HEADWATER EXPLORATION INC. Following a thorough evaluation of our land acquisition strategy and exploration successes, the Board has granted approval for the 2024 preliminary budget as outlined below. The budget is designed to allow Headwater to be resilient to the current environment and opportunistic on expanding its prospects while achieving top-tier total returns for our shareholders.
- Capital expenditures (1) of $180 million
Maintenance and Growth Capital -$135 million Waterflood Capital -$25 million Exploration Capital -$20 million
- Quarterly dividend of
$0.10 /common share representing an approximate 6.2% yield - Annual production of 20,000 boe/d representing 11% year over year production per share growth
- Adjusted funds flow from operations (2) of
$275 million at US$70.00 /bbl WTI
Our 2024 capital budget includes:
- 60 wells within our maintenance and growth capital program
- 12 multi-leg injection wells and associated facilities within our waterflood capital
- Approximately 10 exploration wells across our
Clearwater assets and other lands
(1) | Non-GAAP measure that does not have any standardized meaning under IFRS and therefore may not be comparable with the calculation of similar measures of other entities. Refer to "Non-GAAP and Other Financial Measures" within this press release. |
(2) | Capital management measure. Refer to "Non-GAAP and Other Financial Measures" within this press release. |
(3) | For assumptions utilized in the above guidance see "Guidance and Future Oriented Financial Information" within this press release. |
Our 2024 budget contemplates delivering 11% production growth in addition to an approximate 6.2% dividend yield while maintaining an approximate
(1) | Capital management measure. Refer to "Non-GAAP and Other Financial Measures" within this press release. |
The budget contemplates
By early 2025, we will have the entire nine section
At Marten Hills West our two pilot waterfloods continue to provide encouraging results. To date the pilots have stabilized approximately 200 bbls/d of oil production. In 2024 we will implement the next phase of enhanced oil recovery by placing a full section under secondary recovery which is expected to stabilize an additional 300 bbls/d of oil production. As we look beyond 2024 this next phase of waterflood implementation will provide the technical learnings to roll out enhanced oil recovery across
New pool exploration and step outs in the Clearwater A have continued in the fourth quarter as we further delineate our
Exploration tests in the untested Clearwater E, F and G pools are all drilled and at various stages of production. The Clearwater E test at 02/13-15-076-02W5 was placed on production
Seal
Results from the Fahler B and Fahler D exploration tests continue to be above expectations setting up an expanded 2024 follow up program. The 03/13-06-083-15W5 Fahler B well has achieved a 60-day initial production rate of 130 bbls/d. The 00/07-07-083-15W5 Fahler D "StingWray" fan well has achieved a 30-day initial production rate of 130 bbls/d which is a 65% improvement over the original 8-leg multi-lateral discovery well at 00/13-06-083-15W5. Our 2024 program contemplates 5-10 delineation wells which will include further tests of our "StingWray" well design.
McCully
McCully was placed back on production
(1) | Non-GAAP measure that does not have any standardized meaning under IFRS and therefore may not be comparable with the calculation of similar measures of other entities. Refer to "Non-GAAP and Other Financial Measures" within this press release. |
(2) | McCully's winter season is estimated to be |
Additional corporate information can be found in the Company's corporate presentation and on Headwater's website at www.headwaterexp.com.
FORWARD LOOKING STATEMENTS: This press release contains forward-looking statements. The use of any of the words "guidance", "initial, "anticipate", "scheduled", "can", "will", "prior to", "estimate", "believe", "potential", "should", "unaudited", "forecast", "future", "continue", "may", "expect", "project", and similar expressions are intended to identify forward-looking statements. The forward-looking statements contained herein, include, without limitation, 2024 guidance related to expected annual average production, expected capital expenditures and the breakdown thereof, expected adjusted funds flow from operations, expected dividends, and expected exit adjusted working capital; the expectation that growth capital will be allocated to the second half of 2024 with Q4 rates expected to be in excess of 21,500 boe/d into an anticipated stronger commodity price environment; the expectation the ten scheduled exploration wells will validate six new play concepts; the expectation that by early 2025 Headwater will have the entire nine section
GUIDANCE AND FUTURE ORIENTED FINANCIAL INFORMATION: Any financial outlook or future oriented financial information in this press release, as defined by applicable securities legislation, has been approved by management of the Company as of the date hereof. Readers are cautioned that any such future oriented financial information contained herein 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 as to the anticipated results of its proposed business activities for 2024 have 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. The assumptions used in the 2024 guidance include: annual average production of 20,000 boe/d, WTI of
DIVIDEND POLICY: The amount of future cash dividends paid by the Company, if any, will be subject to the discretion of the Board and may vary depending on a variety of factors and conditions existing from time to time, including, among other things, adjusted funds flow from operations, fluctuations in commodity prices, production levels, capital expenditure requirements, acquisitions, debt service requirements and debt levels, operating costs, royalty burdens, foreign exchange rates and the satisfaction of the liquidity and solvency tests imposed by applicable corporate law for the declaration and payment of dividends. Depending on these and various other factors, many of which will be beyond the control of the Company, the Board will adjust the Company's dividend policy from time to time and, as a result, future cash dividends could be reduced or suspended entirely.
BARRELS OF OIL AND CUBIC FEET OF NATURAL GAS EQUIVALENT: The term "boe" (or barrels of oil equivalent) and "Mcf" (or thousand cubic feet of natural gas equivalent) may be misleading, particularly if used in isolation. A boe and Mcf conversion ratio of six thousand cubic feet of natural gas to one barrel of oil equivalent (6 Mcf: 1 bbl) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Additionally, given that the value ratio based on the current price of crude oil, as compared to natural gas, is significantly different from the energy equivalency of 6:1; utilizing a conversion ratio of 6:1 may be misleading as an indication of value.
INITIAL PRODUCTION RATES: References in this press release to IP rates, other short-term production rates or initial performance measures relating to new wells are useful in confirming the presence of hydrocarbons; however, such rates are not determinative of the rates at which such wells will commence production and decline thereafter and are not indicative of long-term performance or of ultimate recovery. All IP rates presented herein represent the results from wells after all "load" fluids (used in well completion stimulation) have been recovered. While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production for the Company. Accordingly, the Company cautions that the test results should be considered to be preliminary.
NON-GAAP AND OTHER FINANCIAL MEASURES
In this press release, we refer to certain financial measures which do not have any standardized meaning prescribed by IFRS. Our determinations of these measures may not be comparable with calculations of similar measures for other issuers. In addition, this press release contains the terms adjusted funds flow from operations and adjusted working capital, which are considered capital management measures. Non-GAAP and other financial measures within this press release may refer to forward-looking Non-GAAP and other financial measures and are calculated consistently with the three months and nine months ended
Non-GAAP Financial Measures
Capital expenditures
Management utilizes capital expenditures to measure total cash capital expenditures incurred in the period. Capital expenditures represents capital expenditures – exploration and evaluation and capital expenditures – property, plant and equipment in the statement of cash flows in the Company's interim financial statements netted by the government grant.
Three months ended | Nine months ended | |||
2023 | 2022 | 2023 | 2022 | |
(thousands of dollars) | (thousands of dollars) | |||
Cash flows used in investing activities | 62,030 | 54,062 | 188,998 | 170,099 |
Proceeds from government grant | - | 1,208 | - | 1,208 |
Restricted cash | - | - | - | (5,000) |
Change in non-cash working capital | 8,178 | 15,731 | 14,798 | 20,102 |
Government grant | - | - | - | (2,591) |
Capital expenditures | 70,208 | 71,001 | 203,796 | 183,818 |
Free cash flow
Management utilizes free cash flow to assess the amount of funds available for future capital allocation decisions. It is calculated as adjusted funds flow from operations net of capital expenditures before dividends.
Three months ended | Nine months ended | |||
2023 | 2022 | 2023 | 2022 | |
(thousands of dollars) | (thousands of dollars) | |||
Adjusted funds flow from operations | 80,887 | 58,441 | 206,279 | 207,899 |
Capital expenditures | (70,208) | (71,001) | (203,796) | (183,818) |
Free cash flow | 10,679 | (12,560) | 2,483 | 24,081 |
Capital Management Measures
Adjusted Funds Flow from Operations
Management considers adjusted funds flow from operations to be a key measure to assess the Company's management of capital. Adjusted funds flow from operations is an indicator as to whether adjustments are necessary to the level of capital expenditures. For example, in periods where adjusted funds flow from operations is negatively impacted by reduced commodity pricing, capital expenditures may need to be reduced or curtailed to preserve the Company's capital and dividend policy. Management believes that by excluding the impact of changes in non-cash working capital and adjusting for current income taxes in the period, adjusted funds flow from operations provides a useful measure of Headwater's ability to generate the funds necessary to manage the capital needs of the Company.
Three months ended | Nine months ended | |||
2023 | 2022 | 2023 | 2022 | |
(thousands of dollars) | (thousands of dollars) | |||
Cash flows provided by operating activities | 85,568 | 72,060 | 212,626 | 217,477 |
Changes in non–cash working capital | 5,618 | (11,610) | (1,663) | 3,740 |
Current income taxes | (14,647) | (2,009) | (29,322) | (13,318) |
Current income taxes paid | 4,348 | - | 24,638 | - |
Adjusted funds flow from operations | 80,887 | 58,441 | 206,279 | 207,899 |
Adjusted working capital is a capital management measure which management uses to assess the Company's liquidity. Financial derivative receivable/liability have been excluded as these contracts are subject to a high degree of volatility prior to settlement and relate to future production periods. Financial derivative receivable/liability are included in adjusted funds flow from operations when the contracts are ultimately realized. Management has included the effects of the contribution receivable and repayable contribution to provide a better indication of Headwater's net financing obligations.
2023 | 2022 | |||
(thousands of dollars) | ||||
Working capital | 43,496 | 109,433 | ||
Contribution receivable (long-term) | 1,104 | 1,104 | ||
Repayable contribution | (7,082) | (6,720) | ||
Financial derivative receivable | (1,794) | (419) | ||
Financial derivative liability | 197 | 1,520 | ||
Adjusted working capital | 35,921 | 104,918 | ||
Non-GAAP Ratios
Per boe numbers
This press release represents various results on a per boe basis including Headwater average realized sales price, net of blending, financial derivatives gains (losses) per boe, royalty expense per boe, transportation expense per boe, production expense per boe, general and administrative expenses per boe, interest income and other expense per boe and current taxes per boe. These figures are calculated using sales volumes.
Dividend yield
Dividend yield (also referenced as yield) is a non-GAAP ratio used by management to quantify how much Headwater pays out in dividends each year relative to its share price. It is calculated as the annualized dividend divided by the current share price of the Company.
SOURCE
© Canada Newswire, source
