TIDMSOUC
RNS Number : 7623J
Southern Energy Corp.
18 August 2023
SOUTHERN ENERGY CORP. ANNOUNCES SECOND QUARTER 2023 FINANCIAL
RESULTS AND PROVIDES GWINVILLE OPERATIONAL UPDATE
Calgary, Alberta - August 18, 2023 - Southern Energy Corp.
("Southern" or the "Company") (TSXV:SOU) (AIM:SOUC)(OTCQX:SOUTF),
an established producer with natural gas and light oil assets in
Mississippi, announces its second quarter financial and operating
results for the three and six months ended June 30, 2023. Selected
financial and operational information is outlined below and should
be read in conjunction with the Company's unaudited consolidated
financial statements (the "Financial Statements") and related
management's discussion and analysis (the "MD&A") for the three
and six months ended June 30, 2023, which are available on the
Company's website at www.southernenergycorp.com and have been filed
under the Company's profile on SEDAR+ at www.sedarplus.ca.
All figures referred to in this news release are denominated in
U.S. dollars, unless otherwise noted.
SECOND QUARTER 2023 HIGHLIGHTS
-- Generated $0.2 million of adjusted funds flow from
operations[1] in Q2 2023, excluding $0.5 million of one-time
transaction costs and general and administrative costs
-- Net loss of $3.8 million in Q2 2023 ($0.03 net loss per share
basic and diluted), compared to net earnings of $2.8 million in Q2
2022
-- Petroleum and natural gas sales of $3.7 million in Q2 2023
and $8.9 million for the six months ended June 30, 2023
-- On June 1, 2023, Southern completed a strategic and highly
synergistic acquisition in Gwinville of approximately 400 boe/d
(99% natural gas) for cash consideration of $3.2 million (the
"Gwinville Acquisition")
-- Q2 2023 average production of 15,907[2] Mcfe/d (2,651 boe/d)
(96% natural gas), an increase of 12% from Q2 2022. Current field
sales production is approximately 2,900 boe/d (96% natural gas),
with four new horizontal wellbores awaiting completion operations.
Once Southern commits to completing these two padsites, it is
expected that all four wells could be on production within
approximately eight weeks
-- Average realized natural gas and oil prices for Q2 2023 of
$2.18/Mcf and $72.83/bbl compared to $7.53/Mcf and $109.01/bbl in
Q2 2022. The current NYMEX strip price forecast for the remainder
of 2023 is averaging approximately $3.10/MMBtu, a 47% increase
compared to the benchmark price in Q2 2023
Ian Atkinson, President and Chief Executive Officer of Southern,
commented:
"Our focus for Q2 2023 was primarily on completing and
integrating the Gwinville Acquisition. We have started and will
continue, to maximize operational synergies of the assets, as well
as position the Company for the return to growth as commodity
prices continue to improve. In addition to considerable synergistic
value and high-quality drilling inventory, the Gwinville
Acquisition provides Southern with access to sell gas into the
Florida Gas Transmission system where, similar to Transco Zone 4,
we are realizing continuous premium pricing to the NYMEX natural
gas price. As the warm summer temperatures in the southern U.S.
have elevated natural gas power demand and we now head into a
period of slowing production growth due to lack of capital spending
by the industry and incremental demand from additional LNG export
capacity, we are encouraged by the outlook of supply and demand
dynamics for U.S. natural gas. Southern is well positioned to
capitalize on natural gas prices with production behind pipe which
can be brought on stream in a short time frame.
We remain committed to reaching our goal of 25,000 boe/d and
continue to assess opportunities to grow inorganically further
building shareholder value as commodity prices continue to recover
to a point where we plan to re-launch our organic growth
program."
Financial Highlights
Three months ended June 30, Six months ended June 30,
(000s, except $ per share) 2023 2022 2023 2022
------------------------------------------------- ----------- ------------------- ---------------- ---------------
Petroleum and natural gas sales $ 3,741 $ 10,311 $ 8,930 $ 16,236
Net (loss) earnings (3,767) 2,838 (4,887) 983
Net (loss) earnings per share
Basic (0.03) 0.03 (0.04) 0.01
Fully diluted (0.03) 0.03 (0.04) 0.01
Adjusted funds flow from operations (1) (366) 3,590 1,379 5,824
Adjusted funds flow from operations per share
(1)
Basic (0.00) 0.04 0.01 0.07
Fully diluted (0.00) 0.04 0.01 0.06
Capital expenditures and acquisitions 5,292 10,104 40,184 16,976
Weighted average shares outstanding
Basic 139,039 83,302 138,816 80,742
Fully diluted 139,039 101,011 138,816 91,796
As at period end
Basic common shares outstanding 139,041 89,537 139,041 89,537
Total assets 104,075 58,347 104,075 58,347
Non-current liabilities 20,961 10,013 20,961 10,013
Net debt (1) $ (26,158) $ (12,814) $ (26,158) $ (12,814)
------------------------------------------------- ----------- ------------------- ---------------- ---------------
Note:
(1) See "Reader Advisories - Specified Financial Measures".
Gwinville Development Update
As previously reported in the Company's announcement on May 30,
2023, the Company concluded operations on the latest drilling
campaign which included seven new horizontal wells into three
separate productive horizons from three distinct padsites in the
Gwinville Field. The program added three Upper Selma Chalk wells,
two Lower Selma Chalk wells and two City Bank wells. The drilling
campaign was initially planned for 13 horizontal wells, but the
Company paused the capital program in response to the weaker
natural gas pricing that has persisted throughout Q2 2023. Of the
seven wells that were drilled, only the three wells from the 18-10
padsite were completed with the other four wells (two on the 14-06
pad and two on the 13-13 pad) remaining as uncompleted, waiting on
more supportive natural gas prices.
The four wells that are awaiting completion include the first
two Lower Selma Chalk laterals, along with the second City Bank
lateral and one of the Upper Selma Chalk laterals. These four wells
are some of Southern's longest laterals to-date. They were drilled
with an average lateral length of approximately 5,400 ft and were
steered within the high-graded intervals for an average of 95% of
the wellbore length. The two padsites can be brought on production
within a matter of weeks once completion operations are resumed. At
current strip pricing, Southern will consider commencing completion
operations in Q4 2023.
The Company continues to flow back its first City Bank
horizontal well at Gwinville 18-10 #1, with load fluid recovery of
approximately 20%. The well was brought on-line in late February
2023 with gas rates increasing to approximately 600 Mcf/d and
having remained flat for the past few months. The Company believes
that the most plausible explanation for the lower than expected gas
rate is due to fracture communication with an offset well which had
previously been produced from the deeper Tuscaloosa formation from
the 1940'-1960's. It is expected that production will remain flat
and/or increase as more load fluid is recovered and bottom hole
pressure can be decreased, and that the overall recovery from the
well should not be materially impacted. In future operations in
City Bank horizontal wells, Southern will likely choose to create a
buffer zone around the vintage abandoned Tuscaloosa wells by
eliminating proximal frac stages to avoid any potential
communication. The Company is very excited to complete the 13-13
City Bank horizontal well where it does not foresee any of these
potential issues.
Remediation plans for the 18-10 #3 Upper Selma Chalk well that
experienced a mechanical integrity issue with the production casing
during completion operations have been finalized and services
contracted to commence operations in late Q3 2023. The 18-10 #3
well was drilled to a total lateral length of 5,091 ft, achieved
80% of the lateral placed in the targeted porosity zone and was
successfully completed in 44 stages prior to the mechanical
issue.
Gwinville Acquisition Integration
Southern has been very successful in quickly integrating the
acquired assets in Gwinville over the first few months following
closing of the transaction on June 1, 2023. Immediate cost savings
in the form of labour and supervision redundancies, as well as
reduced maintenance contracts have been realized. Southern is
currently in the process of installing the necessary pipeline
infrastructure to consolidate the two gathering systems, allowing
the Company to run one central compressor station versus the five
that were running before the transaction. These synergies will not
only remove costly rental compression and allow us to monetize
spare owned compressors but will also eliminate approximately 250
Mcf/d of fuel gas and associated emissions and add this gas
directly to sales volumes. The Company expects this field work to
be completed by the end of Q3 2023.
The Company plans to workover a number of acquired wellbores
that have significant upside production potential, also expected to
be completed by the end of Q3 2023.
Additionally, marketing arrangements assumed from the previous
operator have given Southern access to the Florida Gas Transmission
Zone #3 that was not previously available. During Q3 2023, Southern
has thus far been able to sell as much as 4,000 MMBtu/d into the
system, which has had an average premium to Henry Hub/NYMEX over
that period of approximately $0.40 - $0.60/MMBtu. The Company will
continue to maximize our exposure to this sales delivery point as
much as possible to optimize our field netbacks.
Outlook
Southern has four high-impact, uncompleted wells ("DUCs") that
can be quickly completed and brought online through Southern's 100%
owned equipment at higher natural gas prices, greatly improving per
Mcfe operating expenses, expected in Q4 2023. This will allow
Southern to react quickly to changing commodity prices to maximize
returns. Additionally, The Company currently has $11.5 million of
unused capacity on its senior secured term loan (the "Credit
Facility"), which can be utilized to complete the DUCs at
supportive natural gas prices.
As part of its risk management and sustainability strategy,
Southern continuously monitors both the price of NYMEX as well as
the basis differentials in order to mitigate some of volatility of
natural gas prices. Southern's current commodity hedge program
includes:
-- Fixed basis swap on 1,000 MMBtu/d at a $0.32/MMBtu premium to
NYMEX from April 1, 2023 to October 31, 2023
-- Fixed price swap on 1,000 MMBtu/d at a price of $3.88/MMBtu
from January 1, 2024 to December 31, 2025
-- Costless collar on 2,000 MMBtu/d with a floor of $3.00/MMBtu
and a ceiling of $3.98/MMBtu from September 1, 2023 through March
31, 2024
Southern will continue to monitor NYMEX prices and the basis
differential prices and is prepared to hedge additional volumes in
a tactical manner going forward.
Southern thanks all of its stakeholders for their ongoing
support and looks forward to providing future updates on
operational activities and continuing to create shareholder
value.
Qualified Person's Statement
Gary McMurren, Chief Operating Officer, who has over 22 years of
relevant experience in the oil industry, has approved the technical
information contained in this announcement. Mr. McMurren is
registered as a Professional Engineer with the Association of
Professional Engineers and Geoscientists of Alberta and received a
Bachelor of Science degree in Chemical Engineering (with
distinction) from the University of Alberta.
For further information about Southern, please visit our website
at www.southernenergycorp.com or contact :
Southern Energy Corp.
Ian Atkinson (President and CEO) +1 587 287 5401
Calvin Yau (CFO) +1 587 287 5402
Strand Hanson Limited - Nominated & Financial
Adviser
James Spinney / James Bellman +44 (0) 20 7409 3494
Canaccord Genuity - Joint Broker
Henry Fitzgerald-O'Connor / James Asensio +44 (0) 20 7523 8000
Stifel Nicolaus Europe Limited - Joint Broker
Callum Stewart / Ashton Clanfield +44 (0) 20 7710 7600
Tennyson Securities - Joint Broker
Peter Krens / Pav Sanghera +44 (0) 20 7186 9033
Camarco
Owen Roberts / Billy Clegg / Hugo Liddy +44 (0) 20 3757 4980
About Southern Energy Corp.
Southern Energy Corp. is a natural gas exploration and
production company characterized by a stable, low-decline
production base, a significant low-risk drilling inventory and
strategic access to premium commodity pricing in North America.
Southern has a primary focus on acquiring and developing
conventional natural gas and light oil resources in the southeast
Gulf States of Mississippi, Louisiana, and East Texas. Our
management team has a long and successful history working together
and have created significant shareholder value through accretive
acquisitions, optimization of existing oil and natural gas fields
and the utilization of re-development strategies utilizing
horizontal drilling and multi-staged fracture completion
techniques.
READER ADVISORY
MCFE Disclosure . Natural gas liquids volumes are recorded in
barrels of oil (bbl) and are converted to a thousand cubic feet
equivalent (Mcfe) using a ratio of six (6) thousand cubic feet to
one (1) barrel of oil (bbl). Natural gas volumes recorded in
thousand cubic feet (Mcf) are converted to barrels of oil
equivalent (boe) using the ratio of six (6) thousand cubic feet to
one (1) barrel of oil (bbl). Mcfe and boe may be misleading,
particularly if used in isolation. A boe conversion ratio of 6
mcf:1 bbl or a Mcfe conversion ratio of 1 bbl:6 Mcf is based in an
energy equivalency conversion method primarily applicable at the
burner tip and does not represent a value equivalency at the
wellhead. In addition, given that the value ratio based on the
current price of oil as compared with natural gas is significantly
different from the energy equivalent of six to one, utilizing a boe
conversion ratio of 6 Mcf:1 bbl or a Mcfe conversion ratio of 1
bbl:6 Mcf may be misleading as an indication of value.
Throughout this press release, "crude oil" or "oil" refers to
light and medium crude oil product types as defined by National
Instrument 51-101 - Standards of Disclosure for Oil and Gas
Activities ("NI 51-101"). References to "NGLs" throughout this
press release comprise pentane, butane, propane, and ethane, being
all NGLs as defined by NI 51-101. References to "natural gas"
throughout this press release refers to conventional natural gas as
defined by NI 51-101.
Unit Cost Calculation. For the purpose of calculating unit
costs, natural gas volumes have been converted to a boe using six
thousand cubic feet equal to one barrel unless otherwise stated. A
boe conversion ratio of 6:1 is based upon an energy equivalency
conversion method primarily applicable at the burner tip and does
not represent a value equivalency at the wellhead. This conversion
conforms with NI 51-101. Boe may be misleading, particularly if
used in isolation.
Abbreviations . Please see below for a list of abbreviations
used in this press release.
bbl barrels
bbl/d barrels per day
boe barrels of oil
boe/d barrels of oil per day
Mcf thousand cubic feet
Mcf/d thousand cubic feet per day
MMcf million cubic feet
MMcf/d million cubic feet per day
Mcfe thousand cubic feet equivalent
Mcfe/d thousand cubic feet equivalent per day
MMBtu million British thermal units
MMBtu/d million British thermal units per day
NYMEX New York Mercantile Exchange
Forward Looking Statements . Certain information included in
this press release constitutes forward-looking information under
applicable securities legislation. Forward-looking information
typically contains statements with words such as "anticipate",
"believe", "expect", "plan", "intend", "estimate", "propose",
"project", "budget", "continue", "evaluate", "forecast", "may",
"will", "can", "target" "potential", "result", "could", "should" or
similar words suggesting future outcomes or statements regarding an
outlook. Forward-looking information in this press release may
include, but is not limited to statements concerning the Company's
asset base including the development of the Company's assets, oil
and natural gas production levels, including the objective of
achieving production of 25,000 boe/d, the Company's capital budget,
expectations regarding material reserves, anticipated operational
results in 2023 including, but not limited to, capital expenditures
and drilling plans, expectations regarding commodity prices, the
performance characteristics of the Company's oil and natural gas
properties, successful integration of the assets acquired through
the Gwinville Acquisition, the Company's hedging strategy, the
ability of the Company to achieve drilling success consistent with
management's expectations, the Company's expectations regarding
completion of wellbores and DUCs and timing thereof, the sources of
funding for the Company's activities, the effect of market
conditions and the COVID-19 pandemic on the Company's performance,
expectations regarding the use of proceeds from all sources,
including the Company's credit facilities, the availability and
renewal of the Credit Facility and future amendments thereto,
future organic and inorganic growth and acquisition opportunities
within the resource market, and costs/debt reducing activities.
Statements relating to "reserves" and "recovery" are also deemed to
be forward- looking statements, as they involve the implied
assessment, based on certain estimates and assumptions, that the
reserves described exist in the quantities predicted or estimated
and that the reserves can be profitably produced in the future.
The forward-looking statements contained in this press release
are based on certain key expectations and assumptions made by
Southern, including, but not limited to, the timing of and success
of future drilling, development and completion activities, the
performance of existing wells, the performance of new wells, the
availability and performance of drilling rigs, facilities and
pipelines, the geological characteristics of Southern's properties,
the characteristics of the Company's assets, including the assets
acquired pursuant to the Gwinville Acquisition, the successful
integration of recently acquired assets into the Company's
operations, the successful application of drilling, completion and
seismic technology, the benefits of current commodity pricing
hedging arrangements, Southern's ability to enter into future
derivative contracts on acceptable terms, Southern's ability to
secure financing on acceptable terms, prevailing weather
conditions, prevailing legislation, as well as regulatory and
licensing requirements, affecting the oil and gas industry, the
Company's ability to obtain all requisite permits and licences,
prevailing commodity prices, price volatility, price differentials
and the actual prices received for the Company's products, royalty
regimes and exchange rates, the impact of inflation on costs, the
application of regulatory and licensing requirements, the Company's
ability to obtain all requisite permits and licences, the
availability of capital, labour and services, the creditworthiness
of industry partners, the Company's ability to source and complete
asset acquisitions, and the Company's ability to execute its plans
and strategies.
Although Southern 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 Southern 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 in general (e.g.,
operational risks in development, exploration and production; the
uncertainty of reserve estimates; the uncertainty of estimates and
projections relating to production, costs and expenses, regulatory
risks, and health, safety and environmental risks), constraint in
the availability of labour, supplies, or services, the impact of
COVID-19 and variant strains of the virus, commodity price and
exchange rate fluctuations, geo-political risks, political and
economic instability abroad, wars (including the Russo-Ukrainian
War), hostilities, civil insurrections, inflationary risks
including potential increases to operating and capital costs,
changes in legislation impacting the oil and gas industry, adverse
weather or break-up conditions, and uncertainties resulting from
potential delays or changes in plans with respect to exploration or
development projects or capital expenditures. The Russo-Ukrainian
War is particularly noteworthy, as this conflict has the potential
to disrupt the global supply of oil and gas, and its full impact
remains uncertain. These and other risks are set out in more detail
in Southern's MD&A and annual information form for the year
ended December 31, 2022, which are available on the Company's
website at www.southernenergycorp.com and filed under the Company's
profile on SEDAR+ at www.sedarplus.ca.
The forward-looking information contained in this press release
is made as of the date hereof and Southern undertakes no obligation
to update publicly or revise any forward-looking information,
whether as a result of new information, future events or otherwise,
unless required by applicable securities laws. The forward-looking
information contained in this press release is expressly qualified
by this cautionary statement.
Future Oriented Financial Information . This press release
contains future-oriented financial information and financial
outlook information (collectively, "FOFI") about Southern's
prospective results of operations, cash flow, adjusted funds flow,
capital expenditures, net debt, and payout of wells, 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 document was approved by management as of the date of this
document and was provided for the purpose of providing further
information about Southern's future business operations. Southern
and its management believe that FOFI has been prepared on a
reasonable basis, reflecting management's best estimates and
judgments, and represent, to the best of management's knowledge and
opinion, the Company's expected course of action. However, because
this information is highly subjective, it should not be relied on
as necessarily indicative of future results. Southern 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. 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 measures included in Southern's guidance. The Company's
actual results may differ materially from these estimates.
Specified Financial Measures. This press release provides
various financial measures that do not have a standardized meaning
prescribed by International Financial Reporting Standards ("IFRS"),
including non-IFRS financial measures, non-IFRS financial ratios
and capital management measures. These specified financial measures
may not be comparable to similar measures presented by other
issuers. Southern's method of calculating these measures may differ
from other companies and accordingly, they may not be comparable to
measures used by other companies. Adjusted funds flow from
operations, adjusted working capital and net debt are not
recognized measures under IFRS. Readers are cautioned that these
specified financial measures should not be construed as
alternatives to other measures of financial performance calculated
in accordance with IFRS. These specified financial measures provide
additional information that management believes is meaningful in
describing the Company's operational performance, liquidity and
capacity to fund capital expenditures and other activities. Please
see below for a brief overview of all specified financial measures
used in this release and refer to the Company's MD&A for
additional information relating to specified financial measures,
which is available on the Company's website at
www.southernenergycorp.com and filed under the Company's profile on
SEDAR+ at www.sedarplus.ca.
"Adjusted Funds Flow from Operations" (non-IFRS financial
measure) is calculated based on cash flow from operative activities
before changes in non-cash working capital and cash decommissioning
expenditures. Management uses adjusted funds flow from operations
as a key measure to assess the ability of the Company to finance
operating activities, capital expenditures and debt repayments.
"Adjusted Funds Flow from Operations per Share" (non-IFRS
financial measure) is calculated by dividing Adjusted Funds Flow
from Operations by the number of Southern shares issued and
outstanding.
"Positive Net Cash (Net Debt)" (capital management measure) is
monitored by management, along with adjusted working capital, as
part of its capital structure in order to fund current operations
and future growth of the Company. Net debt is defined as long-term
debt plus adjusted working capital surplus or deficit. Adjusted
working capital is calculated as current assets less current
liabilities, removing current derivative assets/liabilities, the
current portion of bank debt, and the current portion of lease
liabilities.
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 release.
[1] See "Reader Advisory - Specified Financial Measures"
[2] Comprised of 102 bbl/d light and medium crude oil, 14 bbl/d
NGLs and 15,211 Mcf/d conventional natural gas
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END
IR GPURWRUPWUAR
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