SPARTAN DELTA CORP. ANNOUNCES DUVERNAY ACQUISITIONS, PRELIMINARY 2024 GUIDANCE, CFO RETIREMENT AND PROMOTION OF DIRECTOR, FINANCE TO VP, FINANCE AND CFO
CALGARY, AB, Nov. 28, 2023 /CNW/ - Spartan Delta Corp. ("Spartan" or the "Company") (TSX: SDE) is pleased to announce the completion of a series of asset acquisitions (collectively, the "Acquisitions") in the West Shale Basin Duvernay (the "Duvernay") for aggregate cash consideration of approximately $25 million and preliminary 2024 guidance.
MESSAGE TO SHAREHOLDERS
Spartan's Deep Basin asset has been the foundation of the Company's success since inception in December 2019, providing the Company and its shareholders with significant return on investment through consolidation and development.
Spartan's go-forward strategy is to grow through the continued optimization of its Deep Basin asset, participate in the consolidation of the Deep Basin fairway, and leverage the Company's balance sheet and Free Funds Flow to build a new growth core area in the Duvernay, commencing with the Acquisitions.
"I believe that the West Shale Basin Duvernay represents a unique opportunity to build a meaningful position at a low cost of entry in an oil and condensate resource play that is fragmented, undercapitalized, and proximal to Spartan's Deep Basin asset. The Company is excited to establish and develop a new core area," commented Fotis Kalantzis, President and CEO of Spartan.
2024 BUDGET AND PRELIMINARY GUIDANCE
Spartan is pleased to provide its financial and operating guidance for 2024 for its foundational Deep Basin asset.
For 2024, Spartan's Board has approved an initial capital budget of $130 million to drill and complete 19.2 net (21 gross) wells, resulting in annualized production of 39,500 BOE/D, a 7% increase in corporate production versus H2 2023 guidance. Spartan's development plan includes adding a second rig to the Deep Basin program through the first half of the year targeting Spirit River and Cardium locations and oil weighted drilling locations targeting the Viking, Wilrich, and Rock Creek formations, increasing Spartan's oil and condensate production by 17%.
Spartan's Deep Basin drilling inventory continues to grow as the Company further evolves its petrophysical, geological, and geophysical understanding of the region. Industry leading 3D seismic reservoir characterization, combined with the Company's detailed geological understanding of the subsurface is unveiling new locations that were previously overlooked. In addition, the quality of inventory in Spartan's future drilling campaigns are being optimized for capital efficiencies by extending lateral length, continuing to use existing surfaces, and lowering drilling and completion costs. In 2024, Spartan expects to see capital efficiency improvements of greater than 20% compared to 2023.
Based on forecast average production of 39,500 BOE/d and commodity price assumptions of US$75/bbl for WTI crude oil and $2.75/GJ for AECO natural gas, Spartan expects to generate approximately $177 million of Adjusted Funds Flow in 2024. Free Funds Flow is forecasted to be $47 million on a capital expenditure budget of $130 million, exiting 2024 with Net Debt of $19 million resulting in a 0.1X Net Debt to Annualized AFF ratio.
Spartan's preliminary 2024 guidance is summarized below:
ANNUAL GUIDANCE | 2024 |
Year ending December 31, 2024 | Guidance |
Average Production (BOE/d) (a)(c) | 38,500 to 40,500 |
% Liquids | 31 % |
Benchmark Average Commodity Prices | |
WTI crude oil price (US$/bbl) | 75.00 |
AECO natural gas price ($/GJ) | 2.75 |
Average exchange rate (US$/CA$) | 1.37 |
Operating Netback, before hedging ($/BOE) (b)(c) | 14.78 |
Operating Netback, after hedging ($/BOE) (b)(c) | 14.97 |
Adjusted Funds Flow ($MM) (b)(c) | 177 |
Capital Expenditures, before A&D ($MM) (b) | 130 |
Free Funds Flow ($MM) (b) | 47 |
Net Debt (Surplus), end of year ($MM) (b) | 19 |
Common shares outstanding, end of year (MM) | 174 |
a) | The financial performance measures included in the Company's preliminary guidance for 2024 is based on the midpoint of the average production forecast. | |
b) | "Operating Netback", "Adjusted Funds Flow", "Capital Expenditures, before A&D", "Free Funds Flow" and "Net Debt (Surplus)" do not have standardized meanings under IFRS, see "Non-GAAP Measures and Ratios". | |
c) | Additional information regarding the assumptions used in the forecasted Average Production, Operating Netbacks and Adjusted Funds Flow for 2024 are provided in the Reader Advisories section of this press release. | |
Spartan's 2023 guidance is unchanged except for the $25 million of additional A&D capital associated with the Acquisitions.
DUVERNAY HIGHLIGHTS
The Acquisitions include a material Duvernay land position, extensive 3D seismic, and approximately 400 BOE/d of Duvernay production. Pursuant to the Acquisitions, Spartan accumulated approximately 137,000 gross acres (130,000 net acres) with the majority of the acreage residing in the volatile oil, condensate, and liquids-rich gas window of the Duvernay.
After over a decade of development, Spartan believes the Duvernay is poised to offer repeatable, economic results with a significant depth of inventory. Similar to Spartan's entry into the up-dip oil window of the Montney in 2021, the Company views its timing on the entry into the West Shale Basin Duvernay as optimal as the fairway is fragmented, undercapitalized and supports growth with available egress and existing underutilized infrastructure. Additionally, the West Shale Basin Duvernay possess geotechnical attributes comparable to the Kaybob Duvernay and the East Shale Basin Duvernay. Recent activity and new top-tier well results from bordering operators demonstrate the commerciality and scalability of the play.
Spartan looks forward to providing additional details on its Duvernay strategy in the new year as it continues to advance its current position and solidify its future operating plans for the area.
CFO RETIREMENT AND PROMOTION OF DIRECTOR, FINANCE TO VP, FINANCE AND CFO
The Company also announces Ms. Geri Greenall will retire as Chief Financial Officer effective December 31, 2023, to focus on other commitments. Ms. Greenall has been instrumental in the Company's success and value creation since inception. The Board and management team wish to express their gratitude to Ms. Greenall for her many contributions and wish her well in her future endeavors.
Effective January 1, 2024, Mr. Ronald Williams, Director, Finance of the Company, will be promoted to the roles of Vice President, Finance and Chief Financial Officer. Mr. Williams has been with Spartan since March 2021. He brings more than 31 years of industry experience in audit, finance, taxation, as well as corporate and asset acquisitions. Most recently, Mr. Williams has been providing financial accounting and taxation services to a variety of public and private Alberta based entities. Mr. Williams was the VP Finance, CFO and Co-Founder of two Alberta focused oil & gas companies traded on the TSX-V, and currently serves as a director on a private transportation logistics company.
ABOUT SPARTAN DELTA CORP.
Spartan is committed to creating value for its shareholders, focused on sustainability both in operations and financial performance. The Company's ESG-focused culture is centered on generating Free Funds Flow through responsible oil and gas exploration and development. The Company has established a portfolio of high-quality production and development opportunities in the Deep Basin and the Duvernay. Spartan will continue to focus on the execution of the Company's organic drilling program in the Deep Basin, delivering operational synergies in a respectful and responsible manner to the environment and communities it operates in. The Company is well positioned to continue pursuing growth in the Deep Basin, participate in the consolidation of the Deep Basin fairway, and establish a new core area in the Duvernay by leveraging Spartan's balance sheet and Free Funds Flow.
Spartan's corporate presentation as of November 28, 2023, can be accessed on the Company's website at www.spartandeltacorp.com.
READER ADVISORIES
Non-GAAP Measures and Ratios
This press release contains certain financial measures and ratios which do not have standardized meanings prescribed by International Financial Reporting Standards ("IFRS") or Generally Accepted Accounting Principles ("GAAP"). As these non-GAAP financial measures and ratios are commonly used in the oil and gas industry, Spartan believes that their inclusion is useful to investors. The reader is cautioned that these amounts may not be directly comparable to measures for other companies where similar terminology is used.
The non-GAAP measures and ratios used in this press release, represented by the capitalized and defined terms outlined below, are used by Spartan as key measures of financial performance, and are not intended to represent operating profits nor should they be viewed as an alternative to cash provided by operating activities, net income or other measures of financial performance calculated in accordance with IFRS.
The definitions below should be read in conjunction with the "Non-GAAP Measures and Ratios" section of the Company's MD&A, which includes discussion of the purpose and composition of the specified financial measures and detailed reconciliations to the most directly comparable GAAP financial measures.
Operating Income and Operating Netback
Operating Income, a non-GAAP financial measure, is a useful supplemental measure that provides an indication of the Company's ability to generate cash from field operations, prior to administrative overhead, financing, and other business expenses. "Operating Income, before hedging" is calculated by Spartan as oil and gas sales, net of royalties, plus processing and other revenue, less operating and transportation expenses. "Operating Income, after hedging" is calculated by adjusting Operating Income for: (i) realized gains or losses on derivative financial instruments including settlements on acquired derivative financial instrument liabilities (together a non-GAAP financial measure "Settlements on Commodity Derivative Contracts"), and (ii) pipeline transportation revenue, net of pipeline transportation expense (the "Net Pipeline Transportation Margin"). The Company refers to Operating Income expressed per unit of production as an "Operating Netback" and reports the Operating Netback before and after hedging, both of which are non-GAAP financial ratios. Spartan considers Operating Netback an important measure to evaluate its operational performance as it demonstrates its field level profitability relative to current commodity prices.
Adjusted Funds Flow and Free Funds Flow
Cash provided by operating activities is the most directly comparable measure to Adjusted Funds Flow. "Adjusted Funds Flow" is a non-GAAP financial measure reconciled to cash provided by operating activities by excluding changes in non-cash working capital, adding back transaction costs on acquisitions, and deducting the principal portion of lease payments. Spartan utilizes Adjusted Funds Flow as a key performance measure in the Company's annual financial forecasts and public guidance. Transaction costs, which primarily include legal and financial advisory fees, regulatory and other expenses directly attributable to execution of acquisitions and dispositions, are added back because the Company's definition of Free Funds Flow excludes capital expenditures related to acquisitions and dispositions. For greater clarity, incremental overhead expenses related to ongoing integration and restructuring post-acquisition are not adjusted and are included in Spartan's general and administrative expenses. Lease liabilities are not included in Spartan's definition of Net Debt therefore lease payments are deducted in the period incurred to determine Adjusted Funds Flow.
The Company refers to Adjusted Funds Flow expressed per unit of production as an "Adjusted Funds Flow Netback".
"Free Funds Flow" is a non-GAAP financial measure calculated by Spartan as Adjusted Funds Flow less Capital Expenditures before A&D. Spartan believes Free Funds Flow provides an indication of the amount of funds the Company has available for future capital allocation decisions such as to repay current and long-term debt, reinvest in the business or return capital to shareholders.
Adjusted Funds Flow per share
Adjusted Funds Flow ("AFF") per share is a non-GAAP financial ratio used by the Company as a key performance indicator. AFF per share is calculated using the same methodology as net income per share ("EPS"), however the diluted weighted average common shares ("WA Shares") outstanding for AFF may differ from the diluted weighted average determined in accordance with IFRS for purposes of calculating EPS due to non-cash items that impact net income only. The dilutive impact of stock options and share awards is more dilutive to AFF than EPS because the number of shares deemed to be repurchased under the treasury stock method is not adjusted for unrecognized share based compensation expense as it is non-cash (see also, "Share Capital").
Capital Expenditures, before A&D
"Capital Expenditures before A&D" is a non-GAAP financial measure used by Spartan to measure its capital investment level compared to the Company's annual budgeted capital expenditures for its organic drilling program. It includes capital expenditures on exploration and evaluation assets and property, plant and equipment, before acquisitions and dispositions. The directly comparable GAAP measure to capital expenditures before A&D is cash provided by (used in) investing activities.
Adjusted Net Capital A&D
"Adjusted Net Capital A&D" is a supplemental measure disclosed by Spartan which aggregates the total amount of cash, debt and share consideration used to acquire crude oil and natural gas assets during the period, net of cash proceeds received on dispositions. The Company believes this is useful information because it is more representative of the total transaction value than the cash acquisition costs or total cash used in investing activities, determined in accordance with IFRS. The most directly comparable GAAP measures are acquisition costs and disposition proceeds included as components of cash used in investing activities.
Net Debt and Adjusted Working Capital
References to "Net Debt" includes current and long-term debt under Spartan's revolving credit facility and second lien term facility, net of Adjusted Working Capital. Net Debt and Adjusted Working Capital are both non-GAAP financial measures. "Adjusted Working Capital" is calculated as current assets less current liabilities, excluding derivative financial instrument assets and liabilities, lease liabilities and current debt (if applicable). The Adjusted Working Capital (surplus) deficit includes cash and cash equivalents, restricted cash, accounts receivable, prepaid expenses and deposits, other current assets, accounts payable and accrued liabilities, dividends payable, share-based compensation liability, and the current portion of decommissioning obligations.
Spartan uses Net Debt as a key performance measure to manage the Company's targeted debt levels. The Company believes its presentation of Adjusted Working Capital and Net Debt are useful as supplemental measures because lease liabilities and derivative financial instrument assets and liabilities relate to contractual obligations for future production periods. Lease payments and cash receipts or settlements on derivative financial instruments are included in Spartan's reported Adjusted Funds Flow in the production month to which the obligation relates.
References to "Cash Financing Expenses" includes interest and fees on current and long-term debt, net of interest income, and excludes financing costs related to lease liabilities and accretion of decommissioning obligations. Cash Financing Expenses is a non-GAAP financial measure used by Spartan in its budget and guidance as it corresponds to the Company's definition of Net Debt, however it should not be viewed as an alternative to total financing expenses presented in accordance with IFRS.
Net Debt to Annualized AFF Ratio
The Company monitors its capital structure using a "Net Debt to Annualized AFF Ratio", which is a non-GAAP financial ratio calculated as the ratio of the Company's "Net Debt" to its "Annualized Adjusted Funds Flow" which is calculated by multiplying Adjusted Funds Flow for the most recent quarter, normalized for significant non-recurring items, by a factor of 4.
Other Measurements
All dollar figures included herein are presented in Canadian dollars, unless otherwise noted.
This press release contains various references to the abbreviation "BOE" which means barrels of oil equivalent. Where amounts are expressed on a BOE basis, natural gas volumes have been converted to oil equivalence at six thousand cubic feet (Mcf) per barrel (bbl). The term BOE may be misleading, particularly if used in isolation. A BOE conversion ratio of six thousand cubic feet per barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead and is significantly different than the value ratio based on the current price of crude oil and natural gas. This conversion factor is an industry accepted norm and is not based on either energy content or current prices.
References to "oil" in this press release include light crude oil and medium crude oil, combined. NI 51-101 includes condensate within the product type of "natural gas liquids". References to "natural gas liquids" or "NGLs" include pentane, butane, propane, and ethane. References to "gas" or "natural gas" relates to conventional natural gas.
References to "liquids" includes crude oil, condensate and NGLs.
Assumptions for 2024 Guidance
The significant assumptions used in the forecast of Operating Netbacks and Adjusted Funds Flow for 2024 are summarized below. These key performance measures expressed per BOE are based on the midpoint of calendar year average production guidance for 2024 of 39,500 BOE/d.
2024 PRODUCTION GUIDANCE | Guidance |
Crude oil (bbls/d) | 1,000 |
Condensate (bbls/d) | 1,700 |
Crude oil and condensate (bbls/d) | 2,700 |
NGLs (bbls/d) | 9,700 |
Natural gas (mcf/d) | 162,500 |
Combined average (BOE/d) | 39,500 |
% Liquids | 31 % |
2024 FINANCIAL GUIDANCE ($/BOE) | Guidance | ||
Oil and gas sales | 26.59 | ||
Processing and other revenue | 0.33 | ||
Royalties | (3.70) | ||
Operating expenses | (6.68) | ||
Transportation expenses | (1.76) | ||
Operating Netback, before hedging | 14.78 | ||
Settlements on Commodity Derivative Contracts | 0.19 | ||
Operating Netback, after hedging | 14.97 | ||
General and administrative expenses | (1.39) | ||
Cash financing expenses | (0.31) | ||
Settlements of decommissioning obligations | (0.24) | ||
Lease payments | (0.78) | ||
Adjusted Funds Flow | 12.25 |
Changes in forecast commodity prices, exchange rates, differences in the amount and timing of capital expenditures, and variances in average production estimates can have a significant impact on the key performance measures included in Spartan's guidance. The Company's actual results may differ materially from these estimates. Holding all other assumptions constant, a US$5/bbl increase (decrease) in the forecasted average WTI crude oil price for 2024 would increase Adjusted Funds Flow by approximately $11 million (decrease by $11 million). An increase (decrease) of CA$0.25/GJ in the forecasted average AECO natural gas price for 2024, holding the NYMEX-AECO basis differential and all other assumptions constant, would increase Adjusted Funds Flow by approximately $15 million (decrease by $15 million). Holding U.S. dollar benchmark commodity prices and all other assumptions constant, an increase (decrease) of $0.10 in the US$/CA$ exchange rate would increase Adjusted Funds Flow by approximately $15 million (decrease by $15 million). Assuming capital expenditures are unchanged, the impact on Free Funds Flow would be equivalent to the increase or decrease in Adjusted Funds Flow. An increase (decrease) in Free Funds Flow will result in an equivalent decrease (increase) in the forecasted Net Debt (Surplus).
Share Capital
Spartan's common shares are listed on the Toronto Stock Exchange ("TSX") and trade under the symbol "SDE". As at the date hereof, there are 173.2 MM common shares outstanding. There are no preferred shares or special shares outstanding. The following securities are outstanding as of the date of this press release: 0.1 MM stock options, and 2.4 MM restricted share awards ("RSAs"), however, Spartan intends to settle 1.1 MM of these RSAs in cash.
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. Spartan 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: the business plan, cost model and strategy of Spartan, including commodity diversification, oil weighted production, continued optimization of its Deep Basin asset, participation in the consolidation of the Deep Basin fairway and building a new growth core area in the Duvernay; the anticipated benefits of the Acquisitions; Spartan's strategies to deliver strong operational performance and to generate long term sustainable Free Funds Flow, organic growth and enhanced returns, including periodic special dividends; being well positioned to take advantage of opportunities in the current business environment; to continue pursuing immediate production optimization and responsible future growth with organic drilling; cash settlement of 1.1 MM RSAs and the timing thereof; and opportunistic acquisitions.
The forward-looking statements and information are based on certain key expectations and assumptions made by Spartan, including expectations and assumptions concerning the business plan of Spartan, the timing of and success of future drilling, development and completion activities, the performance of existing wells, the performance of new wells, the availability and performance of facilities and pipelines, the geological characteristics of Spartan's properties, the successful integration of the recently acquired assets into Spartan's operations (including the assets acquired pursuant to the Acquisitions), the successful application of drilling, completion and seismic technology, prevailing weather conditions, prevailing legislation affecting the oil and gas industry, prevailing commodity prices, price volatility, price differentials and the actual prices received for the Company's products, impact of inflation on costs, royalty regimes and exchange rates, the application of regulatory and licensing requirements, the availability of capital, labour and services, the creditworthiness of industry partners, and the ability to source and complete acquisitions.
Although Spartan 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 Spartan 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, fluctuations in commodity prices, changes in industry regulations and political landscape both domestically and abroad, wars (including Russia's military actions in Ukraine and the Israel-Palestinian conflict), hostilities, civil insurrections, foreign exchange or interest rates, increased operating and capital costs due to inflationary pressures (actual and anticipated), stock market and financial system volatility, impacts of pandemics, the retention of key management and employees, risks with respect to unplanned third-party pipeline outages and risks relating to inclement and severe weather events and natural disasters, including fire, drought, and flooding, including in respect of safety, asset integrity and shutting-in production.
Please refer to Spartan's MD&A and AIF for discussion of additional risk factors relating to the Company, which can be accessed either on Spartan's website at www.spartandeltacorp.com or under Spartan's SEDAR+ profile on 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. Spartan 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.
This press release contains future-oriented financial information and financial outlook information (collectively, "FOFI") about Spartan's prospective results of operations and production, 2023 and 2024 guidance, generating Free Funds Flow, organic growth and periodic special dividends, capital efficiency improvements and components thereof, including pro forma the Acquisitions, 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 Spartan's future business operations. Spartan 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 results. Spartan 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 Spartan's guidance. The Company's actual results may differ materially from these estimates.
Abbreviations
A&D | acquisitions and dispositions |
AECO | Alberta Energy Company "C" Meter Station of the NOVA Pipeline System |
AFF | Adjusted Funds Flow |
AIF | Annual Information Form for the year ended December 31, 2022 |
bbl | barrel |
bbls/d | barrels per day |
BOE | barrels of oil equivalent |
BOE/d | barrels of oil equivalent per day |
CA$ or CAD | Canadian dollar |
ESG | Environment, Social and Governance |
GJ | gigajoule |
mcf | one thousand cubic feet |
mcf/d | one thousand cubic feet per day |
MMbtu | one million British thermal units |
MMcf | one million cubic feet |
MD&A | Management's Discussion and Analysis for the period ended September 30, 2023 |
MM | millions |
$MM | millions of dollars |
NI 51-101 | National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities |
NGL(s) | natural gas liquids |
NYMEX | New York Mercantile Exchange, with reference to the U.S. dollar "Henry Hub" natural gas price index |
TSX | Toronto Stock Exchange |
TSX-V | TSX Venture Exchange |
US$ or USD | United States dollar |
WTI | West Texas Intermediate, the reference price paid in U.S. dollars at Cushing, Oklahoma for crude |
SOURCE Spartan Delta Corp.
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