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Yangarra Resources Fourth Quarter, Full Year 2020 Results

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   |    Friday,March 05,2021

Yangarra Resources Ltd. reported its Q4 and full year 2020 results.

2020 was a volatile year with many challenges for the oil & gas industry in North America. Yangarra quickly responded to COVID-19 in early 2020 by reducing the capital program to zero until August 2020. Although this resulted in a decline in production, the Company worked to streamline operations and internalize third-party capital expenditures. As a result, Yangarra achieved lower drilling & completion costs which it expects to maintain as industry activity ramps up.  In 2021, the Company has embarked on several ESG initiatives to address methane emissions, is working on creating a stronger management structure and plans to diversify the board of directors by adding two new members.

With improving economics, through a combination of reduced costs & increasing commodity prices, Yangarra expects to use free cash flow in excess of maintenance capital to fund growth capital and to reduce net debt through 2021.

2020 Highlights

• Average Production of 9,888 boe/d (45% liquids) a decrease of 21% from 2019
• Oil and gas sales were $85.7 million with funds flow from operations of $45.5 million ($0.53 per share – basic)
• Adjusted EBITDA (which excludes changes in derivative financial instruments) was $52.7 million ($0.62 per share – basic).
• Net income of $4.8 million ($0.06 per share – basic) or $7.4 million before tax, resulting in a net income margin of 6%
• Operating costs were $6.32/boe (including $1.06/boe of transportation costs)
• Operating netbacks, which include the impact of commodity contracts, were $16.02 per boe
• Operating margins were 68% and funds flow margins were 47%
• G&A costs of $0.65/boe
• Royalties were 5% of oil and gas revenue
• Capital expenditures (including $0.4 million of land) were $51.5 million
• Net debt (which excludes the current derivative financial instruments) was $197.4 million
• Retained earnings of $109 million
• Corporate LMR is 7.6 with decommissioning liabilities of $12.6 million (discounted)

Fourth Quarter Highlights

• Average production of 9,169 boe/d (45% liquids) during the quarter, a 27% decrease from the same period in 2019
• Oil and gas sales were $23.1 million, a decrease of 37% from the same period in 2019
• Funds flow from operations of $12.5 million ($0.15 per share – basic), a decrease of 41% from the same period in 2019
• Adjusted EBITDA (which excludes changes in derivative financial instruments) was $14.9 million ($0.19 per share – basic)
• Net income of $4.3 million ($0.05 per share – basic, $5.8 million before tax), a decrease of 39% from the same period in 2019
• Operating costs were $6.05/boe (including $1.03/boe of transportation costs)
• Field operating netbacks were $19.77/boe
• Operating netbacks, which include the impact of commodity contracts, were $19.39/boe
• Operating margins were 71% and funds flow from operations margins were 54%
• G&A costs of $0.89/boe
• Royalties were 6% of oil and gas revenue
• All in cash costs were $12.19/boe
• Capital expenditures were $15.2 million
• Net Debt to fourth quarter annualized funds flow from operations was 3.96 : 1

Operations Update

Yangarra set its 2021 capital budget at $60 million prior to the announcement of multiple COVID-19 vaccines when WTI prices hovered around US$45.00/bbl. Recently, the general market tone has improved dramatically with spot prices increasing in excess of 40%. If commodity prices maintain current levels, Yangarra expects to keep one rig fully utilized for the year.

Yangarra has drilled and completed four wells to date in 2021. Drilling and completion costs for these wells continue to track with Yangarra’s previous disclosure on well costs. The wells have been brought on production and early indications are the wells meet area average type-curves.

As a result of inclement weather & completions activity, January & February production was negatively impacted. This production is now back on-stream.

ESG Initiatives

For 2020, Yangarra internally estimated that the Company’s Scope 1 & 2 carbon equivalent emissions were approximately 110,000 tons, resulting in a carbon per boe intensity of ~30 kg/boe based on average 2020 production.

In 2021, the Company has embarked on several key initiatives to target methane emissions reductions in a cost-effective manner. Yangarra’s targeted goal is to reduce overall methane emissions by 55% throughout 2021-2024 based on current production levels. The Company’s current emissions meet existing regulatory guidelines but the targeted improvements position Yangarra to exceed these guidelines and should result in the ability to create and sell carbon offset credits in the future. These initiatives target carbon intensity reductions of 25% during this period. The Company plans to utilize federal government funding to assist with financing a portion of the costs.

Yangarra’s decommissioning liability of $12.6 million is a direct result of the Company being a responsible stakeholder by abandoning & reclaiming well sites as the economic life of a well ends. There are currently 34 non-producing wells that need to be abandoned and reclaimed.  The Company has secured $535,000 from the Alberta Government’s site rehabilitation program to assist with these expenditures and plans to have a majority of these wells abandoned and reclaimed over the next two years. The Company’s strong decommissioning liability, along with a low-cost structure, were instrumental in the bank line review process.

The Company has adopted a management committee structure. The committee will be used review and approve key organizational, financial, operational and strategic decisions for the Company. This leadership structure utilizes a highly collaborative decision-making model that draws upon the collective knowledge, experience, business acumen and skills of the senior management team.  The current management committee is comprised of Jim Evaskevich, Trish Olynyk, Lorne Simpson, James Glessing and Gurdeep Gill.

In accordance with the principle of the Company’s Board Diversity Policy, Yangarra is pleased to announce that its Nominating, Compensation and Corporation Governance Committee has identified two new individuals to be nominated as board members at the Company’s upcoming, annual general meeting of shareholders:

Dale Miller, P.Eng: Mr. Miller is currently President of Dark Horse Energy Consultants Ltd. and the COO of Hillcrest Petroleum Ltd. He was previously the President and COO of Long Run Exploration. Mr. Miller has 35+ years of experience in the Western Canadian sedimentary basin, including AEC, Mobil Oil, Penn West Petroleum, Gibraltar Exploration and Pace Oil & Gas. He has a Bachelor Science, Petroleum Engineering (Honours) from the University of Tulsa.

Penny Payne, CPA, CA: Ms. Payne is currently President of Vercatis Consulting Ltd. and has 20 years of financial accounting and reporting experience.  Formerly, she was the Chief Financial Officer of Yangarra from 2006-2010. Ms. Payne started her accounting career at PwC Canada and MNP LLP and obtained her CA designation in 1996.

Reserve Report Highlights

All reserves information contained in this press release are based on the Company’s 2020 NI 51-101 oil and gas reserve report as prepared by Deloitte LLP (The “2020 Reserve Report“).

Proved Developed Producing (“PDP”) Reserves

• 22.8 million boe (11% decrease from 2019)
  • Since Yangarra pioneered development of the bioturbated Cardium formation in 2016, decline profiles were determined without the benefit of production history as none existed and were therefore based entirely on initial production rates. Since then, Yangarra has accumulated production data and has now established expected well performance for new bioturbated wells. Yangarra’s new type curve in the January 2021 corporate presentation matches well performance. The 2020 year-end reserves were negatively impacted by this re-assessment.
• Net present value before tax discounted at 10% (“NPV10”) of $316 million (24% decrease from 2019)
• The reserve report uses an Edmonton Par price of $53.25/bbl for 2021 and current pricing for Edmonton par is over $70.00/bbl
• Finding and development costs (“F&D”) of $60.76/boe, resulting in a PDP recycle ratio of 0.26 times
  • Yangarra’s trailing 3-year PDP F&D is $14.43/boe
• PDP net asset value per fully diluted common share (“NAV per FD Share”) of $1.37
• PDP additions replaced 23% of 2020 production

Total Proved reserves (“1P”)

• 96.4 million boe (13% increase from 2019)
• NPV10 of $1.1 billion (6% decrease from 2019)
• 1P future development costs of $420 million
• F&D costs of $2.88/boe resulting in a recycle ratio of 5.56 times
  • F&D costs were impacted by the significant cost reductions the Company created on drilling and completions, which resulted in a reduction in future development costs in the reserve report
  • Yangarra’s trailing 3-year 1P F&D is $6.75/boe
• 1P NAV per FD Share of $9.40
• 1P Reserve Life Index (“RLI”) based on fourth quarter 2020 production of 28.8 years
• 1P additions replaced 400% of 2020 production

Proved plus probable reserves (“2P”)

• 157.6 million boe (8% increase from 2019)
• NPV10 of $1.5 billion (11% decrease from 2019)
• 2P Future development costs of $622 million
• Finding and development costs of $1.49/boe resulting in a recycle ratio of 10.74 times
  • Yangarra’s trailing 3-year 2P F&D is $4.83/boe
• 2P NAV per FD Share of $14.21
• RLI of 47.1 years
• 2P additions replaced 430% of 2020 production