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Highwood Oil Company Ltd. announces first quarter 2020 results


CALGARY – Highwood Oil Company Ltd., (“Highwood” or the “Company“) (TSXV: HOCL) is pleased to announce financial and operating results for the quarter ended March 31, 2020.  The Company also announces that its unaudited financial statements and associated Management’s Discussion and Analysis (“MD&A“) for the quarter ended March 31, 2020, can be found at www.sedar.com and www.highwoodoil.com.

Highlights

  • Achieved record production of 1,872 bbl/d of oil in the first quarter of 2020, a 23% increase from 1,515 bbl/d in the fourth quarter of 2019 and a 38% increase from 1,354 bbl/d in the first quarter of 2019.
  • Drilled 5 wells (2.5 net) in the Clearwater play during the first quarter of 2020 with one well remaining to drill past casing point when commodity prices improve. The drilling activity included further delineation of the Company’s Nipisi land position as well as a step-out well at Craigend where the Company holds a 17,920 acre gross land position (8,960 net). Since the Company began its Clearwater development program in the fourth quarter of 2018, it has drilled 19 wells (9.5 net) to today’s date.
  • Given current oil price environment, the Company ceased capital spending in March 2020 and will contemplate further Clearwater drilling once sustained price recoveries are seen after spending $4.2 million in the first quarter
  • With current select shut-ins, current production from Highwood is approximately 550 bbl/d inclusive of production from the Red Earth field.

Red Earth Divestiture Update

On May 1,2020, after initially providing conditional approval, the Alberta Energy Regulator rejected the license transfers associated with the Red Earth Divestiture. The Company continues to work through the impact of this decision and will provide an update when one is available.

Summary of Financial & Operating Results

Three months ended March 31,

2020

2019

% Change

Financial

Oil and natural gas sales

$

6,545,440

$

6,928,968

(6)

Transportation pipeline revenues

1,160,389

1,233,712

(6)

Total revenues, net of royalties and commodity contracts (1)

16,264,900

5,572,594

192

Loss

(3,723,684)

(2,507,617)

183

Cash flow from operating activities

3,787,170

5,731,356

(34)

Capital expenditures

4,191,152

4,077,397

3

Net debt (2)

(44,622,781)

(31,667,081)

41

Shareholders’ equity (end of period)

14,544,029

24,167,445

(54)

Shares outstanding (end of period)

6,013,965

5,948,030

1

Weighted-average basic shares outstanding

6,013,965

5,890,457

2

Operations (3)

Production

Crude oil (bbls/d)

1,872

1,354

38

Total (boe/d)

1,872

1,354

38

Average realized prices (4)

     Crude oil (per bbl)

38.42

56.85

(32)

Operating netback (per boe) (5)

2.95

15.89

(81)

Wells drilled:

Gross (6)

5.0

2.0

Net (6)

2.5

1.0

Success (%)

100

100

(1)     

Includes unrealized gain and losses on commodity contracts.

(2)     

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

(3)     

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

(4)     

Before hedging.

(5)     

See “Non-GAAP measures”.

(6)     

Includes 1 gross (0.5 net) well outstanding to drill past casing point.

(7)     

Natural gas and NGL production and revenues are immaterial to the Company.

2020 First Quarter Overview

Highwood’s first quarter results were highlighted by the increase in production to 1,872 bbl/d, an increase of 357 bbl/d from the fourth quarter of 2019 and 518 bbl/d from the first quarter of 2019. For the first quarter of 2020, the Company had revenues (excluding commodity contracts) of $8.2 million, impacted by the sharp drop in commodity prices that occurred in March 2020. Highwood recognized $1.2 million of pipeline revenues during the first quarter, consistent with the $1.2 million of revenue recognized in the fourth quarter of 2019 and the first quarter of 2019.

2020 First Quarter Operations

Highwood drilled 4 gross (2.0 net) in the Clearwater play at Nipisi during the first quarter of 2020 and drilled an additional 1 gross well (0.5 net) in the Clearwater play at Craigend.  The drilling activity further delineated the Company’s Clearwater land position, further validating drilling inventory.  The Company has drilled 19 gross wells (9.5 net) in the Clearwater play since it started the Clearwater program in the fourth quarter of 2018.  Total capital spend in the first quarter of 2020 was $4.2 million compared to $4.9 million in the fourth quarter of 2019 where the Company drilled 5 gross (2.5 net) wells in the Clearwater play.  Of the $4.2 million expenditure, $4.1 million was development capital with $2.6 million spent on the drilling & completion of Clearwater wells, $1.0 million spent on the expansion of the Company’s multi-well oil battery in Nipisi and $0.5 million spent on recompletions in the Red Earth area.

The Company continually reviews and revises its technical approach to drilling in the Clearwater and has shortened well cycle times and decreased costs as the program has evolved.  The Company continues to have its land position delineated by offset operators who are also showing success with secondary recovery method pilot projects.  The Company is currently undergoing a waterflood study project at Nipisi which would help to increase ultimate recovery factors if a producing well bore was switched to an injection well.

Outlook

The Company has ceased 2020 non-discretionary capital as a result of the COVID-19 Pandemic and the current price collapse seen in Western Canada and around the world.  The Company has also undertaken corporate cost saving initiatives including reducing salaries and non-essential services to help protect its balance sheet in this suppressed market.

The Company remains excited about the drilling inventory it currently has in its portfolio for when pricing shows a significant, sustained recovery.  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 290 wells to delineate and quickly grow the Clearwater play to achieve production in excess of 25,000 bbl/d.  Even within a pricing environment that has been very suppressed by historical standards, strong well economics characterized by short cycle times and quick payback periods supported industry drilling over 130 wells to date in 2020.

The Company has, and will continue to, evaluate acquisition opportunities in the M&A market, but will remain disciplined to pursue only those opportunities that are accretive and deleveraging to its balance sheet. 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.



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