Southern Energy Corp. announces the release of its third quarter financial and operating results for the three and nine months ended September 30, 2021.
Q3 2021 Highlights
· $1.7 million of adjusted funds flow from operations[1] in Q3 2021, excluding $1.9 million of one-time expenses related to AIM listing, a 51% increase from the same period in 2020
· Average production of 12,237 Mcfe/d[2] (2,040 boe/d), 92% natural gas in Q3 2021, a 7% decrease from the same period in 2020
· Petroleum and natural gas sales of $6.6 million in Q3 2021, an increase of 85% from the same period in 2020
· As at September 30, 2021, Net Debt1 of $19.2 million, a reduction of $10.1 million or 35% from December 31, 2020
· Net earnings of $5.5 million in Q3 2021 ($0.02 per share - basic) compared to a net loss of $3.0 million in Q3 2020
· Average realized oil and natural gas prices for Q3 2021 of $85.50/bbl and $5.10/Mcf, respectively, reflecting the benefit of strategic access to premium-priced US sales hubs
· Completed a series of low-cost well recompletions and workovers beginning in Q3 and carrying into early Q4 2021
o Work program had an overall cost of approximately $1.0 million ($0.9 million in Q3 2021) and added approximately 1,250 Mcfe/d[3] (208 boe/d) of production (approximately 80% natural gas)
o At current strip pricing, the program is expected to payout in approximately 4 - 5 months and add more than $1.6 million of cash flow from operating activities in 2022 after payout
· In August 2021, successfully completed admission of its entire issued share capital to trading on the AIM market of the London Stock Exchange plc
Subsequent Events
On November 24, 2021, Southern closed an equity financing for aggregate gross proceeds of $12.7 million (US$10.1 million) through the issuance of a total of 254.3 million common shares ("Common Shares") (the "Offering"), of which $6.7 million was raised pursuant to a private placement of 135.1 million Common Shares to UK investors at a price of 2.94 pence per Common Share and the remaining $6.0 million was raised pursuant to a short form prospectus offering of 119.2 million Common Shares at a price of $0.05 per Common Share.
Southern intends to use the net proceeds of the Offering to drill up to three horizontal Selma Chalk wells in the Gwinville gas field and for working capital and general corporate purposes. This is expected to provide the business with additional near-term cash flow generation.
Outlook
Following completion of our aforementioned fundraise, Southern intends to drill up to three horizontal Selma Chalk wells in the Gwinville gas field shortly, with first production anticipated in Q1 2022. The three wells will all be drilled from a common padsite and then completed with multi-state stimulations.
The Company's long-term strategy remains consistent into the end of 2021, with an unwavering commitment to environmental, social and governance ("ESG") principles that support the continued development and consolidation of prolific reservoirs that are outside of the more expensive shale basins. Cost savings and financial discipline will remain a priority through the continued enhancement of operations and the ongoing evaluation of opportunities to reduce operating and capital costs.
Southern thanks all of its stakeholders for their ongoing support and looks forward to providing future updates on operational activities supported by the Company's recently enhanced financial flexibility and wider exposure to new pools of capital with the AIM listing.
As part of its risk management and sustainability strategy, Southern has entered into fixed price and costless collar hedges to mitigate the effects of market volatility while retaining the ability to participate in potential natural gas price appreciation during the upcoming winter. Southern currently has hedges on a total of 6,100 Mcf/d of natural gas production based on various contracts through December 31, 2021 and 4,000 Mcf/d for calendar 2022. While the resulting realized losses on commodity contracts had an impact on cash flow from operating activities as gas prices rallied in the second half of 2021, Southern expects the impact will moderate in 2022 as some of these older natural gas hedges expire. A complete list of the fixed price and costless collar contracts can be found within Southern's third quarter MD&A.
Ian Atkinson, President and CEO of Southern, commented:
"This quarter has been defined by robust operational performance from our core asset base amidst significantly increased cash flow realisation. The results of our workover program late in Q3 are an example of the low-cost high impact opportunities these type of assets provide. Pairing this with our continued focus on strict capital discipline, low debt and increased commodity prices we receive due to our strategically located assets near to the Henry Hub terminal, Southern finds itself in an enviable position as we move onto our next phase of growth.
"The period ahead will include the drilling of three high-impact, low-risk horizontal wells in the Gwinville gas field, expected to begin production in Q1 2022, on which work will commence imminently.
"This is an exciting time for the Company and our shareholders. We look forward to embarking on the Gwinville work program and updating shareholders on our progress."
