REG - Southern Energy Corp - SECOND QUARTER FINANCIAL AND OPERATING RESULTS

Southern EnergyAnnouncement

23/08/2022 07:00

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RNS Number : 8486W  Southern Energy Corp.  23 August 2022

SOUTHERN ENERGY CORP. ANNOUNCES SECOND QUARTER 2022 FINANCIAL AND OPERATING
RESULTS, SECOND HALF 2022 CAPITAL BUDGET, POSITIVE GWINVILLE WELL UPDATE AND
EXPANDED CREDIT FACILITY

 

Calgary, Alberta - August 23, 2022 - Southern Energy Corp. ("Southern" or the
"Company") (TSXV:SOU) (AIM:SOUC), the established producer with natural gas
and light oil assets in Mississippi, today announces the release of its second
quarter financial and operating results for the three and six months ended
June 30, 2022. 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, 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.

SECOND QUARTER 2022 HIGHLIGHTS

·    $3.6 million of adjusted funds flow from operations 1  in Q2 2022, an
increase of 490% from the same period in 2021

·    Net earnings of $2.8 million in Q2 2022 ($0.03 earnings per share -
basic and diluted) compared to net earnings of $3.1 million in the same period
of 2021 (which included a one-time gain of $4.5 million on debt retirement)

·    Petroleum and natural gas sales of $10.3 million in Q2 2022, an
increase of 176% from the same period in 2021

·    Q2 2022 average production of 14,169 Mcfe/d 2  (2,362 boe/d) (95%
natural gas), which included only a partial month of June from the three new
Gwinville wells, an increase of 14% from the same period in 2021

·    Completed and successfully brought online all three wells from the
initial Gwinville appraisal program

·    Exited Q2 2022 with Net Debt(1) of $12.8 million, and Net Debt to
annualized Adjusted Funds Flow from Operations(1) of 0.9x

·    Average realized oil and natural gas prices for Q2 2022 of
$109.01/bbl and $7.53/Mcf, respectively, reflecting the benefit of strategic
access to premium-priced US sales hubs

SUBSEQUENT EVENTS

·    On July 7, 2022, the Company completed a bought deal prospectus
offering and placing raising aggregate gross proceeds of $31.0 million, and
leaving Southern with approximately $33.2 million of cash as at July 31, 2022

·    Initiated planning and procurement for a multi-well program to
follow-up on the successful appraisal program at Gwinville

·    On August 19, 2022, Southern entered into a non-binding term sheet
with its current lender in respect of its senior secured term loan (the
"Credit Facility") to increase the total Credit Facility to $35 million
(details of which are provided within the MD&A and Financial Statements)

·    The combination of the recent equity financing and credit facility
expansion, uniquely positions Southern to execute a meaningful growth strategy

Ian Atkinson, President and CEO of Southern, commented:

"We are pleased with the success of our recent equity financing, which allows
us to accelerate the organic growth strategy portion of our goal to reach
25,000 boe/d. The success of these first three wells at Gwinville have already
increased our corporate production by over 100%. We are truly excited by our
ability to begin a long-term development drilling program to unlock
shareholder value due to the significant reserves, production and cashflow
growth in Gwinville and our other assets. Cashflow generated from this
development will support our fundamental strategy of both organic and
inorganic growth of natural gas weighted assets in the Gulf Coast area of the
United States."

 1  See “Specified Financial Measures” under “Reader Advisory” below

 2  Comprised of 100 bbl/d light and medium crude oil, 13 bbl/d NGLs and
13,491 Mcf/d conventional natural gas

Financial Highlights

                                                      Three months ended                  June 30,                           Six months ended           June 30,
 (000s, except $ per share)                           2022                   2021                     2022                                            2021
 Petroleum and natural gas sales                      $       10,311         $         3,736          $      16,236                                   $         7,593
 Net earnings                                         2,838                  3,099                    984                                             2,468
 Net earnings per share
     Basic                                            0.03                   0.08                     0.01                                            0.07
     Fully diluted                                    0.03                   0.06                     0.01                                            0.06
 Adjusted funds flow from operations ((1))            3,590                  608                      5,824                                           1,619
 Adjusted funds flow from operations per share ((1))
     Basic                                            0.04                   0.02                     0.07                                            0.05
     Fully diluted                                    0.04                   0.01                     0.06                                            0.04
 Capital expenditures                                 10,104                 36                       16,976                                          93
 Weighted average shares outstanding
     Basic                                            83,302                 39,044                   80,742                                          33,352
     Fully diluted                                    101,011                54,943                   91,796                                          45,235
 As at period end
 Basic common shares outstanding                      89,537                 44,674                   89,537                                          44,674
 Total assets                                         58,347                 29,254                   58,347                                          29,254
 Non-current liabilities                              10,013                 13,486                   10,013                                          13,486
 Net debt ((1))                                       $      12,814          $      14,292            $     12,814                                    $      14,292

Notes:

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

Capital Budget

Based on the success of the initial three well appraisal program at Gwinville,
Southern's Board of Directors has approved an accelerated capital budget of
US$34.4 million for the balance of 2022, which will allow the Company to
commence a long-term drilling program beginning in Q4 2022 in the Gwinville
field. Major services and equipment have been secured for the development
program to optimize capital and operational efficiencies. The approved
drilling program will target multi-zone horizontal potential in the Upper
Selma, Lower Selma and City Bank formations with a further five horizontal
wells, as well as pad construction, in-field pipelines and water disposal well
conversions that will help service the next few years of Gwinville
development.  Management expects to have the first pad of three horizontal
wells on stream prior to year-end but with limited production.

 

In the upcoming program the Company will drill at least one Lower Selma Chalk
horizontal well and one City Bank horizontal well to prove the deliverability
of these high remaining gas-in-place reservoirs.  Neither of these horizons
have undeveloped reserves booked despite having historic vertical and
horizontal success from the same era as the first-generation Selma Chalk
wells. It is management's expectation that proving success in these formations
will lead to material reserves additions for the Company.  At current gas
pricing, and using the older Gen 2 type curve, these Gwinville horizontal
wells are expected to pay out in less than 12 months, allowing the Company to
self fund further drilling campaigns in its assets expected to follow in 2023.

Operations Update

Southern was successful in safely and efficiently executing the three well
appraisal program in the first half of 2022, marking the first horizontal
drilling activity in the Gwinville Field in approximately 12 years. The
primary goal of the appraisal program was to reaffirm the remaining
recoverable gas-in-place in the Selma Chalk reservoir by proving the
successful application of advanced completion technology ("Gen 3" design). The
three wells were drilled, completed, equipped and tied-in within 20% of
originally budgeted estimates despite industry wide inflationary pressures
that were well in excess of that figure.

 

Highlights

 

·    Growth strategy to reach 25,000 boe/d is solidified with the US$34.4
million capital budget being the catalyst for the Company to commence a
self-funded, long-term drilling program from Q4 2022 onwards at Gwinville
field

·    Natural gas sales at the Transco Zone 4 hub realizing an index price
of > US$13 per MMbtu for August, reflecting approximately US$5.00 per MMBtu
premium to NYMEX. Futures contracts suggests that a continuation of this
positive basis differential is forecasted for at least the next few years.

·    The three Gwinville Upper Selma Chalk wells have now successfully
achieved a combined IP30 gas rate of 14.1 MMcf/d (2,350 boepd), adding
significant unhedged production to the Company during these strong market
conditions, bringing total early August Company production up to approximately
22.1 MMcfe/d (3,680 boepd) (96% natural gas):

-      GH 19-3 #2 well achieved a rate of 6.5 MMcf/d (1,083 boepd),
exceeding the older Generation 2 ("Gen 2") type curve IP30 forecast of 5.7
MMcf/d (950 boepd)

-      GH 19-3 #3 and GH 19-3 #4 wells achieved IP30 gas rates of 3.6 and
4.0 MMcf/d (600 boepd and 670 boepd), respectively, despite only 50% of the
horizontal lateral in both wells being in the high-grade Upper Selma Chalk
interval

-      Estimated July 2022 revenue for the three well padsite of over
$3.6 million.

 

The three Gwinville Upper Selma Chalk horizontal wells have achieved an
average IP30 gas rate (first 30 days of production following recovery of 20%
load fluid) of 4.7 MMcf/d.  A subsequent, comprehensive look-back analysis of
the program, including a full 3D seismic re-interpretation, has significantly
improved the Company's ability to model the structural complexity of the
reservoir and identify the optimal drill path of future horizontal laterals.
Furthermore, the planned Q4 2022 drilling program will utilize rotary
steerable drilling technology which will also optimize both directional
steering precision and performance.

 

By implementing the appraisal program learnings, the Company is highly
confident that future Upper Selma Chalk wells can successfully achieve >
80% lateral length within the high-grade porosity interval. When the
production results from the GH 19-3 #3 and GH 19-3 #4 wells are normalized to
account for effective lateral length, the rates closely mirror the GH 19-3 #2
well that successfully stayed in the target interval for > 90% of the
horizontal lateral.

 

With the Gen 3 stimulation design that increased stage counts by > 275% and
proppant concentrations by > 40% compared to the Gen 2 design of 8-10 years
ago, the Company believes that the ultimate recoverable gas from these three
wells will be superior to earlier wells. By optimizing the lateral length in
the targeted high-grade Upper Selma Chalk interval in future wells, the
Company expects to replicate the GH 19-3 #2 results.  As the Company obtains
three and six month production histories, the Company will present updated
type curve forecasts that will assist in modelling future production growth.
With the successful results of the Gen 3 appraisal program, the Company
expects to add material 1P and 2P reserves to the Gwinville Field with the
year end 2022 reserves report, expected to be published during Q1 2023.

 

Outlook

Southern has secured the equipment and major services necessary to begin the
next phase of drilling at Gwinville in Q4 2022.  Southern intends to
strategically and efficiently deploy cash from the recent equity financing to
capitalize on the strong natural gas pricing in the Southeastern U.S. and
robust economics at the Gwinville field, to materially grow the Company
organically over the coming years.

 

Natural gas pricing has remained strong in the Southeastern U.S. spot and
forward basis markets highlighted by the recent August 2022 settlement price
where a portion of Southern's natural gas is selling for approximately US$5.00
per MMBtu premium to NYMEX. In recent weeks, this region has had the highest
priced natural gas market in the U.S. and futures markets indicate premiums to
NYMEX extending out to 2026.  At current pricing the Company's development
drilling at Gwinville is expected to payout in far less than 12 months.  The
Company continues to monitor these premium prices and is prepared to hedge
additional basis exposure at these elevated basis premiums.

Calvin Yau, Chief Financial Officer of Southern, commented:

"The strength of natural gas spot and basis pricing premiums to NYMEX in
Southeastern U.S. has continued positively over the past month. Our long-term
drilling program will add new unhedged production allowing Southern and its
shareholders to realize significant additional value, from sales made at
premiums to NYMEX."

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.

 

Corporate Update

 

The Company confirms that, further to the announcement of June 16, 2022, Paul
Baay has been appointed as a Non-Executive Director of the Company. The
information regarding Paul Baay required to be disclosed pursuant to Schedule
2(g) of the AIM Rules for Company is set out below:

Paul Raymond Baay, aged 59

 Current Directorships/Partnerships  Past Directorships/Partnerships within last 5 years
 Alberta Foundation for the Arts     AlkaLi3 Resources Inc
 Calvalley Petroleum (Cyprus) Ltd    Council for Canadian American Relations
 Carnegies Institution of Canada     Junior Achievement of Southern Alberta
 National Gallery of Canada          Loop Insights Inc
 Octavia Energy Corporation Limited
 Touchstone Exploration Inc

 

Paul Baay holds no direct or indirect interest in the Company's issued share
capital.

 

There is no further information to be disclosed pursuant to Schedule 2(g) of
the AIM Rules for Companies.

 

Management Changes

 

Southern is also pleased to announce the promotion of Mr. Gary McMurren, VP
Engineering, to the role of Chief Operating Officer, Mr. Jeff Forrester,
Engineering Manager, to the role of VP Engineering and Mr. Ryan Read,
Controller, to the role of VP Finance.

 

Mr. McMurren has over 22 years of engineering, operational and management
experience in the oil and gas industry and was a co-founder and VP Engineering
of Gulf Pine Energy Partners. Mr. McMurren was formerly the Director of Light
Oil at Athabasca Oil Corp. Prior thereto, he has held senior engineering
positions at Galleon Energy Inc., ARC Resources Ltd., and Talisman Energy Inc.
He holds a Bachelor of Science in Chemical Engineering Degree and a
Professional Engineer designation.

 

Mr. Forrester has over 15 years of engineering, operations and management
experience in the oil and gas industry.  He was the Engineering Manager at
Gulf Pine.  Prior thereto, he has held both engineering and operations roles
at Athabasca, and ARC Resources Ltd.  He holds a Bachelor of Science in
Chemical Engineering with a minor in Petroleum Engineering and is a designated
Professional Engineer.

 

Mr. Read has over 17 years of financial, operational and management experience
in the oil and gas industry.  Mr. Read was the Controller of Gulf Pine. Prior
thereto, he was the Assistant Controller at Long Run Exploration Ltd. and has
worked both financial and operational roles at Galleon Energy Inc. and Devon
Canada.  He holds a Bachelor of Commerce Degree in Finance and Risk
Management, a Chartered Financial Analyst Designation, and is a member of the
Chartered Professional Accountants of Alberta.

Block Admission and Total Voting Rights

Further to the Company's announcement on May 6, 2022, regarding the
application to AIM for a block admission in respect of certain outstanding
dilutive instruments in the Company (the "Block Admission"), the Company has
applied to AIM to add a further 14,262,643 common shares in the Company
("Common Shares") to the existing outstanding block admission, taking the
total number of common shares subject to block admission to 18,863,750 new
Common Shares. This will be used to facilitate the admission of Common Shares
to trading following future exercises of outstanding warrants issued in 2021
("2021 Warrants") and future conversions of outstanding 8% convertible
unsecured subordinated debentures issued on June 14, 2019, and January 15,
2021, (the "Convertible Debentures"). The number of Common Shares admitted for
these purposes is as follows:

·    up to 13,312,500 Common Shares in connection with the 2021 Warrants;
and

·    up to 5,551,250 Common Shares in connection with the Convertible
Debentures.

The Common Shares cited above will be issued from time to time pursuant to
exercises of the 2021 Warrants and conversions of the outstanding Convertible
Debentures.

 

New Common Shares issued under the block admission will rank pari passu in
all respects with existing Common Shares, and it is expected that the block
admission will become effective from 8.00 a.m. on or around 24 August 2022.
There is no immediate change to the Company's issued share capital as a result
of this block admission.

 

The Company will make six-monthly announcements of the utilisation of the
block admission, in line with its obligations under AIM Rule 29.

 

At the time of this announcement, Southern Energy has 135,908,785 Common
Shares in issue. This figure may be used by shareholders in the Company as the
denominator for the calculations by which they will determine if they are
required to notify their interest in, or a change in their interest in, the
share capital of the Company.

 

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 Profession 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 (http://www.southernenergycorp.com) 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

 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 / Gerel Bastin

 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
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.

Short-Term Results. References in this press release to IP30, production test
rates, initial test production rates, and other short‐term production rates
are useful in confirming the presence of hydrocarbons, however such rates are
not determinative of the rates at which such wells will commence production
and decline thereafter and are not indicative of long term performance or of
ultimate recovery.  While encouraging, readers are cautioned not to place
reliance on such rates in calculating the aggregate production for Southern.
A pressure transient analysis or well test interpretation has not been carried
out in respect of all wells.  Accordingly, the Company cautions that the test
results should be considered to be preliminary.

Type Curves. Certain type curves disclosure presented herein represents
estimates of the production decline and ultimate volumes expected to be
recovered from wells over the life of the well. The type curves represent what
management thinks an average well will achieve, based on methodology that is
analogous to wells with similar geological features. Individual wells may be
higher or lower but over a larger number of wells, management expects the
average to come out to the type curve. Over time type curves can and will
change based on achieving more production history on older wells or more
recent completion information on newer wells.

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

IP30                       average production for the
first 30 days that a well is onstream

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; expectations regarding material reserves additions in the 2022 reserves
report, anticipated operational results for H2 2022 including, but not limited
to, capital expenditures and drilling plans, including expectations that the
drilling program at Gwinville field will be self-funded from Q4 2022 onwards;
expectations regarding commodity prices; the performance characteristics of
the Company's oil and natural gas properties; hedging strategy; the ability of
the Company to achieve drilling success consistent with management's
expectations; and the source 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 site
preparation and production from the Company's drilling operations in Gwinville
and the timing thereof, ability to achieve production estimates set out
herein, expectations regarding the use of proceeds from the Company's credit
facilities, as are expected to be amended in accordance with the non-binding
term sheet, the availability and renewal of the Credit Facility and future
amendments thereto, future organic growth and acquisition opportunities,
costs/debt reducing activities, and planned capital expenditures. 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, benefits of current commodity pricing hedging
arrangements, Southern's ability to enter into future derivative contracts on
acceptable terms, Southern's ability to secure financing on acceptable terms,
prevailing weather conditions, prevailing legislation affecting the oil and
gas industry, prevailing commodity prices, price volatility, price
differentials and the actual prices received for the Company's products,
royalty regimes and exchange rates, 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
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. 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.

"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.

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

 2  Comprised of 100 bbl/d light and medium crude oil, 13 bbl/d NGLs and
13,491 Mcf/d conventional natural gas

 

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