RUBELLITE ENERGY INC. ADDS STRATEGIC MANNVILLE STACK HEAVY OIL ASSETS TO ITS CLEARWATER PORTFOLIO ADVANCING ITS GROWTH, CONSOLIDATION AND PORTFOLIO ENHANCEMENT STRATEGY; PROVIDES Q2 2024 OPERATIONAL AND FINANCIAL HIGHLIGHTS AND UPDATED GUIDANCE
"The acquisition of
TRANSACTION HIGHLIGHTS
- Provides an attractive land, production and inventory base to ground a growth strategy in the
Mannville stack of theCold Lake Oil Sands Region , complementary to Rubellite'sClearwater assets in northernAlberta ; - Adds approximately 67.3 gross (36.3 net) sections of contiguous, stacked
Mannville rights with a total of 170 gross (85 net(1)) identified drilling locations in the primary producingWaseca formation and 220 gross (110 net(1)) additional potential locations across other zones within theMannville stack; - Adds high-netback conventional heavy oil production of approximately 2,500 bbl/d and growing as new wells recently placed on-stream clean up and progressively attain stable oil production; and
- Attractive transaction metrics:
- 2.3 times annualized net operating income with close to
$47 /bbl operating netback atUS$75 /bbl WTI; $39,000 per flowing boe acquired; and- Maintains balance sheet strength with a pro forma leverage ratio of 1.2 times year end net debt to Q4 2024 annualized adjusted funds flow.
- 2.3 times annualized net operating income with close to
- Net locations assume participation elections by FLERC at a 50% working interest in all future drilling activity and are internally estimated. See "Estimated Drilling Locations" in this news release.
STRATEGIC RATIONALE
- Directly aligned with Rubellite's growth and portfolio enhancement strategy. The
Mannville stack assets provide an opportunity for the Rubellite team to employ its successfulClearwater multi-lateral horizontal drilling expertise in this analogous region; - Positions Rubellite as a leading explorer, developer and consolidator in the
Clearwater andMannville stack plays; - Increases Rubellite's current high netback conventional heavy oil production base by approximately 56%;
- Increases adjusted funds flow by approximately 38% on an annualized basis;
- Value-add inherent through operating, administrative and capital execution synergies across the expanded asset base;
- Improves positioning to accelerate organic growth, advance exploration activities and reduce debt with enhanced free funds flow;
- Increased size and scale enhances ability to pursue further value-add consolidation opportunities; and
- Expands Rubellite's strong relations with Indigenous communities through the new partnership with the Frog Lake First Nation and FLERC.
TRANSACTION DETAILS
The total consideration paid by Rubellite for the Acquisition was
Rubellite funded the cash portion of the Acquisition through (a) expanded bank credit facilities (the "Expanded Facility"); and (b) a new senior second-lien term loan placed, directly or indirectly, with certain directors and officers of Rubellite and the Company's significant shareholder for
The Boards of Directors of both
Q2 2024 OPERATIONS AND FINANCIAL HIGHLIGHTS
Rubellite is scheduled to release its second quarter 2024 financial and operating results on
- Second quarter conventional heavy oil sales production of 4,503 bbl/d was relatively unchanged from the first quarter of 2024 (Q1 2024 - 4,514 bbl/d); and
- Adjusted funds flow(1) in the second quarter was
$20.7 million ($0.33 per share), a 12% increase from the first quarter of 2024 (Q1 2024 -$18.5 million ;$0.30 /share).
- Non-GAAP financial measure, non-GAAP ratio or supplementary financial measure. See "Non-GAAP and Other Financial Measures".
UPDATED OUTLOOK AND GUIDANCE
Rubellite's Board of Directors has approved development capital spending for 2024 of approximately
Production sales volumes are expected to grow approximately 70% year-over-year to average 5,600 to 5,900 boe/d (100% heavy oil) and exit the year at approximately 7,500 - 7,900 boe/d, poised for continued growth into 2025 with the full integration of the
In conjunction with the Acquisition, Rubellite has updated its guidance for 2024 as follows:
|
Previous 2024 |
Updated 2024 |
Q4 2024 Guidance |
Sales Production (bbl/d) |
4,600 - 4,900 |
5,600 - 5,900 |
7,400 - 7,800 |
Development spending ($ millions)(2)(3)(4) |
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|
|
Multi-lateral development wells / step-out wells (net) |
34.0 - 35.0 |
40.0 - 41.0 |
12.0 |
Heavy oil wellhead differential ($/bbl)(2) |
|
|
|
Royalties (% of revenue)(2) |
11% - 12% |
11% - 12% |
11% - 12% |
Production & operating costs ($/boe)(2) |
|
|
|
Transportation costs ($/boe)(2) |
|
|
|
General & administrative costs ($/boe)(2) |
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|
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(1) |
Previous 2024 guidance was contained in the Company's |
(2) |
Non-GAAP financial measure, non-GAAP ratio or supplementary financial measure. See "Non-GAAP and Other Financial Measures". |
(3) |
Includes |
(4) |
Excludes land, acquisition and exploration spending. |
ABOUT RUBELLITE
Rubellite is a Canadian energy company engaged in the exploration, development and production of heavy crude oil from the
ADVISORIES
Certain directors and officers of the Company and the Company's significant shareholder, directly or indirectly participated in the Second-Lien Term Loan, which may result in the Second-Lien Term Loan being a "related party transaction" as defined under Multilateral Instrument 61-101 ("MI 61-101"). The Second-Lien Term Loan is exempt from the need to obtain minority shareholder approval and a formal valuation as required by MI 61-101 as at the time the transaction was agreed to, neither the fair market value of the subject matter, nor the fair market value of the consideration for, the Second-Lien Term Loan, insofar as it involved "interested parties" (as defined in MI 61-101), exceeded 25 percent of the Company's market capitalization.
BOE VOLUME CONVERSIONS
Barrel of oil equivalent ("boe") may be misleading, particularly if used in isolation. In accordance with NI 51-101, a conversion ratio for conventional natural gas of 6 Mcf:1 bbl has been used, which is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, utilizing a conversion on a 6 Mcf:1 bbl basis may be misleading as an indicator of value as the value ratio between conventional natural gas and heavy crude oil, based on the current prices of natural gas and crude oil, differ significantly from the energy equivalency of 6 Mcf:1 bbl. A conversion ratio of 1 bbl of heavy crude oil to 1 bbl of NGL has also been used throughout this news release.
ABBREVIATIONS
The following abbreviations used in this news release have the meanings set forth below:
bbl barrels
bbl/d barrels per day
boe barrels of oil equivalent
INITIAL PRODUCTION RATES
Any references in this news release to initial production rates are useful in confirming the presence of hydrocarbons; however, such rates are not determinate of the rates at which such wells will continue production and decline thereafter and are not necessarily indicative of long-term performance or ultimate recovery. Readers are cautioned not to place reliance on such rates in calculating the aggregate production for the Company. Such rates are based on field estimates and may be based on limited data available at this time.
ESTIMATED DRILLING LOCATIONS
Drilling locations are the internal estimates of Rubellite based on Rubellite's or the acquired assets prospective acreage and an assumption as to the number of wells that can be drilled per section based on industry practice and internal review. Unbooked locations do not have attributed reserves or resources (including contingent and prospective). Unbooked locations have been identified by Rubellite's management as an estimation of Rubellite's multi-year drilling activities based on evaluation of applicable geologic, seismic, engineering, production and reserves information. There is no certainty that Rubellite will drill all drilling locations and if drilled there is no certainty that such locations will result in additional oil and natural gas reserves, resources or production. The drilling locations on which Rubellite will actually drill wells, including the number and timing thereof is ultimately dependent upon the availability of funding, regulatory approvals, seasonal restrictions, oil and natural gas prices, costs, actual drilling results, additional reservoir information that is obtained and other factors. While a certain number of the unbooked drilling locations have been de-risked by existing wells in relative close proximity to such unbooked drilling locations, other unbooked drilling locations are farther away from existing wells where management of Rubellite has less information about the characteristics of the reservoir and therefore there is more uncertainty whether wells will be drilled in such locations and if drilled there is more uncertainty that such wells will result in additional oil and gas reserves, resources or production.
PRELIMINARY FINANCIAL INFORMATION
Certain anticipated operating and financial results for the second quarter of 2024 included in this news release, such as production information and adjusted funds flow, are estimated based on preliminary estimates as of the date of this news release. These estimated results are subject to change upon the completion of the unaudited financial statements for the interim period ended
NON-GAAP AND OTHER FINANCIAL MEASURES
Throughout this news release and in other materials disclosed by the Company, Rubellite employs certain measures to analyze financial performance, financial position and cash flow. These non-GAAP and other financial measures do not have any standardized meaning prescribed under IFRS and therefore may not be comparable to similar measures presented by other entities. The non-GAAP and other financial measures should not be considered to be more meaningful than GAAP measures which are determined in accordance with IFRS, such as net income (loss), cash flow from (used in) operating activities, and cash flow from (used in) investing activities, as indicators of Rubellite's performance.
Non-GAAP Financial Measures
Capital Expenditures: Rubellite uses capital expenditures related to exploration and development spending to measure its capital investments compared to the Company's annual capital budgeted expenditures. Rubellite's capital budget excludes acquisition and disposition activities.
Adjusted funds flow: Adjusted funds flow is calculated based on net cash flows from operating activities, excluding changes in non-cash working capital and expenditures on decommissioning obligations since the Company believes the timing of collection, payment or incurrence of these items is variable. Expenditures on decommissioning obligations may vary from period to period depending on capital programs and the maturity of Rubellite's operating areas. Expenditures on decommissioning obligations are managed through the capital budgeting process which considers available adjusted funds flow. Management uses adjusted funds flow and adjusted funds flow per boe as key measures to assess the ability of the Company to generate the funds necessary to finance capital expenditures, expenditures on decommissioning obligations and meet its financial obligations.
Adjusted funds flow is not intended to represent net cash flows from operating activities calculated in accordance with IFRS.
Free funds flow: Free funds flow is an important measure that informs efficiency of capital spent and liquidity. Free funds flow is calculated as adjusted funds flow generated during the period less capital expenditures. Adjusted funds flow and capital expenditures are non-GAAP financial measures which have been reconciled to its most directly comparable GAAP measure previously in this document. By removing the impact of current period capital expenditures from adjusted funds flow, Rubellite monitors its free funds flow to inform decisions such as capital allocation and debt repayment.
Non-GAAP Financial Ratios
Rubellite calculates certain non-GAAP measures per boe as the measure divided by weighted average daily production. Management believes that per boe ratios are a key industry performance measure of operational efficiency and one that provides investors with information that is also commonly presented by other crude oil and natural gas producers. Rubellite also calculates certain non-GAAP measures per share as the measure divided by outstanding common shares.
Supplementary Financial Measures
"Royalties (% of revenue)" is comprised of royalties, as determined in accordance with IFRS, divided by oil revenue from sales oil production as determined in accordance with IFRS.
"Production & operating costs ($/boe)" is comprised of operating expense, as determined in accordance with IFRS, divided by the Company's total sales oil production.
"Transportation cost ($/boe)" is comprised of transportation cost, as determined in accordance with IFRS, divided by the Company's total sales oil production.
"General & administrative costs ($/boe)" is comprised of G&A expense, as determined in accordance with IFRS, divided by the Company's total sales oil production.
"Heavy oil wellhead differential ($/bbl)" represents the differential the Company receives for selling its heavy crude oil production relative to the Western Canadian Select reference price (Cdn$/bbl) prior to any price or risk management activities.
FORWARD-LOOKING INFORMATION
Certain information in this news release including management's assessment of future plans and operations, and including the information contained under the headings "Transaction Highlights", "Strategic Rationale", "Updated Outlook and Guidance", and "Q2 Operations and Financial Highlights" may constitute forward-looking information or statements (together "forward-looking information") under applicable securities laws. The forward-looking information includes, without limitation, statements with respect to: the anticipated benefits to be derived from the Acquisition; future capital expenditures, production and various cost forecasts; the anticipated sources of funds to be used for capital spending; expectations as to drilling activity, regulatory application and the benefits to be derived from such drilling including production growth; expectations respecting Rubellite's future exploration, development and drilling activities and Rubellite's business plan; and including the information and statements contained under the heading "Updated Outlook and Guidance" and "About Rubellite".
Forward-looking information is based on current expectations, estimates and projections that involve a number of known and unknown risks, which could cause actual results to vary and in some instances to differ materially from those anticipated by Rubellite and described in the forward-looking information contained in this news release. In particular and without limitation of the foregoing, material factors or assumptions on which the forward-looking information in this news release is based include: the successful operation of the
Undue reliance should not be placed on forward-looking information, which is not a guarantee of performance and is subject to a number of risks or uncertainties, including without limitation those described herein and under "Risk Factors" in Rubellite's Annual Information Form and MD&A for the year ended
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