REG - Southern Energy Corp - FOURTH QUARTER AND YEAR END 2023 RESULTS

Southern EnergyAnnouncement

26/04/2024 07:00

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RNS Number : 0959M  Southern Energy Corp.  26 April 2024

SOUTHERN ENERGY CORP. ANNOUNCES FOURTH QUARTER AND YEAR END 2023 FINANCIAL AND
OPERATING RESULTS

 

Calgary, Alberta - April 26, 2024 - Southern Energy Corp. ("Southern" or the
"Company") (TSXV:SOU) (AIM:SOUC)(OTCQX:SOUTF), an established producer with
natural gas and light oil assets in Mississippi,  announces its fourth
quarter and year end December 31, 2023 financial and operating results.
Selected financial and operational information is outlined below and should be
read in conjunction with the Company's audited consolidated financial
statements and related management's discussion and analysis (the "MD&A")
for the three and twelve months ended December 31, 2023, as well as the
Company's annual information form for the year ended December 31, 2023, (the
"AIF"), all of which are available on the Company's website at
www.southernenergycorp.com and have been filed under the Company's profile on
SEDAR+ at www.sedarplus.ca.

All figures referred to in this news release are denominated in U.S. dollars,
unless otherwise noted.

FOURTH QUARTER AND YEAR END 2023 HIGHLIGHTS

·    Average production of 16,755 1  Mcfe/d (2,793 boe/d) (96% natural
gas) during Q4 2023 and 16,305 2  Mcfe/d (2,718 boe/d) (95% natural gas) for
the year ended December 31, 2023, an increase of 4% and 5% from the same
periods in 2022, respectively

·    On June 1, 2023, Southern completed a strategic and highly
synergistic acquisition in Gwinville of assets producing approximately 400
boe/d (99% natural gas) for cash consideration of $3.2 million (the "Gwinville
Acquisition")

·    Generated $0.8 million of adjusted funds flow from operations 3  in
Q4 2023 ($0.01 per share basic and diluted) and $3.2 million for the year
ended December 31, 2023 ($0.02 per share basic and diluted)

·    Petroleum and natural gas sales were $5.1 million in Q4 2023 and
$19.3 million for the year ended December 31, 2023, a decrease of 48% and 57%
from the same periods in 2022, respectively, largely due to a significant
depreciation in the natural gas price

·   Average realized natural gas and oil prices for Q4 2023 of $2.95/Mcf
and $76.97/bbl compared to $6.35/Mcf and $81.98/bbl in Q4 2022

·    Net loss of $39.6 million ($0.26 per share basic and diluted) and
$46.8 million ($0.33 per share basic and diluted) for the three and twelve
months ended December 31, 2023, respectively, due to a $38.0 million non-cash
impairment charge recorded at December 31, 2023

·    Year-end 2023 proved developed producing ("PDP") reserves were 7.5
MMboe and total proved plus probable ("2P") reserves were 29.6 MMboe, an
increase of 21% and 16% from year-end 2022 and reflecting a reserve life index
of eight years and 31 years, respectively

·    Reserve replacement of 229% in PDP, 96% in total proved ("1P"), and
521% in 2P 2023 reserve categories

·   Drilled six net wells at Gwinville in Q1 2023 from three padsites,
with each subsequent pad drilling operation resulting in fewer drilling days
per well depth adjusted

·    On November 9, 2023, successfully closed an equity financing raising
aggregate gross proceeds of $5.0 million

·   In December 2023, Southern successfully completed the first of its
four high quality uncompleted horizontal wells ("DUCs") from the Q1 2023
drilling program - the GH 14-06 #3 wellbore. The operation was completed
safely and under budget

SUBSEQUENT EVENTS

·   On February 28, 2024, entered into the sixth amendment (the "Sixth
Amendment") to the Company's senior secured term loan (the "Credit Facility"),
which among other amendments, included extending the term of the Credit
Facility from August 31, 2025 to December 31, 2026 (see "Liquidity and Capital
Resources - Credit Facility" in the December 31, 2023 MD&A for full
details of the amendment)

·    Southern monetized its fixed price swap derivative contracts to take
advantage of the positive unrealized gain position, realizing net proceeds of
$1.1 million.

·   Entered into a fixed price swap derivative contract of 5,000 MMBtu/d
for the period of May 2024 - December 2026 at a price of $3.40/MMBtu

Ian Atkinson, President and Chief Executive Officer of Southern, commented:

"Looking at 2023, Southern is pleased to have made significant progress
re-developing its large scale Gwinville asset, highlighted by the recent
completion of the GH 14-06 #3 well, which achieved an IP30 rate of 5.2 MMcf/d,
while deploying 40% less capital than early 2023 completion costs. We have
three remaining high impact DUCs at Gwinville that we plan to complete and
bring online as natural gas prices are expected to continue to recover into Q3
and Q4 of 2024. Completing the highly accretive acquisition at Gwinville in Q2
2023 illustrates our ability to execute on the inorganic focus of our business
plan in lower commodity price cycles. Southern believes the strategy of
accretive acquisitions in commodity price troughs, coupled with cost-effective
organic growth heading into commodity price peaks, strikes a balance to create
long term shareholder value in volatile commodity price environments.

"We continue to be encouraged by the outlook of supply and demand dynamics for
U.S. natural gas as the new Gulf Coast LNG export facilities will start
accepting feed gas later this summer, significantly increasing demand for
natural gas in the region. Additionally, we are now seeing some material
increases in domestic power demand through artificial intelligence ("AI") data
center build out, crypto-currency mining and the electrification of
transportation which will add to the overall demand for gas-fired power
generation. The supply dynamic is also changing as we are starting to see the
effects of large U.S. natural gas producers' willingness to both curtail
current production and significantly reduce drilling and completion activity.
This is manifesting into the supply side of the equation with U.S. production
below 100 bcf/d at the start of April 2024, down from the Q4 2023 peak of 106
bcf/d.

"Southern is well positioned to capitalize on rising natural gas prices with
production behind pipe which can be brought on stream in a short time frame
and we are excited to continue to grow the business with our new and
longstanding shareholders."

 

Financial Highlights

                                                      Three months ended                                     Year ended
                                                      December 31,
December 31,
 (000s, except $ per share)                           2023                   2022               2023                      2022
 Petroleum and natural gas sales                      $        5,098         $      9,830       $      19,313             $    45,217
 Net (loss) earnings                                  (39,563)               1,749              (46,817)                  9,299
 Net (loss) earnings per share
     Basic                                            (0.26)                 0.01               (0.33)                    0.09
     Fully diluted                                    (0.26)                 0.01               (0.33)                    0.08
 Adjusted funds flow from operations ((1))            777                    3,059              3,227                     17,156
 Adjusted funds flow from operations per share ((1))
     Basic                                            0.01                   0.02               0.02                      0.16
     Fully diluted                                    0.01                   0.02               0.02                      0.14
 Capital expenditures and acquisitions                3,212                  10,218             45,130                    30,434
 Weighted average shares outstanding
     Basic                                            154,140                137,378            142,747                   108,144
     Fully diluted                                    154,140                146,797            142,747                   122,972
 As at period end
 Common Shares outstanding                            165,718                138,057            165,718                   138,057
 Total assets                                         67,305                 97,652             67,305                    97,652
 Non-current liabilities                              21,613                 12,817             21,613                    12,817
 Positive net cash (net debt) ((1))                   $      (26,667)        $    13,437        $      (26,667)           $    13,437

Note:

((1)         ) See "Reader Advisories - Specified Financial
Measures".

 

2023 Year End Reserves Update

 

The Company is pleased to announce selected highlights of Southern's year end
independent oil and gas reserves evaluation as of December 31, 2023.

 

Estimates of the Company's reserves and related estimates of net present value
of future net revenues as at December 31, 2023, are based upon reports (the
"NSAI Report") prepared by Southern's independent qualified reserves
evaluator, Netherland, Sewell and Associates, Inc. ("NSAI"). All currency
amounts are in United States dollars (unless otherwise stated) and comparisons
refer to December 31, 2022.

 

Highlights:

 

•        Relative to year-end 2022, the NSAI Report states:

 

•       an increase in PDP reserves of 21% to 7.5 MMboe,

•       unchanged 1P reserves of 14.0 MMboe,

•       an increase in 2P reserves of 16% to 29.6 MMboe, and

•       a PDP reserve life index of eight years and 31 years for 2P
reserves based on the 2024 production forecast.

 

•    Southern replaced 229%, 96% and 521% of 2023 production in the PDP,
1P and 2P reserve categories, respectively.

 

•     Before-tax net present value ("NPV") of reserves, discounted at
10% ("NPV10"), is $39.9 million on a PDP basis, $63.4 million on a 1P basis
and $119.3 million on a 2P basis evaluated using the average forecast pricing
of four independent reserve evaluators as at January 1, 2024.

 

•     New PDP reserves and additional Probable drilling locations
booked at Gwinville following the synergistic acquisition of the remainder of
the field in 2023.

 

In addition to the summary information disclosed in this press release, more
detailed information regarding Southern's oil and gas reserves can be found in
the AIF, which is available on the Company website and has been filed on
SEDAR+ (www.sedarplus.ca (http://www.sedarplus.ca) ).

 

Gary McMurren, Chief Operating Officer of Southern commented:

 

"We are excited to report another year of material reserves growth for the
Company, highlighted by conservative additions to our Gwinville assets
following our strategic 2023 acquisition and consolidation.

 

"With the three remaining, high quality DUC locations in Gwinville (two Lower
Selma Chalk and one City Bank) waiting on more supportive natural gas pricing
before completion operations, our producing reserve bookings will be
strengthened even further. The Company has yet to book any future horizontal
locations in the City Bank formation, so success from that modern completion
design is expected to be extremely impactful to continued reserves growth in
the Gwinville Field for years to come.

 

"The NSAI Report continues to highlight the extensive running room and future
development potential of only one of our existing core assets which could
deliver long term sustainable free funds flow and organic growth for Southern
shareholders."

 

2023 Independent Qualified Reserve Evaluation

 

The following tables highlight the findings of the NSAI Report, which has been
prepared in accordance with definitions, standards and procedures contained in
National Instrument 51-101 - Standards of Disclosure for Oil and Gas
Activities("NI 51-101") and the most recent publication of the Canadian Oil
and Gas Evaluation Handbook ("COGEH"). All evaluations and summaries of future
net revenue are stated prior to the provision for interest, debt service
charges or general and administrative expenses and after deduction of
royalties, operating costs, estimated well abandonment and reclamation costs,
and estimated future capital expenditures. The NSAI Report was based on the
average forecast pricing of the following four independent external reserves
evaluators: GLJ Ltd, Sproule Associates Limited, McDaniel & Associates
Consultants Ltd and Deloitte. Additional reserves information as required
under NI 51-101 is included in Southern's AIF, which will has been filed on
SEDAR+. The numbers in the tables below may not sum due to rounding.

 

 

Summary of Reserves Volumes as at December 31, 2023

 

The Company's reserve volumes and undiscounted future development capital
costs are summarized below as at December 31, 2023:

 

 SUMMARY OF RESERVE VOLUMES ((1))  Light and Medium Oil (Mbbls)     Condensate  (Mbbls)     NGL   (Mbbsl)   Conventional  Natural Gas  (MMcf)    Total   Mboe   FDC Costs ($M)
 Proved Developed Producing        10                            188                        37              43,560                               7,496          -
 Proved Developed Non-Producing     55                           58                         1               8,776                                1,576          4,510
 Proved Undeveloped                -                             361                        109             27,223                               5,007          47,662
 Total Proved                      65                            607                        147             79,558                               14,078         52,172
 Probable                          17                            234                        19              91,721                               15,556         106,102
 Total Proved Plus Probable        82                            840                        166             171,279                              29,635         158,274

(1)    Gross working interest reserves before royalty deductions.

 

 

The following table outlines the changes in Southern's reserves and reserve
life index as at December 31, 2023 compared to December 31, 2022:

 

 CHANGE IN RESERVES AND RESERVE LIFE INDEX((1))    2023    2022    % Change
 Reserves (Mboe)
    Proved Developed Producing                     7,496   6,211   21%
    Total Proved                                   14,078  14,117  0%
    Total Proved Plus Probable                     29,635  25,456  16%
 PDP as % of 2P                                    25%     24%     4%
 1P as % of 2P                                     48%     55%     (14%)
 Reserve Life Index (years)
    Proved Developed Producing                     7.8     8.2     (5%)
    Total Proved                                   14.7    18.7    (21%)
    Total Proved Plus Probable                     30.9    33.6    (8%)

(1)       The Reserve Life Index as at December 31, 2023 is calculated
as gross working interest reserves divided by the projected annual PDP
production forecast for 2024.  See "Reader advisories - Oil and Gas
Advisories"

 

Southern's total 2P reserves increased by 16% to 29.6 MMboe resulting in a 2P
reserve life index of 30.9 years on projected annual PDP production for 2024.
Southern's Gwinville horizontal well development program and the Gwinville
asset acquisition in 2023 helped the Company achieve a 21% increase in PDP
reserves to 7.5 MMboe.

 

 

Net Present Value of Future Net Revenue as at December 31, 2023

 

The following table summarizes the NPV of the Company's reserves (before-tax)
as at December 31, 2023. The reserves value on a $/boe basis, discounted at
10% per year, is also summarized for each category.

 

 NET PRESENT VALUE BEFORE-TAX    0%                                 10%      20%      Unit Value((1)) Before Income Tax, Discounted at 10%/year ($/boe)

                                  (M$)                               (M$)     (M$)
 Proved Developed Producing      67,584                             39,865   28,974   6.78
 Proved Developed Non-Producing                20,667               9,478    6,124    7.82
 Proved Undeveloped              47,202                             14,043   2,805    3.48
 Total Proved                    135,454                            63,386   37,902   5.70
 Probable                        204,579                            55,929   17,653   4.53
 Total Proved Plus Probable      340,033                            119,315  55,555   5.08

(1)       Unit values are based on net reserves.  Net reserves are the
Company's working interest reserves after deduction of royalties

 

Forecast Prices Used in Estimates

 

The following table outlines the forecasted future prices used by NSAI in
their evaluation of the Company's reserves at December 31, 2023, which are
based on a four-consultant average price forecast. The forecast cost and price
assumptions assume increases in wellhead selling prices and consider inflation
with respect to future operating and capital costs.

 

 FUTURE COMMODITY PRICE FORECAST  WTI Cushing  NYMEX

                                  Oklahoma     Henry Hub

                                  US$/bbl      US$/MMBtu
 2024                             73.25        2.75
 2025                             74.09        3.62
 2026                             74.79        4.05
 2027                             76.28        4.14
 2028                             77.81        4.23
 2029                             79.37        4.30
 2030                             80.96        4.39
 2031                             82.57        4.48
 2032                             84.22        4.57
 2033                             85.91        4.66
 Thereafter                       + 2.0%/year  + 2.0%/year

 

 

Reserves Reconciliation

 

The following table sets out the reconciliation of Southern's gross reserves
based on forecast prices and costs by principal product type as at December
31, 2023 relative to December 31, 2022. The majority of 1P and 2P reserves
increases, year-on-year, are attributed to the 2023 Gwinville acquisition.

 

 RESERVES((1)) RECONCILIATION  PDP (Mboe)  1P (Mboe)  Probable (Mboe)   2P (Mboe)
 December 31, 2022             6,211        14,117    11,338            25,456
 Discoveries                   -            -         -                 -
 Extensions                    -           -          -                 -
 Infill Drilling               705         -          -                 -
 Improved Recovery             -           -          -                 -
 Technical Revisions((2))      238         (390)      (1,506)           (1,896)
 Acquisitions                  1,621       1,621      5,787             7,408
 Dispositions                  -           -          -                 -
 Economic Factors              (287)       (277)      (63)              (340)
 Production                    (992)       (992)      -                 (992)
 December 31, 2023             7,496       14,078     15,556            29,635

(1)      Gross working interest reserves before royalty deductions

(2)      Technical revisions also include reserves associated with
changes in operating costs and commodity price offsets

 

 

Gwinville Development Update

 

In late December 2023, the Company brought on-line the first of its four DUC
wells from the Q1 2023 drilling program, the GH 14-06 #3 wellbore.  This
lateral hole was drilled and completed in the Upper Selma Chalk reservoir and
achieved an IP30 natural gas rate of 5.2 MMcf/d, in-line with pre-drill
expectations.

 

Southern implemented a number of stimulation design changes for this latest
Upper Selma Chalk horizontal completion that improved the predictability and
efficiency of the fracture operation and, more importantly, reduced the
overall completion cost down to $2.1 million, well below budget estimates.
Costs for this completion operation were approximately 40% lower than the two
previous 18-10 pad Upper Selma Chalk wells that were completed earlier in
2023.

 

Outlook

 

Southern is planning to delay the completion timing of the remaining three DUC
wells into the second half of 2024 when the Company expects natural gas
pricing to be significantly elevated from current levels to maximize returns.
These DUCs can be quickly completed and brought online through Southern's 100%
owned equipment. The remaining DUC wellbores have been drilled in the Lower
Selma Chalk (two) and City Bank formations. Southern currently has $10.0
million of unused capacity on its Credit Facility, which can be utilized to
complete the DUCs at higher natural gas prices or can be used to be
opportunistic with counter-cyclical inorganic growth opportunities.

 

As part of its risk management and sustainability strategy, Southern
continuously monitors both the price of New York Mercantile Exchange
("NYMEX"), as well as the basis differentials, in order to mitigate some of
the volatility of natural gas prices. With the extended term provided by the
Sixth Amendment of the Credit Facility, Southern has taken advantage of the
contango in the natural gas future strip by entering into a fixed price swap
contract of 5,000 MMBtu/d for the period of May 2024 - December 2026 at a
price of $3.40/MMBtu, which is approximately 106% above the current May 2024
contract price. Southern's current commodity hedge program includes:

 

 Natural Gas                        Volume         Pricing
 Fixed Price Swap
 May 1, 2024 - December 31, 2026    5,000 MMBtu/d  NYMEX - HH $3.400/MMBtu

 Costless Collar
 January 1, 2024 - March 31, 2024   2,000 MMBtu/d  NYMEX - HH $3.00 - $3.98/MMBtu
 January 1, 2024 - March 31, 2024   1,000 MMBtu/d  NYMEX - HH $3.00 - $4.60/MMBtu
 November 1, 2024 - March 31, 2025  1,000 MMBtu/d  NYMEX - HH $3.50 - $5.20/MMBtu

 

Southern will continue to monitor NYMEX prices and the basis differential
prices and is prepared to hedge additional volumes in a tactical manner going
forward.

 

Southern thanks all of its stakeholders for their ongoing support and looks
forward to providing future updates on operational activities and continuing
to create shareholder value.

 

Corporate Presentation

 

A new corporate presentation dated April 2024 is now available on the Company
website at www.southernenergycorp.com
(https://url.avanan.click/v2/___http:/www.southernenergycorp.com___.YXAzOnNvdXRoZXJuZW5lcmd5Y29ycDphOm86MzA2NjE2OWIxMDBjM2FjM2I3ZjZhZDA1OGM0NTUwODU6NjpkYzc5OmExY2U1YzQxYTI4YWQ0NjQ0MWZhZThlYTdkZDdlNzlkNDI1NDQ5MjllNjk0M2QyOGFmNWQzZWIxZTRkMTJkNTQ6cDpU)
.

 

 

Qualified Person's Statement

 

Gary McMurren, Chief Operating Officer, who has over 23 years of relevant
experience in the oil industry, has approved the technical information
contained in this announcement. Mr. McMurren is registered as a Professional
Engineer with the Association of Professional Engineers and Geoscientists of
Alberta and received a Bachelor of Science degree in Chemical Engineering
(with distinction) from the University of Alberta.

 

 

For further information about Southern, please visit our website at
www.southernenergycorp.com
(https://url.avanan.click/v2/___http:/www.southernenergycorp.com___.YXAzOnNvdXRoZXJuZW5lcmd5Y29ycDphOm86MzA2NjE2OWIxMDBjM2FjM2I3ZjZhZDA1OGM0NTUwODU6NjpkYzc5OmExY2U1YzQxYTI4YWQ0NjQ0MWZhZThlYTdkZDdlNzlkNDI1NDQ5MjllNjk0M2QyOGFmNWQzZWIxZTRkMTJkNTQ6cDpU)
or contact:

 

  Southern Energy Corp.
  Ian Atkinson (President and CEO)                            +1 587 287 5401
  Calvin Yau (CFO)                                            +1 587 287 5402

  Strand Hanson Limited - Nominated & Financial Adviser       +44 (0) 20 7409 3494
  James Spinney / James Bellman / Rob Patrick

  Stifel Nicolaus Europe Limited - Joint Broker               +44 (0) 20 7710 7600
  Callum Stewart / Ashton Clanfield

  Tennyson Securities - Joint Broker                          +44 (0) 20 7186 9033
  Peter Krens / Pav Sanghera

  Camarco                                                     +44 (0) 20 3757 4980
  Owen Roberts / Billy Clegg / Hugo Liddy

 

About Southern Energy Corp.

Southern Energy Corp. is a natural gas exploration and production company
characterized by a stable, low-decline production base, a significant low-risk
drilling inventory and strategic access to premium commodity pricing in North
America. Southern has a primary focus on acquiring and developing conventional
natural gas and light oil resources in the southeast Gulf States of
Mississippi, Louisiana, and East Texas. Our management team has a long and
successful history working together and have created significant shareholder
value through accretive acquisitions, optimization of existing oil and natural
gas fields and the utilization of re-development strategies utilizing
horizontal drilling and multi-staged fracture completion techniques.

READER ADVISORIES

MCFE Disclosure. Natural gas liquids volumes are recorded in barrels of oil
(bbl) and are converted to a thousand cubic feet equivalent (Mcfe) using a
ratio of six (6) thousand cubic feet to one (1) barrel of oil (bbl). Natural
gas volumes recorded in thousand cubic feet (Mcf) are converted to barrels of
oil equivalent (boe) using the ratio of six (6) thousand cubic feet to one (1)
barrel of oil (bbl). Mcfe and boe may be misleading, particularly if used in
isolation. A boe conversion ratio of 6 mcf:1 bbl or a Mcfe conversion ratio of
1 bbl:6 Mcf is based in an energy equivalency conversion method primarily
applicable at the burner tip and does not represent a value equivalency at the
wellhead. In addition, given that the value ratio based on the current price
of oil as compared with natural gas is significantly different from the energy
equivalent of six to one, utilizing a boe conversion ratio of 6 Mcf:1 bbl or a
Mcfe conversion ratio of 1 bbl:6 Mcf may be misleading as an indication of
value.

Unit Cost Calculation. For the purpose of calculating unit costs, natural gas
volumes have been converted to a boe using six thousand cubic feet equal to
one barrel unless otherwise stated. A boe conversion ratio of 6:1 is based
upon an energy equivalency conversion method primarily applicable at the
burner tip and does not represent a value equivalency at the wellhead. This
conversion conforms with NI 51-101. Boe may be misleading, particularly if
used in isolation.

Product Types. Throughout this press release, "crude oil" or "oil" refers to
light and medium crude oil product types as defined by NI 51-101. References
to "NGLs" throughout this press release comprise pentane, butane, propane, and
ethane, being all NGLs as defined by NI 51-101. References to "natural gas"
throughout this press release refers to conventional natural gas as defined by
NI 51-101.

Short Term Results. References in this press release to peak rates, production
rates since inception, current production rates, IP30 and other short-term
production rates are useful in confirming the presence of hydrocarbons,
however such rates are not determinative of the rates at which such wells will
commence production and decline thereafter and are not indicative of long-term
performance or of ultimate recovery. While encouraging, readers are cautioned
not to place reliance on such rates in calculating the aggregate production of
Southern. The Company cautions that such results should be considered to be
preliminary.

AIF. The reserves information and data provided in this press release presents
only a portion of the disclosure required under NI 51-101. Southern's
Statement of Reserves Data and Other Oil and Gas Information on Form 51-101F1
dated effective as at December 31, 2023, which will include further disclosure
of Southern's oil and gas reserves and other oil and gas information in
accordance with NI 51-101 and COGEH forming the basis of this press release,
will is included in the AIF which may be viewed on the Company's SEDAR+
profile at www.sedarplus.ca
(https://url.avanan.click/v2/___http:/www.sedarplus.ca___.YXAzOnNvdXRoZXJuZW5lcmd5Y29ycDphOm86OWUxM2U2YmMyYzFkOTFiOTEzM2UzMmIyYmRmMTBlYzI6NjpmYzE2OjIzOWVjNWU0MDg1NGQ2MGQ2Mzk3NDZjYTI1MDJiN2M5OGMxZTc1YWU4ZTAxYTYxMDJhZDlmZjhjZTY2NzYyY2Y6cDpU)
.

Reserves and Future Net Revenue Disclosure. All reserves values, future net
revenue and ancillary information contained in this press release are derived
from the NSAI Report unless otherwise noted. All reserve references in this
press release are "Company gross reserves". Company gross reserves are the
Company's total working interest reserves before the deduction of any
royalties payable by the Company. Estimates of reserves and future net revenue
for individual properties may not reflect the same level of confidence as
estimates of reserves and future net revenue for all properties, due to the
effect of aggregation. There is no assurance that the forecast price and cost
assumptions applied by NSAI in evaluating Southern's reserves will be attained
and variances could be material. All reserves assigned in the NSAI Report are
located in the State of Mississippi and presented on a consolidated basis.

All evaluations and summaries of future net revenue are stated prior to the
provision for interest, debt service charges or general and administrative
expenses and after deduction of royalties, operating costs, estimated well
abandonment and reclamation costs and estimated future capital expenditures.
It should not be assumed that the estimates of future net revenues presented
in the tables below represent the fair market value of the reserves. The
recovery and reserve estimates of Southern's crude oil, natural gas liquids
and natural gas reserves provided herein are estimates only and there is no
guarantee that the estimated reserves will be recovered. Actual crude oil,
natural gas and natural gas liquids reserves may be greater than or less than
the estimates provided herein. There are numerous uncertainties inherent in
estimating quantities of crude oil, reserves and the future cash flows
attributed to such reserves. The reserve and associated cash flow information
set forth herein are estimates only.

Proved reserves are those reserves that can be estimated with a high degree of
certainty to be recoverable. It is likely that the actual remaining quantities
recovered will exceed the estimated proved reserves. Probable reserves are
those additional reserves that are less certain to be recovered than proved
reserves. It is equally likely that the actual remaining quantities recovered
will be greater or less than the sum of the estimated proved plus probable
reserves. Proved developed producing reserves are those reserves that are
expected to be recovered from completion intervals open at the time of the
estimate. These reserves may be currently producing or, if shut-in, they must
have previously been on production, and the date of resumption of production
must be known with reasonable certainty. Undeveloped reserves are those
reserves expected to be recovered from known accumulations where a significant
expenditure (e.g., when compared to the cost of drilling a well) is required
to render them capable of production. They must fully meet the requirements of
the reserves category (proved, probable, possible) to which they are assigned.
Certain terms used in this press release but not defined are defined in NI
51-101, CSA Staff Notice 51-324 - Revised Glossary to NI 51-101, Revised
Glossary to NI 51-101, Standards of Disclosure for Oil and Gas Activities
("CSA Staff Notice 51‐324") and/or the COGEH and, unless the context
otherwise requires, shall have the same meanings herein as in NI 51-101, CSA
Staff Notice 51-324 and the COGEH, as the case may be.

Oil and gas metrics. This press release contains metrics commonly used in the
oil and natural gas industry which have been prepared by management, such as
"reserves life index" and "development capital". These terms do not have a
standardized meaning and the Company's calculation of such metrics may not be
comparable to the calculation method used or presented by other companies for
the same or similar metrics, and therefore should not be used to make such
comparisons. Management uses these oil and gas metrics for its own performance
measurements and to provide shareholders with metrics to compare the Company's
operations over time. Readers are cautioned that the information provided by
these metrics, or that can be derived from the metrics presented in this press
release, should not be relied upon for investment or other purposes. "Reserve
life index" is calculated as total company interest reserves divided by
expected annual PDP production, for the year indicated. "Development capital"
means the aggregate exploration and development costs incurred in the
financial year on reserves that are categorized as development. Development
capital presented herein excludes land and capitalized administration costs
but includes the cost of acquisitions and capital associated with acquisitions
where reserve additions are attributed to the acquisitions.

Abbreviations. Please see below for a list of abbreviations used in this press
release.

1P                           total proved

2P                           proved plus probable

bbl                          barrels

bbl/d                      barrels per day
bcf/d                    billion cubic feet per day

boe                         barrels of oil

boe/d                     barrels of oil per day

IP30                       average hydrocarbon
production rate for the first 30 days of a well's life

Mcf                         thousand cubic feet

Mcf/d                     thousand cubic feet per day

MMcf                     million cubic feet

MMcf/d                 million cubic feet per day

Mcfe                       thousand cubic feet
equivalent

Mcfe/d                   thousand cubic feet equivalent per
day

MMboe                 million barrels of oil

MMBtu                  million British thermal units

MMBtu/d              million British thermal units per day

NYMEX                   New York Mercantile Exchange

PDP                        proved developed producing

Forward Looking Statements. Certain information included in this press release
constitutes forward-looking information under applicable securities
legislation. Forward-looking information typically contains statements with
words such as "anticipate", "believe", "expect", "plan", "intend", "estimate",
"propose", "project", "budget", "continue", "evaluate", "forecast", "may",
"will", "can", "target" "potential", "result", "could", "should" or similar
words suggesting future outcomes or statements regarding an outlook.
Forward-looking information in this press release may include, but is not
limited to statements concerning the Company's asset base including the
development of the Company's assets, positioning, oil and natural gas
production levels, the Company's capital budget, anticipated operational
results, Southern's 2024 outlook, growth strategy and the expectation that it
will continue to grow the business with new and existing shareholders, capital
expenditures, drilling and completion plans and casing remediation activities,
expectations regarding commodity prices and service costs, the performance
characteristics of the Company's oil and natural gas properties, expectations
regarding prospective reserves and probable drilling locations at the
Gwinville site, the Company's hedging strategy and execution thereof, the
ability of the Company to achieve drilling success consistent with
management's expectations, Southern's expectations regarding the reserve life
index of its reserves, including the reserve life index of 8 and 31 years for
2023 PDP and 2P reserves, respectively, NPV of the Company's reserves
(before-tax), forecasted future prices used by NSAI in their evaluation of the
Company's reserves, the Company's expectations regarding completion of the
three remaining DUCs (including that they will be brought online and the
timing thereof and anticipated costs and funding), expectations regarding the
Credit Facility and the terms thereof, the projected annual PDP production
forecast for 2024, the sources of funding for the Company's activities, the
effect of market conditions on the Company's performance, the anticipated use
of proceeds from Southern's recent equity financing, outlook in respect of
supply and demand dynamics for U.S. natural gas in respect of Gulf Coast LNG
export facilities, the Company's risk management activities including hedging
positions and targets, expectations regarding the use of proceeds from all
sources including the Credit Facility, the availability and renewal of the
Credit Facility and future amendments, and the Company's risk management and
sustainability strategy. Statements relating to "reserves" and "recovery" are
also deemed to be forward-looking statements, as they involve the implied
assessment, based on certain estimates and assumptions, that the reserves
described exist in the quantities predicted or estimated and that the reserves
can be profitably produced in the future.

The forward-looking statements contained in this press release are based on
certain key expectations and assumptions made by Southern, including, but not
limited to, the timing of and success of future drilling, development and
completion activities, the performance of existing wells, the performance of
new wells, the availability and performance of drilling rigs, facilities and
pipelines, the geological characteristics of Southern's properties, the
characteristics of the Company's assets, the successful integration of
recently acquired assets into the Company's operations (including the assets
acquired pursuant to the Gwinville Acquisition), the Company's ability to
comply with ongoing obligations under the Credit Facility and its convertible
debentures and other sources of financing, the successful application of
drilling, completion and seismic technology, the benefits of current commodity
pricing hedging arrangements, Southern's ability to enter into future
derivative contracts on acceptable terms, Southern's ability to secure
financing on acceptable terms, prevailing weather conditions, prevailing
legislation, as well as regulatory and licensing requirements, affecting the
oil and gas industry, the Company's ability to obtain all requisite permits
and licences, prevailing commodity prices, price volatility, price
differentials and the actual prices received for the Company's products,
royalty regimes and exchange rates, the impact of inflation on costs, the
application of regulatory and licensing requirements, the Company's ability to
obtain all requisite permits and licences, the availability of capital, labour
and services, the creditworthiness of industry partners, the Company's ability
to source and complete asset acquisitions, and the Company's ability to
execute its plans and strategies.

Although Southern believes that the expectations and assumptions on which the
forward-looking statements are based are reasonable, undue reliance should not
be placed on the forward-looking statements because Southern can give no
assurance that they will prove to be correct. Since forward-looking statements
address future events and conditions, by their very nature they involve
inherent risks and uncertainties. Actual results could differ materially from
those currently anticipated due to a number of factors and risks. These
include, but are not limited to, risks associated with the oil and gas
industry in general (e.g., operational risks in development, exploration and
production, the uncertainty of reserve estimates, the uncertainty of estimates
and projections relating to production, costs and expenses, regulatory risks,
and health, safety and environmental risks), constraint in the availability of
labour, supplies, or services, the impact of pandemics, commodity price and
exchange rate fluctuations, geo-political risks, political and economic
instability abroad, wars (including the Russo-Ukrainian war and the
Israel-Hamas conflict), hostilities, civil insurrections, inflationary risks
including potential increases to operating and capital costs, changes in
legislation impacting the oil and gas industry, adverse weather or break-up
conditions, and uncertainties resulting from potential delays or changes in
plans with respect to exploration or development projects or capital
expenditures. The Russo-Ukrainian war and the Israel-Hamas conflict are
particularly noteworthy, as these conflicts have the potential to disrupt the
global supply of oil and gas, and their full impact remains uncertain. These
and other risks are set out in more detail in Southern's MD&A and AIF for
the year ended December 31, 2023, which are available on the Company's website
at www.southernenergycorp.com and filed under the Company's profile on SEDAR+
at www.sedarplus.ca.

The forward-looking information contained in this press release is made as of
the date hereof and Southern undertakes no obligation to update publicly or
revise any forward-looking information, whether as a result of new
information, future events or otherwise, unless required by applicable
securities laws. The forward-looking information contained in this press
release is expressly qualified by this cautionary statement.

Future Oriented Financial Information. This press release contains
future-oriented financial information and financial outlook information
(collectively, "FOFI") about Southern's prospective results of operations,
cash flow, adjusted funds flow, capital expenditures, tax rates, cost
estimates including forecasted operating and capital costs and undiscounted
future development capital costs, wellhead selling prices, natural gas pricing
and other forecasted prices used in NSAI's estimates, hedging, royalty rates,
inflation, payout of wells, the before tax NPV10 of reserves and prospective
results of operations and production, all of which are subject to the same
assumptions, risk factors, limitations, and qualifications as set forth in the
above paragraphs. FOFI contained in this document was approved by management
as of the date of this document and was provided for the purpose of providing
further information about Southern's future business operations. Southern and
its management believe that FOFI has been prepared on a reasonable basis,
reflecting management's best estimates and judgments, and represent, to the
best of management's knowledge and opinion, the Company's expected course of
action. However, because this information is highly subjective, it should not
be relied on as necessarily indicative of future results. Southern disclaims
any intention or obligation to update or revise any FOFI contained in this
document, whether as a result of new information, future events or otherwise,
unless required pursuant to applicable law. Readers are cautioned that the
FOFI contained in this document should not be used for purposes other than for
which it is disclosed herein. Changes in forecast commodity prices,
differences in the timing of capital expenditures, and variances in average
production estimates can have a significant impact on the key performance
measures included in Southern's guidance. The Company's actual results may
differ materially from these estimates.

Specified Financial Measures. This press release provides various financial
measures that do not have a standardized meaning prescribed by International
Financial Reporting Standards ("IFRS"), including non-IFRS financial measures,
non-IFRS financial ratios and capital management measures. These specified
financial measures may not be comparable to similar measures presented by
other issuers. Southern's method of calculating these measures may differ from
other companies and accordingly, they may not be comparable to measures used
by other companies. Adjusted funds flow from operations, adjusted working
capital and net debt are not recognized measures under IFRS. Readers are
cautioned that these specified financial measures should not be construed as
alternatives to other measures of financial performance calculated in
accordance with IFRS. These specified financial measures provide additional
information that management believes is meaningful in describing the Company's
operational performance, liquidity and capacity to fund capital expenditures
and other activities. Please see below for a brief overview of all specified
financial measures used in this release and refer to the Company's MD&A
for additional information relating to specified financial measures, which is
available on the Company's website at www.southernenergycorp.com and filed
under the Company's profile on SEDAR+ at www.sedarplus.ca.

"Adjusted Funds Flow from Operations" (non-IFRS financial measure) is
calculated based on cash flow from operative activities before changes in
non-cash working capital and cash decommissioning expenditures. Management
uses adjusted funds flow from operations as a key measure to assess the
ability of the Company to finance operating activities, capital expenditures
and debt repayments.

"Adjusted Funds Flow from Operations per Share" (non-IFRS financial measure)
is calculated by dividing Adjusted Funds Flow from Operations by the number of
Southern shares issued and outstanding.

"Positive Net Cash (Net Debt)" (capital management measure) is monitored by
management, along with adjusted working capital, as part of its capital
structure in order to fund current operations and future growth of the
Company. Net debt is defined as long-term debt plus adjusted working capital
surplus or deficit. Adjusted working capital is calculated as current assets
less current liabilities, removing current derivative assets/liabilities, the
current portion of bank debt, and the current portion of lease liabilities.

 Neither the TSX Venture Exchange nor its Regulation Services Provider (as
that term is defined in the policies of the TSX Venture Exchange) accepts
responsibility for the adequacy or accuracy of this release.

 

 

 1  Comprised of 98 bbl/d light and medium crude oil, 11 bbl/d NGLs and 16,101
Mcf/d conventional natural gas

 2  Comprised of 115 bbl/d light and medium crude oil, 12 bbl/d NGLs and
15,543 Mcf/d conventional natural gas

 3  See "Reader Advisories - Specified Financial Measures"

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