CALGARY,
AB, Nov. 8, 2022 /CNW/ - Spartan Delta
Corp. ("Spartan" or the "Company") (TSX: SDE) is
pleased to report its unaudited financial and operating results for
the three and nine month periods ended September 30, 2022, announce a special dividend,
and provide an operations update.
Selected financial and operational information is set out below
and should be read in conjunction with Spartan's unaudited interim
financial statements and related management's discussion and
analysis ("MD&A") for the three and nine months ended
September 30, 2022, which are filed
on SEDAR at www.sedar.com and are available on the Company's
website at www.spartandeltacorp.com. The highlights reported in
this press release include certain non-GAAP financial measures and
ratios which have been identified using capital letters. The reader
is cautioned that these measures may not be directly comparable to
other issuers; refer to additional information under the heading
"Reader Advisories – Non-GAAP Measures and Ratios".
THIRD QUARTER 2022 HIGHLIGHTS
- Spartan's Q3 2022 production averaged 72,134 BOE/d (39%
liquids), up 56% compared to 46,282 BOE/d (32% liquids) in Q3 2021,
with crude oil production increasing 7% compared to Q2 2022.
- The Company continues to see strong results from its drilling
program with 8 (7.9 net) wells on production during the third
quarter, including 5 (4.9 net) Montney wells in Gold Creek West and 3 (3.0
net) wells in the Deep Basin.
- The Company's Q3 2022 average selling price was $52.32 per BOE, 52% higher than the average price
of $34.31 per BOE realized in Q3
2021.
- Spartan's Operating Netback, after hedging, averaged
$32.74 per BOE in Q3 2022, up 74%
from $18.79 per BOE in Q3 2021.
- The Company's operations generated Adjusted Funds Flow of
$201 million ($1.15 per share, diluted) in Q3 2022, up 189%
from $69 million ($0.43 per share, diluted) in the same quarter of
2021. Free Funds Flow was $124
million after $76 million of
Capital Expenditures before A&D during the three months ended
September 30, 2022.
- On August 9, 2022, Spartan closed
the corporate acquisition of Bellatrix Exploration Ltd. for a cash
purchase price of $6 million. The
acquisition materially enhanced the Company's future tax position
and Spartan's available tax pools are estimated to be in excess of
$2.1 billion (~60% non-capital
losses) as of September 30, 2022. A
deferred income tax asset of $144
million was recognized in connection with the
acquisition.
- Net income increased to $285
million in Q3 2022 ($1.64 per
share, diluted), up 125% from $127
million ($0.87 per share,
diluted) in Q3 2021.
- Spartan fully repaid its bank debt during the third quarter and
the Company's credit facility is currently undrawn. As at
September 30, 2022, the Company had
$43 million of cash on hand and
$150 million of long-term debt
outstanding on its second lien term facility. Spartan's quarter-end
Net Debt inclusive of working capital was $143 million, approximately 0.2 times its
Annualized Adjusted Funds Flow for Q3 2022.
SPECIAL DIVIDEND
Spartan's operational and financial results in the first nine
months of 2022 materially exceeded corporate forecasts, driven by
exceptional execution of the 2022 drilling program and strong
commodity tailwinds. With its bank debt fully repaid and a growing
cash position, the Company has achieved the target Net Debt to
Annualized AFF Ratio of less than 0.5x it set for the commencement
of a return of capital strategy.
As a result, Spartan is pleased to announce the Board of
Directors have declared a special cash dividend of $0.50 per common share ("Spartan Share")
payable on January 16, 2023, to
shareholders of record at the close of business on December 15, 2022 (the "Record Date"). The
special dividend is designated as an "eligible dividend" for
Canadian income tax purposes. See "Special Dividend Details" for
guidance and instructions with respect to eligibility to receive
the special dividend.
OPERATIONS UPDATE
The Company spent $76 million on
exploration and development capital expenditures during the third
quarter. In the Montney, Spartan
drilled 6.0 (6.0 net) wells at Gold Creek East and brought
on-stream 5.0 (4.9 net) wells in Gold Creek West.
- Gold Creek East 2-34 pad - Phase 2 (5.0 net wells) was
drilled and subsequently completed during the month of October. All
five wells are currently in the early stages of flowback. The sixth
well drilled in the quarter was the first well off 10-1 pad - Phase
2, which consists of four wells that finished drilling in late
October and are now awaiting completion.
- Gold Creek West 7-34 pad - Phase 2 (4.9 net wells) was
brought on-stream in July, 2022 and is averaging 1,137 BOE/d per
well (667 bbls/d crude oil, 24 bbls/d condensate, 46 bbls/d NGLs
and 2.4 mmcf/d natural gas) for the first 60 days of production, a
69% increase over the proved plus probable reserves type
curve.
- In the second quarter of 2022, Spartan highlighted results from
the Gold Creek East 5-7 pad - Phase 2 (3.0 net
wells), which delivered average production of 1,300
BOE/d per well (652 bbls/d crude oil, 13 bbls/d condensate, 135
bbls/d NGLs and 3.0 mmcf/d natural gas) for the first 90 days of
production. This pad represents the most up-dip portion of the oil
fairway drilled to date, yet has delivered some of the best results
across the field. The results at 5-7 pad, along with the recent
well results from Gold Creek West 7-34 pad, demonstrate the
potential of the play across the contiguous land base that spans
more than three townships.
In the Deep Basin, Spartan drilled 6.0 (5.9 net) wells, of which
3.0 net wells were brought on production in the third quarter, and
2.9 net wells were brought on production in early
October.
- North Brazeau Viking – 1.0 (1.0 net) well located at
100/04-29-045-12W5/2 was Spartan's first Viking drill which begins
to delineate an additional light oil-weighted horizon in the Deep
Basin. The success of the 4-29 horizontal adds a significant number
of new locations to core inventory across the fairway, which
previously consisted exclusively of Spirit River and Cardium.
- Baptiste Spirit River – 1.0 (0.9 net) well located at
102/02-16-043-09W5 was drilled in Q3 and brought on-stream
October 1, 2022. For its first 30
days on production, the well averaged 2,356 BOE/d (314 bbls/d
condensate, 608 bbls/d NGLs and 8.6 mmcf/d natural gas). The well
is flowing at restricted rates due to temporary facility
constraints.
- Ferrier Spirit River 10-24
pad (2.0 net wells) was brought on production in September. For
its first 30 days on production, the pad averaged 1,364 BOE/d per
well (37 bbls/d condensate, 294 bbls/d NGLs, and 6.2 mmcf/d natural
gas).
- Baptiste Spirit River 14-03 pad (2.0 net wells) - The
first well located at 100/13-15-044-09W5/0 has reached 30 days of
production and averaged 1,419 BOE/d (67 bbls/d condensate, 402
bbls/d NGLs and 5.7 mmcf/d natural gas). Initial rates for the
second well (100/15-15-044-09W5/0) were limited due to a casing
obstruction, but after partial remediation, is now averaging 971
BOE/d (46 bbls/d condensate, 275 bbls/d NGLs and 3.9 mmcf/d natural
gas). Both wells are being restricted due to temporary facility
constraints.
FINANCIAL AND OPERATING HIGHLIGHTS
The table below summarizes the Company's financial and operating
results for the three and nine month periods ended September 30, 2022 and September 30, 2021:
(CA$ thousands,
except as otherwise noted)
|
Three months ended
September 30
|
Nine months ended
September 30
|
|
2022
|
2021
|
%
|
2022
|
2021
|
%
|
FINANCIAL
HIGHLIGHTS
|
|
|
|
|
|
|
Oil and gas
sales
|
347,218
|
146,078
|
138
|
1,107,341
|
311,717
|
255
|
Net income and
comprehensive income
|
285,250
|
126,937
|
125
|
528,167
|
205,765
|
157
|
$ per share, basic
(a)
|
1.84
|
1.01
|
82
|
3.42
|
2.00
|
71
|
$ per share, diluted
(a)
|
1.64
|
0.87
|
89
|
3.06
|
1.70
|
80
|
Cash provided by
operating activities
|
221,161
|
53,771
|
311
|
595,008
|
133,906
|
344
|
Adjusted Funds Flow
(b)
|
200,733
|
69,386
|
189
|
592,828
|
156,960
|
278
|
$ per share, basic
(a)
|
1.29
|
0.55
|
135
|
3.84
|
1.53
|
151
|
$ per share, diluted
(a)
|
1.15
|
0.43
|
167
|
3.41
|
1.28
|
166
|
Free Funds Flow
(b)
|
124,346
|
24,777
|
402
|
317,821
|
83,667
|
280
|
Cash used in investing
activities
|
100,708
|
757,806
|
(87)
|
308,255
|
827,488
|
(63)
|
Capital Expenditures before
A&D (b)
|
76,387
|
44,609
|
71
|
275,007
|
73,293
|
275
|
Adjusted Net Capital
Acquisitions (b)
|
5,893
|
791,313
|
(99)
|
4,952
|
958,200
|
(99)
|
Total assets
|
1,964,638
|
1,684,301
|
17
|
1,964,638
|
1,684,301
|
17
|
Long-term
debt
|
144,608
|
441,593
|
(67)
|
144,608
|
441,593
|
(67)
|
Net Debt
(b)
|
142,820
|
481,087
|
(70)
|
142,820
|
481,087
|
(70)
|
Net Debt to Annualized AFF
Ratio (b)
|
0.2
|
1.7
|
(88)
|
0.2
|
1.7
|
(88)
|
Shareholders'
equity
|
1,428,733
|
756,211
|
89
|
1,428,733
|
756,211
|
89
|
Common shares
outstanding (000s), end of period (a)
|
155,482
|
153,074
|
2
|
155,482
|
153,074
|
2
|
OPERATING HIGHLIGHTS
AND NETBACKS (e)
|
|
|
|
|
|
|
Average daily
production
|
|
|
|
|
|
|
Crude oil
(bbls/d)
|
13,874
|
4,647
|
199
|
12,728
|
2,421
|
426
|
Condensate (bbls/d)
(c)
|
1,986
|
1,982
|
0
|
2,253
|
1,772
|
27
|
Natural gas liquids (bbls/d)
(c)
|
12,354
|
8,102
|
52
|
12,564
|
7,618
|
65
|
Natural gas
(mcf/d)
|
263,519
|
189,306
|
39
|
270,098
|
165,115
|
64
|
BOE/d
|
72,134
|
46,282
|
56
|
72,561
|
39,330
|
84
|
% Liquids
(d)
|
39 %
|
32 %
|
22
|
38 %
|
30 %
|
27
|
Average realized
prices, before financial instruments
|
|
|
|
|
|
|
Crude oil ($/bbl)
|
116.15
|
83.01
|
40
|
123.64
|
78.67
|
57
|
Condensate ($/bbl)
(c)
|
111.27
|
86.20
|
29
|
122.94
|
79.97
|
54
|
Natural gas liquids ($/bbl)
(c)
|
49.67
|
38.87
|
28
|
52.34
|
32.75
|
60
|
Natural gas
($/mcf)
|
5.04
|
3.78
|
33
|
5.73
|
3.39
|
69
|
Combined average
($/BOE)
|
52.32
|
34.31
|
52
|
55.90
|
29.03
|
93
|
Netbacks ($/BOE)
(e)
|
|
|
|
|
|
|
Oil and gas sales
|
52.32
|
34.31
|
52
|
55.90
|
29.03
|
93
|
Processing and other
revenue
|
0.34
|
0.53
|
(36)
|
0.33
|
0.64
|
(48)
|
Royalties
|
(4.89)
|
(3.46)
|
41
|
(6.15)
|
(3.16)
|
95
|
Operating
expenses
|
(8.79)
|
(7.11)
|
24
|
(8.78)
|
(6.03)
|
46
|
Transportation
expenses
|
(2.88)
|
(2.11)
|
36
|
(2.81)
|
(1.74)
|
61
|
|
Three months ended
September 30
|
Nine months ended
September 30
|
Netbacks continued
from previous page
|
2022
|
2021
|
%
|
2022
|
2021
|
%
|
Operating Netback,
before hedging ($/BOE) (e)
|
36.10
|
22.16
|
63
|
38.49
|
18.74
|
105
|
Settlements on Commodity
Derivative Contracts(e)(f)
|
(3.36)
|
(3.27)
|
3
|
(6.06)
|
(1.75)
|
246
|
Net Pipeline Transportation
Margin (e)(g)
|
-
|
(0.10)
|
(100)
|
(0.02)
|
(0.04)
|
(50)
|
Operating Netback,
after hedging ($/BOE) (e)
|
32.74
|
18.79
|
74
|
32.41
|
16.95
|
91
|
General and administrative
expenses
|
(0.98)
|
(1.32)
|
(26)
|
(0.95)
|
(1.30)
|
(27)
|
Cash Financing Expenses
(e)(h)
|
(0.94)
|
(0.62)
|
52
|
(1.01)
|
(0.28)
|
261
|
Realized foreign exchange
and other
|
0.04
|
0.01
|
300
|
0.09
|
0.05
|
80
|
Settlement of
decommissioning obligations
|
(0.17)
|
0.06
|
(383)
|
(0.16)
|
(0.09)
|
78
|
Lease payments
(i)
|
(0.44)
|
(0.62)
|
(29)
|
(0.45)
|
(0.71)
|
(37)
|
Adjusted Funds Flow
Netback ($/BOE) (e)
|
30.25
|
16.30
|
86
|
29.93
|
14.62
|
105
|
a)
|
Refer to "Share
Capital" section of this press release.
|
b)
|
"Adjusted Funds Flow",
"Free Funds Flow", "Capital Expenditures before A&D", "Adjusted
Net Capital Acquisitions", "Net Debt" and "Net Debt to Annualized
AFF Ratio" do not have standardized meanings under IFRS, refer to
"Non-GAAP Measures and Ratios" section of this press
release.
|
c)
|
Condensate is a natural
gas liquid ("NGL") as defined by NI 51-101. See "Other
Measurements".
|
d)
|
"Liquids" includes
crude oil, condensate and NGLs.
|
e)
|
"Netbacks" are non-GAAP
financial ratios calculated per unit of production. "Operating
Netback", "Settlements on Commodity Derivative Contracts", "Net
Pipeline Transportation Margin", "Cash Financing Expenses" and
"Adjusted Funds Flow Netback" do not have standardized meanings
under IFRS, refer to "Non-GAAP Measures and Ratios" section of this
press release.
|
f)
|
Includes realized gains
or losses on derivative financial instruments plus settlements of
acquired derivative liabilities.
|
g)
|
Pipeline transportation
revenue, net of pipeline transportation expense.
|
h)
|
Includes interest and
fees on long-term debt, net of interest income.
|
i)
|
Includes total lease
payments comprised of the principal portion and financing cost of
lease liabilities.
|
2023 BUDGET AND PRELIMINARY
GUIDANCE
The Company expects to release its preliminary 2023 budget and
guidance alongside its future return of capital strategy prior to
the new year. This strategy may include a combination of share
repurchases, base dividend payments and/or special dividend
payments.
ESG REPORTING
Spartan is committed to providing continuous information on its
effort to improve upon its environment, social and governance
("ESG") goals and achievements. In an effort to
demonstrate Spartan's continuous focus on ESG, we are pleased to
highlight our regularly updated ESG Reporting Tool, which
can be accessed at https://esg.spartandeltacorp.com/.
SPECIAL DIVIDEND DETAILS
PLEASE NOTE THAT THE SPECIAL DIVIDEND WILL NOT BE
AUTOMATICALLY PAID TO SHAREHOLDERS. REGISTERED
SHAREHOLDERS AND FINANCIAL INTERMEDIARIES, ON BEHALF OF THEIR
UNDERLYING CLIENTS, WILL BE REQUIRED TO CONFIRM ELIGIBILITY TO
RECEIVE THE SPECIAL DIVIDEND. IN ORDER TO BE ELIGIBLE,
REGISTERED SHAREHOLDERS AND FINANCIAL INTERMEDIARIES, ON BEHALF OF
THEIR UNDERLYING CLIENTS, WILL BE REQUIRED TO CONFIRM THAT
NONE OF THE SHAREHOLDER, ITS ULTIMATE BENEFICIAL OWNER(S) OR ANY
PERSON(S) THAT DIRECTLY OR INDIRECTLY CONTROLS THE SHAREHOLDER
THROUGH THE OWNERSHIP OF EQUITY INTERESTS ARE IGOR MAKAROV, ARETI
ENERGY S.A. (SWITZERLAND), ARETI
ENERGY SPV, LLC (US) OR ARETI ENERGY LIMITED.
Registered Shareholders Procedure
You are a registered shareholder if you own Spartan Shares in
your own name and either have a share certificate or direct
registration statement that shows your ownership. Registered
shareholders need to follow the procedure outlined below, otherwise
you will not receive the special dividend.
Registered shareholders will receive by mail a confirmation of
eligibility form (the "Registered Eligibility Form"), which
must be completed, signed and returned to Kingsdale Advisors (the
"Information Agent") on or prior to 5:00 p.m. (Mountain time) on Thursday January 12,
2023 (the "Eligibility Deadline"). Registered
shareholders that are corporations, partnerships or trusts, or
where a person is acting in a power or attorney or executor
capacity, will also need to send evidence of their capacity to
confirm eligibility on behalf of the registered shareholder. The
special dividend will be paid by cheque only to registered
shareholders that have submitted a Registered Eligibility
Form. Registered shareholders that wish to have their cheque
sent to an address other than the registered address will also be
required to obtain a signature guarantee from a Canadian Financial
Institution.
If you have any questions or need assistance in completing the
Registered Eligibility Form, please contact the Information Agent,
Kingsdale Advisors, toll free at 1-888-327-0819 or by email at
corpaction@kingsdaleadvisors.com.
Financial Intermediary Procedure
You are a beneficial shareholder if you own Spartan Shares
through a financial intermediary such as a bank, broker or trust
company (a "Financial Intermediary"). Beneficial
shareholders will not be required to take action individually in
order to receive the special dividend. Your Financial
Intermediary will be required to confirm eligibility to receive the
special dividend on your behalf. If you have any questions
regarding your eligibility status, you should contact your
Financial Intermediary.
Financial Intermediaries will be required to complete a
confirmation of eligibility form (the "Beneficial Eligibility
Form") for each of their CDS Participant positions and return
it to the Information Agent as outlined on the Beneficial
Eligibility Form on or prior to the Eligibility Deadline.
Financial Intermediaries will receive an electronic copy of the
Beneficial Eligibility Form from the Information Agent following
the Record Date. Any Financial Intermediary that does not receive
the Beneficial Eligibility Form promptly following the Record Date
should immediately contact the Information Agent for
assistance. Financial Intermediaries are instructed to note
the eligibility definition included within the Beneficial
Eligibility Form and to confirm compliance with the definition on
its own behalf and on behalf of its underlying clients. Where
a Financial Intermediary's client is itself an Intermediary (an
"Intermediary Client") holding on behalf of beneficial
shareholders, the Financial Intermediary must seek confirmation of
eligibility from any such Intermediary Client, and for clarity
cannot attest on behalf of such Intermediary Client. The Beneficial
Eligibility Form requires separate confirmation of the aggregate
number of Spartan Shares held that are eligible to receive the
special dividend and the aggregate number of Spartan Shares that
are ineligible to receive the special dividend. Any client or
Intermediary Client position that has not been positively confirmed
as either eligible or ineligible must not be attested for under
either category and will be defaulted to a "No Attestation"
status. Only Spartan Shares under the eligible category will
receive the special dividend.
In addition to completing the Beneficial Eligibility Form,
Financial Intermediaries are required to complete a signature and
medallion guarantee section and return the Beneficial Eligibility
Form, all as further explained in the form, on or prior to the
Eligibility Deadline.
Financial Intermediaries will receive the special dividend
entitlement for eligible shareholders by wire payment, unless they
direct the Information Agent to issue a cheque in accordance with
the Beneficial Eligibility Form.
Financial Intermediaries that have questions about completing
the Beneficial Eligibility Form should contact the Information
Agent, Kingsdale Advisors, toll free at 1-888-327-0819 or by email
at corpaction@kingsdaleadvisors.com.
ABOUT SPARTAN DELTA
CORP.
Spartan is committed to creating a modern energy company,
focused on sustainability both in operations and financial
performance. The Company's ESG-focused culture is centered on
generating Free Funds Flow through responsible oil and gas
exploration and development. The Company has established a
portfolio of high-quality production and development opportunities
in the Deep Basin and Montney.
Spartan is focused on the execution of the Company's organic
drilling program, delivering operational synergies in a respectful
and responsible manner to the environment and communities it
operates in. The Company is well positioned to continue pursuing
immediate production optimization, future growth with organic
drilling, opportunistic acquisitions and the delivery of Free
Funds Flow.
READER ADVISORIES
Non-GAAP Measures and Ratios
This press release contains certain financial measures and
ratios which do not have standardized meanings prescribed by
International Financial Reporting Standards ("IFRS") or
Generally Accepted Accounting Principles ("GAAP"). As these
non-GAAP financial measures and ratios are commonly used in the oil
and gas industry, Spartan believes that their inclusion is useful
to investors. The reader is cautioned that these amounts may not be
directly comparable to measures for other companies where similar
terminology is used.
The non-GAAP measures and ratios used in this press release,
represented by the capitalized and defined terms outlined below,
are used by Spartan as key measures of financial performance and
are not intended to represent operating profits nor should they be
viewed as an alternative to cash provided by operating activities,
net income or other measures of financial performance calculated in
accordance with IFRS.
The definitions below should be read in conjunction with the
"Non-GAAP Measures and Ratios" section of the Company's MD&A
dated November 8, 2022, which
includes discussion of the purpose and composition of the specified
financial measures and detailed reconciliations to the most
directly comparable GAAP financial measures.
Operating Income and Operating Netback
Operating Income, a non-GAAP financial measure, is a useful
supplemental measure that provides an indication of the Company's
ability to generate cash from field operations, prior to
administrative overhead, financing and other business expenses.
"Operating Income, before hedging" is calculated by Spartan
as oil and gas sales, net of royalties, plus processing and other
revenue, less operating and transportation expenses. "Operating
Income, after hedging" is calculated by adjusting Operating
Income for: (i) realized gains or losses on derivative financial
instruments including settlements on acquired derivative financial
instrument liabilities (together a non-GAAP financial measure
"Settlements on Commodity Derivative Contracts"), and (ii)
pipeline transportation revenue, net of pipeline transportation
expense (the "Net Pipeline Transportation Margin"). The
Company refers to Operating Income expressed per unit of production
as an "Operating Netback" and reports the Operating Netback
before and after hedging, both of which are non-GAAP financial
ratios. Spartan considers Operating Netback an important measure to
evaluate its operational performance as it demonstrates its field
level profitability relative to current commodity prices.
Adjusted Funds Flow and Free Funds Flow
Cash provided by operating activities is the most directly
comparable measure to Adjusted Funds Flow. "Adjusted Funds
Flow" is reconciled to cash provided by operating activities by
excluding changes in non-cash working capital, adding back
transaction costs on acquisitions, and deducting the principal
portion of lease payments. Spartan utilizes Adjusted Funds Flow as
a key performance measure in the Company's annual financial
forecasts and public guidance. Transaction costs, which primarily
include legal and financial advisory fees, regulatory and other
expenses directly attributable to execution of acquisitions, are
added back because the Company's definition of Free Funds Flow
excludes capital expenditures related to acquisitions and
dispositions. For greater clarity, incremental overhead expenses
related to ongoing integration and restructuring post-acquisition
are not adjusted and are included in Spartan's general and
administrative expenses. Lease liabilities are not included in
Spartan's definition of Net Debt (non-GAAP measure defined herein),
therefore lease payments are deducted in the period incurred to
determine Adjusted Funds Flow.
The Company refers to Adjusted Funds Flow expressed per unit of
production as an "Adjusted Funds Flow Netback".
"Free Funds Flow" is calculated by Spartan as Adjusted
Funds Flow less Capital Expenditures before A&D, which is also
a non-GAAP financial measure (defined herein). Spartan believes
Free Funds Flow provides an indication of the amount of funds the
Company has available for future capital allocation decisions such
as to repay long-term debt, reinvest in the business or return
capital to shareholders.
Adjusted Funds Flow per share
Adjusted Funds Flow ("AFF") per share is a non-GAAP
financial ratio used by Spartan as a key performance indicator. AFF
per share is calculated using the same methodology as net income
per share ("EPS"), however the diluted weighted average
common shares ("WA Shares") outstanding for AFF may differ
from the diluted weighted average determined in accordance with
IFRS for purposes of calculating EPS due to non-cash items that
impact net income only. The dilutive impact of stock options and
share awards is more dilutive to AFF than EPS because the number of
shares deemed to be repurchased under the treasury stock method is
not adjusted for unrecognized share based compensation expense as
it is non-cash. For periods in which the convertible promissory
note was outstanding, it was always dilutive to AFF per share, but
could be antidilutive to EPS because of the non-cash change in fair
value recognized through net income (see also, "Share
Capital").
Capital Expenditures, before A&D
"Capital Expenditures before A&D" is used by Spartan
to measure its capital investment level compared to the Company's
annual budgeted capital expenditures for its organic drilling
program. It includes capital expenditures on exploration and
evaluation assets and property, plant and equipment, before
acquisitions and dispositions. The directly comparable GAAP measure
to capital expenditures is cash used in investing activities.
Adjusted Net Capital Acquisitions
"Adjusted Net Capital Acquisitions" is a supplemental
measure disclosed by Spartan which aggregates the total amount of
cash, debt and share consideration used to acquire crude oil and
natural gas assets during the period, net of cash proceeds received
on dispositions. The Company believes this is useful information
because it is more representative of the total transaction value
than the cash acquisition costs or total cash used in investing
activities, determined in accordance with IFRS.
Net Debt (Surplus) and Adjusted Working Capital
References to "Net Debt" includes long-term debt under
Spartan's revolving credit facility and second lien term facility,
net of Adjusted Working Capital. Net Debt and Adjusted Working
Capital are both non-GAAP financial measures. "Adjusted Working
Capital" is calculated as current assets less current
liabilities, excluding lease liabilities and derivative financial
instrument assets and liabilities. As at September 30, 2022 and at December 31, 2021, the Adjusted Working Capital
(surplus) deficit includes cash and cash equivalents, accounts
receivable, prepaid expenses and deposits, other current assets,
accounts payable and accrued liabilities and the current portion of
decommissioning obligations.
Spartan uses Net Debt as a key performance measure to manage the
Company's targeted debt levels. The Company believes its
presentation of Adjusted Working Capital and Net Debt are useful as
supplemental measures because lease liabilities and derivative
financial instrument assets and liabilities relate to contractual
obligations for future production periods. Lease payments and cash
receipts or settlements on derivative financial instruments are
included in Spartan's reported Adjusted Funds Flow in the
production month to which the obligation relates.
References to "Cash Financing Expenses" includes interest
and fees on long-term debt, net of interest income, and excludes
financing costs related to lease liabilities and accretion of
decommissioning obligations. Cash Financing Expenses is a non-GAAP
financial measure used by Spartan in its budget and guidance as it
corresponds to the Company's definition of Net Debt, however it
should not be viewed as an alternative to total financing expenses
presented in accordance with IFRS.
Net Debt to Annualized AFF Ratio
The Company monitors its capital structure using a "Net Debt
to Annualized AFF Ratio", which is a non-GAAP financial ratio
calculated as the ratio of the Company's "Net Debt" to its
"Annualized Adjusted Funds Flow" which is calculated by multiplying
Adjusted Funds Flow for the most recent quarter by a factor of
4.
(CA$ thousands,
except as noted)
|
September 30,
2022
|
June 30,
2022
|
December 31,
2021
|
Working capital
deficit
|
7,156
|
79,773
|
133,416
|
Adjusted for current
portion of:
|
|
|
|
Derivative financial
instrument assets
|
43,970
|
10,693
|
268
|
Derivative financial
instrument liabilities
|
(43,647)
|
(46,479)
|
(52,783)
|
Lease liabilities
|
(9,267)
|
(9,094)
|
(10,206)
|
Adjusted Working
Capital (surplus) deficit
|
(1,788)
|
34,893
|
70,695
|
Long-term debt
(a)
|
144,608
|
226,762
|
387,564
|
Net
Debt
|
142,820
|
261,655
|
458,259
|
Annualized Adjusted
Funds Flow (b)
|
802,932
|
929,496
|
548,104
|
Net Debt to
Annualized AFF Ratio (b)
|
0.2x
|
0.3x
|
0.8x
|
a)
|
The balance of
long-term debt outstanding is presented net of unamortized issue
costs and prepaid interest.
|
b)
|
As at December 31,
2021, Spartan previously referred to this capital management
measure as the "Net Debt to Trailing AFF Ratio" based on "Trailing
Adjusted Funds Flow". In 2022, the name of this measure was changed
to "Net Debt to Annualized AFF Ratio" based on "Annualized Adjusted
Funds Flow", however there is no change to the calculation
methodology and the resulting ratio is unchanged.
|
The Company's total lease liability is approximately
$48 million as at September 30, 2022 (December 31, 2021 – $55 MM), of which $9
million is expected to be settled within the next twelve
months.
Other Measurements
All dollar figures included herein are presented in Canadian
dollars, unless otherwise noted.
This press release contains various references to the
abbreviation "BOE" which means barrels of oil equivalent.
Where amounts are expressed on a BOE basis, natural gas volumes
have been converted to oil equivalence at six thousand cubic feet
(Mcf) per barrel (bbl). The term BOE may be misleading,
particularly if used in isolation. A BOE conversion ratio of six
thousand cubic feet per barrel is based on an energy equivalency
conversion method primarily applicable at the burner tip and does
not represent a value equivalency at the wellhead and is
significantly different than the value ratio based on the current
price of crude oil and natural gas. This conversion factor is an
industry accepted norm and is not based on either energy content or
current prices. Such abbreviation may be misleading, particularly
if used in isolation.
References to "oil" in this press release include light crude
oil, medium crude oil, heavy oil and tight oil combined. NI 51-101
includes condensate within the product type of "natural gas
liquids". References to "natural gas liquids" or "NGLs" include
pentane, butane, propane and ethane. References to "gas" or
"natural gas" relates to conventional natural gas. References to
"liquids" includes crude oil, condensate and NGLs.
Share Capital
Spartan's common shares are listed on the Toronto Stock Exchange
("TSX") and trade under the symbol "SDE". The volume
weighted average trading price of Spartan's common shares on the
TSX was $12.00 in the third quarter
and averaged $11.55 per common share
for the first nine months of 2022. Spartan's closing share price
was $10.26 on September 30, 2022, compared to $5.97 on December 31,
2021.
As at September 30, 2022, there
are 155.5 million common shares outstanding (155.8 million as
of the date hereof). There are no preferred shares or special
shares outstanding. The following securities are outstanding as of
the date of this press release: 15.3 million common share
purchase warrants with an exercise price of $1.00 per common share; 3.1 million restricted
share awards; and 3.6 million stock options outstanding with
an average exercise price of $4.46
per common share and average remaining term of 3.2 years.
The table below summarizes the weighted average number of common
shares outstanding (000s) used in the calculation of diluted EPS
and diluted AFF per share:
|
Three months ended
September 30
|
Nine months ended
September 30
|
|
(000s)
|
2022
|
2021
|
%
|
2022
|
2021
|
%
|
WA Shares outstanding,
basic
|
155,412
|
125,626
|
24
|
154,562
|
102,892
|
50
|
Dilutive effect of
outstanding securities
|
18,313
|
20,060
|
(9)
|
18,160
|
18,141
|
-
|
WA Shares, diluted –
for EPS
|
173,725
|
145,686
|
19
|
172,722
|
121,033
|
43
|
Incremental dilution
for AFF (a)
|
1,287
|
1,443
|
(11)
|
1,337
|
1,463
|
(9)
|
WA Shares, diluted –
for AFF (a)
|
175,012
|
147,129
|
19
|
174,059
|
122,496
|
42
|
|
|
|
|
|
|
|
|
a)
|
AFF per share does not
have a standardized meaning under IFRS, refer to "Non-GAAP Measures
and Ratios".
|
Forward-Looking and Cautionary
Statements
Certain statements contained within this press release
constitute forward-looking statements within the meaning of
applicable Canadian securities legislation. All statements other
than statements of historical fact may be forward-looking
statements. Forward-looking statements are often, but not always,
identified by the use of words such as "anticipate", "budget",
"plan", "endeavor", "continue", "estimate", "evaluate", "expect",
"forecast", "monitor", "may", "will", "can", "able", "potential",
"target", "intend", "consider", "focus", "identify", "use",
"utilize", "manage", "maintain", "remain", "result", "cultivate",
"could", "should", "believe" and similar expressions. Spartan
believes that the expectations reflected in such forward-looking
statements are reasonable as of the date hereof, but no assurance
can be given that such expectations will prove to be correct and
such forward-looking statements should not be unduly relied upon.
Without limitation, this press release contains forward-looking
statements pertaining to: the business plan, cost model and
strategy of Spartan, including commodity diversification and oil
weighted production; Spartan's anticipated operational results;
future intentions with respect to the return of capital, including
the potential combination of share repurchases, base dividend
payments and/or special dividend payments; the impact of inflation
on cost estimates; expectations regarding the acquisition of
Bellatrix, including the estimated amount of available tax pools
and the anticipated impact to Spartan's tax horizon; Spartan plans
to deliver strong operational performance and to generate long term
sustainable Free Funds Flow and organic growth; management's
expectations regarding encouraging drilling results and ability to
replicate past performance; being well positioned to take advantage
of opportunities in the current business environment, and to
continue pursuing immediate production optimization, responsible
future growth with organic drilling, and opportunistic
acquisitions. Further, the ability of Spartan to pay the proposed
special dividend and any future dividend payments and share
buybacks, if any, will be subject to applicable laws (including the
satisfaction of the solvency test contained in applicable corporate
legislation) and contractual restrictions contained in the
instruments governing its indebtedness, including its credit
facility.
The forward-looking statements and information are based on
certain key expectations and assumptions made by Spartan, including
expectations and assumptions concerning the business plan of
Spartan, 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
facilities and pipelines, the geological characteristics of
Spartan's properties, the successful integration of the recently
acquired assets into Spartan's operations, the successful
application of drilling, completion and seismic technology,
prevailing weather conditions, prevailing legislation affecting the
oil and gas industry, prevailing commodity prices, price
volatility, price differentials and the actual prices received for
the Company's products, impact of inflation on costs, royalty
regimes and exchange rates, the application of regulatory and
licensing requirements, the availability of capital, labour and
services, the creditworthiness of industry partners and the ability
to source and complete acquisitions.
Although Spartan believes that the expectations and assumptions
on which such forward-looking statements and information are based
are reasonable, undue reliance should not be placed on the
forward-looking statements and information because Spartan can give
no assurance that they will prove to be correct. By its nature,
such forward-looking information is subject to various risks and
uncertainties, which could cause the actual results and
expectations to differ materially from the anticipated results or
expectations expressed. These risks and uncertainties include, but
are not limited to, the risk that future dividend payments or share
buybacks, if any, are reduced, suspended or cancelled, fluctuations
in commodity prices, changes in industry regulations and political
landscape both domestically and abroad, wars (including
Russia's military actions in
Ukraine), hostilities, civil
insurrections, foreign exchange or interest rates, increased
operating and capital costs due to inflationary pressures (actual
and anticipated), stock market volatility, impacts of the current
COVID-19 pandemic and the retention of key management and
employees. Ongoing military actions between Russia and Ukraine have the potential to threaten the
supply of oil and gas from the region. The long-term impacts of the
actions between these nations remains uncertain.
Please refer to Spartan's MD&A and AIF for the year ended
December 31, 2021 for discussion of
additional risk factors relating to Spartan, which can be accessed
either on Spartan's website at www.spartandeltacorp.com or under
Spartan's SEDAR profile on www.sedar.com. Readers are cautioned not
to place undue reliance on this forward-looking information, which
is given as of the date hereof, and to not use such forward-looking
information for anything other than its intended purpose. Spartan
undertakes no obligation to update publicly or revise any
forward-looking information, whether as a result of new
information, future events or otherwise, except as required by
law.
This press release contains future-oriented financial
information and financial outlook information (collectively,
"FOFI") about Spartan's prospective results of operations
and production, tax horizon 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 document was approved by management as of the date of this
document and was provided for the purpose of providing further
information about Spartan's future business operations. Spartan 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. Spartan 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 Spartan's guidance. The Company's
actual results may differ materially from these estimates.
References in this press release to peak rates, test rates,
initial 30 day production rates and other short-term production
rates 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 of Spartan. The
Company cautions that initial production rates are considered
preliminary.
Abbreviations
A&D
|
acquisitions and
dispositions
|
AECO
|
Alberta Energy Company
"C" Meter Station of the NOVA Pipeline System
|
AECO 7A
|
NGX AB-NIT Month Ahead
(7A) per the Canadian Gas Price Reporter
|
AFF
|
Adjusted Funds
Flow
|
AIF
|
refers to the Company's
Annual Information Form dated March 8, 2022
|
bbl
|
barrel
|
bbls/d
|
barrels per
day
|
BOE
|
barrels of oil
equivalent
|
BOE/d
|
barrels of oil
equivalent per day
|
COVID-19
|
refers to the outbreak
of the novel coronavirus, a public health crisis
|
ESG
|
Environment, Social and
Governance
|
G&A
|
general and
administrative expenses
|
GJ
|
gigajoule
|
mcf
|
one thousand cubic
feet
|
mmcf
|
one million cubic
feet
|
mcf/d
|
one thousand cubic feet
per day
|
mmcf/d
|
one million cubic feet
per day
|
MD&A
|
refers to Management's
Discussion and Analysis of the Company dated November 8,
2022
|
MM
|
millions
|
NI 51-101
|
National Instrument
51-101 – Standards of Disclosure for Oil and Gas
Activities
|
NGL(s)
|
natural gas
liquids
|
NYMEX
|
New York Mercantile
Exchange, with reference to the U.S. dollar "Henry Hub" natural gas
price index
|
Q2 2022
|
second quarter of
2022
|
Q3 2022
|
third quarter of
2022
|
Q3 2021
|
third quarter of
2021
|
TSX
|
Toronto Stock
Exchange
|
US$
|
United States
dollar
|
WTI
|
West Texas
Intermediate, the reference price paid in U.S. dollars at Cushing,
Oklahoma for crude oil of standard grade
|
SOURCE Spartan Delta Corp.