2020.
As at June 30, 2020, Razor had 21,111 bbls of light oil inventory
(December 31, 2019 - 9,251 bbls) which is anticipated to be
sold in the third quarter of 2020 due to improved crude oil
pricing.
Production averaged 3,782 boe/d in Q2 2020 down
9% from the same quarter in 2019, primarily due to production
curtailments and shut ins due to low crude oil pricing as a result
of COVID-19. For the first six months of 2020, production averaged
3,989 boe/d, down 10% as compared to the same period last year, as
the Company’s non-operated production was impacted in the Swan
Hills and Kaybob areas, but was offset by production in the
Southern Alberta area due to the Little Rock acquisition.
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 six months
ended June 30, 2020 was 1,414 mcf/d and 1,269 mcf/d,
respectively.
Razor realized an oil price of $30.95/bbl during
the second quarter of 2020, which was a 19% discount to the WTI
(CAD) price and is an improvement from the 22% discount in Q1 2020
and down from the 4% discount in Q2 2019. 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. For the six months June 30, 2020 the
Company realized oil price was down 44% from the same period of
2019 mostly due to a lower WTI index price.
During the second quarter of 2020, the Company
realized an operating loss of $0.51/boe down from operating income
of $12.33/boe in the second quarter of 2019 due to lower realized
prices, decreased production and sales volumes.
Royalty rates averaged 10% in the second quarter
of 2020 as compared to 15% for the same period in 2019. This
decrease in royalties is mostly due to the decrease in commodity
prices and production volumes. For the first six months of the
year, royalties averaged 11%, down 15% from the same period last
year, mostly due to lower prices and production volumes.
Operating expenses decreased 37%, on a per boe
basis, in the second quarter of 2020 compared to the same period in
2019 and was down $6.1 million on a total dollar basis. Workovers,
facility and pipeline integrity expenses averaged $1.10/boe in the
second quarter of 2020 down 90% from $8.52/boe in the same quarter
of 2019. The Company has limited its well intervention activity in
response to the current weak commodity price environment. Razor
operated properties had an operating cost of $22.32/boe for the
first six months of 2020, while non-operated properties had an
operating cost of $58.91/boe for the same period.
The top cost drivers, fuel and electricity,
labour, property taxes, facility repairs and non-operated pipeline
repairs accounted for 71% of total operating expenses in the second
quarter of 2020 (Q2 2019 – 65%). For the first six months of 2020,
the top cost drivers, fuel and electricity, labour, property taxes,
facility repairs and non-operated pipeline repairs accounted for
65% of total operating expenses (2019 – 57%).
Electricity and fuel decreased 27% in Q2 2020 as
compared to the same quarter of last year mostly due to a 49%
decrease in average electricity pool prices and a 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 $0.4 million in Q2 2020 (Q2 2019 - $0.8 million).
CAPITAL PROGRAM
In the second 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 second quarter of 2020 related to final cost true
ups on projects from 2019.
During the second quarter of 2020, Razor
invested $0.6 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.
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 has been very successful in obtaining
approved applications under the Alberta government’s SRP. To date,
Razor has received approval for $1.4 million in funding to assist
with abandonment and reclamation activities. The Company also
expects to receive additional grants in subsequent phase of the
SRP. As the work related to each grant is completed, these amounts
will be reflected as a reduction in our decommissioning obligation
liability. Razor has participated in the energy management program
at Energy Efficiency Alberta and has decreased its annual GHG
emissions through the power generation project.
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.
DIRECTOR RESIGNATION
The Company also announces the resignation of
Mr. Sony Gill from the Company’s Board of Directors. Razor wishes
to thank Mr. Gill for his contributions to the Company and wishes
him well in his future endeavours.
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
OfficerKevin BraunChief Financial Officer
Razor Energy Corp.800, 500-5th Ave SW Calgary,
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 ability to continue to operate in accordance with
developing public health efforts to contain COVID-19; the Company’s
objectives, including the Company’s capital program and other
activities, including ancillary opportunities such as power
generation, oil blending and services integration, restarting
wells, future rates of production, anticipated abandonment,
reclamation and remediation costs for 2020, possible business
combination transactions, assistance from government programs
including under the SRP and Canadian Emergency Wage Subsidy,
commitments under the ABC program and energy management 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. In
addition, the Company cautions that COVID-19 may continue to have a
material adverse effect on global economic activity and worldwide
demand for certain commodities, including crude oil, natural gas
and NGL, and may continue to result in volatility and disruption to
global supply chains, operations, mobility of people and the
financial markets, which could continue to affect commodity prices,
interest rates, credit ratings, credit risk, inflation, business,
financial conditions, results of operations and other factors
relevant to the Company. The duration of the current commodity
price volatility is uncertain. 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, including sale of inventory volumes,
production and production efficiency, balance sheet, capital
spending, cost and net debt reductions, operating efficiencies,
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. Income (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. Income (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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