NuVista Energy Ltd. is pleased to announce record-setting reserves, financial and operating results for the three months and year ended December 31, 2022, and to provide an update on a number of key strategic initiatives. The results of our 2022 program demonstrate the quality and capacity of our asset base to deliver outsized returns and the ability of our team to do so in a disciplined manner, while remaining focused upon safety and sustainability. We enter 2023 financially strong, and in a position to continue our program of returning capital to our shareholders, reducing debt, and delivering on our value-adding growth strategy concurrently.
Fourth Quarter and Full Year 2022 Operational and Financial Highlights
During the quarter and year ended December 31, 2022, NuVista:
• Achieved our highest ever annual average production rate of 68,690 Boe/d, a 31% increase from 2021 and at the top end of our guidance range of 68,000 – 69,000 Boe/d. Annual production consisted of 33% condensate, 9% NGLs, and 58% natural gas, reaching an average of 74,252 Boe/d for the fourth quarter;
• Generated record annual adjusted funds flow(1) of $892.8 million ($3.94/share, basic(4)), a 178% increase from 2021. This included $257.0 million of adjusted funds flow in the fourth quarter alone;
• Delivered our highest ever free adjusted funds flow(2) of $464.0 million for the year ($2.05/share, basic(4)), a $437.4 million increase from 2021. This included $183.0 million of free adjusted funds flow in the fourth quarter;
• Achieved annual net earnings of $631.0 million ($2.78/share, basic), a 138% increase from 2021;
• Improved our operating netback(3) to $38.33/Boe and corporate netback(3) to $35.60/Boe, an 83% and 112% increase, respectively, from 2021;
• Realized an average natural gas price of $7.39/Mcf, an improvement of 33% compared to the average AECO monthly index price of $5.56/Mcf for the year, as a result of our natural gas diversification strategy;
• Executed a successful capital expenditure(2) program, investing $419.5 million in well and facility activities including the drilling of 49 gross (47.5 net) wells and the completion of 45 gross (44.4 net) wells in our condensate rich Wapiti Montney play;
• Exited the year with $41.9 million of available cash and zero drawn on our $440 million credit facility. Net debt(1) at year end was $171.8 million, a 64% reduction from $480.2 million at year end 2021 and below the previously announced net debt target of $200 million(5). NuVista’s net debt to annualized fourth quarter adjusted funds flow(1) was 0.2x;
• Repurchased and subsequently cancelled 13.5 million common shares for an aggregate cost of $157.4 million or $11.67/share under the terms of our NCIB. Subsequent to year-end we repurchased and subsequently cancelled an additional 1.0 million common shares, completing 80% of the NCIB;
• Continued to significantly advance our progress in the areas of environmental, social and governance (“ESG”), including the release of our 2021 ESG report, which is available on our Company website. Importantly, the report contains continued evidence of our significant reductions in methane and greenhouse gas (“GHG”) emissions, a journey that we have committed to continuing; and
• Achieved FID approval for a cogeneration project at the NuVista Wembley Gas Plant for startup by early 2024, which will significantly reduce operating costs, fuel consumption, and GHG emissions.
Record Achievements in Reserve Metrics
NuVista is pleased to report the year end 2022 independent evaluation of our reserves by GLJ Ltd. (“GLJ”) (the “GLJ Report”). With the infrastructure investment in our assets now largely behind us, our focus has shifted to building production volumes and maximizing the velocity at which invested capital is returned through exceptional half-cycle returns. The quality of our asset base is reflected in additional positive technical revisions to our production base and the highly efficient growth in reserves. Our established track record of improvement and the depth and quality of running room in our undeveloped reserves reinforce our ability to provide a differentiated level of value creation for our shareholders both short and long term.
Highlights of our 2022 reserves report include the following accomplishments:
• Reported Proved Developed Producing (“PDP”) reserves of 142.7 MMBoe, a year-over-year increase of 17%. Total Proved plus Probable (“TP+PA”) reserves reached 604.4 MMBoe, a year-over-year increase of 7%. This growth in reserves was due in part to new locations being booked in the Lower Montney zone at Gold Creek;
• Replaced 183% and 247% of 2022 production on a PDP and TP+PA basis, respectively, while allocating less than 50% of our adjusted funds flow toward capital expenditures;
• Technical revisions of +3% were achieved on PDP reserves, primarily due to continued well outperformance, particularly in the Pipestone area, which saw a technical revision of +6%;
• Delivered PDP Finding and Development Costs (“F&D”)(1) that exceeded our expectations at $9.09/Boe due to strong well performance and resulting positive technical revisions. TP+PA F&D was robust at $8.38/Boe due to the continued addition of high-quality reserves, positive technical revisions and only seeing an increase in future development capital of 4% due to conservative prior well cost bookings and our continued inflation mitigation efforts;
• Achieved a PDP recycle ratio of 5.0x, based on our 2022 operating netback, excluding realized loss on financial derivative contracts;
• Continued to successfully convert undeveloped locations to production while maintaining total developed and undeveloped well count at 1,418, which includes 306 developed wells, 338 undeveloped TP+PA locations and 774 undeveloped Contingent locations. Our undeveloped inventory represents 25 years of development at our current pace of drilling;
• Increased our PDP before-tax net present value per share, discounted at 10% (NPV10)(2), by 44% to $9.47 at December 31, 2022; and
• Increased our TP+PA NPV10 per share(2) by 46% to $27.93 at December 31, 2022.
Excellence in Operations
Operations in the field continue to progress successfully as planned. The cadence of the three-rig program has underpinned our ability to manage the inflationary environment that persisted throughout 2022. We are proud that we were successfully able to manage inflationary pressures on our well costs to just 10% in 2022 and are confident that our outlook for 5% incremental inflation in 2023 is achievable. We are beginning to see early signs of cost pressures easing, likely to manifest toward mid-year 2023.
One rig is currently drilling in the Wapiti area while two rigs have moved back into Pipestone and are drilling a 6-well pad. Completion operations are going extremely well. A 5-well pad at Gold Creek has been successfully completed and is currently being tested. A 6-well pad at Elmworth which finished drilling at the end of 2022 is currently being completed.
Well performance and on-stream schedule has continued favorably as planned. IP30 volumes from the 3-well pad at Wapiti (Bilbo Block) which was brought on stream in January averaged 1,525 Boe/d per well, including 60% condensate. This is an important multi-zone pad in the southwest corner of the block that includes a Montney C-Zone well. In addition, a new IP365 milestone has been reached on a 6-well Pad in Pipestone (referenced in NuVista’s Corporate Presentation). This Pad averaged 1,160 Boe/d (including 32% condensate) per well over the first year of production, which is 55% above the historic average production for the area. This is another important datapoint that reinforces our long-term outlook toward continued 3-zone development in the Pipestone area.
Balance Sheet Strength, Rapid Debt Reduction and Return of Capital to Shareholders
As noted in the highlights section, we succeeded in rapidly reducing net debt to below our long term target of less than $200 million during 2022. In 2023, we expect the continued reduction in our net debt but at a moderated rate, as we have increased our rate of return of capital to shareholders.
As a result of achieving our target net debt level, we previously announced an increase of the return of capital to shareholders to approximately 75% of free adjusted funds flow, with the remainder allocated to reducing net debt. We continue to believe that the best method for return of capital to shareholders is initially to repurchase shares, however we will re-evaluate the uses of free adjusted funds flow through 2023 as our growth plan proceeds. This evaluation will consider commodity prices, the economic and tax environment, and will include all options including continued disciplined growth to facility capacity of 105,000 Boe/d, share repurchases, prudent targeted acquisitions or infrastructure repurchases, and dividend payments.
Environment, Social & Governance (“ESG”) Highlights
Approximately 60% of our current production is comprised of natural gas which has the lowest carbon footprint of any hydrocarbon. Our ongoing efforts to reduce GHG emissions led to a 16% reduction in our Scope 1 & 2 GHG intensity for 2021 relative to our 2020 baseline year. This was a significant step in achieving our stated goal of realizing a 20% reduction in GHG intensity by 2025. In August 2022, we released our 2021 ESG report which highlights our performance through 2021. We have made significant progress on our ESG targets and continue to advance projects that support and enhance our objectives. For more information regarding our ESG performance and targets, please refer to our 2021 ESG report which is available on our website at www.nuvistaenergy.com. On June 9, 2022, we successfully incorporated sustainability linked performance features into our credit facility and as a result of our ongoing ESG initiatives, we are on track to meet or exceed these established sustainability performance targets (“SPTs”).
We also progressed in matters of Social and Governance including continued headway on diversity and inclusion on several fronts. More details are available in our 2022 management discussion and analysis and our 2021 ESG report.
2023 Guidance Update
As discussed above, NuVista is pleased to note that operations and performance have been strong while both condensate and natural gas prices have been favorable through 2022. We are in an extremely fortunate position of having top tier assets and economics, and with disciplined execution we have been spending approximately half of free adjusted funds flow on capital to execute our plans. This means that despite the significant moderation of natural gas pricing during the first quarter of 2023, free adjusted funds flow is reduced but still highly positive. We have hedged approximately 35% of projected natural gas production for this summer with floor and ceiling prices of C$4.17/Mcf and $7.31/Mcf (hedged and exported volumes converted to an AECO equivalent price). We have less than 2% exposure to AECO prices this summer due our hedges and our diversified sales portfolio. Due to our high condensate weighting, our execution economics remain very strong. As such, we will continue with our capital execution plans unchanged while still returning free adjusted funds flow to shareholders and reducing net debt.
Full year production and capital spending guidance is reaffirmed at 79,000 – 83,000 Boe/d and $425 to $450 million, respectively. Due to the continued efficiency gains mentioned above and strong well performance our first quarter volumes are still expected to fall within our previous guidance range of 71,000 – 74,000, but likely near the bottom of the range due to unplanned outages at three separate third party midstream facilities which impacted quarterly production by 1,500 Boe/d. All repairs were completed and the facilities are now back online. Daily production levels have currently reached 78,000 Boe/d due to a number of new wells commencing production, however we are temporarily prevented from increasing production further due to the ongoing restrictions on the NGTL pipeline network in the Upstream James River Area. The restrictions are expected to subside through mid-March, and the remaining three quarters of the year are each expected to average well over 80,000 Boe/d.
We intend to continue our track record of carefully directing free adjusted funds flow towards a prudent balance of return to shareholders and debt reduction, while investing in production growth until our existing facilities are filled and debottlenecked to maximum efficiency. NuVista has an exceptional business plan that maximizes free adjusted funds flow and the return of capital to shareholders when our existing facilities are debottlenecked and filled to maximum efficiency at production levels of approximately 100,000 to 105,000 Boe/d. With facilities optimized, returns are enhanced further with corporate netbacks which are expected to grow by approximately $2-$3/Boe due to the efficiencies of scale which will reduce our unit operating, transportation, and interest expenses.
NuVista has top quality assets and a management team focused on relentless improvement. We have the necessary foundation and liquidity to continue adding significant value for our shareholders. We will continue to adjust to the environment in order to maximize the value of our asset base and ensure the long-term sustainability of our business. We would like to thank our staff, contractors, and suppliers for their continued dedication and delivery, and we thank our Board of Directors and our shareholders for their continued guidance and support.
Summary of Corporate Net Present Value Data
The estimated net present values of future net revenue before income taxes associated with NuVista’s reserves effective December 31, 2022 and based on published 3 Consultants’ Average price forecast as at January 1, 2023 as set forth below are summarized in the following table:
The estimated future net revenue contained in the following table does not necessarily represent the fair market value of the reserves. There is no assurance that the forecast price and cost assumptions contained in the GLJ Report will be attained and variations could be material. The recovery and reserve estimates described herein are estimates only. Actual reserves may be greater or less than those calculated.
