Bonterra Energy Announces First Quarter 2024 Results

Source: www.gulfoilandgas.com 5/14/2024, Location: North America

Bonterra Energy Corp. is pleased to announce its financial and operating results for the quarter ended March 31, 2024. The related unaudited condensed financial statements and notes, as well as management's discussion and analysis ("MD&A"), are available on SEDAR+ at www.sedarplus.ca and on Bonterra's website at www.bonterraenergy.com.

FINANCIAL & OPERATING HIGHLIGHTS
Production in Q1 2024 averaged 14,189 BOE per day, five percent higher than Q1 2023 and six percent lower than the previous quarter due to minimal capital spending in Q4 2023, combined with the impact of production from new wells drilled in Q1 2024 being deferred into Q2 2024. The Company estimates volumes will be within previously announced 2024 production guidance of 13,800 to 14,200 BOE per day1.
Funds flow2 totaled $27.0 million ($0.72 per fully diluted share) in Q1 2024, compared to $29.3 million ($0.79 per fully diluted share) generated in Q1 2023, consistent with lower realized oil and gas sales of $68.6 million for the period driven by a 202 percent increase in the differential on Canadian light sweet crude oil from WTI, offset by higher production volumes.
Field netbacks2 averaged $28.45 per BOE in Q1 2024, while cash netbacks averaged $20.91 per BOE, both primarily reflecting lower realized commodity prices in the period compared to the prior year, partially offset by lower royalty costs and gains on realized risk management contracts.
Production costs averaged $17.98 per BOE in Q1 2024, an increase over the comparable period the prior year, primarily due to additional well maintenance in the period as the Company incurred more service rig costs and other repairs following fewer wells being worked over in Q4 2023, offset by Bonterra's continued focus on cost control and operational enhancements.
Capital expenditures totaled $32.9 million during Q1 2024 and included:
$27.0 million directed to drilling 11 gross (10.5 net) operated wells and completing, equipping, tying-in and placing on production 11 gross (10.0 net) operated wells, of which four gross (3.6 net) were drilled in the fourth quarter of 2023. The remaining four gross (4.0 net) operated wells were placed on production early in Q2 2024.
$5.9 million directed primarily to related land and lease, infrastructure, recompletions and non-operated capital programs.
Established a complementary new core area with the Charlie Lake asset acquisition during the quarter, as outlined in the Company's March 4, 2024 press release, acquiring 79 net sections of land prospective for light oil (the "Acquisition").
Net debt1 totaled $176.4 million at quarter-end, while bank debt totaled $38.7 million.

On April 30, 2024, Bonterra completed the renewal of its $110 million bank facility, which is structured as a normal course, reserve-based credit facility available on a revolving basis through April 30, 2025, with bi-annual borrowing base redeterminations and a maturity of April 30, 2026.
The increase in net debt from Q4 2023 is due largely to the $23.9 million Charlie Lake asset acquisition which contributed to a debt to EBITDA ratio of 1.0 times at the end of Q1 2024.

QUARTER IN REVIEW
Bonterra delivered another successful quarter, with all key performance metrics, including production volumes, tracking the Company's guidance. First quarter 2024 production averaged 14,189 BOE per day, five percent higher than the same period in 2023, despite approximately 260 BOE per day of production being shut-in because of the extremely cold weather experienced in January. This was slightly offset by approximately 330 BOE per day of production contributed by the Acquisition during the month of March, representing an average of 112 BOE per day for the quarter. The impact of Bonterra's successful, front-end loaded 2023 capital program resulted in new wells being brought online in the latter half of 2023, while a more muted Q4 2023 drilling program led to lower Q1 2024 volumes relative to the previous quarter. Volumes in the second quarter are expected to reflect the positive impact of the Company's Q1 2024 drilling and capital activities. Bonterra is pleased to reiterate its previously announced 2024 annual guidance targeting 13,800 to 14,200 BOE per day average production, stemming from a $90 million to $100 million 2024 capital expenditure budget.

On March 1, 2024, Bonterra completed the strategic acquisition of a high quality, undeveloped light oil Charlie Lake asset, comprised of 79 net sections of land with 330 BOE per day1 of production, for total consideration of $23.9 million ("the Acquisition"). The Acquisition is complementary to the Company's existing 37 net sections of land, bringing Bonterra's total Charlie Lake position to 116 net sections of contiguous land. As a result of the Acquisition, in the Company's property, plant and equipment increased by $24.2 million along with the assumption of $0.3 million in decommissioning liabilities. The Company's operational expertise with Cardium light oil development is directly applicable to Charlie Lake, including horizontal development, marketing and field optimization. Further, the Acquisition has extended Bonterra's development runway with a significant, and highly economic, drilling inventory comprised of over 100 Tier-1 identified net extended reach horizontal drilling locations, positioning the Company to generate an increasing and sustainable free cash flow profile. A five-well development drilling program on this property is expected to commence in the second quarter of 2024.

Due to a strong balance sheet and available liquidity, Bonterra was able to close the strategic Acquisition with funding through its bank line, which was well within the Company's leverage tolerance. Net debt at the end of the first quarter totaled $176.4 million, $7.3 million lower than the same period in 2023 due largely to a 45 percent decrease in capital spending in the current period, partially offset by a draw on the bank line to fund the Acquisition for cash.

To protect project economics and cash flows during the balance of 2024, Bonterra has risk management contracts in place on at least 40 percent of estimated oil and 30 percent of estimated natural gas production through 2024, which hedges exposure against potential downward commodity prices and volatility while imparting stability for the Company's capital development program.

Subsequent to the end of the quarter, Bonterra completed a renewal of its reserve-based bank credit facility with a total borrowing base of $110 million (the "Bank Facility"). As at March 31, 2024, $38.7 million was drawn on the Bank Facility, which is available on a revolving basis through April 30, 2025, with bi-annual borrowing base redeterminations and a term maturity of April 30, 2026.

Delivering Solid Financial Performance
With higher value light oil and liquids production representing 87 percent of the Company's total realized oil and gas sales in the first quarter, Bonterra remains less impacted by the persistent downward pricing pressure on natural gas. Benchmark oil prices did soften and differentials widened significantly in Q1 2024 relative to both the previous quarter, and the same quarter in 2023. In addition to lower commodity prices quarter-over-quarter, the Company was impacted by increased production costs of $17.98 per BOE. While budgeted, these higher costs are associated with more service rig costs and other repairs following fewer wells being worked over in Q4 2023, increased field labour costs due to the higher field activity, and increased carbon taxes. While production costs were in line with guidance, the combination of lower pricing and higher costs resulted in field and cash netbacks1 averaging $28.45 and $20.91 per BOE, respectively, with first quarter 2024 funds flow totaling $27.0 million ($0.72 per fully diluted share) and net earnings remaining positive at $848 thousand, or $0.02 per diluted share.

Disciplined Q1 Capital Program Expected to Drive Q2 2024 Volumes
Bonterra invested capital expenditures of $32.9 million in Q1 2024, lower than the $60.2 million invested in Q1 2023. Capital was allocated approximately $27.0 million to the drilling of 11 gross (10.5 net) operated wells and the completion, equip and tie-in of 11 gross (10.0 net) operated wells, of which four gross (3.6 net) were drilled in Q4 2023. The Company placed the remaining four gross (4.0 net) operated wells on production early in the second quarter of 2024. An additional $5.9 million was directed to land and lease, infrastructure, recompletions, and non-operated capital programs.

Strategic Charlie Lake Acquisition Supports Organic Growth
Bonterra's strategic Charlie Lake position represents a meaningful growth asset in a substantially de-risked and highly economic light oil play. It integrates seamlessly with the Company's established Cardium assets and cash flow profile, while serving as an ideal complement to its emerging Montney resource play. Bonterra has now established meaningful positions in two of North America's top trending economic plays, and created a foundation that supports sustained long-term growth and free funds flow generation.

With extensive operational expertise and a solid track record of successful execution in the Cardium, Bonterra's technical team intends to leverage that accumulated knowledge to enhance and optimize the development of the Charlie Lake asset. A five-well Charlie Lake development drilling program is expected to commence in the second quarter, with one of those wells being drilled but uncompleted. Bonterra anticipates Charlie Lake production will reach 6,000 BOE per day by 2026 and can be maintained for over a decade, based on conservative estimates of the identified drilling inventory.

First Montney Well Brought on Production Sets Stage for Second Drill

Bonterra's Montney asset is located north of Grand Prairie, Alberta (Valhalla), on a contiguous 47 sections (30,080 acres) of land with 100 percent working interest. The Company's first Montney test well at 04-03-074-6W6 was drilled and completed under budget in the fourth quarter of 2023, further expanding Bonterra's potential drilling inventory. With the successful negotiation of a processing agreement and natural gas egress secured through third party infrastructure, the Montney well was tied-in and is being brought on production in the second quarter of 2024.

During the first quarter, Bonterra constructed a 100 percent owned battery, securing greater optionality for the Company to drill a second well from the same pad and test it in-line. In addition, Bonterra drilled a water disposal well in the second quarter of 2024 to decrease water disposal costs while improving the overall economics of the area's development. To ensure alignment with available infrastructure, egress and capital availability, the Company intends to take a measured approach to the pace of development in the Montney.

Abandonment and Reclamation Activities on Track
The Company continued to responsibly pursue abandonment and reclamation efforts in Q1 2024 with spending and activities on target for the quarter and 16.0 net well sites reclaimed during the period. As a result of Bonterra's ongoing and targeted abandonment and reclamation program, by the end of 2024, the Company estimates having abandoned 36.1 net wells and 50 pipelines (for a total length of 46 kilometers of pipe), with 219 well sites decommissioned in preparation for future reclamation. Bonterra is forecasting an estimated $7.0 million will be directed to decommissioning liabilities in 2024, which exceeds its mandatory spend under the Alberta Energy Regulator's Liability Management Program.

OUTLOOK
Looking ahead through the balance of 2024 and beyond, the Company intends to continue building on the positive momentum achieved over the past several quarters, and to further the prudent development of its optimal inventory and asset mix. Bonterra's stable, Cardium cash flow engine is complemented by two emerging and exciting light oil core areas in the Charlie Lake and Montney, both of which offer high impact growth potential, superior economics and the potential to generate significant free funds flow over time. Following the integration of the Charlie Lake asset, the Company's previous resource allocation to M&A activities can now be refocused to the continued realization of an efficient deployment of capital targeting organic growth. With a commitment to maintaining a disciplined capital allocation strategy, Bonterra estimates that strong operational execution in the development of the expanded inventory across its three core operating areas can drive production growth, allow for ongoing debt repayment and advance the Company's strategy to implement a sustainable return of capital model.

Enhanced Stability Through Risk Management
To protect future cash flows, mitigate commodity price risk and impart stability, Bonterra has layered hedges on approximately 40 percent of expected crude oil production and 30 percent of natural gas production through year end 2024. The following risk management contracts were in place as at March 31, 2024:
WTI prices between $60.00 USD to $93.75 USD per bbl on approximately 2,889 bbls per day for the balance of 2024;
From July 1 to December 31, 2024, an average WTI to Edmonton par differential price of $2.60 USD per bbl on 1,000 barrels of oil per day; and
Natural gas prices between $2.04 to $2.71 per GJ on 12,831 GJ per day for the balance of 2024.

Publication of Third Annual Sustainability Report
Bonterra also released its third annual sustainability report, which outlines the Company's approach to environmental, social and governance initiatives, including highlighting health and safety, an ongoing focus on responsible environmental stewardship, and a commitment to the well-being and improvement of the communities near Bonterra's operations. The updated report is available on Bonterra's website.

The Company remains sharply focused on the responsible, safe and efficient execution of its business strategy, to develop and optimize Bonterra's oil-weighted, high-growth and diverse asset portfolio. With the strategic integration of the new and pivotal Charlie Lake core area, along with the emerging contribution from the Montney, the Company believes it is well positioned to deliver sustainable value for stakeholders and generate robust free funds flow, supporting a sustainable return of capital model.


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