Lycos Energy Inc. Announces 2023 Results and Reserves

2024-04-18

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

Calgary, Alberta--(Newsfile Corp. - April 18, 2024) - Lycos Energy Inc. (TSXV: LCX) ("Lycos" or the "Company") is pleased to announce its operating and financial results for the three months and year ended December 31, 2023 and the results of Lycos' year-end independent oil and gas reserves evaluation as of December 31, 2023, prepared by Sproule Associates Limited ("Sproule"). Selected financial and operating information is outlined below and should be read with Lycos' audited annual consolidated financial statements and related management's discussion and analysis ("MD&A") for the three months and year ended December 31, 2023 and annual information form ("AIF") for the year ended December 31, 2023 have been filed on SEDAR + at sedarplus.caand are available on the Company's website at www.lycosenergy.com.

Message to Shareholders

Lycos had a strong 2023 year, both operationally and financially. The year was highlighted by a 100% drilling success rate on our multi-lateral/fishbone, Mannville heavy oil drilling program, a total proved plus probable net asset value(1)of $5.53 per diluted share, a 44% increase from 2022 and added 112 net sections to the Company's land base. With the ongoing development of the Company's assets and the completion of four acquisitions, the Company has expanded its high-quality drilling inventory to approximately 200 net locations, more than seven years of inventory. The Company continues to advance the multi-lateral Mannville play and is now seeing the results of transforming inventory to producing assets.

We highlight the following fourth quarter and full year 2023 operating and financial results:

Achieved record production in the fourth quarter of 2023 of 4,121 boe/d (99% crude oil) and exit December average production of 4,357 boe/d (99% crude oil). This represents a 267% increase from the fourth quarter of 2022 of 1,123 boe/d (99% crude oil) and a 35% increase from the third quarter of 2023 of 3,043 boe/d (99% crude oil).

Reduced net operating expenses(2) to $21.87 per boe in the fourth quarter of 2023 compared to $40.16 per boe in the fourth quarter of 2022, a 46% reduction year over year and a 19% decrease from $26.98 per boe in the third quarter of 2023.

Generated adjusted funds flow from operations(2) of $11.4 million representing a 5763% increase from ($0.2 million) in the fourth quarter of 2022 and a 5% increase from $10.8 million in the third quarter of 2023.

Reduced general and administrative expenses to $2.65/boe in the fourth quarter of 2023, a 72% decline from $9.32/boe in the fourth quarter of 2022.

Increased total proved reserves by 153% to 9.9 mmboe from 3.9 mmboe and total proved plus probable reserves by 130% to 17.4 mmboe from 7.5 mmboe as a result of a successful drilling program from its multi-lateral and fishbone wells and the completion of three corporate acquisitions.

Production replacement(1)was 236% on a total proved basis and 363% on a total proved plus probable basis.

Achieved finding and development (F&D) costs(1), including changes in future development costs of $16.71 per boe on a proven producing basis and finding, development and acquisition (FD&A) costs(1)of $20.62 per boe on a total proved plus probable basis.

Based on a 2023 adjusted funds flow netback(2)of 28.99/boe, achieved a recycle ratio, excluding acquisitions(1)of 1.7 on a proven producing basis and recycle ratio, including acquisitions(1)on a total proved plus probable basis of 1.4.

(1) See Oil and Gas Metrics (2) See Non-IFRS Measures, Non-IFRS Financial Ratios and Capital Management Measures

Financial and Operating Highlights

| | | Three months ended | | | | | | Year ended | | | | | | | | | | | | | | December 31, | | | % change | | | December 31, | | | % change | | | | | | | | | ($ in thousands, except per share) | | 2023 | | | 2022 | | | 2023 | | | 2022 | | | | | | | | | Total petroleum and natural gas sales, net of blending(1) | | 24,748 | | | 6,341 | | | 290% | | | 76,597 | | | 32,805 | | | 133% | | | Cash flow from operating activities | | 14,235 | | | 910 | | | 1464% | | | 26,143 | | | 5,392 | | | 385% | | | Per share - basic | $ | 0.28 | | $ | 0.06 | | | 367% | | $ | 0.61 | | $ | 0.47 | | | 30% | | | Per share - diluted | $ | 0.27 | | $ | 0.06 | | | 350% | | $ | 0.58 | | $ | 0.38 | | | 53% | | | Adjusted funds flow from operations(1) | | 11,382 | | | (201 | ) | | 5763% | | | 31,834 | | | 5,956 | | | 434% | | | Net income | | 1,172 | | | (14,948 | ) | | 108% | | | 24,719 | | | 3,671 | | | 573% | | | Per share - basic | $ | 0.02 | | $ | (0.93 | ) | | 102% | | $ | 0.58 | | $ | 0.32 | | | 81% | | | Per share - diluted | $ | 0.02 | | $ | (0.93 | ) | | 102% | | $ | 0.55 | | $ | 0.26 | | | 112% | | | Capital expenditures - exploration & development | | 18,520 | | | 5,489 | | | 237% | | | 62,996 | | | 10,091 | | | 524% | | | Capital expenditures - net acquisitions & dispositions | | 12,954 | | | - | | | 100% | | | 67,840 | | | (316 | ) | | 21568% | | | Adjusted working capital (net debt)(1) | | (17,057 | ) | | 56,835 | | | (130)% | | | (17,057 | ) | | 56,835 | | | (130)% | | | Weighted average shares outstanding (thousands) | | | | | | | | | | | | | | | | | | | | Basic | | 50,876 | | | 15,999 | | | 218% | | | 42,621 | | | 11,372 | | | 275% | | | Diluted | | 53,055 | | | 15,999 | | | 232% | | | 44,865 | | | 14,370 | | | 212% | | | | | | | | | | | | | | | | | | | | | | | Average daily production: | | | | | | | | | | | | | | | | | | | | Crude oil (bbls/d) | | 4,081 | | | 1,109 | | | 268% | | | 2,983 | | | 993 | | | 200% | | | Natural gas (mcf/d) | | 238 | | | 85 | | | 180% | | | 158 | | | 62 | | | 155% | | | Total (boe/d) | | 4,121 | | | 1,123 | | | 267% | | | 3,009 | | | 1,004 | | | 200% | | | Realized prices: | | | | | | | | | | | | | | | | | | | | Crude oil ($/bbl)(2) | | 65.56 | | | 57.20 | | | 15% | | | 69.44 | | | 85.88 | | | (19)% | | | Natural gas ($/mcf) | | 2.38 | | | 4.76 | | | (50)% | | | 2.33 | | | 5.16 | | | (55)% | | | Total ($/boe) | | 65.06 | | | 56.84 | | | 14% | | | 68.95 | | | 85.32 | | | (19)% | | | Operating netback ($/boe) | | | | | | | | | | | | | | | | | | | | Petroleum and natural gas revenues(2) | | 65.06 | | | 56.84 | | | 14% | | | 68.95 | | | 85.32 | | | (19)% | | | Realized gain (loss) on financial derivatives | | 0.97 | | | - | | | 100% | | | (0.12 | ) | | - | | | (100)% | | | Royalties | | (9.29 | ) | | (9.71 | ) | | (4)% | | | (10.02 | ) | | (13.85 | ) | | (28)% | | | Net operating expenses(1) | | (21.87 | ) | | (40.16 | ) | | (46)% | | | (25.02 | ) | | (47.68 | ) | | (48)% | | | Transportation expenses | | (1.79 | ) | | (0.75 | ) | | 139% | | | (1.19 | ) | | (0.73 | ) | | 63% | | | Operating netback, including financial derivatives ($/boe)(1) | | 33.08 | | | 6.22 | | | 432% | | | 32.60 | | | 23.06 | | | 41% | | | Adjusted funds flow from operations ($/boe)(1) | | 30.03 | | | (1.94 | ) | | 1648% | | | 28.99 | | | 16.25 | | | 78% | | | (1)See Non-IFRS Measures, Non-IFRS Financial Ratios and Capital Management Measures. (2)Realized prices are based on revenue, net of blending expense. | | | | | | | | | | | | | | | | | | |

2023 RESERVES

Lycos is pleased to provide select highlights from the results of the year-end evaluation of the Company's heavy oil reserves in the Lloydminster, Saskatchewan, Lloydminster & Greater Lloydminster Alberta and Gull Lake Saskatchewan areas as of December 31, 2023, as prepared by its independent qualified reserves evaluator Sproule. The evaluation of Lycos' properties was prepared in accordance with the definitions, standards and procedures contained in the most recent publication of the Canadian Oil and Gas Evaluation Handbook ("COGEH") and National Instrument 51-101 - _Standards of Disclosure for Oil and Gas Activities_("NI 51-101") and is based on Sproule's published price forecast as of December 31, 2023. See "_Reader Advisories - Reserves and Future Net Revenue Disclosure_" for more information. Additional reserves information as required under NI 51-101 is included in the AIF. The numbers in the tables below may not add due to rounding.

Reserves Summary as at December 31, 2023

| Total Company Reserves(1) | | | | | | | | | | | | | | | | | | | | Reserves Category | | Heavy Oil | | | Light and Medium Oil | | | Condensate | | | NGL | | | Conventional Natural Gas | | | Total Oil Equivalent | | | | (Mbbl) | | | (Mbbl) | | | (Mbbl) | | | (Mbbl) | | | (MMcf) | | | (Mboe) | | | | Proved Developed Producing | | 4,132 | | | 34 | | | - | | | 0.4 | | | 131 | | | 4,188 | | | Proved Developed Non-Producing | | 183 | | | - | | | - | | | - | | | 5 | | | 184 | | | Proved Undeveloped | | 5,523 | | | - | | | - | | | 0.2 | | | 74 | | | 5,535 | | | Total Proved | | 9,837 | | | 34 | | | - | | | 0.6 | | | 211 | | | 9,907 | | | Probable | | 7,430 | | | 12 | | | - | | | 0.5 | | | 151 | | | 7,468 | | | Total Proved Plus Probable | | 17,267 | | | 46 | | | - | | | 1.1 | | | 362 | | | 17,375 | | | (1)Reserves have been presented on a gross basis, which are the Company's total working interest share before the deduction of any royalties and without including any royalty interests of the Company. | | | | | | | | | | | | | | | | | | |

Net Present Value of Future Net Revenue

| | | Net Present Value of Future Net Revenue (1) | | | | | | | | | | | | | | | Total Company | | Before Income Taxes, Discounted at (% / year) | | | | | | | | | | | | | | | | | 0% | | | 5% | | | 10% | | | 15% | | | 20% | | | Reserves Category | | ( M$) | | | ( M$) | | | ( M$) | | | ( M$) | | | ( M$) | | | Proved Developed Producing | | 113,568 | | | 112,340 | | | 104,457 | | | 96,208 | | | 88,902 | | | Proved Developed Non-Producing | | 4,436 | | | 3,762 | | | 3,242 | | | 2,831 | | | 2,501 | | | Proved Undeveloped | | 170,092 | | | 131,545 | | | 104,284 | | | 84,454 | | | 69,590 | | | Total Proved | | 288,096 | | | 247,647 | | | 211,982 | | | 183,493 | | | 160,994 | | | Probable | | 287,059 | | | 205,965 | | | 156,182 | | | 123,347 | | | 100,416 | | | Total Proved Plus Probable | | 575,155 | | | 453,612 | | | 368,163 | | | 306,840 | | | 261,410 | | | (1)All future net revenues are stated prior to the provision for general and administrative expenses, other income and interest expenses and after the deduction of royalties, net operating expenses, estimated well and facility abandonment and reclamation costs and estimated future capital expenditures. | | | | | | | | | | | | | | | |

Future Development Costs ("FDC")

The following is a summary of the estimated FDC required to bring proved undeveloped reserves and proved plus probable undeveloped reserves on production. FDC associated with the Company's total proved reserves at year end 2023 is $83.0 million and FDC on total proved plus probable reserves is $131.5 million.

| | | Proved Reserves | | | Proved Plus Probable Reserves | | | | | $M | | | $M | | | 2024 | | 38,568 | | | 59,912 | | | 2025 | | 24,066 | | | 38,354 | | | 2026 | | 20,374 | | | 33,274 | | | Total Undiscounted | | 83,008 | | | 131,540 | |

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 Lloydminster, Greater Lloydminster area and Gull Lake, Saskatchewan.

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; capital program and operational results for 2024; the Company's expectations regarding drilling plans, forecasted annual average production, net operating expenses, and growth forecasts; expectations regarding commodity prices and heavy oil differentials; 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; expectations in respect of the Company's wells, including anticipated benefits and results; and the source of funding for the Company's activities. 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 timing of and success of future drilling, development and completion activities; the geological characteristics of Lycos' properties; the successful integration of the recently acquired assets into Lycos' operations; 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: unforeseen difficulties in integrating recently acquired assets into Lycos' operations; incorrect assessments of the value of benefits to be obtained from acquisitions and exploration and development programs; fluctuations in commodity prices, changes in industry regulations and political landscape both domestically and abroad, wars (including Russia's military actions in Ukraine, the Israel-Hamas conflict in Gaza and Houthi attacks in the Red Sea), 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, 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 AIF and 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.

Future Oriented Financial Information

This press release contains future oriented financial information and financial outlook information (collectively, "FOFI") about Lycos' prospective results of operations and production, forecasted annual average production, forecasted net debt to adjusted funds flow from operations ratio, organic growth and acquisitions, expected growth rates, growth in adjusted funds flow from operations, operating costs, expected net operating expenses per boe, 2024 budget and guidance, including exploration, development and acquisition expenditures in 2024 and components thereof, 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 document was approved by management as of the date of this document and was provided for the purpose of providing further information about Lycos' proposed business activities in 2024. Lycos and its management believe that FOFI has been prepared on a reasonable basis, reflecting management's best estimates and judgments, and represent, to the best of management's knowledge and opinion, the Company's expected course of action. However, because this information is highly subjective, it should not be relied on as necessarily indicative of future activities or results. Lycos disclaims any intention or obligation to update or revise any FOFI contained in this document, 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 document 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 measures included in Lycos' guidance. The Company's actual results may differ materially from these estimates.

Disclosure of Oil and Gas Information

Unit Cost Calculation. The term barrels of oil equivalent ("boe") may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet per barrel (6 Mcf/bbl) of natural gas to barrels of oil equivalence is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All boe conversions in the report are derived from converting gas to oil in the ratio mix of six thousand cubic feet of gas to one barrel of oil.

Product Types. Throughout this press release, "crude oil" or "oil" refers to heavy crude oil product types as defined by NI 51-101.

Drilling Locations.This press release discloses drilling locations in two categories: (i) booked locations and (ii) unbooked locations. Booked locations are derived from the Sproue's reserves evaluation as of December 31, 2023 (the "Reserves Report") and account for drilling locations that have associated proved and probable reserves estimated by the Company's independent qualified reserve evaluator Sproule, in accordance with NI 51-101 and the COGEH, and account for drilling locations that have associated proved and/or probable reserves, as applicable. Unbooked locations are internal estimates based on the Company's assumptions as to the number of wells that can be drilled per section based on industry practice and internal review. Unbooked locations do not have attributed reserves or resources. Of the approximately 220 (200 net) drilling locations identified herein 37 (35.7 net) are proved locations, 22 (20.8 net) are probable locations and 161 (143.5 net) are unbooked locations. Unbooked locations have been identified by management as an estimation of Company's multi-year drilling activities based on evaluation of applicable geologic, seismic, engineering, production and reserves information. There is no certainty that the Company will drill all unbooked drilling locations and if drilled there is no certainty that such locations will result in additional oil and gas reserves, resources or production. The drilling locations considered for future development will ultimately depend upon the availability of capital, regulatory approvals, seasonal restrictions, oil and natural gas prices, costs, actual drilling results, additional reservoir information that is obtained and other factors. While certain of the unbooked drilling locations have been derisked by the drilling of existing wells in relative close proximity to such unbooked drilling locations, other unbooked drilling locations are farther away from existing wells where management has less information about the characteristics of the reservoir and therefore there is more uncertainty whether wells will be drilled in such locations and if drilled there is more uncertainty that such wells will result in additional oil and gas reserves, resources or production.