REG - Southern Energy Corp - Q4 AND YEAR END 22 FINANCIAL AND OPERATING RESULTS

Southern EnergyAnnouncement

18/04/2023 07:00

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RNS Number : 5073W  Southern Energy Corp.  18 April 2023

SOUTHERN ENERGY CORP. ANNOUNCES FOURTH QUARTER AND YEAR END 2022 FINANCIAL AND
OPERATING RESULTS

 

Calgary, Alberta - April 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 the release of
its fourth quarter and year end December 31, 2022, financial and operating
results. Selected financial and operational information is outlined below and
should be read in conjunction with the Company's audited 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, 2022 and annual information form ("AIF") for the year ended
December 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.

FOURTH QUARTER AND YEAR END 2022 HIGHLIGHTS

·    $3.1 million of adjusted funds flow from operations 1  (#_ftn1) in Q4
2022 ($0.02 per share basic and diluted) compared $1.4 million in Q4 2021
($0.02 per share basic and diluted) and $17.2 million for the year ended
December 31, 2022 ($0.16 per share basic and $0.14 per share diluted), an
increase of 500% from the same period in 2021

·    Net earnings of $1.7 million ($0.01 per share basic and diluted) and
$9.3 million ($0.09 per share basic and $0.08 per share diluted) for the three
and twelve months ended December 31, 2022; as compared to net earnings of $3.3
million ($0.06 per share basic and $0.05 per share diluted) and $10.1 million
($0.24 per share basic and $0.19 per share diluted) in the same period of
2021. 2021 results included the one-time recognition of an impairment recovery
and gain on debt retirement

·    Petroleum and natural gas sales were $9.8 million in Q4 2022 and
$45.2 million for the full year 2022, an increase of 37% and 127% from the
same periods in 2021, respectively

·    Average production of 16,084 Mcfe/d 2  (#_ftn2) (2,681 boe/d) (96%
natural gas) during Q4 2022 and 15,584 Mcfe/d 3  (#_ftn3) (2,597 boe/d) (95%
natural gas) for the full year 2022, an increase of 26% and 24% from the same
periods in 2021, respectively

·    Average realized natural gas and oil prices for Q4 2022 of $6.35/Mcf
and $81.98/bbl, respectively, reflecting the benefit of strategic access to
premium-priced US sales hubs in a geographic region with strong industrial and
power generation natural gas demand

·    On July 7, 2022, successfully closed a $17.5 million bought deal
prospectus offering in Canada and a $13.5 million placing in the UK, raising
aggregate gross proceeds of $31.0 million

·    Successfully negotiated a $25.0 million borrowing capacity increase
in respect of its senior secured term loan ("Credit Facility") to increase the
total Credit Facility to $35.0 million

·    Exited Q4 2022 with positive net cash(1) of $13.4 million

·    In November 2022, spud three horizontal wells from the 18-10 padsite
at Gwinville which included the first City Bank appraisal well

Ian Atkinson, President and CEO of Southern, commented:

"Our Q4 and full year 2022 results have provided a preview of what Southern
can and expects to achieve, with its strong underlying production base and
technical ability to organically grow our assets at constructive natural gas
prices. Our equity financing in July and Credit Facility expansion in
September have put the Company in a position to weather the natural gas price
volatility and provide flexibility and patience as we continue to work towards
our goal to reach 25,000 boe/d. We're excited to build upon the learnings from
our three well appraisal program in Q2, as well as the seven wells drilled as
part of the follow up program at Gwinville which will continue to translate
into future drilling and cost efficiencies when the program resumes. We have
positioned ourselves to re-ignite our organic growth in a more supportive
natural gas price environment and will continue to seek growth opportunity to
increase significant shareholder value as we continue through the year."

Financial Highlights

                                            Three months ended                  December 31,                                           Year ended             December 31,
 (000s, except $ per share)                 2022                                           2021                     2022                                         2021
 Petroleum and natural gas sales            $       9,830                                  $         7,151          $      45,217                                $       19,942
 Net earnings                               1,749                                          3,311                    9,299                                        10,093
 Net earnings per share
    Basic                                   0.01                                           0.06                     0.09                                         0.24
    Fully diluted                           0.01                                           0.05                     0.08                                         0.19
 Adjusted funds flow from operations ((1))  3,059                                          1,426                    17,156                                       2,860
 Adjusted funds flow from operations per share ((1))
    Basic                                   0.02                                           0.02                     0.16                                         0.07
    Fully diluted                           0.02                                           0.02                     0.14                                         0.05
 Capital expenditures                       10,218                                         1,755                    30,434                                       2,562
 Weighted average shares outstanding
    Basic                                   137,378                                        58,087                   108,144                                      42,545
    Fully diluted                           146,797                                        73,895                   122,972                                      55,047
 As at period end
 Basic common shares outstanding            138,057                                        78,122                   138,057                                      78,122
 Total assets                               97,652                                         46,212                   97,652                                       46,212
 Non-current liabilities                    12,817                                         12,609                   12,817                                       12,609
 Positive net cash (net debt) ((1))         $      13,437                                  $    (6,431)             $      13,437                                $    (6,431)

Note:

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

 

Outlook

In order to be diligent in protecting the Company balance sheet and respond to
the current low natural gas prices, Southern has moderated and taken a pause
on the Gwinville organic growth program. Southern has left four drilled,
uncompleted wells ("DUCs") that can be quickly completed and brought online
through Southern's 100% owned equipment at higher natural gas prices. Southern
currently has $23.0 million of unused capacity on its Credit Facility, which
can be utilized to complete the DUCs at supportive natural gas prices or be
opportunistic with counter cyclical inorganic growth opportunities.

 

Natural gas prices have been under pressure in 2023 coming off a mild winter
in North America and increased production from the depletion of the DUC well
inventory as a result of higher prices in 2022. In Q1 2023, Southern was
protected from some of the volatility with a costless collar on 2,000 MMBtu/d
of production with a floor price of $3.50/MMBtu. To further protect against
the volatility, Southern has entered into a basis swap transaction to secure a
premium to NYMEX of $0.32 per MMBtu on 1,000 MMBtu/d from April 1, 2023 to
October 31, 2023. The Company continues to monitor the basis differential
prices and is prepared to hedge additional basis exposure at elevated basis
premiums.

Calvin Yau, Chief Financial Officer of Southern, commented:

"2022 was a record year for Southern thanks to strong production from our base
assets and the Gwinville appraisal program along with the continued strength
of natural gas spot and basis pricing premiums to NYMEX in Southeastern U.S.,
building a solid foundation for Southern as we enter 2023. While we were
excited to begin our long-term drilling program, we felt it was prudent to
take a pause and protect our balance sheet in order to be flexible and able to
capitalize on potential opportunities or quickly resume our organic growth
program at the right time. Southern is in an enviable position being able to
operate in a nimble and dynamic way around our drilling program, and with a
constructive outlook for the U.S. natural gas market in the short to medium
term, we are confident in maximising value from our assets by sensible well
management.

"The Company's long-term strategy remains consistent, 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 and continuing
to create shareholder value."

 

Operational Update

 

The Company continues to flow back the Gwinville 18-10 #1 City Bank well, with
load fluid recovery of approximately 9%.  Based on historic vertical and
early generation horizontal well completions in the City Bank reservoir in
Gwinville, peak gas rates are not expected until the load fluid recovery is
closer to 20%, which is expected to be towards the end of this quarter. Early
gas rates are encouraging and Southern is excited to provide further
operational updates in Q2 2023 as the modern generation City Bank type curve
results are established.

 

Remediation plans for the 18-10 #3 Upper Selma Chalk well that experienced a
mechanical integrity issue with the production casing during completion
operations continue to be finalized, with field execution expected in late Q2
2023.

 

The four wells that are awaiting completion include our first two Lower Selma
Chalk laterals, along with our second City Bank lateral and one Upper Selma
Chalk lateral. These four wells are some of our longest laterals to-date.
They were drilled with an average lateral length of approximately 5,400' 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.

 

Corporate Presentation

 

A new corporate presentation dated April 2023 is now available on the Company
website at www.southernenergycorp.com
(https://url.avanan.click/v2/___http:/www.southernenergycorp.com___.YXAzOnNvdXRoZXJuZW5lcmd5Y29ycDphOm86MzA2NjE2OWIxMDBjM2FjM2I3ZjZhZDA1OGM0NTUwODU6NjpkYzc5OmExY2U1YzQxYTI4YWQ0NjQ0MWZhZThlYTdkZDdlNzlkNDI1NDQ5MjllNjk0M2QyOGFmNWQzZWIxZTRkMTJkNTQ6cDpU)
.

 

Qualified Person's Statement

 

Gary McMurren, COO, who has over 22 years of relevant experience in the oil
industry and has approved the technical information contained in this
announcement. Mr. McMurren is registered as a Professional Engineer with the
Association of Professional Engineers and Geoscientists of Alberta and
received a Bachelor of Science degree in Chemical Engineering (with
distinction) from the University of Alberta.

 

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

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, 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,
the Company's hedging strategy, the ability of the Company to achieve drilling
success consistent with management's expectations, the sources of funding for
the Company's activities, the effect of market conditions and the COVID-19
pandemic on the Company's performance, Southern's planned ESG initiatives,
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 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 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, 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
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 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. This press release contains
future-oriented financial information and financial outlook information
(collectively, "FOFI") about Southern's prospective results of operations,
cash flow, increased capacity under the credit facility, capital expenditures
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 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.

"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  (#_ftnref1) See "Specified Financial Measures" under "Reader Advisory"
below

 2  (#_ftnref2) Comprised of 107 bbl/d light and medium crude oil, 11 bbl/d
NGLs and 15,376 Mcf/d conventional natural gas

 3  (#_ftnref3) Comprised of 116 bbl/d light and medium crude oil, 14 bbl/d
NGLs and 14,804 Mcf/d conventional natural gas

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