CDN NEWS | 
US NEWS 
CALGARY, AB – Highwood Oil Company Ltd., (“Highwood” or the “Company“) (TSXV: HOCL) is pleased to announce financial and operating results for the quarter ended June 30, 2020. The Company also announces that its unaudited financial statements and associated Management’s Discussion and Analysis (“MD&A“) for the quarter ended June 30, 2020, can be found at www.sedar.com and www.highwoodoil.com.
Highlights
- Production of 870 bbl/d of oil in the second quarter of 2020, a 54% decrease from 1,872 bbl/d in the first quarter of 2020 amidst uneconomic shut-ins during the period.
- Current net production from Highwood is approximately 1,400 bbl/d of oil with production capacity of 2,200 bbl/d. Highwood continues to bring on production previously shut-in during April and May as a result of the COVID-19 Global Pandemic.
- Highwood continues to be encouraged by production performance from the Q1 2020 Clearwater drilling program at Nipisi where three of the new wells are currently on production.
Summary of Financial & Operating Results
|
Three months ended June 30, |
Six months ended June 30, |
||||||||||
|
2020 |
2019 |
% |
2020 |
2019 |
% |
||||||
|
Financial (in thousands) |
|||||||||||
|
Oil and natural gas sales |
$ |
1,737 |
$ |
9,662 |
(82) |
$ |
8,282 |
$ |
16,591 |
(50) |
|
|
Transportation pipeline revenues |
769 |
1,498 |
(49) |
1,929 |
2,731 |
(29) |
|||||
|
Total revenues, net of royalties(1) |
1,052 |
6,813 |
(85) |
17,317 |
12,386 |
40 |
|||||
|
Loss |
(3,837) |
(475) |
707 |
(7,561) |
(2,983) |
153 |
|||||
|
Cash flow from operating activities |
2,167 |
6,936 |
(69) |
5,954 |
12,667 |
(53) |
|||||
|
Capital expenditures |
223 |
595 |
(62) |
4,415 |
4,673 |
(6) |
|||||
|
Net debt (2) |
(46,089) |
(36,514) |
26 |
||||||||
|
Shareholder’s equity (end of period) |
10,861 |
25,523 |
(57) |
||||||||
|
Shares outstanding (end of period) |
6,014 |
6,014 |
– |
||||||||
|
Weighted-average basic shares |
6,014 |
5,986 |
– |
6,014 |
5,944 |
1 |
|||||
|
outstanding |
|||||||||||
|
Operations (6) |
|||||||||||
|
Production |
|||||||||||
|
Crude oil (bbls/d) |
870 |
1,608 |
(46) |
1,371 |
1,482 |
(7) |
|||||
|
Total (boe/d) |
870 |
1,608 |
(46) |
1,371 |
1,482 |
(7) |
|||||
|
Average realized prices (3) |
|||||||||||
|
Crude Oil (per bbl) |
21.94 |
66.04 |
(67) |
33.19 |
61.86 |
(46) |
|||||
|
Operating netback (per BOE) (4) |
(16.77) |
27.36 |
(161) |
(3.30) |
22.14 |
(115) |
|||||
|
Wells drilled: |
|||||||||||
|
Gross |
– |
– |
– |
5.0 |
3.0 |
67 |
|||||
|
Net |
– |
– |
– |
2.5 |
1.5 |
67 |
|||||
|
Success (%) |
– |
– |
– |
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) |
Natural gas and NGL production and revenues are immaterial to the Company. |
2020 Second Quarter Overview
Highwood’s second quarter results were highlighted by the decrease in production from 1,872 bbl/d in the first quarter of 2020 to 870 bbl/d in the second quarter, a decrease of 54% given the Company’s decision to shut in uneconomic production during April & May amidst the global oil price collapse.
For the first half of 2020, the Company had revenues net of royalty expense (including realized gains on commodity contracts) of $12.1 million impacted by the sharp drop in commodity prices that began in March 2020. The Company had revenues of $17.7 million for the same first half period of 2019 without the increased production capacity brought on by the success of the Clearwater drilling program through Q1 2020.
2020 Second Quarter Operations
Highwood’s focus in the second quarter of 2020 was on financial sustainability as the Company continually re-evaluated and adjusted field production & operations as well as corporate overheads given the price collapse beginning in March 2020. Highwood ceased its capital program in March 2020 and spent only essential capital during the second quarter.
Highwood reduced executive and employee salaries by approximately 20%, ceased its bonus program and reduced staff to help mitigate the financial impact of the COVID-19 Global Pandemic. The Company has received support from government grants including the Canada Emergency Wage Subsidy (“CEWS”) to help mitigate the financial impact of COVID-19 and has also completed an application for available credit guarantee programs provided by the Export Development Bank of Canada (“EDC”). The Company anticipates feedback from the application in the coming weeks.
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 where the Company drilled 5 gross (2.5 net) wells in the Clearwater play.
Of the total $4.2 million Company expenditures, $4.1 million was development capital with $2.6 million spent on Clearwater drilling & completions, $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 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 continued to cease 2020 non-discretionary capital as a result of the COVID-19 Global Pandemic and the current suppressed pricing seen in Western Canada and around the world.
Once returns prove economically feasible, the Company remains excited about the drilling inventory it currently has in its portfolio. 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 300 wells to delineate and quickly grow the Clearwater play to achieve production in excess of 29,000 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 30 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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