Razor Energy Corp. 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
Capital
Acquisitions
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 Bailey President and Chief Executive Officer |
OR | Kevin Braun Chief Financial Officer |
|
Razor Energy Corp. 800, 500-5th Ave SW Calgary, Alberta T2P 3L5 Telephone: (403) 262-0242 www.razor-energy.com |