CALGARY,
AB, Nov. 30, 2022 /CNW/ - Spartan Delta
Corp. ("Spartan" or the "Company") (TSX: SDE) is
pleased to announce that its Board of Directors (the
"Board") has commenced a formal process to evaluate
strategic repositioning alternatives in an effort to enhance
shareholder value (the "Repositioning Process").
Spartan has been one of the most active consolidators in the
Canadian oil and gas industry since April of 2020, building
dominant positions in both the oil window of the Alberta Montney
and the liquids-rich Deep Basin. The Company's counter
cyclical approach to acquisitions through a challenging time in the
industry coupled with organic outperformance has generated
significant returns for Spartan's shareholders.
The Company has successfully integrated and demonstrated the
organic productive potential of the full complement of its acquired
assets. Over the past 15 months, Spartan has placed specific focus
on the development of our Gold Creek and Karr assets located in the
Montney oil window. The drilling
programs to date have consistently exceeded the Company's
forecasted type curves and production targets, which facilitated
the acceleration of debt repayment culminating in the full
repayment of its revolving credit facility as of September 30, 2022. Following the
achievement of these important milestones, Spartan previously
announced a special dividend of $0.50
per common share payable on January 16,
2023 to shareholders of record at the close of business on
December 15, 2022.
Spartan expects to generate approximately $455 million of forecasted Free Funds Flow in
2023 and is well positioned to continue growing the business
organically by ~10% per year with decades of high-quality inventory
and over $2 billion of tax pools,
while accelerating a robust return of capital program with a
specific focus on dividends.
Despite the achievement of these key milestones, the current
trading price of the Company's common shares does not fully reflect
the underlying value of the asset base.
Before Spartan commits to a significant return of capital
strategy for 2023, the Board has determined that it is timely and
prudent to initiate a comprehensive process to explore, review and
evaluate a number of strategic repositioning alternatives available
to the Company with a view to maximizing and accelerating value to
shareholders. The Repositioning Process will include the evaluation
of a broad range of alternatives including, but not limited to, a
corporate sale, merger, corporate restructuring, sale of select
assets, sale of a royalty, purchase of assets, the spin-out of
select assets into a newly-formed company whose securities would be
distributed to shareholders or any combination of these potential
alternatives in conjunction with a robust return of capital
strategy.
Spartan's business will not be impacted by this Repositioning
Process and will continue to execute on the drilling program that
has delivered some of the best results in Canada.
2023 BUDGET AND PRELIMINARY
GUIDANCE
With strong operational performance from Spartan's drilling
program and forecasted continuation of commodity price tailwinds,
Spartan is pleased to provide its financial and operating guidance
for 2023.
Based on forecast average production of between 80,000 to 82,000
BOE/d and commodity price assumptions of US$80/bbl for WTI crude oil and $4.50/GJ for AECO natural gas, Spartan expects to
generate approximately $885 million
of Adjusted Funds Flow in 2023. Free Funds Flow is forecast to be
$455 million on a capital expenditure
budget of $430 million.
As part of the Company's 2023 capital budget, Spartan plans to
drill 26.7 net wells in the Montney, primarily targeting the oil-weighted
areas of Gold Creek and Karr, and 15.0 net wells targeting both
light oil and liquids-rich gas in the Spirit River and Cardium
horizons within the Deep Basin. Spartan's 2023 capital expenditure
assumptions include an estimated 5% increase in costs year over
year due to the impact of inflationary pressures within the
industry and labor force.
Spartan's preliminary 2023 guidance is summarized below:
ANNUAL
GUIDANCE
|
2023
|
Year ending December
31, 2023
|
Guidance
|
Average Production
(BOE/d) (a)(c)
|
80,000 to
82,000
|
% Liquids
|
39 %
|
Benchmark Average
Commodity Prices
|
|
WTI crude oil price
(US$/bbl)
|
80.00
|
NYMEX Henry Hub
natural gas price (US$/mmbtu)
|
5.31
|
AECO natural gas price
($/GJ)
|
4.50
|
Average exchange rate
(US$/CA$)
|
1.33
|
Operating Netback,
before hedging ($/BOE) (b)(c)
|
31.62
|
Operating Netback,
after hedging ($/BOE) (b)(c)
|
31.94
|
Adjusted Funds Flow
($MM) (b)(c)
|
885
|
Capital Expenditures,
before A&D ($MM) (b)
|
430
|
Free Funds Flow ($MM)
(b)
|
455
|
Net Debt (Surplus), end
of year ($MM) (b)
|
(297)
|
Common shares
outstanding, end of year (MM) (d)
|
173
|
|
|
a)
|
The financial
performance measures included in the Company's preliminary guidance
for 2023 is based on the midpoint of the average production
forecast of 81,000 BOE/d.
|
|
b)
|
"Operating Netback", "Adjusted Funds Flow", "Capital Expenditures,
before A&D", "Free Funds Flow" and "Net Debt (Surplus)" do not
have standardized meanings under IFRS, see "Non-GAAP Measures and Ratios".
|
|
c)
|
Additional information
regarding the assumptions used in the forecasted Average
Production, Operating Netbacks and Adjusted Funds Flow for 2023 are provided
in the Reader Advisories section of this press release.
|
|
d)
|
The forecast of common
shares outstanding at the end of 2023 includes restricted share
awards expected to be released upon vesting and assumes outstanding
share purchase warrants will be exercised in the fourth quarter of
2022, but does not include common shares
potentially issuable in
respect of stock options for which the exercise is discretionary on
behalf of the holder (refer to "Share Capital" section of this
press release for additional information regarding dilutive
securities).
|
OUTLOOK
Spartan's management team and Board are committed to acting in
the best interests of the shareholders of the Company. Spartan has
not yet established a definitive schedule to complete its
identification, examination and consideration of strategic
repositioning alternatives. The Company does not intend to disclose
developments with respect to the Repositioning Process,
periodically or otherwise, unless the Board has approved a
definitive transaction or strategic repositioning alternative, or
otherwise determines that disclosure is necessary or appropriate.
The Company cautions that there are no assurances or guarantees
that the process will result in a transaction or, if a transaction
is undertaken, the terms or timing of such a transaction.
The Board and management team of Spartan believe that this
Repositioning Process will ultimately benefit shareholders. Should
no transaction be undertaken, Spartan will continue its operations
as they currently exist with a focus on sustainable self-funded
growth and executing on a return of capital strategy.
FINANCIAL ADVISOR
Spartan has engaged National Bank Financial Inc. ("NBF")
as its exclusive financial advisor in connection with the
Repositioning Process. Spartan and NBF have created a virtual data
room, which is available for review by interested parties upon
execution of a confidentiality agreement.
ABOUT SPARTAN DELTA
CORP.
Spartan is committed to creating a modern energy company,
focused on sustainability both in operations and financial
performance. The Company's ESG-focused culture is centered on
generating Free Funds Flow through responsible oil and gas
exploration and development. The Company has established a
portfolio of high-quality production and development opportunities
in the Deep Basin and Montney.
Spartan is focused on the execution of the Company's organic
drilling program, delivering operational synergies in a respectful
and responsible manner to the environment and communities it
operates in. The Company is well positioned to continue pursuing
immediate production optimization, future growth with organic
drilling, opportunistic acquisitions and the delivery of Free Funds
Flow.
Spartan's corporate presentation as of November 29, 2022 can be accessed on the
Company's website at www.spartandeltacorp.com.
READER ADVISORIES
Non-GAAP Measures and Ratios
This press release contains certain financial measures and
ratios which do not have standardized meanings prescribed by
International Financial Reporting Standards ("IFRS") or
Generally Accepted Accounting Principles ("GAAP"). As these
non-GAAP financial measures and ratios are commonly used in the oil
and gas industry, Spartan 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 and ratios used in this press 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.
The definitions below should be read in conjunction with the
"Non-GAAP Measures and Ratios" section of the Company's MD&A
dated November 8, 2022, which
includes discussion of the purpose and composition of the specified
financial measures and detailed reconciliations to the most
directly comparable GAAP financial measures as at September 30, 2022.
Operating Income and Operating Netback
Operating Income, a non-GAAP financial measure, is a useful
supplemental measure that provides an indication of the Company's
ability to generate cash from field operations, prior to
administrative overhead, financing and other business expenses.
"Operating Income, before hedging" is calculated by Spartan
as oil and gas sales, net of royalties, plus processing and other
revenue, less operating and transportation expenses. "Operating
Income, after hedging" is calculated by adjusting Operating
Income for: (i) realized gains or losses on derivative financial
instruments including settlements on acquired derivative financial
instrument liabilities (together a non-GAAP financial measure
"Settlements on Commodity Derivative Contracts"), and (ii)
pipeline transportation revenue, net of pipeline transportation
expense (the "Net Pipeline Transportation Margin"). The
Company refers to Operating Income expressed per unit of production
as an "Operating Netback" and reports the Operating Netback
before and after hedging, both of which are non-GAAP financial
ratios. Spartan considers Operating Netback an important measure to
evaluate its operational performance as it demonstrates its field
level profitability relative to current commodity prices.
Adjusted Funds Flow and Free Funds Flow
Cash provided by operating activities is the most directly
comparable measure to Adjusted Funds Flow. "Adjusted Funds
Flow" is reconciled to cash provided by operating activities by
excluding changes in non-cash working capital, adding back
transaction costs on acquisitions, and deducting the principal
portion of lease payments. Spartan utilizes Adjusted Funds Flow as
a key performance measure in the Company's annual financial
forecasts and public guidance. Transaction costs, which primarily
include legal and financial advisory fees, regulatory and other
expenses directly attributable to execution of acquisitions, are
added back because the Company's definition of Free Funds Flow
excludes capital expenditures related to acquisitions and
dispositions. For greater clarity, incremental overhead expenses
related to ongoing integration and restructuring post-acquisition
are not adjusted and are included in Spartan's general and
administrative expenses. Lease liabilities are not included in
Spartan's definition of Net Debt (non-GAAP measure defined herein)
therefore lease payments are deducted in the period incurred to
determine Adjusted Funds Flow.
"Free Funds Flow" is calculated by Spartan as Adjusted
Funds Flow less Capital Expenditures before A&D, which is also
a non-GAAP financial measure (defined herein). Spartan believes
Free Funds Flow provides an indication of the amount of funds the
Company has available for future capital allocation decisions such
as to repay long-term debt, reinvest in the business or return
capital to shareholders.
Capital Expenditures, before A&D
"Capital Expenditures before A&D" is used by Spartan
to measure its capital investment level compared to the Company's
annual budgeted capital expenditures for its organic drilling
program. It includes capital expenditures on exploration and
evaluation assets and property, plant and equipment, before
acquisitions and dispositions. The directly comparable GAAP measure
to capital expenditures is cash used in investing activities.
Net Debt (Surplus) and Adjusted Working Capital
References to "Net Debt (Surplus)" includes long-term
debt outstanding, if any, under Spartan's revolving credit facility
and second lien term facility, net of Adjusted Working Capital. Net
Debt (Surplus) and Adjusted Working Capital are both non-GAAP
financial measures. "Adjusted Working Capital" is calculated
as current assets less current liabilities, excluding lease
liabilities and derivative financial instrument assets and
liabilities.
Spartan uses Net Debt (Surplus) as a key performance measure to
manage the Company's targeted debt levels. The Company believes its
presentation of Net Debt (Surplus) is useful as supplemental
measures because lease liabilities and derivative financial
instrument assets and liabilities relate to contractual obligations
for future production periods. Lease payments and cash receipts or
settlements on derivative financial instruments are included in
Spartan's reported Adjusted Funds Flow in the production month to
which the obligation relates.
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
(Mcf) per barrel (bbl). 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 light crude
oil, medium crude oil, heavy oil and tight oil combined. NI 51-101
includes condensate within the product type of "natural gas
liquids". References to "natural gas liquids" or "NGLs" include
pentane, butane, propane and ethane. References to "gas" or
"natural gas" relates to conventional natural gas. References to
"liquids" includes crude oil, condensate and NGLs.
Assumptions for 2023
Guidance
The significant assumptions used in the forecast of Operating
Netbacks and Adjusted Funds Flow for 2023 are summarized below.
These key performance measures expressed per BOE are based on the
midpoint of calendar year average production guidance for 2023 of
81,000 BOE/d.
2023 production
Guidance
|
Guidance
|
Crude oil
(bbls/d)
|
16,000
|
Condensate
(bbls/d)
|
2,100
|
Crude oil and
condensate (bbls/d)
|
18,100
|
NGLs
(bbls/d)
|
13,800
|
Natural gas
(mcf/d)
|
294,600
|
Combined average
(BOE/d)
|
81,000
|
%
Liquids
|
39 %
|
2023 financial
Guidance ($/BOE)
|
|
|
Guidance
|
Oil and gas
sales
|
|
|
48.63
|
Processing and other
revenue
|
|
|
0.31
|
Royalties
|
|
|
(6.22)
|
Operating
expenses
|
|
|
(8.41)
|
Transportation
expenses
|
|
|
(2.69)
|
Operating Netback,
before hedging
|
|
|
31.62
|
Settlements on
Commodity Derivative Contracts
|
|
|
0.32
|
Operating Netback,
after hedging
|
|
|
31.94
|
General and
administrative expenses
|
|
|
(0.91)
|
Cash financing
expenses
|
|
|
(0.50)
|
Settlements of
decommissioning obligations
|
|
|
(0.20)
|
Lease
payments
|
|
|
(0.40)
|
Adjusted Funds
Flow
|
|
|
29.93
|
Changes in forecast commodity prices, exchange rates,
differences in the amount and timing of capital expenditures, and
variances in average production estimates can have a significant
impact on the key performance measures included in Spartan's
guidance. The Company's actual results may differ materially from
these estimates. Holding all other assumptions constant, a
US$10/bbl increase (decrease) in the
forecasted average WTI crude oil price for 2023 would increase
Adjusted Funds Flow by approximately $91
million (decrease by $94
million). An increase (decrease) of CA$1.00/GJ in the
forecasted average AECO natural gas price for 2023, holding the
NYMEX-AECO basis differential and all other assumptions constant,
would increase Adjusted Funds Flow by approximately $63 million (decrease by $69 million). Holding U.S. dollar benchmark
commodity prices and all other assumptions constant, an increase
(decrease) of $0.10 in the US$/CA$
exchange rate would increase Adjusted Funds Flow by approximately
$52 million (decrease by $53 million). Assuming capital expenditures are
unchanged, the impact on Free Funds Flow would be equivalent to the
increase or decrease in Adjusted Funds Flow. An increase (decrease)
in Free Funds Flow will result in an equivalent decrease (increase)
in the forecasted Net Debt (Surplus).
Share Capital
Spartan's common shares are listed on the Toronto Stock Exchange
("TSX") and trade under the symbol "SDE". As of the date
hereof, there are 156.1 million common shares outstanding. There
are no preferred shares or special shares outstanding. The
following securities are outstanding as of the date of this press
release: 15.1 million common share purchase warrants with an
exercise price of $1.00 per common
share; 3.0 million restricted share awards; and 3.5 million stock
options outstanding with an average exercise price of $4.48 per common share and average remaining term
of 3.1 years.
Drilling Locations
This press release discloses drilling inventory in three
categories: (a) proved locations; (b) probable locations; and (c)
unbooked/potential locations. Proved locations and probable
locations are derived from an
independent oil and gas reserves
evaluation of Spartan's assets
prepared by McDaniel &
Associates Consultants Ltd.
as of December 31, 2021 and account for
drilling locations that have associated proved and/or probable
reserves, as applicable. Unbooked locations are internal estimates
based on the prospective acreage and an assumption as to the number
of wells that can be drilled per section based on industry practice
and internal review. Unbooked locations do not have attributed
reserves or resources.
Of the 41.7 net total booked drilling locations identified
herein, 23.7 are net proved locations and 5 are net probable
locations.
Unbooked locations have been identified by management as an
estimation of Spartan's multi-year drilling activities based on
evaluation of applicable geologic, seismic, engineering, production
and reserves information. There is no certainty that Spartan will
drill all unbooked drilling locations and if drilled there is no
certainty that such locations will result in additional oil and gas
reserves, resources or production. The drilling locations
considered for future development will ultimately depend upon the
availability of capital, regulatory approvals, seasonal
restrictions, oil and natural gas prices, costs, actual drilling
results, additional reservoir information that is obtained and
other factors. While certain of the unbooked drilling locations
have been de-risked by drilling existing wells in relative close
proximity to such unbooked drilling locations, other unbooked
drilling locations are farther away from existing wells where
management has less information about the characteristics of the
reservoir and therefore there is more uncertainty whether wells
will be drilled in such locations and if drilled there is more
uncertainty that such wells will result in additional oil and gas
reserves, resources or production.
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. Spartan
believes that the expectations reflected in such forward-looking
statements are reasonable as of the date hereof, 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 business plan, cost model and
strategy of Spartan, including commodity diversification and oil
weighted production; the expectation that the Repositioning Process
may elicit change and enhance shareholder value; Spartan's
anticipated operational results; future intentions with respect to
the return of capital; the impact of inflation on cost estimates;
the expectation that Spartan can continue growing the business
organically with decades of high-quality inventory; the Company's
2023 capital budget and preliminary financial/operational guidance;
Spartan's anticipated operational results for 2023 including, but
not limited to, estimated or anticipated production levels, capital
expenditures and drilling plans; Spartan plans to deliver strong
operational performance and to generate long term sustainable Free
Funds Flow and organic growth; management's expectations regarding
encouraging drilling results and ability to replicate past
performance; being well positioned to take advantage of
opportunities in the current business environment, and to continue
pursuing immediate production optimization, responsible future
growth with organic drilling, and opportunistic acquisitions.
Further, the ability of Spartan to pay the proposed special
dividend and any future dividend payments and share buybacks, if
any, will be subject to applicable laws (including the satisfaction
of the solvency test contained in applicable corporate legislation)
and contractual restrictions contained in the instruments governing
its indebtedness, including its credit facility.
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
Spartan, 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
facilities and pipelines, the geological characteristics of
Spartan's properties, the successful integration of the recently
acquired assets into Spartan's operations, the successful
application of drilling, completion and seismic technology,
prevailing weather conditions, prevailing legislation affecting the
oil and gas industry, prevailing commodity prices, price
volatility, price differentials and the actual prices received for
the Company's products, impact of inflation on costs, royalty
regimes and exchange rates, the application of regulatory and
licensing requirements, the availability of capital, labour and
services, the creditworthiness of industry partners and the ability
to source and complete acquisitions.
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, the failure to achieve the anticipated benefits
of the Repositioning Process or any transactions undertaken
pursuant to the Repositioning Process; the risk that future
dividend payments or share buybacks, if any, are reduced, suspended
or cancelled, fluctuations in commodity prices, changes in industry
regulations and political landscape both domestically and abroad,
wars (including Russia's military
actions in Ukraine), hostilities,
civil insurrections, foreign exchange or interest rates, increased
operating and capital costs due to inflationary pressures (actual
and anticipated), stock market volatility, impacts of the current
COVID-19 pandemic and the retention of key management and
employees. Ongoing military actions between Russia and Ukraine have the potential to threaten the
supply of oil and gas from the region. The long-term impacts of the
actions between these nations remains uncertain.
Please refer to Spartan's MD&A for the period ended
September 30, 2022 and AIF for the
year ended December 31, 2021 for
discussion of additional risk factors relating to Spartan, which
can be accessed either on Spartan's website at
www.spartandeltacorp.com or under Spartan's SEDAR 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.
This press release contains future-oriented financial
information and financial outlook information (collectively,
"FOFI") about Spartan's prospective results of operations
and production, organic growth, operating costs, capital
expenditures, Adjusted Funds Flow, Free Funds
Flow, Net Debt (Surplus), Operating
Netbacks, and Spartan's corporate outlook and
guidance for 2023 and components thereof, 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 Spartan's proposed business activities in 2023.
Spartan 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. Spartan 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 Spartan's guidance. The Company's
actual results may differ materially from these estimates.
Abbreviations
A&D
acquisitions and dispositions
AECO
Alberta Energy Company "C" Meter Station of the NOVA Pipeline
System
AFF
Adjusted Funds Flow
AIF
refers to the Company's Annual Information Form dated March 8, 2022
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
ESG
Environment, Social and Governance
G&A
general and administrative expenses
GJ
gigajoule
mcf
one thousand cubic feet
mmbtu
one million British thermal units
mmcf
one million cubic feet
mcf/d
one thousand cubic feet per day
mmcf/d
one million cubic feet per day
MM
millions
NI 51-101
National Instrument 51-101 – Standards of Disclosure for Oil and
Gas
Activities
NGL(s)
natural gas liquids
NYMEX
New York Mercantile Exchange, with reference to the U.S. dollar
"Henry Hub" natural gas price index
TSX
Toronto Stock Exchange
US$
United States dollar
WTI
West Texas Intermediate, the reference price paid in U.S. dollars
at Cushing,Oklahoma for crude oil of standard grade
SOURCE Spartan Delta Corp.