Three months ended | Percent Change | Six months ended | Percent Change | |||||
2023 | 2022 | 2023 | 2022 | |||||
Financial (thousands of dollars except share data) | ||||||||
Sales, net of blending (1) (4) | 112,560 | 122,102 | (8) | 207,130 | 232,124 | (11) | ||
Adjusted funds flow from operations (2) | 66,235 | 79,435 | (17) | 125,392 | 149,458 | (16) | ||
Per share - basic | 0.28 | 0.35 | (20) | 0.53 | 0.67 | (21) | ||
- diluted | 0.28 | 0.34 | (18) | 0.53 | 0.65 | (18) | ||
Cash flow provided by operating activities | 66,857 | 84,728 | (21) | 127,058 | 145,417 | (13) | ||
Per share - basic | 0.28 | 0.37 | (24) | 0.54 | 0.65 | (17) | ||
- diluted | 0.28 | 0.36 | (22) | 0.54 | 0.63 | (14) | ||
Net income | 30,947 | 48,412 | (36) | 60,926 | 90,775 | (33) | ||
Per share - basic | 0.13 | 0.21 | (38) | 0.26 | 0.41 | (37) | ||
- diluted | 0.13 | 0.21 | (38) | 0.26 | 0.39 | (33) | ||
Capital expenditures (1) | 64,094 | 30,860 | 108 | 133,588 | 112,817 | 18 | ||
Adjusted working capital (2) | 48,968 | 130,206 | (62) | |||||
Shareholders' equity | 559,779 | 492,145 | 14 | |||||
Dividends declared | 23,586 | - | 100 | 47,125 | - | 100 | ||
Per share | 0.10 | - | 100 | 0.20 | - | 100 | ||
Weighted average shares (thousands) | ||||||||
Basic | 235,631 | 226,168 | 4 | 234,854 | 223,702 | 5 | ||
Diluted | 237,913 | 233,479 | 2 | 236,925 | 230,957 | 3 | ||
Shares outstanding, end of period (thousands) | ||||||||
Basic | 235,864 | 229,908 | 3 | |||||
Diluted (5) | 241,240 | 241,585 | - | |||||
Operating (6:1 boe conversion) | ||||||||
Average daily production | ||||||||
Heavy crude oil (bbls/d) | 15,624 | 10,637 | 47 | 15,203 | 10,620 | 43 | ||
Natural gas (mmcf/d) | 8.5 | 6.4 | 33 | 10.7 | 8.6 | 24 | ||
Natural gas liquids (bbl/d) | 107 | 66 | 62 | 99 | 36 | 175 | ||
Barrels of oil equivalent (9)(boe/d) | 17,152 | 11,772 | 46 | 17,078 | 12,091 | 41 | ||
Average daily sales (6) (boe/d) | 17,154 | 11,705 | 47 | 17,061 | 12,050 | 42 | ||
Netbacks ($/boe) (3) (7) | ||||||||
Operating | ||||||||
Sales, net of blending (4) | 72.11 | 114.63 | (37) | 67.07 | 106.43 | (37) | ||
Royalties | (12.63) | (23.85) | (47) | (11.35) | (19.37) | (41) | ||
Transportation | (5.48) | (4.07) | 35 | (5.49) | (4.49) | 22 | ||
Production expenses | (7.33) | (5.66) | 30 | (6.93) | (5.72) | 21 | ||
Operating netback (3) | 46.67 | 81.05 | (42) | 43.30 | 76.85 | (44) | ||
Realized gains (losses) on financial derivatives | 0.21 | (0.24) | (188) | 2.45 | (1.93) | (227) | ||
Operating netback, including financial derivatives (3) | 46.88 | 80.81 | (42) | 45.75 | 74.92 | (39) | ||
General and administrative expense | (1.49) | (1.52) | (2) | (1.42) | (1.50) | (5) | ||
Interest income and other (8) | 0.96 | 0.44 | 118 | 1.03 | 0.29 | 255 | ||
Current tax expense | (3.91) | (5.16) | (24) | (4.75) | (5.19) | (8) | ||
Adjusted funds flow netback (3) | 42.44 | 74.57 | (43) | 40.61 | 68.52 | (41) |
(1) Non-GAAP 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) Heavy oil 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." |
SECOND QUARTER 2023 HIGHLIGHTS
- Returned
$23.5 million to shareholders. Since announcing the Company's inaugural dividend inNovember 2022 , Headwater has returned a total of$70.5 million to shareholders. - Achieved record production averaging 17,152 boe/d (consisting of 15,624 bbls/d of heavy oil, 8.5 mmcf/d of natural gas and 107 bbls/d of natural gas liquids) representing an increase of 46% from the second quarter of 2022.
- Realized adjusted funds flow from operations (1) of
$66.2 million ($0.28 per share basic). - Achieved an operating netback inclusive of financial derivatives (2) of
$46.88 /boe and an adjusted funds flow netback (2) of$42.44 /boe. - Achieved net income of
$30.9 million ($0.13 per share basic). - Executed a
$64.1 million capital expenditure (3) program inclusive of$8.5 million of land expenditures adding a total of 90 sections of undeveloped acreage, while also focusing on development inMarten Hills West , drilling a total of 24 crude oil wells in the area at a 100% success rate. - As at
June 30, 2023 , Headwater had adjusted working capital (1) of$49.0 million , working capital of$54.8 million , and no outstanding bank debt. Balance sheet strength has allowed the Board of Directors to confidently increase the 2023 capital expenditure guidance to$225.0 million to pursue additional strategic land and exploration prospects.
(1) Capital management measure. Refer to "Non-GAAP and Other Financial Measures" within this press release. |
(2) Non-GAAP ratio that does not have any standardized meaning under IFRS and therefore may not be comparable with the calculation of similar measures of other entities. Refer to "Non-GAAP and Other Financial Measures" within this press release. |
(3) Non-GAAP measure that does not have any standardized meaning under IFRS and therefore may not be comparable with the calculation of similar measures of other entities. Refer to "Non-GAAP and Other Financial Measures" within this press release. |
OPERATIONS UPDATE
Key highlights of the drilling program since the end of the first quarter include the 02/13-16-075-02W5 well, achieving an IP30 rate of 208 bbls/d. This well has continued the southwest extension of our previously defined pool boundaries. In addition, the 04/03-13-75-02W5 well achieved an IP30 rate of 177 bbls/d continuing the southeast extension of the Marten Hills West pool.
Headwater resumed
Implementation of enhanced oil recovery pilot projects has continued in
Although no new wells were placed on production in this area in the second quarter, the team has been active optimizing and expanding the waterflood. We continue to be encouraged by the waterflood response since the expansion of our water injection capability in
Exploration Update and Capital Guidance Increase
The Headwater team continues to pursue organic growth opportunities in and beyond the
In addition to our
Considering our continued success, the Board of Directors has approved an expansion to our 2023 capital expenditure budget from
EXECUTIVE APPOINTMENT
With the continued evolution of Headwater, the Board of Directors is pleased to announce the creation of a new ventures group.
OUTLOOK
The positive working capital balance that has been maintained throughout our corporate history continues to allow Headwater to be opportunistic on expanding its prospects, while achieving top tier production per share growth combined with paying an approximate 5.4% dividend yield to our shareholders.
Our business continues to evolve in and beyond the
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, the expected timing of testing of enhanced oil recovery in
FUTURE ORIENTED FINANCIAL INFORMATION: Any financial outlook or future oriented financial information in this press release, as defined by applicable securities legislation, has been approved by management of the Company as of the date hereof. Readers are cautioned that any such future oriented financial information contained herein should not be used for purposes other than those for which it is disclosed herein. The Company and its management believe that the prospective financial information as to the anticipated results of its proposed business activities for 2023 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. Headwater's 2023 adjusted funds flow from operations is forecasted to be approximately
DIVIDEND POLICY: The amount of future cash dividends paid by the Company, if any, will be subject to the discretion of the Board 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.
INITIAL 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 refer to certain financial measures (such as total sales, net of blending and capital expenditures) which do not have any standardized meaning prescribed by IFRS. Our determinations of these measures may not be comparable with calculations of similar measures for other issuers. In addition, this press release contains the terms adjusted funds flow from operations and adjusted working capital, which are considered capital management measures. 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.
Three months ended | Six months ended | |||
2023 | 2022 | 2023 | 2022 | |
(thousands of dollars) | (thousands of dollars) | |||
Total sales | 118,967 | 130,153 | 223,176 | 249,415 |
Blending expense | (6,407) | (8,051) | (16,046) | (17,291) |
Total sales, net of blending expense | 112,560 | 122,102 | 207,130 | 232,124 |
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 netted by the government grant.
Three months ended | Six months ended | |||
2023 | 2022 | 2023 | 2022 | |
(thousands of dollars) | (thousands of dollars) | |||
Cash flows used in investing activities | 69,011 | 35,663 | 126,968 | 116,037 |
Restricted cash | - | - | - | (5,000) |
Change in non-cash working capital | (4,917) | (2,212) | 6,620 | 4,371 |
Government grant | - | (2,591) | - | (2,591) |
Capital expenditures | 64,094 | 30,860 | 133,588 | 112,817 |
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.
Three months ended | Six months ended | |||
2023 | 2022 | 2023 | 2022 | |
(thousands of dollars) | (thousands of dollars) | |||
Cash flows provided by operating activities | 68,857 | 84,728 | 127,058 | 145,417 |
Changes in non–cash working capital | 1,133 | 200 | (7,281) | 15,350 |
Current income taxes | (6,103) | (5,493) | (14,675) | (11,309) |
Current income taxes paid | 4,348 | - | 20,290 | |
Adjusted funds flow from operations | 66,235 | 79,435 | 125,392 | 149,458 |
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 contribution receivable and repayable contribution to provide a better indication of Headwater's net financing obligations.
(thousands of dollars) | ||||
Working capital | 54,765 | 109,433 | ||
Contribution receivable (long-term) | 1,104 | 1,104 | ||
Repayable contribution | (6,958) | (6,720) | ||
Financial derivative receivable | (54) | (419) | ||
Financial derivative liability | 111 | 1,520 | ||
Adjusted working capital | 48,968 | 104,918 |
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. The sales price, transportation and blending costs, and sales volumes exclude the impact of purchased condensate. Operating netback, including financial derivatives is defined as operating netback plus realized gains or losses on financial derivatives.
Adjusted funds flow per share and net income per share
Adjusted funds flow per share and adjusted net income per share 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 per share and net income per share are calculated as adjusted funds flow from operations or net income divided by weighted average shares outstanding on a basic or diluted basis.
Per boe numbers
This press release represents various results on a per boe basis including Headwater average realized sales price, net of blending, financial derivatives gains (losses) 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 and current taxes per boe. These figures are calculated using sales volumes.
SOURCE
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