Crown Point Energy Inc. announced its operating and financial results for the three and nine months ended September 30, 2022.
Copies of the Company’s September 30, 2022 unaudited condensed interim consolidated financial statements and management’s discussion and analysis (“MD&A”) filings are being filed with Canadian securities regulatory authorities and will be made available under the Company’s profile at www.sedar.com and on the Company’s website at www.crownpointenergy.com. All dollar figures are expressed in United States dollars ("USD") unless otherwise stated. References to "ARS" are to Argentina Pesos.
In the following discussion, the three and the nine months ended September 30, 2022 may be referred to as “Q3 2022” and “the September 2022 period”, respectively, and as “the 2022 periods” collectively. The comparative three and nine months ended September 30, 2021 may be referred to as “Q3 2021” and “the September 2021 period”, respectively, and as “the 2021 periods”, collectively.
Q3 2022 SUMMARY
During Q3 2022, the Company:
- Acquired a 50% working interest in the Puesto Pozo Cercado Oriental concession (the “PPCO Concession” or “PPCO”) from Petrolera Aconcagua Energía S.A. The PPCO Concession, which expires in August 2043, is located in the Cuyo (or Cuyana) basin in the Province of Mendoza adjacent to the Chañares Herrados concession (the “CH Concession” or "CH") and covers approximately 63 square kilometers.
Consideration was a cash payment of $5 million and up to an additional $7.53 million in quarterly installments based on a percentage of the net operating income (oil and gas sales revenue less royalties, turnover and other taxes and operating expenses) derived from the Company’s 50% working interest in the PPCO Concession (the “Contingent Consideration”), provided that the Contingent Consideration is not payable until the Company has recovered its initial $5 million investment from its share of the net operating income derived from the PPCO Concession.
Under the terms of the exploitation license agreement, the joint venture will pay an 18.2% royalty on oil production and commit to a $26.8 million ($13.4 million net to Crown Point) work program which includes well work overs, infrastructure optimization and a multi-well drilling program that must be fulfilled by August 2028.
- Reported loss before taxes of $0.5 million and a net loss of $0.9 million as compared to Q3 2021 when the Company reported income before taxes of $1.1 million and a net income of $1.4 million;
- Reported net cash provided by operating activities of $2.7 million and funds flow provided by operating activities of $1.2 million as compared to Q3 2021 when the Company reported $2.4 million of net cash provided by operating activities and $1.4 million of funds flow provided by operating activities;
- Earned $10.8 million of oil and natural gas sales revenue on total average daily sales volumes of 1,863 BOE per day, up from $6.9 million of oil and natural gas sales revenue earned on total average daily sales volumes of 1,690 BOE per day in Q3 2021 due to higher volumes of oil exported by trucks and ships combined with the acquisition of the PPCO Concession working interest;
- Received an average of $5.97 per mcf for natural gas and $74.68 per bbl for oil compared to $4.31 per mcf for natural gas and $56.88 per bbl for oil received in Q3 2021;
- Reported an operating netback of $17.63 per BOE 1, up from $14.29 per BOE in Q3 2021;
- Received $0.06 million of royalty and turnover tax credits under the Mendoza Activa Hydrocarbons Programs;
- Obtained a $2.4 million working capital loan;
- Repaid overdraft loans by an amount of $3 million, working capital loans by an amount of $0.6 million and repaid a $1 million export financing loan;
- Repaid $0.7 million of Series I and Series II notes payable; and
- Issued a total of $14.7 million principal amount of Series III secured fixed-rate notes ("Series III Notes"), of which: $10.2 million principal amount of Series III Notes were issued for cash consideration, payable in ARS; $3.1 million principal amount of Series III Notes were issued in exchange for the surrender and cancellation of $3.4 million principal amount of Series I Notes at an exchange ratio of $93.77 principal amount of Series III Notes for every $100 principal amount of Series I Notes; and $1.3 million principal amount of Series III Notes were issued in exchange for the surrender and cancellation of 190,000,000 ARS ($1.4 million) principal amount of Series II Notes at an exchange ratio of $90.31 principal amount of Series III Notes for every $100 principal amount of Series II Notes. Series III Notes are denominated in USD, payable in ARS, and are due 36 months after the issue date. The principal amount of Series III Notes will be repaid in seven quarterly equal installments, starting on February 10, 2024 and ending on August 10, 2025. Series III Notes will accrue interest at a fixed rate of 4% per annum, payable every three months in arrears from the issue date. Following closing of the Series III Note offering, the Company repurchased the remaining $50,000 principal amount of outstanding Series I Notes. All Series I Notes and Series II Notes were cancelled.
- Reported a working capital surplus2 of $0.3 million.
SUBSEQUENT EVENTS
Subsequent to September 30, the Company:
- Obtained a $0.9 million export financing loan at an annual interest rate of 4% repayable on December 4, 2022, and
- Repaid an ARS 300 million ($2.4 million) working capital loan.
OPERATIONAL UPDATE
Tierra del Fuego Concession ("TDF")
During Q3 2022, San Martin oil production averaged 1,200 (net 413) bbls of oil per day. Completion and flow testing of SM a-1004, drilled in Q1 2022 and located on the western crest of the San Martín high, was carried out between March 22 and May 11. During July and August 2022, the water production in SM a-1004 and SM a-1002 increased considerably, leading to exhaustive testing of the San Martín cluster for further investigation of the reservoir’s behavior and the performance of production tests in SM x-1001 and pressure interference tests in the other wells in the area. In addition, the joint venture tested three zones in SM a-1004 and the well is currently on production with a packer from all opened zones and is awaiting installation of an electro-submergible pump in order to increase gross production in the well. The Company expects that the pump installation will decrease the water cut in wells other than SM a-1004.
During Q3 2022, natural gas production from the Las Violetas concession averaged 11,514 (net 3,958) mcf per day and oil production averaged 265 (net 91) bbls of oil per day. Drilling operations on the LV-118(h) well, a 700 meter lateral horizontal well located in the northeast corner of the concession spud in during Q1 2022, were halted on May 3, 2022 after an obstruction was encountered in the cased horizontal build section at a depth of 1,720 meters. The re-entry on LV-118(h) performed in August 2022 to determine the causes of obstruction was unsuccessful.
Chañares Herrados (“CH”) Concession
During the September 2022 period, the UTE carried out workovers on four shut-in oil wells and performed four extractive system enhancements. Oil production for Q3 2022 averaged 1,105 (net 551) bbls of oil per day.
PPCO Concession
Oil production for Q3 2022 averaged 238 (net 119) bbls of oil per day.
Cerro de Los Leones (“CLL”) Exploration Permit
The directional well, CPE.MdN.VS.xp-3(d), was drilled and cased in Q1 2022 after encountering eight volcanic sills with oil shows and increased mud gas in the Mendoza Group, and log indicated gas bearing zones in the overlying Neuquén Group sandstones. Subsequent acid stimulation and swabbing of the volcanic sills recovered uneconomic amounts of oil with water. The well has been suspended pending testing of the gas bearing sandstone layers in the Neuquén Group in the first half of 2023.
OUTLOOK
The Company’s capital spending on developed and producing assets for fiscal 2022 is budgeted at approximately $9.5 million. During the September 2022 period, the Company incurred $8.4 million of capital expenditures comprised of $5.6 million in the TDF Concessions, $2.7 million in the CH Concession and $0.1 million in the PPCO Concession.
The Company will spend the remaining $1.1 million in the last quarter of 2022 on expenditures for the following proposed activities:
- $0.4 million in the construction of an oil field pipeline and for the optimization of wells in the San Martín field in TDF;
- $0.1 million for facilities improvements and optimization in CH; and
- $0.6 million for extractive system enhancements in PPCO.
The Company’s capital spending on developed and producing assets for fiscal 2023 is budgeted at $15.0 million based on expenditures for the following proposed activities:
- $0.6 million in improvements to facilities in TDF;
- $2.2 million for well workovers in CH;
- $7.0 million to drill two vertical wells in CH;
- $0.9 million for facilities improvements and optimization in CH;
- $0.5 million for well workovers in PPCO;
- $3.5 million to drill one vertical well in PPCO; and
- $0.3 million for facilities improvements and optimization in PPCO.
The Company’s capital spending on exploration and evaluation assets for fiscal 2022 was originally budgeted at $3.3 million to drill and complete one exploration well in CLL of which $2.5 million was incurred during the September 2022 period. The Company plans to spend the remaining $0.8 million on the testing of the gas bearing sandstone layers of the Neuquén Group in the first half of 2023.
ARGENTINA – INTERNATIONAL MONETARY FUND
The International Monetary Fund ("IMF") approved, at a technical level, the quarterly objectives committed to by Argentina in accordance with the 30-month agreement under an Expanded Fund Facility ("EFF") for the second and third quarter of 2022 jointly. The approval highlights that the technical staff of the IMF and the Argentine authorities agree that the objectives established in the EFF agreement will remain unchanged until 2023 and the original goals will be maintained until the end of the year. Despite this achievement, the implementation of policies aimed at lowering Argentina’s deficit remains essential to achieve macroeconomic stability and begin to address Argentina's entrenched challenges, particularly high and persistent inflation. The rate of inflation reached 66% for the September 2022 period, and 83% for the 12 months ended September 30, 2022.
