REG - Southern Energy Corp - Q3 2024 FINANCIAL AND OPERATING RESULTS

Southern EnergyAnnouncement

29/11/2024 07:00

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RNS Number : 1044O  Southern Energy Corp.  29 November 2024

 

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

 

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

THIRD QUARTER 2024 HIGHLIGHTS

·    Petroleum and natural gas sales of $3.5 million in Q3 2024, a
decrease of 34% compared to the same period in 2023

·    Average production of 14,018 1  (#_ftn1) Mcfe/d (2,336 boe/d) (97%
natural gas) during Q3 2024, a decrease of 17% from the same period in 2023

·    Generated $0.6 million of adjusted funds flow from operations 2 
(#_ftn2) in Q3 2024 ($0.00 per share - basic and fully diluted)

·    Net loss of $2.1 million in Q3 2024 ($0.01 net loss per share - basic
and fully diluted), compared to a net loss of $2.4 million in Q3 2023

·    Average realized natural gas and oil prices for Q3 2024 of $2.40/Mcf
and $73.78/bbl compared to $2.83/Mcf and $82.65/bbl in Q3 2023 and a Q3 2024
natural gas benchmark price of $2.16/Mcf

·    Monetized excess inventory equipment in the first nine months of 2024
for net proceeds of $3.4 million

·    Reduced net debt(2) by $1.4 million from Q2 2024 and $3.9 million
from Q4 2023

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

"Southern remains steadfast in preserving its balance sheet amid the
challenging natural gas price environment of 2024. With natural gas prices on
track to be the second-lowest in 24 years, we have proactively focused on
optimizing our value chain. This includes generating $3.4 million in proceeds
through the sale of excess equipment inventory in 2024 and reducing our
abandonment liabilities by divesting non-core, non-producing wellbores during
Q3.

"Despite the market challenges, Southern has leveraged the strategic locations
of its assets and sales points, achieving a $0.24/Mcf premium (~11% basis
premium) over Henry Hub benchmark pricing in Q3 2024. Additionally, our
financial hedge of 5,000 MMBtu/d at $3.40, which was initiated in Q2 2024, has
provided stable cash flows, enabling us to navigate ongoing volatility.

"Looking ahead, there are encouraging signs of price improvement as we enter
winter and progress into 2025. Increased feed gas demand from Corpus Christi
and Plaquemines LNG export facilities, coupled with rising domestic
consumption driven by gas-fired power demand for artificial intelligence data
centers and vehicle electrification, are expected to tighten the supply-demand
balance. The longer-term structural case for natural gas also looks promising,
as the lack of new storage capacity built will continue to tighten markets and
geo-political events in Europe are expected to make US LNG more attractive.

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

Financial Highlights

                                                      Three months ended September 30,                      Nine months ended September 30,
 (000s, except $ per share)                           2024                   2023              2024                           2023
 Petroleum and natural gas sales                      $        3,480         $     5,285       $      12,163                  $    14,215
 Net loss                                             (2,062)                (2,367)           (7,805)                        (7,254)
 Net loss per share
     Basic                                            (0.01)                 (0.02)            (0.05)                         (0.05)
     Fully diluted                                    (0.01)                 (0.02)            (0.05)                         (0.05)
 Adjusted funds flow from operations ((1))            552                    1,071             3,484                          2,450
 Adjusted funds flow from operations per share ((1))
     Basic                                            0.00                   0.01              0.02                           0.02
     Fully diluted                                    0.00                   0.01              0.02                           0.02
 Capital expenditures and acquisitions                487                    1,734             816                            41,918
 Weighted average shares outstanding
     Basic                                            167,227                139,086           166,737                        138,907
     Fully diluted                                    167,227                139,086           166,737                        138,907
 As at period end
 Common shares outstanding                            167,243                139,088           167,243                        139,088
 Total assets                                         56,970                 102,401           56,970                         102,401
 Non-current liabilities                              9,036                  21,373            9,036                          21,373
 Net debt ((1))                                       $      (22,710)        $    (27,603)     $      (22,710)                $    (27,603)

Note:

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

Subsequent Events

On October 30, 2024, Southern entered into the eighth amendment (the "Eighth
Amendment") with the Company's senior secured term loan (the "Credit
Facility"), which includes an extension to the pause of monthly repayment of
principal to December 31, 2024 and a condition that Southern shall repay $1.7
million of the outstanding principal at January 31, 2025 in the absence of a
use of proceeds acceptable to the lender (see "Liquidity, Capital Resources
and Going Concern - Credit Facility" in the September 30, 2024 MD&A for
full details of the amendment)

 

Outlook

 

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. In Q3 2024, Southern sold excess equipment
inventory for net proceeds of $2.0 million. The Company expects to continue
these initiatives for the remainder of 2024 and into 2025, in order to
preserve its balance sheet.

 

Southern has $10.0 million in unused capacity on its Credit Facility, which
can be utilized to complete the three remaining Gwinville drilled but
uncompleted wells 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 strategically as needed.

 

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

 

Short Form Base Shelf Prospectus

 

On November 28, 2024, Southern filed and obtained a final receipt for a final
base shelf prospectus (the "Prospectus") in each of the provinces of Canada.
The Prospectus enables Southern to qualify the distribution of up to C$150
million of any combination of ordinary shares, warrants, subscription
receipts, debt securities and units during the 25-month period that the
Prospectus remains effective. In connection with the receipt for the
Prospectus, Southern will cease any distributions under its prior base shelf
prospectus dated November 18, 2022. The specific terms of any future offerings
of securities, including the use of proceeds from an offering, will be
established in a prospectus supplement filed with the applicable Canadian
regulatory authorities. The Prospectus provides the Company, as a dual listed
entity, with future flexibility with respect to the issuance of various
securities. Copies of the Prospectus may be obtained on request without charge
from the Company and can be found under Southern's SEDAR+ profile at
www.sedarplus.ca
(https://url.avanan.click/v2/___http:/www.sedarplus.ca___.YXAzOnNvdXRoZXJuZW5lcmd5Y29ycDphOm86ZTkzNjY5ZDk3N2YyOWViMmVlYmIzNGZiZGZmYWM0OGU6NjpiZmFkOmNjYTY0NTM5OWQ3YmUwNzUwZWQ5YzJiZDA4ODdkODNmNzAxYTE5ZGEwMTVkNzRkMTE1M2JiMjhhZDQ1YWJkMTk6cDpUOk4)
. Southern currently has no contemplated plan to raise capital.

 

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 / Sam Morris / Tomisin Ibikunle

 

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 (including
negatives and variations thereof). 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 growth strategy and the expectation that it will continue
to enhance shareholder value, forecasted natural gas pricing including that
expectations of price improvement in the winter and moving into 2025,
Southern's ability to re-initiate growth in completing one of the there
remaining Gwinville drilled and uncompleted wells ("DUCs"), capital
expenditures, Southern's plans to delay the completion timing of the remaining
three DUCs until natural gas pricing improves (or their potential for
counter-cyclical inorganic growth opportunities)and the anticipated timing
thereof, repayment of principal under the Credit Facility and timing thereof,
drilling and completion plans and casing remediation activities, expectations
regarding commodity prices and service costs, expectations regarding increased
demand for gas (including demand stemming from artificial intelligence data
centers, vehicle electrification and certain export facilities) 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 Company's ability
to find a use of proceeds acceptable to the lender, 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)), the
Company's ability to meet its financial obligations and covenants, 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 September 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 66 bbl/d light and medium crude oil, 9 bbl/d NGLs
and 13,568 Mcf/d conventional natural gas

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

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