/NOT FOR DISSEMINATION IN THE U.S. OR THROUGH
U.S. NEWSWIRES/
CALGARY, April 28, 2020 /CNW/ - Highwood Oil Company Ltd.,
("HOCL" or the "Corporation") (TSXV: HOCL) is pleased
to announce financial and operating results for the three months
and twelve months ended December 31,
2019 and to provide the results of its independent oil and
gas reserves evaluation as of December 31,
2019, prepared by GLJ Petroleum Consultants Ltd.
("GLJ").
Associated Management's Discussion and Analysis
("MD&A") dated April 28,
2020 and audited financial statements as at and for the year
ended December 31, 2019, can be found
at www.sedar.com and www.highwoodoil.com.
Q4 2019 Results and 2020 Activity
- Achieved production of 1,515 bbl/d of oil in the fourth quarter
of 2019, an increase from 1,117 bbl/d in the fourth quarter of
2018.
- Acquired 45 gross (24.5 net) sections of Clearwater formation lands in 2019, bringing
total sections to 215 gross (109.5 net) at December 31, 2019, presenting a significant
inventory of exciting drilling opportunities with short cycle
times. Minimal bookings for the Clearwater formation have been incorporated
into the December 31, 2019 reserves
providing significant reserve upside with only six and a half
sections having booked locations.
- Drilled 4 wells (2.0 net) in the Clearwater play at Nipisi during the fourth
quarter of 2019. The drilling activity included delineation of the
Corporation's 32,000 acre gross (50.0 gross sections) Nipisi land
position, further validating additional Nipisi drilling
inventory.
- Drilled 5 wells (2.5 net) in the Clearwater play during the first quarter of
2020 where one well remains left outstanding to drill past casing
point when commodity prices improve. The drilling activity
included further delineation of the Corporation's Nipisi land
position as well as a step-out well at Craigend where the
Corporation holds a 17,920 acre gross land position (8,960
net). Since the Corporation began its Clearwater development program in the fourth
quarter of 2018, it has drilled 19 wells (9.5 net) to today's
date.
- Given current oil price environment, the Corporation ceased
capital spending in March 2020 and
will contemplate further Clearwater drilling once sustained price
recoveries are seen.
- With current select shut-ins, current production from Highwood
is approximately 150 bbl/d of oil post-closing of the Red Earth
Divestiture.
Red Earth Divestiture Update
The Alberta Energy Regulator provided their conditional approval
of the license transfers associated with the Red Earth Divestiture
on April 24, 2020. The
Corporation is currently addressing the transfer conditions and
will move towards closing of the transaction in accordance with the
terms of the purchase and sale agreement in the next few weeks.
Reserves
All references to reserves are to gross corporate reserves,
meaning the Corporation's working interest reserves before
deductions of royalties. The reserves were evaluated by GLJ
Petroleum Consultants Ltd. ("GLJ") in accordance with National
Instrument 51-101 – Standards of Disclosure for Oil and Gas
Activities ("NI 51-101") dated April 6,
2020, and effective December
31, 2019. The Corporation filed their Annual
Information Form ("AIF") on April 28,
2020 which contains the Corporation's reserves data and
other oil and natural gas information required under NI 51-101.
All evaluations and summaries of future net revenue are stated
prior to provision for interest, debt service charges or general
and administrative expenses and after deduction of royalties,
operating expenditures, estimated abandonment liabilities and
estimated future development capital. The information
included as ("NPV10") in the tables below represents the net
present value of future net revenue before income taxes at a 10%
discount rate based on GLJ's January 1,
2020 forecast price deck. It should not be assumed
that the estimate of future net revenues reflected in the tables
below represents fair market value of the reserves.
Summary of Oil and Gas Reserves as of December 31, 2019(1)(2)
|
Total Oil
Equivalent Basis (3)
|
Reserves
Category
|
Company Gross
(Mboe)
|
Company Net
(Mboe)
|
Proved
|
|
|
Producing
|
3,630
|
3,240
|
Developed
Non-Producing
|
1,556
|
1,411
|
Undeveloped
|
2,639
|
2,375
|
Total
Proved
|
7,825
|
7,027
|
Total
Probable
|
4,953
|
4,347
|
Total Proved Plus
Probable
|
12,778
|
11,374
|
(1)
|
Forecast prices are
shown under the heading "Pricing Assumptions" in the Corporation's
AIF dated April 28, 2020.
|
(2)
|
Reserves information
may not add due to rounding.
|
(3)
|
Natural gas has been
converted to barrels of oil equivalent on the basis of six (6) Mcf
of natural gas being equal to one barrel of oil.
|
Summary of Net Present Value of Future Net Revenues as of
December 31,
2019(1)(2)(3)
|
Net Present Values
of Future Net Revenue
|
|
Before Income
Taxes Discounted At (%/year)
|
|
0%
|
5%
|
10%
|
15%
|
20%
|
Reserves
Category
|
M$
|
M$
|
M$
|
M$
|
M$
|
Proved
|
|
|
|
|
|
Producing
|
116,595
|
101,679
|
89,664
|
80,138
|
72,534
|
Developed
Non-Producing
|
46,477
|
37,691
|
30,806
|
25,572
|
21,581
|
Undeveloped
|
72,734
|
58,053
|
47,162
|
38,912
|
32,521
|
Total
Proved
|
235,807
|
197,423
|
167,632
|
144,621
|
126,636
|
Total
Probable
|
162,155
|
115,199
|
85,452
|
66,092
|
52,956
|
Total Proved Plus
Probable
|
397,962
|
312,622
|
253,084
|
210,714
|
179,592
|
(1)
|
Forecast prices are
shown under the heading "Pricing Assumptions" in the Corporation's
AIF dated April 28, 2020.
|
(2)
|
Reserves information
may not add due to rounding.
|
(3)
|
It should not be
assumed that the estimates of future net revenues presented in the
tables represent the fair market value of the reserves. There is
no assurance that the forecast prices and cost assumptions will be
attained, and variances could be material.
|
Summary of Financial & Operating Results
|
|
Three months
ended December 31,
|
|
|
Year ended
December 31,
|
|
|
2019
|
|
2018
|
|
|
2019
|
|
2018
|
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and natural
gas sales
|
$
|
7,907,718
|
$
|
7,336,814
|
|
$
|
33,348,020
|
$
|
21,826,363
|
Transportation
pipeline revenues
|
|
1,228,329
|
|
1,308,526
|
|
|
5,276,121
|
|
3,948,611
|
Total revenues,
net of royalties (1)
|
|
7,410,354
|
|
6,870,212
|
|
|
19,796,066
|
|
18,876,913
|
Loss
|
|
6,582,622
|
|
(1,223,306)
|
|
|
11,012,724
|
|
1,809,819
|
Cash flow from
operating activities
|
|
274,438
|
|
(1,522,159)
|
|
|
11,666,869
|
|
(2,512,242)
|
Capital
expenditures
|
|
4,894,550
|
|
6,419,621
|
|
|
11,949,471
|
|
23,248,021
|
Net debt
(2)
|
|
|
|
|
|
|
(34,179,493)
|
|
(28,558,039)
|
Shareholder's
equity (end of period)
|
|
|
|
|
|
|
18,313,713
|
|
24,579,552
|
Shares
outstanding (end of period)
|
|
|
|
|
|
|
6,013,965
|
|
5,538,674
|
Weighted-average basic shares
|
|
6,013,965
|
|
5,538,674
|
|
|
5,979,869
|
|
5,538,674
|
outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
(6)
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
|
|
|
|
|
|
|
Natural
gas (Mcf/d)
|
|
-
|
|
12
|
|
|
-
|
|
30
|
Natural
gas liquids (NGL) (bbls/d)
|
|
-
|
|
-
|
|
|
-
|
|
-
|
Crude
oil (bbls/d)
|
|
1,515
|
|
1,117
|
|
|
1,493
|
|
1,120
|
Total
(boe/d)
|
|
1,515
|
|
1,119
|
|
|
1,493
|
|
1,125
|
Average
realized prices (3)
|
|
|
|
|
|
|
|
|
|
Natural
gas (per Mcf) (5)
|
|
-
|
|
2.01
|
|
|
-
|
|
1.35
|
NGL (per
bbl) (5)
|
|
-
|
|
72.00
|
|
|
-
|
|
71.29
|
Crude
Oil (per bbl)
|
|
56.74
|
|
30.27
|
|
|
61.17
|
|
61.06
|
Operating
netback (per BOE) (4)
|
|
10.88
|
|
(3.38)
|
|
|
18.28
|
|
7.21
|
|
|
|
|
|
|
|
|
|
|
Wells
drilled:
|
|
|
|
|
|
|
|
|
|
Gross
|
|
4.0
|
|
4.0
|
|
|
10.0
|
|
6.0
|
Net
|
|
2.0
|
|
2.0
|
|
|
5.0
|
|
3.5
|
Success
(%)
|
|
100
|
|
100
|
|
|
100
|
|
100
|
|
|
|
|
|
|
|
|
|
|
(1)
Includes gains and losses on commodity contracts
|
(2) Net
debt consists of bank debt and working capital surplus (deficit)
excluding commodity
|
contract
assets and/or liabilities and commodity contract premium
payable.
|
(3)
Before hedging.
|
(4) See
"Non-GAAP measures".
|
(5) Natural gas
and NGL production and revenues are immaterial to the
Company.
|
(6) For a
description of the boe conversion ratio, see "Basis of Barrel of
Oil Equivalent".
|
2019 Fourth Quarter Overview
Highwood's fourth quarter results were highlighted by revenues
(excluding commodity contracts) of $9.6
million, an increase of $4.5
million from the same period in 2018 where the Corporation
saw historically high pricing differentials in Western
Canada. Netbacks in the fourth quarter of 2019 averaged
$10.88/bbl compared to a loss of
$3.38/bbl in the fourth quarter of
2018. Fourth quarter 2019 netbacks would have been higher
without the $0.7 million of workover
expenses Highwood incurred to bring Red
Earth production back online. Highwood recognized
$1.2 million of pipeline revenues
during the fourth quarter, consistent with the $1.3 million of revenue recognized in the same
quarter of 2018.
2019 Fourth Quarter Operations
Highwood successfully drilled 5 wells (2.5 net) in the
Clearwater play at Nipisi during
the fourth quarter of 2019. The drilling activity included
delineation of the Corporation's 32,000 acre gross Nipisi land
position, further validating Nipisi drilling inventory.
Including 5 gross wells (2.5 net) drilled in January &
February 2020, the Corporation has
drilled 19 gross wells (9.5 net) in the Clearwater play since it started the
Clearwater program in the fourth
quarter of 2018. Total capital spend in the fourth quarter of
2019 was $4.9 million compared to
$6.4 million in the fourth quarter of
2018 where the Corporation drilled 4 gross (2 net) wells in the
Clearwater play. Of the
$4.9 million expenditure,
$4.5 million was development capital
with $3.6 million spent on the
drilling & completion of Clearwater wells and $0.9 million spent on the expansion of the
Corporation's multi-well oil battery in Nipisi.
The Corporation continually reviews and revises its technical
approach to drilling in the Clearwater and has shortened well cycle times
and decreased costs as the program has evolved. The
Corporation continues to have its land position delineated by
offset operators who are also showing success with secondary
recovery method pilot projects. The Corporation is currently
undergoing a waterflood study project at Nipisi which would help to
increase ultimate recovery factors if a producing well bore was
switched to an injection well.
Outlook
The Corporation has ceased 2020 non-discretionary capital as a
result of the Covid-19 Pandemic and the current price collapse seen
in Western Canada and around the
world. The Corporation has also undertaken corporate cost
saving initiatives including reducing salaries and non-essential
services to help protect its balance sheet in this suppressed
market.
The Corporation remains excited about the drilling inventory it
currently has in its portfolio for when pricing shows a
significant, sustained recovery. The Clearwater oil resource play continues to
deliver positive delineation results which underpin an expanding
opportunity set for Highwood to pursue lower risk, highly economic,
oil-weighted growth. Since early 2017, industry has spud more
than 290 wells to delineate and quickly grow the Clearwater play to achieve production in
excess of 25,000 bbl/d. Even within a pricing environment
that has been very suppressed by historical standards, strong well
economics characterized by short cycle times and quick payback
periods supported industry drilling over 130 wells in
2019.
The Corporation has, and will continue to, evaluate acquisition
opportunities in the M&A market, but will remain disciplined to
pursue only those opportunities that are accretive and deleveraging
to its balance sheet. The Corporation intends to build a growing
profile of recurring free funds flow that will provide maximum
flexibility fund growth, debt repayment and / or other strategic
M&A opportunities in a non-dilutive fashion.
Oil and Gas Measures
Readers should see the "Selected Technical Terms" in the
Annual Information Form filed on April 30,
2019 for the definition of certain oil and gas
terms.
Basis of Barrels of Oil Equivalent – This news release
discloses certain production information on a barrels of oil
equivalent ("boe") basis with natural gas converted to barrels of
oil equivalent using a conversion factor of six thousand cubic feet
of gas (Mcf) to one barrel (bbl) of oil (6 Mcf:1 bbl). Condensate
and other NGLs are converted to boe at a ratio of 1 bbl:1 bbl. Boe
may be misleading, particularly if used in isolation. A boe
conversion ratio of 6 Mcf:1 bbl is based roughly on an energy
equivalency conversion method primarily applicable at the burner
tip and does not represent a value equivalency at sales point.
Although the 6:1 conversion ratio is an industry-accepted norm, it
is not reflective of price or market value differentials between
product types. Based on current commodity prices, the value ratio
between crude oil, NGLs and natural gas is significantly different
from the 6:1 energy equivalency ratio. Accordingly, using a
conversion ratio of 6 Mcf:1 bbl may be misleading as an indication
of value.
Mcfe Conversions: Thousands of cubic feet of gas equivalent
("Mcfe") amounts have been calculated by using the conversion ratio
of one barrel of oil (1 bbl) to six thousand cubic feet (6 Mcf) of
natural gas. Mcfe amounts may be misleading, particularly if used
in isolation. A conversion ratio of 1 bbl to 6 Mcf is based on an
energy equivalency conversion method primarily applicable at the
burner tip and does not represent a value equivalency at the
wellhead. Given that the value ratio based on the current price of
natural gas as compared to oil is significantly different from the
energy equivalent of 1:6, utilizing a conversion on a 1:6 basis may
be misleading as an indication of value.
Non-GAAP Measures
"Netback" is a non-GAAP financial measure and is calculated
as revenues net of royalties, less transportation and processing
charges and operating expenses and then divided by BOE or Mcf
sold.
Other Warnings
The Exchange has in no way passed upon the merits of the
proposed transaction and has neither approved nor disapproved the
contents of this press release.
Neither the TSX Venture Exchange nor its Regulation Services
Provider (as that term is defined in the policies of the Exchange)
accepts responsibility for the adequacy or accuracy of this press
release.
This news release contains forward-looking statements
relating to the future operations of the Corporation and other
statements that are not historical facts. Forward-looking
statements are often identified by terms such as "will", "may",
"should", "anticipate", "expects" and similar expressions. All
statements other than statements of historical fact, included in
this release, including, without limitation, statements regarding
the future plans and objectives of the Corporation, are
forward-looking statements that involve risks and uncertainties.
There can be no assurance that such statements will prove to be
accurate and actual results and future events could differ
materially from those anticipated in such statements. Important
factors that could cause actual results to differ materially from
the Corporation's expectations include risks detailed from time to
time in the filings made by the Corporation with securities
regulations.
The reader is cautioned that assumptions used in the
preparation of any forward-looking information may prove to be
incorrect. Events or circumstances may cause actual results to
differ materially from those predicted, as a result of numerous
known and unknown risks, uncertainties, and other factors, many of
which are beyond the control of the Corporation. The reader
is cautioned not to place undue reliance on any forward-looking
information. Such information, although considered reasonable by
management at the time of preparation, may prove to be incorrect
and actual results may differ materially from those anticipated.
Forward-looking statements contained in this news release are
expressly qualified by this cautionary statement. The
forward-looking statements contained in this news release are made
as of the date of this news release and the Corporation will update
or revise publicly any of the included forward-looking statements
as expressly required by Canadian securities law.
SOURCE Highwood Oil Company Ltd.