Copper Giant Resources Corp. press release

PetroShale Announces Year End 2020 Financial Results and Reserves and Provides 2021 Guidance

2021-03-23

TSXV - TSX Venture Exchange · Copper · Molybdenum · Gold · Silver · Zinc · Lead · Canada

Canada NewsWire

CALGARY, AB , March 23, 2021 /CNW/ - PetroShale Inc. ("PetroShale" or the "Company") (TSXV: PSH) (OTCQB: PSHIF) is pleased to announce its audited financial and operating results for the three and twelve month periods ended December 31, 2020 , and details of its independent corporate reserves evaluation prepared by Netherland, Sewell & Associates, Inc. ("NSAI") with an effective date of December 31, 2020 (the "NSAI Report").

The Company's audited consolidated financial statements and corresponding management's discussion and analysis (MD&A) for the periods will be available on SEDAR at www.sedar.com , on the OTC website at www.otcmarkets.com , and on PetroShale's website at www.petroshaleinc.com . Copies of the materials can also be obtained upon request without charge by contacting the Company directly. Please note, currency figures presented herein are reflected in Canadian dollars, unless otherwise noted.

FINANCIAL AND OPERATING HIGHLIGHTS

Fourth quarter production averaged 12,205 barrels of oil equivalent per day ("Boe/d") and remained stable relative to both the third quarter of 2020 and the comparative period in 2019. Average full year production totaled 12,928 Boe/d which was above guidance and approximately 50% higher than 2019, despite reduced capital spending during 2020. Revenue from petroleum and natural gas totaled $143.5 million in 2020, despite 35% lower realized crude oil prices compared to 2019. In the fourth quarter of 2020 the Company generated revenue of $37.3 million compared to $60.6 million in the comparative period of 2019 with similar production levels but lower realized crude prices. Adjusted EBITDA 1 totaled $15.2 million ( $0.08 per fully diluted share) in the fourth quarter of 2020, while full year Adjusted EBITDA 1 was $58.7 million ( $0.30 per fully diluted share). Operating netback prior to hedging was $17.69 per Boe in the fourth quarter of 2020 and averaged $14.56 per Boe for calendar 2020. Total per unit operating expense decreased 10% to $7.09 per Boe in the fourth quarter of 2020 and 16% to $7.80 per Boe in calendar 2020 from the comparable periods in 2019, due primarily to reduced per unit production taxes associated with lower crude oil prices. Net general and administrative ("G&A") expense per Boe remained low at $1.42 in the fourth quarter of 2020 and $1.14 in calendar 2020, reflecting lower gross G&A, slightly offset by lower overhead recoveries and capitalized G&A as a result of reduced capital activity. Net capital expenditures totaled $2.7 million in the fourth quarter and $35.2 million in 2020, largely directed to the completion of 3.2 net non-operated wells. Capital expenditures in 2020 reflect the Company's prudent decision to minimize discretionary expenditures and preserve long-term value by deferring capital spending during weak commodity markets. Net debt 2 was reduced by approximately $3 million in 2020 relative to year end 2019, exiting the year at approximately $327 million at December 31, 2020 . Subsequent to year end, PetroShale announced the recapitalization transaction which sets the stage for long-term resilience, financial flexibility and greatly enhanced liquidity. PetroShale posted strong capital efficiencies in 2020, including FD&A 3 costs on proved developed producing reserves ("PDP") of $7.33 /Boe (40% lower than 2019), $3.52 /Boe on total proved reserves ("1P") (72% lower than 2019), and negative proved plus probable reserves ("2P") FD&A costs of ($0.39) /Boe 4 . F&D 3 costs reflected similar year-over-year declines, averaging $7.33 /Boe on PDP, $3.69 /Boe on 1P reserves and were negative for 2P reserves at ($0.41) /Boe 4 . These compare favourably to PetroShale's three-year average capital efficiencies, with FD&A 3 at $11.15 /Boe for PDP reserves, $14.60 /Boe for 1P reserves, $11.05 /Boe for 2P reserves while F&D 3 was $11.76 /Boe for PDP reserves, $15.19 /Boe for 1P reserves and $8.81 /Boe for 2P reserves. FD&A recycle ratios 3 were 2.0 times for PDP and 4.1 times on a 1P basis based on PetroShale's annual operating netback 2 prior to hedging of $14.56 /Boe. In November 2020 , PetroShale's senior lenders agreed to reaffirm the amount of the existing borrowing capacity of US$177.5 million . As described in the Recapitalization Transaction section below, the Company's lenders have recently agreed to reaffirm the borrowing base at US$177.5 million , and further extend the maturity date of the facility. Net loss totaled $12.4 million ( $0.07 per fully diluted share) in the fourth quarter, and was $62.0 million ( $0.33 per fully diluted share) through 2020, reflecting lower realized crude oil prices year-over-year and a related asset impairment of $24.0 million recorded in the first quarter of 2020. The Board has approved a 2021 capital budget range between $50 and $60 million , with the ultimate amount being dependent on commodity price strength, which is anticipated to result in average 2021 production between 10,500 and 11,500 Boe/d.

| _ | | | 1 | Non-IFRS Measure. See "Information Regarding Disclosure on Oil and Gas Reserves and Non-IFRS Measures" within this press release. | | 2 | Non-IFRS Measure. See "Information Regarding Disclosure on Oil and Gas Reserves and Non-IFRS Measures" within this press release. | | 3 | "Finding and Development costs" or "F&D costs", "Future Development Capital ("FDC")", "Finding, Development and Acquisitions costs" or "FD&A costs", "recycle ratio", and "reserve life indices" or "RLI" do not have standardized meanings. See "Information Regarding Disclosure on Oil and Gas Reserves and Operational Information" contained in this news release. | | 4 | A negative finding cost occurs when the reduction in FDC is greater than the capital spent in that year, for a given reserve category. |

SUBSEQUENT EVENT – RECAPITALIZATION TRANSACTION

On March 4, 2021 PetroShale announced a transformational recapitalization transaction designed to significantly improve the Company's financial flexibility and sustainability (the "Transaction"). By way of a Private Placement to the Company's two largest shareholders and a rights offering to the remaining common shareholders (the "Rights Offering"), the Company will raise a minimum of $30.0 million and up to $60.6 million of new common equity. These proceeds will be directed to the reduction of outstanding bank indebtedness and to substantially increase the Company's financial flexibility.

Additionally, the Company's outstanding preferred shares (the "Preferred Shares") will be converted to common shares of PetroShale at a significant premium to the current trading price of the common shares, thereby eliminating the payment of approximately $10 million in preferred dividends annually and eliminating the repayment obligation of US$86.9 million due in January 2023 . The conversion of the preferred shares will also meaningfully simplify the Company's capital structure.

PetroShale also reached an agreement in principle with the Company's lenders under its senior secured credit facility to maintain the borrowing base at US$177 .5MM for at least the next fourteen months and extend the tenure of the credit agreement to June 2023 , further enhancing the Company's liquidity.

Eligible common shareholders who elect to exercise their allocated rights under the Rights Offering at a price of $0.20 per share are also able to supplement their acquisition of common shares by exercising additional rights over and above their base allotment (at one right per share) at the same price of $0.20 per share. PetroShale's share price was $0.25 at close of trading on March 12, 2021 .

FINANCIAL & OPERATING REVIEW

| | Three months ended | Twelve months ended | | | | FINANCIAL (in thousands, except per share & share data) | December 31, 2020 | December 31, 2019 | December 31, 2020 | December 31, 2019 | | Petroleum and natural gas revenue | $ 37,268 | $ 60,569 | $ 143,506 | $ 165,258 | | Cash flow from operating activities | 13,326 | 28,933 | 69,991 | 78,536 | | Net income (loss) | (12,417) | 9,608 | (61,985) | 15,327 | | Per share - diluted | (0.07) | 0.05 | (0.33) | 0.08 | | Adjusted EBITDA (1) | 15,204 | 35,566 | 58,726 | 91,487 | | Capital expenditures | $ 2,743 | $ 65,565 | $ 35,174 | $ 236,703 | | Net debt (1) | | | 326,906 | 330,029 | | Common shares outstanding | | | | | | Weighted average – basic | 188,459,513 | 191,940,018 | 188,240,502 | 191,920,373 | | Weighted average – diluted | 196,626,613 | 194,943,184 | 196,407,602 | 194,395,182 |

| (1) | Non-IFRS Measure. See " _Information Regarding Disclosure on Oil and Gas Reserves and Non-IFRS Measures" _within this press release |

| | Three months ended | Twelve months ended | | | | | | December 31, 2020 | December 31, 2019 | December 31, 2020 | December 31, 2019 | | | OPERATING | | | | | | | Daily production volumes (2) | | | | | | | Tight oil (Bbl/d) | 7,814 | 9,613 | 8,836 | 6,538 | | | Shale gas (Mcf/d) | 12,772 | 8,470 | 11,870 | 6,716 | | | NGLs (Bbl/d) | 2,262 | 1,148 | 2,113 | 1,023 | | | Barrels of oil equivalent (Boe/d) | 12,205 | 12,173 | 12,928 | 8,680 | | | | | | | | | | Average realized prices (2) | | | | | | | Tight oil ($/Bbl) | $ 52.30 | $ 68.98 | $ 45.73 | $ 69.89 | | | Shale gas ($/Mcf) | 2.52 | 2.35 | 1.75 | 2.45 | | | NGLs ($/Bbl) | 12.67 | 12.71 | 8.50 | 10.65 | | | | | | | | | | Operating netback ($/Boe) (1) (2) | | | | | | | Revenue | $ 33.19 | $ 54.08 | $ 30.33 | $ 51.91 | | | Royalties | (5.97) | (10.43) | (5.55) | (10.25) | | | Realized loss on derivatives | (2.73) | - | (1.00) | - | | | Lease operating costs | (3.78) | (3.78) | (4.59) | (4.16) | | | Workover expense | (0.78) | (0.52) | (0.75) | (1.03) | | | Production taxes | (2.53) | (4.21) | (2.46) | (4.10) | | | Transportation expense | (2.44) | (2.35) | (2.42) | (2.32) | | | Operating netback (1) | $ 14.96 | $ 32.79 | $ 13.56 | $ 30.05 | | | Operating netback prior to hedging (1) | $ 17.69 | $ 32.79 | $ 14.56 | $ 30.05 | | | | | | | | |

| (1) | Non-IFRS Measure. See " _Information Regarding Disclosure on Oil and Gas Reserves and Non-IFRS Measures" _within this press release | | (2) | See " _Oil and Gas Advisories" _within this press release |

APPOINTMENT OF CHIEF OPERATING OFFICER AND SENIOR VP, CORPORATE DEVELOPMENT

PetroShale is pleased to announce the appointment of Mr. Richard Kessy as Chief Operating Officer and Mr. Tony Izzo as Senior Vice President, Corporate Development, effective March 23, 2021 . Mr. Kessy's responsibilities include providing operational and commercial leadership of PetroShale's production and development business, while Mr. Izzo's responsibilities will expand to focus on the development of future growth opportunities. The announcement comes as PetroShale progresses toward a comprehensive recapitalization to reposition and enhance its business prospects going forward and to unlock value within the Company's top tier Bakken inventory.

"Mr. Kessy's breadth of industry knowledge and operating, engineering and development experience in the oil and gas industry will help us advance our corporate priorities," said Jacob Roorda , President and CEO of PetroShale. "Meanwhile, Mr. Izzo's strong technical background, knowledge of PetroShale's business, and understanding of the competitive landscape in the Bakken will support and advance our existing and future business plans and strategies. We are pleased to welcome Mr. Kessy and Mr. Izzo to their new roles and look forward to their leadership."

Mr. Kessy has 38 years of upstream and midstream industry experience throughout the major North American oil and gas producing basins. Prior to joining PetroShale, Mr. Kessy was COO of a large Canadian Montney producer. Prior thereto, he was VP, Marcellus Business Unit, for a major international integrated producer, having also held management responsibilities for several western Canadian oil producing assets. Mr. Kessy has a BSc (Chemical Engineering) from the University of Saskatchewan and is a registered professional engineer with APEGA. Mr. Kessy will be based in PetroShale's Denver office.

Mr. Izzo has more than 30 years of combined engineering, operations and management experience in the upstream oil and gas industry, and has developed a deep knowledge of the North Dakota Bakken. Mr. Izzo has been Vice President of Engineering & Business Development at PetroShale since November 2013 , and his prior experience ranges from senior technical and management positions with several US and Canadian energy companies, to being a founder of start-up oil and gas entities.

2020 YEAR-END RESERVES

The reserves data in this press release is based upon an evaluation by NSAI and summarizes PetroShale's crude oil, natural gas and NGL reserves and the net present value of future net revenue for these reserves using forecast prices and costs. All references to reserves are to gross Company reserves, meaning PetroShale's working interest reserves before consideration of royalty interests. The reserve report has been prepared in accordance with the standards contained in the COGE Handbook and the reserve definitions contained in National Instrument 51–101 ("NI 51-101") and CSA Staff Notice 51–324. No attempt was made to evaluate possible reserves.

2020 RESERVES HIGHLIGHTS

With limited capital expenditures during the year, PetroShale modestly increased 2P reserves, and maintained stability in 1P and PDP reserves, as a result of the quality and predictability of the Company's assets across the portfolio. PetroShale's 2020 estimated before tax net present value of future net revenue discounted at 10% ("NPV10") of its various reserves categories at December 31, 2020 reflects a weaker commodity price forecast within the NSAI Report relative to 2019. PetroShale's reserves NPV10 estimates as at December 31, 2020 are $345.2 million on a PDP basis, $605.8 million on a 1P basis, and $784.4 million on a 2P basis 5 . PetroShale posted strong capital efficiencies in 2020, including FD&A 7 costs on PDP reserves of $7.33 /Boe (40% lower than 2019), $3.52 /Boe on 1P reserves (72% lower than 2019), and negative 2P reserves FD&A costs of ($0.39) /Boe 6 . F&D 7 costs reflected similar year-over-year declines, averaging $7.33 /Boe on PDP reserves, $3.69 /Boe on 1P reserves and were negative for 2P reserves at ($0.41) /Boe 6 . FD&A recycle ratios 7 were 2.0 times for PDP and 4.1 times on a 1P basis based on PetroShale's unaudited annual operating netback 8 prior to hedging of $14.56 /Boe. The reserve additions and capital efficiencies realized by the Company in 2020 are a reflection of the value creation potential within PetroShale's Bakken core area, evidenced by the ability to maintain stable reserve volumes year over year, while committing limited capital and achieving top quartile finding costs. At year end 2020, PetroShale had a reserve life index ("RLI") 7 of approximately 16.2 years on a 2P basis and 12.8 years on a 1P basis, (based on annualized fourth quarter 2020 average production of 12,205 Boe/d). PetroShale's year end 2020 2P reserves were 87% tight oil and natural gas liquids, and 1P reserves were 87% tight oil and natural gas liquids, positioning the Company with strong torque to crude oil prices.

All finding and development ("F&D") 7 and finding, development and acquisition ("FD&A") 7 costs referred to herein include changes in future development capital ("FDC"). Additional details of the NSAI Report will be available in the Company's 2020 Annual Information Form, which will be posted on SEDAR at www.sedar.com , on the OTC website at www.otcmarkets.com and on PetroShale's website at www.petroshaleinc.com . Copies of the materials can also be obtained upon request without charge by contacting the Company directly. Please note, currency figures presented herein are reflected in Canadian dollars, unless otherwise noted.

| _ | | | 5 | Values have been converted to Canadian dollars using the year end 2020 exchange rate of US$1.00 = Cdn$1.2725. | | 6 | A negative finding cost occurs when the reduction in FDC is greater than the capital spent in that year, for a given reserve category. | | 7 | "Finding and Development costs" or "F&D costs", "Future Development Capital" or "FDC", "Finding, Development and Acquisitions costs" or "FD&A costs", "recycle ratio", and "reserve life indices" or "RLI" do not have standardized meanings. See "Information Regarding Disclosure on Oil and Gas Reserves and Operational Information" contained in this news release. | | 8 | Non-IFRS Measure. See "Information Regarding Disclosure on Oil and Gas Reserves and Non-IFRS Measures" within this press release. |

| | Reserves | | | | | | | | | | | Tight Oil | Natural Gas Liquids (2) | Shale Gas (2) | BOE | | | | | | | | Gross | Net | Gross | Net | Gross | Net | Gross | Net | | | Reserves Category | (Mbbl) | (Mbbl) | (Mbbl) | (Mbbl) | (Mmcf) | (Mmcf) | (MBoe) | (MBoe) | | | PROVED: | | | | | | | | | | | | Developed Producing | 17,187.8 | 14,033.3 | 4,355.0 | 3,560.2 | 23,777.8 | 19,351.0 | 25,505.8 | 20,818.7 | | | Developed Non-Producing | 391.0 | 324.5 | 62.8 | 52.8 | 298.0 | 250.0 | 503.5 | 419.0 | | | Undeveloped | 23,420.5 | 19,196.2 | 3,893.9 | 3,199.4 | 21,224.3 | 17,340.2 | 30,851.8 | 25,285.6 | | TOTAL PROVED | 40,999.3 | 33,554.0 | 8,311.7 | 6,812.5 | 45,300.2 | 36,941.2 | 56,861.0 | 46,523.4 | | | PROBABLE | 10,771.8 | 8,751.0 | 2,455.7 | 2,004.3 | 13,334.4 | 10,839.5 | 15,450.0 | 12,561.9 | | | TOTAL PROVED PLUS PROBABLE | 51,771.2 | 42,304.9 | 10,767.4 | 8,816.8 | 58,634.6 | 47,780.6 | 72,311.0 | 59,085.1 | |

| Notes: | | | (1) | Columns may not add due to rounding. | | (2) | All of our shale gas and natural gas liquids reserves are produced in solution with our tight oil. The natural gas liquid reserves are recovered from our natural gas reserves downstream of the wellhead. |

Net Present Value of Future Net Revenue

| | Before Income Taxes Discounted at (%/year) | | | | | | | | 0% | 5% | 10% | 15% | 20% | | | Reserves Category | ($000s) | ($000s) | ($000s) | ($000s) | ($000s) | | | PROVED: | | | | | | | | | Developed Producing | 608,211.9 | 440,161.9 | 345,195.1 | 285,814.8 | 245,637.9 | | | Developed Non-Producing | 9,562.1 | 7,054.0 | 5,419.8 | 4,312.8 | 3,532.8 | | | Undeveloped | 662,207.0 | 394,836.0 | 255,147.6 | 173,984.7 | 122,947.9 | | TOTAL PROVED | 1,279,980.9 | 842,052.1 | 605,762.6 | 464,112.3 | 372,118.7 | | | PROBABLE | 448,228.1 | 265,854.5 | 178,618.9 | 130,602.1 | 101,290.2 | | | TOTAL PROVED PLUS PROBABLE | 1,728,209.0 | 1,107,906.6 | 784,381.5 | 594,714.5 | 473,408.9 | |

Net Present Value of Future Net Revenue ($US)

| | Before Income Taxes Discounted at (%/year) | | | | | | | | 0% | 5% | 10% | 15% | 20% | | | Reserves Category | ($US 000s) | ($US 000s) | ($US 000s) | ($US 000s) | ($US 000s) | | | PROVED: | | | | | | | | | Developed Producing | 477,966.1 | 345,903.3 | 271,273.2 | 224,608.9 | 193,035.7 | | | Developed Non-Producing | 7,514.4 | 5,543.4 | 4,259.2 | 3,389.2 | 2,776.3 | | | Undeveloped | 520,398.4 | 310,283.7 | 200,508.9 | 136,726.7 | 96,619.2 | | TOTAL PROVED | 1,005,878.9 | 661,730.5 | 476,041.3 | 364,724.8 | 292,431.2 | | | PROBABLE | 352,242.1 | 208,923.0 | 140,368.5 | 102,634.3 | 79,599.4 | | | TOTAL PROVED PLUS PROBABLE | 1,358,121.0 | 870,653.5 | 616,409.8 | 467,359.1 | 372,030.6 | |

As a reporting issuer in Canada , PetroShale is required to report its reserves and NPV10 using forecast pricing and costs, as stipulated under NI 51-101. The forecast prices reflected in the NPV10 are included in the Company's 2020 Annual Information Form, which will be filed on SEDAR and posted to the Company's website, and are based on an average of the prices decks from GLJ Ltd, Sproule Associates Limited and McDaniel & Associates Consultants Ltd.

Reserves Reconciliation

| | Total (MBoe) | | | | | Total Proved | Probable | Total Proved Plus Probable | | December 31, 2019 | 57,451.0 | 13,016.3 | 70,467.3 | | Discoveries | - | - | - | | Extensions and Improved Recovery | - | - | - | | Technical Revisions (1) | 4,810.0 | 2,682.1 | 7,492.1 | | Acquisitions (2) | 209.6 | 68.9 | 278.6 | | Dispositions | - | - | - | | Economic Factors | (877.9) | (317.4) | (1,195.3) | | Production | (4,731.7) | - | (4,731.7) | | December 31, 2020 | 56,861.0 | 15,450.0 | 72,311.0 |