CALGARY, AB, Aug. 20, 2020 /CNW/ - Spartan Delta
Corp. ("Spartan" or the "Company") (TSXV:
SDE) is pleased to announce its financial and operating results for
the three and six month periods ended June
30, 2020. Selected financial and operational information is
set out below and should be read in conjunction with Spartan's
June 30, 2020 unaudited condensed
consolidated interim financial statements and the related
management's discussion and analysis ("MD&A") which are
available on the Company's website at
www.spartandeltacorp.com and filed on SEDAR at
www.sedar.com.
Message to Shareholders
Structural changes to the market over the last two quarters have
materially enhanced the opportunity set for Spartan's targeted
acquisition and consolidation strategy. The Company is focused
across multiple jurisdictions on rarely seen opportunities to
acquire top tier assets at historically low valuations, while
utilizing restructuring tools to reduce burdensome debt, legacy
fixed cost commitments and unnecessary overhead. The Company's
intent is to acquire a diversified portfolio of quality assets that
can be restructured, optimized and rebranded, financially or
operationally to yield lower payout ratios and generate material
free cash flow. Simultaneously, the Company continues to focus on
the expansion of its opportunity suite through internally generated
prospects and strategic tuck-in acquisitions.
Consistent with Spartan's core values around environmental,
social and governance ("ESG") stewardship of assets, and
investor capital, Spartan is fostering a mutually beneficial
relationship based on trust and mutual respect with the O'Chiese
First Nation. Furthermore, the Company's focus remains on the
health and safety of all our staff and communities in which we
operate during the COVID-19 pandemic.
Despite the market volatility and physical challenges presented
by COVID-19, on June 1, 2020, the
Company closed a transformational asset acquisition for total
consideration of $108.8 million (the
"Transaction") consisting of high-quality, multi-zone, oil
and gas operated production in Alberta, a large land base and strategic
infrastructure. This infrastructure, with an estimated
$200 million of replacement value net
to the Company, ensures Spartan can capitalize on both organic
growth and strategic acquisitions, positively impacting corporate
operating efficiencies. The Transaction positions Spartan as an
intermediate energy company whose growth strategy is focused on the
acquisition and sustainable development of underexploited and
undercapitalized assets.
Spartan recognized a gain of $53.0
million on the Transaction, highlighting the strength of the
acquisition metrics and quality of the underlying assets, as well
as Spartan's ability to access capital in a challenging business
environment. The Company raised gross proceeds of $64.0 million through non-brokered equity private
placements at a subscription price of $2.00 per common share and established a
$100.0 million revolving credit
facility with a syndicate of financial institutions (the "Credit
Facility").
On June 1, 2020, the Company
completed a name change from "Return Energy Inc." to "Spartan Delta
Corp." and a consolidation of common shares on the basis of a ratio
of one-hundred (100) pre-consolidation common shares for each
post-consolidation common share.
The Consolidated Statements of Net Income (Loss) and
Comprehensive Income (Loss) for the three and six months ended
June 30, 2020 includes results of
operations related to the acquired assets for the 30-day period
from closing the Transaction on June 1,
2020.
Financial and Operating Highlights
|
Three months ended
June 30
|
Six months ended June
30
|
(CA$ thousands,
except as otherwise indicated)
|
2020
|
2019
|
2020
|
2019
|
OPERATING
|
|
|
|
|
Average daily
production (BOE/d)
|
|
|
|
|
Crude oil and
condensate (bbls/d)
|
473
|
24
|
250
|
27
|
NGLs
(bbls/d)
|
2,243
|
13
|
1,130
|
15
|
Natural gas
(mcf/d)
|
37,140
|
1,199
|
19,194
|
1,130
|
BOE/d
|
8,906
|
237
|
4,579
|
230
|
Average realized
prices, before financial instruments
|
|
|
|
|
Crude oil and
condensate ($/bbl)
|
45.56
|
67.54
|
45.43
|
64.62
|
NGLs
($/bbl)
|
15.02
|
56.31
|
15.22
|
56.59
|
Natural gas
($/mcf)
|
1.94
|
0.75
|
1.94
|
1.61
|
Combined average
($/BOE)
|
14.31
|
13.74
|
14.36
|
19.13
|
Operating and
Corporate Netbacks ($/BOE) (1)
|
|
|
|
|
Oil and gas sales,
before financial instruments
|
14.31
|
13.74
|
14.36
|
19.13
|
Realized gain on
financial instruments
|
0.17
|
-
|
0.16
|
-
|
Oil and gas sales,
after financial instruments
|
14.48
|
13.74
|
14.52
|
19.13
|
Processing and other
revenue
|
0.69
|
1.53
|
0.72
|
1.49
|
Royalties
|
(0.93)
|
1.30
|
(0.91)
|
0.65
|
Operating
expenses
|
(6.96)
|
(23.97)
|
(7.38)
|
(21.97)
|
Transportation
expenses
|
(1.38)
|
-
|
(1.34)
|
-
|
Operating Netback
(1)
|
5.90
|
(7.40)
|
5.61
|
(0.70)
|
General and
administrative expenses
|
(1.48)
|
(15.97)
|
(2.47)
|
(15.01)
|
Interest expense, net
of interest income
|
(0.23)
|
-
|
(0.13)
|
-
|
Corporate Netback
(1)
|
4.19
|
(23.37)
|
3.01
|
(15.71)
|
FINANCIAL
|
|
|
|
|
Oil and gas
sales
|
11,596
|
296
|
11,969
|
797
|
Cash (used in)
operating activities
|
(6,033)
|
(186)
|
(6,579)
|
(452)
|
Adjusted Funds from
Operations (1)
|
3,395
|
(504)
|
2,515
|
(655)
|
$ per share,
basic
|
0.09
|
(0.46)
|
0.08
|
(0.59)
|
$ per share,
diluted
|
0.07
|
(0.46)
|
0.06
|
(0.59)
|
Net income (loss) and
comprehensive income (loss)
|
47,406
|
(820)
|
42,586
|
(1,247)
|
$ per share,
basic
|
1.29
|
(0.74)
|
1.36
|
(1.13)
|
$ per share,
diluted
|
1.01
|
(0.74)
|
1.01
|
(1.13)
|
Capital expenditures,
net of dispositions
|
109,969
|
1
|
110,345
|
(261)
|
Total
assets
|
339,064
|
11,628
|
339,064
|
11,628
|
Net Debt (Surplus)
(1)
|
26,177
|
(426)
|
26,177
|
(426)
|
Shareholders'
equity
|
130,995
|
1,852
|
130,995
|
1,852
|
Common shares
outstanding (000s) (2)
|
|
|
|
|
Weighted average,
basic
|
36,655
|
1,106
|
31,380
|
1,106
|
Weighted average,
diluted
|
47,113
|
1,106
|
42,183
|
1,106
|
End of
period
|
58,106
|
1,106
|
58,106
|
1,106
|
|
|
(1)
|
"Operating Netback",
"Corporate Netback", "Adjusted Funds from Operations" and "Net Debt
(Surplus)" do not have standardized meanings under IFRS, refer to
"Non-GAAP Measures" advisories at the end of this
release.
|
(2)
|
Refer to "Share
Capital" advisories at the end of this release.
|
Second Quarter 2020 Highlights
- Spartan closed the Transaction for total consideration of
$108.8 million on June 1, 2020. A gain on acquisition of
$53.0 million was recognized as the
consideration was less than the estimated fair value of the net
assets acquired.
- In connection with the Transaction, the Company raised gross
proceeds of $64.0 million through
non-brokered equity private placements at a subscription price of
$2.00 per common share. Spartan also
established the Credit Facility, which has an authorized borrowing
amount of $100.0 million.
- Spartan reported average production of 8,906 BOE/d (70% gas)
for the three months ended June 30,
2020, with June production from the Transaction averaging
26,200 BOE/d.
- Oil and gas sales revenue (before royalties) was $11.6 million. Spartan's combined average
realized price was $14.31 per BOE
($14.48 per BOE after financial
instruments).
- Spartan's natural gas production is 100% AECO linked and the
Company has strategically hedged approximately 60% of its natural
gas volumes for the second half of 2020 and approximately 45% of
forecast natural gas volumes for 2021 to protect project economics
and cash flows.
- Corporate royalty rates averaged 6.5% of oil and gas sales,
$0.93 per BOE. Operating and
transportation expenses averaged $6.96 per BOE and $1.38 per BOE, respectively.
- Spartan reported an Operating Netback of $5.90 per BOE (see "Reader Advisories –
Non-GAAP Measures", below).
- The Company reported Adjusted Funds from Operations of
$3.4 million ($0.07 per share, diluted), resulting in a
Corporate Netback of $4.19 per BOE
after general and administrative and interest expenses of
$1.48 per BOE and $0.23 per BOE, respectively (see "Reader
Advisories – Non-GAAP Measures", below).
- Total capital expenditures were $110.0
million inclusive of $108.8
million incurred for the Transaction, and approximately
$1.0 million on seismic.
- As at June 30, 2020, Spartan's
Liability Management Rating ("LMR") exceeded 6.0 in
Alberta. Spartan is committed to
environmental stewardship and seeks to maintain an industry leading
LMR.
- As at June 30, 2020, Spartan had
drawn $26.9 million on its Credit
Facility and had Net Debt of $26.2
million (see "Reader Advisories – Non-GAAP Measures",
below). The Company is well positioned to confront the challenges
of the current business environment and has sufficient financial
flexibility to take advantage of future opportunities.
Operational Update
In response to COVID-19, Spartan is following all applicable
rules and regulations as set out by the relevant health authorities
and has implemented health and safety protocols into its
operations. Spartan and its staff have adapted to the new work
environment without significant disruptions at any operated
facility or in day-to-day operations and virtual corporate and
operational integration of new staff and corporate objectives has
been successful through the first months of operations.
While the second quarter of 2020 continued to present challenges
for the broader energy industry, Spartan maintained its focus on
acquiring, closing and integrating the assets acquired through the
Transaction. The Spartan team continues to successfully execute on
production and cost optimization opportunities.
Outlook
The Company is currently preparing a six (net) well Spirit River drilling program set to commence
in the fourth quarter with the first of the wells expected to be
online by year end. The program is expected to pay out in less than
twelve months and deliver greater than 100% internal rate of return
on current commodity strip pricing. Even after taking into account
planned capital expenditures, Spartan will continue to generate
significant free cash flow.
Looking forward through the remainder of 2020 and into 2021,
Spartan plans to take advantage of the strength of its balance
sheet, access to capital, shallow production decline rate, and
strategic infrastructure to target future consolidation
opportunities across the basin.
Spartan has demonstrated resilience in volatile markets and
continues to execute the building of an ESG-focused business to
generate sustainable free cash flow and shareholder returns.
Updated Corporate Presentation
An updated corporate presentation has been posted on the
Company's website along with this morning's second quarter results
release.
About Spartan Delta Corp.
Spartan Delta is a differentiated energy company whose
ESG-focused culture is centered on generating sustainable free cash
flow through oil and gas exploration and development.
Building on its existing high-quality, low-decline operated
production in the heart of the Alberta Deep Basin, Spartan intends
to continue acquiring undervalued diversified assets that can be
restructured, optimized and rebranded, financially or
operationally, yielding accretion to shareholder value. With excess
infrastructure capacity, the Company is well positioned to continue
pursuing immediate production optimization and responsible future
growth. Further detail is available in Spartan's August corporate
presentation, which can be accessed on its website at
www.spartandeltacorp.com.
READER ADVISORIES
Share Capital
Spartan's common shares trade on the TSX Venture exchange
("TSXV") under the symbol "SDE" (formerly "RTN"). The volume
weighted average trading price of the Company's common shares on
the TSXV for the three and six months ended June 30, 2020 was $2.82 and $3.00,
respectively.
The table below summarizes the weighted average ("WA")
number of common shares outstanding (000s) used in the calculation
of net income (loss) per share and Adjusted Funds from Operations
per share for the three and six months ended June 30, 2020 and June 30,
2019:
|
Three months ended
June 30
|
Six months ended June
30
|
(000s)
|
2020
|
2019
|
2020
|
2019
|
WA common shares
outstanding, basic
|
36,655
|
1,106
|
31,380
|
1,106
|
Dilutive effect of
stock options
|
-
|
-
|
-
|
-
|
Dilutive effect of
warrants
|
10,458
|
-
|
10,803
|
-
|
WA common shares
outstanding, diluted
|
47,113
|
1,106
|
42,183
|
1,106
|
The Company uses the treasury stock method to determine the
impact of dilutive securities in accordance with International
Financial Reporting Standards ("IFRS"). Under this method,
only "in-the-money" dilutive instruments impact the calculation of
the diluted shares outstanding. The treasury stock method assumes
that the proceeds received from the exercise of all potentially
dilutive instruments are used to repurchase common shares at the
average market price during the period. In computing diluted
net income per share and Adjusted Funds from Operations per share
for the three and six months ended June 30,
2020, the effect of stock options was excluded as they were
not in-the-money during the periods.
As at June 30, 2020 and as of the
date hereof, the Company has 58.1 million common shares
outstanding, 16.2 million common share purchase warrants
outstanding with an exercise price of $1.00 per share, and 3.4 million stock options
outstanding with an exercise price of $3.00 per share.
Non-GAAP Measures
This release contains certain financial measures, as described
below, which do not have standardized meanings prescribed by IFRS
or Generally Accepted Accounting Principles ("GAAP"). As
these non-GAAP financial measures are commonly used in the oil and
gas industry, the Company believes that their inclusion is useful
to investors. The reader is cautioned that these amounts may not be
directly comparable to measures for other companies where similar
terminology is used. The non-GAAP measures used in this release,
represented by the capitalized and defined terms outlined below,
are used by Spartan as key measures of financial performance and
are not intended to represent operating profits nor should they be
viewed as an alternative to cash provided by operating activities,
net income or other measures of financial performance calculated in
accordance with IFRS.
Operating Income (Loss) and Operating Netback
"Operating Income (Loss)" is calculated by deducting operating
and transportation expenses from total revenue, after realized
gains or losses on commodity price derivative financial
instruments. Total revenue is comprised of oil and gas sales, net
of royalties, plus processing and other revenue. The Company refers
to Operating Income (Loss) expressed per unit of production as an
"Operating Netback".
Funds from Operations, Adjusted Funds from Operations, and
Corporate Netback
"Funds from Operations" is calculated as cash provided by (used
in) operating activities before changes in non-cash working
capital. "Adjusted Funds from Operations" is calculated by
adding back transaction costs on acquisitions and settlements of
decommissioning obligations to Funds from Operations.
"Adjusted Funds from Operations per share" is calculated on a
consistent basis with net income (loss) per share, using basic and
diluted weighted average common shares as determined in accordance
with IFRS (refer to additional information under the heading
"Reader Advisories – Share Capital" of this press release).
Adjusted Funds from Operations can also be calculated by
deducting general and administrative and interest expenses (net of
interest income) from Operating Income (Loss). Spartan's "Corporate
Netback" is equal to Adjusted Funds from Operations expressed per
unit of production.
Net Debt (Surplus)
Throughout this release, references to "Net Debt" include bank
debt, net of Adjusted Working Capital. "Adjusted Working Capital"
is calculated as current assets less current liabilities, excluding
derivative financial instrument assets and liabilities and lease
liabilities. As at June 30, 2020, the
Adjusted Working Capital surplus includes cash and cash
equivalents, accounts receivable, prepaid expenses and deposits,
accounts payable and accrued liabilities and the current portion of
decommissioning obligations. Spartan uses "Net Debt" as a measure
of the Company's financial position and liquidity, however it is
not intended to be viewed as an alternative to other measures
calculated in accordance with IFRS.
Forward-Looking and Cautionary Statements
Certain statements contained within this press release
constitute forward-looking statements within the meaning of
applicable Canadian securities legislation. All statements other
than statements of historical fact may be forward-looking
statements. Forward-looking statements are often, but not always,
identified by the use of words such as "anticipate", "budget",
"plan", "endeavor", "continue", "estimate", "evaluate", "expect",
"forecast", "monitor", "may", "will", "can", "able", "potential",
"target", "intend", "consider", "focus", "identify", "use",
"utilize", "manage", "maintain", "remain", "result", "cultivate",
"could", "should", "believe" and similar expressions. The Company
believes that the expectations reflected in such forward-looking
statements are reasonable, but no assurance can be given that such
expectations will prove to be correct and such forward-looking
statements should not be unduly relied upon. Without limitation,
this press release contains forward-looking statements pertaining
to: the intentions of management and the Company with respect to
its growth strategy and business plan; the amount and nature of
acquisition opportunities available to Spartan; Spartan's
intentions to maintain balance sheet flexibility to allow the
Company to take advantage of future opportunities; Spartan plans to
deliver strong operational performance and reduce debt through free
cash flow generation; Spartan's cost-cutting measures and the
results thereof; Spartan's ESG initiatives and its objective to
maintain an industry leading LMR rating; Spartan's intention to
update shareholders in the future with details of its capital
expenditure program, once determined; Spartan's position to
withstand future commodity price volatility and expectations of
challenging long-term market conditions; expected benefits from the
Transaction; the estimated total purchase price of the Transaction
of $108.8 million, which includes an
estimate of certain assumed liabilities of $21.3 million; the estimated replacement value of
the infrastructure acquired as part of the Transaction; and the
amount of the gain recognized on the Transaction which was
estimated based on information available at the time of preparing
the June 30, 2020 interim financial
statements.
The forward-looking statements and information are based on
certain key expectations and assumptions made by Spartan, including
expectations and assumptions concerning the business plan of the
Company, expected production, market conditions and benefits and
synergies arising from the Transaction. Although Spartan believes
that the expectations and assumptions on which such forward-looking
statements and information are based are reasonable, undue reliance
should not be placed on the forward-looking statements and
information because Spartan can give no assurance that they will
prove to be correct. By its nature, such forward-looking
information is subject to various risks and uncertainties, which
could cause the actual results and expectations to differ
materially from the anticipated results or expectations expressed.
These risks and uncertainties include, but are not limited to,
fluctuations in commodity prices, changes in industry regulations
and political landscape both domestically and abroad, foreign
exchange or interest rates, stock market volatility, impacts of the
current COVID-19 pandemic and the retention of key management and
employees. Please refer to the Company's most recent Annual
Information Form and MD&A for additional risk factors
relating to Spartan, which can be accessed either on Spartan's
website at www.spartandeltacorp.com or under the Company's
profile on www.sedar.com. Readers are cautioned not to place
undue reliance on this forward-looking information, which is given
as of the date hereof, and to not use such forward-looking
information for anything other than its intended purpose. Spartan
undertakes no obligation to update publicly or revise any
forward-looking information, whether as a result of new
information, future events or otherwise, except as required by
law.
Future Oriented Financial Information
Any financial outlook or future oriented financial information
in this press release, as defined by applicable Canadian securities
legislation, has been approved by management of Spartan. Readers
are cautioned that any such future-oriented financial information
contained herein, including (but not limited to) references to
pay-out ratios, free cash flow and replacement value, should not be
used for purposes other than those for which it is disclosed
herein. The Company and its management believe that the prospective
financial information 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 activities or results.
Other Measurements
This press release contains various references to the
abbreviation "BOE" which means barrels of oil equivalent. Where
amounts are expressed on a BOE basis, natural gas volumes have been
converted to oil equivalence at six thousand cubic feet per barrel.
The term BOE may be misleading, particularly if used in isolation.
A BOE conversion ratio of six thousand cubic feet per barrel is
based on an energy equivalency conversion method primarily
applicable at the burner tip and does not represent a value
equivalency at the wellhead and is significantly different than the
value ratio based on the current price of crude oil and natural
gas. This conversion factor is an industry accepted norm and is not
based on either energy content or current prices. Such abbreviation
may be misleading, particularly if used in isolation.
References to "oil" in this press release include crude oil and
condensate. References to "natural gas liquids" or "NGLs" include
pentane, butane, propane, and ethane. References to "gas" relates
to natural gas.
National Instrument 51-101 – Standards of Disclosure for Oil
and Gas Activities includes condensate within the product
type of "natural gas liquids". Spartan has disclosed condensate
sales separate from natural gas liquids because the value
equivalency of condensate is more closely aligned with crude oil.
The Company believes the presentation of condensate as disclosed
herein provides a more accurate representation of operations and
results therefrom.
All dollar figures included herein are presented in Canadian
dollars, unless otherwise noted.
Other Abbreviations
AECO
|
Alberta Energy
Company "C" Meter Station of the NOVA Pipeline System, the Canadian
benchmark price for natural gas
|
bbl
|
barrel
|
bbls/d
|
barrels per
day
|
BOE
|
barrels of oil
equivalent
|
BOE/d
|
barrels of oil
equivalent per day
|
CA$
|
Canadian
dollars
|
COVID-19
|
refers to the
outbreak of the novel coronavirus, a public health
crisis
|
GJ
|
gigajoule
|
LMR
|
Liability Management
Rating of the Alberta Energy Regulator
|
mcf
|
one thousand cubic
feet
|
mcf/d
|
one thousand cubic
feet per day
|
NGL
|
natural gas
liquids
|
NYMEX
|
New York Mercantile
Exchange
|
TSXV
|
Toronto Stock
Exchange
|
US$
|
United States
dollar
|
WA
|
weighted
average
|
WTI
|
West Texas
Intermediate, price paid in US$ at Cushing, Oklahoma, for crude oil
of standard grade
|
Neither the TSXV nor its Regulation Services Provider (as
that term is defined in the policies of the TSXV) accepts
responsibility for the adequacy or accuracy of this press
release.
SOURCE Spartan Delta Corp