REG - Southern Energy Corp - Q1 2024 RESULTS AND INFORMATION REGARDING THE AGM

Southern EnergyAnnouncement

28/05/2024 07:00

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RNS Number : 9621P  Southern Energy Corp.  28 May 2024

SOUTHERN ENERGY CORP. ANNOUNCES FIRST QUARTER 2024 FINANCIAL AND OPERATING
RESULTS AND INFORMATION REGARDING THE ANNUAL MEETING OF SHAREHOLDERS

 

Calgary, Alberta - May 28, 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 first quarter
financial and operating results for the three months ended March 31, 2024.
Selected financial and operational information is outlined below and should be
read in conjunction with the Company's unaudited consolidated financial
statements and related management's discussion and analysis (the "MD&A")
for the three months ended March 31, 2024, 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.

FIRST QUARTER 2024 HIGHLIGHTS

·    Average production of 18,055 1  (#_ftn1) Mcfe/d (3,009 boe/d) (96%
natural gas) during Q1 2024, an increase of 15% from the same period in 2023

·    Petroleum and natural gas sales of $4.8 million in Q1 2024, a
decrease of 8% from the same period in 2023, largely due to the decline in
natural gas pricing

·    Generated $2.2 million of adjusted funds flow from operations 2 
(#_ftn2) in Q1 2024 ($0.01 per share basic and diluted)

·    Net loss of $3.1 million in Q1 2024 ($0.02 net loss per share - basic
and fully diluted), compared to a net loss of $1.1 million in Q1 2023

·    Average realized natural gas and oil prices for Q1 2024 of $2.53/Mcf
and $74.86/bbl compared to $3.25/Mcf and $75.73/bbl in Q1 2023

·    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 March 31, 2024 MD&A for full details of the amendment)

·    Monetized the Company's fixed price swap derivative contracts to take
advantage of the positive unrealized gain position, realizing net proceeds of
$1.1 million

SUBSEQUENT EVENTS

·    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:

"The Company's Q1 2024 results show the resilience of our business in an
environment which experienced one of the warmest winters in U.S. recorded
history. Along with the warm weather came low heating demand for natural gas
and supressed pricing. Our focus has been on improving our already low-cost
structure, which our operations team has done an excellent job of executing.
As we look to the second quarter and second half of our financial year, we are
already seeing a significant recovery in excess of 50% from the recent lows in
natural gas pricing which we expect will allow us to re-initiate growth in
completing one of the three remaining Gwinville drilled but uncompleted wells
("DUCs").

"While low natural gas prices may have been a feature for the period, the
recent correction in U.S. natural gas prices along with the structural
dynamics of the market are extremely encouraging for a business with
Southern's exposure to natural gas. As the price weakness during the first
quarter was met with a significant cut in production from several of the large
U.S. gas producers, demand from seven of the largest LNG export plants,
including Freeport LNG in Texas, continue to experience significant increases.
This huge demand driver for U.S. natural gas is only set to increase further
as new Gulf Coast LNG export facilities start accepting feed gas later this
summer as well as growing domestic demand from artificial intelligence data
centers and electrification of vehicles. Additionally, with the early heat in
the U.S. Southeast, we are seeing basis premiums where we sell a portion of
our natural gas of close to $1.00/MMBtu for the summer.

"We remain focussed on costs with a solid balance sheet and retain our
position of being able to capitalise on gas prices by bringing on increased
volumes in short order. As gas maintains its position as a crucial part of
future energy security in the U.S., we see a significant re-rating opportunity
in the current share price and we look forward to updating shareholders as we
unlock the value in our portfolio."

 

Financial Highlights

                                                      Three months ended March 31,
 (000s, except $ per share)                           2024                          2023
 Petroleum and natural gas sales                         $         4,794             $         5,189
 Net loss                                                     (3,121)                       (1,120)
 Net loss per share
    Basic                                                       (0.02)                        (0.01)
    Fully diluted                                               (0.02)                        (0.01)
 Adjusted funds flow from operations ((1))                     2,162                1,745
 Adjusted funds flow from operations per share ((1))
    Basic                                                        0.01                          0.01
    Fully diluted                                                0.01                          0.01
 Capital expenditures and acquisitions                            269                      34,892
 Weighted average shares outstanding
    Basic                                                  166,480                  138,591
    Fully diluted                                     166,480                       138,591
 As at period end
 Basic common shares outstanding                           166,497                       139,010
 Total assets                                                61,865                      108,609
 Non-current liabilities                              24,341                               14,543
 Net debt ((1))                                        $     (25,274)               $     (19,731)

Note:

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

 

Operations Update

 

Production in Q1 2024 was positively impacted by bringing online the first of
its four drilled but uncompleted DUCs 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,
with declines in the quarter in-line with pre-drill expectations.

 

Southern is planning to delay the completion timing of the remaining three
DUCs into at least the second half of 2024 when the Company expects natural
gas pricing to be significantly elevated from current levels. The remaining
three DUC wellbores have been drilled in the Lower Selma Chalk (2) and City
Bank formations.

 

In response to the low natural gas prices experienced in Q1 2024, Southern has
been actively reducing and optimizing operating costs, general and
administrative expenses and maintenance capital to maximize our netbacks. The
Company expects to continue these initiatives throughout 2024.

 

The strategic sales points that Southern sells its natural gas into realized a
13% premium to the average benchmark New York Mercantile Exchange ("NYMEX")
Henry Hub price in Q1 2024, helping to offset the challenging natural gas
pricing environment.

 

Outlook

 

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 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. 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
 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.

 

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.

 

Annual Meeting of Shareholders

 

Southern's Annual Meeting of Shareholders is to be held at the Company's
offices located at Suite 2400, 333 - 7(th) Avenue S.W., Calgary, Alberta, T2P
2Z1, on Thursday, June 20, 2024 at 10:00 a.m. (Calgary time) and by webcast
via Zoom, formal notice of which is available on the Company's website and on
SEDAR+ at www.sedarplus.ca (http://www.sedarplus.ca) .

 

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)
.

 

 

 

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,
forecasted natural gas pricing including that they will be significantly
elevated from current levels in the second half of 2024, Southern's ability to
re-initiate growth in completing one of the there remaining Gwinville DUCs,
capital expenditures, Southern's plans to delay the completion timing of the
remaining three DUCs until natural gas pricing becomes significantly elevated
from current levels and the anticipated timing thereof, 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, the Company's expectation to
continue actively reducing and optimizing operating costs, general and
administrative expenses and maintenance capital to maximize netbacks, the
Company's hedging strategy and execution thereof, the ability of the Company
to achieve drilling success consistent with management's expectations, the
Company's expectations regarding completion of the three remaining DUCs
(including the timing thereof and anticipated costs and funding), expectations
regarding the Credit Facility and the terms thereof, 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,  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,
capital expenditures, tax rates, cost estimates, general and administrative
expenses,  capital costs, inorganic growth, hedging, natural gas pricing,
netbacks, royalty rates, , payout of wells, 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.

"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  (#_ftnref1) Comprised of 112 bbl/d light and medium crude oil, 9 bbl/d
NGLs and 17,329 Mcf/d conventional natural gas

 2  (#_ftnref2) See "Reader Advisories - Specified Financial Measures"

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