Coelacanth Announces Q2 2023 Financial and Operating Results

2023-08-24

TSXV - TSX Venture Exchange · Oil · Natural Gas · Natural Gas Liquids · Ethane · Canada

Calgary, Alberta--(Newsfile Corp. - August 24, 2023) - COELACANTH ENERGY INC. (TSXV: CEI) ("Coelacanth" or the "Company")is pleased to announce its financial and operating results for the three and six months ended June 30, 2023. All dollar figures are Canadian dollars unless otherwise noted.

HIGHLIGHTS

Received regulatory approval to drill and complete up to 14 wells on its 5-19 pad at Two Rivers East. Drilling of the first 5-well pad is expected to commence in Q3 2023.

Drilled second Upper Montney well on its 10-08 pad at Two Rivers West. Wells expected to be completed in Q3 2023.

Entered into an arrangement with NorthRiver Midstream Inc. ("NRM") to secure up to 60 mmcf/d of firm processing service at NRM's McMahon gas processing facility for a period of 10 years. The processing service will commence after the construction of the Two Rivers East facility. As part of the arrangement, NRM has agreed to finance certain related gathering infrastructure to interconnect the Two Rivers East facility to NRM's current gathering system.

Financial and operational results below present the carved-out historic financial position, results of operations and cash flows of Leucrotta's Two Rivers Assets for all prior periods up to and including May 31, 2022, and the results of operations from May 31, 2022 forward include the results of Coelacanth after assuming the Two Rivers Assets upon close of the Arrangement.

| FINANCIAL RESULTS | Three Months Ended | Six Months Ended | | | | | | | June 30 | June 30 | | | | | | ($000s, except per share amounts) | 2023 | 2022 | % Change | 2023 | 2022 | % Change | | | | | | | | | | Oil and natural gas sales | 826 | 2,334 | (65) | 1,780 | 4,022 | (56) | | | | | | | | | | Cash flow from (used in) operating activities | 765 | (1,713) | (145) | (1,277) | (2,373) | (46) | | Per share - basic and diluted (1) | - | (0.01) | (100) | (-) | (0.01) | (100) | | | | | | | | | | Adjusted funds flow (used) (1) | (756) | 22 | (3,536) | (1,310) | (451) | 190 | | Per share - basic and diluted | (-) | - | - | (-) | (-) | - | | | | | | | | | | Net loss | 2,165 | 8,062 | (73) | 3,954 | 9,608 | (59) | | Per share - basic and diluted | 0.01 | 0.03 | (67) | 0.01 | 0.03 | (67) | | | | | | | | | | Capital expenditures (1) | 3,642 | 870 | 319 | 8,781 | 1,167 | 652 | | | | | | | | | | Adjusted working capital (1) | | | | 56,500 | 74,792 | (24) | | | | | | | | | | Common shares outstanding (000s) | | | | | | | | Weighted average - basic and diluted | 425,447 | 319,428 | 33 | 425,282 | 304,692 | 40 | | | | | | | | | | End of period - basic | | | | 426,389 | 399,738 | 7 | | End of period - fully diluted | | | | 469,143 | 462,478 | 1 |

(1) See "Non-GAAP and Other Financial Measures" section.

| | Three Months Ended | Six Months Ended | | | | | | OPERATING RESULTS (1) | June 30 | June 30 | | | | | | | 2023 | 2022 | % Change | 2023 | 2022 | % Change | | | | | | | | | | Daily production (2) | | | | | | | | Oil and condensate (bbls/d) | 53 | 70 | (24) | 49 | 70 | (30) | | Other NGLs (bbls/d) | 14 | 16 | (13) | 14 | 19 | (26) | | Oil and NGLs (bbls/d) | 67 | 86 | (22) | 63 | 89 | (29) | | Natural gas (mcf/d) | 1,321 | 1,676 | (21) | 1,350 | 1,713 | (21) | | Oil equivalent (boe/d) | 287 | 365 | (21) | 288 | 375 | (23) | | | | | | | | | | Oil and natural gas sales | | | | | | | | Oil and condensate ($/bbl) | 88.89 | 134.69 | (34) | 91.61 | 124.20 | (26) | | Other NGLs ($/bbl) | 28.03 | 58.76 | (52) | 35.43 | 51.37 | (31) | | Oil and NGLs ($/bbl) | 76.11 | 120.53 | (37) | 79.21 | 108.79 | (27) | | Natural gas ($/mcf) | 3.03 | 9.13 | (67) | 3.58 | 7.36 | (51) | | Oil equivalent ($/boe) | 31.63 | 70.21 | (55) | 34.11 | 59.44 | (43) | | | | | | | | | | Royalties | | | | | | | | Oil and NGLs ($/bbl) | 20.84 | 37.52 | (44) | 23.41 | 34.12 | (31) | | Natural gas ($/mcf) | 0.64 | 2.54 | (75) | 0.83 | 1.89 | (56) | | Oil equivalent ($/boe) | 7.77 | 20.48 | (62) | 9.02 | 16.71 | (46) | | | | | | | | | | Operating expenses | | | | | | | | Oil and NGLs ($/bbl) | 17.49 | 13.84 | 26 | 17.23 | 13.37 | 29 | | Natural gas ($/mcf) | 2.92 | 2.36 | 24 | 2.87 | 2.24 | 28 | | Oil equivalent ($/boe) | 17.53 | 14.09 | 24 | 17.23 | 13.43 | 28 | | | | | | | | | | Net transportation expenses (3) | | | | | | | | Oil and NGLs ($/bbl) | 1.85 | 3.38 | (45) | 1.65 | 3.45 | (52) | | Natural gas ($/mcf) | 1.39 | 1.04 | 34 | 1.34 | 0.85 | 58 | | Oil equivalent ($/boe) | 6.82 | 5.55 | 23 | 6.66 | 4.69 | 42 | | | | | | | | | | Operating netback (loss) (3) | | | | | | | | Oil and NGLs ($/bbl) | 35.93 | 65.79 | (45) | 36.92 | 57.85 | (36) | | Natural gas ($/mcf) | (1.92) | 3.19 | (160) | (1.46) | 2.38 | (161) | | Oil equivalent ($/boe) | (0.49) | 30.09 | (102) | 1.20 | 24.61 | (95) | | | | | | | | | | Depletion and depreciation ($/boe) | (18.34) | (14.50) | 26 | (17.14) | (14.75) | 16 | | General and administrative expenses ($/boe) | (46.77) | (31.45) | 49 | (46.56) | (32.29) | 44 | | Share based compensation ($/boe) | (33.31) | (246.37) | (86) | (31.21) | (129.09) | (76) | | Gain on insurance proceeds ($/boe) | - | 19.76 | (100) | - | 9.71 | (100) | | Finance expense ($/boe) | (4.29) | (2.78) | 54 | (3.73) | (2.17) | 72 | | Finance income ($/boe) | 25.59 | 2.69 | 851 | 26.40 | 1.32 | 1,900 | | Other income ($/boe) | - | - | - | - | 0.66 | (100) | | Unutilized transportation ($/boe) | (5.35) | - | 100 | (4.76) | - | 100 | | Net loss ($/boe) | (82.96) | (242.56) | (66) | (75.80) | (142.00) | (47) |

(1) See "Oil and Gas Terms" section. (2) See "Product Types" section. (3) See "Non-GAAP and Other Financial Measures" section.

Selected financial and operational information outlined in this news release should be read in conjunction with Coelacanth's unaudited condensed interim financial statements and related Management's Discussion and Analysis ("MD&A") for the three and six months ended June 30, 2023, which are available for review under the Company's profile on SEDAR+ at www.sedarplus.ca.

COMMON-CONTROL TRANSACTION

On May 31, 2022, the arrangement agreement between Coelacanth, Leucrotta Exploration Inc. ("Leucrotta"), Vermilion Energy Inc. ("Vermilion"), and the shareholders of Leucrotta (the "Arrangement") closed and Vermilion acquired all of the issued and outstanding common shares of Leucrotta in exchange for $1.73 cash for each common share of Leucrotta held.

Pursuant to an asset conveyance agreement between Coelacanth and Leucrotta made as of May 31, 2022, and immediately prior to the closing of the Arrangement, Leucrotta transferred approximately $45.1 million cash, net of transaction costs, and certain oil and natural gas assets primarily located in the Two Rivers area of British Columbia ("Two Rivers Assets") to Coelacanth in exchange for one common share of Coelacanth ("Coelacanth Share"), and 0.1917 of a common share purchase warrant of Coelacanth (one whole warrant being an "Arrangement Warrant") for each common share of Leucrotta outstanding. The Coelacanth Shares and Arrangement Warrants were then transferred to the shareholders of Leucrotta.

Since the shareholders of Coelacanth and Leucrotta were the same both before and after the conveyance of the Two Rivers Assets (at the time Coelacanth was a wholly-owned subsidiary of Leucrotta), this transaction was deemed a common-control transaction. The financial and operational results below present the historic financial position, results of operations and cash flows of the transferred Two Rivers Assets for all prior periods up to and including May 31, 2022 on a carve-out basis as if they had operated as a stand-alone entity subject to Leucrotta's control. The financial position, results of operations and cash flows from March 24, 2022 (the date of incorporation of Coelacanth) to May 31, 2022 include both the Two Rivers Assets and Coelacanth on a combined basis and from May 31, 2022 forward include the results of Coelacanth after assuming the Two Rivers Assets upon close of the Arrangement.

OPERATIONS UPDATE

In Q2 2023, Coelacanth made significant strides in advancing its Two Rivers project. The Two Rivers project spans Coelacanth's 150 contiguous sections of Montney lands and is divided up geographically into two projects - Two Rivers West ("TRW") and Two Rivers East ("TRE").

Although the overall project has been geologically defined and production tested with vertical and horizontal wells, Coelacanth needed to address infrastructure and egress issues along with developing production type curves incorporating enhanced frac design.

During Q2 2023 Coelacanth accomplished the following:

Signed an agreement with NRM securing up to 60 mmcf/d of firm processing capacity, Received a license to drill up to 14 wells on the 5-19 pad at TRE, Drilled one additional Upper Montney horizontal well at TRW, and Updated its enhanced frac design for well completions at both TRW and TRE scheduled for Q3 2023 and Q4 2023.

Since inception in June 2022, Coelacanth has also:

Secured 60 mmcf/d of firm pipeline capacity, Completed the engineering and design and secured a site to build a battery capable of handling approximately 20,000 boe/d, and Initiated the process of permitting and securing land access to construct the gathering and sales pipelines to connect the TRE 5-19 pad to the NRM gathering system.

During Q3 2023 and Q4 2023, Coelacanth will:

Complete and test the two previously drilled Montney wells at TRW for estimated on-stream date of October 1, 2023, Drill 6 additional Montney horizontal wells, including 5 on the 5-19 pad at TRE (drilling commenced in August), and Complete and test the 5 wells on the 5-19 pad (Q4 2023) that are being drilled in 3 distinct Montney horizons.

With a significant portion of the planning and egress requirements addressed, Coelacanth is moving forward on its plans to drill, complete and test wells at both TRE and TRW using longer laterals and enhanced completion designs. We look forward to updating our stakeholders on our progress as we achieve various milestones.

OIL AND GAS TERMS

The Company uses the following frequently recurring oil and gas industry terms in the news release:

Disclosure provided herein in respect of a boe may be misleading, particularly if used in isolation. A boe conversion rate of six thousand cubic feet of natural gas to one barrel of oil equivalent has been used for the calculation of boe amounts in the news release. This boe conversion rate is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

NON-GAAP AND OTHER FINANCIAL MEASURES

This news release refers to certain measures that are not determined in accordance with IFRS (or "GAAP"). These non-GAAP and other financial measures do not have any standardized meaning prescribed under IFRS and therefore may not be comparable to similar measures presented by other entities. The non-GAAP and other financial measures should not be considered alternatives to, or more meaningful than, financial measures that are determined in accordance with IFRS as indicators of the Company's performance. Management believes that the presentation of these non-GAAP and other financial measures provides useful information to shareholders and investors in understanding and evaluating the Company's ongoing operating performance, and the measures provide increased transparency to better analyze the Company's performance against prior periods on a comparable basis.

Non-GAAP Financial Measures

_Adjusted funds flow (used) _Management uses adjusted funds flow (used) to analyze performance and considers it a key measure as it demonstrates the Company's ability to generate the cash necessary to fund future capital investments and abandonment obligations and to repay debt, if any. Adjusted funds flow (used) is a non-GAAP financial measure and has been defined by the Company as cash flow from (used in) operating activities excluding the change in non-cash working capital related to operating activities, movements in restricted cash deposits and expenditures on decommissioning obligations. Management believes the timing of collection, payment or incurrence of these items involves a high degree of discretion and as such may not be useful for evaluating the Company's cash flows. Adjusted funds flow (used) is reconciled from cash flow from (used in) in operating activities as follows:

| | Three Months Ended June 30 | Six Months Ended June 30 | | | | ($000s) | 2023 | 2022 | 2023 | 2022 | | Cash flow from (used in) operating activities | 765 | (1,713) | (1,277) | (2,373) | | Add (deduct): | | | | | | Decommissioning expenditures | 210 | 24 | 752 | 179 | | Restricted cash deposits | (1,237) | 1,628 | (784) | 1,628 | | Change in non-cash working capital | (494) | 83 | (1) | 115 | | Adjusted funds flow (used) (non-GAAP) | (756) | 22 | (1,310) | (451) |

_Net transportation expenses _Management considers net transportation expenses an important measure as it demonstrates the cost of utilized transportation related to the Company's production. Net transportation expenses is calculated as transportation expenses less unutilized transportation and is calculated as follows:

| | Three Months Ended June 30 | Six Months Ended June 30 | | | | ($000s) | 2023 | 2022 | 2023 | 2022 | | Transportation expenses | 318 | 184 | 596 | 317 | | Unutilized transportation | (139) | - | (248) | - | | Net transportation expenses (non-GAAP) | 179 | 184 | 348 | 317 |

_Operating netback _Management considers operating netback an important measure as it demonstrates its profitability relative to current commodity prices. Operating netback is calculated as oil and natural gas sales less royalties, operating expenses, and net transportation expenses and is calculated as follows:

| | Three Months Ended June 30 | Six Months Ended June 30 | | | | ($000s) | 2023 | 2022 | 2023 | 2022 | | Oil and natural gas sales | 826 | 2,334 | 1,780 | 4,022 | | Royalties | (203) | (681) | (471) | (1,130) | | Operating expenses | (458) | (469) | (899) | (909) | | Net transportation expenses | (179) | (184) | (348) | (317) | | Operating netback (loss) (non-GAAP) | (14) | 1,000 | 62 | 1,666 |

_Capital expenditures _Coelacanth utilizes capital expenditures as a measure of capital investment on property, plant, and equipment, exploration and evaluation assets and property acquisitions compared to its annual budgeted capital expenditures. Capital expenditures are calculated as follows:

| | Three Months Ended June 30 | Six Months Ended June 30 | | | | ($000s) | 2023 | 2022 | 2023 | 2022 | | Capital expenditures – property, plant, and equipment | 3,022 | 693 | 6,559 | 711 | | Capital expenditures – exploration and evaluation assets | 620 | 177 | 2,222 | 456 | | Capital expenditures (non-GAAP) | 3,642 | 870 | 8,781 | 1,167 |

Capital Management Measures

_Adjusted working capital _Management uses adjusted working capital as a measure to assess the Company's financial position. Adjusted working capital is calculated as current assets and restricted cash deposits less current liabilities, excluding the current portion of decommissioning obligations.

| ($000s) | June 30, 2023 | December 31, 2022 | | Current assets | 51,956 | 67,938 | | Less: | | | | Current liabilities | (2,696) | (8,901) | | Working capital | 49,260 | 59,037 | | Add: | | | | Restricted cash deposits | 6,666 | 7,389 | | Current portion of decommissioning obligations | 574 | 1,312 | | Adjusted working capital (Capital management measure) | 56,500 | 67,738 |

Non-GAAP Financial Ratios

_Adjusted Funds Flow (Used) per Share _Adjusted funds flow (used) per share is a non-GAAP financial ratio, calculated using adjusted funds used and the same weighted average basic and diluted shares used in calculating net loss per share.

_Net transportation expenses per boe _The Company utilizes net transportation expenses per boe to assess the per unit cost of utilized transportation related to the Company's production. Net transportation expenses per boe is calculated as net transportation expenses divided by total production for the applicable period.

_Operating netback per boe _The Company utilizes operating netback per boe to assess the operating performance of its petroleum and natural gas assets on a per unit of production basis. Operating netback per boe is calculated as operating netback divided by total production for the applicable period.

Supplementary Financial Measures

The supplementary financial measures used in this news release (primarily average sales price per product type and certain per boe and per share figures) are either a per unit disclosure of a corresponding GAAP measure, or a component of a corresponding GAAP measure, presented in the financial statements. Supplementary financial measures that are disclosed on a per unit basis are calculated by dividing the aggregate GAAP measure (or component thereof) by the applicable unit for the period. Supplementary financial measures that are disclosed on a component basis of a corresponding GAAP measure are a granular representation of a financial statement line item and are determined in accordance with GAAP.

PRODUCT TYPES

The Company uses the following references to sales volumes in the news release:

_Natural gas_refers to shale gas _Oil and condensate_refers to condensate and tight oil combined _Other NGLs_refers to butane, propane and ethane combined _Oil and NGLs_refers to tight oil and NGLs combined Oil equivalentrefers to the total oil equivalent of shale gas, tight oil, and NGLs combined, using the conversion rate of six thousand cubic feet of shale gas to one barrel of oil equivalent as described above.

The following is a complete breakdown of sales volumes for applicable periods by specific product types of shale gas, tight oil, and NGLs:

| | Three Months Ended June 30 | Six Months Ended June 30 | | | | Sales Volumes by Product Type | 2023 | 2022 | 2023 | 2022 | | | | | | | | Condensate (bbls/d) | 6 | 9 | 7 | 10 | | Other NGLs (bbls/d) | 14 | 16 | 14 | 19 | | NGLs (bbls/d) | 20 | 25 | 21 | 29 | | | | | | | | Tight oil (bbls/d) | 47 | 61 | 42 | 60 | | Condensate (bbls/d) | 6 | 9 | 7 | 10 | | Oil and condensate (bbls/d) | 53 | 70 | 49 | 70 | | Other NGLs (bbls/d) | 14 | 16 | 14 | 19 | | Oil and NGLs (bbls/d) | 67 | 86 | 63 | 89 | | | | | | | | Shale gas (mcf/d) | 1,321 | 1,676 | 1,350 | 1,713 | | Natural gas (mcf/d) | 1,321 | 1,676 | 1,350 | 1,713 | | | | | | | | Oil equivalent (boe/d) | 287 | 365 | 288 | 375 |

FORWARD-LOOKING INFORMATION

This document contains forward-looking statements and forward-looking information within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "may", "will", "should", "believe", "intends", "forecast", "plans", "guidance" and similar expressions are intended to identify forward-looking statements or information.

More particularly and without limitation, this news release contains forward-looking statements and information relating to the Company's oil and condensate, other NGLs, and natural gas production, capital programs, and adjusted working capital. The forward-looking statements and information are based on certain key expectations and assumptions made by the Company, including expectations and assumptions relating to prevailing commodity prices and exchange rates, applicable royalty rates and tax laws, future well production rates, the performance of existing wells, the success of drilling new wells, the availability of capital to undertake planned activities, and the availability and cost of labour and services.