REG - Southern Energy Corp - FOURTH QUARTER AND YEAR END 2021 RESULTS

Southern EnergyAnnouncement

19/04/2022 07:00

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RNS Number : 5038I  Southern Energy Corp.  19 April 2022

SOUTHERN ENERGY CORP. ANNOUNCES FOURTH QUARTER AND YEAR END 2021 FINANCIAL AND
OPERATING RESULTS

 

Calgary, Alberta - April 19, 2022 - Southern Energy Corp. ("Southern" or the
"Company") (TSXV:SOU) (AIM:SOUC) today announces the release of its fourth
quarter and year ended December 31, 2021, financial and operating results.

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 consolidated financial statements (the "Financial Statements") and
related management's discussion and analysis (the "MD&A") for the three
months and year ended December 31, 2021 and annual information form ("AIF")
for the year ended December 31, 2021, 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.

FOURTH QUARTER AND YEAR END 2021 HIGHLIGHTS

·    $1.4 million of adjusted funds flow from operations1 in Q4 2021 and
$4.8 million for the full year of 2021, excluding $2.0 million of one-time
expenses related to the listing of the common shares of the Company (the
"Common Shares") on the AIM market of the London Stock Exchange plc (the
"AIM"), an increase of 88% and 81% from the same periods in 2020, respectively

·    Q4 2021 average production of 12,753 Mcfe/d2 (2,126 boe/d) (91%
natural gas), resulting in average production for the year of 12,592 Mcfe/d(3)
(2,099 boe/d) (92% natural gas), a 6% and 2% decrease from the same periods in
2020, respectively, demonstrating the long life, low decline profile of
Southern's base assets

·    Petroleum and natural gas sales of $7.2 million in Q4 2021 and $19.9
million for full year 2021, an increase of 107% and 91% from the same periods
in 2020, respectively

·    Annual net earnings of $10.1 million in 2021 ($0.24 per share -
basic) compared to a net loss of $7.8 million in 2020

·    Net Debt(1) reduced by $8.7 million in Q4 2021 and $16.6 million for
the full year of 2021 to $6.4 million as at December 31, 2021

·    Average realized oil and natural gas prices for Q4 2021 of $74.18/bbl
and $5.55/Mcf, respectively, reflecting the benefit of strategic access to
premium-priced US sales hubs

·    Completed a series of low-cost well recompletions and workovers
beginning in Q3 and carrying into early Q4 2021

o  Work program had an overall cost of approximately $0.8 million and added
approximately 1,250 Mcfe/d(4) (208 boe/d) of production (approximately 80%
natural gas)

o  Production adds from work program helped to achieve low corporate decline
rate of 2% in 2021

·    Admission of Southern's entire issued share capital to trading on the
AIM in August 2021

·    Successful completion of an equity offering with both new and
existing investors in November 2021 to raise aggregate gross proceeds of $10.0
million

·    Disposal of the Company's remaining assets from its non-core Black
Warrior Basin cash generating unit ("CGU") in December 2021 for net proceeds
of $0.6 million

SUBSEQUENT EVENTS

·    On February 1, 2022, Southern disposed of all its properties in the
Smackover CGU for net proceeds of $0.8 million

·    On April 8, 2022, Southern agreed 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 AIM admission from the calculation of
EBITDAX (as such term is defined in the Financial Statements)

Operational Update

Southern has completed the drilling operations on the three well horizontal
padsite in Gwinville. Site preparation for the completion operations has begun
and the Company anticipates initial production from the wells in May 2022.
Flowback from the completions is planned to be directly into the Gwinville
gathering system to sales, with no flaring required.

 

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

2 Comprised of 160 bbl/d light and medium crude oil, 21 bbl/d NGLs and 11,667
Mcf/d conventional natural gas

3 Comprised of 150 bbl/d light and medium crude oil, 23 bbl/d NGLs and 11,554
Mcf/d conventional natural gas

4 Comprised of 39 bbl/d light and medium crude oil, 2 bbl/d NGLs and 1,000
Mcf/d conventional natural gas

 

 

Financial Highlights

                                                      Three months ended                                Year ended

December 31,
December 31,
 (000s, except $ per share)                           2021                     2020                     2021                  2020
 Petroleum and natural gas sales                      $         7,151          $         3,461          $       19,942        $       10,431
 Net earnings (loss)                                  3,311                    2,951                    10,093                (7,813)
 Net earnings (loss) per share
     Basic                                            0.06                     0.11                     0.24                  (0.28)
     Fully diluted                                    0.05                     0.08                     0.19                  (0.28)
 Adjusted funds flow from operations ((1))            1,349                    758                      2,783                 2,656
 Adjusted funds flow from operations per share ((1))
     Basic                                            0.02                     0.03                     0.07                  0.10
     Fully diluted                                    0.02                     0.02                     0.05                  0.10
 Capital expenditures                                 1,755                    92                       2,562                 179
 Weighted average shares outstanding
     Basic                                            58,087                   27,596                   42,545                27,596
     Fully diluted                                    73,895                   38,083                   55,047                27,596
 As at period end
 Basic common shares outstanding                      78,122                   27,596                   78,122                27,596
 Total assets                                         46,212                   30,354                   46,212                30,354
 Non-current liabilities                              12,609                   10,138                   12,609                10,138
 Net debt ((1))                                       $       6,431            $      23,064            $       6,431         $      23,064

Notes:

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

 

Outlook

Pending successful drilling results from the current three well program,
Southern will evaluate the commencement of a continual drilling program in
Gwinville through our low-risk drilling inventory to further our business plan
to provide strong, long term profitable growth and competitive financial
returns in a safe and responsible manner.

To further support the Gwinville drilling program, effective December 30,
2021, Southern entered into the First Amendment to the New Facility and then
on April 8, 2022, Southern entered into a Second Amendment to the New
Facility. The First and Second Amendments 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 August 2021 AIM admission from the calculation of EBITDAX
(as such term is defined in the Financial Statements).

In addition, and as part of its risk management and sustainability strategy,
Southern has entered into fixed price and costless collar hedges to mitigate
the effects of market volatility while retaining the ability to participate in
potential natural gas price appreciation during 2022. Southern currently has
hedged 4,000 MMBtu/d of natural gas production for Q1 2022 through a costless
collar with a floor of $3.50/MMBtu and ceiling of $5.10/MMBtu. 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. Combined with the existing fixed price hedge that Southern has in
place, the Company has 6,000 MMBtu/d of natural gas production hedged at an
average price of $3.60/MMBtu from April 1, 2022 to December 31, 2022. These
hedge volumes equate to approximately 52% of current production. 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. While the resulting realized losses on commodity
contracts had an impact on cash flow from operating activities as gas prices
rallied in the second half of 2021, Southern expects the impact will moderate
in 2022 as some of these older natural gas hedges expire. A complete list of
the fixed price and costless collar contracts can be found within Southern's
fourth 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 supported by the
Company's recently enhanced financial flexibility and wider exposure to new
pools of capital following the quotation of its common shares on AIM.

Ian Atkinson, President and CEO of Southern, commented:

"We are pleased to be reporting our Q4 and Full Year Results for 2021, which
are demonstrative of the significant progress achieved this year and of the
quality of our asset base and strategy. In particular, we are pleased to
report substantially increased earnings of $10.1 million in a year which saw
Southern Energy Corp's shares admitted to trading on AIM and the raising of
additional equity funding from both Canada and the UK to support our ongoing
drilling campaign at Gwinville.

"The team at Southern have worked relentlessly this year, driving substantial
value for the Company as well as providing robust foundations for expansion.
With the results of our Gwinville wells expected in May, we look forward to
updating shareholders on operational developments and continue striving
towards our substantial growth ambitions for 2022 and beyond.

"I would like to thank all of the Southern Energy Corp staff for their work,
and our shareholders for their continued support.

 

Warrant Vesting Threshold Amendment

 

It is intended that, following publication of these results, an amendment will
be adopted by the Board to the acceleration provisions of the 7,240,000
performance-based Common Share purchase warrants issued in 2018 ("Performance
Warrants"). Pursuant to such amendment, the Performance Warrants vest and
become exercisable as to one-third upon the 20-day volume weighted average
trading price of the Common Shares (the "Market Price") equaling or exceeding
CAD$1.20, an additional one-third upon the Market Price equaling or exceeding
CAD$1.35 and a final one-third upon the Market Price equaling or exceeding
CAD$1.50. In addition, in the event the Market Price equals or exceeds
CAD$1.65, each Performance Warrant shall be exercisable for 1.5 Common Shares,
provided that, at the time of exercise in respect of the additional 0.5 of a
Common Share per Performance Warrant, the Common Shares are listed on the
facilities of a recognized stock exchange (other than the TSXV) or the Common
Shares are acquired for cash or for the securities of a company listed on a
recognized stock exchange (other than the TSXV). These acceleration thresholds
were previously set at CAD$1.20, CAD$1.60, CAD$2.00, and CAD$3.20,
respectively, prior to the amendments that will be adopted by the Board. A
further update will be provided in the event that the amendment to the
Performance Warrants described above is not completed.

 

 

 

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
Southern's well recompletion and workover programs and the effects thereof on
the Company's financial position, 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,
expectations regarding the use of proceeds from the Company's credit
facilities, as amended by the First Amendment and the Second Amendment
thereto,, expected benefits from the Company's AIM listing, the Company's
financial hedging program including the use 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, 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.

"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.

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).

 

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