Mr. Patrick Oliver reports

BONTERRA ENERGY CORP. ANNOUNCES SECOND QUARTER 2023 RESULTS HIGHLIGHTED BY INCREASED QUARTER-OVER-QUARTER PRODUCTION, CASH FLOW AND NET EARNINGS WITH LOWER NET DEBT

Bonterra Energy Corp. has released its operating and financial results for the three- and six-month periods ended June 30, 2023. The related unaudited condensed financial statements and notes, as well as management's discussion and analysis (MD&A), are available on SEDAR and on Bonterra's website.

Financial and operating highlights

• Production in Q2 2023 averaged 13,911 BOE (barrels of oil equivalent) per day, 3-per-cent higher than Q1 2023, reflecting well outperformance from new production brought on stream late in Q1 2023, offset by the impact of the Alberta wildfires that required production to be shut-in for safety measures during the quarter of approximately 333 BOE per day.
• Funds flow totalled $34.8-million (93 cents per fully diluted share) in Q2 2023, an increase of 19 per cent over the previous quarter, contributing to free funds flow of $18.7-million that supports Bonterra's debt reduction strategy and helps progress toward the company's goal of re-establishing a sustainable shareholder returns strategy upon achieving optimal leverage metrics. During the first six months of 2023, funds flow totalled $64.1-million ($1.72 per fully diluted share).
• Net earnings in the second quarter demonstrated full cycle profitability and totalled $8.8-million (24 cents per diluted share), 16-per-cent higher than Q1 2023 and 74-per-cent lower than Q2 2022, and in the first half of 2023 totalled $16.5-million (44 cents per diluted share), which represents a decrease of 63 per cent given higher commodity prices through the first half of 2022.
• Production costs of $16.88 per BOE in Q2 2023 decreased by 4 per cent compared with the preceding quarter due to lower well maintenance costs for well reactivations and backstopping full year guidance in the $16.00 to $16.50 per BOE range.
• Capital expenditures in the quarter totalled $16.1-million, or 73-per-cent lower than the more active Q1 2023 period, reflecting lower activity levels which are common during spring breakup, with capital directed to drill four gross (4.0 net) operated wells, and the completion, equip and tie-in of seven gross (6.4 net) operated wells, and approximately $1.5-million for related infrastructure, recompletions and non-operated capital programs.
• Net debt totalled $168.3-million at June 30, 2023, 12-per-cent higher than year-end 2022 and 8-per-cent lower than the preceding quarter, reflecting a less active capital program in Q2 compared with Q1 2023, along with a decline in cash flow stemming from lower commodity prices year to date.
  • Bonterra's leverage profile remained strong in Q2, with bank debt totalling $35.5-million at quarter-end, reflecting a decrease of 68 per cent from $111.5-million at the same period in 2022, and an increase from $17.6-million at year-end 2022, due to the active capital program in Q1 2023.
  • During Q2 2023, Bonterra completed the renewal of its $110-million bank facility, which is structured as a normal course, reserve-based credit facility available on a revolving basis through April 30, 2024, with biannual borrowing base redeterminations and a maturity of April 30, 2025.

Quarter in review

Having successfully executed an active Q1 winter drilling and completions program, Bonterra entered Q2 2023 with strong production from wells drilled late in Q1 2023. Production for the quarter averaged 13,911 BOE per day and was 13,689 BOE per day for the six months ended June 30, 2023, reflecting a 3-per-cent and a 1-per-cent decrease compared with the same respective periods in 2022. The reduced production is directly attributable to 333 BOE per day shut-in during Q2 2023 due to the wildfires in central Alberta. Bonterra continues to anticipate annual average production will be at the upper limit of its 2023 average annual guidance range of between 13,500 to 13,700 BOE per day.

As anticipated, net debt declined quarter over quarter to $168.3-million at June 30, 2023, compared with $183.7-million at March 31, 2023, a function of lower capital spending and field activity combined with higher production volumes, offset by lower realized prices per BOE. These higher volumes in the quarter also contributed to lower operating costs of $16.88 per BOE compared with $17.54 per BOE in the previous quarter.

Revenue, netbacks and funds flow

During the second quarter, the company realized oil and natural gas sales of $75.6-million, and in the first six months of the year generated $152.9-million, compared with $116.7-million and $208.2-million in the same respective periods of 2022. With oil and liquids revenue representing approximately 87 per cent of the total, the approximately 27-per-cent decline in light oil prices in Q2 2023 compared with Q2 2022 contributed to lower field and cash netbacks. Bonterra's field and cash netbacks were $36.78 per BOE and $27.49 per BOE in Q2 2023, respectively, compared with $34.90 per BOE and $24.21 per BOE in Q1 2023, respectively, and $54.86 per BOE and $47.47 per BOE, respectively, in Q2 of 2022.

Through the second quarter, oil prices continued to soften due to macroeconomic uncertainty which impacted demand, including concerns about high inflation, rising interest rates and recessionary fears, yet supply remained resilient. With expectations that OPEC+ will continue to manage global oil supply, prices are expected to be supported through the balance of 2023 and into 2024. Similarly, natural gas pricing remained weak through the second quarter, as inventories rose steadily given muted heating and cooling demand caused by unusually mild weather conditions, coupled with a continued strong supply of natural gas from North America. These market and pricing factors resulted in Bonterra realizing an average price of $93.21 per bbl for oil, $43.97 per bbl (barrel) for NGL (natural gas liquids) and $3.01 per mcf (thousand cubic feet) for natural gas, which represent decreases of 3, 19 and 20 per cent over the previous quarter, respectively.

The company recorded net earnings for the three- and six-month periods ended June 30, 2023, generating $8.8-million (24 cents per diluted share) and $16.5-million (44 cents per diluted share), respectively. Funds flow for the quarter totalled $34.8-million (93 cents per diluted share) and for the six months ended June 30, 2023, was $64.1-million ($1.72 per diluted share), representing declines of 44 per cent and 41 per cent, respectively, compared with the same periods in 2022, due primarily to lower commodity pricing in 2023.

Modest capital program and continuing reclamation

Consistent with previous years, Bonterra's Q2 2023 capital program was lower than the previous quarter and totalled $16.1-million, which was a function of spring breakup. Capital was allocated to the drilling of four gross (4.0 net) operated wells that were brought on line early in Q3, and the completion, equip and tie-in of seven gross (6.4 net) operated wells, with approximately $1.5-million for related infrastructure, recompletions and non-operated capital programs. The project to expand Bonterra's wholly owned gas plant was completed during the first half of 2023, and is anticipated to eliminate processing capacity limitations and support future growth.

While executing on a modest capital program during the second quarter, Bonterra continued to progress its continuing abandonment and reclamation efforts and leveraged support of the Alberta site rehabilitation program (SRP), which concluded in Q2 2023. During the three and six months ended June 30, 2023, the company abandoned 13.9 net wells and 24 pipelines, and 60.1 net wells and 60 pipelines, respectively. By year-end 2023, Bonterra expects to have abandoned approximately 75 per cent of all wells identified as having no further economic potential, building on the successful abandonment of 547.6 net wells, 347 pipelines and six facilities since the beginning of 2020.

First Montney test well

The company is also pleased to confirm that before the end of 2023, Bonterra plans to drill its first Montney test well on Bonterra's contiguous 45-section (28,880 acres), 100-per-cent working interest land base situated north of Grand Prairie (Valhalla) within the guided capital budget of $120 -- $125-million. The Montney is recognized as one of Canada's highest-impact and economic plays, and as such, the successful testing and delineation of Bonterra's strategic Valhalla asset is expected to provide greater optionality and an expanded potential development runway for the future.

Outlook

Following a successful second quarter of 2023, along with positive movements in forward commodity prices for the remainder of the year, Bonterra is pleased to reaffirm its previously released 2023 guidance as outlined in the company's Dec. 15, 2022, press release. In light of asset outperformance, annual average production volumes are trending toward the high end of the previously provided guidance range of between 13,500 and 13,700 BOE per day, and are expected to be weighted approximately 60 per cent to oil and liquids. Bonterra is targeting to drill approximately 14.6 net wells in the second half of 2023, including the new Montney test well, along with directing capital to facilities, pipelines and a continued commitment to continuing abandonment and reclamation activities, and expects to remain within the original 2023 capital expenditure budget of $120-million to $125-million.

In addition to maintaining operational excellence through the continuing development of its high-quality Cardium asset base, to date in 2023 Bonterra has remained sharply focused on continued debt reduction and strengthening the balance sheet to support long-term resilience and sustainable growth. The company is targeting a return of capital strategy over the coming quarters, contingent on minimal bank debt drawn and net debt to EBITDA of less than 1.0: 1.0. Bonterra will also seek to identify and transact on accretive acquisitions that can increase production, add to the drilling inventory, generate free cash flow and further bolster the balance sheet.

Risk management underpins sustainability

As a means of further supporting Bonterra's stability during periods of continued market volatility, protecting future cash flows and aiming to diversify the company's commodity price exposure, hedges have been layered on approximately 30 per cent of Bonterra's expected crude oil and natural gas production through Q1 2024. For the next nine months, Bonterra has secured the following:

• WTI prices between $50 (U.S.) to $98.65 (U.S.) per bbl on approximately 2,200 bbl per day; and
• Natural gas prices between $2.50 to $5.00 per GJ (gigajoule) on approximately 10,784 GJ per day.

Bonterra is proud to be one of Canada's longest standing and most resilient junior oil and gas companies, with an established name, record and history of value creation for shareholders. As the company continues to evolve and grow under a refreshed board, a new chief executive officer and a revitalized strategy, this fall Bonterra is excited to also unveil novel branding and new corporate materials that better reflect its current strengths and innovative approach to leveraging future opportunities. With a moderate annual production decline rate, extensive inventory of economically viable undrilled locations, an early stage, high-impact Montney exploration play and a strategic hedging program to reinforce economics, the company is positioned to focus on enhancing financial flexibility and undertaking safe, responsible and efficient operations to achieve measured growth.

About Bonterra Energy Corp.

Bonterra Energy is a conventional oil and gas corporation with operations in Alberta, Saskatchewan and British Columbia, focused on its strategy of long-term, sustainable growth and value creation for shareholders. The company's shares are listed on The Toronto Stock Exchange under the symbol BNE.

We seek Safe Harbor.