Bonterra Energy Corp. announces its operating and financial results for the three and nine month periods ended September 30, 2021.
Q3 2021 FINANCIAL & OPERATING SNAPSHOT
Averaged 12,542 BOE per day of production in Q3 2021, 25 percent higher than in Q3 2020, and 12,389 BOE per day in the first nine months of 2021, a 15 percent increase over the comparative period the prior year.
Volumes in Q3 2021 were impacted third-party midstream issues, including a fire at an NGL fractionation plant and compression issues at downstream pipelines and facilities, which led to approximately 650 BOE per day being shut-in during the period.
These volumes are expected to be brought back on-stream in Q4 2021, along with approximately 275 BOE per day of production that had previously been shut-in due to weak prices. Bonterra anticipates the impact of these incremental volumes will contribute meaningfully to higher production in the fourth quarter of 2021, with average volumes in the month of October 2021 averaging approximately 14,000 BOE per day1.
Realized oil and gas sales increased 121 percent over Q3 2020 to total $64.5 million in Q3 2021, and in the first nine months of 2021, increased by 92 percent over the same period in 2020 with increases primarily driven by higher realized crude oil prices and growing production volumes.
Generated funds flow2 of $28.7 million ($0.83 per fully diluted share) in Q3 2021, a 356 percent increase from $6.3 million ($0.19 per fully diluted share) in Q3 2020 while funds flow2 in the first nine months of 2021 totaled $68.4 million ($1.98 per fully diluted share) representing an increase of 172 percent from the same period of 2020.
Production costs per unit were reduced to $14.45 per BOE in Q3 2021, four percent lower than the preceding quarter.
Drilling, completion and equipping costs in the first nine months of 2021 decreased by approximately 29 percent year-over-year to average $1.5 million per well.
Field netbacks2 averaged $31.03 per BOE in Q3 2021 and $27.80 per BOE in the first nine months of 2021, representing increases of 107 percent and 92 percent over the comparative periods of 2020, respectively, with the increases primarily reflecting significantly higher per unit revenue offset by realized losses on risk management contracts and increased per unit royalty expenses.
Capital expenditures totaled $49.6 million in the first nine months of 2021 including $18.6 million invested in Q3 2021. Of the first nine months' capital, $40.5 million was directed to the drilling of 29 gross (27.4 net) wells along with the completion, equip and tie-in of 29 gross (27.2 net) wells, with four of the completed and equipped wells having been drilled in 2020. Of the wells drilled in 2021, 25 have been placed on production as of September 30, 2021. An additional $9.1 million was spent primarily on related infrastructure and recompletions.
Net debt2 totaled $307.7 million as at September 30, 2021, a $7.8 million improvement from year-end 2020, reflecting the effects of improving commodity prices and the more active capital program which has restored production levels to pre-COVID-19 levels. Subsequent to the quarter and in conjunction with the previously announced brokered private placement debt and warrant financings (as described more fully herein), the Company successfully restructured its bank debt to be a fully conforming revolving credit facility of $220 million, eliminating the non-revolving term loan of $65 million. The first of these financings closed on October 20, 2021, with the second anticipated to close on or about November 10, 2021.
QUARTER IN REVIEW
The Company has continued to benefit from further increases in crude oil and natural gas prices which have now generated nearly $19 million of funds flow in excess of capital expenditures during the first nine months of 2021, attributable to the Company's low decline rate and disciplined approach to capital allocation. During the third quarter of 2021, Bonterra realized average oil prices of $78.42 per bbl, average NGL prices of $48.86 per bbl, and average natural gas prices of $3.94 per mcf. These improved revenues contributed to a 12 percent and 24 percent improvement of field and cash netbacks to $31.03 and $24.84 per BOE, respectively, compared to the prior quarter.
With spring breakup completed, the Company resumed its capital program during the quarter designed to target sustainable production growth, drilling 13 gross (11.5 net) wells and placing on production nine gross (7.5 net) wells.
Bonterra continued to reduce its decommissioning liabilities with support of the Alberta Site Rehabilitation Program ("SRP"). By the end of the third quarter, the Company had abandoned 189.4 net wells and decommissioned 2.0 net battery sites during the first nine months of the year, having spent $3.1 million of a $5.1 million commitment for the 2021 fiscal year. As the Company continues to execute its abandonment program through the remainder of 2021 and 2022, a further 167.8 net wells that have no deemed future potential are forecast to be abandoned. Bonterra continuously reviews its inactive well inventory for future potential to determine if a well bore should be reactivated, repurposed, or abandoned.
During the third quarter of 2021, the Company appointed Ms. Stacey McDonald to its Board of Directors (the "Board"), effective August 16, 2021. Ms. McDonald will assume the role of Chair of the Reserves Committee, while serving on the Audit, Compensation, and Governance and Nominating Committees. Ms. McDonald's 16 years of energy and finance experience will bring valuable insights and contributions to the Board.
OUTLOOK
The Company expects that shut-ins related to the third-party fractionation plant fire and other downtime at downstream third-party pipelines and facilities will be resolved in the fourth quarter of 2021, returning 650 BOE per day of production which was shut-in during the third quarter of 2021. A further 275 BOE per day of voluntary shut-in production volumes are expected to be reactivated during the fourth quarter.
In Q4 2021, the Company expects to drill 8 gross (8.0 net) operated wells, of which 2 gross (2.0 net) wells will be completed and placed on production to further contribute to quarterly volumes. The remaining 6 wells are forecast to begin production in Q1 2022. The Company also plans to place on production an additional 4 gross (4.0 net) wells in Q4 2021 that were drilled in Q3 2021.
Even with the shut-ins experienced during the third quarter, the Company is pleased to reiterate its previous 2021 average annual production guidance range of 12,800 to 13,200 BOE per day[3], supported by average production of approximately 14,000 BOE per day[4] in October 2021. In the near-term, Bonterra anticipates realizing enhanced benefit from new volumes being brought on-stream into improved commodity prices.
Bonterra plans to announce the Board approved 2022 guidance before the end of December 2021. The 2022 preliminary budget estimates production will be in excess of the Company's 2021 average annual guidance range. Assuming this level of production and current forward strip pricing, Bonterra anticipates a meaningful deleveraging of the balance sheet which would result in an improved debt to cash flow ratio between 1.0x and 1.5x by the end of 2022.
As part of the Company's ongoing efforts to diversify commodity prices and protect future cash flows, Bonterra has put in place physical delivery sales and risk management contracts to the end of September 30, 2022, details of which are included in Note 12 to the third quarter 2021 financial statements. With approximately 30 percent of forecast volumes hedged, the Company can continue to benefit from potential commodity price improvements while mitigating market volatility and locking-in economics.
FINANCING UPDATE
Subsequent to the quarter end, and as previously announced on October 20, 2021, Bonterra successfully closed a brokered private placement debt and warrant financing (the "Initial Offering"), enhancing its financial flexibility and achieving its goal of restructuring all bank debt to a fully conforming revolving credit facility. The combination of senior unsecured debentures and common share purchase warrants provided gross proceeds of $32 million. Concurrent with the closing of the Initial Offering, Bonterra issued a separate offering, which was subsequently upsized, raising an additional $7.5 million on the same terms and conditions as the Initial Offering. The follow-on offer is expected to close on or about November 10, 2021.
In concert with the financings, the Company amended the terms of its credit facility to a $195 million syndicated revolving credit facility and a $25 million non-syndicated revolving facility, representing an elimination of the previous $65 million non-revolving term loan. The amended facility has $10 million step-downs at December 31, 2021 and March 31, 2022 prior to the next redetermination date before May 31, 2022, and has a maturity date of November 30, 2022.
Bonterra believes the Company is well positioned to continue reducing bank debt and strengthening the balance sheet, a commitment that has been bolstered by a strengthening commodity price environment. The Company plans to generate profitable growth through this period of improving oil and natural gas markets by prudently developing its high-quality, light oil weighted asset base and directing excess funds flow to a combination of debt repayment plus modest growth. In addition, the Company continues to prioritize environmental, social and governance ("ESG") initiatives, and is committed to employing local services, being a key economic contributor to rural and surrounding communities located within central Alberta, upholding a responsible abandonment and reclamation program, and maintaining rigorous safety measures.
