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Forza Petroleum Ltd
Symbol FORZ
Shares Issued 584,976,202
Close 2022-05-13 C$ 0.215
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Forza Petroleum earns $22.2-million (U.S.) in Q1 2022

2022-05-13 19:11 ET - News Release

Mr. Vance Querio reports


Forza Petroleum Ltd. has released its financial and operational results for the three months ended March 31, 2022. All dollar amounts set forth in this news release are in United States dollars.

Financial highlights:

  • Revenue of $82.4-million for Q1 2022, consisting of an average realized sales price of $81.07/barrel of oil (bbl) on working interest sales of 851,000 bbl and $13.4-million in recovery of carried costs:
    • The corporation has received full payment in accordance with production sharing contract entitlements for all oil sales to the Kurdistan regional government through January, 2022.
  • Field operating costs, representing the corporation's working interest share of operating expenses, of $5.6-million ($6.64/bbl) for Q1 2022 versus $4.0-million ($5.89/bbl) for Q1 2021:
    • Field operating costs per bbl are up 13 per cent versus the comparable period as a result of increased costs for security and diesel, partially offset by higher production.
  • Profit of $22.2-million (four cents per common share) in Q1 2022 versus profit of $21.2-million in Q1 2021 (four cents per common share):
    • Profit in Q1 2021 included a one-time gain of $15.7-million on the deconsolidation of a subsidiary.
  • Net cash generated from operating activities was $12.6-million in Q1 2022 versus $4.2-million in Q1 2021.
  • Net cash used in investing activities during Q1 2022 was $20.6-million, including payments related to drilling and facilities work in the Hawler licence area, versus $7.2-million in Q1 2021.
  • Cash and cash equivalents of $16.6-million as of March 31, 2022.

Operations update:

  • Average gross (100-per-cent) oil production of 14,600 bbl/d (working interest 9,500 bbl/d) in Q1 2022.
  • Average gross (100-per-cent) oil production of 15,100 bbl/d (working interest 9,800 bbl/d) for April, 2022.
  • Three wells were drilled and completed during the first quarter of 2022. The Demir Dagh-10H and Zey Gawra-9H wells are on production and completion of the Demir Dagh-3H well has been suspended temporarily while continuing fluid and rock compatibility studies are completed.
  • The Demir Dagh-14 well targeting the Cretaceous reservoir of the Demir Dagh field was spudded on March 22, 2022, and total depth of the pilot hole was reached on May 9, 2022. Drilling operations are somewhat behind schedule but the corporation expects to complete the well later this month and turn it over to production in early June. A second drilling rig under contract with the corporation has been demobilized from the Hawler licence area for maintenance, inspection and recertification.
  • The worldwide outbreak of the COVID-19 virus, including within Iraq, has not directly impacted the corporation's operations and all extraordinary procedures and restrictions implemented by the corporation to limit the risk of infection and illness among staff have been discontinued.

2022 forecasted work program:

  • Forza Petroleum forecasts $72-million of capital expenditure for 2022, down from $81-million budgeted, resulting from the delay of certain activity into 2023 and decreased estimated costs for the pipeline connecting the Zey Gawra field to the Hawler production facilities at the Demir Dagh field.
  • The corporation continues to pursue the major elements of its 2022 work program including further development of the Demir Dagh Cretaceous reservoir with the drilling of the Demir Dagh-14 well, drilling one more new well targeting the Cretaceous reservoir, and side tracking and recompleting the existing Demir Dagh-9 well. Additional work in the program includes the completion of the Ain al Safra-2 well, drilling one new well in each of the Tertiary and Cretaceous reservoirs of the Zey Gawra field, conversion of an abandoned Zey Gawra well into a water disposal well, and spudding a well to appraise the potential of both the Tertiary and Cretaceous reservoirs in an undrilled structure west of the developed Zey Gawra field. The corporation also intends to redrill the horizontal drain of the temporarily abandoned Zey Gawra-6 well in the Cretaceous reservoir.
  • Installation of processing facilities and pipelines connecting each of the Banan field and the Zey Gawra field to the Hawler production facilities at the Demir Dagh field has been delayed by supply chain issues in acquiring the necessary line pipe.

Liquidity outlook:

  • The corporation expects cash on hand as of March 31, 2022, and cash receipts from net revenues from sales, exclusively made to the Kurdistan regional government at the tie-in to the Kurdistan oil export pipeline, will finance its forecasted capital expenditures and operating and administrative costs through the end of June, 2023, and finance the $76.2-million in deferred purchase consideration that falls due in 2023 in connection with the original acquisition of the Hawler licence area.

CEO's comment

Commenting today, Forza Petroleum's chief executive officer, Vance Querio, stated:

"We are extremely proud of our achievement in steadily increasing our production capacity over the past several years and we have produced more than 14,700 barrels per day on average since the beginning of 2022. As a result of this production, combined with the highest oil sales prices in more than seven years, Forza Petroleum posted a record $82.4-million of revenue for Q1 2022.

"The execution of our work program proceeded according to plan during the first quarter of this year although some of the wells completed are not yet as productive as we had forecast, either because of unexpected geological circumstances or unanticipated complications with our completions. We are working to resolve these issues through revised completion procedures and relocation of horizontal drains in some reservoirs.

"We continue to pursue a program that includes the completion of 10 producing wells and the spudding of an 11th well in 2022, as budgeted, but periodically adjust plans to align with available resources. Our program has incurred some relatively minor delay recently due to drilling issues in the Demir Dagh-14 pilot hole and we are not immune to the impediments caused by shortages of both services and materials that routinely occur in the oil and gas industry in the aftermath of rapidly increasing crude oil prices, exacerbated this time around by the lingering effects of COVID-19, especially in China, and the conflict in Ukraine.

"We recognize that it will be challenging for us to maintain the aggressive schedule of development activities that we embarked on at the beginning of this year, but our robust cash flow will allow us to pursue our program at whatever pace is otherwise achievable. We look forward to delivering more oil to the Kurdistan regional government and more value to our shareholders during the remainder of 2022."

Selected financial results

Financial results are prepared in accordance with international financial reporting standards (IFRS) and the reporting currency is United States dollars. References in this news release to the group refer to Forza Petroleum and its subsidiaries. The attached table summarizes selected financial highlights for Forza Petroleum for the three-month periods ended March 31, 2022, and March 31, 2021, as well as the year ended Dec. 31, 2021.

  • Revenue increased to $82.4-million in Q1 2022 versus $35.7-million in Q1 2021 due to an 82-per-cent increase in average oil sales prices and a 26-per-cent increase in oil sales volumes. Gross (working interest) production and sales of oil in Q1 2022 were 852,600 barrels and 851,000 barrels, respectively, versus 675,400 barrels and 673,400 barrels, respectively, for Q1 2021. The average oil sales price realized in Q1 2022 was $81.07 per barrel versus $44.44 for Q1 2021. In addition to oil sales, revenue includes the recovery of carried costs.
  • Operating expense, which includes the corporation's carry of partner costs, increased 42 per cent to $8.7-million in Q1 2022 versus $6.1-million in Q1 2021 due primarily to increased security and diesel costs. The increased security costs were due to a higher rate in the first quarter of 2022, compared with a temporarily reduced rate in the first quarter of 2021. Diesel costs have increased due to both higher costs and increased activity during the three months ended March 31, 2022. Operating expenses on a per-barrel basis increased in Q1 2022 versus Q1 2021 as operating expense increased 42 per cent but was partially offset by a 26-per-cent increase in sales volumes.
  • General and administration expense increased to $1.7-million in Q1 2022 versus $1.1-million in Q1 2021 due primarily to higher performance-related bonuses paid in Q1 2022 than were previously accrued. Of this general and administration expense, 43 per cent is cost recoverable from the corporation's oil and gas operations.
  • Profit for the three months ended March 31, 2021, was $22.2-million compared with $21.2-million in Q1 2021. The improved result is primarily attributable to a $27.6-million increase in net revenue resulting from increased realized sales price, oil sales volumes and recovery of carried costs. Profit for Q1 2021 included a $15.7-million gain resulting from the deconsolidation of a subsidiary.
  • Sales volumes increased 26 per cent and 12 per cent versus Q1 2021 and Q4 2021, respectively, due to the contribution of production from new wells partially offset by natural declines in the oil rate from some Zey Gawra field producing wells.
  • Net cash generated from operating activities was $12.6-million in Q1 2022 compared with $4.2-million in Q1 2021. The increase mainly reflects higher revenue received during the period, partially offset by an increase in royalties and cash payments relating to operating expenses.
  • Net cash used in investing activities increased to $20.6-million in Q1 2022 as compared with $7.2-million in Q1 2021 due to increased drilling activity.
  • Capital additions in Q1 2022 totalled $19.1-million as compared with $7.0-million in Q1 2021. In Q1 2022, $18.1-million of capital expenditures related to drilling activities were incurred in the Hawler licence area primarily at the Demir Dagh and Zey Gawra fields. Q1 2022 capital expenditures also included $600,000 of facilities expenditures and $400,000 on directly attributable support costs.
  • Cash and cash equivalents decreased to $16.6-million at March 31, 2022, from $24.7-million at Dec. 31, 2021, reflecting $20.6-million used in investing activities partially offset by $12.6-million generated from operating activities. The cash balance was impacted by an additional month delay on outstanding payments during the first quarter of 2022. Two revenue payments were received during the three months ended March 31, 2022, compared with three revenue payments received during the three months ended Dec. 31, 2021.
  • The corporation is obligated to make a further payment to the seller of the Hawler licence area in the amount of $76.2-million. In accordance with a forbearance agreement entered with the seller of the Hawler licence area, and subject to pending negotiations to restructure the obligation, the full amount is forecast to become payable at the end of March, 2023.
  • As at May 13, 2022, there are outstanding: (i) 584,976,202 common shares, (ii) unvested long-term incentive plan awards which are expected to result in the issuance of up to an additional 20,742,033 common shares upon vesting, and (iii) 33,149,000 warrants that were issued in 2020 in connection with an amendment to a loan agreement that was subsequently settled in full.

Regulatory filings

This announcement coincides with the filing with the Canadian securities regulatory authorities of Forza Petroleum's audited condensed consolidated financial statements for the three months ended March 31, 2022, and the related management's discussion and analysis thereon. Copies of these documents filed by Forza Petroleum may be obtained via SEDAR and the corporation's website.

About Forza Petroleum Ltd.

Forza Petroleum is an international oil exploration, development and production company. The corporation's shares are listed on the Toronto Stock Exchange and trade under the symbol FORZ. Forza Petroleum has a 65-per-cent working interest in and operates the Hawler licence area in the Kurdistan region of Iraq, which has yielded oil discoveries in four areas, three of which are contributing to production while appraisal and development activity continues.

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