REG - Southern Energy Corp - THIRD QUARTER RESULTS AND DIRECTOR RETIREMENT

Southern EnergyAnnouncement

29/11/2023 07:00

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RNS Number : 9600U  Southern Energy Corp.  29 November 2023

 SOUTHERN ENERGY CORP. ANNOUNCES THIRD QUARTER 2023 FINANCIAL AND OPERATING
 RESULTS

SOUTHERN ENERGY CORP. ANNOUNCES THIRD QUARTER 2023 FINANCIAL AND OPERATING
RESULTS AND DIRECTOR RETIREMENT

 

Calgary, Alberta - November 29, 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 third
quarter financial and operating results for the three and nine months ended
September 30, 2023. 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 nine months ended September 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.

THIRD QUARTER 2023 HIGHLIGHTS

·    Petroleum and natural gas sales of $5.3 million in Q3 2023 and $14.2
million for the nine months ended September 30, 2023

·    Generated $1.1 million of adjusted funds flow from operations 1 
(#_ftn1) in Q3 2023 ($0.01 per share basic and fully diluted)

·    Net loss of $2.4 million in Q3 2023 ($0.02 net loss per share basic
and fully diluted)

·    Q3 2023 average production of 16,881 2  (#_ftn2) Mcfe/d (2,814 boe/d)
(95% natural gas)

·    Average realized natural gas and oil prices for Q3 2023 of $2.83/Mcf
and $82.65/bbl compared to $10.00/Mcf and $91.93/bbl in Q3 2022, and $2.18/Mcf
and $72.83/bbl in the prior quarter

·    Successfully renegotiated an increase of $2.0 million in the
borrowing base of the Company's senior secured term loan (the "Credit
Facility"), extended the availability of Tranche B to August 31, 2025 to match
the term of the Credit Facility, and extended the principal amortization
period of the Credit Facility by twelve months

SUBSEQUENT EVENTS

·    On November 9, 2023, closed an equity financing raising aggregate
gross proceeds of $5.0 million through the issuance of a total of 26,630,000
new Common Shares

·    In early December 2023, the Company is mobilizing equipment to the
field in Gwinville to start completion operations on the first drilled and
uncompleted ("DUC") well at the 14-6 #3 (Upper Selma Chalk)

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

"Southern is in an extremely strong position in the fourth quarter of 2023,
with prevailing natural gas prices having significantly increased and our
balance sheet capitalized, enabling us to go after the organic growth
opportunities in our portfolio. In Q3 2023, we completed the synergistic
infrastructure modifications at Gwinville connecting the newly acquired assets
to our legacy Southern gathering system. We will have reduced field
compression from five sites at the time of acquiring the assets to one site,
which provides significant savings in both operating costs and fuel gas. In
November 2023, we completed an equity fundraise to accelerate the completion
of our four drilled and uncompleted wells at Gwinville. Initial cost estimates
suggest that service costs are entering back into a deflationary period, and
we are excited to execute our first slickwater fracture treatment in the
Gwinville program.

"We continue to be encouraged by the outlook of supply and demand dynamics for
U.S. natural gas, as at least two of the upcoming Gulf Coast LNG export
projects, at Cheniere Energy's Corpus Christi expansion and Golden Pass LNG
have recently announced they are ahead of schedule. 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 and we are excited to
continue to grow the business with our new and longstanding shareholders."

Financial Highlights

                                                      Three months ended September 30,                      Nine months ended September 30,
 (000s, except $ per share)                           2023                   2022              2023                           2022
 Petroleum and natural gas sales                      $        5,285         $     19,151      $      14,215                  $    35,387
 Net (loss) earnings                                  (2,367)                6,567             (7,254)                        7,550
 Net (loss) earnings per share
     Basic                                            (0.02)                 0.05              (0.05)                         0.08
     Fully diluted                                    (0.02)                 0.04              (0.05)                         0.07
 Adjusted funds flow from operations ((1))            1,071                  8,273             2,450                          14,097
 Adjusted funds flow from operations per share ((1))
     Basic                                            0.01                   0.06              0.02                           0.14
     Fully diluted                                    0.01                   0.06              0.02                           0.13
 Capital expenditures and acquisitions                1,734                  3,240             41,918                         20,216
 Weighted average shares outstanding
     Basic                                            139,086                132,822           138,907                        98,293
     Fully diluted                                    139,086                148,641           138,907                        108,671
 As at period end
 Common shares outstanding                            139,088                135,909           139,088                        135,909
 Total assets                                         102,401                90,200            102,401                        90,200
 Non-current liabilities                              21,373                 9,613             21,373                         9,613
 Positive net cash (net debt) ((1))                   $      (27,603)        $    20,435       $      (27,603)                $    20,435

Note:

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

 

Gwinville Development Update

 

With the net proceeds of the recent equity fundraise, the Company will
accelerate the completion of the four Gwinville wells that were drilled in Q1
2023. The Company expects the first well to be on-line before the end of the
year, with IP30 rates likely available towards the end of January 2024. Cost
estimates for the completion of the 14-06 #3 well are anticipated to be $3
million or less as the Company intends to take advantage of the deflationary
service cost pressures since the last wells were completed. Follow-on
completions are anticipated in the first half of 2024, depending on natural
gas pricing.

 

Outlook

 

The Company currently has $10.0 million of unused capacity on its Credit
Facility, which can be utilized alongside its existing cash balance to
complete the four drilled uncompleted horizontal wells 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 the volatility of natural gas
prices. Southern's current commodity hedge program includes:

 

 Natural Gas                          Volume         Pricing
 Fixed Price Swap
 October 1, 2023 - December 31, 2023  2,000 MMBtu/d  NYMEX - HH $3.095/MMBtu
 October 1, 2023 - December 31, 2023  1,000 MMBtu/d  NYMEX - HH $3.050/MMBtu
 January 1, 2024 - December 31, 2025  1,000 MMBtu/d  NYMEX - HH $3.880/MMBtu
 April 1, 2024 - October 31, 2024     1,500 MMBtu/d  NYMEX - HH $3.208/MMBtu
 April 1, 2024 - October 31, 2024     1,500 MMBtu/d  NYMEX - HH $3.420/MMBtu
 April 1, 2025 - October 31, 2025     1,500 MMBtu/d  NYMEX - HH $3.420/MMBtu

 Costless Collar
 October 1, 2023 - March 31, 2024     2,000 MMBtu/d  NYMEX - HH $3.00 - $3.98/MMBtu
 January 1, 2024 - March 31, 2024     1,000 MMBtu/d  NYMEX - HH $3.00 - $4.60/MMBtu
 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 and continuing
to create shareholder value.

 

Director Retirement

 

Mr. Andrew McCreath has retired from the Company's board of directors
effective today to focus on other commitments. The board and management team
wish to express their gratitude to Mr. McCreath for his contributions during
his 5 years of service. The Company does not have any immediate plans to
appoint a replacement Non-Executive Director following Mr. McCreath's
departure, though will keep this position under review.

 

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

  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.

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

IP30                       average hydrocarbon
production rate for the first 30 days of a well's life

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,
the Company's capital budget, anticipated operational results, capital
expenditures, 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
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 four drilled and uncompleted
horizontal wells and timing thereof (including anticipated costs and the
attainment and timing of well completion services relating thereto), the
sources of funding for the Company's activities, the effect of market
conditions on the Company's performance, the anticipated use of proceeds from
Southern's recent equity financing, the Company's execution of and anticipated
benefits of the planned slickwater treatment in the Gwinville program, outlook
in respect of Gulf Coast LNG export projects at Cheniere Energy's Corpus
Christi expansion and Golden Pass LNG, the Company's risk management
activities including hedging positions and targets, expectations regarding the
use of proceeds from all sources including the Credit Facility, the
availability and renewal of the Credit Facility and future amendments, and the
Company's risk management and sustainability strategy. 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, 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 pandemics, commodity price and
exchange rate fluctuations, geo-political risks, political and economic
instability abroad, wars (including the Russo-Ukrainian war and the
Israel-Palestinian conflict), 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 and the Israel-Palestinian conflict are
particularly noteworthy, as these conflicts have the potential to disrupt the
global supply of oil and gas, and their 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, tax rates, cost
estimates, positive net cash (net debt), payout of wells, 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.

"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 "Reader Advisories - Specified Financial Measures"

 2  (#_ftnref2) Comprised of 144 bbl/d light and medium crude oil, 9 bbl/d
NGLs and 15,963 Mcf/d conventional natural gas

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