RE:Razor Energy 4th quarter results out!! Looking Good!
Razor Energy earns $16.8-million in 2021
2022-04-12 01:23 ET - News Release
Mr. Doug Bailey reports
RAZOR ENERGY CORP. ANNOUNCES FOURTH QUARTER AND 2021 YEAR END RESULTS
Razor Energy Corp. has released its fourth quarter and year-end 2021 financial and operating results. Selected financial, operational and reserves information is outlined below and should be read in conjunction with Razor Energy's audited consolidated financial statements, management's discussion and analysis, and annual information form (AIF) for the year ended Dec. 31, 2021, which are available on SEDAR and the company's website.
Recent highlights:
- Financing: On March 9, 2022, the company closed a senior debt financing for $11.0-million (U.S.) ($14.1-million), which provides the remaining funds to complete the co-produced geothermal power project in Swan Hills, Alta.
- Rights offering: On March 31, 2022, the company announced a rights offering to eligible holders of its common shares to purchase flow-though shares. The company anticipates raising $5-million and intends to use the proceeds to finance certain eligible expenses yet to be incurred for the geothermal project and eligible expenses on various early-stage power projects, including additional geothermal initiatives. The rights offering is expected to close on May 9, 2022.
Fourth quarter and year-end 2021 highlights:
- Cash flow: during the fourth quarter of 2021, achieved $13.5-million of cash flow from operating activities;
- Net income: generated $19.2-million of net income in Q4 2021;
- Production: averaged 4,359 barrels of oil equivalent per day in Q4 2021, which represents a 22-per-cent increase from third quarter 2021;
- Swan Hills acquisition: strategic consolidation in Q3 2021 of Razor Energy's working interest in Swan Hills unit No. 1 to 49.7 per cent, adding long-life low-risk light oil reserves, production and cash flow underpinned by industry-leading annual base decline rate of 10 per cent;
- Geothermal project: commenced project execution on the geothermal project with estimated completion within the third quarter of 2022; the geothermal project will be capable of generating up to 21 megawatts of grid connected power, of which up to 30 per cent will be sustainable clean power generation;
- ESG (environmental, social and governance) and sustainability: deposited approximately 2,500 tonnes of hydrocarbon impacted soils into Razor Energy's treatment facility in Virginia Hills, which employs bioremediation to treat hydrocarbon-impacted soils; this first batch of soil is expected to be remediated by second quarter 2022;
- Decommissioning liability reduction: settled $3.6-million of decommissioning obligations in 2021, which includes $1.9-million related to government grants received for well site rehabilitation through Alberta's site rehabilitation program (SRP).
Near- and medium-term objectives:
- Safely execute its production enhancement program and geothermal project;
- Reduce net debt through continued optimization of capital spending and increased efficiencies to reduce operating and general and administrative costs;
- Actively identify and consider business combinations with other oil and gas producers, as well as service companies;
- Further analyze ancillary opportunities, including power generating projects, oil blending and vertical service integration.
2022 outlook
Razor Energy
Razor Energy continues to look forward and plan for the future while remaining focused on its long-term sustainability. The company has an extensive opportunity set of high-quality wells requiring reactivation, many of which have payout metrics which exceed the company's economic thresholds. Razor Energy will continue the production enhancement activity throughout 2022. Most activities involve repairs and maintenance work, which will be expensed for accounting purposes, and operating netbacks will be reduced during this time frame. In aggregate, the annual base decline of these wells is anticipated to be consistent with the company's current corporate rate of approximately 12 per cent.
The company continues to focus on cost control on its operated properties. In addition to the planned production enhancement program, Razor Energy will take a cautious and case-by-case approach to capital spending in 2022, focusing on low-risk, low-investment opportunities to increase field efficiencies and corporate netbacks.
The significant improvement in oil prices thus far in 2022 combined with a strong price outlook in the medium term provides Razor Energy with improved cash flow from operations, and the company anticipates reducing its net debt throughout 2022.
Razor Energy has high reservoir quality, low decline, isolate carbonate Swan Hills reef light oil pools that contain large original oil in place with over 60 years of production history. Razor Energy believes these reefs are ideally suited for carbon capture, utilization and storage (CCUS) and enhanced oil recovery (EOR) purposes (1), in addition to geothermal power production and conventional open-hole horizontal development drilling upside.
Razor Energy recognizes multiple deep value streams in its assets and is actively engaged in liberating them for the benefit of shareholders.
(1) These programs have been demonstrated by the previous operator's South Swan Hills unit carbon dioxide EOR injection pilot, which ran from 2008 to 2010, in addition to CO2 injection programs carried out in the Swan Hills unit No. 1 and Judy Creek oil pools from 2004 to 2010.
FutEra Power Corp.
In May 2021, FutEra, a subsidiary of Razor Energy, entered the project execution stage of its geothermal project. On March 9, 2022, FutEra announced that it is fully financed and in final construction of its 21-megawatt geothermal project, of which up to 30 per cent will be sustainable clean power generation. FutEra has partnered with provincial and federal government agencies to invigorate the emerging geothermal industry. To date, Razor Energy has received $13.0-million in government grants to support this power generation project. The total construction and commissioning budget for the project is $37.0-million.
Legacy oil and gas fields face economic challenges with lower production levels and high fixed costs. However, these fields also have practical advantages when considering existing infrastructure, pipelines, wells and operational footprints. To meet the objectives of creating lower carbon electricity and leveraging oil and gas operations, FutEra and Razor Energy have designed a geothermal/natural gas hybrid power plant in an operational oil and gas facility. Razor Energy and FutEra continue to demonstrate the synergies and co-operation needed to define a type of transition energy and set the standard of how traditional oil and gas companies can evolve into energy and technology companies necessary for the future of the Alberta energy complex.
FutEra's next phase of the geothermal project will be the design and implementation of a CCUS solution, with the objective to create a net negative carbon emitting power generation facility.
With Razor Energy's strategic acquisition of additional working interest in the Swan Hills area in the third quarter of 2021, FutEra has identified the potential for additional geothermal and/or natural gas power generation projects in Swan Hills unit No. 1. The volume and temperature of the produced fluids processed through two of the unit's main facilities are highly analogous to FutEra's current geothermal project.
FutEra has identified and is in the process of reviewing and capturing additional projects, including solar, wind and other low carbon technologies. In addition, FutEra is in discussions with an industry resource partner to evaluate its renewable energy options and to develop a long-term environmental, social and governance plan.
Operational update
Production volumes for the fourth quarter of 2021 averaged 4,359 barrels of oil equivalent per day, an increase of 22 per cent from production volumes in the same period of 2020, and represents a 22-per-cent production increase from third quarter 2021. Highlights of the causes for the differences in production volumes between fourth quarter 2021 and fourth quarter 2020 are as follows:
- Swan Hills: Production volumes increased 52 per cent from the same period of 2020. Production in Q4 2021 was positively impacted by increased production as a result of the working interest acquisition of Swan Hills unit No. 1 in August, 2021. In addition, the company's production enhancement program in Q4 2021 resulted in an additional 124 barrels of oil equivalent per day in production volumes, slightly offset by various third party, temporary infrastructure issues.
- The company is continuing with its reactivation program in 2022, which will increase production in Swan Hills. In addition, the operator of Swan Hills unit No. 1 completed various production enhancement activities in third quarter and fourth quarter 2021, and the company anticipates production enhancement activities to continue in 2022.
- Kaybob: Production volumes decreased 13 per cent from the same period in 2020 due to operated wells going down, offset partially by an increase in non-operated production. The company's production enhancement program in first quarter 2022 is focused on the Kaybob area.
- South district: Production volumes decreased 22 per cent from the same period in 2020 primarily due to natural declines, non-operated infrastructure issues and a non-operated field being shut in due to operator insolvency. Production from this particular non-operated field was restarted late in Q4 2021 under a new operator. Production declines were somewhat offset by a production enhancement program during Q4 2021.
Razor Energy's operating expenses on a corporate level in Q4 2021 were at a historical high, with an increase as compared with third quarter 2021 primarily due to a full quarter of increased working interest ownership in Swan Hills unit No. 1 along with higher electricity costs and facility repairs.
However, operating costs on a dollar per boe basis decreased in Q4 2021 due to higher production levels, offset by higher workover activity.
The primary factors affecting operating costs on a dollar per boe basis are production levels, workover activity and electricity pricing. Inherent within the company's hydrocarbon operations is a prominent fixed-cost element or those costs that are not related to production levels. On a relative basis, these costs are higher with lower production. In Q4 2021, Razor Energy's production was higher than recent historical averages due to the factors described above. Razor Energy's reactivation program continued during Q4 2021 and will extend into 2022, with the majority of the costs being expensed. Furthermore, the electricity market has seen a continual rise in prices, which has recently stabilized.
Capital program
During the fourth quarter of 2021, Razor Energy invested $8.5-million on its geothermal project and executed a major repair of one of its group pipelines at a cost of $1.6-million. The company also capitalized an additional $400,000 of turnaround costs that were executed on operated and non-operated turnarounds. As of Dec. 31, 2021, Razor Energy has received $13.0-million in government grants since i