Published On: August 6th, 2023
Calima Energy Limited (ASX: CE1) (Calima or the Company), the leading Canadian oil and gas production and exploration company, has announced its second quarterly activity report, which shows significant accomplishments. Under Chairman Mr Glenn Whiddon’s leadership, the Company has achieved its lowest net debt of AUD 6.1 million in a low oil price period. Production stood at 377,826 boe (gross). Also, as promised, Company has approved AUD 5 million of total capital return for 2023, which approximates to almost 10% yield for shareholders.
Key Operating Metrics and Outlook
Production for June 2023 quarter aligns with the Company’s projections at 4,152 barrels of oil equivalent per day (boe/d) (~62% oil and liquids). Despite the decline in energy prices, the Company generated AUD 22.7 million in revenue with an adjusted EBITDA of AUD 7 million. Calima Energy expects that since WTI has risen above USD 80 per barrel and the Western Canadian Select (WCS) differential has fallen from USD 28 earlier this year to USD 14, revenue targets look promising. Both these adjustments will result in higher revenue for Calima Energy.
Energy Prices – In Q2 2023, the benchmark price for energy prices averaged:
- USD 71.82/bbl WTI (down 5% from Q1)
- USD 14.87/bbl WCS (differential significantly improved (40% better than Q1)
- CAD 2.31/GJ AECO (down 24% from Q1)
Figure: 1 Key Financial and Operating Highlights For Q2 2023 and Forecasted for Q3 2023
Mr Karl DeMong, the President & CEO, commented, “We are pleased to report another successful and profitable quarter for the Company. The second quarter is typically quiet on the operations side as we navigate spring break-up conditions. Oil and gas prices had been soft through the first part of the year but have firmed recently. As a result, the Company is planning a modest drilling program in the Brooks area to maintain production levels. Our continued combination of sustainable production, cash flow growth, and shareholder returns program make Calima an attractive investment for our current and future shareholders.”
Exploration and Development Update
2 Wells Pisces #8 and #9 (100% WI) Program
Result of a follow-up to a successful Glauconitic Formation horizontal well, these two wells were drilled and completed late in the first quarter of 2023, and most production came in the second quarter of June 2023. These Pisces are almost 22% longer and had 15 additional fracs each compared to the 12-23 well, resulting in higher production.
Figure 2: Location of Pisces #8 and #9
Waterflood Expansion J2J Pool
Waterflood J2J Pool Project production has increased from 170 to 300 bbl/d of oil. This resulted in instantaneous voidage replacement (VRR) reaching 1.9 by the end of the quarter. VRR is a critical measure signifying the amount of produced oil, gas, and water replenished by water. It is believed that for sustainable healthy operation, to replace the volume of oil, gas, and water produced such that VRR reaches 1.
Management is evaluating the conversion of an additional injector in the north half of the pool to start injecting additional water in Q4 2023. Waterflood operation and continued optimisation are believed to provide consistent long-term cash flow with minimal decline and substantial reserve.
Calima Energy Corporate Actions During Q2 2023
- Asset Sales Activity
Calima Energy has received three unsolicited non-binding offers to acquire certain assets. The Company discloses that final terms could not be met with any party, but Company anticipates additional offers and remains pleased with the interest in the performance of assets.
A Canadian entity submitted a bid at a material premium to the Company’s current market valuation. A substantial disconnect was identified between the valuation attributable to Calima and its peer group of companies trading on TSX.
Based on interest, Calima anticipates additional inbound approaches for the assets. However, the Board of Management optimises the reserve base, revenue, and operating profits to narrow the valuation gap and maximise stakeholder value. The Company intends to reward shareholders via distribution upon successful traction.
- Positive Balance Sheet Changes (Net Debt Reduction)
The quarter saw a positive cash flow of approximately AUD 6.7 million from operations, and a decreased capital expenditure, leading to a substantial reduction of net debt by AUD 7.8 million. Calima Energy achieved the lowest debt of AUD 6.1 million, including AUD 3.76 million related to the Pivotal term loan for pipeline expansion.
- Less than Marketable Parcels (LMPS)
The Company has provided a sales opportunity for small shareholders, aiming to reduce substantial administrative expenses.
- Capital Returns
Board has approved a total capital return of AUD 5 million for 2023, resulting in approximately 10% yield. The first payment of AUD 3 million is expected to occur in September 2023 (following completion of the LMPS process), and the rest in January 2024.
- Management Changes
Mr Karl DeMong has been appointed as the new CEO of Blackspur Oil Corp, effective July 28th, 2023. Mr Graham Veale has been promoted to COO, and Mr Rod Monden has been appointed CFO.
WCS Energy Price Market Commentary
WCS heavy oil blend markets have seen significant improvement since the beginning of the year. Blackspur’s oil production closely tracks the WCS price. In Brooks Company receives a premium price, while in Thorsby, a discount to the WCS price. According to the Company, in 2023, WCS was in solid demand mainly due to supportive markets like PADD 2 (Midwest U.S.) and PADD 3 (Gulf Coast U.S.). This demand was driven mainly because of bottom-of-the-barrel products like residual fuel oil, expectations of refilling the U.S. Strategic Petroleum Reserve and reduced imports of Maya in the U.S. Gulf Coast as increased refining capacity in Mexico.
Figure 3: Historical WCS Hardisty, WTI CMA Monthly Prices
The Trans Mountain Expansion (TMX) will add 590,000 barrels of additional export capacity daily. The project is expected to be mechanically complete by Q4 2023 and fully operational in Q1 2025. Western Canadian oil production has increased but is not expected to fill TMX expansion. An increase in export capacity is anticipated to continue to outpace the supply, which will positively impact the WCS price differential for the foreseeable future. The Company expects the forward markets for WCS Hardisty are pricing in seasonal weakness for Q4 2023 and tighter differential due to TMX expansion.
Calima Energy Hedging Contracts
Calima Energy has implemented a hedging policy that allows both upside exposure and protection from downside oil price movement in the form of a put-call collar. The Company expects an increase in WTI with the limited own hedges exposure and Western Canadian Select (WCS) basis swap contracts for Q3 2023.
Figure 4: Calima Energy’s Hedging Contracts
Environmental, Social and Governance (ESG)
Calima Energy proudly announced that the quarter was free from any downtime from employee injury and no reportable spill year to date. During the quarter, the Company completed annual emission reporting for 2022. In 2022, the Company generated 1,815 carbon offset credits, up from 712 in 2021 via several emission reduction initiatives. The Company has accrued positive adjustments in the balance sheet from smaller-than-expected emissions intensity per unit production. The annual mandatory closure target under Alberta Energy Regulator’s (AER) new License Management Program is CAD 720,000, which Calima plans to undertake in North American Summer.
Figure 5: Calima Energy GHG Emissions Report
Calima Energy Quarterly News Update
The Donny Creek Fire in British Columbia has crossed several of the Company’s sites in the Tommy Lakes area. A fly-over and physical inspection revealed that facilities appear to be unaffected. The Company further assured that all sites comply with orders from the authority and are insured for replacement value. As facilities have not been operating, no shutdown or evacuation was necessary.
Mr Glenn Whiddon, Chairman of Calima Energy Limited
Mr Glenn Whiddon is an experienced professional with a diverse background in investment management and executive leadership roles. He is the Principal and Founder of Lagral, a family Company focused on investment management activities in the mining, energy, and property sectors.
Glenn is the Chairman of Calima Energy Limited (ASX: CE1), where the Company invests in oil and gas exploration and production projects, primarily focusing on Canada and potential international opportunities. Under Glenn’s leadership, the energy company aims to maximise value for its shareholders through successful exploration, development, and production activities in the energy sector.
Previously, Glenn held executive positions such as Executive Chairman of Rialto Energy Limited (now Azonto Petroleum Limited) and CEO and Chairman of Grove Energy Limited, which Stratic Energy acquired later. He also co-founded Pinnacle Associates, which undertook direct investments in the Russian natural resource sector and provided advisory services for foreign companies investing in Russia and the CIS region.
Glenn’s extensive experience also includes establishing the Moscow operations of Bank of New York – Inter Maritime Bank, focusing on correspondent and corporate banking, resource investments in the oil industry, and consulting.
He holds a Bachelor of Economics in Accounting from Macquarie University.
About Calima Energy Limited
Calima Energy Limited is a Canadian oil and gas-producing energy company focused on the responsible development of high-quality assets in Western Canada. It is an environmentally conscious explorer of natural resources in Australia that is in the vanguard of developing the energy industry. Through a transformational merger with Blackspur Oil in 2021, the Company unleashed the power of alliance. As a result, it became a high-margin oil and gas producer exposed to WTI prices. The Company generates stable production from its Thorsby and Brooks assets, primarily conventional oil and gas, with a low decline rate of around 65%. These assets offer significant growth potential as production doubles within 18 months.
In addition to the Thorsby and Brooks assets, Calima Energy holds over 34,000 ACRES of Montney rights in the “liquids-rich” fairway. The Montney assets, known for their abundant liquids, provide an upside opportunity in domestic gas and global LNG markets. With a substantial acreage position, Calima Energy is well-positioned to capitalise on the potential of the Montney formation and leverage the growing demand for liquid-rich natural gas.
Figure 6: Major Projects of Calima Energy Limited
Investor Outlook
- Calima Energy’s share price stood at AUD 0.094 per share as of August 2nd, 2023, with an average 52-week range of AUD 0.083 to AUD 0.150 per share
- The Company’s market capitalisation stood at AUD 52.60 million as of August 2nd, 2023
- The Company has approved a total capital return of AUD 5 million for FY2023, resulting in approximately 10% yield fulfilling the strong return commitment
- Waterflood expansion came online and started contributing to the production this quarter onwards. The asset is anticipated to continue to provide long-term consistent cash flow
- The Company achieved the lowest debt of AUD 6.1 million
- In the second quarter of 2023, the total production amounted to 377,826 barrels of oil equivalent (boe) gross, and the daily average production was around 4,152 boe/d
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