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Bonterra Energy Second Quarter 2022 Results

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   |    Tuesday,August 09,2022

Bonterra Energy Corp. reported its second quarter 2022 results.

Highlights:

• Production averaged 14,328 BOE per day in Q2 2022, 13 percent higher than Q2 2021, and averaged 13,810 BOE per day in the first six months of 2021, a 12 percent increase over the comparative period the prior year, reflecting an active drilling program along with the continued reactivation of wells that were previously shut-in voluntarily due to low commodity prices.
• Realized oil and gas sales in Q2 2022 increased 97 percent over the same period the prior year and totaled $116.7 million, while in the first half of 2022 increased by 93 percent over the corresponding period in 2021 with growth primarily driven by higher production volumes and a significantly improved commodity price environment that drove strong netbacks.
• Field netbacks¹ averaged $54.86 per BOE in Q2 2022 and $50.13 per BOE in the first half of 2022, representing increases of 99 percent and 92 percent over the same periods in 2021, respectively, while cash netbacks in the same respective periods averaged $47.47 per BOE and $43.60 per BOE, reflecting increases of 138 percent and 145 percent, respectively, largely due to much higher commodity prices year-over-year.
• Funds flow¹ in Q2 2022 totaled $61.9 million ($1.62 per fully diluted share), an increase of 168 percent from $23.1 million ($0.67 per fully diluted share) in Q2 2021, while funds flow¹ in the first half of 2022 totaled $109.0 million ($2.90 per fully diluted share) representing an increase of 175 percent from the same period in 2021.
• Funds flow¹ in excess of capital expenditures (“free funds flow”¹) totaled $47.4 million in Q2 2022 and $62.3 million in the first half of 2022, which Bonterra directed primarily to debt repayment.
• Capital expenditures in the first half of 2022 totaled $46.7 million and included the majority of Bonterra’s planned infrastructure budget to address gas handling issues, along with drilling 15 gross (14.7 net) wells and completing, equipping, tying-in and placing on production 21 gross (20.7 net) wells, with six of the completed and equipped wells having been drilled late in 2021. Approximately $9.6 million of the capital program was directed to the construction of a wholly owned gas plant, related infrastructure, recompletions and non-operated capital programs.
• Quarter-end bank debt totaled $111.5 million, a 19 percent reduction compared to Q1 2022, largely as a result of the Company’s increased free funds flow¹. Net debt¹ of $211.3 million as at June 30, 2022 was 21 percent lower than year-end 2021, improving Bonterra’s net debt to twelve-month trailing cash flow ratio¹ to 1.3 times compared to 2.8 times at December 31, 2021.
• During the first half of 2022, Bonterra successfully abandoned 73.1 net wells, 26.0 net pipeline segments and decommissioned 2.0 net battery sites with support from the Alberta Site Rehabilitation Program (“SRP”). Before the end of 2022, a further 58.5 net wells and associated pipelines that have no further economic potential are targeted for abandonment.
• Subsequent to the end of the quarter, Bonterra announced the retirement of Mr. George Fink as President & CEO, and the appointment of Mr. Patrick Oliver as his successor, effective September 6, 2022. Mr. Fink will remain on the Company’s Board and Mr. Oliver will be appointed to the Board.

Summary

Following a successful drilling program, the reactivation of off-line wells due to increased commodity prices, and the commissioning of a wholly owned gas plant to alleviate processing capacity limitations during the first half of 2022, Bonterra realized higher production volumes both quarter-over-quarter and year-over-year. In the second quarter, Bonterra’s production averaged 14,328 BOE per day and was 13,810 BOE per day in the first half, increasing 13 percent and 12 percent, respectively, over the same periods in 2021. Continued strength in commodity prices through Q2 2022 drove higher netbacks, particularly given the 78 percent increase in Bonterra’s realized crude oil prices in the period. This, combined with Bonterra’s increased average production volumes, enhanced funds flow¹ and free funds flow¹ in the period, which enabled the Company to further reduce indebtedness and improve the balance sheet.

Revenue, Netbacks and Funds Flow

Oil and liquids revenue represented 84% of the Company’s total realized oil and gas sales in the first half of 2022, driving field and cash netbacks¹ that were 92 percent and 145 percent higher, respectively, over the first half of the prior year. In Q2 2022, the Company’s average realized oil price was $126.97 per bbl, the NGL price was $77.23 per bbl, and the average natural gas price was $6.76 per mcf; increases of 78 percent, 117 percent and 101 percent, respectively, compared to the same period in 2021. This led to robust field netbacks of $54.86 per BOE and cash netbacks of $47.47 per BOE in Q2 2022, 99 percent and 138 percent higher than Q2 2021, respectively.

Bonterra generated $61.9 million of funds flow¹ ($1.62 per diluted share) and $47.4 million of free funds flow¹ in Q2 2022, with $109.0 million in funds flow¹ ($2.90 per diluted share) and $62.3 million of free funds flow¹ generated during the first six months of the year. The Company intends to maintain its focus on generating robust free funds flow¹ that can be allocated to further reducing outstanding bank debt and improving the balance sheet.

Capital Expenditures

To date in 2022, industries and organizations around the world have experienced inflationary pressures and cost increases driven by ongoing supply chain issues, labour shortages and increased inflation rates. In the energy sector specifically, higher commodity prices have led to stronger demand for well drilling and completion services.

Throughout the first half of 2022, Bonterra continued to invest capital targeting incremental growth initiatives that support development of its high-quality, light oil weighted asset base. Approximately 70 percent, or $46.7 million, of the Company’s original annual capital budget was invested to June 30, 2022, and included the majority of its planned infrastructure budget to address gas handling issues.

Debt Reduction

Through the past few years, Bonterra has managed cash flow and capital expenditures while prioritizing debt reduction, and will continue to assess this balance on a quarterly basis. By the end of Q2 2022, the Company’s net debt to twelve-month trailing cash flow ratio was 1.3 to 1 times, a significant improvement over the 2.8 to 1 times at year end 2021.

Net debt at June 30, 2022 totaled $211.3 million, lower than the comparable period in 2021 by $108.0 million, primarily due to increased cash flow from higher commodity prices and greater production volumes. The total draw on Bonterra’s bank facility at quarter end was $111.5 million, on a total bank facility of $155.0 million ($140.0 million syndicated revolving credit facility and $15.0 million non-syndicated revolving facility). Commencing on July 31, 2022, the Company has committed to four monthly step down commitments of $10 million, concluding on October 31, 2022, which will reduce the available amount on the syndicated revolving credit facility.

Environmental Responsibility

Through the first half of 2022, Bonterra continued to focus on being a responsible corporate citizen, including efficiently managing its abandonment and reclamation obligations leveraging support from Alberta’s SRP. As part of this, the Company’s continuously analyzes its inactive well inventory for future potential to determine whether a well bore could be reactivated, repurposed, or if it should be abandoned. Over the remainder of this year, Bonterra forecasts abandoning a further 58.5 net wells and associated pipelines which are deemed to have no future economic potential.

Executive Changes

On July 22, 2022, Bonterra announced that its founder, George Fink, would be retiring effective September 6, 2022, having served as its President and CEO since 1998 and Chair of the Board until March of 2021. With an equity ownership stake of 14 percent, Mr. Fink is the largest single shareholder in Bonterra and has been critically important in building and maintaining a longstanding retail shareholder base that differentiates the Company from its peers. He will remain on Bonterra’s Board of Directors who appreciate and thank George for his efforts and support through the CEO transition. The Board looks forward to working alongside George to represent the Company’s shareholders going forward.

Succeeding Mr. Fink as President and CEO is Mr. Patrick Oliver, a seasoned industry executive bringing more than 35 years of experience in the upstream oil and gas sector in Western Canada and a proven track record leading several companies from start-up to a successful sale. Mr. Oliver will also join the Board upon assuming the new executive role.

Outlook

The first half of 2022 enabled the Company to build momentum for continued positive results and performance. This supports affirming Bonterra’s previously communicated 2022 production guidance of 13,300 to 13,700 BOE per day[2] with an increased capital expenditure budget range of $70 million to $75 million, due to additional infrastructure costs and inflationary pressures.

Although the commodity price environment has remained strong to date in 2022, Bonterra has taken steps to protect future cash flows by layering in hedges on approximately 30 percent of its expected crude oil and natural gas production to the end of Q2 2023. For the next 12 months, Bonterra has secured a WTI price between $48.00 USD to $103.30 USD per bbl on 2,261 bbls per day, with a WTI to Edmonton par differential average of approximately $5.97 on 1,346 bbls per day. In addition, the Company has secured natural gas prices between $2.50 to $5.00 on 10,556 GJ per day for the next 12 months.

Bonterra’s high-quality and oil-weighted asset base is realizing strong oil prices with enhanced netbacks in the current environment, allowing the Company to generate robust funds flow¹ and free funds flow¹. By maintaining control over costs in the face of inflationary pressures while driving enhanced capital efficiencies, Bonterra anticipates directing further funds to debt repayment and ultimately establishing a position that would allow a return of capital to shareholders. The Company believes this offers the greatest opportunity to generate long‐term returns while maintaining Bonterra’s economic and environmental sustainability.