CALGARY, AB, Nov. 5, 2020 /CNW/ - Spartan Delta
Corp. ("Spartan" or the "Company") (TSXV:
SDE) is pleased to announce its financial and operating results for
the three and nine month periods ended September 30, 2020. Selected financial and
operational information is set out below and should be read in
conjunction with Spartan's September 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
Spartan's results for the three months ended September 30, 2020, reflect the first full
quarter of operations following completion of a transformational
asset acquisition on June 1, 2020,
for total consideration of $108.8
million (the "Acquisition"). In the third quarter,
Spartan delivered Free Funds Flow of $13.2
million (see "Reader Advisories – Non-GAAP Measures",
below), highlighting the robust economics of the Company's
operations under current AECO pricing and lower baseline operating
expenses.
Average production for the third quarter was maintained
inline with June production levels despite a base decline of
19% on its asset base through the Company's production optimization
activities in the field. Spartan has realized a marked
improvement in operating costs which are down 12% quarter over
quarter as the focus on cost reduction initiatives over the first
four months of operating the Acquisition assets begins to be
reflected in operating results.
Third Quarter 2020 Highlights
- Stable base production: Spartan reported average
production of 26,282 BOE per day (69% gas) for the three months
ended September 30, 2020.
- Strong cash flows: The Company generated Adjusted Funds
from Operations of $15.9 million
($0.23 per share, diluted) during the
third quarter of 2020, resulting in a Corporate Netback of
$6.56 per BOE. Free Funds Flow was
$13.2 million after leases,
decommissioning and capital expenditures. See "Reader Advisories
– Non-GAAP Measures", below.
- Operational excellence: As a result of cost reduction
initiatives across the organization, operating expenses averaged
$6.10 per BOE for the quarter ended
September 30, 2020, down 12% from
$6.96 per BOE during the previous
quarter.
- Prudent risk management: To mitigate ongoing volatility
in commodity markets and to satisfy the one-time minimum hedging
requirements under the Company's credit facility, Spartan has
hedged approximately 52% of its forecasted natural gas volumes for
the remainder of 2020 and approximately 35% of forecasted natural
gas volumes for 2021.
- Focus on sustainability: As of September 30, 2020, Spartan's Liability
Management Rating (LMR) was 5.5 in Alberta, reflecting the high quality of its
asset base versus an industry average of 4.8.
- Balance sheet strength: Spartan exited the third quarter
with $10.0 million drawn on its
credit facility with an authorized borrowing amount of $100.0 million and had Net Debt of $14.5 million at September
30, 2020 (see "Reader Advisories – Non-GAAP
Measures", below). The Company is well positioned to execute on
its capital expenditure program and has sufficient financial
flexibility to take advantage of future opportunities.
The Company's financial and operating results for the three and
nine month periods ended September 30,
2020, are summarized in the table below.
Financial and Operating Highlights
|
Three months ended
September 30
|
Nine months ended
September 30
|
(CA$ thousands,
except as otherwise indicated)
|
2020
|
2019
|
2020
|
2019
|
OPERATING
|
|
|
|
|
Average daily
production (BOE/d)
|
|
|
|
|
Crude oil and
condensate (bbls/d)
|
1,431
|
24
|
646
|
26
|
NGLs
(bbls/d)
|
6,811
|
12
|
3,037
|
14
|
Natural gas
(mcf/d)
|
108,237
|
1,077
|
49,091
|
1,112
|
BOE/d
|
26,282
|
215
|
11,865
|
225
|
Average realized
prices, before financial instruments
|
|
|
|
|
Crude oil and
condensate ($/bbl)
|
48.90
|
63.23
|
48.01
|
64.19
|
NGLs
($/bbl)
|
15.65
|
49.41
|
15.55
|
54.50
|
Natural gas
($/mcf)
|
2.30
|
0.63
|
2.21
|
1.29
|
Combined average
($/BOE)
|
16.19
|
12.94
|
15.72
|
17.13
|
Operating and
Corporate Netbacks ($/BOE) (1)
|
|
|
|
|
Oil and gas sales,
before financial instruments
|
16.19
|
12.94
|
15.72
|
17.13
|
Realized gain on
financial instruments
|
0.44
|
-
|
0.37
|
-
|
Oil and gas sales,
after financial instruments
|
16.63
|
12.94
|
16.09
|
17.13
|
Processing and other
revenue
|
0.50
|
1.89
|
0.56
|
1.62
|
Royalties
|
(1.37)
|
(0.12)
|
(1.25)
|
0.40
|
Operating
expenses
|
(6.10)
|
(23.51)
|
(6.43)
|
(22.47)
|
Transportation
expenses
|
(1.34)
|
-
|
(1.34)
|
-
|
Operating Netback
(1)
|
8.32
|
(8.80)
|
7.63
|
(3.32)
|
General and
administrative expenses
|
(1.50)
|
(11.19)
|
(1.75)
|
(13.78)
|
Interest expense, net
of interest income
|
(0.26)
|
-
|
(0.23)
|
-
|
Corporate Netback
(1)
|
6.56
|
(19.99)
|
5.65
|
(17.10)
|
FINANCIAL
|
|
|
|
|
Oil and gas
sales
|
39,149
|
257
|
51,118
|
1,054
|
Cash provided by
(used in) operating activities
|
22,724
|
(247)
|
16,145
|
(699)
|
Adjusted Funds from
Operations (1)
|
15,854
|
(394)
|
18,369
|
(1,049)
|
$ per share,
basic
|
0.27
|
(0.36)
|
0.46
|
(0.95)
|
$ per share,
diluted
|
0.23
|
(0.36)
|
0.36
|
(0.95)
|
Net income (loss) and
comprehensive income (loss)
|
(7,281)
|
(691)
|
35,305
|
(1,938)
|
$ per share,
basic
|
(0.13)
|
(0.62)
|
0.87
|
(1.75)
|
$ per share,
diluted
|
(0.13)
|
(0.62)
|
0.69
|
(1.75)
|
Capital expenditures,
net of dispositions
|
1,178
|
1
|
111,523
|
(260)
|
Total
assets
|
331,730
|
11,227
|
331,730
|
11,227
|
Net Debt (Surplus)
(1)
|
14,477
|
(29)
|
14,477
|
(29)
|
Shareholders'
equity
|
124,413
|
1,190
|
124,413
|
1,190
|
Common shares
outstanding (000s) (2)
|
|
|
|
|
Weighted average,
basic
|
58,118
|
1,106
|
40,358
|
1,106
|
Weighted average,
diluted (2)
|
68,231
|
1,106
|
50,823
|
1,106
|
End of
period
|
58,126
|
1,106
|
58,126
|
1,106
|
(1)
|
"Operating Netback",
"Corporate Netback", "Adjusted Funds from Operations" and "Net Debt
(Surplus)" do not have standardized meanings under IFRS, refer to
the "Non-GAAP Measures" advisories at the end of this press
release.
|
(2)
|
Refer to the "Share
Capital" advisories at the end of this press release.
|
Outlook and Guidance
In late October 2020, the Company
spud the first well of its six well winter drilling program
targeting Spirit River
liquids-rich natural gas. Five wells will target the Falher B
formation and one well will target the Notikewin formation. Six
additional wells are anticipated to be drilled in the second half
of 2021 for a total of twelve wells in the 2020/2021 drilling
campaign. 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.
Spartan's capital expenditures are estimated to be $15.0 – 18.0 million for the fourth quarter of
2020 and production is forecast to average between 24,300 to 25,300
BOE per day. Capital expenditures are budgeted to be $40.0 – 43.0 million in 2021 and are expected to
be fully funded by cash provided by operating activities. The range
in budget is driven by timing of drilling; total capital
expenditures are not expected to exceed $58.0 million in aggregate for the remainder of
2020 and 2021. Operational efficiencies remain a core focus with
approximately $4.0 million of the
capital program budgeted for optimization projects designed to
offset base production declines and reduce operating costs.
The Company's capital program is expected to deliver 13%
production growth in 2021 compared to average production forecast
for the fourth quarter of 2020. Spartan expects to generate
approximately $66.0 million of
Adjusted Funds Flow in 2021 (see "Reader Advisories – Non-GAAP
Measures", below) based on average commodity price
assumptions of $2.75 per GJ for AECO,
US$45 per barrel for WTI, and an
exchange rate of 1.32 USD/CAD.
Below is a summary of corporate guidance for 2021:
(CA$ millions,
except as otherwise noted)
|
2021
Guidance
|
Average
Production
|
|
Crude oil and
condensate
|
5%
|
NGLs
|
25%
|
Natural gas
|
70%
|
Combined
(BOE/d)
|
27,000 –
29,000
|
Key
Assumptions
|
|
Average royalty rate
(% of oil and gas sales)
|
11%
|
Operating expenses
($/BOE)
|
6.00
|
Transportation
expenses ($/BOE)
|
1.45
|
G&A expenses
($/BOE)
|
1.50
|
Capital
expenditures
|
40.0 –
43.0
|
Well count (# gross =
net)
|
8 – 9
|
Adjusted Funds Flow
(1)(2)
|
66.0
|
Free Funds Flow
(1)
|
23.0 –
26.0
|
Net Debt (Surplus),
end of period (1)
|
(8.5)
|
|
|
(1)
|
"Adjusted Funds
Flow", "Free Funds Flow" and "Net Debt (Surplus)" do not have
standardized meanings under IFRS, refer to the "Non-GAAP Measures"
advisories at the end of this press release.
|
(2)
|
Based on the midpoint
of 2021 average production guidance of 28,000 BOE/d.
|
Industry Leading Abandonment and Reclamation Program
As part of its ongoing partnership and commitment to
sustainability, Spartan and the O'Chiese First Nation have
established an industry leading abandonment and reclamation
program. The program was implemented to demonstrate the Company's
dedication to proactively manage future liabilities and to preserve
the environment for future generations.
Updated Corporate Presentation
An updated corporate presentation has been posted on the
Company's website along with this morning's third quarter results
release.
About Spartan Delta Corp.
Spartan is a differentiated energy company whose ESG-focused
culture is centred on generating sustainable free funds 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 November 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". The volume weighted average
trading price of the Company's common shares on the TSXV for the
three and nine months ended September 30,
2020 was $2.67 and
$2.83, respectively.
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. For the three months ended
September 30, 2020, the outstanding
stock options and common share purchase warrants were antidilutive
to the net loss per share. In computing diluted net income per
share and Adjusted Funds from Operations per share for the period
ended September 30, 2020, the effect
of stock options was excluded as they were anti-dilutive because
they were not in-the-money based on the volume weighted average
trading price of the Company's common shares during the period.
As of the date hereof, the Company has 58.2 million common
shares outstanding, 16.1 million common share purchase warrants
outstanding with an exercise price of $1.00 per share, and 3.4 million stock options
outstanding with an average 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".
Adjusted Funds from Operations and Corporate
Netback
"Adjusted Funds from Operations" is calculated as cash provided
by (used in) operating activities before changes in non-cash
working capital, transaction costs on acquisitions and settlements
of decommissioning obligations. 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.
"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 Flow and Free Funds Flow
"Adjusted Funds Flow" is calculated by deducting settlements of
decommissioning obligations and lease payments from "Adjusted Funds
from Operations". The Company believes Adjusted Funds Flow is an
appropriate metric to compare relative to Net Debt because it
reflects the net cash flow generated from routine business
operations and because Spartan does not include lease liabilities
in its definition of Net Debt (Surplus).
"Free Funds Flow" is calculated as Adjusted Funds Flow less
total net capital expenditures, excluding acquisitions.
Net Debt (Surplus)
Throughout this release, references to "Net Debt (Surplus)"
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 September 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 (Surplus)" 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; Spartan's expectations
regarding its 2020/2021 drilling program, including the location of
wells, scheduled drilling dates and the timing of expected pay out
from such wells; 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 funds flow generation;
Spartan's production forecasts; Spartan's cost-cutting measures and
the results thereof; Spartan's ESG initiatives; Spartan's capital
expenditure budget and plans, and its ability to fund capital
expenditures through operating activities; Spartan's position to
withstand future commodity price volatility and expectations
regarding challenging long-term market conditions; the continuation
of Spartan's strategic partnerships, and expected benefits
therefrom; and the estimated total purchase price of the
Acquisition of $108.8 million, which
includes an estimate of certain assumed liabilities of $21.3 million.
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 Acquisition and the Company's strategic
partnerships. 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 the
Company's "Outlook and Guidance" for the remainder of 2020 and
2021, 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
All dollar figures included herein are presented in Canadian
dollars, unless otherwise noted.
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.
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
|
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