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Bonterra Energy First Quarter 2020 Results

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   |    Tuesday,May 12,2020

Bonterra Energy Corp. reported its Q1 2020 results.

Q1 in Review

In the first quarter of 2020, the COVID-19 pandemic, and supply and demand imbalance stemming from OPEC+ policy changes, combined to create unforeseen challenges for the global oil and gas industry. Bonterra prudently managed operations through this period by quickly responding to protect balance sheet strength, identify cost efficiencies, and to preserve the value of its asset base by strategically managing production and assessing the impact of shutting in production. Consistent with this approach, the monthly dividend and the Company’s capital program were suspended in April 2020 to defensively manage funds flow.

Crude oil and natural gas prices were negatively impacted by these macro-level events, which consequently had an adverse effect on the Company’s net earnings for the first quarter of 2020 and resulted in a non-cash impairment provision of $331.7 million to Bonterra’s oil and gas asset carrying values. Future positive revisions to forecast crude oil prices could result in a reversal to the non-cash impairment provision.

Q1 2020 Highlights

  • Averaged 12,034 BOE per day of production in Q1 2020, consistent with the same period of 2019, reflecting minimal capital spending in Q4 2019 and the impact of approximately 525 BOE per day of shut-in production volumes due to low commodity prices.
  • Generated funds flow1 of $14.7 million in the quarter ($0.44 per share) which was directed to the Company’s first quarter capital expenditure program.
  • Reduced net debt by eight percent to $300.7 million at March 31, 2020 compared to the end of Q1 2019 attributable to the Company’s bank debt reduction measures, while Bonterra’s more active capital program in Q1 2020 increased net debt by three percent relative to year-end 2019.
  • Invested approximately $21.7 million of capital expenditures, with $17.3 million directed to drilling eight gross (8.0 net) wells and completing and tying-in nine gross (9.0 net) wells, including three gross (3.0) net wells drilled in Q4 2019 and brought on production in Q1 2020, with an additional $4.4 million allocated primarily to infrastructure investments. One well was not completed due to the impact of commodity pricing, and one well was unsuccessful as a result of a drill bit lost downhole.
  • Reinforced the financial resilience of the Company in response to the COVID-19 pandemic by suspending the monthly dividend and deferring further capital expenditures until market conditions improve.

COVID-19 Response

By mid-February, the global impact of COVID-19 was becoming clearer, and in the first half of March, OPEC+ changed its policy from one of restricting supply to one of increasing supply. These combined factors led to significant oil price declines and a general deterioration of global equity markets. The Company acted swiftly and chose to shut-in production volumes at the end of February, while also implementing measures to mitigate risks associated with the COVID-19 pandemic. Bonterra places the utmost priority on the health and safety of its employees, partners and other stakeholders, and took steps to facilitate a remote working environment and additional safety measures in the field.

In light of COVID-19 and OPEC+ contributing to a dramatic decrease in oil prices, the Company and Board reacted with the following timeline to these macro conditions:

  • February 27 – commenced initial production shut-in;
  • March 10 – announced capital spending reduction to $25 million, dividend suspension and additional shut-in production;
  • April 1 – initiated an operating cost review and identified savings of approximately $1.5 million per month for the remainder of the year;
  • April 21 – announced a refreshed board with nominations for Ms. Jacqueline Ricci and Mr. Jay Campbell;
  • April 30 – announced extension of credit facility review and assessment of application for federal loan/guarantee programs;
  • May 1 – implemented G&A savings measures of approximately 40 percent per month primarily related to reduced work weeks and compensation; and
  • May 1 – submitted applications to oilfield service providers under the Site Rehabilitation Program.

As needed, the Company is prepared to take further action to optimize its business operations over the short and longer term, with the utmost priority remaining on the health and safety of its people. The impact of this pandemic has reinforced the importance of Bonterra’s debt reduction strategy, flexible capital program, high-quality, light oil weighted Cardium assets and proven, long-term strategy.

Bonterra’s operations are very flexible and allow the Company to respond quickly to a changing commodity price environment by shutting-in production at minimal cost, without the risk of long-term reservoir impairment. Given futures prices are higher than current prices, bringing new production on stream into the current market provides significantly less value than deferring production of those barrels into the future. As a result, Bonterra intends to shut-in approximately 2,630 BOE per day by May 1, 2020 and is prepared to shut-in further volumes should oil prices remain depressed in the near-term. Since the Company’s production base is highly tolerant of temporary shut-ins, volumes can be rapidly restarted once oil prices dictate.

To further mitigate the continued commodity price volatility and protect future cash flow during 2020, the Company entered into physical delivery sales and risk management contracts. In Q2 2020, Bonterra will receive between $59.50 to $70.25 per bbl on 2,000 bbls per day of crude oil. For the months of May and June, the Company will also receive between $18.75 to $19.25 per bbl on an additional 1,000 bbls per day of crude oil. In addition, for Q3 2020, on 500 bbls per day of crude oil Bonterra will receive $28.35 per bbl. In the warmer months of April 1, 2020 through October 31, 2020, Bonterra diversified its natural gas pricing by entering into a physical delivery sales contract on 5,000 GJs per day ranging between $1.55 to $1.64 per GJ.

Outlook

Bonterra’s syndicate of lenders has confirmed an extension to the Company’s annual bank facility review and redetermination date to May 29, 2020 from April 28, 2020. This extension affords both the Company and its syndicate additional time to assess the ongoing impacts of COVID-19 and the resultant oil demand impact on current commodity pricing. The Federal Government has announced a support program intended to provide a liquidity backstop for certain types of credit facilities utilized by oil and gas companies, including Bonterra, which will be administered by the Export Development Bank of Canada (“EDC”) and the Business Development Bank of Canada (“BDC”). It is expected that additional lending and credit capacity will be provided for those qualifying oil and gas producers who were deemed financially viable prior to the onset of the COVID-19 pandemic. Bonterra intends to pursue such support programs.

The Company expects its 2020 capital program to remain suspended until such a time when commodity prices are more supportive, and as such, has withdrawn previously communicated guidance for 2020. In the second quarter and latter half of 2020, the Company will assess existing production to determine whether further shut-ins may be required, or to facilitate a rapid ramp-up of volumes should pricing be supportive.


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