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Headwater Exploration Inc. announces first quarter operating and financial results and operations update


CALGARY – Headwater Exploration Inc. (the “Company” or “Headwater“) (TSX:HWX) announces its operating and financial results for the three months ended March 31, 2020.  Selected financial and operational information is outlined below and should be read in conjunction with the unaudited interim condensed financial statements and the related management’s discussion and analysis (“MD&A”).  These filings will be available at www.sedar.com and the Company’s website at www.headwaterexp.com.

Financial and Operating Highlights

Three months ended

March 31,

Percent
Change

2020

2019

Financial (thousands of dollars except share data)

Sales

2,308

6,009

(62)

Cash flow provided by operating activities 

1,182

7,720

(85)

     Per share – basic

0.01

0.09

(89)

                     – diluted

0.01

0.09

(89)

Adjusted funds flow from operations (1)

5,413

7,554

(28)

     Per share – basic

0.05

0.08

(38)

                     – diluted

0.05

0.08

(38)

Net income (loss)

(6,810)

2,960

(330)

     Per share – basic

(0.06)

0.03

(300)

                     – diluted

(0.06)

0.03

(300)

Capital expenditures

70

178

(61)

Working capital

114,200

64,034

78

Shareholders’ equity

157,235

114,768

37

Weighted average shares (thousands) 

     Basic

105,436

88,919

19

     Diluted

105,436

89,213

18

Shares outstanding, end of period (thousands)

     Basic

144,327

88,924

62

     Diluted

145,552

90,430

61

Operating (6:1 boe conversion)

Average daily production

  Natural gas (mmcf/d)

8.9

9.0

(1)

  Natural gas liquids (bbl/d)

7

10

(30)

  Barrels of oil equivalent (3) (boe/d)

1,487

1,510

(2)

Netbacks ($/boe)

  Operating

     Sales

17.06

44.23

(61)

     Royalties

(0.42)

(1.17)

(64)

     Production expenses

(4.78)

(5.50)

(13)

Field netback (1)

11.86

37.56

(68)

     Realized gains on financial derivatives 

29.09

20.95

39

  Operating netback (1)

40.95

58.51

(30)

     General and administrative expense

(5.05)

(4.43)

14

     Interest income and other (3)

4.10

1.49

175

     Decommissioning liabilities settled

0.03

(100)

 Adjusted funds flow netback(1)

40.00

55.60

(28)

(1) See “Non-IFRS” measures

(2) See ‘”Barrels of Oil Equivalent.”

(3) Excludes accretion on decommissioning liabilities.

FIRST QUARTER 2020 HIGHLIGHTS

  • On March 4, 2020, the Company completed its previously announced recapitalization transaction (the “Recapitalization Transaction”) pursuant to which the Company raised aggregate gross proceeds of $50 million pursuant to two equity private placements, a new management team was appointed and the board of directors of the Company was reconstituted. In connection with the transaction, the Company incurred $4.4 million of transaction costs and $1.9 million in share issue costs.
  • As at March 31, 2020, Headwater has cash and cash equivalents of $111.6 million, net working capital of $114.2 million and no outstanding debt.
  • Q1 2020 production averaged 1,487 boe/d, representing a 154 percent increase from Q4 2019, due to an additional month of production in Q1 2020 compared to Q4 2019.
  • Effectively optimized our risk management strategy recognizing realized financial derivative gains of $3.9 million, assisting to offset a significant decline in natural gas pricing, to achieve an operating netback of $40.95/boe.
  • Achieved adjusted funds flow from operations of $5.4 million and an adjusted funds flow netback of $40.00/boe.

RESPONSE TO COVID‐19

Headwater’s top priority is the health and safety of the Company’s employees, contractors, partners, service providers and the communities in which we operate.  During the first quarter of 2020, the Company introduced measures to protect the well‐being of all stakeholders and follow the guidance of public health officials, while maintaining safe operations and business continuity.

2020 GUIDANCE

Headwater has continued the strategy of revenue optimization of the McCully gas field by shutting in all gas production as of May 1, 2020.  The field is expected to be shut-in until November 1, 2020 to optimize production levels, revenue, cash flow and returns, by taking advantage of premium gas pricing during the peak demand months.

Headwater is pleased to re-confirm its previously released guidance.

2020 OUTLOOK

To date the COVID-19 pandemic has had minimal impact on Headwater’s base operations or cashflow expectations; however, the pandemic is anticipated to have lasting effects which will reshape the exploration and production business.  The Headwater team continues to diligently evaluate the multiple unique opportunities that continue to evolve in the Canadian oil and gas sector.  With our significant capital resources, experience and tenacity, it is expected that one or more of these opportunities will result in acquisitions that are transformative to our business in 2020.

Additional corporate information can be found in our corporate presentation on our website at www.headwaterexp.com



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