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Highwood Oil Company Ltd. Announces 2018 Fourth Quarter and Year-End Financial and Operating Results and 2018 Year-End Reserves


CALGARYApril 30, 2019 /CNW/ – Highwood Oil Company Ltd., (“HOCL” or the “Corporation“) (TSXV: HOCL) is pleased to announce financial and operating results for the three months and twelve months ended December 31, 2018 and to provide the results of its independent oil and gas reserves evaluation as of December 31, 2018, prepared by GLJ Petroleum Consultants Ltd. (“GLJ“).Associated Management’s Discussion and Analysis (“MD&A“) dated April 29, 2019 and audited financial statements as at and for the year ended December 31, 2018, can be found at www.sedar.com and www.highwoodoil.com.

Highlights

  • Achieved production of 1,117 bbl/d of oil in the fourth quarter of 2018, flat from 1,120 bbl/d in the fourth quarter of 2017.
  • Acquired 62.5 gross (32.25 net) sections of Clearwater formation lands in 2018, bringing total sections to 196 gross (99 net) at December 31, 2018. Subsequent to year-end the Clearwater land position has grown to 226 gross (115 net) sections and presents exciting drilling opportunities with short cycle times. Minimal bookings for the Clearwater formation have been incorporated into the December 31, 2018 reserves providing significant reserve upside.
  • Successfully drilled 4 gross (2 net) wells in the Clearwater Formation in the fourth quarter which have performed as per internal type curves. 3 gross (1.5 net) wells were drilled in Q1 2019, bringing total wells drilled to 7 gross (3.5 net). Assuming WCS realized pricing remains in the range of current strip pricing, Highwood would plan to drill another 6 to 10 gross (3 to 5 net) wells in the Clearwater before the end of 2019.
  • Transportation and pipeline revenue from the Wabasca River Pipeline of $3.9 million for the year and $1.3 million for the quarter ended December 31, 2018.
  • Additionally, current production from Highwood is approximately 1,550 bbl/d of oil.

Reserves

All references to reserves are to gross company reserves, meaning the Corporation’s working interest reserves before deductions of royalties. The reserves were evaluated by GLJ Petroleum Consultants Ltd. (“GLJ”) in accordance with National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities(“NI 51-101”) dated March 29, 2019, and effective December 31, 2018. The Corporation filed their Annual Information Form (“AIF”) on April 30, 2019 which contains the Corporation’s reserves data and other oil and natural gas information required under NI 51-101.

All evaluations and summaries of future net revenue are stated prior to provision for interest, debt service charges or general and administrative expenses and after deduction of royalties, operating expenditures, estimated abandonment liabilities and estimated future development capital. The information included as (“NPV10”) in the tables below represents the net present value of future net revenue before income taxes at a 10% discount rate based on GLJ’s January 1, 2019 forecast price deck. It should not be assumed that the estimate of future net revenues reflected in the tables below represents fair market value of the reserves.

Summary of Oil and Gas Reserves as of December 31, 2018(1)(2)

Total Oil Equivalent Basis (3)

Reserves Category

Company Gross (Mboe)

Company Net (Mboe)

Proved

Producing

3,235

2,884

Developed Non-Producing

1,627

1,475

Undeveloped

1,236

1,110

Total Proved

6,098

5,469

Total Probable

3,803

3,380

Total Proved Plus Probable

9,902

8,849

(1)

Forecast prices are shown under the heading “Pricing Assumptions” in the Corporation’s AIF dated April 30, 2019.

(2)

Reserves information may not add due to rounding.

(3)

Natural gas has been converted to barrels of oil equivalent on the basis of six (6) Mcf of natural gas being equal to one barrel of oil. 

Summary of Net Present Value of Future Net Revenues as of December 31, 2018(1)(2)(3)

Net Present Values of Future Net Revenue

Before Income Taxes Discounted At (%/year)

0%

5%

10%

15%

20%

Reserves Category

M$

M$

M$

M$

M$

Proved

Producing

111,241

92,105

77,950

67,422

59,430

Developed Non-Producing

52,389

41,550

33,352

27,309

22,808

Undeveloped

23,821

16,409

11,465

8,043

5,592

Total Proved

187,452

150,064

122,767

102,775

87,831

Total Probable

126,510

81,727

56,024

40,660

30,943

Total Proved Plus Probable

313,962

231,791

178,790

143,435

118,774

(1)

Forecast prices are shown under the heading “Pricing Assumptions” in the Corporation’s AIF dated April 30, 2019.

(2)

Reserves information may not add due to rounding.

(3)

It should not be assumed that the estimates of future net revenues presented in the tables represent the ‎fair market value of the reserves. There is no assurance that the forecast prices and cost assumptions will be ‎attained, and variances could be material. ‎

Summary of Financial & Operating Results

 

Three months ended December 31,

Year ended December 31,

2018

2017

2018

2017

Financial

Oil and natural gas sales

$      3,159,126

$      6,276,681

$   24,985,489

$    28,289,467

Transportation pipeline revenues

1,308,526

3,948,611

Total revenues, net of royalties (1)

8,802,798

1,127,095

27,679,711

28,293,860

Income (loss)

1,223,306

(1,073,072)

(1,809,819)

598,854

Capital expenditures

6,419,621

4,657,830

23,248,021

36,440,187

Net debt

29,630,459

14,573,417

Shareholders’ equity (end of period)

24,579,552

26,863,521

Shares outstanding (end of period)

5,744,204

5,538,674

Weighted-average basic shares outstanding

5,695,056

5,538,674

5,578,091

5,538,674

Operations (2)

Production

Natural gas (Mcf/d)

12

73

30

2,403

Natural gas liquids (NGL) (bbls/d)

0

1

0

144

Crude oil (bbls/d)

1,117

1,111

1,120

1,214

Total (boe/d)

1,119

1,124

1,125

1,759

Average realized prices (3)

Natural gas (per Mcf)(5)

2.01

1.30

1.35

2.86

NGL (per bbl)(5)

72.03

43.79

71.30

23.25

Crude oil (per bbl)

30.27

61.30

61.06

55.42

Operating netback (per boe)(4)

(3.38)

23.83

7.21

13.28

Wells drilled:

Gross

4

6

Net

2

3.5

Success (%)

100

100

(1)

Includes gain and losses on commodity contracts

(2)

For a description of the boe conversion ratio, see “Basis of Barrel of Oil Equivalent”.

(3)

Before hedging. 

(4)

See “Non-GAAP measures”.

(5)

For 2018, natural gas and NGL production and revenues are immaterial to the Company

Saskatchewan Transaction

On April 29, 2019, the Corporation completed the acquisition of an arm’s-length private company with production in Saskatchewan, for a total purchase price of $5.0 million.

Acquired production of approximately 225 bbl/day of light sweet crude oil produced from 7 gross (5.5 net) wells in the Tilston formation. The acquisition provides an additional 2 to 3 horizontal locations and secondary waterflood potential.

Subject to ordinary closing adjustments, the purchase price comprised $3,450,000 of cash and $1,550,000 of Highwood shares valued at $23.51 per share (total of 65,935 Highwood Shares). Fifty percent of the Highwood shares are subject to a contractual 90-day hold period from the date of closing and the remaining fifty percent of the Highwood shares are subject to a contractual 180-day hold period from the closing date.

The Acquisition is an arm’s length transaction an constitutes an Expedited Acquisition pursuant to TSX Venture Exchange Policy 5.3 – Acquisitions and Disposition of Non-Cash Assets.

Outlook

The fourth quarter pricing environment was challenging for Highwood, but the Corporation is encouraged by current pricing and market sentiment. Our Clearwater land position has grown to 226 gross (115 net) sections and presents exciting drilling opportunities with short cycle times. Assuming WCS realized pricing remains in the range of current strip prices, Highwood would plan to drill another 6 to 10 gross (3 to 5 net) wells in the Clearwater before the end of 2019. In Q1 2019, 3 gross (1.5 net) Clearwater wells were drilled in the Nipisi area bringing a total of 7 gross (3.5 net) Clearwater wells drilled to date. The wells are on flow back and being evaluated for production results.

Our Red Earth asset continues to provide a solid below 15%, low decline production base which can be mitigated through the introduction of proppant fractures in both the vertical and horizontal wellbores in the area. Management anticipates that through modest annual capital we will be able to hold production flat. The premium to MSW pricing received on the Red Earth production drives an attractive netback and provides an excellent source of cash flow to redeploy into the Clearwater assets. Focus in 2019 will be to continue to drive down operating costs in the field which are challenged by year-round accessibility and geographic spread.

The Corporation remains focused on evaluating opportunities in the M&A market and completing accretive acquisitions through the duration of 2019.

Current production for Highwood is approximately 1,550 bbl/d of oil following the Saskatchewan Transaction.



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