Highwood Asset Management Ltd. press release

HIGHWOOD ASSET MANAGEMENT LTD. ANNOUNCES FOURTH QUARTER AND FULL-YEAR 2023 RESULTS, 2023 YEAR-END RESERVES ALONG WITH STRONG OPERATIONAL UPDATE DELIVERING CURRENT PRODUCTON > 6,500 BOE/D

2024-04-16

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

Canada NewsWire

/NOT FOR DISSEMINATION IN THE U.S. OR THROUGH U.S. NEWSWIRES/

CALGARY, AB , April 16, 2024 /CNW/ - Highwood Asset Management Ltd. (" Highwood " or the " Company ") (TSXV: HAM) is pleased to announce financial and operating results for the three and twelve months ended December 31, 2023 and to provide the results of its independent oil and gas reserves evaluation as of December 31, 2023 , prepared by GLJ Petroleum Consultants Ltd. (" GLJ "). The Company also announces that its audited financial statements and associated Management's Discussion and Analysis (" MD&A ") for the year ended December 31, 2023 , are available on Highwood's website at www.highwoodmgmt.com and on SEDAR+ at www.sedarplus.ca .

[](https://mma.prnewswire.com/media/2388079/HIGHWOOD_ASSET_MANAGEMENT_LTDHIGHWOOD_ASSET_MANAGEMENT_LTDAN.html)

Highlights

Achieved record corporate production of 4,035 boe/d in the fourth quarter of 2023. As a result of an effective capital program in the fourth quarter of 2023 and early 2024, first quarter 2024 production is expected to average approximately 4,900 boe/d and current production is greater than 6,500 boe/d.

During the first quarter of 2024, the Company executed a successful capital program of approximately $24 million , which included five additional wells, all of which were brought onstream in the first quarter. These five wells consisted of three fracture stimulated wells at Wilson Creek and two additional multi-lateral open hole wells, one in Brazeau and one in the Mannville horizon in eastern Alberta .

The Company is encouraged by the initial results on the capital program executed to date in 2024, particularly with respect to the Wilson Creek wells, 100/12-05-043-05 (the " 12-05 well "), 100/13-05-043-05 (the " 13-05 well "), and the Brazeau well 02/08-33-047-14W5 (the " 08-33 well "). Trailing and current production for the five wells drilled in the first quarter of 2024 are summarized below:

| | | | Average Rate Since Online | Current Rate | | | | | | | | | | Well | Spud | Rig Release | BOPD | BNGLD | MCFD | BOED | BOPD | BNGLD | MCFD | BOED | Days Online | | | Brazeau 08-33 well | 2024-02-18 | 2024-03-03 | 310 | 6 | 127 | 337 | 393 | 8 | 180 | 431 | 30 | | | Wilson 13-05 well | 2024-01-24 | 2024-02-02 | 262 | 15 | 172 | 306 | 611 | 41 | 470 | 731 | 13 | | | Wilson 12-05 well | 2024-02-03 | 2024-02-15 | 241 | 14 | 159 | 282 | 518 | 41 | 467 | 637 | 12 | | | Wilson 16-33 well | 2024-01-06 | 2024-01-13 | 187 | 37 | 314 | 276 | 242 | 55 | 472 | 376 | 54 | | | Viking 14-29 well | 2024-02-06 | 2024-02-20 | 28 | 0 | 0 | 28 | 37 | 0 | 0 | 36 | 24 | | | | | | | | | | | | | | | |

| (1) | The test results are not necessarily indicative of long-term performance or of ultimate recovery. |

The five wells had associated average cycles times of 45 days and delivered capital efficiencies of less than $20,000 boe/d, an improvement of more than 20% versus the previous forecast. Significant intrinsic value recognized in Year-End 2023 Reserves. Realized before-tax net present value, after debt, of booked reserves (1) : PDP BTNPV10 of $218.9 million representing NAV $8.06 /share and $7.93 /share fully diluted. Associated RLI of 10.8 years and delivered a recycle ratio of 2.34

1P BTNPV10 of $463.6 million representing NAV $24.25 /share and $21.07 /share fully diluted. Associated RLI of 15.2 years and recycle ratio of 2.9

2P BTNPV10 of $746.9 million representing NAV $43.00 /share and $36.28 /share fully diluted. Associated RLI of 21.8 years and recycle ratio of 3.6

At December 31, 2023 , Highwood had over $300 million in tax pools, including more than $100 million in non-capital losses. Highwood does not anticipate being cash taxable for approximately three years. Highwood reiterates its 2024 production guidance of approximately 5,200 boe/d. Representing year-over-year growth of ‎approximately 25%. Forecast capital expenditures are estimated to be approximately $40–45 million. Further, the Company expects to reduce Net Debt by approximately 25%, reducing Net Debt / ‎‎2024E EBITDA to under 0.8x by the end of 2024. (1)(2) _. _The Company will continue to evaluate our capital program, market conditions and associated guidance over the next 30 days.

| Notes to Highlights: | | | (1) | See ‎"Caution Respecting Reserves Information"‎ and ‎‎"Non-GAAP and other Specified Financial Measures"‎. | | (2) | Based on Management's projections (not Independent Qualified Reserves Evaluators' forecasts) and applying the following pricing ‎assumptions: WTI: ‎‎US$78.00/bbl; ‎‎WCS Diff: ‎US$14.00/bbl; MSW Diff: ‎‎US$4.00/bbl; AECO: C$1.90/GJ; 0.74 CAD/USD‎. Management ‎projections are used in place of Independent Qualified Reserves Evaluators' ‎‎‎forecasts as Management believes it provides investors with valuable ‎‎information concerning the liquidity of the Company.‎ |

Summary of Financial & Operating Results

| | Three months ended December 31, | | Year ended December 31, | | | | | | | | | 2023 | | 2022 | % | | 2023 | | 2022 | % | | Financial (in thousands) | | | | | | | | | | | Petroleum and natural gas sales | $ 23,633 | $ | $ 1,027 | 2,201 | | $ 41,212 | | $ 4,438 | 829 | | Transportation pipeline revenues | 757 | | 769 | (2) | | 2,867 | | 3,255 | (12) | | Total revenues, net of royalties (1) | 28,918 | | 1,827 | 1,483 | | 41,038 | | 6,618 | 520 | | Income | 47,785 | | 62 | 76,973 | | 46,144 | | 2,246 | 1,954 | | Funds flow from operations (5) | 7,813 | | 433 | 1,704 | | 13,873 | | 1,519 | 813 | | Adjusted EBITDA (6) | 10,261 | | 322 | 3,087 | | 17,667 | | 1,608 | 999 | | Capital expenditures | 14,737 | | 362 | 3,971 | | 18,767 | | 2,045 | 818 | | Net debt (2) | | | | | | 97,051 | | (236) | - | | Shareholder's equity (end of period) | | | | | | 104,199 | | 10,697 | 874 | | Shares outstanding (end of period) | | | | | | 15,114 | | 6,037 | 150 | | Weighted-average basic shares | | | | | | 9,723 | | 6,088 | 60 | | outstanding | | | | | | | | | | | | | | | | | | | | | | Operations (3) | | | | | | | | | | | Production | | | | | | | | | | | Crude oil (bbls/d) | 2,306 | | 119 | 1,830 | | 978 | | 113 | 765 | | NGLs (boe/d) | 526 | | - | 100 | | 210 | | - | 100 | | Natural gas (mcf/d) | 7,215 | | - | 100 | | 2,696 | | - | 100 | | Total (boe/d) | 4,035 | | 119 | 3,278 | | 1,682 | | 113 | 1,388 | | Average realized prices (4) | | | | | | | | | | | Crude oil (Cdn$/bbl) | 95.07 | | 93.44 | 2 | | 99.44 | | 107.54 | (8) | | NGL (Cdn$/boe) | 36.22 | | - | 100 | | 37.52 | | - | 100 | | Natural gas (Cdn$/mcf) | 2.57 | | - | 100 | | 2.63 | | - | 100 | | Operating netback (per BOE) | 32.42 | | 40.40 | (20) | | 35.54 | | 46.28 | (23) |

| | | | (1) | Includes unrealized gain and losses on commodity contracts. | | (2) | Net debt consists of bank debt, promissory note, long-term accounts payable and accrued liabilities and working capital surplus (deficit) excluding commodity contract assets and/or liabilities, current portion of decommissioning liabilities and lease liabilities. | | (3) | For a description of the boe conversion ratio, see " _Basis of Barrel of Oil Equivalent _". | | (4) | Before hedging. | | (5) | See " _Non-GAAP and Other Specified Financial Measures _". |

The operating results of the three month and year ended December 31, 2023 include the impact of the Acquisitions from the closing date of August 3, 2023 .

2023 Reserves Summary

Highwood completed three acquisitions during 2023. The combined assets were evaluated by GLJ effective December 31, 2023 using the 3 Consultants' Average price forecast (the " Reserves Report "). GLJ is the Company's independent qualified reserves evaluator.

Significant intrinsic value recognized in Year-End 2023 Reserves. Realized before-tax net present value of booked reserves as follows:

PDP BTNPV10 of $218.9 million representing NAV $8.06 /share and $7.93 /share fully diluted. 1P BTNPV10 of $463.6 million representing NAV $24.25 /share and $21.07 /share fully diluted. 2P BTNPV10 of $746.9 million representing NAV $43.00 /share and $36.28 /share fully diluted.

Key highlights of the Company's proved developed producing (PDP), total proved (1P) and total proved plus probable (2P) reserves from the Reserves Report are highlighted below:

PDP reserves increased by 3,939 Mboe to 15,988 Mboe, representing a 24% (30% net of production) increase to volume along with a $32.8 million increase in value when compared to YE2022 (inclusive of acquisitions) yielding a RLI of 10.8 years 1P reserves increased by 8,861 Mboe to 31,847 Mboe, representing a 34% increase to volume along with a $168.8 million increase in value when compared to YE2022 (inclusive of acquisitions) yielding a RLI of 15.2 years 2P reserves increased by 11,805 Mboe to 52,699 Mboe, representing a 27% increase to volume along with a $221.7 million increase in value when compared to YE2022 (inclusive of acquisitions) yielding a RLI of 21.8 years

Strong Recycle Ratios — Highwood expects strong netbacks as a result of its highly economic oil plays, which result in the recycle ratios listed below:

PDP reserves: converted reserves in 2023 at F&D of $13.40 with associated recycle ratio of 2.34 based on fourth quarter of 2023 netback 1P reserves: F&D of $14.10 /boe with associated recycle ratio of 2.9. 2P reserves: F&D of $9.49 /boe with associated recycle ratio of 3.6.

Further recycle ratios are listed below:

| | F&D | FD&A | F&D | FD&A | | Recycle Ratio | (Excluding FDC) | (Including FDC) | | | | 1P Reserves | 9.4 | 7.0 | 0.7 | 2.9 | | 2P Reserves | 17.1 | 11.4 | 0.8 | 3.6 |

The Company has achieved early success in implementing multi-lateral open hole wells as well as higher frac intensity within the Belly River Horizon. The Company expects to apply these strategies to other areas of the asset base in 2024.

2023 Reserves by Category

The following table provides a summary of specific details from the Reserves Report, which was created in accordance with the procedures and standards contained in the Canadian Oil and Gas Evaluation Handbook and the requirements of National Instruments 51-101 — Standards of Disclosure for Oil and Gas Activities .

| | Mboe | BTNPV10 ($M) | | Proved Developed Producing | 15,988 | 218,888 | | Total Proved | 31,847 | 463,636 | | Proved Plus Probable | 52,699 | 746,943 |

Company Reserves

Mbbl | | Company Gross MMcf | | Company Net

Mboe | | Proved | | | | | | | | | | | | | | | | | | | | | | Producing | | 5,554 | | 4,445 | | 47,274 | | 39,183 | | 0 | | 0 | | 2,555 | | 1,960 | | 15,988 | | 12,936 | | Developed Non- Producing | | 498 | | 366 | | 4,147 | | 3,282 | | 0 | | 0 | | 247 | | 168 | | 1,436 | | 1,081 | | Undeveloped | | 9,168 | | 7,467 | | 19,026 | | 17,302 | | 2,087 | | 1,870 | | 1,737 | | 1,391 | | 14,423 | | 12,053 | | Total Proved | | 15,219 | | 12,278 | | 70,447 | | 59,767 | | 2,087 | | 1,870 | | 4,539 | | 3,519 | | 31,847 | | 26,069 | | Total Probable | | 8,994 | | 7,038 | | 44,148 | | 38,463 | | 2,574 | | 2,252 | | 4,071 | | 3,134 | | 20,852 | | 16,958 | | Total Proved Plus Probable | | 24,213 | | 19,316 | | 114,595 | | 98,230 | | 4,661 | | 4,122 | | 8,610 | | 6,653 | | 52,699 | | 43,028 |

Net Present Values for Future Net Revenues before Income Taxes Discounted at (% per year)

| | Net Present Values of Future Net Revenue Before Income Taxes Discounted At (%/year) | Net Present Values of Future Net Revenue After Income Taxes Discounted At (%/year) | Unit Value Before Income Tax Discounted at 10%/year | | | | | | | | | | | Reserves Category | 0% M$ | 5% M$ | 10% M$ | 15% M$ | 20% M$ | 0% M$ | 5% M$ | 10% M$ | 15% M$ | 20% M$ | $/boe | $/Mcfe | | Proved | | | | | | | | | | | | | | Producing | 377,105 | 275,266 | 218,888 | 183,743 | 159,731 | 362,229 | 269,152 | 216,089 | 182,360 | 159,006 | 16.92 | 2.82 | | Developed Non-Producing | 34,717 | 22,970 | 16,695 | 12,956 | 10,506 | 26,711 | 18,609 | 14,186 | 11,446 | 9,564 | 15.44 | 2.57 | | Undeveloped | 485,472 | 318,642 | 228,053 | 171,210 | 132,672 | 373,417 | 243,485 | 173,086 | 129,058 | 99,312 | 18.92 | 3.15 | | Total Proved | 897,293 | 616,878 | 463,636 | 367,909 | 302,909 | 762,357 | 531,247 | 403,362 | 322,864 | 267,883 | 17.78 | 2.96 | | Total Probable | 700,972 | 417,843 | 283,307 | 207,273 | 159,319 | 539,009 | 319,231 | 214,830 | 156,002 | 119,078 | 16.71 | 2.78 | | Total Proved Plus Probable | 1,598,266 | 1,034,720 | 746,943 | 575,182 | 462,228 | 1,301,366 | 850,478 | 618,193 | 478,866 | 386,961 | 17.36 | 2.89 |

| | | Note: Unit values are based on Company Net Reserves.‎ |

Operational Update

With the continued strong commodity prices in the fourth quarter and into 2024, the Company focused primarily on the execution of its capital program. Highwood achieved record corporate production in the fourth quarter of 2023 of 4,035 boe/d. Highwood is also pleased to announce that first quarter 2024 production is expected to average approximately 4,900 boe/d and current production is greater than 6,500 boe/d. During the first quarter of 2024, the Company executed a successful $24 million capital program which included five additional wells all of which were brought onstream in the first quarter. These five wells consisted of three fracture stimulated wells at Wilson Creek and two additional multi-lateral open hole wells, one in Brazeau and one in the Mannville horizon in eastern Alberta .

In the first quarter of 2024, the Company spud five additional new wells. Three of these wells will infill the western side of the Wilson Creek asset, the 103/16-33-042-05W5 (the " 16-33 well "), the 12-05 well and the 13-05 well. Further, the Company drilled two additional multi-lateral open hole wells, one in Brazeau, the 8-33 well and one in the Mannville horizon in eastern Alberta , 100/14-29-048-08W4 (the " 14-29 well "). The Company is pleased with the early results of the program. The 14-29 well has been online for approximately three weeks and is currently producing slightly below the projected type curve.

The Company will continue to review and assess opportunities which are accretive to the Company as Highwood seeks to grow this segment of its operations. The Company will also assess land offerings in strategic areas where the Company sees significant growth opportunities.

Outlook

Highwood anticipates allocating its organic Free Cash Flow after sustaining capital on a 50:50 basis to support organic production growth of approximately 25% while also expecting to reduce Net Debt by approximately 25%, achieving Net Debt / ‎‎2024E EBITDA of under 0.8x by the end of 2024. The Company will continue to evaluate our capital program, market conditions and associated guidance over the next 30 days.

The primary focus over the near-term is the execution of the Company's capital program and growth strategy while reducing the Company's Net Debt. At December 31, 2023 , Highwood had over $300 million in tax pools, including more than $100 million in non-capital losses. Highwood does not anticipate being cash taxable for approximately three years.

Corporately, the Company is dedicated to building a growing profile of Free Cash Flow, on a per share basis, while using prudent leverage to provide it maximum flexibility for organic growth and / or other strategic M&A opportunities, with a longer-term goal to provide significant return of capital to shareholders.

Highwood is continuing to evaluate its undeveloped lands for drilling opportunities and is planning to continue its active capital program while commodity prices remain strong.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Cautionary Note Regarding Forward-Looking Information

_This news release contains certain statements and information, including forward-looking statements within the meaning of the "safe harbor" provisions of applicable securities laws, and which are collectively referred to herein as "forward-looking statements". The forward-looking statements contained in this news release are based on Highwood's current expectations, estimates, projections and assumptions in light of its experience and its perception of historical trends. When used in this news release, the words ‎ _" _seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", ‎‎ _" could", "might", "should", "believe" and similar expressions, as they relate to Highwood or the Acquisitions, are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Actual operational and financial results may differ materially from Highwood's expectations contained in the forward-looking statements as a result of various factors, many of which are beyond the control of the Company.

Undue reliance should not be placed on these forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By its nature, forward-looking information involves numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur and may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Forward-looking statements may include, but are not limited to, statements with respect to:

the Company's expectations with respect to future operational results, including, but not limited to, estimated or anticipated production levels, exit rates, decline rates, recycle ratios, netbacks, capital expenditures and sources of funding thereof, drilling plans and other information discussed in this news release; the quantity of the Company's oil and natural gas reserves and anticipated future cash flows from such reserves; the Company's estimates of its drilling locations inventory, tax pools, non-capital losses and its expectation that it will not be cash taxable for approximately three years ; anticipated financial results of the Company, including but not limited to, 2024E EBITDA, Adjusted EBITDA, Free Cash Flow, and net debt; the Company's expectations regarding capacity of infrastructure associated with its business; the Company's expectations regarding commodity prices and costs; the Company's expectations regarding supply and demand for oil and natural gas; expectations regarding the Company's ability to raise capital and to continually add to reserves through acquisitions and development; treatment under governmental regulatory regimes and tax laws; fluctuations in depletion, depreciation, and accretion rates; expected changes in regulatory regimes in respect of royalty curves and regulatory improvements and the effects of such changes; and Highwood's business and acquisition strategy, the criteria to be considered in connection therewith and the benefits to be derived therefrom.

These forward-looking statements are not guarantees of future performance and are subject to a number of known and unknown risks and uncertainties that could cause actual events or results to differ materially, including, but not limited to:

operational risks and liabilities inherent in oil and natural gas operations; the accuracy of oil and gas reserves estimates and estimated production levels as they are affected by exploration and development drilling and estimated decline rates; the uncertainties in regard to the timing of Highwood's exploration and development program; failure to realize the anticipated benefits of acquisitions, including corresponding results and/or synergies; unexpected costs or liabilities related to acquisitions; volatility in market prices for oil and natural gas; adverse general economic, political and market conditions; incorrect assessments of the value of benefits to be obtained from acquisitions and exploration and development programs; unforeseen difficulties in integrating assets acquired through acquisitions into the Company's operations; changes in royalty regimes; competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel; that the Company's ability to maintain strong business relationships with its suppliers, service providers and other third parties will be maintained; geological, technical, drilling and processing problems; fluctuations in foreign exchange or interest rates and stock market volatility; liquidity; fluctuations in the costs of borrowing; political or economic developments; uncertainty related to geopolitical conflict; ability to obtain regulatory approvals; and the results of litigation or regulatory proceedings that may be brought against the Company; and changes in income tax laws or changes in tax laws and incentive programs relating to the oil and gas industry.