Select financial and operational information is outlined below and should be read in conjunction with Rubellite's unaudited condensed interim financial statements and related Management's Discussion and Analysis ("MD&A") for the three and six months ended
This news release contains certain specified financial measures that are not recognized by GAAP and used by management to evaluate the performance of the Company and its business. Since certain specified financial measures may not have a standardized meaning, securities regulations require that specified financial measures are clearly defined, qualified and, where required, reconciled with their nearest GAAP measure. See "Non GAAP and Other Financial Measures" in this news release and in the MD&A for further information on the definition, calculation and reconciliation of these measures. This release also contains forward-looking information. See "Forward-Looking Information". Readers are also referred to the other information under the "Advisories" section in this news release for additional information.
SECOND QUARTER 2022 HIGHLIGHTS
- Capital expenditures(1) totaled
$12.7 million in the second quarter of 2022 (Q1 2022 –$35.5 million ). Exploration and development spending was$9.5 million (Q1 2022 -$21.8 million ) as the Company was able to get an early start on its post breakup drilling program and accelerated some of its Q3 2022 capital into Q2 2022. Land purchases during the second quarter of 2022 were$3.2 million (Q1 2022 –$13.7 million ), adding strategic lands within theClearwater play. - Drilling activity for the second quarter of 2022 totaled six (4.8 net) multi-lateral horizontal
Clearwater wells, including four (4.0 net) wells at Ukalta and two (0.8 net) wells atMarten Hills that were rig released during the quarter. At the end of June, one (1.0) well at Ukalta was spud onJune 27, 2022 and rig releasedJuly 10, 2022 and one (0.3 net) well atMarten Hills was spud onJune 20, 2022 and rig releasedJuly 5, 2022 . During the second quarter, the Company drilled an additional vertical water disposal well at Ukalta and began drilling one (1.0 net) exploration well atAlpen to the west ofFigure Lake , which rig releasedJuly 7, 2022 . - During the second quarter, the Company executed a definitive farm-in and option agreement (the "Peavine Transaction") with
Cavalier Energy Inc. in the Peavine area, in the vicinity of recent industryClearwater drilling activity and southwest of Rubellite's existing option acreage atWest Dawson in northernAlberta . The Peavine Transaction provides exposure to 61.25 gross (34.75 net) sections of land highly prospective for theClearwater formation, of which Rubellite may earn up to a 60 percent working interest by drilling wells or making certain qualifying capital expenditures. - As of
June 30, 2022 , there were thirty six (33.0 net) wells contributing to sales production, with another three (2.3 net) wells rig released and recovering oil-based drilling mud ("OBM"), as compared to twenty eight (26.0 net) wells on production at the end of the first quarter of 2022. Recoveries of OBM are not recorded as sales production as the OBM is recycled for future drilling operations to the extent possible or sold and credited back to drilling capital. - Daily average sales production increased 18% from first quarter 2022 levels to average 1,478 bbl/d of conventional heavy oil in the second quarter of 2022 (Q1 2022 – 1,251 bbl/d) which was just outside of the Company's Q2 2022 production guidance of 1,525 to 1,625 bbl/d. Production progressively ramped up through the first half of 2022 as new wells fully recovered OBM, filled tank inventories and then commenced delivery to sales terminals.
- Operating netbacks(1) in the second quarter of 2022 were
$11.6 million , or$85.97 /bbl (Q1 2022 –$8.0 million or$71.02 /boe), reflecting strong Western Canadian Select ("WCS") benchmark prices and increased production. Increases were partially offset by higher costs in all areas as a result of increased production, increased fuel prices and fuel surcharges and higher royalties. After realized losses on risk management contracts of$6.2 million or$46.12 /boe (Q1 2022 – losses of$3.3 million or$29.04 /boe), operating netbacks were$5.4 million or$39.85 /boe (Q1 2022 –$4.7 million or$41.98 /boe). - Adjusted funds flow(1) in the second quarter of 2022 was
$4.6 million (Q1 2022 –$3.8 million ) up 20% quarter-over-quarter, driven by the growth in sales production. Cash flow from operating activities in the second quarter of 2022 was$6.5 million (Q1 2022 –$3.2 million ). - Net income for the second quarter of 2022 was
$4.7 million (Q1 2022 –$9.3 million net loss) driven by a swing from an unrealized loss on risk management contracts of$10.6 million in the first quarter to an unrealized gain on risk management contracts of$3.6 million in the second quarter. - Adjusted working capital surplus(1) at the end of the second quarter of 2022 was
$2.7 million , down 51% or$2.7 million from$5.4 million atDecember 31, 2021 as a result of capital spending being higher than adjusted funds flow.
(1) | Non-GAAP measure, Non-GAAP ratio or supplementary financial measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other entities. Refer to the section entitled "Non-GAAP and Other Financial Measures" contained within this news release. |
At
Drilling operations at Ukalta related to the first quarter drilling program continued into early spring as the final
At
Finally, in late June, Rubellite windowed a third rig to evaluate an exploration prospect at
The Company has been successful at partially mitigating the impact of inflationary pressures by improving drill bit performance and reducing drilling days, enhancing netbacks for oil-based mud recoveries which are credited back to drilling operations, and employing bulk-purchasing and other capital efficiency strategies.
(1) | Type curve assumptions are based on the Total Proved plus Probable Undeveloped reserves contained in the McDaniel Reserve Report as disclosed in the Company's Annual Information Form which is available under the Company's profile on SEDAR at www.sedar.com. "McDaniel" meansMcDaniel |
During the second half of 2022, Rubellite plans to spend approximately
The table below summarizes Rubellite's forecast exploration and development capital expenditures and anticipated horizontal multi-lateral drilling activities for 2022, excluding expenditures for exploratory drilling activity on its northern
2022 Exploration and Development Forecast Capital Expenditures(1)(6)
H1 2022(1)(4) | # of wells | H2 2022 | # of wells | 2022 | # of wells | ||
Development(1)(2) | 17 / 14.3 | 20 / 17.2 | 37 / 31.5 | ||||
Ukalta(2) | 10 / 10.0 | 7 / 7.0 | 17 / 17.0 | ||||
2 / 2.0 | 9 / 9.0 | 11 / 11.0 | |||||
5 / 2.3 | 4 / 1.2 | 9 / 3.5 | |||||
Service Wells | 1 / 1.0 | 1 / 1.0 | 2 / 2.0 | ||||
Exploration(5) | 0 / 0.0 | 4 / 3.0 | 3 / 2.0 | ||||
Ukalta(5) | 0 / 0.0 | 1 / 1.0 | 1 / 1.0 | ||||
0 / 0.0 | 1 / 1.0 | 1 / 1.0 | |||||
Northern(5) | 0 / 0.0 | 2 / 1.5 | 2 / 1.5 | ||||
Total(6) | 17 / 14.3 | 24 / 20.7 | 40 / 33.5 | ||||
(1) | Capital spending includes drill, complete, equip and tie-in capital spent during the period as well as spending for 2 vertical water disposal service wells, vertical evaluation wells, undeveloped land purchases and acquisitions, if any. |
(2) | Well count reflects multi-lateral wells rig released during the period but excludes two (2.0 net) vertical water disposal service wells in Q2 and Q3 2022 at Ukalta and |
(3) | Capital expenditures at |
(4) | H1 2022 capital expenditures included |
(5) | Exploration capital spending and well count includes 1 vertical evaluation well at Ukalta drilled in July. |
(6) | Non-GAAP measure, Non-GAAP ratio or supplementary financial measure that does not have any standardized meaning under IFRS and therefore 79.2may not be comparable to similar measures presented by other entities. Refer to the section entitled "Non-GAAP and Other Financial Measures" contained within this news release. |
During the second quarter, Rubellite spent
The Company is finalizing its plans to evaluate several of its northern
Forecast drilling activities are expected to be fully funded from adjusted funds flow (see "Non-GAAP and Other Financial Measures") and the Company's credit facility.
The 2022 drilling program at Ukalta,
Previous 2022 Guidance |
Revised 2022 Guidance | ||
Production (bbl/d) | 2,200 – 2,400 | 1,700 – 2,000 | |
Development ($ millions)(1) | |||
Multi-lateral development wells (net) | 29.6 | 31.5 | |
Heavy oil wellhead differential ($/bbl)(2) | |||
Royalties ($/bbl) | 11% - 12% | 11% - 12% | |
Production & operating costs ($/bbl) | |||
Transportation ($/bbl) | |||
General & administrative ($/bbl) |
(1) | Non-GAAP ratio. Refer to the section entitled "Non-GAAP and Other Financial Measures" contained within this MD&A for an explanation of composition. |
(2) | Quality differential relative to Western Canadian Select. |
Financial and Operating Highlights
Three months | Three months | ||
($ thousands, except as noted) | |||
Financial | |||
Oil revenue | 15,632 | 10,876 | |
Net income (loss) | 4,726 | (9,272) | |
Per share – basic(1)(2) | 0.09 | (0.21) | |
Per share – diluted(1)(2) | 0.08 | (0.21) | |
Cash flow from operating activities | 6,473 | 3,192 | |
Adjusted funds flow(1) | 4,597 | 3,835 | |
Per share – basic(1)(2) | 0.09 | 0.09 | |
Per share – diluted(1)(2) | 0.09 | 0.09 | |
Net debt (asset) | (2,654) | (10,858) | |
Capital expenditures(1) | 12,705 | 35,581 | |
Exploration and development | 9,482 | 21,774 | |
Land and acquisitions | 3,223 | 13,737 | |
Wells Drilled(3)– gross (net) | 6 / 4.8 | 11 / 9.5 | |
Common shares outstanding(4)(thousands) | |||
Weighted average – basic | 54,725 | 43,930 | |
Weighted average – diluted | 55,797 | 43,930 | |
End of period | 54,725 | 54,723 | |
Operating | |||
Daily average oil sales production(5)(bbl/d) | 1,478 | 1,251 | |
Average prices | |||
West Texas Intermediate ("WTI") ($US/bbl) | 108.41 | 94.29 | |
Western Canadian Select ("WCS") ($CAD/bbl) | 122.09 | 101.01 | |
Average Realized oil price(2)($/bbl) | 116.21 | 96.61 | |
Average Realized oil price after risk management contracts (2)($/bbl) | 70.09 | 67.57 | |
(1) | Non-GAAP measure. Refer to the section entitled "Non-GAAP and Other Financial Measures" contained within this news release and in the MD&A for an explanation of composition. |
(2) | Supplemental financial measure. Refer to the section entitled "Non-GAAP and Other Financial Measures" contained within this news release and in the MD&A for an explanation of composition. |
(3) | Well count reflects wells rig released during the period. |
(4) | Per share amounts are calculated using the weighted average number of basic or diluted common shares outstanding. |
(5) | Conventional heavy crude oil sales production excludes tank inventory volumes. |
Rubellite is a Canadian energy company engaged in the exploration, development and production of heavy crude oil from the
Barrel of oil equivalent ("boe") may be misleading, particularly if used in isolation. In accordance with NI 51-101, a conversion ratio for conventional natural gas of 6 Mcf:1 bbl has been used, which is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, utilizing a conversion on a 6 Mcf:1 bbl basis may be misleading as an indicator of value as the value ratio between conventional natural gas and heavy crude oil, based on the current prices of natural gas and crude oil, differ significantly from the energy equivalency of 6 Mcf:1 bbl. A conversion ratio of 1 bbl of heavy crude oil to 1 bbl of NGL has also been used throughout this news release.
The following abbreviations used in this news release have the meanings set forth below:
bbl | barrels |
bbl/d | barrels per day |
boe | barrels of oil equivalent |
MMboe | million barrels of oil equivalent |
Any references in this news release to initial production rates are useful in confirming the presence of hydrocarbons; however, such rates are not determinative of the rates at which such wells will continue production and decline thereafter and are not necessarily indicative of long-term performance or ultimate recovery. Readers are cautioned not to place reliance on such rates in calculating the aggregate production for the Company. Such rates are based on field estimates and may be based on limited data available at this time.
Throughout this news release and in other materials disclosed by the Company, Rubellite employs certain measures to analyze financial performance, financial position and cash flow. These non-GAAP and other financial measures do not have any standardized meaning prescribed under IFRS and therefore may not be comparable to similar measures presented by other entities. The non-GAAP and other financial measures should not be considered to be more meaningful than GAAP measures which are determined in accordance with IFRS, such as net income (loss), cash flow from operating activities, and cash flow from investing activities, as indicators of Rubellite's performance.
Capital Expenditures: Rubellite uses capital expenditures (or "capital spending") related to exploration and development to measure its capital investments compared to the Company's annual capital budgeted expenditures. Rubellite's capital budget excludes acquisition and disposition activities as well as the accounting impact of any accrual changes.
The most directly comparable GAAP measure for capital expenditures is cash flow used in investing activities. A summary of the reconciliation of cash flow used in investing activities to capital expenditures, is set forth below:
Q2 2022 | Q1 2022 | |||
Net cash flows used in investing activities | 17,508 | 28,472 | ||
Acquisitions | – | – | ||
Change in non-cash working capital | (4,803) | 7,039 | ||
Capital expenditures | 12,705 | 35,511 |
Operating netbacks and total operating netbacks after risk management contracts: Operating netback is calculated by deducting royalties, production and operating expenses, and transportation costs from oil revenue. Operating netback is also calculated on a per boe basis using total production sold in the period. Total operating netbacks after risk management contracts is presented after adjusting for realized gains or losses from risk management contracts. Rubellite considers that operating netbacks is a key industry performance indicator and one that provides investors with information that is also commonly presented by other crude oil and natural gas producers. Rubellite considers operating netback to be an important performance measure to evaluate its operational performance as it demonstrates its profitability relative to current commodity prices. Rubellite considers the presentation after risk management contracts an important measure to evaluate performance after risk management activities. Refer to reconciliations in the MD&A under the "Operating Netbacks" section.
Net debt/asset: Net debt or net asset is calculated by deducting any borrowing from adjusted working capital. Adjusted working capital is current assets less current liabilities, adjusted for the removal of the current portion of risk management contracts. Rubellite uses net debt or net asset as an alternative measure of outstanding debt. Management considers net debt, net asset and adjusted working capital as important measures in assessing the liquidity of the Company. Net debt and net debt to adjusted funds flow ratios are used by management to assess the Company's overall debt position and borrowing capacity. Net debt to adjusted funds flow ratios are calculated on a trailing twelve-month basis. Net debt is not a standardized measure and therefore may not be comparable to similar measures presented by other entities.
Adjusted working capital: Adjusted working capital deficiency or surplus includes total current assets and current liabilities excluding any current portion of risk management contract assets and liabilities related to the Company's risk management activities.
The following table reconciles adjusted working capital and net debt as reported in the Company's statements of financial position:
As at | As at | ||||
Current assets | 23,670 | 22,441 | |||
Current liabilities | (29,012) | (18,317) | |||
Working capital (surplus) deficiency | 5,342 | (4,124) | |||
Fair value of risk management contracts – current asset | 52 | 62 | |||
Fair value of risk management contracts – current liability | (8,048) | (1,313) | |||
Adjusted working capital surplus | (2,654) | (5,375) | |||
Bank indebtedness | – | – | |||
Net debt (asset) | (2,654) | (5,375) | |||
Adjusted funds flow: Adjusted funds flow is calculated based on net cash flows from operating activities, excluding changes in non-cash working capital and expenditures on decommissioning obligations since the Company believes the timing of collection, payment or incurrence of these items is variable. Expenditures on decommissioning obligations may vary from period to period depending on capital programs and the maturity of Rubellite's operating areas. Expenditures on decommissioning obligations are managed through the capital budgeting process which considers available adjusted funds flow. Management uses adjusted funds flow and adjusted funds flow per boe as key measures to assess the ability of the Company to generate the funds necessary to finance capital expenditures, expenditures on decommissioning obligations and meet its financial obligations.
Adjusted funds flow pre-transaction costs is calculated as adjusted funds flow less transaction costs. Management has excluded transaction costs from the calculation as these are not related to cash flow from operating activities as they relate to the acquisition of the Clearwater assets from Perpetual Energy Inc. ("Perpetual"), in the comparative period.
Adjusted funds flow is not intended to represent net cash flows from operating activities calculated in accordance with IFRS.
The following table reconciles net cash flows from operating activities as reported in the Company's condensed statements of cash flows, to adjusted funds flow and adjusted funds flow - pre transaction costs:
($ thousands, except as noted) | Q2 2022 | Q1 2022 | ||
Net cash flows from operating activities | 6,473 | 3,192 | ||
Change in non-cash working capital | (1,876) | 643 | ||
Adjusted fund flow | 4,597 | 3,835 | ||
Adjusted funds flow per share – basic and diluted | 0.09 | 0.09 | ||
Adjusted funds flow per boe | 34.18 | 34.06 |
Rubellite calculates certain non-GAAP measures per boe as the measure divided by weighted average daily production. Management believes that per boe ratios are a key industry performance measure of operational efficiency and one that provides investors with information that is also commonly presented by other crude oil and natural gas producers. Rubellite also calculates certain non-GAAP measures per share as the measure divided by outstanding common shares.
Adjusted funds flow per share: adjusted funds flow per share is calculated using the weighted average number of basic and diluted shares outstanding used in calculating net income (loss) per share.
Adjusted funds flow per boe: Adjusted funds flow per boe is calculated as adjusted funds flow divided by total production sold in the period.
"Average realized oil price" is comprised of total oil revenue, as determined in accordance with IFRS, divided by the Company's total sales oil production on a per barrel basis.
"Average realized price after risk management contracts" is comprised of realized gain on risk management contracts, as determined in accordance with IFRS, divided by the Company's total sales oil production.
Certain information in this news release including management's assessment of future plans and operations, and including the information contained under the headings "Operations Update" and "2022 Outlook and Guidance" may constitute forward-looking information or statements (together "forward-looking information") under applicable securities laws. The forward-looking information includes, without limitation, statements with respect to: future capital expenditure and production forecasts; the anticipated sources of funds to be used for capital spending; the number of drilling rigs to be operated over certain time periods; expectations as to drilling activity plans in various areas and the benefits to be derived from such drilling including the production growth; expectations respecting Rubellite's future exploration, development and drilling activities and Rubellite's business plan.
Forward-looking information is based on current expectations, estimates and projections that involve a number of known and unknown risks, which could cause actual results to vary and in some instances to differ materially from those anticipated by Rubellite and described in the forward-looking information contained in this news release. In particular and without limitation of the foregoing, material factors or assumptions on which the forward-looking information in this news release is based include: the successful operation of the
Undue reliance should not be placed on forward-looking information, which is not a guarantee of performance and is subject to a number of risks or uncertainties, including without limitation those described herein and under "Risk Factors" in Rubellite's Annual Information Form and MD&A for the year ended
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