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Highwood Oil Company Ltd. Announces Third Quarter 2019 Results and Continued Drilling Success in the Clearwater Play


CALGARY – Highwood Oil Company Ltd. (“Highwood” or the “Company“) (TSXV: HOCL) is pleased to announce financial and operating results for the quarter ended September 30, 2019.  The Company also announces that its unaudited financial statements and associated Management’s Discussion and Analysis (“MD&A“) for the quarter ended September 30, 2019, can be found at www.sedar.com and www.highwoodoil.com.

Highlights

  • Drilled three wells (1.5 net) in the Clearwater play at Nipisi during the third quarter of 2019 with another three (1.5 net) wells rig released subsequent to September 30, 2019. To date, three of the wells are on production and early production indications meet the Company’s expectation. The remaining three wells should be on-stream early December.
  • Throughout 2019, industry production and delineation activity has remained robust surrounding Highwood’s core lands at Nipisi / Marten Hills and recently, offset operators around Highwood’s exploratory Clearwater lands have drilled wells that expand the prospective scope of the play. Highwood continued to survey, construct and submit approvals for drilling locations it seeks to drill in the fourth quarter of 2019 and into 2020.
  • Achieved average corporate production of 1,495 bbl/d of oil in the third quarter of 2019, reflecting a modest decrease from an average of 1,608 bbl/d in the second quarter of 2019. The decrease was primarily due to required shut-ins during pad drilling, turnarounds and workovers completed during the period. Production has increased from the prior year on account of new Clearwater production that’s been brought on-stream and due to the acquisition of Gambit Oil in April 2019. Production from the three gross (1.5 net) wells drilled during the quarter was not brought online until after September 30, 2019.
  • Operating netbacks remained strong at more than $18.25/boe for the three months ended September 30, 2019 but were down from $27.36/boe during the three months ended June 30, 2019 due to an increase in operating and transportation expenses that were impacted by shut-in production at Nipisi. Operating netbacks have increased from the prior year, mainly due to Clearwater production adds that realized netback of $38/boe for the nine months ended September 30, 2019.
  • Continued strong quarterly cashflow from operating activities of $2.2 million for the three months ended September 30, 2019, to provide for $11.4 million of cashflow from operating activities for the first nine months of 2019.
  • Current production is approximately 1,550 bbl/d of oil, including 100 bbl/d from the Q3 drilled Clearwater wells currently producing at low rates consistent with the Company’s initial production techniques.

Operating Highlights

 Three months ended September 30,

 Nine months ended September 30,

2019

2018

%

2019

2018

%

Financial

Oil and natural gas sales

$

8,849,696

$

7,336,814

21

$

25,440,302

$

21,826,363

17

Transportation pipeline revenues

1,316,317

975,964

35

4,047,792

2,640,085

53

Total revenues, net of royalties and

7,410,354

6,870,212

8

19,796,066

18,876,913

5

commodity contracts

Loss

1,447,053

837,471

73

4,430,102

3,033,125

46

Cash flow from (used in) operating

activities

2,225,868

(2,965,870)

(175)

11,392,431

(1,349,015)

(944)

Capital expenditures

2,382,201

2,118,155

12

7,054,921

16,828,400

(58)

Net debt (2)

(34,179,493)

(28,558,039)

20

Shareholder’s equity (end of period)

24,279,335

24,059,396

1

Shares outstanding (end of period)

6,013,965

5,538,674

9

Weighted-average basic shares

6,013,965

5,538,674

9

5,968,379

5,538,674

8

outstanding

Operations (1)

Production

Natural gas (Mcf/d)

16

36

Natural gas liquids (NGL) (bbls/d)

Crude oil (bbls/d)

1,495

1,033

45

1,486

1,120

33

Total (boe/d)

1,495

1,036

44

1,486

1,127

32

Average realized prices (3)

Natural gas (per Mcf) (5)

1.33

1.27

NGL (per bbl) (5)

82.25

71.14

Crude Oil (per bbl)

64.32

77.15

(17)

62.70

71.29

(12)

Operating netback (per BOE) (4)

18.25

11.10

64

20.83

10.61

96

Wells drilled:

Gross

3.0

1.0

200

6.0

1.0

500

Net

1.5

0.5

200

3.0

0.5

500

Success (%)

100

100

100

100

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

 (2)  Net debt consists of bank debt and working capital surplus (deficit) excluding commodity contract assets and/or liabilities

 (3)  Before hedging

 (4) See “Non-GAAP measures”

 (5) Natural gas and NGL production and revenues are immaterial to the Company

2019 Third Quarter Overview

Highwood’s third quarter results were highlighted by strong cash flow from operating activities of $2.2 million, a $5.2 million increase from the same period in 2018.  A planned Company owned facility turnaround, as well as shut-in Clearwater production required for continued pad drilling, resulted in average daily production of 1,495 bbl/d during the quarter.  As a result of decreased production and slightly lower benchmark oil pricing, operating netbacks were $18.25/boe compared with $27.36/boe for the second quarter of 2019.  Amidst recent price volatility in Western Canada, the Company has adopted a flexible capital program that is purposely setup to will be responsive to the fluxes in the current pricing environment.  The Company also continues to hedge a significant level of its production related to new drilling activity.

2019 Third Quarter Operations

Highwood successfully drilled three (1.5 net) wells in the Clearwater oil play during the third quarter of 2019 with another three (1.5 net) wells spud after September 30, 2019.  Since its inaugural drilling program began in Q4 2018, the Company has drilled a total of 13 (6.5 net) wells in the emerging resource play since it’s drilling program began in Q4 2018.  The Company continues to focus its drilling efforts within the area of Nipisi, Alberta where compelling pad and infill development opportunities present themselves. Provided that production results remain encouraging, the Company intends to keep a rig in the Nipisi area until breakup 2020 providing production results are continually positive.

Highwood’s Clearwater land position has grown to 215 (109 net) sections. Management continues to dynamically assess and tier its prospective drilling inventory to pursue drilling those development opportunities that are characterized by short cycle times and quick payback periods at current strip pricing. Meanwhile, ongoing industry delineation drilling continues to de-risk the Company’s exploration portfolio.

Outlook

The Company has, and will continue to, evaluate acquisition opportunities in the M&A market, bit will remain disciplined to pursue only those opportunities that are accretive and deleveraging with a drilling inventory that is economic at current strip pricing. The Company intends to build a growing profile of recurring free funds flow that will provide maximum flexibility fund growth, debt repayment and / or other strategic M&A opportunities in a non-dilutive fashion.

The Clearwater oil resource play continues to deliver positive delineation results which underpin an expanding opportunity set for Highwood to pursue lower risk, highly economic, oil-weighted growth.  Since early 2017, industry has spud more than 200 wells to delineate and quickly grow the Clearwater play to achieve production in excess of 20,000 bbl/d.  Even within a pricing environment that has been suppressed by historical standards, strong well economics characterized by short cycle times and quick payback periods have supported industry to already spud 110 new wells in 2019.  Highwood will continue to focus its efforts throughout 2019 and into 2020 on delineating its Clearwater lands in a capital-efficient manner, while mainly pursuing infill and pad drilling development opportunities offsetting positive initial production results.



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