CALGARY, AB, Feb. 1, 2022 /CNW/ - Headwater Exploration Inc.
(the "Company" or "Headwater") (TSX:
HWX) is pleased to announce successful exploration well
results, fourth quarter 2021 production details and a material
expansion of its land base and prospect inventory. Highlights
include:
- Q4 2021 average production of 10,400 boe/d consisting of 9,400
bbls/d of heavy oil and 6 mmcf/d of natural gas
- 2021 exit working capital is estimated at $90 million and 2021 exit adjusted working
capital1 is estimated at $93
million
- Current production is approximately 12,400 boe/d (85% heavy
oil) which is on track with our first quarter 2022
expectations
- Three successful exploration wells
- Material growth in our prospect inventory with the addition of
75 net sections of unburdened land
- Ongoing three-rig program with two rigs drilling on our core
acreage and one rig dedicated to exploration wells
- Headwater's 100% owned 15,000 bbls/d oil processing facility is
on-line, on time and on budget
1
|
This press release
presents certain measures that do not have standardized meanings
under Canadian generally accepted accounting principles ("GAAP") to
assist readers in understanding the Company's performance. Further
details on these measures are included under the heading "Non-GAAP
Measures" in this press release.
|
Preliminary Fourth Quarter 2021 Results
Based on field estimates, fourth quarter 2021 production
averaged approximately 10,400 boe/d consisting of 9,400 bbls/d of
heavy oil and 6 mmcf/d of natural gas. Current production is
approximately 12,400 boe/d (85% heavy oil) which is on track with
our first quarter 2022 expectations. Core area heavy oil
production has recently exceeded 10,000 bbls/d.
On December 23, 2021, a subsidiary
of Cenovus Energy Inc. exercised warrants to purchase 15,000,000
common shares of the Company at an exercise price of $2.00 per share resulting in $30 million of cash proceeds received by
Headwater increasing our anticipated exit adjusted working capital
balance to approximately $93 million
as at December 31, 2021.
Marten Hills West Exploration Update
Three exploration wells were drilled, completed, and brought on
production in Marten Hills West during the fourth quarter of
2021. The results, in all cases, exceeded our expectations
and we are pleased to provide the following initial production
details.
The 00/08-34-075-03W5/03 well was drilled with 8 one-mile
laterals in the Clearwater B (lower Clearwater sand) and finished recovering load
fluid on December 20, 2021. On
its initial 42 days of production, post load recovery, it has
averaged 155 bbls/d of 19 degree API oil at an average water cut of
11%. This well represents Headwater's first test of the
Clearwater B formation and is anticipated to have unlocked a
significant Clearwater B resource in the Marten Hills West area. A
follow up well is expected to be drilled late in the first quarter
of 2022.
Two additional exploration wells targeting the Clearwater A
(upper Clearwater sand) were
drilled in the fourth quarter of 2021 as follow ups to the
successful 00/11-32-075-02W5/06 well placed on production in
September 2021. The first well, 00/11-05-076-02W5/03, was
drilled with 6 one-mile laterals and has produced at an average
rate of 275 bbls/d of 21 degree API oil at a water cut of 13% over
its first 31 days of production post load recovery. The
second well, 02/13-07-076-02W5/00, was drilled with 6 one-mile
laterals and has produced at an average rate of 215 bbls/d of 19
degree API oil at an average water cut of 6% over its first 19 days
of production post load recovery. These two wells, in
conjunction with our previous tests of the same pool have provided
confirmation of a substantial new pool discovery in the Clearwater
A formation. Additional drilling, including two stratigraphic
tests and two follow up locations, is currently scheduled to occur
in the first quarter of 2022.
One of our three drilling rigs continues to drill exploration
prospects with four additional distinct drilling prospects being
evaluated prior to the end of the first quarter of 2022. The
first two of these prospects, 00/15-29-075-01W5 and
00/16-27-074-01W5 were drilled with 6 one-mile laterals and were
placed on production at the end of January. They
continue to recover load fluid with first production results
available in conjunction with our fourth quarter and audited year
end 2021 financial results press release on March 10, 2022.
Undeveloped Land Update
Headwater has continued to be active with our land expansion
strategy as recent exploration success has increased technical
confidence in various play-types. Since October 1, 2021, we have been successful at
adding 75 net sections of unburdened exploration lands. This
increases our total exploration land holdings to greater than 350
net sections. Five new exploration prospects have been
identified on these recently acquired lands. We continue to
work through the logistics of drilling these prospects and
anticipate five wells will be drilled on four distinct prospects
during the fourth quarter of 2022.
2022 Guidance Update
Headwater's Board of Directors has approved an increase in the
2022 capital budget from $120 million
to $145 million to allow for the
drilling of the newly acquired exploration prospects. The
resulting increase in capital is expected to have a nominal
increase on 2022 production from the Company's previously released
2022 production guidance of 12,500 boe/d (11,500 bbls/d of heavy
oil and 6.2 mmcf/d of natural gas) but with success could have
meaningful impacts on location inventory and production in 2023 and
beyond.
At US$75/bbl WTI and Cdn$78.50/bbl WCS, the Company has increased its
forecasted 2022 adjusted funds flow from operations1
from $207 million to $223 million, resulting in estimated 2022 exit
adjusted working capital1 of $171
million.
1
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Adjusted funds flow
from operations and adjusted working capital are Non-GAAP Measures.
Further details on these measures are included under the heading
"Non-GAAP Measures" in this press release. Forecasted exit
adjusted 2022 working capital, which is a non-GAAP measure, is
equivalent to forecasted working capital as determined under GAAP
as the Company estimates the current impact of the financial
derivative receivable/liability to be nil in 2022.
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Facilities Update
Our oil processing facility was brought online on January 14, 2022. This facility has seen peak
inflow days of greater than 12,000 bbls/d of oil and continues to
operate seamlessly, resulting in an immediate $2.00/bbl reduction in transportation costs.
Field commissioning work will be ongoing through February, with
approximately 90% of Headwater's volumes expected to be pipeline
connected by March 1, 2022, resulting
in an additional $2.00/bbl reduction
in transportation costs. Commissioning of the water injection
facilities is expected to occur in March, with 6 additional
injection wells placed on injection prior to April 1, 2022.
The Company continues to rapidly grow from a combination of its
base assets and continued exploration success. The
significant growth continues to occur while spending less than our
cash flow. As the business strategy continues to evolve, there will
be an increased focus on returning excess free cash flow to
shareholders. While it is early, Headwater looks forward to
providing clarity on these elements over the next 12
months.
Headwater's guiding principles of shareholder value creation,
sustainability, asset development with an emphasis on
environmental, social, and governance goals, and maintaining a
pristine balance sheet continue to be unwavering.
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 revised 2022 guidance including
expected 2022 capital expenditures, expected nominal increase to
2022 production, forecast 2022 cash flow from operating activities,
forecast 2022 adjusted funds flow from operations and expected 2022
exit adjusted working capital; the expectation that success in the
newly acquired exploration prospects could have meaningful impacts
on location inventory and production in 2023 and beyond; the
expectation that successful exploration wells have unlocked a
significant resource in the Clearwater A and B resource in the
Marten Hills West area; the expectation that a follow up
exploration well is to be drilled in the Clearwater B late in the
first quarter of 2022; the expectation that additional drilling
including two stratigraphic tests and two follow up locations will
occur in the first quarter of 2022; the expectation that Headwater
will continue to drill exploration prospects with four additional
distinct drilling prospects expected to be evaluated prior to the
end of the first quarter in 2022; the expected timing of releasing
certain additional exploration drilling results; the expectation
that Headwater will drill five exploration wells evaluating four
distinct prospects on the Company's newly acquired undeveloped land
prior to the end of the fourth quarter in 2022; the expected timing
of the commissioning of water injection facilities in March 2022 and the expectation that six
additional injection wells will be placed on injection prior to
April 1, 2022; the expectation that
with the commissioning of Headwater's oil processing facility
ongoing in February 2022,
approximately 90% of Headwater volumes will be pipeline connected
and off truck by March 1, 2022,
resulting in an anticipated additional $2.00/bbl reduction in transportation costs; and
the expectation to focus on returning excess free cash flow to
shareholders. The forward-looking statements contained herein are
based on certain key expectations and assumptions made by the
Company, including but not limited to expectations and assumptions
concerning the success of optimization and efficiency improvement
projects, the availability of capital, current legislation, receipt
of required regulatory approval, the success of future drilling,
development and waterflooding activities, the performance of
existing wells, the performance of new wells, Headwater's growth
strategy, general economic conditions, availability of required
equipment and services, prevailing equipment and services costs and
prevailing commodity prices. Although the Company 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 the Company 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; disruptions to the Canadian and global
economy resulting from major public health events, including the
COVID-19 pandemic, war, terrorist events, political upheavals and
other similar events; events impacting the supply and demand for
oil and gas including the COVID-19 pandemic and actions taken by
the OPEC + group; delays or changes in plans with respect to
exploration or development projects or capital expenditures; access
to supply of goods necessary for operations due to supply chain
issues; the uncertainty of reserve estimates; the uncertainty of
estimates and projections relating to production, costs and
expenses, and health, safety and environmental risks), the
uncertainty associated with exploration and development projects,
including waterfloods, commodity price and exchange rate
fluctuations, the impacts of inflation, changes in legislation
affecting the oil and gas industry and uncertainties resulting from
potential delays or changes in plans with respect to exploration or
development projects or capital expenditures. Refer to Headwater's
most recent Annual Information Form dated March 10, 2021, on SEDAR at www.sedar.com, and
the risk factors contained therein.
The forward-looking statements contained in this press
release are made as of the date hereof and the Company undertakes
no obligation to update publicly 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.
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 2022
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. The assumptions used in the revised 2022 budget
include: WTI US$75.00/bbl, WCS
Cdn$78.50/bbl, AGT US$13.90/mmbtu and a foreign exchange rate of
US$/Cdn$ of 0.79. The AGT price is the volume weighted average
price for the winter producing months in the McCully field which
include January to April and November to December.
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
initial production 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. Additionally, such
rates may also include recovered "load oil" fluids used in well
completion stimulation. 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.
UNAUDITED FINANCIAL INFORMATION: Certain financial and
operating results included in this press release, including
production information, working capital and adjusted working
capital, are based on unaudited estimated results. These estimated
results are subject to change upon completion of the Company's
audited financial statements for the year ended December 31, 2021, and changes could be material.
Headwater anticipates filing its audited financial statements and
related management's discussion and analysis for the year ended
December 31, 2021, on March 10, 2022.
NON-GAAP MEASURES: This document contains the terms "free
cash flow", "adjusted working capital" and "adjusted funds flow
from operations" which do not have standardized meanings prescribed
by Canadian generally accepted accounting principles and therefore
may not be comparable with the calculation of similar measures by
other companies. In this press release, cash flow is equivalent to
adjusted funds flow from operations.
Free cash flow is defined as adjusted funds flow from
operations after capital expenditures. Headwater believes that free
cash flow is an indication of the amount of funds available for
future capital allocation decisions.
Adjusted working capital is used by the Company to measure
liquidity. Adjusted working capital is calculated as working
capital excluding the effects of the Company's financial derivative
receivable/payable and warrant liability. Forecasted exit
adjusted 2022 working capital is equivalent to forecasted working
capital as determined under GAAP as the Company estimates the
current impact of the financial derivative receivable/liability to
be nil in 2022. Reconciliation of adjusted working capital to
working capital is as follows:
($
thousands)
|
As at December
31,
2020
|
As at December
31,
2021
(unaudited)
|
2022 Revised
Guidance
As at December
31,
2022
|
Working
capital
|
70,528
|
90,000
|
171,000
|
Financial
derivative receivable/liability
|
(74)
|
3,000
|
-
|
Warrant
liability
|
10,305
|
-
|
-
|
Adjusted working
capital
|
80,759
|
93,000
|
171,000
|
Adjusted funds flow from operations is used by the Company to
analyze operating performance and the Company's ability to fund
future capital expenditures. Adjusted funds flow from operations is
calculated as cash flows from operating activities before changes
in non-cash working capital and transaction costs, as
follows:
($
thousands)
|
Year ended
December 31, 2020
|
2022 Revised
Guidance
Year ended
December 31, 2022
|
Cash flows
provided by operating activities
|
230
|
212,000
|
Changes in
non-cash working capital
|
1,222
|
11,000
|
Transaction
costs
|
7,330
|
-
|
Adjusted funds
flow from operations
|
8,782
|
223,000
|
SOURCE Headwater Exploration Inc.