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


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



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