Lycos Energy Inc. Announces Q2 2023 Financial Results, Operations Update, Strategic Acquisition and Share Consolidation

2023-08-25

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

Calgary, Alberta--(Newsfile Corp. - August 24, 2023) - Lycos Energy Inc. (TSXV: LCX) ("Lycos" or the "Company") is pleased to announce that it has entered into a definitive agreement (the "Acquisition Agreement") to acquire Wyatt Resources Ltd. ("Wyatt"), a privately-held, heavy oil producer and that the Company will be proceeding with the consolidation (the "Consolidation") of its common shares (the "Lycos Shares") on the basis of eight (8) pre-Consolidation Lycos Shares for each one (1) post-Consolidation Lycos Share. In addition, the Company's unaudited interim financial statements and related management's discussion and analysis ("MD&A") for the three and six months ended June 30, 2023 and 2022 have been filed on SEDAR+ at www.sedarplus.caand are available on the Company's website at www.lycosenergy.com.

Q2 2023 Financial and Operating Highlights

Lycos is pleased to report its financial and operating results for Q2 2023, including the following highlights:

Generated average Q2 2023 production of 2,908 boe/d (99% crude oil), representing a 222% increase from Q2 2022 of 903 boe/d (99% crude oil) and a 50% increase from the Q1 2023 of 1,940 boe/d (99% crude oil). The increase is the result of a full quarter of production results from the Company's Q1 2023 acquisition as well as the successful drilling in Q4 2022 and Q1 2023. The Company expects the production contributions from the Q2 capital expenditures to be reflected in its Q3 2023 results. Adjusted funds flow from operations(1) was $7.0 million representing a 199% increase from $2.3 million in the second quarter of 2022 and a 167% increase from $2.6 million in Q1 2023. Achieved net operating expenses(1)per boeof $24.49 representing a 57% decrease from $56.40 in the Q2 2022 and a 17% decrease from $29.55 in the Q1 2023. The reduction in net operating costs is the result of operational efficiencies from the Q1 2023 Acquisition and capital investment in infrastructure. Executed an $11.9 million capital expenditure program bringing onstream 2 multi-lateral wells at the end of the quarter and commenced 4 drills (one multi-lateral and three multi-leg fishbone wells) that were completed and brought onstream in Q3 2023. The Company added approximately 23,000 net acres of crown and freehold lands to the Company's undeveloped land base and continued its investment in injection and disposal infrastructure to reduce operating costs. On May 24, 2023, Lycos' revolving credit facility was increased from $20.0 million to $35.0 million.

(1)See Non-IFRS Measures, Non-IFRS Financial Ratios and Capital Management Measures

The table below summarizes the Company's financial and operating results for the three and six months ended June 30, 2023 and June 30, 2022:

| | | Three months ended | | | | | | Six months ended | | | | | | | | | | | | | | June 30, | | | % change | | | June 30, | | | % change | | | | | | | | | ($ in thousands, except per share) | | 2023 | | | 2022 | | | 2023 | | | 2022 | | | | | | | | | Total petroleum and natural gas sales, net of blending(1) | | 17,475 | | | 9,040 | | | 93% | | | 27,762 | | | 16,843 | | | 65% | | | Cash flow from (used in) operating activities | | 9,022 | | | (769 | ) | | 1273% | | | 5,598 | | | 1,318 | | | 325% | | | Per share - basic | $ | 0.03 | | $ | (0.01 | ) | | 389% | | $ | 0.02 | | $ | 0.02 | | | 5% | | | Per share - diluted | $ | 0.03 | | $ | (0.01 | ) | | 375% | | $ | 0.02 | | $ | 0.02 | | | 0% | | | Adjusted funds flow from operations(1) | | 7,004 | | | 2,342 | | | 199% | | | 9,626 | | | 4,768 | | | 102% | | | Net income | | 36 | | | 1,626 | | | (98)% | | | 21,848 | | | 2,973 | | | 635% | | | Per share - basic | $ | 0.00 | | $ | 0.02 | | | (99)% | | $ | 0.07 | | $ | 0.04 | | | 81% | | | Per share - diluted | $ | 0.00 | | $ | 0.02 | | | (99)% | | $ | 0.06 | | $ | 0.04 | | | 71% | | | Capital expenditures - exploration & development | | 11,909 | | | 1,089 | | | 994% | | | 23,596 | | | 1,580 | | | 1393% | | | Capital expenditures - net acquisitions & dispositions | | - | | | - | | | 0% | | | 50,000 | | | (185 | ) | | 27127% | | | Adjusted working capital (net debt)(1) | | (10,319 | ) | | 2,199 | | | (569)% | | | (10,319 | ) | | 2,199 | | | (569)% | | | Weighted average shares outstanding (thousands) | | | | | | | | | | | | | | | | | | | | Basic | | 318,148 | | | 78,499 | | | 305% | | | 318,148 | | | 78,499 | | | 305% | | | Diluted | | 335,227 | | | 78,499 | | | 327% | | | 336,909 | | | 78,499 | | | 329% | | | | | | | | | | | | | | | | | | | | | | | Average daily production: | | | | | | | | | | | | | | | | | | | | Crude oil (bbls/d) | | 2,890 | | | 892 | | | 224% | | | 2,407 | | | 894 | | | 169% | | | Natural gas (mcf/d) | | 110 | | | 67 | | | 63% | | | 119 | | | 56 | | | 111% | | | Total (boe/d) | | 2,908 | | | 903 | | | 222% | | | 2,427 | | | 903 | | | 169% | | | Realized prices: | | | | | | | | | | | | | | | | | | | | Crude oil ($/bbl)(2) | | 65.71 | | | 107.85 | | | (39)% | | | 62.09 | | | 99.64 | | | (38)% | | | Natural gas ($/mcf) | | 2.14 | | | 7.00 | | | (69)% | | | 2.47 | | | 6.00 | | | (59)% | | | Total ($/boe) | | 65.37 | | | 107.03 | | | (39)% | | | 61.70 | | | 98.98 | | | (38)% | | | Operating netback ($/boe) | | | | | | | | | | | | | | | | | | | | Petroleum and natural gas revenues(2) | | 65.37 | | | 107.03 | | | (39)% | | | 61.70 | | | 98.98 | | | (38)% | | | Realized gain on financial derivatives | | 0.35 | | | - | | | 100% | | | 0.21 | | | - | | | 100% | | | Royalties | | (9.36 | ) | | (15.82 | ) | | (41)% | | | (9.27 | ) | | (15.25 | ) | | (39)% | | | Net operating expenses(1) | | (24.49 | ) | | (56.40 | ) | | (57)% | | | (26.50 | ) | | (48.82 | ) | | (46)% | | | Transportation expenses | | (0.85 | ) | | (0.89 | ) | | (5)% | | | (0.71 | ) | | (0.79 | ) | | (10)% | | | Operating netback, including financial derivatives ($/boe)(1) | | 31.02 | | | 33.92 | | | (9)% | | | 25.43 | | | 34.12 | | | (25)% | | | Adjusted funds flow from operations ($/boe)(1) | | 26.47 | | | 28.47 | | | (7)% | | | 21.91 | | | 29.16 | | | (25)% | | | | | | | | | | | | | | | | | | | | | | | (1) See Non-IFRS Measures, Non-IFRS Financial Ratios and Capital Management Measures | | | | | | | | | | | | | | | | | | | | (2) Realized prices are based on revenue, net of blending expense | | | | | | | | | | | | | | | | | | |

Operations Update

The Company continues to drill both multi-lateral and fishbone heavy oil wells with initial results exceeding type curves. With the refinement of pad drilling sites for stacked Mannville zones, significant efficiency improvements have resulted. Lycos has achieved its fastest fishbone drilling time to date, drilling a combined lateral length of 9,850 meters in nine (9) days (1,094 meters/day). This is a 20% improvement from the average 905 meters/day achieved in previous wells.

Lycos has brought one 8 leg well and three fishbone wells on stream in Q3 2023, all of which are in Alberta. The wells are currently producing at an aggregate rate of over 800 boe/d (99% crude oil).

Lycos continues to observe better performance on fishbone wells. Lycos brought on two wells directly beside each other in Q4 2022, one fishbone and one 8 leg well. The fishbone well has produced over 25,000 bbls to date, which exceeds the 8 leg well by more than 9,000 bbls over the same period.

Strategic Acquisition

Pursuant to the terms of the Acquisition Agreement, the Company will be acquiring Wyatt for total consideration of $8.8 million, consisting of $6.5 million in cash and $2.3 million of equity comprised of 5.1million pre-Consolidation Lycos Shares at a deemed price of $0.4523 per Lycos Share (the "Acquisition"). The Acquisition will be funded by the Company's credit facilities and cash on hand.

Summary of the Acquisition

Acquisition Highlights

Provides an entry point into a new core area in Frog Lake Alberta, as well as adding numerous locations within Lycos' current operations in the Lloydminster area of Alberta. Current production of approximately 400 boe/d (99% crude oil). Lycos forecasts its' corporate production at closing to be 3,700 boe/d (99% crude oil). 12,335 net acres of land predominantly at Wildmere and Frog Lake. More than 20 net identified Mannville heavy oil multilateral drilling locations.

Transaction Details

Concurrent with the execution of the Acquisition Agreement, shareholders of Wyatt representing 100% of the outstanding common shares of Wyatt executed letters of transmittal irrevocably accepting Lycos's offer and tendering their shares in connection with the Acquisition. The Acquisition Agreement provides for, among other things, a non-solicitation covenant on the part of Wyatt.

The Acquisition is expected to close on September 1, 2023, subject to certain customary conditions and approvals, including the approval of the TSX Venture Exchange (the "TSXV").

All of the Lycos Shares issued to the shareholders of Wyatt will be subject to a four-month escrow period.

2023 Guidance

The Company is increasing its 2023 acquisition expenditures(2)to $59.0 million and its 2023 exploration, development and other capital expenditures to $47.0 million from $50.0 million and $37.0 million, respectively. The additional capital expenditures will fund a two (2) well drilling program on the newly acquired properties as well as the acquisition of additional undeveloped acreage. As a result, we are increasing our anticipated 2023 annual average production to be 3,150 boe/d (99% crude oil) from 3,000 boe/d (99% crude oil), respectively. Lycos expects to fund these additional capital expenditures through its existing working capital and revolving credit facility which will result in a revised estimated Exit Adjusted Working Capital (Net Debt)(1)of ($10.0) million.

(1)See Non-IFRS Measures, Non-IFRS Financial Ratios and Capital Management Measures (2)Revised acquisition expenditures is comprised of $56.7 million of cash and $2.3 million of equity.

Share Consolidation

The board of directors of the Company intends to effect the Consolidation on the basis of eight (8) pre-consolidation Lycos Shares for each post-consolidation Lycos Share to promote increased liquidity and reduce volatility in the trading of the Lycos Shares.

The Consolidation will be effective upon the filing of the Articles of Amendment for the Company and remains subject to the approval of the TSXV. Trading of the Lycos Shares on a post-Consolidation basis on the TSXV is expected to commence at market open on September 1, 2023 under the following new ISIN and CUSIP codes:

ISIN: CA55082H2063 CUSIP: 55082H206

The 318,147,806 Lycos Shares currently issued and outstanding will be reduced to approximately 39,768,476Lycos Shares on a post-Consolidation basis. Following the completion of the Acquisition, the number of post-Consolidation Lycos Shares issued and outstanding will be 40,404,116. The record date for the Consolidation will take place on the close of business of the last trading day immediately prior to the date on which the post-Consolidation Lycos Shares commence trading on the facilities of the TSXV. No fractional shares will be issued. Any fractional interest in Lycos Shares that is less than 0.5 of a Lycos Share resulting from the Consolidation will be rounded down to the nearest whole post-Consolidation Lycos Share and any fractional interest in Lycos Shares that is equal to or greater than 0.5 of a Lycos Share resulting from the Consolidation will be rounded up to the nearest whole post-Consolidation Lycos Share. As a result of the Consolidation, there will be proportional adjustments to outstanding options and warrants to acquire Lycos Shares to preserve the rights of the holders of such securities to the relevant proportion of the Company's Lycos Shares post-Consolidation.

Letters of transmittal will be mailed to registered shareholders and registered shareholders will be required to deposit their share certificate(s), together with the duly completed letter of transmittal, with Odyssey Trust Company, the Company's registrar and transfer agent. Non-registered shareholders holding Lycos Shares through an intermediary (a securities broker, dealer, bank or financial institution) should be aware that the intermediary may have different procedures for processing the Consolidation than those that will be put in place by the Company for registered shareholders. If shareholders hold their Lycos Shares through an intermediary and they have questions in this regard, they are encouraged to contact their intermediaries.

For more information on the Consolidation, shareholders are encouraged to refer to the management information circular of the Company dated May 1, 2023, which is available on the Company's SEDAR+ profile at www.sedarplus.ca.

Option Grant

The Company's board of directors also granted 300,000 options to purchase pre-Consolidation Lycos Shares to a newly appointed director. The stock options are exercisable at a price of $0.45 per Lycos Share, expire five years from the date hereof, and vest as to one-third on each of the first, second and third anniversary date of the grant.

About Lycos

Lycos is an oil-focused, exploration, development and production company based in Calgary, Alberta, operating high-quality, heavy-oil, development assets in the Gull Lake area of southwest Saskatchewan and heavy-oil assets in the Lloydminster area.

Additional Information

For further information, please contact:

Dave Burton President and Chief Executive Officer T:(403) 616-3327 E: dburton@lycosenergy.com

Lindsay Goos Vice President, Finance and Chief Financial Officer T: (403) 542-3183 E: lgoos@lycosenergy.com

Reader Advisories

Forward-Looking and Cautionary Statements

Certain statements contained within this press release constitute forward-looking statements within the meaning of applicable Canadian securities legislation. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "anticipate", "budget", "plan", "endeavor", "continue", "estimate", "evaluate", "expect", "forecast", "monitor", "may", "will", "can", "able", "potential", "target", "intend", "consider", "focus", "identify", "use", "utilize", "manage", "maintain", "remain", "result", "cultivate", "could", "should", "believe" and similar expressions. Lycos believes that the expectations reflected in such forward-looking statements are reasonable as of the date hereof, but no assurance can be given that such expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. Without limitation, this press release contains forward-looking statements pertaining to: Lycos' business strategy, objectives, strength and focus; the completion of the Acquisition, including anticipated funding and timing thereof; satisfaction or waiver of the closing conditions to the Acquisition; receipt of required legal and regulatory approvals for the completion of the Acquisition; the anticipated benefits of the Acquisition, including the impact of the Acquisition on the Company's operations, reserves, inventory and opportunities, financial condition, access to capital and overall strategy; anticipated pro forma capital program and operational results for the remainder of 2023 including, but not limited to, estimated or anticipated growth, production levels, capital expenditures, drilling plans and locations; expectations regarding commodity prices; the Consolidation and timing thereof; anticipated benefits of the Consolidation; the performance characteristics of the Company's oil and natural gas properties; the ability of the Company to achieve drilling success consistent with management's expectations; and the source of funding for the Company's activities including development costs. Statements relating to production, reserves, recovery, replacement, costs and valuation are also deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and that the reserves can be profitably produced in the future.

The forward-looking statements and information are based on certain key expectations and assumptions made by Lycos, including expectations and assumptions concerning the business plan of Lycos; the receipt of all approvals and satisfaction of all conditions to the completion of the Acquisition; the risk that trading of the Lycos Shares on a post-Consolidation basis may not take effect when expected; and the receipt of all approvals (including TSXV approval) and satisfaction of all conditions to the completion of the Consolidation; the timing of and success of future drilling, development and completion activities; the geological characteristics of Lycos' properties; prevailing commodity prices, price volatility, price differentials and the actual prices received for the Company's products; the availability and performance of drilling rigs, facilities, pipelines and other oilfield services; the timing of past operations and activities in the planned areas of focus; the drilling, completion and tie-in of wells being completed as planned; the performance of new and existing wells; the application of existing drilling and fracturing techniques; prevailing weather and break-up conditions; royalty regimes and exchange rates; the application of regulatory and licensing requirements; the continued availability of capital and skilled personnel; the ability to maintain or grow its credit facility; the accuracy of Lycos' geological interpretation of its drilling and land opportunities, including the ability of seismic activity to enhance such interpretation; and Lycos' ability to execute its plans and strategies.

Although Lycos believes that the expectations and assumptions on which such forward-looking statements and information are based are reasonable, undue reliance should not be placed on the forward-looking statements and information because Lycos can give no assurance that they will prove to be correct. By its nature, such forward-looking information is subject to various risks and uncertainties, which could cause the actual results and expectations to differ materially from the anticipated results or expectations expressed. These risks and uncertainties include, but are not limited to, counterparty risk to closing the Acquisition; unforeseen difficulties in integrating the assets to be acquired pursuant to the Acquisition into Lycos' operations; incorrect assessments of the value of benefits to be obtained from acquisitions and exploration and development programs (including the Acquisition); fluctuations in commodity prices, changes in industry regulations and political landscape both domestically and abroad, wars (including Russia's military actions in Ukraine), hostilities, civil insurrections, foreign exchange or interest rates, increased operating and capital costs due to inflationary pressures (actual and anticipated), volatility in the stock market and financial system, impacts of pandemics, the retention of key management and employees, risks with respect to unplanned third-party pipeline outages and risks relating to the Alberta wildfires, including in respect of safety, asset integrity and shutting in production. Ongoing military actions between Russia and Ukraine have the potential to threaten the supply of oil and gas from the region. The long-term impacts of the actions between these nations remains uncertain. Please refer to the annual information form for the year ended December 31, 2022, and the MD&A for additional risk factors relating to Lycos, which can be accessed either on the Company's website at www.lycosenergy.comor under the Company's SEDAR+ profile at www.sedarplus.ca. Readers are cautioned not to place undue reliance on this forward-looking information, which is given as of the date hereof, and to not use such forward-looking information for anything other than its intended purpose. Lycos undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by law.