Highwood Asset Management Ltd. press release

HIGHWOOD ASSET MANAGEMENT LTD. ANNOUNCES 2023 THIRD QUARTER RESULTS

2023-11-30

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 , Nov. 29, 2023 /CNW/ - Highwood Asset Management Ltd., (" Highwood " or the " Company ") (TSXV: HAM) is pleased to announce financial and operating results for the three and nine months ended September 30, 2023 . The Company also announces that its unaudited financial statements and associated Management's Discussion and Analysis (" MD&A ") for the period ended September 30, 2023 , can be found at www.sedarplus.ca and www.highwoodmgmt.com .

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Highlights

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 in the next 12 months. The focus of the third quarter of 2023 for the Company was on the transformational acquisitions that the Company announced early in the third quarter of 2023 and the corresponding financing. On August 3, 2023 , the Company closed the acquisitions of Castlegate Energy Ltd., Boulder Energy Ltd. and Shale Petroleum Ltd. (collectively, the " Acquisitions ") for a gross purchase price of approximately $143 million . The Acquisitions brought a combined ~4,500+ boe/d (approximately 75% oil and natural gas liquids (" NGLs ")), of expected average production of the 12-month period commencing July 1, 2023 (" Next Twelve Months " or " NTM ") Highwood commenced its drilling program on September 16, 2023 , spudding the 102/13-09-048-14W5 multi-lateral open hole (" MLOH ") well (the " 13-09 well ") at Brazeau, which offsets the 12-09-048-14W5 MLOH well. After approximately 25 days of cleaning up post drilling operations, the 13-09 well has averaged approximately 350 bbls/d of oil over the past seven days which is slightly above the projected type curve for this well. On October 21, 2023 , the Company spud a second MLOH well at Brazeau 14-09-048-14W5 (the " 14-09 well "), with the rig being released on November 19, 2023 . The 14-09 well is expected to be onstream prior to the end of November 2023 . Total capital costs for the 13-09 well and the 14-09 well was in line with the projected budget forecasts for these wells. On November 21, 2023 , the Company spud a third well, 04-10-043-05W5 (the " 04-10 well "), at Wilson Creek which is a follow up to the successful 102/06-04-043-05W5 (the " 102/06-04 well ") well that achieved payout in under six months. Following the drilling of the 04-10 well, Highwood intends to drill a second well at Wilson Creek , a direct offset to the 102/06-04 well, the 100/03-04-043-05W5 well (the " 03-04 well "). Highwood reiterates its expected average production guidance of approximately 5,200 boe/d, representing growth of ‎approximately 25%, on expected drilling, completion and tie-in capital expenditures of approximately $40 million in ‎‎2024. Highwood also expects to reduce Net Debt by approximately 25% reducing Net Debt / ‎‎2024E EBITDA to under 0.8x in the next 12 months, based on an US$70 /bbl WTI and ‎C$2.75/GJ AECO. (1)(2)(3) Following the acquisition of each of Castlegate Energy Ltd., Boulder Energy Ltd. and Shale Petroleum Ltd. early in the third quarter of 2023, Highwood continued to hedge oil production as oil reached 2023 highs through September 2023 and is ‎pleased it was able to secure hedges that are over US$10 /bbl higher than the forecasted realized ‎crude oil pricing versus the forecasted pricing on the announcement of the Acquisitions on July 5, 2023 , ‎with the average WTI hedge price at over C$100 /bbl. Highwood has hedged approximately 38% of gross forecasted production for 2024 at an average WTI oil price of approximately $103 CAD/bbl and an average AECO gas price of $3.03 per gigajoule. Highwood conducted a workover program during the third quarter of 2023 which added approximately 180 bbls/day of oil production for capital of approximately $500,000 . Pursuant to the Acquisitions, Highwood is positioned as a growth focused oil-weighted producer with strong insider ownership which remains committed to supporting the Company's long-term growth trajectory and prudent use of debt capital.

| 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$70.00/bbl; ‎‎WCS Diff: ‎US$14.00/bbl; MSW Diff: ‎‎US$3.50/bbl; AECO: C$2.75/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.‎ ‎Cash flow ‎figures assume completion of the Acquisitions on July 1, 2023 and illustrative ‎hedges for total of ‎‎‎65% of net after ‎‎‎royalty Proved Developed ‎Producing reserves production‎.‎ |

Summary of Financial & Operating Results

| | Three months ended September 30, | | Nine months ended September 30, | | | | | | | | | 2023 | | 2022 | % | | 2023 | | 2022 | % | | Financial (in thousands) | | | | | | | | | | | Petroleum and natural gas sales | $ 15,894 | $ | $ 1,135 | 1,300 | | $ 17,580 | | $ 3,411 | 415 | | Transportation pipeline revenues | 774 | | 842 | (8) | | 2,203 | | 2,486 | (11) | | Total revenues, net of royalties (1) | 8,870 | | 1,720 | 416 | | 12,121 | | 4,791 | 153 | | Income (Loss) | (1,014) | | 241 | (521) | | (1,641) | | 2,184 | (175) | | Funds flow from operations (5) | 5,916 | | 485 | 1,120 | | 6,060 | | 1,086 | 453 | | Adjusted EBITDA (6) | 7,489 | | 368 | 1,935 | | 7,406 | | 1,289 | 475 | | Capital expenditures | 2,917 | | 1,526 | 91 | | 4,030 | | 1,683 | 139 | | Net debt (2) | | | | | | 89,696 | | (367) | - | | Shareholder's equity (end of period) | | | | | | 56,676 | | 10,508 | 439 | | Shares outstanding (end of period) | | | | | | 15,013 | | 6,014 | 150 | | Weighted-average basic shares | | | | | | 7,955 | | 6,014 | 32 | | outstanding | | | | | | | | | | | | | | | | | | | | | | Operations (3) | | | | | | | | | | | Production | | | | | | | | | | | Crude oil (bbls/d) | 1,359 | | 116 | 1,071 | | 530 | | 111 | 378 | | NGLs (boe/d) | 305 | | - | - | | 103 | | - | - | | Natural gas (mcf/d) | 4,785 | | - | - | | 1,613 | | - | - | | Total (boe/d) | 2,425 | | 116 | 1,989 | | 889 | | 111 | 702 | | Average realized prices (4) | | | | | | | | | | | Crude oil (Cdn$/bbl) | 109.07 | | 106.27 | 3 | | 105.87 | | 112.65 | (6) | | NGL (Cdn$/boe) | 39.75 | | - | - | | 39.75 | | - | - | | Natural gas (Cdn$/mcf) | 2.59 | | - | - | | 2.59 | | - | - | | Upstream Operating netback (per BOE) | 41.01 | | 45.79 | (10) | | 40.29 | | 48.41 | (17) |

| (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 and nine months ended September 30, 2023 include the impact of the Acquisitions from the closing date of August 3, 2023 .

2023 Third Quarter Operations

With the continued strong commodity prices and increased interest in Canadian energy, the Company's primary focus in the third quarter was closing the Acquisitions and transitioning the acquired assets into Highwood. The Company also focused on beginning the execution of Highwood's capital development program and spud the initial MLOH well in September. 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

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.

As of the date of this MD&A, the Company is drawn approximately $73.5 million on its new credit facility which provides considerable financial and operational flexibility. As the Company continues to see a generational opportunity to acquire high quality producing assets at cyclically low valuations, which have considerable unbooked upside that can be unlocked using horizontal multi-lateral and stage fracking technologies, it remains dedicated to pursuing accretive acquisitions through the balance of the year and into 2024. The Company is currently engaged in several encouraging dialogues regarding various other acquisitions and potential strategic partnership opportunities.

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.

Highwood is continuing to evaluate its undeveloped lands for drilling opportunities and is planning to actively drill while commodity prices support the capital.

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:

anticipated benefits of the Acquisitions, including anticipated acquisition metrics used in this news release; the Company's expectations with respect to Highwood's financial and operational results following completion of the Acquisitions; the Company's estimates of the drilling locations inventory and tax pools associated with the Acquisitions; the Company's expectations regarding capacity of infrastructure associated with its business and the businesses of Shale, Boulder and Castlegate; anticipated operational results for 2023 and 2024 and beyond, including, but not limited to, estimated or anticipated production levels, decline rates, capital expenditures and sources of funding thereof, drilling plans and other information discussed in this news release; anticipated financial results of the Company in 2023 and 2024 and beyond following completion of the Acquisitions, including but not limited to, Adjusted EBITDA, Free Cash Flow, field net operating income, and net debt; the performance characteristics of the Company and the oil and natural gas properties subject to the Acquisitions and new wells; the quantity of the Company's and the acquired businesses' oil and natural gas reserves and anticipated future cash flows from such reserves; 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; the Company's expectation regarding its ability to return of capital to shareholders; 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:

failure to realize the anticipated benefits of acquisitions, including results and/or synergies of each of the Acquisitions; unexpected costs or liabilities related to each of the Acquisitions; volatility in market prices for oil and natural gas; operational risks and liabilities inherent in oil and natural gas operations; uncertainties associated with estimating oil and natural gas reserves; changes in royalty regimes; competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel; 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 (including each of the Acquisitions) into the Company's operations; 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; commodity price volatility and adverse general economic, political and market conditions; 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; 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; changes in income tax laws or changes in tax laws and incentive programs relating to the oil and gas industry.

In addition, statements relating to "reserves" are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions that the reserves described can be profitably produced in the future.

There are numerous uncertainties inherent in estimating quantities of oil and natural gas and the future cash flows attributed to such reserves. The reserves and associated cash flow information set forth herein are estimates only. In general, estimates of economically recoverable oil and natural gas and the future net cash flows therefrom are based upon a number of variable factors and assumptions, such as historical production from the properties, production rates, ultimate reserves and resources recovery, timing and amount of capital investments, marketability of oil and natural gas, royalty rates, the assumed effects of regulation by governmental agencies and future operating costs, all of which may vary materially. For these reasons, estimates of the economically recoverable oil and natural gas attributable to any particular group of properties, classification of such reserves based on risk of recovery and estimates of future net revenues associated with reserves prepared by different evaluators, or by the same evaluators at different times, may vary. The actual production, revenues, taxes and development and operating expenditures of the Company with respect to its reserves will vary from estimates thereof and such variations could be material. This news release contains future-oriented financial information and financial outlook information (collectively, " FOFI ") about the Company's prospective Adjusted EBITDA, Free Cash Flow, Field Cash Flow and Field NOI, all of which are subject to the same assumptions, risk factors, limitations, and qualifications as set forth in the above paragraphs. FOFI contained in this news release was made as of the date of this news release and was provided for the purpose of describing the anticipated effects of the Offering and each of the Acquisitions on the Company's business operations. Highwood's actual results, performance or achievement could differ materially from those expressed in, or implied by, such FOFI. The Company disclaims any intention or obligation to update or revise any FOFI contained in this news release, whether as a result of new information, future events or otherwise, unless required pursuant to applicable law. Readers are cautioned that the FOFI contained in this Prospectus Supplement should not be used for purposes other than for which it is disclosed herein.

Changes in forecast commodity prices, differences in the timing of capital expenditures and variances in average production estimates can have a significant impact on the key performance metrics included in the Company's guidance for the fourth quarter of 2023 and full year 2024 contained in this news release. The Company's actual results may differ materially from such estimates.

With respect to forward-looking statements contained in this news release, the Company has made assumptions regarding, among other things: the ability of the Company to achieve anticipated benefits from the Acquisitions; that commodity prices will be consistent with the current forecasts of its engineers; field netbacks; the accuracy of reserves estimates; average production rates; costs to drill, complete and tie-in wells; ultimate recovery of reserves; that royalty regimes will not be subject to material modification; that the Company will be able to obtain skilled labour and other industry services at reasonable rates; the performance of assets and equipment; that the timing and amount of capital expenditures and the benefits therefrom will be consistent with the Company's expectations; the impact of increasing competition; that the conditions in general economic and financial markets will not vary materially; that the Company will be able to access capital, including debt, on acceptable terms; that drilling, completion and other equipment will be available on acceptable terms; that government regulations and laws will not change materially; that royalty rates will not change in any material respect; and that future operating costs will be consistent with the Company's expectations.