Bonterra Energy Corp. announces second quarter 2020 results

HIGHLIGHTS

Q2 2020 IN REVIEW

In the second quarter of 2020, crude oil supply and demand imbalances caused by the COVID-19 pandemic and OPEC+ policy changes continued to put negative pressure on global oil prices. Through this period, Bonterra acted quickly to take measures to protect the balance sheet, enhance previously implemented cost saving measures, identify new cost reduction initiatives and to strategically preserve the value of reserves by prudently managing production levels. Along with the application to several government stimulus programs and the bolstering of its hedging strategy, the Company elected to suspend its capital program and the monthly dividend in April 2020 in order to protect its financial position. With modest stability returning to oil and gas pricing markets subsequent to the quarter, the Company is evaluating the resumption of a limited capital program in Q3 2020.

As a result of the severe decrease in global commodity prices combined with shut-in production, Bonterra realized lower oil and gas sales in Q2 2020 compared to the year prior.  The  Company is positioned to take rapid action to leverage an improved pricing environment with a continued focus on generating funds flow¹ and will continue to evaluate and implement opportunities to further capture cost savings and operational efficiencies. The Company reduced net debt by $1.2 million as at June 30, 2020 compared to the preceding quarter, and given Bonterra’s low corporate decline rate of approximately 21 percent and its continued focus on proactive cost reduction initiatives, management intends to continue reducing net debt throughout 2020 assuming current forward commodity prices.

Q2 2020 HIGHLIGHTS

• Actively responded to the COVID-19 pandemic and a challenging commodity price environment by prudently managing production levels and locating administrative and operational cost savings across the organization.
• Averaged 10,181 BOE per day of production in Q2 2020 and 11,108 BOE per day in the first six months of the year, 20% and 10% lower than the same periods in 2019, respectively, reflecting the value preserving initiatives implemented in the second quarter including the suspension of the Company’s capital program and approximately 1,800 BOE per day of production that was shut-in.
• Generated funds flow¹ of $4.2 million in the quarter ($0.13 per share) and $18.9 million ($0.57 per share) in the first half of 2020.
• Suspended both the capital program and dividend payments in Q2 2020 in response to the challenging operating environment and extremely weak commodity prices.
• Reduced net debt to $299.4 million as at June 30, 2020, $11.3 million less than at June 30, 2019, reflecting success with debt reduction over the past 12 months, and $1.2 million lower than at March 31, 2020 due to operating cost reductions and the suspension of the capital program and dividend payments.
• Field netbacks averaged $9.40 per BOE in Q2 2020 and $14.22 per BOE in the six months ended June 30, 2020, and were impacted by lower per unit revenue, offset by reduced royalty expenses, lower production costs per BOE and a realized gain on risk management contracts.

RESPONDING TO CONTINUED UNCERTAINTY

A key priority for Bonterra during the COVID-19 pandemic is to ensure a safe and healthy work environment for employees and contractors, including remote working protocols and added safety measures in the field. The Company’s swift actions to adjust operationally since the start of the pandemic has helped to protect the balance sheet and safeguard its financial position, while physical delivery sales and risk management contracts further supported netbacks in Q2 2020.

Through the second quarter, Bonterra actively implemented key cost saving initiatives across the organization, including:

• Monthly operating cost reductions totaling approximately $1.5 million related to shutting-in higher-cost production volumes;
• Monthly general and administrative cost savings of approximately $0.2 million (or 40 percent) related to compensation reductions and shorter work weeks;
• Applying for, and receiving, the Canada Emergency Wage Subsidy (“CEWS”);
• Working with suppliers and vendors to streamline costs across all areas of operations and administration;
• Submitted applications to Alberta’s Site Rehabilitation Program (“SRP”) to alleviate abandonment obligations, for which Bonterra received approval of approximately $6.6 million of abandonment obligation relief, with further applications subsequently submitted; and
• Applied for federal economic relief and liquidity stimulus programs through the Export Development Bank of Canada (“EDC”) and the Business Development Bank of Canada (“BDC”).

To further preserve capital and as a result of road bans in place during Q2 spring breakup, the Company also suspended its abandonment program after successfully abandoning 45 inactive well bores and associated pipelines during the first quarter. Bonterra has submitted applications under Alberta’s SRP to abandon over 600 well bores, pipelines and well sites and has applied to similar programs in Saskatchewan and British Columbia. The Government of Alberta will administer the SRP in various phases to provide grant funding through service providers for the abandonment or remediation of oil and gas sites.  As a result of these programs, the Company expects to recover approximately $6.6 million of abandonment costs in total. The Company will continue its efforts to utilize these programs for its asset retirement obligations as more information is provided.

On July 14, 2020 Bonterra’s bank facility was confirmed at $300 million, including a $125 million syndicated revolving credit facility, a $25 million non-syndicated revolving credit facility and a term loan of $150 million. Exiting the second quarter, $277.8 million was drawn under the total bank facility, with the loan revolving to August 31, 2020, and a maturity date of April 28, 2021.  In the interests of securing financial flexibility, Bonterra has submitted applications to EDC and BDC for liquidity guarantees and backstop funding related to the facility and could potentially see an increase in the reserves-based lending value with rising commodity prices. Bonterra is currently assessing opportunities for short-term or longer-term financing alternatives.

OUTLOOK

Bonterra’s focus remains on balance sheet protection and retaining financial flexibility. The Company’s efficient operations, recent cost reductions, lean overhead, enhanced risk management profile and defensive stance position the organization well to manage through market uncertainty. Management will continue monitoring prices and economics to determine whether shut-in production can be brought back on stream and is also assessing the reactivation of a limited capital program in the third quarter of 2020, depending on the pricing environment and its ability to further reduce debt levels.

To mitigate continued commodity price volatility, diversify price exposure and protect cash flows for the remainder of the year, Bonterra has secured crude oil prices averaging $40.72 per barrel on 2,495 barrels per day through Q3 2020 and an average price of $46.33 per barrel on 1,500 barrels per day in Q4 2020.  In addition, the Company has diversified its natural gas pricing for the warmer months of 2020 by entering into physical delivery sales contracts on 5,000 GJs per day from April 1, 2020 to October 31, 2020, with prices ranging between $1.55 to $1.64 per GJ.

The Company remains committed to being a positive and meaningful contributor to the economic success of the communities where it operates in central Alberta, to employing local services and to upholding stringent safety measures to ensure the health and well-being of its employees, contractors and partners during the continued pandemic.

Bonterra Energy Corp. is a conventional oil and gas corporation with operations in Alberta, Saskatchewan and British Columbia, focused on its strategy of long-term, sustainable growth and value creation for shareholders. The Company’s shares are listed on The Toronto Stock Exchange under the symbol “BNE”.