Based upon continued strong execution in the field with respect to both costs and performance, Hammerhead Energy Inc. (“Hammerhead” or the “Company”) (TSX: HHRS, HHRS.WT; NASDAQ: HHRS, HHRSW) is pleased to announce increased 2023 annual average production guidance of 41,500 boe/d3 from the previous estimate of 40,200 boe/d. Crude oil production is estimated to be 35% of production from a prior estimate of 33%. Since coming on production August 6th, performance to date on the 12-well North Karr 10-14 pad has thus far materially exceeded the Company’s internal forecast, with peak pad production exceeding 17,800 boe/d3 (over 50% crude oil). As a result, field estimates of Hammerhead’s corporate production volumes for the month of August averaged 48,500 boe/d3, while also having additional production “behind pipe” due to North Karr total production capability exceeding infrastructure capacity. Based on the current commodity price strip, the 12-well pad at North Karr 10-14 is currently on track to achieve payout6 in three months or less based on average DCET well costs of only $7.9 million per well.
On the whole, corporate well performance has exceeded type curves at the same time that capital costs have come in lower than forecast. Due to these savings, Hammerhead is reducing its capital expenditures guidance in 2023 to $500 million5 from $525 million. Updated 2023 production guidance continues to assume that the new South Karr 5-11 nine-well pad does not commence production until January 2024, although drilling operations have been completed ahead of planned timing while expansion of infrastructure at South Karr is still expected to be completed before the end of 2024. Total 2023 cash costs per boe are also tracking previous guidance. Finally, we now note that based on the current commodity price strip, Hammerhead expects to enter into a “free funds flow”7 status earlier than previously anticipated, in October 2023. As previously communicated, Hammerhead expects to introduce a formal return of capital strategy beginning in 2024, subject to approval by Hammerhead’s Board of Directors.
Scott Sobie, President and CEO of Hammerhead notes, “Our business is improving dramatically with accelerated momentum due to capital efficiencies and production results being better than expected. Our transition to meaningful free cash flow in 2024, as well as a return of capital strategy, is an exciting pivot for our firm. The implications of our South Karr asset coming on line could verify our expectations of increased production results that have the potential to be the strongest among our whole asset base, and in addition, will provide several new Lower Montney tests.”