Q3 - Financial Report - 2022Ok so let's start a positive post. Enough with the crying. Where are we heading with Q3 coming up very shortly?
Here is where we were at Q2:
2022 Second Quarter Financial Highlights
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Strong Funds Flow - FFO increased by 271 percent to $157.0 million ($1.91 per share) for the quarter compared to $42.3 million ($0.57 per share) in the second quarter of 2021.
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Capital Development Growth - The Company continued to execute our development program during the second quarter of 2022 with capital expenditures of $40.3 million (2021 - $21.5 million) and decommissioning expenditures of $3.8 million (2021 - $0.5 million). Second quarter capital expenditures were predominately spent on drilling 11 wells (11 net) with 16 wells (15.7 net) completed and brought on stream in our Peace River, Willesden Green and Pembina assets.
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Continued Debt Reduction - Strong financial results and our continued focus on reducing debt resulted in a decrease in net debt by 21 percent from $435.7 million at June 30, 2021 to $343.0 million at June 30, 2022, representing 0.6 times annualized second quarter 2022 FFO. Subsequent to June 30, 2022, we completed our refinancing (see 'Completed Debt Refinancing' below) and further reduced our debt levels through cash flow generated in July. We expect debt and leverage levels to be reduced further in 2022 from free cash flow generation.
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G&A Costs - General and administrative ("G&A") costs were $1.64 per boe in the second quarter of 2022 compared to $1.69 per boe for the same period in 2021.
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Managed Net Operating Costs - Net operating costs of $14.02 per boe in the second quarter of 2022 were higher than the $13.71 per boe in 2021. The increase reflects higher repair and maintenance activity in 2022 as more projects became economic with higher commodity prices, higher power costs due to increased natural gas prices and general inflationary pressures in the industry. Net operating costs are expected to decrease from this level going forward due to the full year impact of lower cost new well production.
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Net Income - Higher commodity prices and production volumes contributed to net income of $113.9 million ($1.39 per share) for the second quarter of 2022 compared to net income of $322.5 million ($4.33 per share) in the respective period of 2021. In the second quarter of 2021, the Company recorded a $311.5 million impairment reversal within the Company's Cardium asset due to higher forecasted commodity prices and strong drilling results.
2022 Second Quarter Operational Highlights
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Improved Production Levels - Average production for the quarter grew by 28 percent to 31,575 boe/d over the 24,651 boe/d in the second quarter of 2021, largely due to the strong performance from our first half 2022 drilling program.
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Completed First Half Development Activity - Continuing the momentum from our first quarter 2022 activities, our first half 2022 development program was completed early in June with strong results. Of the 30 wells (29.5 net) rig-released in the first half, 10 wells (10.0 net) were in Willesden Green, six wells (5.5 net) were in Pembina, six wells (6.0 net) were in Peace River, and eight (8.0 net) wells were in Viking. We brought 28 wells (27.3 net) on production by the end of the second quarter of 2022.
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Accelerated and Expanded Second Half Development Program - We secured the equipment and services needed to execute the largest development program that the Company has undertaken in several years and began our second half 2022 development early with the drilling of two wells (2.0 net) in Peace River. As announced in our June Guidance Release, 38 wells (36.0 net) will be drilled over the second half 2022 for a total of 68 wells (65.5 net) rig-released this year.
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Continued Focus on Decommissioning Liabilities Reduction - With most of our inactive legacy portfolio decommissioning completed in the first quarter of 2022, we are on track to meeting our goal of abandoning over 300 net wells and over 500 km of pipelines (net) this year.
2022 Highlights Subsequent to the Quarter
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Completed Debt Refinancing - On July 27, 2022, we completed a private placement issuance of senior unsecured notes and entered into new syndicated credit facilities providing a more favourable debt structure with long-term debt capital and credit facilities to meet our ongoing liquidity needs. The refinancing was composed as follows:
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Senior Unsecured Notes: We issued five-year senior unsecured notes (the "Notes") in the amount of $127.6 million (the "Offering") at a rate of 11.95 percent due on July 27, 2027.
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New Credit Facilities: The Company entered into new syndicated credit facilities with borrowing capacity of $205.0 million (the "New Credit Facilities"), consisting of $175.0 million revolving syndicated credit facilities (the "New Syndicated Facilities") and a $30.0 million non-revolving term loan (the "New Term Loan"). We expect to repay the New Term Loan in the third quarter of 2022 from free cash flow from our operations.
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Debt Repayment: Upon completion of the Offering, we repaid all our previous senior secured notes due November 30, 2022, the outstanding balances under our previous credit facilities due November 30, 2022, and the PROP limited recourse loan due on December 31, 2022. In addition, the Company also closed out hedges that were put in place for the PROP 45 limited recourse financing (US$3.4 million) and fees associated with the refinancing ($6.1 million).
Spanito