The unaudited interim condensed consolidated financial statements and related management's discussion and analysis ("MD&A") are available on SEDAR+ at www.sedarplus.ca and on Tenaz's website at www.tenazenergy.com. Select financial and operating information for the three and nine months ended
A webcast presentation to accompany this release is available on Tenaz's website at www.tenazenergy.com.
HIGHLIGHTS
Third Quarter Operating and Financial Results
- Tenaz closed the acquisition of
XTO Netherlands Ltd ("XTO") early in Q3 2023. The XTO acquisition increases our position in theDutch North Sea ("DNS"), nearly doubling our working interest in the primary producing fields in which we already had ownership. The acquisition also increases our ownership in the NGT midstream assets to 21.4%, making Tenaz the second-largest shareholder in NGT. We view NGT infrastructure as a valuable midstream asset that is important forNetherlands economic security and the European energy transition. - Production volumes averaged a record level of 2,372 boe/d(1) in Q3 2023. Production in
Canada during the quarter of 1,275 boe/d was down 4% from Q2 2023, due to the shut-in of certain wells during our completion activity on our 2023 drilling campaign and downtime at a third-party gas plant. Production in theDutch North Sea was 1,097 boe/d, up 89% from Q2 2023, driven by the absence of planned turnaround activity and the XTO acquisition.
Production volumes averaged 2,204 boe/d in the nine months endedSeptember 30, 2023 , 97% higher than the first nine months of 2022. Production was higher due to the acquisition ofNetherlands assets in two separate transactions and our ongoing development program at Leduc-Woodbend inCanada . Production from Leduc-Woodbend was 24% higher for the 2023 nine-month period, with only minimal contributions from 2023 drilling.
Completion and tie-in activities were completed on our four gross well (3.35 net) development program at the end of Q3 2023. All of the wells have been successfully put on production and gross production rates from the four wells are currently averaging 230 boe/d (87% oil) per well(2), with the wells continuing to increase in production. For the first six weeks of Q4 2023, net production rate from the Leduc-Woodbend field has averaged approximately 2,000 boe/d.
Total horizontal meterage in the four-well program was 14,900 meters, an average horizontal length of 2.3 miles, a record in Leduc-Woodbend drilling campaigns. We generated high drilling efficiency with 100% placement of the horizontal section within the reservoir. An average of 130 fracs were placed per well at a placement efficiency of 97%.
- Funds flow from operations ("FFO")(3) for the third quarter was
$4.8 million , 44% higher than Q2 2023 and 112% higher than Q3 2022. Higher quarter-over-quarter FFO resulted from higher production, lower expenses due to absence of facility turnarounds, coupled with higher prices for TTF(4) natural gas. FFO included recognition of approximately$1.8 million of transaction and G&A costs, including legal and other services for potential future acquisitions.
FFO for the nine months endedSeptember 30, 2023 was$15.5 million , 188% higher than in the comparable 2022 period. Higher 2023 FFO primarily resulted from contributions from the newNetherlands assets. - Net income for Q3 2023 was
$20.9 million , as compared to a loss of$0.8 million in Q2 2023 and profit of$0.2 million in Q3 2022. Higher net income resulted from the estimated gain on the acquisition of XTO, which is subject to adjustment pending final accounting for the transaction in a future period. Net income for the nine months endedSeptember 30, 2023 of$23.0 million was higher than net income of$4.5 million in the comparable period of 2022, primarily due to the gain on acquisition booked in the third quarter. - We ended Q3 2023 with positive adjusted working capital(3) of
$44.9 million , an increase of$27.8 million over the prior quarter, attributable to the acquired balances in the XTO acquisition. We acquired positive adjusted working capital of$43.1 million with XTO. Uses of cash in Q3 2023 included$13.2 million for Canadian development activities,$2.0 million forNetherlands capital investment including CCS design, and$0.8 for our Normal Course Issuer Bid ("NCIB") program. During Q3 2023, we repurchased and retired 233 thousand shares at an average price of$3.51 per share. Since the beginning of the NCIB program in Q2 2022, we have retired 1.53 million common shares (5.4% of basic common shares) at an average cost of$2.41 per share. - Subsequent to the end of the third quarter, we initiated a hedging program for European gas. As of now, we have hedged approximately 40% of our expected European gas production for Q1 2024 through a physical swap at €55.75 per MWh (approximately
$24.12 per Mcf).
Budget and Outlook
- Capital expenditures(3) during Q3 2023 were approximately
$15.2 million . For 2023 year-to-date, capital expenditures total$21.9 million . This total includes both Drilling and Development capital expenditures ("D&D CAPEX") and Exploration and Evaluation capital expenditures ("E&E CAPEX").
Our planned 2023 Canadian development program has been finished, with four gross (3.35 net) wells drilled, completed, equipped and tied-in. Combining our Canadian investment program with modestNetherlands workover and facility investment, year-to-date D&D CAPEX is$20.7 million . We expect our D&D CAPEX for 2023 to be at approximately the mid-point of our 2023 guidance range of$20 to$24 million .
During Q3 2023, we elected to participate in FEED activities through the end of 2023 for the potential L10 CCS project inthe Netherlands , which is classified as E&E CAPEX due to the project's unsanctioned status. Year-to date E&E CAPEX is$1.2 million , with a projected total of$2.9 million for full-year 2023.
- Production for Q4 2023 is expected to increase significantly from Q3 2023 levels, driven primarily by contributions from the new wells at Leduc-Woodbend. Annual production guidance, as updated following the XTO acquisition, is unchanged at 2,300 to 2,500 boe/d.
Corporate Update
- As at
November 13, 2023 , Tenaz common shares have recorded capital appreciation of 109% during 2023. This places Tenaz in the top 1% of TSX listed-issues in total return for 2023. Trading liquidity has also increased, with the average number of shares traded on North American exchanges up 211%, based on year-to date volume throughOctober 2023 as compared to the same period in 2022. - We are pleased to announce the appointment of
Varinia Radu as an independent director of Tenaz.Mrs. Radu is a Partner and Deputy Head for Energy and Climate Change in Central andEastern Europe for the international law firm CMS, and an accomplished energy advisor in the European oil and gas, power and renewables sectors. We expect her to add significantly to our Board expertise in legal and regulatory matters, M&A, and EU energy and ESG policy.
(1) | The term barrels of oil equivalent ("boe") may be misleading, particularly if used in isolation. Per boe amounts have been calculated by using the conversion ratio of six thousand cubic feet (6 Mcf) of natural gas to one barrel (1 bbl) of crude oil. Refer to "Barrels of Oil Equivalent" section included in the "Advisories" section of this press release. |
(2) | For the period |
(3) | This is a non-GAAP and other financial measure. Refer to "Non-GAAP and Other Financial Measures" included in the "Advisories" section of this press release. |
(4) |
FINANCIAL AND OPERATIONAL SUMMARY
Three months ended | Nine months ended | ||||
( | 2023 | 2023 | 2022 |
| 2022 |
Financial | |||||
Petroleum and natural gas sales | 15,051 | 10,614 | 7,690 | 43,591 | 23,235 |
Cash flow from operating activities | 175 | 957 | 1,444 | 6,249 | 4,538 |
Funds flow from operations(1) | 4,826 | 3,361 | 2,280 | 15,461 | 5,376 |
Per share – basic(1) | 0.18 | 0.12 | 0.08 | 0.56 | 0.19 |
Per share – diluted(1) | 0.16 | 0.12 | 0.08 | 0.54 | 0.18 |
Net income (loss) | 20,907 | (757) | 224 | 23,032 | 4,490 |
Per share – basic | 0.77 | (0.03) | 0.01 | 0.84 | 0.16 |
Per share – diluted | 0.71 | (0.03) | 0.01 | 0.80 | 0.15 |
Capital expenditures(1) | 15,238 | 5,967 | 7,882 | 21,888 | 12,113 |
Adjusted working capital (net debt)(1) | 44,937 | 17,094 | 13,887 | 44,937 | 13,887 |
Common shares outstanding (000) | |||||
End of period – basic | 27,145 | 27,378 | 28,405 | 27,145 | 28,405 |
Weighted average for the period – basic | 27,292 | 27,555 | 28,520 | 27,586 | 28,486 |
Weighted average for the period – diluted | 29,555 | 28,308 | 28,690 | 28,822 | 29,127 |
Operating | |||||
Average daily production | |||||
Heavy crude oil (bbls/d) | 675 | 711 | 687 | 774 | 613 |
Natural gas liquids (bbls/d) | 60 | 57 | 47 | 60 | 56 |
Natural gas (mcf/d) | 9,823 | 6,802 | 2,929 | 8,223 | 2,679 |
Total (boe/d)(2) | 2,372 | 1,903 | 1,222 | 2,204 | 1,116 |
($/boe)(2) | |||||
Petroleum and natural gas sales | 68.97 | 61.31 | 68.39 | 72.45 | 76.25 |
Royalties | (4.60) | (4.80) | (15.23) | (5.25) | (14.41) |
Transportation expenses | (3.68) | (3.66) | (1.75) | (3.58) | (2.16) |
Operating expenses | (31.11) | (28.25) | (17.04) | (28.04) | (17.37) |
Midstream income(1) | 5.25 | 5.21 | - | 4.92 | - |
Operating netback(1) | 34.83 | 29.81 | 34.37 | 40.50 | 42.31 |
bENCHMARK COMMODITY PRICES | |||||
WTI crude oil (US$/bbl) | 82.18 | 73.77 | 91.64 | 77.38 | 98.09 |
WCS (CAD$/bbl) | 93.12 | 78.93 | 93.72 | 82.26 | 105.58 |
AECO daily spot (CAD$/mcf) | 2.61 | 2.43 | 4.45 | 2.76 | 5.49 |
TTF (CAD$/mcf) | 14.43 | 15.24 | 79.08 | 17.46 | 53.80 |
(1) | This is a non-GAAP and other financial measure. Refer to "Non-GAAP and Other Financial Measures" included in the "Advisories" section of this press release. |
(2) | The term barrels of oil equivalent ("boe") may be misleading, particularly if used in isolation. Per boe amounts have been calculated by using the conversion ratio of six thousand cubic feet (6 mcf) of natural gas to one barrel (1 bbl) of crude oil. Refer to "Barrels of Oil Equivalent" section included in the "Advisories" section of this press release. |
PRESIDENT'S MESSAGE
We are pleased to provide this quarterly update along with our financial and operating results. During the quarter we further advanced our overseas acquisition strategy with the closing of the XTO Netherlands Ltd ("XTO") transaction, and in parallel, executed our 2023 development program in
Macro conditions are also supportive for the energy sector, with a dawning realization of the importance of energy security, including hydrocarbon supply as a desirable source during the energy transition. The Russian invasion of
Despite full inventory, spot TTF(1) is trading at €48 per MWh (approximately
Following the end of Q3 2023, we executed fixed price arrangements for approximately 40% of our expected European gas production for Q1 2024 with a physical swap at €55.75 per MWh (approximately
Netherlands Operations
As announced prior to the end of Q2 2023, we acquired additional non-operated
Increased production from our
Tenaz has an 11.35% participation right in the L10 CCS project, which is intended to store CO2 sourced from industrial emitters in a depleted offshore gas pool on the L10 license. This project has entered the initial phase of Front End Engineering Design (FEED), which is scheduled to continue until the end of 2023. The final phase of FEED has a separate decision point for participation and is projected to last until Q1 2025. The FEED phases are required for comprehensive project planning before making the Final Investment Decision (FID), with FID currently slated for Q2/Q3 2025. In the event of a positive FID, project start up is estimated to occur in 2028, with injection of up to five million tonnes per annum (Mtpa) of CO₂ from the
Canadian Operations
Production from the Leduc-Woodbend ("LWB") field averaged 1,275 boe/d in Q3 2023, a decrease of 4% compared to Q2 2023, driven primarily by downtime on existing pads to allow for completion of new wells and downtime at a third-party gas plant. Q3 2023 production was 4% higher than Q3 2022, as a result of incremental volumes from two (1.75 net) wells drilled and brought online in Q4 2022.
Drilling, completion, equipping and tie-in operations for our four well (3.35 net) summer-program finished in Q3, with the new wells brought on production in mid-September. These wells did not provide a meaningful contribution to Q3 2023 volumes due to the clean-up time required to recover completion fluids. These wells are the longest wells to date in the field, with total measured depths ranging from 5,000 to 5,700 meters. In addition to being the longest wells drilled to date, they also have the longest completed horizontal sections at Leduc-Woodbend, with completion intervals ranging from 3,600 to 4,200 meters. In aggregate, the wells were completed with a total of 524 fracs achieving 97% placement efficiency, with the number of frac stages ranging from 118 fracs in the shortest well to 150 fracs in the longest well. In one of the wells, we stuck completion tools on one of the final frac stages. Repair operations were partially successful, resulting in having 40% of the horizontal interval fully open to production. Even this well has proved to be a fairly strong oil producer despite its sub-optimal mechanical condition.
A number of geologic and engineering advancements have been made at Leduc-Woodbend since the recapitalization of
We continue to drill wells in diverse parts of the Leduc-Woodbend Rex pool to reduce concentration risk while expanding the developed area and to gather data that will assist long-term exploitation of the field. Two of the wells in this year's campaign were drilled in the north part of the field, and one in the middle and one in the southern part. All four wells were successful, producing relatively consistent results despite being drilled in different areas.
Gross production rate for the new wells averages 230 boe/d per well (87% oil)(4), with production continuing to increase as the wells clean up. We do not attempt to max out initial production rates from the Rex wells, preferring to use a less capital-intensive rod pump lift system rather than higher volume lift alternatives. The rod pump lift systems for new wells are sized for longer-term production performance, typically resulting in a production plateau or shallow decline for approximately six months after clean up. At the field level, Leduc-Woodbend production rates have continued to increase since the startup of the new wells. For the first six weeks of Q4 2023, the field has been producing approximately 2,000 boe/d net to Tenaz. We now expect full-year 2023 Leduc-Woodbend production to be between 1,500 to 1,550 boe/d, in the upper half of our guidance range.
Capital expenditures(3) for the 2023 Canadian drilling program was
Corporate Discussion
With respect to corporate liquidity, positive adjusted working capital(3) was
Our NCIB program was renewed on
On behalf of the Board of Directors, we are pleased to welcome
In closing, we view our previous acquisitions as demonstration of our approach to finding real value in the overseas M&A market for producing properties. These transactions reflect our philosophy of issuing as little equity as possible, while maintaining or even improving our conservative balance sheet and liquidity. Our team of technical and finance professionals is dedicated to securing additional value-adding acquisitions and is fully aligned with our broader shareholder group in pursuit of our shared success. As we have previously stated, we can make no guarantees regarding the certainty or timing of the next transaction, but we are optimistic about bringing quality assets into our asset portfolio in the future. When we do so, we are confident that our acquisition investment will be consistent with our stated financial and strategic goals. We appreciate the support of our shareholders as we pursue realization of our vision for Tenaz.
/s/
President and Chief Executive Officer
(1) | |
(2) | The term barrels of oil equivalent ("boe") may be misleading, particularly if used in isolation. Per boe amounts have been calculated by using the conversion ratio of six thousand cubic feet (6 Mcf) of natural gas to one barrel (1 bbl) of crude oil. Refer to "Barrels of Oil Equivalent" section included in the "Advisories" section of this press release. |
(3) | This is a non-GAAP and other financial measure. Refer to "Non-GAAP and Other Financial Measures" included in the "Advisories" section of this press release. |
(4) | For the period |
About
Tenaz is an energy company focused on the acquisition and sustainable development of international oil and gas assets capable of returning free cash flow to shareholders. Tenaz has domestic operations in
Additional information regarding Tenaz is available on SEDAR+ and its website at www.tenazenergy.com. Further information on NGT can be found at https://noordgastransport.nl. Tenaz's Common Shares are listed for trading on the
ADVISORIES
Non‐GAAP and Other Financial Measures
This press release contains references to measures used in the oil and natural gas industry such as "funds flow from operations", "funds flow from operations per share", "funds flow from operations per boe", "adjusted working capital (net debt)", "free cash flow", "midstream income" and "operating netback". The data presented in this press release is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS Accounting Standards ("IFRS") as issued by the
Funds flow from operations ("FFO")
Tenaz considers funds flow from operations to be a key measure of performance as it demonstrates the Company's ability to generate the necessary funds for sustaining capital, future growth through capital investment, and settling liabilities. Funds flow from operations is calculated as cash flow from operating activities plus income from associate and before changes in non-cash operating working capital and decommissioning liabilities settled. Funds flow from operations is not intended to represent cash flows from operating activities calculated in accordance with IFRS. A summary of the reconciliation of cash flow from operating activities to funds flow from operations, is set forth below:
( | Q3 2023 | Q2 2023 | Q3 2022 | YTD 2023 | YTD 2022 |
Cash flow from operating activities | 175 | 957 | 1,444 | 6,249 | 4,538 |
Change in non-cash operating working capital | 1,186 | 1,294 | 836 | 3,387 | 838 |
Decommissioning liabilities settled | 2,319 | 209 | - | 2,861 | - |
Income from associate | 1,146 | 901 | - | 2,964 | - |
Funds flow from operations | 4,826 | 3,361 | 2,280 | 15,461 | 5,376 |
Funds flow from operations per share is calculated using basic and diluted weighted average number of shares outstanding in the period.
Funds flow from operations per boe is calculated as funds flow from operations divided by total production sold in the period.
Capital Expenditures
Tenaz considers capital expenditures to be a useful measure of the Company's investment in its existing asset base calculated as the sum of drilling and development costs and exploration and evaluation costs. Exploration and evaluation asset additions (being exploration and evaluation costs) and property, plant and equipment additions (being drilling and development costs) from the consolidated statements of cash flows that is most directly comparable to cash flows used in investing activities. The reconciliation to primary financial statement measures is set forth below:
( | Q3 2023 | Q2 2023 | Q3 2022 | YTD 2023 | YTD 2022 |
Exploration and evaluation | 246 | 880 | - | 1,162 | - |
Property, plant and equipment | 14,992 | 5,087 | 7,882 | 20,726 | 12,113 |
Capital expenditures | 15,238 | 5,967 | 7,882 | 21,888 | 12,113 |
Free Cash Flow ("FCF")
Tenaz considers free cash flow to be a key measure of performance as it demonstrates the Company's excess funds generated after capital expenditures for potential shareholder returns, acquisitions, or growth in available liquidity. FCF is a non-GAAP financial measure most directly comparable to cash flows used in investing activities and is comprised of funds flow from operations less capital expenditures. A summary of the reconciliation of the measure, is set forth below:
( | Q3 2023 | Q2 2023 | Q3 2022 | YTD 2023 | YTD 2022 |
Funds flow from operations | 4,826 | 3,361 | 2,280 | 15,461 | 5,376 |
Less: Capital expenditures | (15,238) | (5,967) | (7,882) | (21,888) | (12,113) |
Free cash flow | (10,412) | (2,606) | (5,602) | (6,427) | (6,737) |
Midstream Income
Tenaz considers midstream income an integral part of determining operating netback. Operating netbacks assists management and investors with evaluating operating performance. Tenaz's midstream income consists of the income from its associate,
Adjusted working capital (net debt)
Management views adjusted working capital (net debt) as a key industry benchmark and measure to assess the Company's financial position and liquidity. Adjusted working capital (net debt) is calculated as current assets less current liabilities, excluding the fair value of derivative instruments. Tenaz's adjusted working capital (net debt) as at
( | 2023 | 2022 |
Current assets | 92,953 | 72,317 |
Current liabilities | (49,260) | (58,749) |
Net current assets | 43,693 | 13,568 |
Exclude fair value of derivative instruments | 1,244 | 476 |
Adjusted working capital (net debt)(1) | 44,937 | 14,044 |
Operating Netback
Tenaz calculates operating netback on a dollar and per boe basis, as petroleum and natural gas sales less royalties, operating costs and transportation costs. Operating netback is a key industry benchmark and a measure of performance for Tenaz that provides investors with information that is commonly used by other crude oil and natural gas producers. The measurement on a per boe basis assists management and investors with evaluating operating performance on a comparable basis. Tenaz's operating netback is disclosed in the "Financial and Operational Summary" section of this press release.
Barrels of Oil Equivalent
The term barrels of oil equivalent ("boe") may be misleading, particularly if used in isolation. Per boe amounts have been calculated by using the conversion ratio of six thousand cubic feet (6 mcf) of natural gas to one barrel (1 bbl) of crude oil. The boe conversion ratio of 6 mcf to 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. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalent of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.
Forward‐looking Information and Statements
This press release contains certain forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "budget", "forecast", "guidance", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "should", "could", "believe", "plans", "potential", "intends", "strategy" and similar expressions are intended to identify forward-looking information or statements. In particular, but without limiting the foregoing, this press release contains forward-looking information and statements pertaining to: Tenaz's capital plans; activities and budget for 2023, and our anticipated operational and financial performance; expected well performance; expected economies of scale; forecasted average production volumes and capital expenditures for 2023; the ability to grow our assets domestically and internationally; statements relating to a potential CCS project; and the Company's strategy.
The forward-looking information and statements contained in this press release reflect several material factors and expectations and assumptions of the Company including, without limitation: the continued performance of the Company's oil and gas properties in a manner consistent with its past experiences; that the Company will continue to conduct its operations in a manner consistent with past operations; expectations regarding future development; the general continuance of current industry conditions; the continuance of existing (and in certain circumstances, the implementation of proposed) tax, royalty and regulatory regimes; expectations regarding future acquisition opportunities; the accuracy of the estimates of the Company's reserves volumes; certain commodity price, interest rate, inflation and other cost assumptions; the continued availability of oilfield services; and the continued availability of adequate debt and equity financing and cash flow from operations to fund its planned expenditures and obligations and commitments. The Company believes the material factors, expectations and assumptions reflected in the forward-looking information and statements are reasonable, but no assurance can be given that these factors, expectations, and assumptions will prove to be correct.
The forward-looking information and statements included in this press release are not guarantees of future performance and should not be unduly relied upon. Such information and statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information or statements including, without limitation: changes in commodity prices; changes in the demand for or supply of the Company's products; unanticipated operating results or production declines; changes in tax or environmental laws, royalty rates or other regulatory matters; changes in development plans of the Company or by third party operators of the Company's properties, increased debt levels or debt service requirements; inaccurate estimation of the Company's oil and gas reserve or resource volumes; limited, unfavorable or a lack of access to capital markets; increased costs; a lack of adequate insurance coverage; the impact of competitors; and certain other risks detailed from time to time in the Company's public documents.
The forward-looking information and statements contained in this press release speak only as of the date of this press release, and the Company does not assume any obligation to publicly update or revise them to reflect new events or circumstances or otherwise, except as may be required pursuant to applicable laws.
SOURCE
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