HEADWATER EXPLORATION INC. ANNOUNCES THIRD QUARTER OPERATING AND FINANCIAL RESULTS, DECLARATION OF QUARTERLY DIVIDEND AND UPDATE TO 2024 GUIDANCE
Financial and Operating Highlights
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Three months ended
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Percent |
Nine months ended
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Percent |
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2024 |
2023 |
2024 |
2023 |
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Financial (thousands of dollars except share data) |
|
|
|
|
|
|
|
Sales, net of blending (1) (4) |
151,740 |
144,003 |
5 |
436,163 |
351,133 |
24 |
|
Adjusted funds flow from operations (2) |
84,185 |
80,887 |
4 |
248,654 |
206,279 |
21 |
|
Per share - basic (3) |
0.35 |
0.34 |
3 |
1.05 |
0.88 |
19 |
|
- diluted (3) |
0.35 |
0.34 |
3 |
1.04 |
0.87 |
20 |
|
Cash flows provided by operating activities |
95,272 |
85,568 |
11 |
240,721 |
212,626 |
13 |
|
Per share - basic |
0.40 |
0.36 |
11 |
1.02 |
0.90 |
13 |
|
- diluted |
0.40 |
0.36 |
11 |
1.01 |
0.90 |
12 |
|
Net income |
47,634 |
49,677 |
(4) |
139,121 |
110,603 |
26 |
|
Per share - basic |
0.20 |
0.21 |
(5) |
0.59 |
0.47 |
26 |
|
- diluted |
0.20 |
0.21 |
(5) |
0.58 |
0.47 |
23 |
|
Capital expenditures (1) |
58,196 |
70,208 |
(17) |
174,180 |
203,796 |
(15) |
|
Adjusted working capital (2) |
|
|
|
64,411 |
35,921 |
79 |
|
Shareholders' equity |
|
|
|
684,486 |
587,380 |
17 |
|
Dividends declared |
23,767 |
23,638 |
1 |
71,261 |
70,763 |
1 |
|
Per share |
0.10 |
0.10 |
- |
0.30 |
0.30 |
- |
|
Weighted average shares (thousands) |
|
|
|
|
|
|
|
Basic |
237,484 |
236,191 |
1 |
236,285 |
235,305 |
- |
|
Diluted |
239,735 |
239,167 |
- |
238,427 |
237,683 |
- |
|
Shares outstanding, end of period (thousands) |
|
|
|
|
|
|
|
Basic |
|
|
|
237,665 |
236,384 |
1 |
|
Diluted (5) |
|
|
|
241,115 |
241,175 |
- |
|
Operating (6:1 boe conversion) |
|
|
|
|
|
|
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|
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Average daily production |
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|
|
|
|
|
|
Heavy crude oil (bbls/d) |
19,718 |
16,902 |
17 |
18,689 |
15,775 |
18 |
|
Natural gas (mmcf/d) |
3.4 |
6.1 |
(44) |
6.8 |
9.1 |
(25) |
|
Natural gas liquids (bbl/d) |
64 |
103 |
(38) |
72 |
100 |
(28) |
|
Barrels of oil equivalent (9)(boe/d) |
20,342 |
18,027 |
13 |
19,890 |
17,398 |
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Average daily sales (6) (boe/d) |
20,329 |
17,862 |
14 |
19,850 |
17,331 |
15 |
|
|
|
|
|
|
|
|
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Netbacks ($/boe) (3) (7) |
|
|
|
|
|
|
|
Operating |
|
|
|
|
|
|
|
Sales, net of blending (4) |
81.13 |
87.63 |
(7) |
80.19 |
74.22 |
8 |
|
Royalties |
(15.74) |
(16.26) |
(3) |
(14.88) |
(13.06) |
14 |
|
Transportation |
(5.90) |
(5.32) |
11 |
(5.60) |
(5.43) |
3 |
|
Production expenses |
(7.46) |
(7.43) |
- |
(7.25) |
(7.11) |
2 |
|
|
|
|
|
|
|
|
|
Operating netback (3) |
52.03 |
58.62 |
(11) |
52.46 |
48.62 |
8 |
|
Realized gains on financial derivatives |
0.18 |
0.18 |
- |
1.04 |
1.66 |
(37) |
|
Operating netback, including financial derivatives (3) |
52.21 |
58.80 |
(11) |
53.50 |
50.28 |
6 |
|
General and administrative expense |
(1.42) |
(1.52) |
(7) |
(1.46) |
(1.46) |
- |
|
Interest income and other (8) |
0.76 |
0.85 |
(11) |
0.84 |
0.98 |
(14) |
|
Current tax expense |
(6.54) |
(8.91) |
(27) |
(7.14) |
(6.20) |
15 |
|
Settlement of decommissioning liability |
- |
- |
- |
(0.02) |
- |
100 |
|
Adjusted funds flow netback (3) |
45.01 |
49.22 |
(9) |
45.72 |
43.60 |
5 |
(1) |
Non-GAAP financial measure. Refer to "Non-GAAP and Other Financial Measures" within this press release. |
(2) |
Capital management measure. Refer to "Non-GAAP and Other Financial Measures" within this press release. |
(3) |
Non-GAAP ratio. Refer to "Non-GAAP and Other Financial Measures" within this press release. |
(4) |
Total sales are netted with blending expense to compare the realized price to benchmark pricing while transportation expense is shown separately. In the interim financial statements blending expense is recorded within blending and transportation expense. |
(5) |
In-the-money dilutive instruments as at |
(6) |
Includes sales of unblended heavy crude oil, natural gas and natural gas liquids. The Company's heavy crude oil sales volumes and production volumes differ due to changes in inventory. |
(7) |
Netbacks are calculated using average sales volumes. For the three months ended |
(8) |
Excludes unrealized foreign exchange gains/losses, accretion on decommissioning liabilities, interest on lease liability and interest on repayable contribution. |
(9) |
See "Barrels of Oil Equivalent". |
HIGHLIGHTS FOR THREE MONTHS ENDED
- Achieved record production averaging 20,342 boe/d (consisting of 19,718 bbls/d heavy oil, 3.4 mmcf/d natural gas and 64 bbls/d natural gas liquids), representing an increase of 13% from the third quarter of 2023.
- Realized adjusted funds flow from operations (1) of
$84.2 million ($0.35 per share basic (2)) and cash flows from operating activities of$95.3 million ($0.40 per share basic). - Achieved an operating netback, including financial derivatives (2) of
$52.21 /boe and an adjusted funds flow netback (2) of$45.01 /boe. - Achieved net income of
$47.6 million ($0.20 per share basic) equating to$25.47 /boe. - Executed a
$58.2 million capital expenditure (3) program drilling 18 multi-lateral crude oil wells and 2 injection wells inMarten Hills West and multi-lateral exploration tests in bothLittle Horse and Clay at a 100% success rate. - Generated free cash flow (3) of
$26.0 million . - Returned
$23.8 million , or$0.10 /common share, to shareholders through Headwater's quarterly dividend. - As at
September 30, 2024 , Headwater had adjusted working capital (1) of$64.4 million , working capital of$74.9 million and no outstanding bank debt.
(1) |
Capital management measure. Refer to "Non-GAAP and Other Financial Measures" within this press release. |
(2) |
Non-GAAP ratio. Refer to "Non-GAAP and Other Financial Measures" within this press release. |
(3) |
Non-GAAP financial measure. Refer to "Non-GAAP and Other Financial Measures" within this press release. |
OPERATIONS UPDATE
In the third quarter of 2024, Headwater drilled 18 successful multi-lateral wells in
The Clearwater E pool was discovered with our first test in
Select results from the recently drilled Clearwater E wells include the 00/13-07-075-01W5 well, the most southern Clearwater E extension well which achieved a 30-day initial production rate of 240 bbls/d of 21 API oil. The 04/16-13-075-02W5 well, the most western Clearwater E extension well achieved a 30-day initial production rate of 209 bbls/d of 21 API oil and the 00/13-16-075-01W5 well, our most eastern Clearwater E extension well provided strong reservoir indications while drilling and is currently recovering load fluid.
Reservoir and oil quality from the Clearwater E creates a highly amenable environment for secondary recovery. As a result, Headwater has initiated two secondary recovery pilots. The 03/16-07-075-01W5 well has been on injection for 60 days at strong injection rates and the 05/16-07-075-01W5 well was commissioned for injection late in October. Both of these waterfloods are designed as lateral waterfloods similar to those initiated by our peers in the Nipisi area. Expansion of the waterflood in the Clearwater E is expected to occur concurrently with the development of the pool.
The
Results from the Marten Hills West first full section secondary recovery pilot continues to show strong initial performance. Injection rates were increased from 300 bbls/d in
Secondary recovery in the Marten Hills Core continues to show tremendous results. Despite the decline associated with currently unsupported sections, the core area's production has remained flat at rates in excess of 7,000 bbls/d for the last 11 months. Headwater is currently in the process of converting two additional sections to secondary recovery. By year-end, 8 of the 9 sections will be supported by injection.
To date, it is estimated that the implementation of secondary recovery has reduced our corporate decline rates by approximately 5% and maintenance capital requirements by approximately
Greater Nipisi
Headwater is excited to report results from our first exploration well targeting the
Headwater is currently conducting a 3D seismic shoot over the
Clay
At Clay, in the greater
Exploration and Land Update
With the addition of 10.9 net sections of
McCully Update
McCully is scheduled to be placed back on production at the beginning of December. We have hedged approximately 83% of McCully's estimated
(1) |
Non-GAAP financial measure. Refer to "Non-GAAP and Other Financial Measures" within this press release. |
(2) |
McCully's winter season is estimated to be |
2024 GUIDANCE UPDATE
Headwater has increased its 2024 annual average production guidance from 20,000 to 20,250 boe/d. Given strong results over the past 2 years, the Board of Directors has approved a
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2024 Guidance as |
Updated 2024 |
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2024 annual average production (boe/d) Fourth Quarter daily production |
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20,000 21,500 |
20,250 21,500 |
Capital expenditures (1) |
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Comprised of: |
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Development capital |
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Land |
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Exploration and enhanced oil recovery |
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WTI |
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WCS |
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Adjusted funds flow from operations (2) |
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Exit adjusted working capital (2)(3) |
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Quarterly dividend |
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(1) |
Non-GAAP financial measure. Refer to "Non-GAAP and Other Financial Measures" within this press release. |
(2) |
Capital management measure. Refer to "Non-GAAP and Other Financial Measures" within this press release. |
(3) |
Reflects the Board approved change to cash settle the Company's outstanding performance share units. |
(4) |
For assumptions utilized in the above guidance see "Future Oriented Financial Information" within this press release. |
FOURTH QUARTER DIVIDEND
The Board of Directors of Headwater has declared a quarterly cash dividend to shareholders of
Headwater remains committed to delivering long term top quartile returns through growth and return of capital. Additional corporate information can be found in the Company's corporate presentation and on Headwater's website at www.headwaterexp.com.
FORWARD LOOKING STATEMENTS: This press release contains forward-looking statements. The use of any of the words "guidance", "initial", "anticipate", "scheduled", "can", "will", "prior to", "estimate", "believe", "potential", "should", "unaudited", "forecast", "future", "continue", "may", "expect", "project", and similar expressions are intended to identify forward-looking statements. The forward-looking statements contained herein, include, without limitation: expectations that the Company will cash settle its restricted share units; the Company's 2024 guidance related to expected annual average production, fourth quarter daily production; capital expenditures and the breakdown thereof and the expectation that this capital will continue to stabilize and add duration to corporate cash flows, adjusted funds flow from operations, dividends and exit adjusted working capital and the expectation to cash settle its performance share units, and the expectation that the increased capital expenditures will be used to accelerate the implementation of additional secondary recovery; the estimated size of certain of the Company's pools; the expectation that the expansion of the waterflood in the Clearwater E is expected to occur concurrently with the development of the pool; the expectation that the secondary pilot of 22-75-02W5 will be commissioned later in the fourth quarter of 2024; the expectation that the Company's 2025 budget will be released in December; the expectation that secondary development will continue to decrease corporate decline rates and maintenance capital requirements; anticipated reductions in decline rates and maintenance capital requirements as a result of the implementation of secondary recovery at Marten Hills Core; the expectation that a follow-up exploration well will test an additional identified
FUTURE ORIENTED FINANCIAL INFORMATION: This press release contains information that may be considered a financial outlook or future-oriented financial information under applicable securities laws including: t
he Company's 2024 guidance related to capital expenditures and the breakdown thereof, adjusted funds flow from operations, dividends and exit adjusted working capital; the expectation that the McCully startup will generate
DIVIDEND POLICY: The amount of future cash dividends paid by the Company, if any, will be subject to the discretion of the Board of Directors of the Company and may vary depending on a variety of factors and conditions existing from time to time, including, among other things, adjusted funds flow from operations, fluctuations in commodity prices, production levels, capital expenditure requirements, acquisitions, debt service requirements and debt levels, operating costs, royalty burdens, foreign exchange rates and the satisfaction of the liquidity and solvency tests imposed by applicable corporate law for the declaration and payment of dividends. Depending on these and various other factors, many of which will be beyond the control of the Company, the Board will adjust the Company's dividend policy from time to time and, as a result, future cash dividends could be reduced or suspended entirely.
BARRELS OF OIL AND CUBIC FEET OF NATURAL GAS EQUIVALENT: The term "boe" (or barrels of oil equivalent) and "Mcf" (or thousand cubic feet of natural gas equivalent) may be misleading, particularly if used in isolation. A boe and Mcf 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.
I NITIAL PRODUCTION RATES: References in this press release to IP rates, other short-term production rates or initial performance measures relating to new wells are useful in confirming the presence of hydrocarbons; however, such rates are not determinative of the rates at which such wells will commence production and decline thereafter and are not indicative of long-term performance or of ultimate recovery. All IP rates presented herein represent the results from wells after all "load" fluids (used in well completion stimulation) have been recovered. While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production for the Company. Accordingly, the Company cautions that the test results should be considered to be preliminary.
NON-GAAP AND OTHER FINANCIAL MEASURES
In this press release, we use various non-GAAP and other financial measures to analyze operating performance and financial position. These non-GAAP and other financial measures do not have standardized meanings prescribed under IFRS and therefore may not be comparable to similar measures presented by other issuers. The term cash flow in this press release is equivalent to adjusted funds flow from operations.
Non-GAAP Financial Measures
Total sales, net of blending
Management utilizes total sales, net of blending expense to compare realized pricing to benchmark pricing. It is calculated by deducting the Company's blending expense from total sales. In the interim financial statements blending expense is recorded within blending and transportation expense.
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Three months ended
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Nine months ended
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2024 |
2023 |
2024 |
2023 |
|
(thousands of dollars) |
(thousands of dollars) |
||
Total sales |
158,382 |
149,632 |
456,697 |
372,808 |
Blending expense |
(6,642) |
(5,629) |
(20,534) |
(21,675) |
Total sales, net of blending expense |
151,740 |
144,003 |
436,163 |
351,133 |
Capital expenditures
Management utilizes capital expenditures to measure total cash capital expenditures incurred in the period. Capital expenditures represents capital expenditures – exploration and evaluation and capital expenditures – property, plant and equipment in the statement of cash flows in the Company's interim financial statements.
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Three months ended
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Nine months ended
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2024 |
2023 |
2024 |
2023 |
|
(thousands of dollars) |
(thousands of dollars) |
||
Cash flows used in investing activities |
63,136 |
62,030 |
180,920 |
188,998 |
Proceeds from government grant |
- |
- |
354 |
- |
Change in non-cash working capital |
(4,940) |
8,178 |
(7,094) |
14,798 |
Capital expenditures |
58,196 |
70,208 |
174,180 |
203,796 |
Free cash flow
Management utilizes free cash flow to assess the amount of funds available for future capital allocation decisions. It is calculated as adjusted funds flow from operations net of capital expenditures before dividends.
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Three months ended
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Nine months ended
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2024 |
2023 |
|
2024 |
2023 |
|
(thousands of dollars) |
|
(thousands of dollars) |
||
Adjusted funds flow from operations |
84,185 |
80,887 |
|
248,654 |
206,279 |
Capital expenditures |
(58,196) |
(70,208) |
|
(174,180) |
(203,796) |
Free cash flow |
25,989 |
10,679 |
|
74,474 |
2,483 |
Capital Management Measures
Adjusted funds flow from operations
Management considers adjusted funds flow from operations to be a key measure to assess the Company's management of capital. Adjusted funds flow from operations is an indicator as to whether adjustments are necessary to the level of capital expenditures. For example, in periods where adjusted funds flow from operations is negatively impacted by reduced commodity pricing, capital expenditures may need to be reduced or curtailed to preserve the Company's capital and dividend policy. Management believes that by excluding the impact of changes in non-cash working capital and adjusting for current income taxes in the period, adjusted funds flow from operations provides a useful measure of Headwater's ability to generate the funds necessary to manage the capital needs of the Company.
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Three months ended
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Nine months ended
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|
2024 |
2023 |
2024 |
2023 |
|
(thousands of dollars) |
(thousands of dollars) |
||
Cash flows provided by operating activities |
95,272 |
85,568 |
240,721 |
212,626 |
Changes in non–cash working capital |
(9,092) |
5,618 |
(2,678) |
(1,663) |
Current income taxes |
(12,223) |
(14,647) |
(38,848) |
(29,322) |
Current income taxes paid |
10,228 |
4,348 |
49,459 |
24,638 |
Adjusted funds flow from operations |
84,185 |
80,887 |
248,654 |
206,279 |
Adjusted working capital
Adjusted working capital is a capital management measure which management uses to assess the Company's liquidity. Financial derivative receivable/liability have been excluded as these contracts are subject to a high degree of volatility prior to settlement and relate to future production periods. Financial derivative receivable/liability are included in adjusted funds flow from operations when the contracts are ultimately realized. Management has included the effects of the repayable contribution to provide a better indication of Headwater's net financing obligations.
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As at
|
As at
|
|
|
|
||
|
|
(thousands of dollars) |
||
Working capital |
|
|
74,925 |
78,610 |
Repayable contribution |
|
|
(10,713) |
(11,405) |
Financial derivative receivable |
|
|
(921) |
(3,758) |
Financial derivative liability |
|
|
1,120 |
79 |
Adjusted working capital |
|
|
64,411 |
63,526 |
Non-GAAP Ratios
Adjusted funds flow netback, operating netback and operating netback, including financial derivatives
Adjusted funds flow netback, operating netback and operating netback, including financial derivatives are non-GAAP ratios and are used by management to better analyze the Company's performance against prior periods on a more comparable basis.
Adjusted funds flow netback is defined as adjusted funds flow from operations divided by sales volumes in the period.
Operating netback is defined as sales less royalties, transportation and blending costs and production expense divided by sales volumes in the period. Sales volumes exclude the impact of purchased condensate and butane. Operating netback, including financial derivatives is defined as operating netback plus realized gains (losses) on financial derivatives.
Adjusted funds flow from operations per share
Adjusted funds flow from operations per share is a non-GAAP ratio and is used by management to better analyze the Company's performance against prior periods on a more comparable basis. Adjusted funds flow per share is calculated as adjusted funds flow from operations divided by weighted average shares outstanding on a basic or diluted basis.
Supplementary Financial Measures
Per boe numbers
This press release represents various results on a per boe basis including sales, net of blending boe, realized gains (losses) on financial derivatives per boe, royalty expense per boe, transportation expense per boe, production expense per boe, general and administrative expenses per boe, interest income and other expense per boe, current taxes per boe, settlement of decommissioning liability expense per boe and net income per boe. These figures are calculated using sales volumes.
SOURCE