/NOT FOR DISSEMINATION IN THE U.S. OR THROUGH
U.S. NEWSWIRES/
CALGARY,
AB, Nov. 14, 2024 /CNW/ - Highwood Asset
Management Ltd. ("Highwood" or the "Company") (TSXV:
HAM) is pleased to announce financial and operating results for the
three and nine months ended September 30,
2024. The Company also announces that its unaudited
financial statements and associated Management's Discussion and
Analysis ("MD&A") for the period ended September 30, 2024, are available on Highwood's
website at www.highwoodmgmt.com and on SEDAR+ at
www.sedarplus.ca.
Highlights
- Achieved average corporate production of 5,673 boe/d in Q3
2024, representing an increase of approximately 134% from the
comparative period last year (average of 2,425 boe/d) as a result
of successful drilling programs in both the first and third quarter
of 2024. Corporate production is currently exceeding 6,300
boe/d.
- For the third quarter of 2024, Highwood delivered Adjusted
EBITDA of $20.3 million ($1.34 per share) and adjusted funds flow of
$17.93 million ($1.18 per share), representing increases of
$12.7 million (168%) and $11.9 million (199%), respectively, over the
comparative three month period in 2023. Highwood is pleased to
report Run Rate Net Debt / annualized Adjusted EBITDA of
approximately 1.0x.(1)
- As a result of a successful third quarter drilling program that
delivered significant PDP reserves growth, the Company's borrowing
base has been increased from $110
million to $120 million.
- The Company incurred capital expenditures of approximately
$20.7 million in the third quarter of
2024, with the majority of costs related to five gross (4.98 net)
wells drilled — three wells in Brazeau (one booked and two
unbooked) and two wells in Wilson
Creek (one booked and one unbooked).
- In the first quarter of 2025, Highwood plans to begin
development on its potential new core area targeting the
Mannville stack, by drilling two
unbooked multi-lateral open hole ("MLOH") wells. The
Company acquired these Eastern
Alberta lands primarily through Crown land sales in
2024.
- On October 1, 2024, Highwood made
its first scheduled payment of $3.5
million plus accrued interest with respect to the promissory
note that was issued in connection with the acquisition of Boulder
Energy Ltd.
- Highwood reiterates its guidance of a 2024 capital plan of
$60–65 million, 2024 average & exit production guidance of
5,500–5,700 boe/d (+8% increase at midpoint) and 6,400–6,500 boe/d
(+19% increase at midpoint), respectively, and depending on timing
of capital in late December a target 2024 Net Debt / 2024 Exit
EBITDA ratio of 0.8-0.9x. Over the 12-month period ending
December 31, 2024, Highwood expects
to grow production per share by over +50% (from prior forecasted
growth of 25%).(1)(2)
Notes to
Highlights:
|
(1)
|
See "Caution Respecting Reserves Information" and
"Non-GAAP and other Specified Financial
Measures".
|
(2)
|
Based on Management's projections (not Independent
Qualified Reserves Evaluators' forecasts) and applying the
following pricing assumptions: WTI: US$70.00/bbl; WCS
Diff: US$14.00/bbl; MSW Diff: US$3.75/bbl; AECO: C$2.00/GJ; 0.73
CAD/USD. Management projections are used in place of Independent
Qualified Reserves Evaluators' forecasts as Management believes
it provides investors with valuable information concerning the
liquidity of the Company.
|
Summary of Financial & Operating Results
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2024
|
2023
|
%
|
|
2024
|
2023
|
%
|
Financial
(expressed in thousands)
|
|
|
|
|
|
|
|
Petroleum and
natural gas sales
|
$
34,201
|
$ 15,894
|
115
|
|
$
102,019
|
$
17,580
|
480
|
Transportation
pipeline revenues
|
662
|
774
|
(14)
|
|
2,049
|
2,203
|
(7)
|
Total revenues,
net of royalties (1)
|
38,054
|
8,870
|
329
|
|
88,331
|
12,121
|
629
|
Income
(loss)
|
16,105
|
(1,014)
|
1,688
|
|
26,036
|
(1,641)
|
1,687
|
Funds flow from
operating activities (5)
|
17,795
|
5,916
|
201
|
|
52,343
|
6,060
|
764
|
Adjusted EBITDA
(5)
|
20,252
|
7,544
|
168
|
|
60,149
|
7,713
|
680
|
Capital
expenditures
|
20,748
|
2,917
|
611
|
|
55,452
|
4,030
|
1,276
|
Net debt
(2)
|
|
|
|
|
102,080
|
89,696
|
14
|
Shareholder's
equity (end of period)
|
|
|
|
|
130,285
|
56,676
|
130
|
Shares
outstanding (end of period) (6)
|
|
|
|
|
14,784
|
7,955
|
86
|
Weighted-average
basic shares outstanding
|
|
|
|
|
14,871
|
7,955
|
87
|
|
|
|
|
|
|
|
|
Operations
(3)
|
|
|
|
|
|
|
|
Production
|
|
|
|
|
|
|
|
Crude oil
(bbls/d)
|
3,607
|
1,359
|
165
|
|
3,560
|
530
|
572
|
NGLs
(boe/d)
|
701
|
305
|
130
|
|
744
|
103
|
100
|
Natural
gas (mcf/d)
|
8,194
|
4,565
|
79
|
|
8,486
|
1,613
|
100
|
Total
(boe/d)
|
5,673
|
2,425
|
134
|
|
5,718
|
889
|
543
|
Average realized
prices (4)
|
|
|
|
|
|
|
|
Crude oil
(Cdn$/bbl)
|
94.91
|
109.07
|
(13)
|
|
94.57
|
105.87
|
(11)
|
NGL
(Cdn$/boe)
|
33.48
|
39.75
|
(16)
|
|
32.55
|
39.75
|
(18)
|
Natural
gas (Cdn$/mcf)
|
0.73
|
2.59
|
(72)
|
|
1.35
|
2.59
|
(48)
|
Operating netback (per
BOE) (7)
|
37.82
|
41.01
|
(8)
|
|
38.90
|
40.29
|
(3)
|
(1)
|
Includes realized and
unrealized gain and losses on commodity contracts.
|
(2)
|
Net debt consists of
bank debt, promissory note, long-term accounts payable and accrued
liabilities and working capital surplus (deficit) excluding
commodity contract assets and/or liabilities, current portion of
decommissioning liabilities and lease liabilities.
|
(3)
|
For a description of
the boe conversion ratio, see "Caution Respecting Reserves
Information — Basis of Barrel of Oil
Equivalent".
|
(4)
|
Before
hedging.
|
(5)
|
See "Non-GAAP and
Other Specified Financial Measures".
|
(6)
|
Shares outstanding is
adjusted for treasury shares purchased and held in
trust.
|
Operational Update
With continued strong commodity prices in the nine months ended
September 30, 2024, the Company
focused primarily on the execution of its capital program. During
this period, the Company executed a successful $46 million development capital program which
included ten additional wells, of which five were brought online in
the first quarter and the remainder in the third quarter and early
fourth quarter of 2024. These ten wells consisted of five fracture
stimulated wells at Wilson Creek
(four booked and one unbooked), two fracture stimulated wells at
Brazeau (one booked and one unbooked) and three MLOH wells,
two wells in Brazeau (one booked and one unbooked) and one
booked well in Viking Kinsella.
In the fourth quarter of 2024, Highwood anticipates drilling one
unbooked gross (0.5 net) well and targeting four recompletions.
Outlook
The primary focus over the near-term is the completion of the
Company's 2024 capital program and growth strategy while reducing
the Company's leverage. At September 30,
2024, Highwood had over $300
million in tax pools, including more than $100 million in non-capital losses. Highwood does
not anticipate being cash taxable for approximately three
years.
Highwood is continuing to evaluate its undeveloped lands for
drilling opportunities and is planning to continue its active
capital program while commodity prices remain strong.
Corporately, the Company is dedicated to growing Free Cash Flow,
on a per share basis, while using prudent leverage to provide
maximum flexibility for organic growth and/or other strategic
M&A opportunities, with a longer-term goal to provide
significant return of capital to shareholders. The Company will
also continue to assess land offerings in strategic areas where the
Company sees significant growth opportunities.
2025 Guidance
Highwood is pleased to announce 2025 guidance which is focused
on debt reduction of approximately 15–20% to enable financial
flexibility for acquisitions, shareholder returns and acceleration
of capital. The 2025 guidance also reflects year-over-year
production growth of approximately 12.5% at midpoint and a free
cash flow yield of approximately 15–20% based on Highwood's current
share price. Highwood's top priority remains share price
appreciation and the Company appreciates all of the support from
its shareholders.
Operating and
Financial Metrics
|
|
2025
Guidance
|
|
|
Production
|
|
6.2–6.4
Mboe/d
|
|
Liquids
|
|
75–78%
|
|
Adjusted
EBITDA(1)(2)
|
|
$88–92
million
|
|
Capital
Expenditures(1)
|
|
$60–65
million
|
|
Operating Netback (per
boe)(3)
|
|
$36–38.00
|
|
Net Debt / 2025 Exit
EBIDTA(2)
|
|
~0.8x
|
|
(1)
|
Based on Management's
projections (not Independent Qualified Reserves Evaluators'
forecasts) and applying the pricing assumptions noted below.
Management projections are used in place of Independent Qualified
Reserves Evaluators' forecasts as Management believes it
provides investors with valuable information concerning the
liquidity of the Company.
|
|
• 2025
Guidance: WTI: US$70.00/bbl; WCS Diff: US$14.00/bbl; MSW Diff:
US$3.50/bbl; AECO: C$2.00/GJ; 0.73 CAD/USD.
|
(2)
|
See "Non-GAAP and other
Specified Financial Measures" and "Cautionary Note Regarding
Forward-Looking Information".
|
(3)
|
See "Caution Respecting
Reserves Information" and "Cautionary Note Regarding
Forward-Looking Information".
|
ADVISORIES
Forward-Looking Information
Certain information contained in the press release may
constitute forward-looking statements and information
(collectively, "forward-looking statements") within the meaning of
applicable securities legislation that involve known and unknown
risks, assumptions, uncertainties and other factors.
Forward-looking statements may be identified by words like
"anticipates", "estimates", "expects", "indicates", "intends",
"may", "could" "should", "would", "plans", "target", "scheduled",
"projects", "outlook", "proposed", "potential", "will", "seek" and
similar expressions. Forward-looking statements in this press
release include statements regarding, among other things:
development of Highwood's potential new core area in Eastern Alberta targeting the Mannville stack; Highwood's 2024 guidance
(including: 2024 capital plan of $60–65 million, 2024
average & exit production of 5,500–5,700 boe/d and 6,400–6,500
boe/d, respectively; depending on timing of capital in late
December, a target 2024 Net Debt / 2024 Exit EBITDA ratio of
0.8–0.9x; and over the 12-month period ending December 31, 2024, growing production per share
by over 50%); in the fourth quarter of 2024, drilling one unbooked
gross (0.5 net) well and targeting four recompletions; plans to
continue the Company's active capital program while commodity
prices remain strong; Highwood's 2025 guidance
(including debt reduction of approximately 15–20%;
production of 6.2–6.4 Mboe/d (Liquids 75–78%); Adjusted
EBITDA of $88–92 million; capital expenditures of $60–65 million;
operating netback (per boe) of $36–38.00; and Net Debt / 2025
Exit EBIDTA of ~0.8x); Highwood's business, strategy, objectives,
strengths and focus; the Company's drilling plans and expectations;
and the performance and other characteristics of the Company's
properties and expected results from its assets. Such statements
reflect the current views of management of the Company with respect
to future events and are subject to certain risks, uncertainties
and assumptions that could cause results to differ materially from
those expressed in the forward-looking statements. With respect to
forward-looking statements contained in this press release, the
Company has made assumptions regarding, among other things: that
commodity prices will be consistent with the current forecasts of
its engineers; field netbacks; the accuracy of reserves estimates;
average production rates; costs to drill, complete and tie-in
wells; ultimate recovery of reserves; that royalty regimes will
not be subject to material modification; future exchange and
interest rates; supply of and demand for commodities; inflation;
the availability of capital on satisfactory terms; the availability
and price of labour and materials; the impact of increasing
competition; conditions in general economic and financial markets;
that the Company will be able to access capital, including debt, on
acceptable terms; the receipt and timing of regulatory, exchange
and other required approvals; the ability of the Company to
implement its business strategies and complete future acquisitions;
the Company's long term business strategy; and effects of
regulation by governmental agencies.
Factors that could cause actual results to vary from
forward-looking statements or may affect the operations,
performance, development and results of the Company's businesses
include, among other things: assumptions concerning operational
reliability; risks inherent in the Company's future operations; the
Company's ability to generate sufficient cash flow from operations
to meet its future obligations; increases in maintenance, operating
or financing costs; the realization of the anticipated benefits of
future acquisitions, if any; the availability and price of labour,
equipment and materials; competitive factors, including competition
from third parties in the areas in which the Company intends to
operate, pricing pressures and supply and demand in the oil and gas
industry; fluctuations in currency and interest rates; inflation;
risks of war, hostilities, civil insurrection, pandemics, political
and economic instability overseas and its effect on commodity
pricing and the oil and gas industry (including ongoing military
actions between Russia and
Ukraine and the crisis in
Israel and Gaza); severe weather conditions and risks
related to climate change, such as fire, drought and flooding;
terrorist threats; risks associated with technology; changes in
laws and regulations, including environmental, regulatory and
taxation laws, and the interpretation of such changes to the
management team's future business; availability of adequate levels
of insurance; difficulty in obtaining necessary regulatory
approvals and the maintenance of such approvals; general economic
and business conditions and markets; and such other similar risks
and uncertainties. The impact of any one assumption, risk,
uncertainty or other factor on a forward-looking statement cannot
be determined with certainty, as these are interdependent and the
Company's future course of action depends on the assessment of all
information available at the relevant time. For additional risk
factors relating to Highwood, please refer to the Company's annual
information form and management discussion and analysis for the
year ended December 31, 2023, as well
as the Company's management discussion and analysis for the period
ended June 30, 2024, which are
available on the Company's SEDAR+ profile at
www.sedarplus.ca. The forward-looking statements
contained in this press release are made as of the date
hereof and the parties do not undertake any obligation to update 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.
Short Term Results. References in this press
release to production test rates, initial test production rates,
7-day initial production rates, 30-day initial production rates and
other short-term production rates that 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. While encouraging, readers are cautioned
not to place reliance on such rates in calculating the aggregate
production for Highwood. A pressure transient analysis or well-test
interpretation has not been carried out in respect of all wells.
Accordingly, the Company cautions that the test results should be
considered to be preliminary.
FOFI Disclosure. This press release contains
future-oriented financial information and financial outlook
information (collectively, "FOFI") about Highwood's
prospective results of operations and production, and components
thereof, all of which are subject to the same assumptions, risk
factors, limitations and qualifications as set forth in the above
paragraphs. FOFI contained in this press release was made as of the
date of this press release and was provided for the purpose of
providing further information about Highwood's anticipated future
business operations. The Company disclaims any intention or
obligation to update or revise any FOFI contained in this press
release, 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 press release should not
be used for purposes other than for which it is disclosed herein.
All FOFI contained in this press release complies with the
requirements of Canadian securities legislation, including Canadian
Securities Administrators' National Instrument 51-101 – Standards
of Disclosure for Oil and Gas Activities. Changes in forecast
commodity prices, differences in the timing of capital expenditures
and variances in average production estimates can have a
significant impact on the key performance metrics included in the
Company's guidance for the full year 2024 and full year 2025
contained in this news release. The Company's actual results may
differ materially from such estimates.
Currency. All amounts in this press release are
stated in Canadian dollars unless otherwise specified.
Abbreviations.
|
API
|
American Petroleum
Institute
|
m3
|
metres cubed
|
|
gravity
|
bbl
|
barrels of
oil
|
mbbl
|
thousand barrels
of oil
|
bbl/d
|
barrels of oil per
day
|
mcf/d
|
thousand cubic
feet per day
|
m
|
metres
|
boe/d
|
boe per day
|
boe
|
barrels of oil
equivalent
|
Neither the TSXV nor its Regulation Services Provider (as
that term is defined in the policies of the TSXV) accepts
responsibility for the adequacy or accuracy of this press
release.
Caution Respecting Reserves Information
Readers should see the "Selected Technical Terms" in the
Company's Annual Information Form dated April 16, 2024 that is available on
the Company's SEDAR+ profile at
www.sedarplus.ca for the definition of certain oil
and gas terms.
Disclosure in this news release of oil and gas information is
presented in accordance with generally accepted industry practices
in Canada and National Instrument
51-101 — Standards of Disclosure for Oil and Gas Activities ("NI
51-101"). Specifically, other than as noted herein, the oil and
gas information regarding the Company presented in this news
release is based on the report prepared by GLJ Ltd., independent
petroleum consultants of Calgary,
Alberta and dated March 8, 2024
evaluating the light and medium crude oil, conventional natural
gas, shale gas, and natural gas liquids reserves attributable to
Highwood's properties at December 31,
2023 (the "Reserves Report").
Reserves are classified according to the degree of certainty
associated with the estimates as follows:
"Proved reserves" or "1P" are those reserves that can be
estimated with a high degree of certainty to be recoverable. It is
likely that the actual remaining quantities recovered will exceed
the estimated proved reserves.
"Probable reserves" are those additional reserves that are
less certain to be recovered than proved reserves.
"Proved plus probable reserves" or "2P" is the total of
proved reserves and probable reserves. It is equally likely that
the actual remaining quantities recovered will be greater or less
than the sum of the estimated proved plus probable
reserves.
"Proved Developed Producing" or "PDP" reserves are those
reserves that are expected to be recovered from completion
intervals open at the time of the estimate. These reserves may be
currently producing or, if shut in, they must have previously been
on production, and the date of resumption of production must be
known with reasonable certainty.
This news release discloses potential future drilling
locations in two categories: (a) booked locations; and (b) unbooked
locations. Booked locations are proposed drilling locations
identified in the Reserves Report that have proved and/or probable
reserves, as applicable, attributed to them in the Reserves Report.
Unbooked locations are internal estimates based on prospective
acreage and an assumption as to the number of wells that can be
drilled per section based on industry practice and internal
technical analysis review. Unbooked locations have been identified
by members of management who are qualified reserves evaluators in
accordance with NI 51-101 based on evaluation of applicable
geologic, seismic, engineering, production and reserves
information. Unbooked locations do not have proved or probable
reserves attributed to them in the Reserves Report. Highwood's
ability to drill and develop these locations and the drilling
locations on which Highwood actually drills wells depends on a
number of known and unknown risks and uncertainties. As a result of
these risks and uncertainties, there can be no assurance that the
potential future drilling locations identified in this news release
will ever be drilled or if Highwood will be able to produce crude
oil, natural gas and natural gas liquids from these or any other
potential drilling locations.
Basis of Barrels of Oil Equivalent – In this news release,
the abbreviation boe means a barrel of oil equivalent on the basis
of 1 boe to 6 Mcf of natural gas when converting natural gas to
boes. Boes may be misleading, particularly if used in isolation. A
boe conversion ratio of 6 Mcf to 1 boe 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 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 at
6:1 may be misleading.
References to "liquids" in this news release refer to,
collectively, heavy crude oil, light crude oil and medium crude oil
combined, and natural gas liquids.
Non-GAAP and other Specified Financial Measures
This news release contains financial measures commonly used
in the oil and natural gas industry, including "Net Debt" and "Net
Debt / 2025 Exit EBITDA". These financial measures do not have any
standardized meaning under IFRS and therefore may not be
comparable to similar measures presented by other companies.
Readers are cautioned that these non-IFRS measure should not be
construed as an alternative to other measures of financial
performance calculated in accordance with IFRS. These non-IFRS
measures provides additional information that Management believes
is meaningful in describing the Company's operational
performance, liquidity and capacity to fund capital expenditures
and other activities. Management believes that the presentation
of these non-IFRS measures provide useful information to investors
and shareholders as the measures provide increased transparency
and the ability to better analyze performance against prior
periods on a comparable basis.
"Adjusted EBITDA" is calculated as cash flow from (used in)
operating activities, adding back changes in non-cash working
capital, decommissioning obligation expenditures, transaction
costs and interest expense. The Company considers Adjusted EBITDA
to be a key capital management measure as it is both used within
certain financial covenants anticipated to be prescribed under
its credit facilities and demonstrates Highwood's standalone
profitability, operating and financial performance in terms of
cash flow generation, adjusting for interest related to its capital
structure. The most directly comparable GAAP measure is cash flow
from (used in) operating activities.
"Adjusted funds flow" The Company considers adjusted
funds flow to be a key capital management measure as it
demonstrates the Company's ability to generate required funds to
manage production levels and fund future capital investment. The
Company calculates adjusted funds flow as adjusted EBITDA less net
interest and adjusting for decommissioning expenditures
incurred.
"EBITDA" is a non-GAAP financial measure and may not be
comparable with similar measures presented by other companies.
EBITDA is used as an alternative measure of profitability
and attempts to represent the cash profit generated by the
Company's operations. The most directly comparable GAAP measure is
cash flow from (used in) operating activities. EBITDA is calculated
as cash flow from (used in) operating activities, adding back
changes in non-cash working capital, decommissioning obligation
expenditures and interest expense.
"2024 Exit EBITDA" is is calculated as
Adjusted EBITDA for the month of December annualized. The Company
believes that 2024 Exit EBITDA is useful information to investors
and shareholders in understanding the EBITDA generated in the
final month of 2024 which is indicative of future EBITDA.
"Free Cash Flow" is is used as an indicator of the
efficiency and liquidity of the Company's business, measuring its
funds after capital expenditures available to manage debt levels,
pursue acquisitions and assess the optionality to pay dividends
and/or return capital to shareholders though activities such as
share repurchases. The most directly comparable GAAP measure is
cash flow from (used in) operating activities. Free Cash Flow is
calculated as cash flow from (used in) operating activities, less
interest, office lease expenses, cash taxes and capital
expenditures.
"funds flow from operations" is calculated as cash flow from
(used in) operating activities before changes in working capital
and long term accounts payable.
"Net Debt" represents the carrying value of the Company's
debt instruments, including outstanding deferred acquisition
payments, net of Adjusted working capital. The Company uses Net
Debt as an alternative to total outstanding debt as Management
believes it provides a more accurate measure in assessing the
liquidity of the Company. The Company believes that Net Debt can
provide useful information to investors and shareholders in
understanding the overall liquidity of the Company.
"Net Debt / 2025 Exit EBIDTA" is is calculated
as net debt at the ending period of each financial quarter divided
by the 2025 Exit EBITDA. The Company believes that Net Debt / 2025
Exit EBITDA is useful information to investors and shareholders
in understanding the time frame, in years, it would take to
eliminate Net Debt based on 2025 Exit EBITDA.
"2024 Net Debt / 2024 Exit EBITDA" is calculated as net debt
at the ending period of the financial quarter ended December 31, 2024 divided by the anticipated 2024
Exit EBITDA. The Company believes that 2024 Net Debt / 2024 Exit
EBITDA is useful information to investors and shareholders in
understanding the time frame, in years, it would take to eliminate
Net Debt based on 2024 Exit EBITDA.
"Run Rate Net Debt / annualized Adjusted EBITDA"
is is calculated as net debt at the end of the
October 2024 divided by the estimated
October 2024 Adjusted EBITDA. The
Company believes that Run Rate Net Debt / annualized adjusted
EBITDA is useful information to investors and shareholders in
understanding the time frame, in years, it would take to eliminate
Net Debt based on October 2024 (being
the most recent completed month) Adjusted EBITDA.
SOURCE HIGHWOOD ASSET MANAGEMENT LTD.