TENAZ ENERGY CORP. ANNOUNCES Q2 2024 RESULTS
CALGARY, AB, Aug. 8, 2024 /CNW/ - Tenaz Energy Corp. ("Tenaz", "We", "Our", "Us" or the "Company") (TSX: TNZ) is pleased to announce financial and operating results for the three and six months ended June 30, 2024.
The unaudited interim consolidated financial statements and related management's discussion and analysis ("MD&A") are available on SEDAR+ at www.sedarplus.ca and on Tenaz's website at www.tenazenergy.com. Select financial and operating information for the three and six months ended June 30, 2024 appear below and should be read in conjunction with the related financial statements and MD&A.
HIGHLIGHTS
Operating and Financial Results
- Production volumes averaged 2,517 boe/d(1) in Q2 2024, down 13% from Q1 2024, due to natural decline in Leduc-Woodbend ("LWB") wells drilled in 2023 and annual maintenance in Netherlands. Production increased 32% over Q2 2023 due to LWB drilling and the acquisition of additional interest in the Netherlands assets in Q3 2023.
- Funds flow from operations ("FFO")(2) for the second quarter was $5.8 million, down 21% from Q1 2024 and up 73% from Q2 2023. Lower FFO versus Q1 2024 resulted primarily from lower natural gas prices and production. In the year-over-year comparison, FFO increased due to impacts of both Canadian drilling and the Netherlands acquisition in Q3 2023.
- Net income for Q2 2024 was $1.3 million, as compared to net losses of $0.6 million in Q1 2024 and $0.8 million in Q4 2023. Higher income compared to Q1 2024 resulted primarily from income tax recoveries, partially offset by lower natural gas prices and the impacts of annual shutdown activities in our non-operated Netherlands assets.
- Q2 2024 capital expenditures ("CAPEX") were $2.5 million, mostly for Netherlands facilities work.
- During Q2, we closed our previously announced acquisition of a gas plant and leasehold assets in Alberta from a private company. Cash consideration was $2.8 million.
- Subsequent to the end of Q2, we announced the signing of a definitive agreement to purchase NAM Offshore B.V. ("NOBV"). The acquisition, which is targeted to close in mid-2025, includes low base-decline production of nearly 11,000 boe/d (99% TTF natural gas) with numerous reinvestment opportunities to improve production over the medium-to-long term. On August 5, the Netherlands Authority for Consumers and Markets ("ACM") completed its review of the transaction and cleared it to proceed as planned.
- We entered into a new lending relationship with National Bank of Canada ("NBC") to replace and upsize our existing revolving credit facility. The new credit facility includes a $20 million revolving facility and an additional $90 million of debt capacity under a delayed draw term loan, which can be drawn to fund closing of the acquisition of NOBV.
- We ended Q2 2024 with positive adjusted working capital (2) of $44.3 million, down from $48.7 million at Q1 2024 and $49.4 million at Q4 2024, primarily due to closing of the acquisition of a gas plant and leasehold assets in Canada. Subsequent to the quarter, Tenaz paid a €22.8 million ($34.0 million) deposit to the Seller for the acquisition of NOBV.
- Our Normal Course Issuer Bid ("NCIB") program has retired 0.3 million common shares at an average cost of $3.73 per share during the first half of 2024. As of the end of July 2024, we have retired 2.1 million shares at an average cost of $2.81 per share (7.3% of basic common shares) through the NCIB.
- As of August 8, 2024, Tenaz shares have recorded a price increase of 79% during 2024, placing Tenaz with the highest total shareholder return of 57 TSX-listed oil and gas companies of all sizes.
(1) |
The term barrels of oil equivalent ("boe") may be misleading, particularly if used in isolation. Per boe amounts have been calculated by using the conversion ratio of six thousand cubic feet (6 Mcf) of natural gas to one barrel (1 bbl) of crude oil. Refer to "Barrels of Oil Equivalent" section included in the "Advisories" section of this press release. |
(2) |
This is a non-GAAP and other financial measure. Refer to "Non-GAAP and Other Financial Measures" included in the "Advisories" section of this press release. |
Budget and Outlook
- Annual guidance for capital expenditures remains unchanged at $26 to $28 million, with Canadian drilling activity slated for the end of Q3 2024.
- Annual production guidance of 2,700 to 2,900 boe/d remains unchanged.
FINANCIAL AND OPERATIONAL SUMMARY
Three months ended |
Six months ended |
||||||||||
Jun 30 |
Mar 31 |
Jun 30 |
Jun 30 |
Jun 30 |
|||||||
($000 CAD, except per share and per boe amounts) |
2024 |
2024 |
2023 |
2024 |
2023 |
||||||
FINANCIAL |
|||||||||||
Petroleum and natural gas sales |
14,007 |
17,886 |
10,614 |
31,893 |
28,540 |
||||||
Cash flow (used in) from operating activities |
(11,920) |
6,218 |
957 |
(5,702) |
6,074 |
||||||
Funds flow from operations(1) |
5,822 |
7,043 |
3,361 |
12,865 |
10,635 |
||||||
Per share – basic(1) |
0.22 |
0.26 |
0.12 |
0.48 |
0.38 |
||||||
Per share – diluted(1) |
0.19 |
0.24 |
0.12 |
0.43 |
0.37 |
||||||
Net income (loss) |
1,335 |
(557) |
(757) |
778 |
2,125 |
||||||
Per share – basic |
0.05 |
(0.02) |
(0.03) |
0.03 |
0.08 |
||||||
Per share – diluted |
0.04 |
(0.02) |
(0.03) |
0.03 |
0.07 |
||||||
Capital expenditures(1) |
2,501 |
3,816 |
5,967 |
6,317 |
6,650 |
||||||
Adjusted working capital (net debt)(1) |
44,343 |
48,740 |
17,094 |
44,343 |
17,094 |
||||||
Common shares outstanding (000) |
|||||||||||
End of period – basic |
27,345 |
26,703 |
27,378 |
27,345 |
27,378 |
||||||
Weighted average for the period – basic |
26,734 |
26,779 |
27,555 |
26,756 |
27,735 |
||||||
Weighted average for the period – diluted |
29,992 |
29,494 |
28,308 |
29,733 |
28,427 |
||||||
OPERATING |
|||||||||||
Average daily production |
|||||||||||
Heavy crude oil (bbls/d) |
911 |
1,149 |
711 |
1,030 |
824 |
||||||
Natural gas liquids (bbls/d) |
71 |
70 |
57 |
71 |
60 |
||||||
Natural gas (Mcf/d) |
9,206 |
10,005 |
6,802 |
9,605 |
7,409 |
||||||
Total (boe/d)(2) |
2,517 |
2,887 |
1,903 |
2,702 |
2,119 |
||||||
Netbacks ($/boe) |
|||||||||||
Petroleum and natural gas sales |
61.17 |
68.08 |
61.31 |
64.86 |
74.43 |
||||||
Royalties |
(6.18) |
(5.81) |
(4.80) |
(5.99) |
(5.61) |
||||||
Transportation expenses |
(3.40) |
(2.99) |
(3.66) |
(3.18) |
(3.52) |
||||||
Operating expenses |
(36.47) |
(26.05) |
(28.25) |
(30.90) |
(26.30) |
||||||
Midstream income(1) |
6.12 |
4.29 |
5.21 |
5.14 |
4.74 |
||||||
Operating netback(1) |
21.24 |
37.52 |
29.81 |
29.93 |
43.74 |
||||||
BENCHMARK COMMODITY PRICES |
|||||||||||
WTI crude oil (US$/bbl) |
80.55 |
76.97 |
73.77 |
78.76 |
74.94 |
||||||
WCS (CAD$/bbl) |
91.52 |
77.80 |
78.93 |
84.66 |
74.06 |
||||||
AECO daily spot (CAD$/Mcf) |
1.18 |
2.50 |
2.43 |
1.84 |
2.84 |
||||||
TTF (CAD$/Mcf) |
13.70 |
11.83 |
15.24 |
12.76 |
18.99 |
||||||
(1)This is a non-GAAP and other financial measure. Refer to "Non-GAAP and Other Financial Measures" included in the "Advisories" section of this press release. |
PRESIDENT'S MESSAGE
We are pleased to provide our results for the second quarter and first half of 2024. From an operating perspective, Q2 unfolded largely as expected, with reduced production and FFO due to the annual shutdown of non-operated assets in the Netherlands and natural declines of our existing wells in Leduc-Woodbend. In comparison to the year-earlier three- and six-month periods, Q2 2024 and H1 2024 were up substantially due to LWB drilling and the XTO acquisition.
On July 18, we announced an agreement with Nederlandse Aardolie Maatschappij B.V. ("NAM"), a 50/50 joint venture between Shell PLC and ExxonMobil Corporation, to acquire all of the issued and outstanding shares of ("NOBV") (the "Acquisition") for base consideration of €165 million ($246 million) prior to closing adjustments, plus contingent payments based on free cash flow, realized natural gas prices and exploration success. The transaction has an effective date of January 1, 2024 (the "Effective Date") and is expected to close in mid-2025 following completion of operational transition activities. On August 5, the ACM completed its review of the transaction and cleared it to proceed as planned.
In 2024, NOBV is expected to produce nearly 11,000 boe/d (99% TTF natural gas) and generate approximately €90 million ($134 million) of free cash flow based on strip prices as of the time of announcement of the Acquisition and hedges that are in place for 2024. NOBV's cash flow profile is underpinned by a combination of physical fixed-price and collar hedges for 2024 through 2026 on approximately 46% of production. Closing of the Acquisition will be funded through a combination of interim free cash flow between the Effective Date and closing, a €22.8 million ($34.0 million) deposit paid to NAM, cash on hand, and available capacity under a new revolving credit and delayed draw term loan facility with NBC.
An independent assessment of the acquired properties by McDaniel and Associates ("McDaniel") estimated 53.6 million boe (99% natural gas) of Total Proved + Probable ("2P") reserves as at January 1, 2024. McDaniel's assessment of after-tax net present value discounted at 10 percent ("NPV10") of the 2P reserves using the July 1, 2024 Consultant Average Price Forecast, after taking into account estimated decommissioning costs, was €541 million ($802 million).
The Acquisition is aligned with the strategy we articulated at the launch of Tenaz in 2021. The acquired production has high margins and low base decline within high-capacity infrastructure, and is replete with lower risk development opportunities and higher risk but sizable exploration upside. Financing for the transaction avoids dilution and allows returns to inure to the benefit of existing shareholders. The Acquisition is within our primary region of focus and is a significant step in our path toward operating and capital markets scale.
The Acquisition is expected to generate significant accretion in all key metrics, including production, reserves, cash flow, free cash flow and net asset value per share. The Acquisition results in a 3.9x increase in corporate production, a 3.7x increase in 2P reserves, and 6.2x increase in 2P reserve value. Upon closing, Tenaz will become the second largest operator in the Dutch North Sea ("DNS"). NOBV production accounts for approximately 20% of gas production in the DNS and is 87% operated by NOBV.
We welcome NOBV's highly skilled and experienced personnel who are central to the continued success of Tenaz. We believe there is significant opportunity for reinvestment in these assets, and the NOBV team is critical to this reinvestment program. Our evaluation of NOBV has determined that there are several years of workover and optimization projects and a large number of potential development drilling locations, in addition to exploration leads and prospects, on this extensive set of offshore licenses. Development and exploration potential is enhanced by the presence of 3D seismic surveys over substantially all of the asset base, including a high-effort Ocean Bottom Node survey acquired in 2022 which is still undergoing processing. We are excited to invest in the revitalization and sustainability of the Netherlands energy industry, and we look forward to establishing our Dutch headquarters near the existing NOBV office in the Netherlands.
The Acquisition is paired with a purpose-built financing structure. Tenaz has entered into a new lending relationship with NBC to replace and upsize our existing revolving credit facility. The new credit facility includes a $20 million revolving facility and an additional $90 million of debt capacity under a delayed draw term loan, which can be drawn to fund closing of the Acquisition. If drawn, the term loan will be repayable within twelve months of draw down. In time, we intend to replace the delayed draw term loan with other debt financing sources aligned with our long-term target capital structure.
Over the next year, Tenaz will work with NAM to prepare for the transition at closing. The transition includes the establishment of the business processes, IT systems, and commercial arrangements for NOBV to operate in the Dutch North Sea. During the transition, NOBV's operations will continue to be managed by NAM. The existing Tenaz team is excited to work with our future colleagues to ensure safe, environmentally benign and profitable operation upon closing.
On our existing Netherlands assets, ENI and its partners in the L10 field continue to assess the technical merits and commercial viability of carbon capture and storage ("CCS") in the L10 reservoir. If commercially viable, the L10 CCS project has the potential to store 96 million tonnes ("mt") of CO2 (10.9 mt net to Tenaz) with contemplated annual capacity of up to 5 mt per annum. With respect to the NOBV assets, CCS potential has been retained by NAM. Tenaz will work with NAM to facilitate the re-use of assets and reservoirs for CCS at the end of productive life of the hydrocarbon reservoirs.
Both our existing non-operated Netherlands and the NOBV assets sell natural gas based on the TTF index. Prompt TTF prices have increased approximately 20% since the Acquisition was announced. The prompt price for TTF (September 2024 delivery) is currently €40.01/MWh ($17.63/Mcf). For calendar 2025, TTF forwards currently average €41.54/MWh ($18.26/Mcf).
In Canada, while production was down from Q1 2024, our four gross (3.35 net) LWB wells drilled last year are generally producing on their type curves after their production plateaus. During Q2 2024, our Canadian team focused on the assimilation of the recently-purchased Watelet gas plant and additional leasehold around LWB.
As stated in our previous communications, we intend to expand in our regions of strategic interest by pursuing additional value-adding transactions. We believe the international oil and gas asset market is well-populated with projects that are aligned with our strategy. We are optimistic about our transaction pipeline and confident in our capability to bring additional assets into the Tenaz portfolio at the same time we conduct transition activities for the NOBV assets. We also believe that the combination of pro forma free cash flow, operating capability, and financial robustness demonstrated with the NOBV acquisition should enhance our attractiveness as an acquisition counterparty to prospective sellers of assets.
As we have also stated before, we make no guarantees with respect to timing or certainty of additional transactions, but believe that our business model can continue to produce value-adding acquisitions for our existing shareholders. Our ongoing organizational strengthening reflects this confidence and illustrates our readiness to execute such transactions. Finally, the management and Board of Directors of Tenaz remain aligned with the rest of our shareholders through our growing ownership of Tenaz shares.
/s/ Anthony Marino
President and Chief Executive Officer
August 8, 2024
Tenaz is an energy company focused on the acquisition and sustainable development of international oil and gas assets. Tenaz has domestic operations in Canada along with offshore natural gas assets in the Netherlands. The domestic operations consist of a semi-conventional oil project in the Rex Member of the Mannville Group at Leduc-Woodbend in central Alberta. The Netherlands natural gas assets are located in the Dutch sector of the North Sea. Additional information regarding Tenaz is available on SEDAR+ and its website at www.tenazenergy.com. Tenaz's Common Shares are listed for trading on the Toronto Stock Exchange under the symbol "TNZ".
This press release contains the terms funds flow from operations and capital expenditures which are considered "non-GAAP financial measures" and operating netback which is considered a "non-GAAP financial ratio". These terms do not have a standardized meaning prescribed by GAAP. In addition, this press release contains the term adjusted working capital (net debt), which is considered a "capital management measure". Accordingly, the Company's use of these terms may not be comparable to similarly defined measures presented by other companies. Investors are cautioned that these measures should not be construed as an alternative to net income (loss) determined in accordance with GAAP and these measures should not be considered to be more meaningful than GAAP measures in evaluating the Company's performance.
Tenaz considers funds flow from operations to be a key measure of performance as it demonstrates the Company's ability to generate the necessary funds for sustaining capital, future growth through capital investment, and settling liabilities. Funds flow from operations is calculated as cash flow from operating activities plus income from associate and before changes in non-cash operating working capital and decommissioning liabilities settled. Funds flow from operations is not intended to represent cash flows from operating activities calculated in accordance with IFRS. A summary of the reconciliation of cash flow from operating activities to funds flow from operations, is set forth below:
($000) |
Q2 2024 |
Q1 2024 |
Q2 2023 |
YTD 2024 |
YTD 2023 |
||||||
Cash flow from operating activities |
(11,920) |
6,218 |
957 |
(5,702) |
6,074 |
||||||
Change in non-cash operating working capital |
14,895 |
(2,900) |
1,294 |
11,995 |
2,201 |
||||||
Decommissioning liabilities settled |
1,445 |
2,597 |
209 |
4,042 |
542 |
||||||
Midstream income |
1,401 |
1,128 |
901 |
2,529 |
1,818 |
||||||
Funds flow from operations |
5,822 |
7,043 |
3,361 |
12,865 |
10,635 |
Tenaz considers capital expenditures to be a useful measure of the Company's investment in its existing asset base calculated as the sum of exploration and evaluation asset expenditures and property, plant and equipment expenditures from the consolidated statements of cash flows that is most directly comparable to cash flows used in investing activities. The reconciliation to primary financial statement measures is set forth below:
($000) |
Q2 2024 |
Q1 2024 |
Q2 2023 |
YTD 2024 |
YTD 2023 |
||||||
Exploration and evaluation |
467 |
518 |
880 |
985 |
916 |
||||||
Property, plant and equipment |
2,034 |
3,298 |
5,087 |
5,332 |
5,734 |
||||||
Capital expenditures |
2,501 |
3,816 |
5,967 |
6,317 |
6,650 |
Tenaz considers free cash flow to be a key measure of performance as it demonstrates the Company's excess funds generated after capital expenditures for potential shareholder returns, acquisitions, or growth in available liquidity. FCF is a non-GAAP financial measure most directly comparable to cash flows used in investing activities and is comprised of funds flow from operations less capital expenditures. A summary of the reconciliation of the measure, is set forth below:
($000) |
Q2 2024 |
Q1 2024 |
Q2 2023 |
YTD 2024 |
YTD 2023 |
||||||
Funds flow from operations |
5,822 |
7,043 |
3,361 |
12,865 |
10,635 |
||||||
Less: Capital expenditures |
(2,501) |
(3,816) |
(5,967) |
(6,317) |
(6,650) |
||||||
Free cash flow |
3,321 |
3,227 |
(2,606) |
6,548 |
3,985 |
Tenaz considers midstream income an integral part of determining operating netback. Operating netbacks assists management and investors with evaluating operating performance. Tenaz's midstream income consists of the income from its associate, Noordtgastransport B.V. and excludes the amortization of fair value increment of NGT that is included in the equity investment on the balance sheet. Under IFRS, investments in associates are accounted for using the equity method of accounting. Income from associate is Tenaz's share of the investee's net income and comprehensive income.
($000) |
Q2 2024 |
Q1 2024 |
Q2 2023 |
YTD 2024 |
YTD 2023 |
||||||
Income from associate |
1,160 |
888 |
901 |
2,048 |
1,818 |
||||||
Plus: Amortization of fair value increment of NGT |
241 |
240 |
- |
481 |
- |
||||||
Midstream income |
1,401 |
1,128 |
901 |
2,529 |
1,818 |
Tenaz calculates operating netback on a dollar or per boe basis, as petroleum and natural gas sales less royalties, operating costs and transportation costs, plus midstream income (income from associate, as described above). Operating netback is a key industry benchmark and a measure of performance for Tenaz that provides investors with information that is commonly used by other crude oil and natural gas producers. The measurement on a per boe basis assists management and investors with evaluating operating performance on a comparable basis. Tenaz's operating netback is disclosed in the "Operating Netback" section of the MD&A.
Management views adjusted working capital (net debt) as a key industry benchmark and measure to assess the Company's financial position and liquidity. Adjusted working capital (net debt) is calculated as current assets less current liabilities, excluding the fair value of derivative instruments. Tenaz's adjusted working capital (net debt) is disclosed in the "Capital Resources and Liquidity" section of the MD&A.
- "DD&A expense per boe", "Operating expense per boe", "Royalties per boe", and "Transportation expense per boe" are comprised of the respective line item from the consolidated statements of net income, as determined in accordance with IFRS, divided by the Company's or business units' total production.
- "Funds flow from operations per basic share" is comprised of funds flow from operations divided by basic weighted average Common Shares.
- "Funds flow from operations per diluted share" is comprised of funds flow from operations divided by diluted weighted average Common Shares.
- "Realized heavy crude oil price", "Realized natural gas liquids price", "Realized natural gas price", and "Realized petroleum and natural gas sales price" are comprised of commodity sales from the respective commodity, as determined in accordance with IFRS, divided by the Company's production of the respective commodity.
- "Royalties as a percentage of sales" is comprised of royalties, as determined in accordance with IFRS, divided by commodity sales from production as determined in accordance with IFRS.
The term barrels of oil equivalent ("boe") may be misleading, particularly if used in isolation. Per boe amounts have been calculated by using the conversion ratio of six thousand cubic feet (6 Mcf) of natural gas to one barrel (1 bbl) of crude oil. The boe conversion ratio of 6 Mcf to 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalent of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.
This press release contains certain forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "budget", "forecast", "guidance", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "potential", "intends", "strategy" and similar expressions are intended to identify forward-looking information or statements. In particular, but without limiting the foregoing, this press release contains forward-looking information and statements pertaining to: the NCIB and expected share buybacks thereunder; Tenaz's capital plans; activities and budget for 2024, and our anticipated operational and financial performance; expected well performance; expected economies of scale; forecasted average production volumes and capital expenditures for 2024; the ability to grow our assets domestically and internationally; statements relating to a potential CCS project; and the Company's strategy.
In addition, this press release contains forward-looking information and statements pertaining to the acquisition of NAM Offshore B.V. including, without limitation: the timing of closing; expected production, cash flow and free cash flow; expectations regarding estimated cash to close, and sources of funding thereof including future financing (and the nature thereof); transaction metrics; exploration and development potential including workover and optimization projects, potential development drilling locations, and exploration leads and prospects.
The forward-looking information and statements contained in this press release reflect several material factors and expectations and assumptions of Tenaz including, without limitation: the continued performance of Tenaz's oil and gas properties in a manner consistent with its past experiences; that Tenaz will continue to conduct its operations in a manner consistent with past operations; expectations regarding future development; the general continuance of current industry conditions; the continuance of existing (and in certain circumstances, the implementation of proposed) tax, royalty and regulatory regimes; expectations regarding future acquisition opportunities; the accuracy of the estimates of Tenaz's reserves and resource volumes; certain commodity price and other cost assumptions; the continued availability of oilfield services; and the continued availability of adequate debt and equity financing and cash flow from operations to fund its planned expenditures.
Tenaz believes the material factors, expectations and assumptions reflected in the forward-looking information and statements are reasonable, but no assurance can be given that these factors, expectations, and assumptions will prove to be correct.
The forward-looking information and statements included in this press release are not guarantees of future performance and should not be unduly relied upon. Such information and statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information or statements including, without limitation: changes in commodity prices; changes in the demand for or supply of Tenaz's products; unanticipated operating results or production declines; changes in tax or environmental laws, royalty rates or other regulatory matters; changes in development plans of Tenaz or by third party operators of Tenaz's properties, increased debt levels or debt service requirements; inaccurate estimation of Tenaz's oil and gas reserve volumes; limited, unfavorable or a lack of access to capital markets; increased costs; a lack of adequate insurance coverage; the impact of competitors; a failure to obtain necessary approvals as proposed or at all and certain other risks detailed from time to time in Tenaz's public documents.
The forward-looking information and statements contained in this press release speak only as of the date of this press release, and Tenaz does not assume any obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable laws.
Tenaz Energy Corp., [email protected];
Anthony Marino, President and Chief Executive Officer, Direct: 587 330 1983;
Bradley Bennett, Chief Financial Officer, Direct: 587 330 1714
SOURCE Tenaz Energy Corp.
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