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

August 5, 20203:21 PM CNW

CALGARY, AB – Headwater Exploration Inc. (the “Company” or “Headwater“) (TSX: HWX) announces its operating and financial results for the three and six months ended June 30, 2020. Selected financial and operational information is outlined below and should be read in conjunction with the unaudited condensed interim 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 June 30,		Percent Change	Six months ended June 30,		Percent Change
	2020	2019		2020	2019
Financial (thousands of dollars except share data)
Sales	565	1,014	(44)	2,873	7,023	(59)
Cash flow provided by operating activities	863	1,675	(48)	2,045	9,395	(78)
Per share – basic	0.01	0.02	(50)	0.02	0.11	(82)
– diluted	0.01	0.02	(50)	0.02	0.11	(82)
Adjusted funds flow (used in) from operations⁽¹⁾	(610)	151	(504)	4,803	7,705	(38)
Per share – basic	0.00	0.00	–	0.04	0.09	(56)
– diluted	0.00	0.00	–	0.04	0.09	(56)
Net income (loss)	(1,679)	(274)	513	(8,489)	2,686	(416)
Per share – basic	(0.01)	(0.00)	100	(0.07)	0.03	(333)
– diluted	(0.01)	(0.00)	100	(0.07)	0.03	(333)
Capital expenditures	398	211	89	468	389	20
Working capital				113,718	63,744	78
Shareholders’ equity				156,386	114,148	37
Weighted average shares (thousands)
Basic	144,749	88,724	63	125,401	88,821	41
Diluted	144,749	88,724	63	125,401	89,104	41
Shares outstanding, end of period (thousands)
Basic				145,044	88,301	64
Diluted ⁽⁴⁾				151,381	89,089	70
Operating (6:1 boe conversion)

Average daily production
Natural gas (mmcf/d)	2.4	2.4	–	5.6	5.7	(2)
Natural gas liquids (bbl/d)	–	3	(100)	3	6	(50)
Barrels of oil equivalent ⁽²⁾(boe/d)	396	402	(1)	942	953	(1)

Netbacks ($/boe)
Operating
Sales	15.67	27.75	(44)	16.76	40.74	(59)
Royalties	(0.39)	(0.53)	(26)	(0.42)	(1.03)	(59)
Production expenses	(14.79)	(16.64)	(11)	(6.89)	(7.86)	(12)

Field netback ⁽¹⁾	0.49	10.58	(95)	9.45	31.85	(70)
Realized gains on financial derivatives	–	1.43	(100)	22.97	16.81	37
Operating netback ⁽¹⁾	0.49	12.01	(96)	32.42	48.66	(33)
General and administrative expense	(23.33)	(15.89)	47	(8.90)	(6.86)	30
Interest income and other ⁽³⁾	6.00	8.46	(29)	4.50	2.96	52
Decommissioning liabilities settled	–	(0.44)	(100)	–	(0.07)	(100)
Adjusted funds flow netback⁽¹⁾	(16.84)	4.14	(507)	28.02	44.69	(37)


(1)	See “Non-IFRS” measures
(2)	See ‘”Barrels of Oil Equivalent.”
(3)	Excludes accretion on decommissioning liabilities.
(4)	Includes in-the-money dilutive securities as at June 30, 2020.

SECOND QUARTER 2020 HIGHLIGHTS

As at June 30, 2020, Headwater has cash and short-term investments (consisting of redeemable guaranteed investment certificates) of $112.8 million, a working capital surplus of $113.7 million and no outstanding debt.
April 2020 natural gas production averaged 7.2 mmcf/d, consistent with April 2019, before the Company shut-in its natural gas production effective May 1, 2020 pursuant to its production optimization strategy.
Locked into financial derivative contracts for a total of 5,000 mmbtu/d at NYMEX CAD$4.05/mmbtu for the period from December 2020 to March 2021.
Efficiently executed the integration of east coast operations with all corporate functions now being handled from the Company’s head office in Calgary.

2020 GUIDANCE

Headwater is pleased to re-confirm its previously released guidance as follows:

2020 average production of 4.1 mmcf/d (approximately 99% natural gas and 1% natural gas liquids) (assumes shut-in from May 1 to November 1, 2020).
Operating cash flow of $6.8 million (inclusive of realized financial derivatives).
2020 adjusted funds flow from operations of $5.5 million.
2020 exit working capital (assuming no other acquisitions or development) of $115 million.

With the integration of the operations now complete, the Headwater team is actively optimizing future cash flow through operating costs and third-party processing revenue initiatives.

2020 OUTLOOK

Patience continues to be the overriding theme in our business plan. With a relative stabilizing of commodity prices in the last month, the acquisition market is beginning to show signs of activity. The Headwater team continues to pursue multiple opportunities that ultimately, if successful, are expected to provide significant returns to our shareholders. We appreciate the continued support and patience that the investment community continues to have with our business and look forward to reporting back to you as some of the opportunities come to fruition