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Razor Energy Corp. Announces Fourth Quarter and 2017 Year End Results


CALGARY, Alberta, April 13, 2018 (GLOBE NEWSWIRE) — Razor Energy Corp. (“Razor” or the “Company”) (TSXV:RZE) (www.razor-energy.com) is pleased to announce its fourth quarter 2017 financial and operating results. Selected financial and operational information is outlined below and should be read in conjunction with Razor’s audited consolidated financial statements and management’s discussion and analysis for the year ended December 31, 2017, which are available on SEDAR at www.sedar.com and the Company’s website.

With continued efforts toward increasing production through reactivations and other optimization activities, Razor has achieved record production levels in the fourth quarter of 2017 with production averaging 4,534 barrels of oil equivalent per day (“boe/d”), of which approximately 88% was light oil and NGLs.

FOURTH QUARTER 2017 HIGHLIGHTS

  • Achieved record production of 4,534 boe/d (88% liquids), up 8% from Q3 2017;
  • Generated adjusted funds flow of $6.3 million ($0.40/share basic and diluted), up 297% from Q3 2017 on higher realized prices and increased production volumes;
  • Recorded positive fourth quarter net income of $2.3 million, up from a loss of $2.5 million in Q3 2017;
  • Capital expenditures totaled $3.7 million, focused on well reactivations, re-entries and pipeline and facilities upgrades; and
  • Acquired additional non-operated working interest positions to consolidate Razor’s existing assets in the Kaybob Triassic Units 1 and 2 for aggregate cash consideration of $4.6 million.

2017 ANNUAL HIGHLIGHTS

  • Full year production averaged 3,813 boe/d (89% liquids);
  • Generated adjusted funds flow of $10.0 million ($0.73/share basic and diluted);
  • Capital expenditures totaled $9.9 million, focused on well reactivations, re-entries and pipeline and facilities upgrades;
  • Maintained a strong financial position, with year-end net debt of $27.2 million and $7.5 million in cash; and
  • Completed 3 major asset acquisitions in the Swan Hills and Kaybob areas for a total cash consideration of $32.8 million.

Razor’s strategy of growing production through well reactivations continued its momentum in the fourth quarter of 2017 with production growth of 8% from the third quarter of 2017. Razor has also focused on reducing operating costs, resulting in a 11% decrease in per boe operating expenses in Q4 2017 as compared to Q1 2017. Such reductions were primarily attributable to   increased volumes, decreased workover activity and improved operational efficiencies.

NEAR AND MEDIUM TERM OBJECTIVES

The Company’s near to medium term objectives include:

  • Reducing operating costs;
  • Reactivating suspended wells;
  • Improving production efficiency through recompletions, workovers, stimulations, and waterflood optimizations; and
  • Acquiring and consolidating complementary assets.

FINANCIAL AND OPERATING HIGHLIGHTS

The following tables summarizes key financial and operating highlights associated with the Company’s financial performance.

Three Months Ended
December 31,
Year Ended
December 31,
($000’s unless otherwise stated) 2017 2016 2017 2016
Production 1
Oil (bbl/d) 2,917 2,487
Gas (mcf/d) 3,299 2,448
NGL (bbl/d) 1,067 918
Total (boe/d) 4,534 3,813
Oil and natural gas revenue
Oil and NGL sales 21,750 59,459
Natural gas sales 559 1,635
Other revenue 2,207 5,173
Total revenue 24,516 66,267
Weighted average number of shares outstanding (basic and diluted) 15,690,133 3,956,269 13,709,753 1,800,158
Adjusted funds flow 2 6,281 9,965 (432 )
Adjusted funds flow per share (basic and diluted) 0.40 0.73 (0.24 )
Funds flow 2 4,643 6,657 (432 )
Funds flow per share (basic and diluted) 0.3 0.49 (0.24 )
Net income (loss) 2,256 (3,650 ) (434 )
Net income (loss) per share (basic and diluted) 0.14 (0.27 ) (0.24 )
Netback ($/boe)
Oil and gas sales 53.48 47.97
Other revenues 5.29 4.06
Revenue 58.77 52.03
Royalty 11.04 9.87
Operating expenses 27.56 29.41
Operating netback 2 20.17 12.75
General and administrative costs 5.14 4.25
Acquisition and transaction costs 0.02 0.9
Interest expense 1.82 2.18
Corporate netback 2 13.19 5.42
Capital expenditures 8,873 9,852 20
Net assets acquired 15,661 32,750

1) Production for the year ended December 31, 2017 represents the daily average production from February 1 to December 31, 2017.
2)  Refer to “Non-IFRS measures”.

December 31, December 31,
($000’s) 2017 2016
Total assets 133,904 83
Cash 7,487 8
Long-term debt (principal) 30,000
Net debt 1 27,215 442

1)  Refer to “Non-IFRS measures”.

RESERVES SUMMARY

Summary of Gross Oil and Gas Reserves as of December 31, 2017 (1), (2), (3), (4)

Light and Medium
Oil
Conventional
Natural Gas
Natural Gas
Liquids
Barrels of Oil
Equivalent
Gross Gross Gross Gross
(Mbbl) (Mmcf) (Mbbl) (Mboe)
Proved
Developed producing 8,141 7,412 2,533 11,910
Developed non‑producing 1,628 1,555 728 2,615
Undeveloped 419 376 66 547
Total Proved 10,188 9,343 3,327 15,072
Total Probable 3,836 2,657 976 5,255
Total Proved plus Probable 14,024 12,000 4,303 20,327

Net Present Value of Future Net Revenues Before Income Taxes Discounted at (% per Year):

(‘000) 0% 5% 10% 15% 20%
Proved
Producing 291,401 221,759 178,344 149,263 128,645
Developed non-producing 48,821 37,338 29,412 23,813 19,732
Undeveloped 12,147 10,545 9,160 7,986 6,997
Total Proved 352,369 269,642 216,916 181,062 155,374
Total Probable 131,287 76,082 48,133 32,160 22,177
Total Proved plus Probable 483,656 345,724 265,049 213,222 177,551

Notes:

  1. The tables summarize the data contained in the independent report prepared by Sproule Associates Limited (“Sproule”) as at December 31, 2017 and as a result may contain slightly different numbers due to rounding.
  2. Gross reserves means the total working interest (operating or non-operating) share of remaining recoverable reserves owned by Razor before deductions of royalties payable to others and without including any royalty interests owned by Razor.
  3. Based on Sproule’s December 31, 2017 escalated price forecast.
  4. The net present value of future net revenue attributable to the Company’s reserves is stated without provision for interest costs and general and administrative costs, but after providing for estimated royalties, production costs, development costs, other income, future capital expenditures, and well abandonment and reclamation costs for only those wells assigned reserves by Sproule.  It should not be assumed that the undiscounted or discounted net present value of future net revenue attributable to the Company’s reserves estimated by Sproule represent the fair market value of those reserves.  The recovery and reserve estimates of the Company’s oil, NGL and natural gas reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual reserves may be greater than or less than the estimates provided herein.

See Razor’s February 15, 2018 press release and 2017 Annual Information Form for further details.

OPERATIONAL UPDATE

Razor’s production during the year averaged 3,813 boe/d, of which approximately 89% was light oil and NGLs.

In Q4 2017, Razor achieved record production of 4,534 boe/d as a result of continued efforts toward increasing production from the Swan Hills and Kaybob assets through reactivations, optimization activities, and waterflood initiatives. The working interest acquisition of the Kaybob assets in December 2017 provided additional average daily production of 217 boe/d (35 boe/d impact on Q4 2017 production). Average production for the month of March 2018 was approximately 4,200 boe/d, with curtailments primarily from non-operated infrastructure maintenance activities, both expected and unexpected.  Plant turnarounds and related activities will continue in April, and is then expected to normalize in May.  Guidance of 5,000 boe/d average in 2018 remains unaffected.

Razor’s Q1 2018 four well development program in its Kaybob South Triassic A Pool has been completed.

The first well, 13-24-62-20W5, was rig released on January 31, 2018 and encountered 11m of net pay. The well was subsequently completed and placed on production March 23, 2018.  In its first 18 producing days onstream, 13-24 averaged 737 barrels of fluid per day at an average 98.5% watercut resulting in 12 bbl/d oil plus 18 mcf/d or 15 boe/d.

The second well, 15-12-62-20W5, was rig released on February 11, 2018 and encountered 10m of net pay. The well was subsequently completed and placed on production March 21, 2018.  In its first 21 producing days onstream, 15-12 averaged 288 barrels of fluid per day at an average 87.6% watercut resulting in 36 bbl/d oil plus 22 mcf/d or 40 boe/d.

The third well, 16-03-62-20W5, was rig released on February 22, 2018 and encountered 10m of net pay.  The well was subsequently completed and placed on production March 12, 2018.  In its first 22 producing days onstream, 16-03 averaged 1,401 barrels of fluid per day at an average 99% watercut resulting in 8 bbl/d oil plus 86 mcf/d or 22 boe/d.

The fourth well, 08-07-62-20W5, was rig released on March 3, 2018 and encountered 4m of net pay. The well was subsequently completed and placed on production March 21, 2018. In its first 20 producing days onstream, 08-07 averaged 279 barrels of fluid per day at an average 98% watercut resulting in 5 bbl/d oil plus 22 mcf/d or 9 boe/d.

Aggregate production from the four well program for the timeframe described above is 2,705 barrels of fluid per day at 97.8% watercut resulting in 61 bbl/d oil plus 148 mcf/d or 86 boe/d.

Management will continue to evaluate production from these wells and potentially adjust the locations and timing of the remaining four wells budgeted for 2018 pending further information.

During the fourth quarter of 2017, the Company realized an average operating netback of $20.17/boe, up 236% from the third quarter of 2017 primarily attributable to the increase in oil and gas sales which were up 25% quarter over quarter and other revenues were up 148% quarter over quarter. Royalty rates averaged 21% in the fourth quarter of 2017, up from 19% in the third quarter of 2017, primarily due to a 24% increase in realized oil sales prices in Q4 2017 over Q3 2017.

Processing and gathering income increased 82% in Q4 2017 to $1.8 million from $1.0 million in Q3 2017, primarily due to increased volumes and prices realized from the Company’s blending facility.

In the fourth quarter of 2017, operating expenses decreased by 11% to $27.56/boe, compared to $30.86 in the third quarter of 2017. The decrease in operating cost was mostly due to decreased workover activity in the fourth quarter and an improvement in operational efficiencies.

The top five cost drivers, fuel and electricity, labour, property taxes, and repairs and workovers, accounted for 66% of total operating expenses in 2017 (63% – Q4 2017, 64% – Q3 2017), with repairs and workovers accounting for 24% of operating expenses and fuel and electricity following closely at 25% of operating expenses.

Management is focused on continuous improvement of operational efficiencies to drive down key cost drivers. Specifically, the Company is working to reduce reliance on grid-based electricity through natural gas power generation along with electrical contract buydowns to align with current demand. Management is also executing various well reactivation projects to increase production which reduces the per boe impact of fixed operating costs.

CAPITAL PROGRAM

In 2017, Razor’s capital program of $9.9 million was invested on a combination of reactivations, re-entries, optimization activities, stimulations, pipelines and facilities, and waterflood management. The Company reactivated 25 gross (18.9 net) wells during 2017, resulting in 880 boe/d of additional production and exited the year with 15,072 Mboe of proved reserves and 20,326 Mboe of proved plus probable reserves. In 2017, corporate capital expenditures of $0.5 million related to initial corporate start-up costs and consisted primarily of computer systems and equipment, vehicles, and furniture and fixtures.

In the fourth quarter of 2017 the Company reactivated 5 gross (3.7 net) wells, resulting in 225 boe/d of net additional production.

For fiscal 2018, the Board of Directors of the Company has approved a capital budget of $38.4 million, which includes end of life expenditures.  The diversity of the budget provides for capital allocation towards highly economic production growth in addition to long term operational and technological investments in power generation and oilfield information technology.

ABANDONMENT, RECLAMATION, AND REMEDIATION EXPENDITURES

Razor inherited decommissioning liabilities included in its Swan Hills and Kaybob acquisitions.  The Company spent $1.6 million in Q4 2017 and a total of $3.3 million year-to-date.  The Company has met the Alberta Energy Regulator’s requirements under its 2017 Inactive Well Compliance Program and continues to invest in end-of-life well and facility operations.

NORMAL COURSE ISSUER BID

On September 11, 2017, Razor announced its intention to commence a Normal Course Issuer Bid (“NCIB”) to repurchase shares in open market transactions on the TSXV. Under the NCIB, the Company may purchase for cancellation up to 796,861 of its common shares, which represents 5% of the outstanding common shares at September 11, 2017.  The NCIB will expire no later than September 13, 2018.  In 2017, the Company repurchased and canceled 425,300 common shares for $0.7 million.

As at December 31, 2017, the Company had a total of 15,511,934 common shares outstanding, and as at April 12, 2018, a total of 15,767,534 common shares outstanding.

ABOUT RAZOR

Razor is a publicly-traded junior oil and gas development and production company headquartered in Calgary, Alberta, concentrated on acquiring, and subsequently enhancing, producing oil and gas properties primarily in Alberta. The Company is led by experienced management and a strong, committed Board of Directors, with a long term vision of growth focused on efficiency and cost control in all areas of the business.

Razor started operations in the first quarter of 2017, through an acquisition of producing assets in the Swan Hills area.  In the second quarter of 2017, Razor added to its asset base with the acquisition of complementary assets in the Kaybob area. These predominantly light oil assets provide a foundation for strong shareholder return through abundant low risk operations. Razor plans to concurrently grow Swan Hills and Kaybob, and execute on similar acquisitions, using its experience to extract upside value.

Razor is a pivotal leading-edge enterprise, balancing creativity and discipline, focused on growing an enduring energy company.  Razor currently trades on TSX Venture Exchange under the ticker “RZE”.



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