Crew Energy Inc. , a growth-oriented natural gas weighted producer operating exclusively in the world-class Montney play in northeast British Columbia, is pleased to announce our operating and financial results for the three and nine month periods ended September 30, 2021.
“Crew benefitted from positive market developments in the third quarter as commodity prices reached levels unseen in recent history, enabling the Company to capture value from our world-class resource to generate meaningful adjusted funds flow1 (“AFF”),” said Dale Shwed, President and CEO of Crew. “Crew exceeded previously announced quarterly production guidance by 13% at the midpoint, due largely to the successful execution of our capital program. In addition, we are now a pure-play Montney producer with an improved environmental profile after the sale of our Lloydminster heavy crude oil operations. We are excited to advance our two-year plan to create sustainable value for shareholders by increasing production into a strengthening commodity price environment, while also reducing per unit costs to expand margins.”
Q3 2021 HIGHLIGHTS
• 23,659 boe per day1 (142.0 mmcfe per day) of average production in Q3/21, a 17% increase over Q3/20 and 13% above the midpoint of production guidance range of 20,000 to 22,000 boe per day1, a result of the successful execution of our capital program highlighted by production from the new 1-8 pad and the quick turnaround of the West Septimus gas plant in 7.5 days. For the first nine months of 2021, volumes averaged 25,532 boe per day1 (153.2 mmcfe per day), a 16% increase over the same period in 2020.
• $26.5 million of AFF2 ($0.17 per fully diluted share) was generated in the quarter, a 210% increase over Q3/20, with year-over-year growth being bolstered by higher production, lower cash costs and significantly improved commodity prices. AFF1 in the first nine months of 2021 totaled $86.0 million ($0.55 per share), 236% higher than the same period in 2020.
• $176.2 million of net income ($1.12 per fully diluted share) compared to a net loss of $21.1 million ($0.14 per fully diluted share) in the comparable period of 2020, with the increase due primarily to the reversal of a previous impairment charge of $228.5 million, net of depletion.
• 11% reduction in net operating costs2 per unit in Q3/21, totaling $5.11 per boe compared to $5.74 per boe in Q3/20, reflecting lower average net operating costs from new production at West Septimus and improved operational efficiencies, supporting an 86% year-over-year increase in operating netback2 to $16.07 per boe. The previously announced disposition of our Lloydminster heavy crude oil operations on September 24, 2021, is expected to reduce operating costs by approximately $0.70 per boe going forward.
• $56.5 million of net capital expenditures2 in Q3/21, below our previously forecast range of $60 to $70 million due to the recently announced disposition of the Company’s Lloydminster heavy crude oil operations offsetting total exploration and development spending of $64.3 million. The majority of expenditures were directed towards continued development at Septimus and West Septimus (“Greater Septimus”).
• Three new Groundbirch wells were completed in Q3/21, achieving a combined restricted rate of 32 mmcf per day at the end of an 18-day flowback period in October, establishing a promising new development area with over 70,000 acres of contiguous land.
• Achieved record throughput of 115 mmcf per day of sales gas at the West Septimus gas plant at its peak in October, leading to record high natural gas production levels of 149 mmcf per day.
• $404.1 million of net debt2 at September 30, 2021, with no near-term maturities and no financial covenants or repayment requirements on the $300 million of senior notes termed out until 2024. The Company’s bank syndicate completed its fall review, confirming the facility at $150 million until the next review in the second quarter of 2022.
• Completed the sale of Crew’s Lloydminster heavy crude oil operations (as previously announced in Crew’s press release dated October 28, 2021), successfully accomplishing our corporate evolution to become a pure play Montney producer. Divestment of these assets sets the stage for Crew to improve efficiencies, significantly reduce our Greenhouse Gas (“GHG”) emissions intensity going forward, and decrease overall decommissioning obligations by nearly 40%.
• Advanced our corporate sustainability initiatives through listing on OTCQB market under the ticker ‘CWEGF’, which expands our audience scope, pool of capital, and provides U.S. investors greater flexibility and ease to trade in the Company’s common shares.
FINANCIAL & OPERATING HIGHLIGHTS
TWO-YEAR PLAN PROGRESS3
In Q3/21, Crew continued to advance our two-year development plan that was announced in late 2020:
• AFF Supported by Higher Prices – AFF4 of $26.5 million in Q3/21 has been augmented by the continued improvement of commodity markets. Our full year 2021 AFF4 forecast remains between $120 to $140 million. Crew intends to announce updated 2022 guidance in December 2021.
• Production Growth – Q3/21 production averaged 23,659 boe per day5, 13% above the midpoint of our previously announced quarterly guidance range of 20,000 to 22,000 boe per day and is on track to generate annual 2021 average production between 26,000 to 28,000 boe per day5.
• Optimized Capital Program – Building on momentum realized to date in 2021, Crew now plans to drill 26 and complete 21 wells (compared to our previous guidance of drilling and completing 21 wells) by the end of 2021, carrying forward ten drilled and uncompleted wells into 2022. Crew intends to implement the expanded program within our previous net capital expenditures guidance range of $150 to $170 million.
• Reduced Costs – Crew’s plan to reduce per unit costs by over 25% from 2020 to 2022 is largely based on increasing production volumes into existing infrastructure, as over 50% of the Company’s expenses are fixed. Additional Montney production into Crew infrastructure is expected to have fixed and variable operating costs of approximately $1.40 per boe. As production increases, per unit costs associated with operating, transportation, G&A and interest expenses are targeted to decline from $13.19 per boe in 2020 to between $9.00 and $10.00 per boe in 20226, representing decreases of 32% and 24%, respectively. The Company has taken significant steps towards achieving these goals with the addition of production from the 1-8 West Septimus and 4-17 Groundbirch pads, leading to more efficient use of the 120 mmcf per day of sales gas capacity at our West Septimus plant and the 60 mmcf per day of sales gas capacity at the Septimus gas plant. Crew has reduced net operating costs4 from $5.74 per boe in Q3/20 to $5.11 per boe in Q3/21, and we expect that the sale of the Lloydminster operations will reduce unit operating costs by approximately $0.70 per boe.
• Balanced Hedging – An active risk management program ensures the Company generates sufficient AFF to execute our planned capital programs under various pricing environments. Crew currently has approximately 75,000 GJ’s per day of natural gas production for 2022 hedged at an average price of $2.63 per GJ (or $3.21 per mcf using Crew’s heat content factor).
• Debt Reduction – Based on projected capital spending and current forward commodity prices, Crew’s previously announced 2021, year end debt to last twelve-month (“LTM”) EBITDA4 is on track to be at the lower end of the forecasted range of 2.7x to 2.5x and is trending towards 1.0x by the end of 2022.
OPERATIONS & AREA OVERVIEW
NE BC Montney (Greater Septimus)
• Production at Greater Septimus averaged 20,237 boe per day5 in Q3/21, a 12% decrease from the preceding quarter and an 18% increase year-over-year. Volumes were affected by a scheduled facility turnaround at Crew’s West Septimus gas plant and were partially offset by the activation of seven new wells in the West Septimus field.
• Production at the West Septimus gas plant, which has a nameplate capacity of 120 mmcf per day of sales gas, achieved record processing volumes of 115 mmcf per day in late October driving corporate production over 30,000 boe per day5.
• The prescheduled West Septimus gas plant shutdown was completed ahead of schedule with zero recordable injuries, minimizing the shutdown’s impact on production volumes and overall operations.
• Nine ultra-extended reach horizontal natural gas wells were drilled and seven wells were completed in Q3/21 at Greater Septimus. One of the wells accomplished a new corporate record with a total drilled length of 6,634 meters. The seven well 1-8 pad has been producing at restricted rates with the 9-5 pad into a 10 inch pipeline at approximately 50,000 mmcf per day.
• In Q3/21, Crew completed the construction of a 4.3 kilometre, 12-inch gas trunkline and a 4.3 kilometre, 8-inch liquids gathering pipeline into North Septimus to allow for further development in the area, which is expected to represent an extension of the West Septimus ultra condensate rich play. Crew’s new ten well 4-14 pad was drilled during the quarter and will be the anchor development in the area.
• Crew completed the installation of a waste heat recovery system on budget and on schedule during Q3/21 to manage our environmental footprint and optimize operations. The system is operating as expected and is on track to reduce GHG emissions by 7,700 tCO2e per year and expand condensate capacity to 5,000 bbls per day. Crew gratefully acknowledges assistance from the Province of British Columbia for their support of this project.
Groundbirch
• As announced in Crew’s press release dated October 28, 2021, three wells were completed at the 4-17 pad at Groundbirch during Q3/21. The wells achieved rates of 32 mmcf per day7 over the 18-day flowback period and are now shut in for a period of two weeks to enable the installation of permanent production facilities.
o The successful validation of this test pad, along with the evaluation of two distinct zones within the Groundbirch Montney, represent strategically important milestones for Crew given that these drilling results represent the foundation for development of a new core area at Groundbirch. Based on a combination of production and pressure test data, we believe that these wells have the potential to be the most prolific gas wells the Company has drilled to date.
o Crew owns over 70,000 net acres of contiguous land in the Greater Groundbirch area and has an additional five well authorization permits at the 4-17 pad to follow up on the success of the first three wells. We expect that at least two additional zones in the Groundbirch Montney are potentially prospective and we are currently advancing plans to test those zones in the future.
o The Company completed construction of a 6.1 kilometre 12-inch pipeline in Q3/21 to connect the new wells with Crew’s processing infrastructure at our West Septimus gas plant.
Other NE BC Montney
• We continue to evaluate encouraging offset operator activity in the Tower, Attachie and Oak/Flatrock areas.
CORPORATE SUSTAINABILITY AND ESG INITIATIVES
Crew's environmental, social and governance ("ESG") initiatives continue to be a prime focus as we continue our unwavering commitment to safe and responsible energy production. During the third quarter of 2021, Crew released our inaugural 2020 ESG report in an environmentally conscious online format, outlining our efforts to promote operational innovation, reduce our environmental footprint, support stakeholders and protect our employees’ health and safety. Please visit https://esg.crewenergy.com to learn more.
In addition to our ESG report, Crew advanced our corporate sustainability initiatives through listing on OTCQB market, which expands our audience scope, pool of capital, and provides U.S. investors greater flexibility and ease to trade. Further, Crew continued to be active in our ongoing stakeholder engagement efforts by participating in virtual investor conferences and industry meetings, with a goal of ensuring two-way communication with stakeholders and conveying Crew’s recent achievements.
• In Q3/21, Crew completed the previously announced non-core asset sale of our Lloydminster heavy crude oil operations, making the Company a pure-play Montney natural gas focused producer. Given Lloydminster represented Crew’s most emission-intensive asset, we will have removed 46% of our direct 2020 GHG emissions (Scope 1) and anticipate our total GHG emissions intensity will be reduced significantly going forward. The asset sale sets the stage for Crew to streamline operations and improve efficiencies while reducing our overall decommissioning obligations by nearly 40%, representing approximately $34.5 million associated with 609 gross (539 net) wellbores.
• Crew completed the installation of a waste heat recovery system on budget and on schedule during Q3/21. The system is operating as expected and is on track to reduce corporate GHG emissions by 7,700 tCO2e per year.
• Crew’s Septimus 4-14 pad was drilled during Q3/21 and allows for the development of 11 square kilometres of reservoir from one surface lease, thereby minimizing land disturbance.
• In Q3/21, the Company maintained our strong regulatory compliance record, achieving a 95% compliance rating with 62 regulatory inspections completed.
• The Company recorded no spills of significance and no lost time injuries in the third quarter.
OUTLOOK
• Full Year 2021 Guidance on Track – Crew is pleased to confirm our full year 2021 guidance and plans to announce the Company’s 2022 budget in December 2021:
• Updated full year 2022 production guidance was reduced by 1,000 boe per day to reflect the sale of the Lloydminster heavy oil operations.
• Q4 2021 Production – After the disposition of 1,050 boe per day9 of Lloydminster heavy oil assets, Q4/21 volumes are anticipated to average between 28,000 to 29,000 boe per day9.
• Full Year 2021 Guidance Reaffirmed – Forecast full year 2021 average volumes are expected to remain within our previously announced guidance range of 26,000 to 28,000 boe per day9, with full year net capital expenditures between $150 to $170 million.
• Near Term Initiatives
o Use forecasted free AFF10 in Q4/21 to reduce debt;
o Invest in capital projects with strong rates of return and payouts under 12 months, which can be supported by an active hedging program;
o Test new zones in the Upper Montney ”C” and the Lower Montney at the North Septimus 4-14 pad, evaluating their long-term future development potential;
o Complete, test and place on production five wells on our 4-21 pad that are evaluating two distinct zones within the Montney; and
o Enter 2022 with ten drilled and uncompleted wells, with plans to complete and bring ten wells onto production through the Septimus gas processing facility in the first quarter of 2022.
We are excited to continue the execution on our proven plan to expand the production of responsible energy into a strengthening operating environment to create value and corporate growth. We would like to thank our employees and our Board of Directors for their contribution and commitment to Crew, as well as our extended stakeholders for their ongoing support.
PASSING OF BOARD MEMBER
It is with profound sorrow that Crew reports the passing of Mr. Dennis Nerland on October 30th, 2021, a long-standing member of the Company’s Board of Directors. Mr. Nerland was a respected and successful leader in the business and legal community, and a dedicated father, husband and avid sportsman. After 18-years serving as an integral part of our organization and working alongside the Crew team and our Board of Directors, Dennis’ business acumen, calm demeanor, wisdom and his friendship will be deeply missed. Our Crew would like to extend our deepest condolences to Dennis’ family.
“Dennis leaves a legacy of significant business and legal accomplishments that was recognized by so many,” said Dale Shwed, President and Chief Executive Officer of the Company. “We were fortunate to have had Dennis as a member of our Board, and he will be greatly missed as both a colleague and a friend.”
