Mr. Ian Atkinson reports

SOUTHERN ENERGY CORP. ANNOUNCES Q3 2019 FINANCIAL AND OPERATING RESULTS

Southern Energy Corp. has released its financial and operating results for the three and nine months ended Sept. 30, 2019. Southern's unaudited condensed consolidated financial statements and related management's discussion and analysis (the MD&A) for the three and nine months ended Sept. 30, 2019, are available on the company's website and filed on SEDAR.

Third quarter 2019 highlights

• Achieved record production averaging 15,832,000 cubic feet equivalent per day (Mcfe/d) (91 per cent natural gas) during Q3 2019 and 11,880 Mcfe/d (88 per cent natural gas) for the first nine months of 2019, including the successful addition of 900 Mcfe/d due to costless well optimizations performed on the high-quality, low-decline Mississippi assets that were acquired by the company in late Q2 2019;
• Operating netbacks averaged $1.64/Mcfe in Q3 2019 and $1.78/Mcfe for the first nine months of 2019, driving positive adjusted funds flow from operations of $1.1-million and $2.0-million, respectively. Operating netbacks in the quarter were supported by production and operating cost savings totalling 42 cents/Mcfe, or a 25-per-cent improvement over Q2 2019, directly related to operational synergies realized as a result of the acquisition;
• Realized prices for natural gas and oil in Q3 2019 averaged $2.81/Mcf and $81.41/barrel, respectively, as a direct result of premium pricing at U.S. sales hubs, which currently trade at a premium to Canadian benchmark prices and benefit producers selling into U.S. markets;
• Capital expenditures through Q3 2019 totalled $100,000, primarily directed to facility and well site equipment upgrades associated with the acquisition;
• Cost reduction efforts continued as Southern drove down operating expenses in Q3 2019 by approximately $24,000 per month through streamlined field operations and negotiated a 36 cents/Mcf transportation cost reduction on approximately two-thirds of the production gained through the acquisition;
• Directed excess adjusted funds flow from operations to voluntarily repay $700,000 on the company's credit facility in Q3 2019, with an additional $400,000 repaid subsequent to quarter-end, further demonstrating Southern's commitment to strengthening its balance sheet and enhancing financial flexibility;
• Subsequent to Sept. 30, 2019, as part of the semi-annual borrowing base review, the company's subsidiary Southern Energy Corp. (Delaware), a wholly owned subsidiary of the corporation, entered into an amendment to the credit facility adjusting the borrowing base to $15.0-million (U.S.) ($19.9-million). Beginning Jan. 1, 2020, the borrowing base will be reduced monthly by $250,000 (U.S.) ($330,000) until the completion of the next borrowing base review scheduled for March 1, 2020. As of Nov. 27, 2019, Southern had $14.7-million (U.S.) ($19.5-million) drawn on the credit facility;
• Subsequent to Sept. 30, 2019, Southern entered into commodity derivative contracts for 1,000 million British thermal units per day from Jan. 1, 2020, to March 31, 2020, at $2.70 (U.S.)/MMBtu and 50 barrels per day for calendar 2020 at $55.25 (U.S.)/bbl.

"Financial discipline, cost control and long-term sustainability continue to be priorities for Southern into Q4 and to set the stage for 2020," said Ian Atkinson, Southern's president and chief executive officer. "Given Southern's high-quality asset base with low annual production decline rates, our maintenance capital requirements are minimal, allowing us to internally fund capital expenditures while reducing debt and seeking to maximize operating cash flow."

           
                                FINANCIAL & OPERATING HIGHLIGHTS
                                     (thousands of dollars)
  
                                      Three months ended                   Nine months ended
                                                Sept. 30,                           Sept. 30,
                                      2019          2018                2019            2018

Oil and natural gas revenue          $5,340           $-             $14,147              $-     
Net (loss)                           (1,081)           -              (3,109)              -              
Per share -- basic and diluted        (0.00)           -               (0.01)              -              
Total net loss                       (1,081)        (134)             (3,086)           (327)          
Adjusted funds flow from operations   1,143          (29)              2,000             (29)           
Capital expenditures                    595            -              22,754               -              
Net debt                             32,130            -              32,130               -              

  

                                                 Three months ended             Nine months ended
                                                           Sept. 30,                     Sept. 30,
                                            2019               2018          2019            2018
Sales volumes                                                                                           
Crude oil (bbl/d)                            198                 -            180               -              
Natural gas (Mcf/d)                       14,440                 -         10,439               -              
NGLs (bbl/d)                                  34                 -             39               -              
Production from continuing operations     15,832                 -         11,753               -              
Production from discontinued operations        -               295            127             282            
Total production (Mcfe/d)                 15,832               295         11,880             282            
Percentage of natural gas                    91%                 -            89%               -              
                                                                                                        
Average realized prices                                      
Crude oil ($/bbl)                         $81.41                $-         $83.31              $-
Natural gas ($/Mcf)                         2.81                 -           3.36               - 
NGLs ($/bbl)                               39.32                 -          44.14               - 
Combined ($/Mcfe)                          $3.67                $-          $4.41              $-
                                                             
Operating netback ($/Mcfe)                                  
Revenue                                    $3.67                $-           4.41              $-
Royalties                                  (0.69)                -          (0.82)              - 
Realized gain/(loss) on derivatives         0.19                 -           0.06               - 
Production and operating costs             (1.29)                -          (1.57)              - 
Transportation expense                     (0.24)                -          (0.30)              - 
Operating netback ($/Mcfe)                 $1.64                $-          $1.78              $-
Operating netback % of revenue               45%                 -            40%               - 

Outlook

For the remainder of 2019, Southern plans to execute a disciplined and conservative capital program totalling $300,000 focused on maintaining stable production volumes. As a result of the preparatory work completed earlier this year, the company is ideally positioned to quickly advance its Gwinville drilling program when commodity prices and the broader operating environment are supportive. As the Gwinville land is held by production, there are no expiry issues pertaining to the well. The company will continue to monitor current and forward commodity prices and assess its own financial capabilities before electing to proceed with any additional drilling as part of its growth and development program.

For the balance of 2019, close to 30 per cent of Southern's budgeted natural gas production is hedged at an average price of $2.84 (U.S.)/Mcf with additional hedges layered on through 2020 and 2021 at $2.64/Mcf and $2.58/Mcf respectively, positioning the company to withstand further commodity price volatility.

Southern thanks all of its shareholders, employees and other stakeholders for their continuing support through these challenging market conditions.

Southern's annual general and special meeting will be held on Dec. 11, 2019, at 9 a.m. Calgary time in the Devonian Gardens Event Room -- 400, 317 7th Ave. SW, Calgary, Alta., Canada T2P 2M5.

About Southern Energy Corp.

Southern Energy is an oil and natural gas exploration and production company. Southern has a primary focus on acquiring and developing conventional light oil and natural gas resources in the southeast Gulf States of Mississippi and Alabama. The company's management team has a long and successful history working together and has created significant shareholder value through accretive acquisitions, optimization of existing oil and natural gas fields and the utilization of horizontal drilling and multistaged fracture completion techniques.

We seek Safe Harbor.