REG - Southern Energy Corp - Q2 2024 FINANCIAL AND OPERATING RESULTS

Southern EnergyAnnouncement

20/08/2024 07:00

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RNS Number : 0751B  Southern Energy Corp.  20 August 2024

 SOUTHERN ENERGY CORP. ANNOUNCES SECOND QUARTER 2024 FINANCIAL AND OPERATING
 RESULTS

SOUTHERN ENERGY CORP. ANNOUNCES SECOND QUARTER 2024 FINANCIAL AND OPERATING
RESULTS

 

Calgary, Alberta - August 20, 2024 - 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,
2024. Selected financial and operational information is outlined below and
should be read in conjunction with the Company's unaudited consolidated
financial statements and related management's discussion and analysis (the
"MD&A") for the three and six months ended June 30, 2024, which are
available on the Company's website at www.southernenergycorp.com
(https://url.avanan.click/v2/___http:/www.southernenergycorp.com___.YXAzOnNvdXRoZXJuZW5lcmd5Y29ycDphOm86ZTkzNjY5ZDk3N2YyOWViMmVlYmIzNGZiZGZmYWM0OGU6NjozZGViOjAyYzc0NzgyYzgwNjkwMzU4YmJiYTUzNzRkNWIwMjc3M2ZjODUzYmQwZGQ5NmQ1MTYzM2RkNWMwODY1MGU4MjQ6cDpUOk4)
and have been filed under the Company's profile on SEDAR+ at www.sedarplus.ca
(https://url.avanan.click/v2/___http:/www.sedarplus.ca___.YXAzOnNvdXRoZXJuZW5lcmd5Y29ycDphOm86ZTkzNjY5ZDk3N2YyOWViMmVlYmIzNGZiZGZmYWM0OGU6NjpiZmFkOmNjYTY0NTM5OWQ3YmUwNzUwZWQ5YzJiZDA4ODdkODNmNzAxYTE5ZGEwMTVkNzRkMTE1M2JiMjhhZDQ1YWJkMTk6cDpUOk4)
.

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

SECOND QUARTER 2024 HIGHLIGHTS

·    Petroleum and natural gas sales of $3.9 million in Q2 2024, an
increase of 4% compared to the same period in 2023

·    Average production of 15,465 1  (#_ftn1) Mcfe/d (2,578 boe/d) (95%
natural gas) during Q2 2024, a decrease of 3% from the same period in 2023

·    Generated $0.8 million of adjusted funds flow from operations 2 
(#_ftn2) in Q2 2024 ($0.00 per share - basic and fully diluted)

·    Net loss of $2.6 million in Q2 2024 ($0.02 net loss per share - basic
and fully diluted), compared to a net loss of $3.8 million in Q2 2023

·    Average realized natural gas and oil prices for Q2 2024 of $2.26/Mcf
and $80.06/bbl compared to $2.18/Mcf and $72.83/bbl in Q2 2023

·    Entered into a fixed price swap derivative contract of 5,000 MMBtu/d
for the period of May 2024 - December 2026 at a price of $3.40/MMBtu

·    Monetized excess inventory equipment in Q2 2024 for net proceeds of
$1.4 million

·    Extended the maturity of the existing convertible debentures one year
to June 30, 2025 (see "Liquidity and Capital Resources - Debenture Financing"
in the MD&A for more details)

 

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

"The results in Q2 2024 underscore the Company's strategic advantage stemming
from the prime locations of its assets and sales points for natural gas.
Despite a quarter of depressed natural gas pricing, where some basins received
close to zero dollars for their natural gas, we achieved an average sale price
of $2.26/Mcf, approximately a 20% premium over the Henry Hub benchmark
pricing. Additionally, our financial hedge of 5,000 MMBtu/d at $3.40 that we
entered into during Q2 2024, provides stable cash flow, enabling us to
navigate this period of volatility without compromising our balance sheet.

"In Q2 2024, we extended the maturity of our convertible debentures to June
30, 2025. Combined with the extension of our senior secured term loan in Q1
2024, these actions were crucial steps in protecting our balance sheet while
natural gas prices remain low. This strategic maneuver allows us to resume
growth by completing our three remaining Gwinville drilled but uncompleted
wells ("DUCs") when natural gas prices improve. We remain focused on
maintaining our low-cost structure to stay resilient through this period of
natural gas price volatility.

"With strong summer heat throughout the U.S., increased power burn demand in
July has brought storage levels back within the 5-year average. Additionally,
as Corpus Christi and Plaquemines LNG export facilities begin ramping up feed
gas demand, combined with the growing domestic demand from artificial
intelligence data centers and electrification of vehicles, we believe the
overall supply and demand balance of natural gas should improve gas prices
heading into winter.

"We remain committed to leveraging our strategic advantages and maintaining
operational efficiencies to drive growth and shareholder value."

Financial Highlights

                                                      Three months ended June 30,                           Six months ended June 30,
 (000s, except $ per share)                           2024                   2023              2024                        2023
 Petroleum and natural gas sales                      $        3,889         $     3,741       $      8,683                $    8,930
 Net loss                                             (2,622)                (3,767)           (5,743)                     (4,887)
 Net loss per share
     Basic                                            (0.02)                 (0.03)            (0.03)                      (0.04)
     Fully diluted                                    (0.02)                 (0.03)            (0.03)                      (0.04)
 Adjusted funds flow from operations ((1))            770                    (366)             2,932                       1,379
 Adjusted funds flow from operations per share ((1))
     Basic                                            0.00                   (0.00)            0.02                        0.01
     Fully diluted                                    0.00                   (0.00)            0.02                        0.01
 Capital expenditures and acquisitions                60                     5,292             329                         40,184
 Weighted average shares outstanding
     Basic                                            166,497                139,039           166,489                     138,816
     Fully diluted                                    166,497                139,039           166,489                     138,816
 As at period end
 Common shares outstanding                            166,497                139,401           166,497                     139,041
 Total assets                                         59,269                 104,075           59,269                      104,075
 Non-current liabilities                              23,805                 20,961            23,805                      20,961
 Net debt ((1))                                       $      (24,159)        $    (26,158)     $      (24,159)             $    (26,158)

Note:

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

 

Operations Update

 

Southern continues to evaluate the timing of bringing the remaining three DUCs
into production, with one completion expected in Q4 2024, followed by two
completions in the first half of 2025. The remaining three DUC wellbores have
been drilled in the Lower Selma Chalk (2) and City Bank formations.

 

In response to continued low natural gas prices, Southern has been actively
reducing and optimizing both operating costs and maintenance capital to
maximize its field netbacks. The Company expects to continue these initiatives
throughout 2024 but will undertake some low-cost well workovers and
recompletions in Q3 2024 to be funded out of adjusted funds flow from
operations.

 

Strategic sales points for Southern's natural gas realized a 20% premium over
the average benchmark New York Mercantile Exchange ("NYMEX") Henry Hub price
in Q2 2024, helping to mitigate the challenges posed by the current pricing
environment.

 

Outlook

 

Southern has $10.0 million in unused capacity on its senior secured term loan,
which can be utilized to complete the DUCs when natural gas prices improve or
for counter-cyclical inorganic growth opportunities.

 

As part of its risk management strategy, Southern continuously monitors NYMEX
prices and basis differentials to mitigate some of the volatility of natural
gas prices. The Company has taken advantage of the contango in the natural gas
future strip by entering into a fixed price swap contract of 5,000 MMBtu/d for
the period of May 2024 - December 2026 at a price of $3.40/MMBtu. Southern's
current commodity hedge program includes:

 

 Natural Gas                        Volume         Pricing
 Fixed Price Swap
 May 1, 2024 - December 31, 2026    5,000 MMBtu/d  NYMEX - HH $3.400/MMBtu

 Costless Collar
 November 1, 2024 - March 31, 2025  1,000 MMBtu/d  NYMEX - HH $3.50 - $5.20/MMBtu

 

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 while continuing
to create shareholder value.

 

Qualified Person's Statement

 

Gary McMurren, Chief Operating Officer, who has over 23 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 / Rob Patrick

  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 ADVISORIES

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.

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.

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.

 

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

bbl                          barrels

bbl/d                      barrels per day
bcf/d                    billion cubic feet 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

MMboe                 million barrels of oil

MMBtu                  million British thermal units

MMBtu/d              million British thermal units per day

NI 51-101              National Instrument 51-101 Standards of
Disclosure for Oil and Gas Activities

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", "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, positioning, oil and natural gas production levels, the
Company's anticipated operational results, Southern's 2024 outlook, growth
strategy and the expectation that it will continue to grow the business with
new and existing shareholders, forecasted natural gas pricing including that
they will be significantly elevated from current levels in the second half of
2024, Southern's ability to re-initiate growth in completing one of the there
remaining Gwinville DUCs, capital expenditures, Southern's plans to delay the
completion timing of the remaining three DUCs until natural gas pricing
becomes significantly elevated from current levels and the anticipated timing
thereof, drilling and completion plans and casing remediation activities,
expectations regarding commodity prices and service costs, the performance
characteristics of the Company's oil and natural gas properties, the Company's
expectation to continue actively reducing and optimizing operating costs,
general and administrative expenses and maintenance capital to maximize
netbacks, the Company's hedging strategy and execution thereof, the ability of
the Company to achieve drilling success consistent with management's
expectations, the Company's expectations regarding completion of the three
remaining DUCs (including the timing thereof and anticipated costs and
funding), the effect of market conditions on the Company's performance and
expectations regarding the use of proceeds from all sources including the
senior term loan.

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, the successful integration of
recently acquired assets into the Company's operations, the Company's ability
to comply with ongoing obligations under the senior term loan and its
convertible debentures and other sources of financing, 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 pandemics, commodity price and
exchange rate fluctuations, geo-political risks, political and economic
instability, wars (including the Russo-Ukrainian war and the Israel-Hamas
conflict), hostilities, civil insurrections, inflationary risks including
potential increases to operating and capital costs, changes in legislation
impacting the oil and gas industry, including but not limited to tax laws,
royalties and

environmental regulations (including greenhouse gas emission reduction
requirements and other

decarbonization or social policies and including uncertainty with respect to
the interpretation of omnibus Bill

C-59 and the related amendments to the Competition Act (Canada)), 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. These and other risks are set out in more detail in
Southern's MD&A for the period ended June 30, 2024 and AIF for the year
ended December 31, 2023, 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 capital expenditures,  general and
administrative expenses, inorganic growth, hedging, natural gas pricing,
netbacks, royalty rates and prospective results of operations and production,
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.

"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  (#_ftnref1) Comprised of 112 bbl/d light and medium crude oil, 9 bbl/d
NGLs and 14,739 Mcf/d conventional natural gas

 2  (#_ftnref2) See "Reader Advisories - Specified Financial Measures"

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