REG - Southern Energy Corp - Q2 2023 RESULTS AND GWINVILLE OPERATIONAL UPDATE

Southern EnergyAnnouncement

18/08/2023 07:00

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RNS Number : 7623J  Southern Energy Corp.  18 August 2023

SOUTHERN ENERGY CORP. ANNOUNCES SECOND QUARTER 2023 FINANCIAL RESULTS AND
PROVIDES GWINVILLE OPERATIONAL UPDATE

 

Calgary, Alberta - August 18, 2023 - Southern Energy Corp. ("Southern" or the
"Company") (TSXV:SOU) (AIM:SOUC)(OTCQX:SOUTF), an established producer with
natural gas and light oil assets in Mississippi,  announces its second
quarter financial and operating results for the three and six months ended
June 30, 2023. 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 and six
months ended June 30, 2023, which are available on the Company's website at
www.southernenergycorp.com and have been filed under the Company's profile on
SEDAR+ at www.sedarplus.ca.

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

SECOND QUARTER 2023 HIGHLIGHTS

·    Generated $0.2 million of adjusted funds flow from operations 1  in
Q2 2023, excluding $0.5 million of one-time transaction costs and general and
administrative costs

·    Net loss of $3.8 million in Q2 2023 ($0.03 net loss per share basic
and diluted), compared to net earnings of $2.8 million in Q2 2022

·    Petroleum and natural gas sales of $3.7 million in Q2 2023 and $8.9
million for the six months ended June 30, 2023

·    On June 1, 2023, Southern completed a strategic and highly
synergistic acquisition in Gwinville of approximately 400 boe/d (99% natural
gas) for cash consideration of $3.2 million (the "Gwinville Acquisition")

·    Q2 2023 average production of 15,907 2  Mcfe/d (2,651 boe/d) (96%
natural gas), an increase of 12% from Q2 2022. Current field sales production
is approximately 2,900 boe/d (96% natural gas), with four new horizontal
wellbores awaiting completion operations. Once Southern commits to completing
these two padsites, it is expected that all four wells could be on production
within approximately eight weeks

·    Average realized natural gas and oil prices for Q2 2023 of $2.18/Mcf
and $72.83/bbl compared to $7.53/Mcf and $109.01/bbl in Q2 2022. The current
NYMEX strip price forecast for the remainder of 2023 is averaging
approximately $3.10/MMBtu, a 47% increase compared to the benchmark price in
Q2 2023

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

"Our focus for Q2 2023 was primarily on completing and integrating the
Gwinville Acquisition. We have started and will continue, to maximize
operational synergies of the assets, as well as position the Company for the
return to growth as commodity prices continue to improve. In addition to
considerable synergistic value and high-quality drilling inventory, the
Gwinville Acquisition provides Southern with access to sell gas into the
Florida Gas Transmission system where, similar to Transco Zone 4, we are
realizing continuous premium pricing to the NYMEX natural gas price. As the
warm summer temperatures in the southern U.S. have elevated natural gas power
demand and we now head into a period of slowing production growth due to lack
of capital spending by the industry and incremental demand from additional LNG
export capacity, we are encouraged by the outlook of supply and demand
dynamics for U.S. natural gas. Southern is well positioned to capitalize on
natural gas prices with production behind pipe which can be brought on stream
in a short time frame.

We remain committed to reaching our goal of 25,000 boe/d and continue to
assess opportunities to grow inorganically further building shareholder value
as commodity prices continue to recover to a point where we plan to re-launch
our organic growth program."

Financial Highlights

                                                      Three months ended June 30,                                           Six months ended June 30,
 (000s, except $ per share)                           2023                   2022                              2023                        2022
 Petroleum and natural gas sales                      $        3,741         $         10,311                  $      8,930                $       16,236
 Net (loss) earnings                                  (3,767)                2,838                             (4,887)                     983
 Net (loss) earnings per share
     Basic                                            (0.03)                 0.03                              (0.04)                      0.01
     Fully diluted                                    (0.03)                 0.03                              (0.04)                      0.01
 Adjusted funds flow from operations ((1))            (366)                                3,590               1,379                       5,824
 Adjusted funds flow from operations per share ((1))
     Basic                                            (0.00)                 0.04                              0.01                        0.07
     Fully diluted                                    (0.00)                 0.04                              0.01                        0.06
 Capital expenditures and acquisitions                5,292                  10,104                            40,184                      16,976
 Weighted average shares outstanding
     Basic                                            139,039                83,302                            138,816                     80,742
     Fully diluted                                    139,039                101,011                           138,816                     91,796
 As at period end
 Basic common shares outstanding                      139,041                89,537                            139,041                     89,537
 Total assets                                         104,075                58,347                            104,075                     58,347
 Non-current liabilities                              20,961                 10,013                            20,961                      10,013
 Net debt ((1))                                       $      (26,158)        $    (12,814)                     $      (26,158)             $    (12,814)

Note:

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

 

 

Gwinville Development Update

 

As previously reported in the Company's announcement on May 30, 2023, the
Company concluded operations on the latest drilling campaign which included
seven new horizontal wells into three separate productive horizons from three
distinct padsites in the Gwinville Field. The program added three Upper Selma
Chalk wells, two Lower Selma Chalk wells and two City Bank wells. The drilling
campaign was initially planned for 13 horizontal wells, but the Company paused
the capital program in response to the weaker natural gas pricing that has
persisted throughout Q2 2023. Of the seven wells that were drilled, only the
three wells from the 18-10 padsite were completed with the other four wells
(two on the 14-06 pad and two on the 13-13 pad) remaining as uncompleted,
waiting on more supportive natural gas prices.

The four wells that are awaiting completion include the first two Lower Selma
Chalk laterals, along with the second City Bank lateral and one of the Upper
Selma Chalk laterals. These four wells are some of Southern's longest laterals
to-date. They were drilled with an average lateral length of approximately
5,400 ft and were steered within the high-graded intervals for an average of
95% of the wellbore length. The two padsites can be brought on production
within a matter of weeks once completion operations are resumed. At current
strip pricing, Southern will consider commencing completion operations in Q4
2023.

The Company continues to flow back its first City Bank horizontal well at
Gwinville 18-10 #1, with load fluid recovery of approximately 20%. The well
was brought on-line in late February 2023 with gas rates increasing to
approximately 600 Mcf/d and having remained flat for the past few months.
The Company believes that the most plausible explanation for the lower than
expected gas rate is due to fracture communication with an offset well which
had previously been produced from the deeper Tuscaloosa formation from the
1940'-1960's.  It is expected that production will remain flat and/or
increase as more load fluid is recovered and bottom hole pressure can be
decreased, and that the overall recovery from the well should not be
materially impacted. In future operations in City Bank horizontal wells,
Southern will likely choose to create a buffer zone around the vintage
abandoned Tuscaloosa wells by eliminating proximal frac stages to avoid any
potential communication. The Company is very excited to complete the 13-13
City Bank horizontal well where it does not foresee any of these potential
issues.

Remediation plans for the 18-10 #3 Upper Selma Chalk well that experienced a
mechanical integrity issue with the production casing during completion
operations have been finalized and services contracted to commence operations
in late Q3 2023. The 18-10 #3 well was drilled to a total lateral length of
5,091 ft, achieved 80% of the lateral placed in the targeted porosity zone and
was successfully completed in 44 stages prior to the mechanical issue.

Gwinville Acquisition Integration

Southern has been very successful in quickly integrating the acquired assets
in Gwinville over the first few months following closing of the transaction on
June 1, 2023. Immediate cost savings in the form of labour and supervision
redundancies, as well as reduced maintenance contracts have been realized.
Southern is currently in the process of installing the necessary pipeline
infrastructure to consolidate the two gathering systems, allowing the Company
to run one central compressor station versus the five that were running before
the transaction. These synergies will not only remove costly rental
compression and allow us to monetize spare owned compressors but will also
eliminate approximately 250 Mcf/d of fuel gas and associated emissions and add
this gas directly to sales volumes.  The Company expects this field work to
be completed by the end of Q3 2023.

 

The Company plans to workover a number of acquired wellbores that have
significant upside production potential, also expected to be completed by the
end of Q3 2023.

 

Additionally, marketing arrangements assumed from the previous operator have
given Southern access to the Florida Gas Transmission Zone #3 that was not
previously available. During Q3 2023, Southern has thus far been able to sell
as much as 4,000 MMBtu/d into the system, which has had an average premium to
Henry Hub/NYMEX over that period of approximately $0.40 - $0.60/MMBtu. The
Company will continue to maximize our exposure to this sales delivery point as
much as possible to optimize our field netbacks.

 

Outlook

Southern has four high-impact, uncompleted wells ("DUCs") that can be quickly
completed and brought online through Southern's 100% owned equipment at higher
natural gas prices, greatly improving per Mcfe operating expenses, expected in
Q4 2023. This will allow Southern to react quickly to changing commodity
prices to maximize returns. Additionally, The Company currently has $11.5
million of unused capacity on its senior secured term loan (the "Credit
Facility"), which can be utilized to complete the DUCs at supportive natural
gas prices.

 

As part of its risk management and sustainability strategy, Southern
continuously monitors both the price of NYMEX as well as the basis
differentials in order to mitigate some of volatility of natural gas prices.
Southern's current commodity hedge program includes:

 

·    Fixed basis swap on 1,000 MMBtu/d at a $0.32/MMBtu premium to NYMEX
from April 1, 2023 to October 31, 2023

·    Fixed price swap on 1,000 MMBtu/d at a price of $3.88/MMBtu from
January 1, 2024 to December 31, 2025

·    Costless collar on 2,000 MMBtu/d with a floor of $3.00/MMBtu and a
ceiling of $3.98/MMBtu from September 1, 2023 through March 31, 2024

 

Southern will continue to monitor NYMEX prices and the basis differential
prices and is prepared to hedge additional volumes in a tactical manner going
forward.

 

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

 

Qualified Person's Statement

 

Gary McMurren, Chief Operating Officer, who has over 22 years of relevant
experience in the oil industry, 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.

 

For further information about Southern, please visit our website at
www.southernenergycorp.com
(https://url.avanan.click/v2/___http:/www.southernenergycorp.com___.YXAzOnNvdXRoZXJuZW5lcmd5Y29ycDphOm86MzA2NjE2OWIxMDBjM2FjM2I3ZjZhZDA1OGM0NTUwODU6NjpkYzc5OmExY2U1YzQxYTI4YWQ0NjQ0MWZhZThlYTdkZDdlNzlkNDI1NDQ5MjllNjk0M2QyOGFmNWQzZWIxZTRkMTJkNTQ6cDpU)
or 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

 

 

 

About Southern Energy Corp.

Southern Energy Corp. is a natural gas exploration and production company
characterized by a stable, low-decline production base, a significant low-risk
drilling inventory and strategic access to premium commodity pricing in North
America. 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.

Unit Cost Calculation. For the purpose of calculating unit costs, natural gas
volumes have been converted to a boe using six thousand cubic feet equal to
one barrel unless otherwise stated. A boe conversion ratio of 6:1 is based
upon an energy equivalency conversion method primarily applicable at the
burner tip and does not represent a value equivalency at the wellhead. This
conversion conforms with NI 51-101. Boe may be misleading, particularly if
used in isolation.

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

MMcf                     million cubic feet

MMcf/d                 million 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

NYMEX                   New York Mercantile Exchange

 

 

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", "budget", "continue", "evaluate", "forecast", "may",
"will", "can", "target" "potential", "result", "could", "should" 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, oil and natural gas production levels,
including the objective of achieving production of 25,000 boe/d, the Company's
capital budget, expectations regarding material reserves, anticipated
operational results in 2023 including, but not limited to, capital
expenditures and drilling plans, expectations regarding commodity prices, the
performance characteristics of the Company's oil and natural gas properties,
successful integration of the assets acquired through the Gwinville
Acquisition, the Company's hedging strategy, the ability of the Company to
achieve drilling success consistent with management's expectations, the
Company's expectations regarding completion of wellbores and DUCs and timing
thereof, the sources of funding for the Company's activities, the effect of
market conditions and the COVID-19 pandemic on the Company's performance,
expectations regarding the use of proceeds from all sources, including the
Company's credit facilities, the availability and renewal of the Credit
Facility and future amendments thereto, future organic and inorganic growth
and acquisition opportunities within the resource market, and costs/debt
reducing activities. Statements relating to "reserves" and "recovery" 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 press release are based on
certain key expectations and assumptions made by Southern, including, but not
limited to, 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 drilling rigs, facilities and
pipelines, the geological characteristics of Southern's properties, the
characteristics of the Company's assets, including the assets acquired
pursuant to the Gwinville Acquisition, the successful integration of recently
acquired assets into the Company's operations, the successful application of
drilling, completion and seismic technology, the 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, as well as regulatory and licensing requirements, affecting the
oil and gas industry, the Company's ability to obtain all requisite permits
and licences, prevailing commodity prices, price volatility, price
differentials and the actual prices received for the Company's products,
royalty regimes and exchange rates, the impact of inflation on costs, 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, the Company's ability
to source and complete asset acquisitions, and the Company's ability to
execute its plans and strategies.

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
labour, supplies, or services, the impact of COVID-19 and variant strains of
the virus, commodity price and exchange rate fluctuations, geo-political
risks, political and economic instability abroad, wars (including the
Russo-Ukrainian War), 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. The Russo-Ukrainian War is particularly noteworthy, as this
conflict has the potential to disrupt the global supply of oil and gas, and
its full impact remains uncertain. These and other risks are set out in more
detail in Southern's MD&A and annual information form for the year ended
December 31, 2022, which are available on the Company's website at
www.southernenergycorp.com and filed under the Company's profile on SEDAR+ at
www.sedarplus.ca.

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. This press release contains
future-oriented financial information and financial outlook information
(collectively, "FOFI") about Southern's prospective results of operations,
cash flow, adjusted funds flow, capital expenditures, net debt, and payout of
wells, 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. Changes in forecast commodity prices,
differences in the timing of capital expenditures, and variances in average
production estimates can have a significant impact on the key performance
measures included in Southern's guidance. The Company's actual results may
differ materially from these estimates.

Specified Financial Measures. This press release provides various financial
measures that do not have a standardized meaning prescribed by International
Financial Reporting Standards ("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, 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
under the Company's profile on SEDAR+ at www.sedarplus.ca.

"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.

"Positive Net Cash (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 the 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.

 

 1  See "Reader Advisory - Specified Financial Measures"

 2  Comprised of 102 bbl/d light and medium crude oil, 14 bbl/d NGLs and
15,211 Mcf/d conventional natural gas

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