Southern Energy Corp. ("Southern" or the "Company"), an established producer with natural gas and light oil assets in Mississippi, announces its third quarter financial and operating results for the three and nine months ended September 30, 2024. Selected financial and operational information is outlined below and should be read in conjunction with the Company's unaudited consolidated financial statements and related management's discussion and analysis (the "MD&A") for the three and nine months ended September 30, 2024, which are available on the Company's website at www.southernenergycorp.com and have been filed under the Company's profile on SEDAR+ at www.sedarplus.ca.
All figures referred to in this news release are denominated in U.S. dollars, unless otherwise noted.
THIRD QUARTER 2024 HIGHLIGHTS
· Petroleum and natural gas sales of $3.5 million in Q3 2024, a decrease of 34% compared to the same period in 2023
· Average production of 14,018[1] Mcfe/d (2,336 boe/d) (97% natural gas) during Q3 2024, a decrease of 17% from the same period in 2023
· Generated $0.6 million of adjusted funds flow from operations[2] in Q3 2024 ($0.00 per share - basic and fully diluted)
· Net loss of $2.1 million in Q3 2024 ($0.01 net loss per share - basic and fully diluted), compared to a net loss of $2.4 million in Q3 2023
· Average realized natural gas and oil prices for Q3 2024 of $2.40/Mcf and $73.78/bbl compared to $2.83/Mcf and $82.65/bbl in Q3 2023 and a Q3 2024 natural gas benchmark price of $2.16/Mcf
· Monetized excess inventory equipment in the first nine months of 2024 for net proceeds of $3.4 million
· Reduced net debt2 by $1.4 million from Q2 2024 and $3.9 million from Q4 2023
Ian Atkinson, President and Chief Executive Officer of Southern, commented:
"Southern remains steadfast in preserving its balance sheet amid the challenging natural gas price environment of 2024. With natural gas prices on track to be the second-lowest in 24 years, we have proactively focused on optimizing our value chain. This includes generating $3.4 million in proceeds through the sale of excess equipment inventory in 2024 and reducing our abandonment liabilities by divesting non-core, non-producing wellbores during Q3.
"Despite the market challenges, Southern has leveraged the strategic locations of its assets and sales points, achieving a $0.24/Mcf premium (~11% basis premium) over Henry Hub benchmark pricing in Q3 2024. Additionally, our financial hedge of 5,000 MMBtu/d at $3.40, which was initiated in Q2 2024, has provided stable cash flows, enabling us to navigate ongoing volatility.
"Looking ahead, there are encouraging signs of price improvement as we enter winter and progress into 2025. Increased feed gas demand from Corpus Christi and Plaquemines LNG export facilities, coupled with rising domestic consumption driven by gas-fired power demand for artificial intelligence data centers and vehicle electrification, are expected to tighten the supply-demand balance. The longer-term structural case for natural gas also looks promising, as the lack of new storage capacity built will continue to tighten markets and geo-political events in Europe are expected to make US LNG more attractive.
"We remain committed to leveraging our strategic advantages and maintaining operational efficiencies to drive growth and shareholder value."
Subsequent Events
On October 30, 2024, Southern entered into the eighth amendment (the "Eighth Amendment") with the Company's senior secured term loan (the "Credit Facility"), which includes an extension to the pause of monthly repayment of principal to December 31, 2024 and a condition that Southern shall repay $1.7 million of the outstanding principal at January 31, 2025 in the absence of a use of proceeds acceptable to the lender (see "Liquidity, Capital Resources and Going Concern - Credit Facility" in the September 30, 2024 MD&A for full details of the amendment)
Outlook
In response to continued low natural gas prices, Southern has been actively reducing and optimizing both operating costs and maintenance capital to maximize its field netbacks. In Q3 2024, Southern sold excess equipment inventory for net proceeds of $2.0 million. The Company expects to continue these initiatives for the remainder of 2024 and into 2025, in order to preserve its balance sheet.
Southern has $10.0 million in unused capacity on its Credit Facility, which can be utilized to complete the three remaining Gwinville drilled but uncompleted wells when natural gas prices improve or for counter-cyclical inorganic growth opportunities.
As part of its risk management strategy, Southern continuously monitors NYMEX prices and basis differentials to mitigate some of the volatility of natural gas prices. The Company has taken advantage of the contango in the natural gas future strip by entering into a fixed price swap contract of 5,000 MMBtu/d for the period of May 2024 - December 2026 at a price of $3.40/MMBtu.
Southern will continue to monitor NYMEX prices and the basis differential prices and is prepared to hedge additional volumes strategically as needed.
Southern thanks all of its stakeholders for their ongoing support and looks forward to providing future updates on operational activities while continuing to enhance shareholder value.
Short Form Base Shelf Prospectus
On November 28, 2024, Southern filed and obtained a final receipt for a final base shelf prospectus (the "Prospectus") in each of the provinces of Canada. The Prospectus enables Southern to qualify the distribution of up to C$150 million of any combination of ordinary shares, warrants, subscription receipts, debt securities and units during the 25-month period that the Prospectus remains effective. In connection with the receipt for the Prospectus, Southern will cease any distributions under its prior base shelf prospectus dated November 18, 2022. The specific terms of any future offerings of securities, including the use of proceeds from an offering, will be established in a prospectus supplement filed with the applicable Canadian regulatory authorities. The Prospectus provides the Company, as a dual listed entity, with future flexibility with respect to the issuance of various securities. Copies of the Prospectus may be obtained on request without charge from the Company and can be found under Southern's SEDAR+ profile at www.sedarplus.ca. Southern currently has no contemplated plan to raise capital.
Qualified Person's Statement
Gary McMurren, Chief Operating Officer, who has over 23 years of relevant experience in the oil industry, has approved the technical information contained in this announcement. Mr. McMurren is registered as a Professional Engineer with the Association of Professional Engineers and Geoscientists of Alberta and received a Bachelor of Science degree in Chemical Engineering (with distinction) from the University of Alberta.
