02:39:02 EDT Sun 24 Sep 2023
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Spartan Delta Corp
Symbol SDE
Shares Issued 155,390,379
Close 2022-08-09 C$ 12.55
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Spartan Delta earns $181.74-million in Q2 2022

2022-08-09 20:16 ET - News Release

Mr. Fotis Kalantzis reports


Spartan Delta Corp. has released its unaudited financial and operating results for the three- and six-month periods ended June 30, 2022, has provided details of a strategic acquisition, as well as an update to the company's guidance for the remainder of 2022.

Selected financial and operational information is set out below and should be read in conjunction with Spartan's unaudited interim financial statements and related management's discussion and analysis (MD&A) for the three and six months ended June 30, 2022, which are filed on SEDAR and are available on the company's website. The highlights reported in this press release include certain non-GAAP (generally accepted accounting principles) financial measures and ratios.

Second quarter 2022 highlights

  • Spartan's Q2 2022 production averaged 72,966 BOE/d (barrels of oil equivalent per day) (38 per cent liquids), up 84 per cent compared with 39,638 BOE/d (29 per cent liquids) in Q2 2021 and exceeded the upper range of previous guidance of 68,500 to 72,500 BOE/d. This was achieved despite of unplanned downtime from third party facilities and planned downtime from the company's major facility turnaround operations completed during the second quarter of 2022.
  • The company continues to see strong results from its drilling program and brought 9.0 new wells on production during the second quarter, of which 7.0 net wells were in the Montney driving the 15-per-cent increase in crude oil production compared with Q1 2022.
  • Global crude oil and natural gas prices reached their highest levels seen over the last decade driving record oil and gas sales, before royalties, of $438-million in Q2 2022. The company's average selling price of $65.92 per BOE increased by 34 per cent from $49.35 per BOE in Q1 2022 and by 147 per cent from $26.71 per BOE in Q2 2021. The increase in average realized prices highlights the company's oil-weighted production growth which has compounded the benefit of higher benchmark prices on revenues and cash flow.
  • The company's Q2 2022 operating netback increased to $45.56 per BOE before hedging ($37.47 per BOE after hedging), up 35 per cent from $33.73 per BOE ($26.94 per BOE after hedging) in Q1 2022 and up 161 per cent from $17.43 per BOE ($16.89 per BOE after hedging) in Q2 2021.
  • Spartan achieved record adjusted funds flow of $232-million ($1.33 per share, diluted), an increase of 45 per cent compared with $160-million (92 cents per share, diluted) in Q1 2022 and an increase of 339 per cent from $53-million (39 cents per share, diluted) in Q2 2021.
  • Net income increased to $182-million in Q2 2022, up from $61-million in Q1 2022 and compared with $20-million in Q2 2021.
  • Capital expenditures before A&D (acquisitions and divestitures) were $91-million for the three months ended June 30, 2022, of which approximately 90 per cent was spent in the Montney as activity slowed in the Deep basin through spring breakup. During the second quarter, Spartan completed and brought on production a 4.0-well pad at Karr, drilled and completed a 5.0-(4.9-net)-well pad in West Gold Creek which was subsequently brought on production in late July, and a 3.0-well pad in East Gold Creek that was completed in the first quarter was tied-in and brought on production in April. The company also brought 2.0 Cardium wells in the Deep basin on production in April that were completed in the first quarter and commenced drilling its first well into the Viking formation in June.
  • Free funds flow of $142-million generated in Q2 2022 was used to reduce the company's net debt to $262-million as at June 30, 2022; Spartan's quarter-end net debt represents approximately 0.3 times its Q2 annualized adjusted funds flow.

Financial and operating highlights

The attached table summarizes the company's financial and operating results for the three- and six-month periods ended June 30, 2022, and June 30, 2021.

Updated 2022 guidance

Average production volumes of 72,778 BOE/d in the first half of 2022 reflect the strong Montney drilling results achieved to date and, in tandem with rising commodity prices, have led to outperformance of the company's forecast for the first half of the year. Free funds flow of $193-million generated in the first six months of 2022 exceeded the company's previous H1 forecast of $65-million by 200 per cent, allowing Spartan to reduce its bank debt at an accelerated pace.

Spartan is encouraged by the results of its 2022 drilling program, which has consistently delivered highly accretive returns in excess of the company's budgeted type curves. Although the company's short-term priority for free funds flow continues to focus on debt repayment, Spartan's board of directors has approved a $90-million increase to the company's 2022 capital program. Of this amount, approximately one-half relates to added activity which will deliver incremental Montney production in early 2023. This accelerated development plan is an efficient allocation of capital that allows Spartan to fully utilize one of the company's Montney rigs year-round, reducing the risk of timely procurement of key services. In addition, incremental long-lead inventory has also been procured and select infrastructure and construction activities are being accelerated into 2022 to reduce execution risk in the 2023 operating plan.

The remainder of the increase to the 2022 capital budget is to address historical and anticipated cost inflation which has been seen across virtually every aspect of the company's business. This additional inflation amount represents an overall increase of approximately 14 per cent over the company's original 2022 capital estimates.

Based on forecast commodity prices for the second half of 2022 of $90 (U.S.)/bbl for WTI (West Texas Intermediate) crude oil and $5.75/GJ (gigajoule) for AECO 7A natural gas, Spartan expects to generate adjusted funds flow of $840-million (previously $589-million) and free funds flow of $420-million (previously $259-million) for the 2022 calendar year.

Spartan's updated 2022 guidance is summarized in the attached table along with a comparison with previous guidance published as of Feb. 15, 2022.

a) The financial performance measures included in the company's updated guidance for 2022 is based on the midpoint of the average production forecast of 72,000 BOE/d (previously 70,500 BOE/d).

b) "Operating netback," "settlements on commodity derivative contracts," "adjusted funds flow," "capital expenditures, before A&D," "free funds flow," "adjusted net capital acquisitions" and "net debt" do not have standardized meanings under IFRS (international financial reporting standards).

c) Additional information regarding the assumptions used in the forecasted average production, operating netbacks and adjusted funds flow for 2022 are provided in the reader advisories section of this press release.

d) The forecast of benchmark average prices for the 2022 calendar year is based on actual prices for the period ended June 30, 2022, and the following forecast prices for the second half of 2022: WTI $90 (U.S.)/bbl; NYMEX $7.88 (U.S.)/mmbtu (million British thermal units); AECO 7A $5.75/GJ; and a Canadian dollar/U.S. dollar exchange rate of 1.29.

e) The change in forecast net debt at Dec. 31, 2022, compared with previous guidance primarily relates to the $161-million increase in forecasted free funds flow for 2022, $4-million of proceeds received from stock options and warrants exercised in H1, and $6-million of acquisition costs, net of approximately $1-million of proceeds from dispositions.

f) The forecast of common shares outstanding at the end of 2022 includes restricted share awards expected to be released upon vesting, but does not include common shares potentially issuable in respect of stock options and warrants for which the exercise is discretionary on behalf of the holder.

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 $1 (U.S.)/bbl increase (decrease) in the forecasted WTI crude oil price for the second half of 2022 would increase adjusted funds flow by approximately $39-million (decrease by $40-million). An increase (decrease) of $1.00/GJ in the forecasted AECO 7A natural gas price for the second half of 2022, holding the NYMEX-AECO basis differential and all other assumptions constant, would increase adjusted funds flow by approximately $27-million (decrease by $30-million). Holding U.S.-dollar benchmark commodity prices and all other assumptions constant, an increase (decrease) of 10 cents in the Canadian dollar/U.S. dollar exchange rate would increase adjusted funds flow by approximately $41-million (decrease by $42-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).

Strategic acquisition

On Aug. 9, 2022, Spartan closed the corporate acquisition of Bellatrix Exploration Ltd. through a court supervised process under the companies' Creditors Arrangement Act (the CCAA) for a cash purchase price of $6-million. Pursuant to the acquisition, Spartan acquired 1,000 new common shares issued by Bellatrix and all other existing equity securities of Bellatrix were cancelled for no consideration, resulting in Spartan holding 100 per cent of the aggregate issued and outstanding equity securities of Bellatrix. Spartan previously acquired substantially all of Bellatrix's assets for total consideration of $109-million in June, 2020, which established the company's core operating area in the Alberta Deep basin. Following the acquisition and reorganization under the CCAA, Bellatrix will not have any significant assets or liabilities remaining except for approximately $600-million of non-capital loss tax pools estimated to be available for use by Spartan as of the closing date. Together with Spartan's existing tax pools of $1.6-billion as of June 30, 2022, the company's total tax pools are estimated to be in excess of $2.2-billion (about 60 per cent non-capital losses) pro forma the acquisition. Based on commodity strip pricing and current expectations of future capital expenditures and production levels, among other significant assumptions, Spartan expects its future tax horizon to be extended beyond 2025.

Pursuant to the early warning requirements of applicable Canadian securities laws, an early warning report with additional information in respect of the foregoing matters will be filed and made available on the SEDAR profile of Bellatrix. To obtain a copy of the early warning report, you may also contact Geri Greenall, chief financial officer of Spartan, by e-mailing info@spartandeltacorp.com.

ESG report

Spartan is proud to present its updated environment, social and governance (ESG) reporting and strategy. Reflecting the company's continuous commitment to ESG, Spartan will be updating ESG information regularly (versus annually) via the company's ESG website. Spartan's performance data will continue to be updated annually and the company will provide an annual ESG snapshot to capture Spartan's annual goals, targets and achievements.

About Spartan Delta Corp.

Spartan Delta is committed to creating a modern energy company, focused on sustainability both in operations and financial performance. The company's ESG (environmental, social and governance)-focused culture is centred 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 Montney. Spartan Delta is focused on the execution of the company's organic drilling program, 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 immediate production optimization, future growth with organic drilling, opportunistic acquisitions and the delivery of free funds flow.

Spartan's corporate presentation as of Aug. 9, 2022, can be accessed on the company's website.

We seek Safe Harbor.

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