REG - Southern Energy Corp - CAPITAL BUDGET, OPERATIONAL AND RESERVES UPDATE

Southern EnergyAnnouncement

29/03/2023 07:00

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RNS Number : 6001U  Southern Energy Corp.  29 March 2023

SOUTHERN ENERGY CORP. ANNOUNCES 2023 CAPITAL BUDGET AND GWINVILLE OPERATIONAL
UPDATE, YEAR END RESERVES UPDATE AND JOINT BROKER APPOINTMENTS

 

Calgary, Alberta - March 29, 2023 - Southern Energy Corp. ("Southern" or the
"Company") (TSXV:SOU) (AIM:SOUC) (OTCQX:SOUTF) is pleased to announce its:

·    2022 Year End Reserves Upgrade:

o  Highlights of the Company's year end independent oil and gas reserves
evaluation as at December 31, 2022 (the "NSAI Report") include:

§ an increase in proved developed producing ("PDP") reserves of 25% to 6.2
MMboe

§ an increase in total proved ("1P") reserves of 44% to 14.1 MMboe

§ an increase in total proved plus probable ("2P") reserves by 31% to 25.5
MMboe in 2022

§ before-tax net present value ("NPV") of 2P reserves, discounted at 10%
("NPV10"), of $142.5 million (an increase of 61% on year end 2021)

·    Gwinville Operational Update:

o  The Company announces the completion of its current drilling campaign of
seven horizontal wells

o  Through technical improvements, Southern has reduced the average time from
spud to total depth of its Gwinville wells from approximately 21 days to
between 9-12 days and averaging 80-100% lateral placement in the high-graded
porosity interval

·    Capital Budget Update:

o  In response to the current low natural gas prices, Southern plans to
moderate the Gwinville organic growth program from the planned capital budget
of US$101.0 million announced in November 2022 to approximately US$55.0
million

o  Under its revised capital plan, Southern will have drilled seven
horizontal wells at the Gwinville asset, completed three wells and have four
wells remain as drilled but uncompleted ("DUCs") to be brought on in the
future once natural gas prices are more supportive

·    Broker Appointments:

o  Stifel Nicolaus Europe Limited and Tennyson Securities have both been
appointed as the Company's joint corporate brokers with immediate effect

 

Ian Atkinson, President & Chief Executive Officer of Southern, commented:

 

"Although the drop in natural gas prices has brought us to the decision to
moderate our Gwinville capital program, the overall impact of the applied
learnings from the 2022 appraisal program have paid off and we are happy with
the early results. In the current program we have drilled seven horizontal
wells with longer laterals than the original appraisal wells in half the time
on a per well basis and proven that the re-interpretation of our 3D seismic
has improved our overall ability to stay within the targeted zone. We have
positioned ourselves for the inevitable rebound in natural gas prices and look
forward to moving equipment and manpower back into the Gwinville field quickly
as price recovery occurs to re-initiate our organic growth plans and take
advantage of maximising cashflows at the opportune time."

 

Gary McMurren, Chief Operating Officer, commented:

 

"We are excited to report another year of material reserves growth in all
major categories for the Company, highlighted by conservative additions to our
Gwinville horizontal Selma Chalk inventory following our successful appraisal
program in 2022. In our current development program, we will be testing two
Lower Selma Chalk and two City Bank horizontal laterals with our modern
completion design. The Lower Selma Chalk has only minimal reserve bookings in
this year's report, and we have yet to book any City Bank development
reserves, so upon completion of these horizons over the next few months, we
expect to continue to add significant and predictable reserves growth in
Gwinville for years to come.

 

The NSAI Report highlights the extensive running room and future development
potential of only one of our existing core assets which will deliver long term
sustainable free funds flow and organic growth. Further work is expected to
unlock additional value for Southern shareholders, with the potential to
significantly grow reserves in our portfolio in a short time frame.

 

With an average operating cost in 2022 of under $0.80/Mcfe, Southern has some
of the highest margin natural gas assets in North America, which continues to
benefit the business model and provide strong cashflow for the Company."

Gwinville Operational Update

The Company is pleased to summarize the results of the current capital program
to date as compared to the 19-3 padsite appraisal program:

 

 Well Name  Zone         Spud to TD (days)  Lateral Length (ft)  % in zone  Frac Stages  Total Proppant (million lbs)  Proppant Loading (lb/ft)  IP30 (MMcf/d)
 Historic Appraisal Drilling
 19-3 #2    Upper Selma  20.2               3,498                90         41           6.6                           1,884                     6.5
 19-3 #3    Upper Selma  18.5               4,146                50         44           7.0                           1,700                     3.6
 19-3 #4    Upper Selma  22.2               4,623                50         50           8.0                           1,650                     4.0
 Current Drilling Campaign
 18-10 #1   City Bank    14.4               5,744                100        50           10.0                          1,747                     TBD
 18-10-#2   Upper Selma  12.0               4,699                50         43           8.6                           1,830                     3.3
 18-10 #3   Upper Selma  11.6               5,091                80         44           9.0                           1,771                     TBD
 14-6 #3    Upper Selma  10.4               5,525                85         Not yet completed
 14-6 #4    Lower Selma  9.4                5,521                100        Not yet completed
 13-13 #2   Lower Selma  9.3                5,302                96         Not yet completed
 13-13 #3   City Bank    12.9               5,118                100        Not yet completed

Gwinville 18-10 Padsite

The Company is pleased to report the initial 30-day production rate ("IP30")
on the first well of the 18-10 pad out of a total of seven wells drilled to
date in the capital program. The 18-10 #2 Upper Selma Chalk well recently
reached an IP30 of 3.3 MMcf/d, which is similar to the 19-3 #3 and #4
appraisal wells, and below early type curve expectations for these Generation
3 well designs. The well encountered some unpredicted faulting and was drilled
with only 50% of that lateral length within the high-grade porosity interval.
Although below Generation 3 type curve estimates, the result is representative
of a well with an effective lateral length in the high-graded porosity
interval of less than 2,600 feet.

 

The 18-10 #3 Upper Selma Chalk well achieved approximately 80% of the lateral
within the high-grade porosity interval and was completed with a 44-stage
stimulation. The Company experienced a mechanical wellbore integrity issue
during the completion and plans to perform remedial work on the well and
establish production in Q2 or Q3 of this year.

 

The 18-10 #1 City Bank well was drilled to a lateral length of approximately
5,744 feet with 100% of the lateral drilled in the target interval. The well
was successfully stimulated with a 50-stage completion operation and is in
early stages of completion flowback currently producing flowback water at 5%
of load recovery. Southern does not expect to see peak gas rates until the
well has recovered approximately 20% of load fluid based on historically
stimulated vertical and Generation 1 horizontal wells in the City Bank
reservoir at which time the Company will report on initial production. The
Company is encouraged by the early results and looks to add significant net
asset value to the reserve books in 2023 as no proven undeveloped or probable
locations have been attributed to the City Bank zone to-date.

 

Gwinville Drilling Efficiencies

 

As a follow-up to the three well Upper Selma Chalk appraisal program from Q2
2022, which has recovered approximately 55% of upfront capital in less than
nine months of production, Southern identified two major technical
improvements to be employed on future activity. The re-interpretation of the
3D seismic to provide a higher resolution assessment of the reservoir, coupled
with the utilization of a rotary steerable downhole drilling assembly that
allows for immediate and more responsive corrections, has resulted in a
significant improvement to the lateral length drilled in the high porosity
interval and a significant reduction in overall drilling times. Utilizing
these changes, Southern has reduced the average time from spud to total depth
of these wells from approximately 21 days to between 9-12 days and averaging
80-100% lateral placement in the high-graded porosity interval. The learnings
and cost savings achieved early in this program are expected to translate into
all future Gwinville drilling.

The Company's first padsite in the winter program was the 18-10 pad, which has
two Upper Selma Chalk laterals and the first City Bank lateral. Next, the rig
drilled the 14-06 pad that contained one Upper Selma Chalk lateral, and the
first Lower Selma Chalk lateral. The rig has recently finished drilling the
13-13 pad with the second City Bank and Lower Selma Chalk laterals. The
drilling rig has been released and the final four laterals will remain as DUCs
until natural gas prices are more supportive of capital spending on organic
growth.

 

Capital Budget Update

 

In response to the current low natural gas prices and guided by principles
focused on full-cycle value creation, Southern plans to moderate the Gwinville
organic growth program from the planned capital budget of US$101.0 million
announced in November 2022 to approximately US$55.0 million. Under its revised
capital plan, Southern will have drilled seven horizontal wells at the
Gwinville asset, completed three wells and have four wells remain as DUCs to
be brought online in a higher natural gas price environment. These changes to
the program at Gwinville will preserve capital, allow Southern the optionality
to bring on high volume natural gas production at opportune natural gas prices
and retain an inventory of high value development targets.

Year End Reserves Upgrade

Southern is pleased to announce selected highlights of the Company's year end
independent oil and gas reserves evaluation as at December 31, 2022. The NSAI
Report was prepared by independent qualified reserves evaluator, Netherland,
Sewell and Associates, Inc. ("NSAI"). All currency amounts are in United
States dollars (unless otherwise stated) and comparisons refer to December 31,
2021. Financial information contained herein is based on the Company's
unaudited results for the year ended December 31, 2022 and is subject to
change. The Company anticipates announcing its fourth quarter and audited year
end 2022 financial results and filing an annual information form ("AIF") for
the year ended December 31, 2022, in April 2023.

 

 

Highlights:

 

•        Relative to year-end 2021, and accounting for 2022
production volumes, the NSAI Report states

 

•       an increase in PDP reserves of 25% to 6.2 MMboe

•       an increase in 1P reserves of 44% to 14.1 MMboe

•       an increase in 2P reserves by 31% to 25.5 MMboe in 2022

•       a reserve life index ("RLI") of more than 8 years for PDP
reserves and 15 years for 2P reserves, based on the 2023 production forecast

 

•        Successful organic growth and appraisal drilling resulted in
strong reserves replacement (relative to 2022 production) in all reserve
categories:

 

•       PDP replacement of 153%

•       1P replacement of 484%

•       2P replacement of 656%

 

•        At year end 2022, achieved record before-tax NPV10,
evaluated using the average forecast pricing of four independent reserve
evaluators as at January 1, 2023;

 

•       PDP: $51.6 million (59% increase on year end 2021)

•       1P: $85.3 million (59% increase on year end 2021)

•       2P: $142.5 million (61% increase on year end 2021)

 

•       Additional drilling locations identified at Gwinville, based
on 2022 Selma Chalk horizontal drilling success, which are expected to add
material levels of production.

 

In addition, inter alia, to the summary information disclosed in this press
release, more detailed information regarding Southern's oil and gas reserves
will be included in the Company's AIF to be filed on SEDAR (www.sedar.com
(https://url.avanan.click/v2/___http:/www.sedar.com___.YXAzOnNvdXRoZXJuZW5lcmd5Y29ycDphOm86ODE1Mzc2NWE2ZWIyNTAzMDc2Zjc0MmI1MzY1YzhiYjk6NjpiZTUzOjUxYzc5ZmMxMmI4NWMyOGRkYTc2MTZlZTRkODk3YTVkNzdhYWZmOWQ1NDA3OGU2N2JmZDAwZWI2OTA0ZGEwNDM6cDpU)
).

 

2022 Independent Qualified Reserve Evaluation

 

The following tables highlight the findings of the NSAI Report, which was
prepared in accordance with definitions, standards and procedures contained in
National Instrument 51-101 - Standards of Disclosure for Oil and Gas
Activities ("NI 51-101") and the most recent publication of the Canadian Oil
and Gas Evaluation ("COGEH"). All evaluations and summaries of future net
revenue are stated prior to the provision for interest, debt service charges
or general and administrative expenses and after deduction of royalties,
operating costs, estimated well abandonment and reclamation costs, and
estimated future capital expenditures. The NSAI Report was based on the
average forecast pricing of the following four independent external reserves
evaluators: GLJ Ltd, Sproule Associates Limited, McDaniel & Associates
Consultants Ltd and Deloitte LLP. Additional reserves information as required
under NI 51-101 will be included in Southern's AIF, which will be filed on
SEDAR in April 2023. The numbers in the tables below may not add due to
rounding.

 

Summary of Reserves Volumes as at December 31, 2022

 

The Company's reserve volumes and undiscounted future development capital
costs are summarized below as at December 31, 2022:

 SUMMARY OF RESERVE VOLUMES ((1))  Light and Medium Oil (Mbbls)  Condensate           (Mbbls)            NGL                           (Mbbsl)                            Conventional        Natural                                    Total              Mboe               FDC Costs ($M)
                                                                                                                                                                          Gas                          (MMcf)
 Proved Developed Producing        79                            203                                     49                                                               35,281                                                         6,211                                 -
 Proved Developed Non-Producing     55                           65                                      5                                                                9,793                                                          1,757                                 8,136
 Proved Undeveloped                -                             369                                     113                                                              34,010                                                         6,150                                 71,567
 Total Proved                      134                           637                                     166                                                              79,084                                                         14,117                                79,702
 Probable                          41                            188                                     13                                                               66,579                                                         11,338                                84,832
 Total Proved Plus Probable        175                           825                                     178                                                              145,663                                                        25,456                                164,533

(1)      Gross working interest reserves before royalty deductions.

 

The following table outlines the changes in Southern's reserves and reserve
life index as at December 31, 2022 compared to December 31, 2021:

 

 CHANGE IN RESERVES AND RESERVE LIFE INDEX((1,2))    2022    2021    % Change
 Reserves (Mboe)
    Proved Developed Producing                       6,211   5,707   25%
    Total Proved                                     14,117  10,479  44%
    Total Proved Plus Probable                       25,456  20,178  31%
 PDP as % of 2P                                      24%     28%     (14%)
 1P as % of 2P                                       55%     52%     7%
 Reserve Life Index (years)
    Proved Developed Producing                       8.2     8.5     (4%)
    Total Proved                                     11.5    15.6    (26%)
    Total Proved Plus Probable                       15.1    18.1    (17%)

(1)       Percent change includes 2022 actual production of 948.4 Mboe

(2)       The RLI as at December 31, 2022 is calculated as gross working
interest reserves divided by the projected annual production forecast in each
reserve category for 2023.  See "Disclosure of Oil and Gas Information"

 

Southern's total 2P reserves increased by 31% to 25.5 MMboe resulting in a 2P
reserve life index of 15.1 years on projected annual 2P production for 2023.
Southern's 2022 Selma Chalk horizontal well appraisal program helped the
Company achieve a 25% increase in PDP reserves to 6.2 MMboe.

 

Net Present Value of Future Net Revenue as at December 31, 2022

 

The following table summarizes the net present value, at varying discount
rates, of the Company's reserves (before-tax) as at December 31, 2022.  The
reserves value on a $/boe basis, discounted at 10% per year, is also
summarized for each category.

 NET PRESENT VALUE BEFORE-TAX    0%                   (M$)                    10%                 (M$)                  20%                 (M$)                  Unit Value((1)) Before Income Tax, Discounted at 10%/year ($/boe)
 Proved Developed Producing      84,730                                       51,617                                    38,860                                    10.61
 Proved Developed Non-Producing                29,510                         11,376                                    6,587                                     8.42
 Proved Undeveloped              73,834                                       22,343                                    4,400                                     4.51
 Total Proved                    188,074                                      85,336                                    49,847                                    7.64
 Probable                        180,679                                      57,191                                    24,546                                    6.36
 Total Proved Plus Probable      368,753                                      142,528                                   74,393                                    7.07

(1)       Unit values are based on net reserves.  Net reserves are the
Company's working interest reserves after deduction of royalties

 

Forecast Prices Used in Estimates

 

The following table outlines the forecasted future prices used by NSAI in its
evaluation of the Company's reserves at December 31, 2022, for the NSAI
Report, which are based on a four-consultant average price forecast, as
detailed above. The forecast cost and price assumptions assume increases in
wellhead selling prices and consider inflation with respect to future
operating and capital costs.

 

 FUTURE COMMODITY PRICE FORECAST  WTI Cushing  NYMEX

                                  Oklahoma     Henry Hub

                                  $/bbl        $/MMBtu
 2023                             80.25        4.93
 2024                             78.19        4.66
 2025                             76.10        4.42
 2026                             76.96        4.50
 2027                             78.50        4.59
 2028                             80.07        4.68
 2029                             81.67        4.78
 2030                             83.30        4.87
 2031                             84.96        4.97
 2032                             86.67        5.08
 Thereafter                       + 2.0%/year  + 2.0%/year

 

Reserves Reconciliation

 

The following table sets out the reconciliation of Southern's gross reserves
based on forecast prices and costs by principal product type as at December
31, 2022 relative to December 31, 2021. The majority of 1P and 2P reserves
increases, year-on-year, came from recognition of the Gwinville Selma Chalk
horizontal locations from infill drilling.

 

 RESERVES((1)) RECONCILIATION  PDP (Mboe)  1P (Mboe)  Probable (Mboe)  2P (Mboe)
 December 31, 2021             5,707        10,479    9,699            20,178
 Discoveries                   -            -         -                -
 Extensions                    -           -          -                -
 Infill Drilling               624         3,747      1,281            5,028
 Improved Recovery             -           -          -                -
 Technical Revisions((2))      (34)        (30)       259              229
 Acquisitions                  43           55        1                56
 Dispositions                  (40)        (40)       (22)             (62)
 Economic Factors              860         856        120              976
 Production((3))               (948)       (948)      -                (948)
 December 31, 2022             6,211       14,117     11,338           25,456

(1)      Gross working interest reserves before royalty deductions

(2)      Technical revisions also include reserves associated with
changes in operating costs and commodity price offsets

(3)      Produced volumes for the year ended December 31, 2022 are
internally estimated

 

 

 

Appointment of Joint Broker

 

Southern is pleased to report that Stifel Nicolaus Europe Limited and Tennyson
Securities have both been appointed as the Company's joint corporate brokers
with immediate effect, alongside Canaccord Genuity.  Strand Hanson remain
the Company's Nominated and Financial Adviser.

 

Corporate Presentation

 

A new corporate presentation dated March 2023 is now available on the Company
website at www.southernenergycorp.com
(https://url.avanan.click/v2/___http:/www.southernenergycorp.com___.YXAzOnNvdXRoZXJuZW5lcmd5Y29ycDphOm86NDcwMjY5OGIwZWUyMzIxNTQxZWI3OTBkYTY3OGUxZTg6Njo2ZjZiOjMzZTE1MTBkMGQ5OWExNmJiZThjNzY1YTRkOGI0ZTQwOWE3YzI4NGI1NDhjY2VkZWJlNmI1NzhiYTE5YjdhMzc6cDpU)
.

 

For further information, please 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      +44 (0) 20 7409 3494

 James Spinney / James Bellman

 Canaccord Genuity - Joint Broker                           +44 (0) 20 7523 8000

 Henry Fitzgerald-O'Connor / James Asensio
 Stifel Nicolaus Europe Limited - Joint Broker              +44 (0) 20 7710 7600

 Callum Stewart / Ashton Clanfield

 Tennyson Securities - Joint Broker                         +44 (0) 20 7186 9033

 Peter Krens / Pav Sanghera

 Camarco                                                    +44 (0) 20 3757 4980

 Owen Roberts / Billy Clegg / Hugo Liddy

 

The information contained within this announcement is deemed by the Company to
constitute inside information as stipulated under the Market Abuse Regulation
(EU) No. 596/2014 as it forms part of United Kingdom domestic law by virtue of
the European Union (Withdrawal) Act 2018, as amended.

About Southern Energy Corp.

Southern Energy Corp. is a natural gas exploration and production company.
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.

Qualified Person's Statement

 

Gary McMurren, Chief Operating Officer, who has over 23 years of relevant
experience in the oil industry and 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.

 

Disclosure of Oil and Gas Information

 

AIF. The reserves information and data provided in this press release presents
only a portion of the disclosure required under NI 51-101. Southern's
Statement of Reserves Data and Other Oil and Gas Information on Form 51-101F1
dated effective as at December 31, 2022, which will include further disclosure
of Southern's oil and gas reserves and other oil and gas information in
accordance with NI 51-101 and COGEH forming the basis of this press release,
will be included in the AIF which will be available on SEDAR at www.sedar.com
in April 2023.

Unit Cost Calculation. 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.

Product Types. Throughout this press release, "crude oil" or "oil" refers to
light and medium crude oil product types as defined by 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.

Short-Term Production. References in this press release to peak rates, IP30
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 Southern.

Reserves and Future Net Revenue Disclosure. All reserves values, future net
revenue and ancillary information contained in this press release are derived
from the NSAI Report unless otherwise noted. All reserve references in this
press release are "Company gross reserves". Company gross reserves are the
Company's total working interest reserves before the deduction of any
royalties payable by the Company. Estimates of reserves and future net revenue
for individual properties may not reflect the same level of confidence as
estimates of reserves and future net revenue for all properties, due to the
effect of aggregation. There is no assurance that the forecast price and cost
assumptions applied by NSAI in evaluating Southern's reserves will be attained
and variances could be material. All reserves assigned in the NSAI Report are
located in the State of Mississippi and presented on a consolidated basis.

All evaluations and summaries of future net revenue are stated prior to the
provision for interest, debt service charges or general and administrative
expenses and after deduction of royalties, operating costs, estimated well
abandonment and reclamation costs and estimated future capital expenditures.
It should not be assumed that the estimates of future net revenues presented
in the tables below represent the fair market value of the reserves. The
recovery and reserve estimates of Southern's crude oil, natural gas liquids
and natural gas reserves provided herein are estimates only and there is no
guarantee that the estimated reserves will be recovered. Actual crude oil,
natural gas and natural gas liquids reserves may be greater than or less than
the estimates provided herein. There are numerous uncertainties inherent in
estimating quantities of crude oil, reserves and the future cash flows
attributed to such reserves. The reserve and associated cash flow information
set forth herein are estimates only.

Proved reserves are those reserves that can be estimated with a high degree of
certainty to be recoverable. It is likely that the actual remaining quantities
recovered will exceed the estimated proved reserves. Probable reserves are
those additional reserves that are less certain to be recovered than proved
reserves. It is equally likely that the actual remaining quantities recovered
will be greater or less than the sum of the estimated proved plus probable
reserves. Proved developed producing reserves are those reserves that are
expected to be recovered from completion intervals open at the time of the
estimate. These reserves may be currently producing or, if shut-in, they must
have previously been on production, and the date of resumption of production
must be known with reasonable certainty. Undeveloped reserves are those
reserves expected to be recovered from known accumulations where a significant
expenditure (e.g., when compared to the cost of drilling a well) is required
to render them capable of production. They must fully meet the requirements of
the reserves category (proved, probable, possible) to which they are assigned.
Certain terms used in this press release but not defined are defined in NI
51-101, CSA Staff Notice 51-324 - Revised Glossary to NI 51-101, Revised
Glossary to NI 51-101, Standards of Disclosure for Oil and Gas Activities
("CSA Staff Notice 51-324") and/or the COGEH and, unless the context otherwise
requires, shall have the same meanings herein as in NI 51-101, CSA Staff
Notice 51-324 and the COGEH, as the case may be.

Oil and Gas Metrics. This press release contains metrics commonly used in the
oil and natural gas industry, such as development capital.

"Development capital" means the aggregate exploration and development costs
incurred in the financial year on reserves that are categorized as
development. Development capital presented herein excludes land and
capitalized administration costs but includes the cost of acquisitions and
capital associated with acquisitions where reserve additions are attributed to
the acquisitions. These terms have been calculated by management and do not
have a standardized meaning and may not be comparable to similar measures
presented by other companies, and therefore should not be used to make such
comparisons. Management uses these oil and gas metrics for its own performance
measurements and to provide shareholders with measures to compare Southern's
operations over time. Readers are cautioned that the information provided by
these metrics, or that can be derived from the metrics presented in this press
release, should not be relied upon for investment or other purposes.

Abbreviations

 bbl         barrels
 Mbbls       thousand barrels
 bbls/d      barrels per day
 $M          thousands of US dollars
 boe         barrels of oil equivalent
 Mboe        thousand barrels of oil equivalent
 MMboe       million barrels of oil equivalent
 boe/d       barrels of oil equivalent per day
 Bcfe        billion cubic feet equivalent
 Mcfe        million cubic feet equivalent
 GJ          gigajoule
 Mcf         thousand cubic feet
 Mcf/d       thousand cubic feet per day
 MMcf/d      million cubic feet per day
 MMBtu       million British Thermal Units
 NYMEX - HH  New York Mercantile Exchange - Henry Hub
 WTI         West Texas Intermediate, the reference price paid in U.S. dollars at Cushing,
             Oklahoma for the crude oil standard grade
 FDC         future development costs

 

Forward Looking Information

This press release contains certain forward-looking information (collectively
referred to herein as "forward-looking statements") within the meaning of
applicable Canadian securities laws. Forward-looking statements are often, but
not always, identified by the use of words such as "guidance", "outlook",
"anticipate", "target", "plan", "continue", "intend", "consider", "estimate",
"expect", "may", "will", "should", "could" or similar words suggesting future
outcomes. More particularly, this press release contains statements
concerning: Southern's business strategy, objectives, strength and focus;
future consolidation activity and organic growth; future intentions with
respect to return of capital; oil and natural gas production levels, decline
rates, free funds flow; anticipated operational results for 2023 including,
but not limited to, estimated or anticipated production levels, capital
expenditures and drilling plans and locations; expectations regarding
commodity prices; the performance characteristics of the Company's oil and
natural gas properties; the ability of the Company to achieve drilling success
consistent with management's expectations; risk management activities;
estimates as to preliminary unaudited financial information for December 31,
2022; and the source of funding for the Company's activities including
development costs. Statements relating to production, reserves, recovery,
replacement, costs and valuation 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 document are based on certain
key expectations and assumptions made by Southern, including those relating
to: the business plan of Southern; the timing of and success of future
drilling, development and completion activities; the geological
characteristics of Southern's properties; prevailing commodity prices, price
volatility, price differentials and the actual prices received for the
Company's products; the availability and performance of drilling rigs,
facilities, pipelines and other oilfield services; the timing of past
operations and activities in the planned areas of focus; the drilling,
completion and tie-in of wells being completed as planned; the performance of
new and existing wells; the application of existing drilling and fracturing
techniques; prevailing weather and break-up conditions; royalty regimes and
exchange rates; the application of regulatory and licensing requirements; the
continued availability of capital and skilled personnel; the ability to
maintain or grow the banking facilities; the accuracy of Southern's geological
interpretation of its drilling and land opportunities, including the ability
of seismic activity to enhance such interpretation; and Southern's ability to
execute its plans and strategies.

Although management considers these assumptions to be reasonable based on
information currently available, undue reliance should not be placed on the
forward-looking statements because Southern can give no assurances that they
may prove to be correct. By their very nature, forward-looking statements are
subject to certain risks and uncertainties (both general and specific) that
could cause actual events or outcomes to differ materially from those
anticipated or implied by such forward-looking statements. These risks and
uncertainties include, but are not limited to: incorrect assessments of the
value of benefits to be obtained from exploration and development programs;
changes in the financial landscape both domestically and abroad, including
volatility in the stock market and financial system; wars (including Russia's
war in Ukraine); risks associated with the oil and gas industry in general
(e.g. operational risks in development, exploration and production; and delays
or changes in plans with respect to exploration or development projects or
capital expenditures); commodity prices; increased operating and capital costs
due to inflationary pressures; the uncertainty of estimates and projections
relating to production, cash generation, costs and expenses; health, safety,
litigation and environmental risks; inflationary risks; access to capital; and
the COVID-19 pandemic. Due to the nature of the oil and natural gas industry,
drilling plans and operational activities may be delayed or modified to react
to market conditions, results of past operations, regulatory approvals or
availability of services causing results to be delayed. Please refer to the
annual information form for the year ended December 31, 2021, the management's
discussion and analysis for the period ended September 30, 2022 (the
"MD&A") and other continuous disclosure documents for additional risk
factors relating to Southern, which can be accessed either on Southern's
website at www.southernenergycorp.com or under the Company's profile on
www.sedar.com.

The forward-looking statements contained in this press release are made as of
the date hereof and the Company does not undertake any obligation to update
publicly or to revise any of the included forward-looking statements, except
as required by applicable law. The forward-looking statements contained herein
are expressly qualified by this cautionary statement.

This press release contains future-oriented financial information and
financial outlook information (collectively, "FOFI") about Southern's
prospective results of operations, operating costs and margins, free funds
flow and expectations regarding continued significant and predictable reserves
growth, 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.

 

Specified Financial Measures. This press release provides various financial
measures that do not have a standardized meaning prescribed by 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. Operating netback is not a
recognized measure under IFRS. Readers are cautioned that 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
(https://url.avanan.click/v2/___http:/www.southernenergycorp.com/___.YXAzOnNvdXRoZXJuZW5lcmd5Y29ycDphOm86NDcwMjY5OGIwZWUyMzIxNTQxZWI3OTBkYTY3OGUxZTg6Njo2ZmIzOjBjMWRmMTQ1ZTc1MzIyN2I0NWRmNjc1Yjc2ZTk0OGIwMzY5ZDc3YzA2ZjBkNTE2M2IyYmM0NDYwNjE5ZTgyNjA6cDpU)
and filed on SEDAR.

 

"Operating Netback" (non-IFRS financial measure) equals total oil and natural
gas sales less royalties, production taxes, operating expenses, transportation
costs and realized gain / (loss) on derivatives. Management considers
operating netback an important measure to evaluate its operational
performance, as it demonstrates field level profitability relative to current
commodity prices.

 

Neither 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.

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