REG - Southern Energy Corp - FIRST QUARTER 2022 FINANCIAL AND OPERATING RESULTS

Southern EnergyAnnouncement

27/05/2022 07:00

For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20220527:nRSa0077Na&default-theme=true

RNS Number : 0077N  Southern Energy Corp.  27 May 2022

SOUTHERN ENERGY CORP. ANNOUNCES FIRST QUARTER 2022 FINANCIAL AND OPERATING RESULTS

 

Calgary, Alberta - May 26, 2022 - Southern Energy Corp. ("Southern" or the
"Company") (TSXV:SOU) (AIM:SOUC) today announces the release of its first
quarter financial and operating results for the three months ended March 31,
2022.

Southern is an established producer with natural gas and light oil assets in
Mississippi characterized by a stable, low-decline production base, a
significant low-risk drilling inventory and strategic access to the best
commodity pricing in North America. Selected financial and operational
information is outlined below and should be read in conjunction with the
Company's unaudited consolidated financial statements (the "Financial
Statements") and related management's discussion and analysis (the "MD&A")
for the three months ended March 31, 2022, which are available on the
Company's website at www.southernenergycorp.com and have been filed on SEDAR.

All figures referred to in this news release are denominated in U.S. dollars,
unless otherwise noted.

FIRST QUARTER 2022 HIGHLIGHTS

·    $2.2 million of adjusted funds flow from operations 1  in Q1 2022, an
increase of 121% from the same period in 2021

·    Petroleum and natural gas sales of $5.9 million in Q1 2022, an
increase of 54% from the same period in 2021

·    Q1 2022 average production of 11,515 Mcfe/d 2  (1,919 boe/d) (92%
natural gas), an 11% decrease from the same period in 2021

·    Rig released two (2.0 net) wells of the three well program at
Gwinville in Q1 2022 with the third well rig released in April 2022

·    Net loss of $1.9 million in Q1 2022 ($0.02 per share - basic and
diluted), with an unrealized loss on derivatives of $2.9 million, compared to
a net loss of $0.6 million in Q1 2021

·    Exited Q1 2022 with Net Debt(1) of $10.7 million, and Net Debt to Q1
2022 annualized Adjusted Funds Flow from Operations(1) of 1.2x

·    Average realized oil and natural gas prices for Q1 2022 of $95.20/bbl
and $4.87/Mcf, respectively, reflecting the benefit of strategic access to
premium-priced US sales hubs

·    On February 1, 2022, Southern disposed of all of its assets from its
non-core Smackover cash generating unit for net proceeds of $0.8 million

SUBSEQUENT EVENTS

·    On April 8, 2022, Southern entered into a second amendment (the
"Second Amendment") to its senior secured term loan of up to $8.5 million (the
"New Facility") which, combined with the first amendment (the "First
Amendment") effective December 30, 2021, resulted in: (a) an increase of
Tranche B to $4.5 million ($4.0 million available to borrow); (b) an extension
of the availability to June 30, 2022; and (c) the exclusion of transaction
costs related to the Company's August 2021 admission to the AIM market of the
London Stock Exchange from the calculation of EBITDAX (as such term is defined
in the Financial Statements)

Operational Update

In May 2022, Southern commenced completion operations on the three-well
horizontal padsite in the Gwinville asset. The first well to begin flowback
following the stimulation was the GH 19-3 #3 well, which came on-line on May
25, 2022. The GH 19-3 #2 and GH 19-3 #4 wells are expected to be on-line
shortly, and the Company is looking forward to providing initial production
results in the coming weeks.

 

During Q1 2022, the Company experienced high third-party pipeline operating
pressures in the Mount Olive field which negatively impacted production, but
this situation has since been resolved by optimizing compression needs in the
field. Current May 2022 production estimates are back to expected levels of
approximately 11,820 Mcfe/d 3  (1,970 boe/d). Q1 2022 also reflects the first
quarter of the non-core oil dispositions which amount to a loss of
approximately 240 Mcfe/d 4  (40 boe/d).

 

Financial Highlights

                                                      Three months ended March 31,
 (000s, except $ per share)                           2022                     2021
 Petroleum and natural gas sales                      $         5,925          $         3,857
 Net loss                                             (1,855)                  (631)
 Net loss per share
     Basic                                            (0.02)                   (0.02)
     Fully diluted                                    (0.02)                   (0.02)
 Adjusted funds flow from operations ((1))            2,234                    1,011
 Adjusted funds flow from operations per share ((1))
     Basic                                            0.03                     0.04
     Fully diluted                                    0.03                     0.04
 Capital expenditures                                 6,872                    57
 Weighted average shares outstanding
     Basic                                            78,153                   27,596
     Fully diluted                                    78,153                   27,596
 As at period end
 Basic common shares outstanding                      78,200                   27,596
 Total assets                                         48,534                   29,339
 Non-current liabilities                              11,777                   10,033
 Net debt ((1))                                       $     10,745             $      22,524

Notes:

((1)         ) See "Reader Advisories - Specified Financial
Measures".

 

 

 

Outlook

With the results of our three well drilling program at Gwinville expected
imminently, our focus remains on the delivery of these results in an efficient
and safe manner. Success with these three wells may see Southern commencing a
continual drilling program at Gwinville, taking advantage of our low-risk
drilling inventory.

These first three Gwinville horizontal wells could deliver material production
increases for the Company and, given the current commodity prices and
production not being hedged from these wells, will deliver significant
near-term cash flow.

As part of its risk management and sustainability strategy, Southern has
entered into some fixed price and costless collar hedges which will cover its
existing production wells to mitigate the effects of market volatility while
retaining the ability to participate in potential natural gas price
appreciation during 2022. On January 28, 2022, Southern entered into a fixed
price hedge on production of 2,000 MMBtu/d of natural gas at a price of
$4.61/MMBtu from March 1, 2022 through December 31, 2022. On April 4, 2022,
Southern entered into a costless collar with a floor of $3.50/MMBtu and a
ceiling of $20.00/MMBtu for 2,000 MMBtu/d of natural gas from November 1, 2022
through March 31, 2023. A complete list of the fixed price and costless collar
contracts can be found within Southern's first quarter MD&A.

The Company's long-term strategy remains consistent into 2022, with an
unwavering commitment to environmental, social and governance ("ESG")
principles that support the continued development and consolidation of
prolific reservoirs that are outside of the more expensive shale basins. Cost
savings and financial discipline will remain a priority through the continued
enhancement of operations and the ongoing evaluation of opportunities to
reduce operating and capital costs.

Southern thanks all of its stakeholders for their ongoing support and looks
forward to providing future updates on operational activities.

Ian Atkinson, President and CEO of Southern, commented:

"With the significantly increased commodity prices experienced in Q1 2022,
Southern has started the year very positively. Our balance sheet is getting
stronger and we are being rewarded for our investment strategy in prior
quarters with strong production yielding significant cash flow.

In the immediate future, our focus remains on the three well development
program at Gwinville which, if successful, not only means increased production
from these wells, but speaks volumes as to the potential for our operational
strategy to deliver multi-year growth from the wider Gwinville field,
highlighting the significant opportunity and optionality we have in providing
transformational production, reserves and cash flow growth for shareholders.

As always, I would like to thank the staff and shareholders of Southern Energy
Corp. for their continued hard work and support. We look forward to providing
further updates in due course."

 

 1  See "Specified Financial Measures" under "Reader Advisory" below".

 2  Comprised of 139 bbl/d light and medium crude oil, 14 bbl/d NGLs and
10,597 Mcf/d conventional natural gas

 3  Comprised of 113 bbl/d light and medium crude oil, 11 bbl/d NGLs and
11,076 Mcf/d conventional natural gas

 4  Comprised of 35 bbl/d light and medium crude oil, 3 bbl/d NGLs and 12
Mcf/d conventional natural gas

For further information about Southern, please visit our website at
www.southernenergycorp.com (http://www.southernenergycorp.com) or contact:

 Southern Energy Corp.

 Ian Atkinson (President and CEO)                           +1 587 287 5401

 Calvin Yau (VP Finance and CFO)                            +1 587 287 5402

 Strand Hanson Limited - Nominated & Financial Adviser      +44 (0) 20 7409 3494

 James Spinney / James Bellman

 Hannam & Partners - Joint Broker                           +44 (0) 20 7907 8500

 Sam Merlin / Ernest Bell

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

 Henry Fitzgerald-O'Connor / James Asensio

 Camarco

 James Crothers, Hugo Liddy, Billy Clegg                    +44 (0) 20 3757 4980

 

 

 

 

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.

READER ADVISORY

MCFE Disclosure. Natural gas liquids volumes are recorded in barrels of oil
(bbl) and are converted to a thousand cubic feet equivalent (Mcfe) using a
ratio of six (6) thousand cubic feet to one (1) barrel of oil (bbl). Natural
gas volumes recorded in thousand cubic feet (Mcf) are converted to barrels of
oil equivalent (boe) using the ratio of six (6) thousand cubic feet to one (1)
barrel of oil (bbl). Mcfe and boe may be misleading, particularly if used in
isolation. A boe conversion ratio of 6 mcf:1 bbl or a Mcfe conversion ratio of
1 bbl:6 Mcf is based in an energy equivalency conversion method primarily
applicable at the burner tip and does not represent a value equivalency at the
wellhead. In addition, given that the value ratio based on the current price
of oil as compared with natural gas is significantly different from the energy
equivalent of six to one, utilizing a boe conversion ratio of 6 Mcf:1 bbl or a
Mcfe conversion ratio of 1 bbl:6 Mcf may be misleading as an indication of
value.

Throughout this press release, "crude oil" or "oil" refers to light and medium
crude oil product types as defined by National Instrument 51-101 - Standards
of Disclosure for Oil and Gas Activities ("NI 51-101"). References to "NGLs"
throughout this press release comprise pentane, butane, propane, and ethane,
being all NGLs as defined by NI 51-101. References to "natural gas" throughout
this press release refers to conventional natural gas as defined by NI 51-101.

Abbreviations. Please see below for a list of abbreviations used in this press
release.

bbl                          barrels

bbl/d                      barrels per day

boe                         barrels of oil

boe/d                     barrels of oil per day

Mcf                         thousand cubic feet

Mcf/d                     thousand cubic feet per day

Mcfe                       thousand cubic feet
equivalent

Mcfe/d                   thousand cubic feet equivalent per
day

MMBtu                  million British thermal units

MMBtu/d              million British thermal units per day

Forward Looking Statements. Certain information included in this press release
constitutes forward-looking information under applicable securities
legislation. Forward-looking information typically contains statements with
words such as "anticipate", "believe", "expect", "plan", "intend", "estimate",
"propose", "project" or similar words suggesting future outcomes or statements
regarding an outlook. Forward-looking information in this press release may
include, but is not limited to, statements concerning the Company's asset base
including the development of the Company's assets, future commodities pricing,
the effect of market conditions and the COVID-19 pandemic on the Company's
performance, Southern's planned ESG initiatives, expectations regarding the
Company's hedging program, expectations regarding site preparation and
production from the Company's drilling operations in Gwinville and the timing
thereof, ability to achieve production estimates set out herein, expectations
regarding the use of proceeds from the Company's credit facilities, as amended
by the First Amendment and the Second Amendment thereto, the availability and
renewal of the Credit Facility, the Company's financial hedging program
including the use and expected benefits of financial derivatives, future
production levels, acquisition opportunities, costs/debt reducing activities,
and planned capital expenditures.

The forward-looking statements contained in this press release are based on
certain key expectations and assumptions made by Southern, including 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 Southern's properties, the characteristics of the Company's
assets, the successful application of drilling, completion and seismic
technology, benefits of current commodity pricing hedging arrangements,
Southern's ability to enter into future derivative contracts on acceptable
terms, Southern's ability to secure financing on acceptable terms, prevailing
weather conditions, prevailing legislation affecting the oil and gas industry,
commodity prices, royalty regimes and exchange rates, the application of
regulatory and licensing requirements, the Company's ability to obtain all
requisite permits and licences, the availability of capital, labour and
services, the creditworthiness of industry partners and the Company's ability
to source and complete asset acquisitions.

Although Southern believes that the expectations and assumptions on which the
forward-looking statements are based are reasonable, undue reliance should not
be placed on the forward-looking statements because Southern can give no
assurance that they will prove to be correct. Since forward-looking statements
address future events and conditions, by their very nature they involve
inherent risks and uncertainties. Actual results could differ materially from
those currently anticipated due to a number of factors and risks. These
include, but are not limited to, risks associated with the oil and gas
industry in general (e.g., operational risks in development, exploration and
production; the uncertainty of reserve estimates; the uncertainty of estimates
and projections relating to production, costs and expenses, regulatory risks,
and health, safety and environmental risks), constraint in the availability of
services, negative effects of the current COVID-19 pandemic, commodity price
and exchange rate fluctuations, geo-political risks, political and economic
instability abroad, wars (including Russia's military actions in Ukraine),
hostilities, civil insurrections, inflationary risks including potential
increases to operating and capital costs,  changes in legislation impacting
the oil and gas industry, adverse weather or break-up conditions and
uncertainties resulting from potential delays or changes in plans with respect
to exploration or development projects or capital expenditures. Ongoing
military actions between Russia and the 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. These and other risks are set
out in more detail in Southern's MD&A and AIF.

The forward-looking information contained in this press release is made as of
the date hereof and Southern undertakes no obligation to update publicly or
revise any forward-looking information, whether as a result of new
information, future events or otherwise, unless required by applicable
securities laws. The forward-looking information contained in this press
release is expressly qualified by this cautionary statement.

Future Oriented Financial Information. Any financial outlook or future
oriented financial information in this press release, as defined by applicable
securities legislation, has been approved by management of Southern. 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 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 activities or results.

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. Adjusted funds flow from
operations, operating netback, adjusted working capital and net debt are not
recognized measures under IFRS. Readers are cautioned that these specified
financial measures should not be construed as alternatives to other measures
of financial performance calculated in accordance with IFRS. These specified
financial measures provide additional information that management believes is
meaningful in describing the Company's operational performance, liquidity and
capacity to fund capital expenditures and other activities. Please see below
for a brief overview of all specified financial measures used in this release
and refer to the Company's MD&A for additional information relating to
specified financial measures, which is available on the Company's website at
www.southernenergycorp.com and filed on SEDAR.

"Adjusted Funds Flow from Operations" (non-IFRS financial measure) is
calculated based on cash flow from operative activities before changes in
non-cash working capital and cash decommissioning expenditures. Management
uses adjusted funds flow from operations as a key measure to assess the
ability of the Company to finance operating activities, capital expenditures
and debt repayments.

"Adjusted Funds Flow from Operations per Share" (non-IFRS financial measure)
is calculated by dividing Adjusted Funds Flow from Operations by the number of
Southern shares issued and outstanding.

"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.

"Net Debt" (capital management measure) is monitored by Management, along with
adjusted working capital, as part of its capital structure in order to fund
current operations and future growth of the Company. Net debt is defined as
long-term debt plus adjusted working capital surplus or deficit. Adjusted
working capital is calculated as current assets less current liabilities,
removing current derivative assets/liabilities, the current portion of bank
debt, and the current portion of lease liabilities.

 Neither 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.

 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
 or visit
www.rns.com (http://www.rns.com/)
.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
.   END  QRFAFMJTMTMTTPT