Q3 2023 Financial and Operating Highlights
Highlights for the three months ended September 30, 2023 include:
- Generated average third quarter production of 3,043 boe/d (99% crude oil) and exit production of over 4,000 boe/d (99% crude oil) for the month of September. This represents a 181% increase from the third quarter of 2022 of 1,083 boe/d (99% crude oil) and a 5% increase from the second quarter of 2023 of 2,908 boe/d (99% crude oil). Current production is over 4,200 boe/d.
- Adjusted funds flow from operations(1) was $10.8 million representing a 679% increase from $1.4 million in the third quarter of 2022 and a 54% increase from $7.0 million in the second quarter of 2023.
- Operating netback, including financial derivatives(1) was $43.15 per boe representing a 93% increase from $22.37 per boe in the third quarter of 2022 and a 39% increase from $31.02 per boe in the second quarter of 2023.
- Executed a $20.9 million capital expenditure program bringing onstream three multi-leg fishbone wells (including two extended reach sweeper fishbone wells at 17 kilometers and 20 kilometers of drilled reservoir respectively) and three multi-lateral wells (including two new generation wine rack wells) in the quarter. These wells came onstream at the end of September 2023. Lycos commenced drilling one additional multi-lateral wine rack well that will be brought onstream in the fourth quarter of 2023. The Company invested $3.0 million on its redesigned drilling fluid system, implemented to enhance well performance, where drilling fluids will be recycled and utilized for the fourth quarter 2023 and future drilling programs.
(1) See Non-IFRS Measures, Non-IFRS Financial Ratios and Capital Management Measures
The table below summarizes the Company’s financial and operating results for the three and nine months ended September 30, 2023 and 2022.
| Three months ended | Nine months ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| ($ in thousands, except per share) | 2023 | 2022 | % change | 2023 | 2022 | % change | ||||||||||||
| Total petroleum and natural gas sales, | ||||||||||||||||||
| net of blending (1) | 24,087 | 9,621 | 150% | 51,849 | 26,464 | 96% | ||||||||||||
| Cash flow from operating activities | 7,534 | 3,164 | 138% | 11,908 | 4,482 | 166% | ||||||||||||
| Per share – basic | $ | 0.19 | $ | 0.32 | (41)% | $ | 0.30 | $ | 0.46 | (34)% | ||||||||
| Per share – diluted | $ | 0.18 | $ | 0.32 | (44)% | $ | 0.28 | $ | 0.46 | (39)% | ||||||||
| Adjusted funds flow from operations (1) | 10,826 | 1,389 | 679% | 20,452 | 6,157 | 232% | ||||||||||||
| Net income | 1,699 | 15,646 | (89)% | 23,547 | 18,619 | 26% | ||||||||||||
| Per share – basic | $ | 0.04 | $ | 1.59 | (97)% | $ | 0.59 | $ | 1.90 | (69)% | ||||||||
| Per share – diluted | $ | 0.04 | $ | 1.59 | (97)% | $ | 0.56 | $ | 1.90 | (71)% | ||||||||
| Capital expenditures – exploration & | ||||||||||||||||||
| development | 20,880 | 3,022 | 591% | 44,476 | 4,602 | 866% | ||||||||||||
| Capital expenditures – net acquisitions | ||||||||||||||||||
| & dispositions | 6,110 | (98 | ) | 6335% | 54,886 | (316 | ) | 17469% | ||||||||||
| Adjusted working capital (net debt) (1) | (29,015 | ) | 636 | (4662)% | (29,015 | ) | 636 | (4662)% | ||||||||||
| Weighted average shares | ||||||||||||||||||
| outstanding (thousands) | 39,976 | 39,838 | ||||||||||||||||
| Basic | 9,812 | 307% | 9,812 | 306% | ||||||||||||||
| Diluted | 42,143 | 9,812 | 330% | 42,127 | 9,812 | 329% | ||||||||||||
| Average daily production: | 3,017 | 2,612 | ||||||||||||||||
| Crude oil (bbls/d) | 1,075 | 181% | 955 | 174% | ||||||||||||||
| Natural gas (mcf/d) | 155 | 49 | 216% | 131 | 54 | 143% | ||||||||||||
| Total (boe/d) | 3,043 | 1,083 | 181% | 2,634 | 964 | 173% | ||||||||||||
| Realized prices: | ||||||||||||||||||
| Crude oil ($/bbl) (2) | 86.22 | 92.97 | (7)% | 71.48 | 97.11 | (26)% | ||||||||||||
| Natural gas ($/mcf) | 2.04 | 3.96 | (48)% | 2.30 | 5.37 | (57)% | ||||||||||||
| Total ($/boe) | 85.59 | 92.43 | (7)% | 71.00 | 96.50 | (26)% | ||||||||||||
| Operating netback ($/boe) | ||||||||||||||||||
| Petroleum and natural gas revenues (2) | 85.59 | 92.43 | (7)% | 71.00 | 96.50 | (26)% | ||||||||||||
| Realized loss on financial derivatives | (2.12 | ) | – | 100% | (0.70 | ) | – | 100% | ||||||||||
| Royalties | (12.18 | ) | (15.84 | ) | (23)% | (10.41 | ) | (15.48 | ) | (33)% | ||||||||
| Net operating expenses (1) | (26.98 | ) | (53.60 | ) | (50)% | (26.69 | ) | (50.63 | ) | (47)% | ||||||||
| Transportation expenses | (1.16 | ) | (0.62 | ) | 87% | (0.88 | ) | (0.73 | ) | 21% | ||||||||
| Operating netback, including | ||||||||||||||||||
| financial derivatives ($/boe) (1) | 43.15 | 22.37 | 93% | 32.32 | 29.66 | 9% | ||||||||||||
| Adjusted funds flow from | ||||||||||||||||||
| operations ($/boe) (1) | 38.67 | 13.94 | 177% | 28.44 | 23.40 | 22% | ||||||||||||
(1) See Non-IFRS Measures, Non-IFRS Financial Ratios and Capital Management Measures.
(2) Realized prices are based on revenue, net of blending expense.
Land Acquisition
Lycos acquired an additional 8.5 net sections of land proximal to its Frog Lake acreage for a total consideration of $3.5 million, before closing adjustments (the “Land Acquisition“). The Land Acquisition added an additional 34 locations of which, 24 locations target the Waseca sands, 4 target the General Petroleum sands and 6 target the McLaren sands.
Pro Forma Guidance for 2023
Due to the subsequent events discussed below, Lycos has increased its 2023 acquisition expenditures to $72.5 million. Wider WCS differentials in the fourth quarter of 2023 have impacted both the Company’s average realized prices and higher blending costs, resulting in lower forecast adjusted funds flow from operations. In response, the Company has adjusted the fourth quarter of 2023 exploration and development expenditures. The Company is disciplined and continues to monitor commodity prices, heavy oil differentials and inflation and their combined impact on its 2023 guidance.
| Prior Guidance (1) | Updated Guidance (2) | |||||
| Year Ended | Year Ended | |||||
| December 31, 2023 | December 31, 2023 | |||||
| Annual average production (boe/d) | 3,150 boe/d | 3,050 boe/d | ||||
| Average Q4 2023 production (boe/d) | 4,000 boe/d | 4,200 boe/d | ||||
| Acquisition expenditures | $69.5 million | $72.5 million | ||||
| Exploration & development expenditures | $57.0 million | $55.0 million | ||||
| Capital expenditures (3)(4) | $126.5 million | $127.5 million | ||||
| Adjusted funds flow from operations (3) | $37.2 million | $35.1 million | ||||
| Adjusted working capital (net debt) (3) | $nil | ($7.8) million |
(1) Prior guidance as updated on August 24, 2023 and further updated on September 13, 2023.
(2) Updated guidance numbers are based on 2023 average pricing assumptions of: US$78.34/bbl WTI; (US$18.55) WCS differential; and $0.74 CAD/USD.
(3) Total capital expenditures includes exploration and development capital, facilities, land and seismic and acquisitions and dispositions.
(4) See Non-IFRS Measures, Non-IFRS Financial Ratios and Capital Management Measures.
Director Retirement
Ian Atkinson has retired from the Company’s board of directors (the “Board“) effective today to focus on other commitments. Mr. Atkinson joined the Board in September, 2012, bringing a wealth of private and public oil and gas expertise to the Company. The Board and management team wish to express their gratitude to Mr. Atkinson for his contributions during his 11 years of service. The Company does not have an immediate plan to fill the vacancy left by Mr. Atkinson’s departure.
About Lycos
Lycos is an oil-focused, exploration, development and production company based in Calgary, Alberta, operating high-quality, heavy-oil, development assets in the Lloydminster, Greater Lloydminster area and Gull Lake, Saskatchewan.
Additional Information
For further information, please contact:
Dave Burton
President and Chief Executive Officer
T: (403) 616-3327
E: [email protected]
Lindsay Goos
Vice President, Finance and Chief Financial Officer
T: (403) 542-3183
E: [email protected]
Reader Advisories
Forward-Looking and Cautionary Statements
Certain statements contained within this press release constitute forward-looking statements within the meaning of applicable Canadian securities legislation. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as “anticipate”, “budget”, “plan”, “endeavor”, “continue”, “estimate”, “evaluate”, “expect”, “forecast”, “monitor”, “may”, “will”, “can”, “able”, “potential”, “target”, “intend”, “consider”, “focus”, “identify”, “use”, “utilize”, “manage”, “maintain”, “remain”, “result”, “cultivate”, “could”, “should”, “believe” and similar expressions. Lycos believes that the expectations reflected in such forward-looking statements are reasonable as of the date hereof, but no assurance can be given that such expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. Without limitation, this press release contains forward-looking statements pertaining to: Lycos’ business strategy, objectives, strength and focus; the anticipated benefits of the Land Acquisition; anticipated pro forma capital program and operational results for the remainder of 2023; expectations regarding commodity prices and heavy oil differentials; the performance characteristics of the Company’s oil and natural gas properties; the ability of the Company to achieve drilling success consistent with management’s expectations; expectations in respect of the Company’s sweeper fishbone wells and wine rack wells, including anticipated benefits and results; and the source of funding for the Company’s activities. Statements relating to production, reserves, recovery, replacement, costs and valuation are also deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and that the reserves can be profitably produced in the future.
The forward-looking statements and information are based on certain key expectations and assumptions made by Lycos, including expectations and assumptions concerning the business plan of Lycos; the timing of and success of future drilling, development and completion activities; the geological characteristics of Lycos’ properties; prevailing commodity prices, price volatility, price differentials and the actual prices received for the Company’s products; the availability and performance of drilling rigs, facilities, pipelines and other oilfield services; the timing of past operations and activities in the planned areas of focus; the drilling, completion and tie-in of wells being completed as planned; the performance of new and existing wells; the application of existing drilling and fracturing techniques; prevailing weather and break-up conditions; royalty regimes and exchange rates; the application of regulatory and licensing requirements; the continued availability of capital and skilled personnel; the ability to maintain or grow its credit facility; the accuracy of Lycos’ geological interpretation of its drilling and land opportunities, including the ability of seismic activity to enhance such interpretation; and Lycos’ ability to execute its plans and strategies.
Although Lycos believes that the expectations and assumptions on which such forward-looking statements and information are based are reasonable, undue reliance should not be placed on the forward-looking statements and information because Lycos can give no assurance that they will prove to be correct. By its nature, such forward-looking information is subject to various risks and uncertainties, which could cause the actual results and expectations to differ materially from the anticipated results or expectations expressed. These risks and uncertainties include, but are not limited to: unforeseen difficulties in integrating recently acquired assets into Lycos’ operations; incorrect assessments of the value of benefits to be obtained from acquisitions and exploration and development programs; fluctuations in commodity prices, changes in industry regulations and political landscape both domestically and abroad, wars (including Russia’s military actions in Ukraine and the Israel-Palestinian conflict), hostilities, civil insurrections, foreign exchange or interest rates, increased operating and capital costs due to inflationary pressures (actual and anticipated), volatility in the stock market and financial system, impacts of pandemics, the retention of key management and employees, risks with respect to unplanned third-party pipeline outages, including in respect of safety, asset integrity and shutting in production. Ongoing military actions between Russia and Ukraine have the potential to threaten the supply of oil and gas from the region. The long-term impacts of the actions between these nations remains uncertain. Please refer to the annual information form for the year ended December 31, 2022, and the MD&A for additional risk factors relating to Lycos, which can be accessed either on the Company’s website at www.lycosenergy.com or under the Company’s SEDAR+ profile at www.sedarplus.ca. Readers are cautioned not to place undue reliance on this forward-looking information, which is given as of the date hereof, and to not use such forward-looking information for anything other than its intended purpose. Lycos undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by law.
Future Oriented Financial Information
This press release contains future oriented financial information and financial outlook information (collectively, “FOFI“) about Lycos’ prospective results of operations and production, organic growth and acquisitions, operating costs, 2023 pro forma guidance, including exploration, development and acquisition expenditures in 2023 and components thereof, all of which are subject to the same assumptions, risk factors, limitations and qualifications as set forth in the above paragraphs. FOFI contained in this document was approved by management as of the date of this document and was provided for the purpose of providing further information about Lycos’ proposed business activities in 2023. Lycos and its management believe that FOFI has been prepared on a reasonable basis, reflecting management’s best estimates and judgments, and represent, to the best of management’s knowledge and opinion, the Company’s expected course of action. However, because this information is highly subjective, it should not be relied on as necessarily indicative of future activities or results. Lycos disclaims any intention or obligation to update or revise any FOFI contained in this document, whether as a result of new information, future events or otherwise, unless required pursuant to applicable law. Readers are cautioned that the FOFI contained in this document should not be used for purposes other than for which it is disclosed herein. Changes in forecast commodity prices, differences in the timing of capital expenditures, and variances in average production estimates can have a significant impact on the key performance measures included in Lycos’ guidance. The Company’s actual results may differ materially from these estimates.
Disclosure of Oil and Gas Information
Unit Cost Calculation. The term barrels of oil equivalent (“boe“) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet per barrel (6 Mcf/bbl) of natural gas to barrels of oil equivalence is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All boe conversions in the report are derived from converting gas to oil in the ratio mix of six thousand cubic feet of gas to one barrel of oil.
Product Types. Throughout this press release, “crude oil” or “oil” refers to heavy crude oil product types as defined by NI 51-101.
Drilling Locations. This press release discloses drilling locations in respect of the Company’s recent land acquisition in one category: unbooked locations. Unbooked locations are internal estimates based on the Company’s assumptions as to the number of wells that can be drilled per section based on industry practice and internal review. Unbooked locations do not have attributed reserves or resources. Unbooked locations have been identified by management as an estimation of Company’s multi-year drilling activities based on evaluation of applicable geologic, seismic, engineering, production and reserves information. There is no certainty that the Company will drill all unbooked drilling locations and if drilled there is no certainty that such locations will result in additional oil and gas reserves, resources or production. The drilling locations considered for future development will ultimately depend upon the availability of capital, regulatory approvals, seasonal restrictions, oil and natural gas prices, costs, actual drilling results, additional reservoir information that is obtained and other factors. While certain of the unbooked drilling locations have been derisked by the drilling of existing wells in relative close proximity to such unbooked drilling locations, other unbooked drilling locations are farther away from existing wells where management has less information about the characteristics of the reservoir and therefore there is more uncertainty whether wells will be drilled in such locations and if drilled there is more uncertainty that such wells will result in additional oil and gas reserves, resources or production.
Non-IFRS Measures, Non-IFRS Financial Ratios and Capital Management Measures
This press release includes various specified financial measures, including non-IFRS financial measures, non-IFRS financial ratios and capital management measures as further described herein. These measures do not have a standardized meaning prescribed by International Financial Reporting Standards (“IFRS“) and, therefore, may not be comparable with the calculation of similar measures by other companies.
- “Adjusted Working Capital (Net Debt) (capital management measure)” is calculated as current assets less current liabilities, excluding the current portion of decommissioning liabilities and financial derivative receivable and liabilities. Adjusted working capital (Net Debt) is a capital management measure which management uses to assess the Company’s liquidity. See the MD&A for a detailed calculation and reconciliation of Adjusted Working Capital (Net Debt) to the most directly comparable measure presented in accordance with IFRS.
- “Adjusted Funds Flow from Operations (capital management measure)” is funds flow is calculated by taking cash flow from operating activities and adding back changes in non-cash working capital. Adjusted funds flow is further calculated by adding back decommissioning costs incurred and transaction costs. Management considers Adjusted Funds Flow from Operations to be a key measure to assess the performance of the Company’s oil and gas properties and the Company’s ability to fund future capital investment. Adjusted Funds Flow from Operations is an indicator of operating performance as it varies in response to production levels and management of costs. Changes in non-cash working capital, decommissioning costs incurred and transaction costs vary from period to period and management believes that excluding the impact of these provides a useful measure of Lycos’ ability to generate the funds necessary to manage the capital needs of the Company. See the MD&A for a detailed calculation and reconciliation of Adjusted Funds Flow from Operations to the most directly comparable measure presented in accordance with IFRS.
- “Net Operating Expenses (non-IFRS financial measure)” is operating expenses, less processing income primarily generated by third party volumes at processing facilities where the Company has an ownership interest. The Company’s principal business is not that of a midstream entity whose activities are dedicated to earning processing and other infrastructure payments. Where the Company has excess capacity at its facilities, it will look to process third party volumes as a means to reduce the cost of operating/owning the facility.
- “Operating Netback (non-IFRS financial measure)” is petroleum and natural gas revenues, less royalties, less net operating costs and transportation expenses, excluding the effects of financial derivatives. These metrics can also be calculated on a per boe basis, which results in them being considered a non-IFRS financial ratio. Management considers operating netback an important measure to evaluate Lycos’ operational performance, as it demonstrates field level profitability relative to current commodity prices. See the MD&A for a detailed calculation and reconciliation of operating netback per boe to the most directly comparable measure presented in accordance with IFRS. “Operating Netback, including financial derivatives” is calculated as petroleum and natural gas revenues, less royalties, less net operating costs and transportation expenses.
- “Total Petroleum and Natural Gas Sales, Net of Blending (non-IFRS financial measure)” is total petroleum and natural gas sales, net of blending expense to compare realized pricing to benchmark pricing. This is calculated by deducting the Company’s blending expense from petroleum and natural gas sales. Blending expense is recorded within blending and transportation expense in the Condensed Interim Consolidated Financial Statements. See the MD&A for a detailed calculation and reconciliation of Total Petroleum and Natural Gas Sales, Net of Blending, to the most directly comparable measure presented in accordance with IFRS.
Please refer to the MD&A for additional information relating to specified financial measures including non-IFRS financial measures, non-IFRS financial ratios and capital management measures. The MD&A can be accessed either on the Company’s website or under the Company’s SEDAR+ profile on www.sedarplus.ca.
Abbreviations
| bbl | barrels of oil |
| bbl/d | barrels of oil per day |
| boe | barrels of oil equivalent |
| boe/d | barrels of oil equivalent per day |
| Mbbl | thousand barrels of oil |
| Mboe | thousand barrels of oil equivalent |
| Mcf | thousand cubic feet |
| MMbbl | million barrels of oil |
| MMboe | million barrels of oil equivalent |
| MMcf | million cubic feet |
| WCS | Western Canadian Select |
All dollar figures included herein are presented in Canadian dollars, unless otherwise noted.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
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