Greenfire Resources Ltd., a Calgary-based energy company focused on the production and development of thermal energy resources from the Athabasca region of Alberta, Canada, is pleased to announce its operating and financial results for the quarter ended June 30, 2024 ("Q2 2024") and an operational update for the third quarter of 2024. The unaudited condensed interim consolidated financial statements and notes for the three and six months ended June 30, 2024 and 2023 as well as the related Management's Discussion and Analysis ("MD&A") will be available on SEDAR+ at www.sedarplus.ca, on EDGAR at www.sec.gov/edgar.shtml and on Greenfire's website at www.greenfireres.com.
A conference call to discuss the Q2 2024 results has been scheduled for Thursday, August 15, 2024 at 7:00 a.m. Mountain Time (9:00 a.m. Eastern Time). Access details for the conference call are provided below.
"The timing of our production growth initiatives in 2024 was impacted by the previously disclosed failure of third-party downhole temperature sensors and drilling delays in May and July as a result of the wildfires in northern Alberta at the Expansion site as well as delayed regulatory approval to recommence disposal operations and longer than anticipated steaming requirements at the Demo site," said Robert Logan, President and Chief Executive Officer of Greenfire.
"Given the temporary deferral of our planned production growth initiatives and certain regulatory delays, we have issued an Updated 2024 Outlook that contemplates 13-19% annual production growth over 2023 production levels. Despite the deferred ramp-up, we are starting to see higher production at our Expansion site and expect production to grow further at both facilities into year end."
"To further advance the Company's growth plan, I am pleased to announce the appointment of Jonathan Kanderka to Chief Operating Officer. Mr. Kanderka has extensive operating and leadership experience at high-growth SAGD companies, including his significant tenure at MEG Energy," concluded Mr. Logan.
All dollar amounts reported in this press release are in Canadian dollars unless otherwise noted.
The Company holds a 75% working interest in the Hangingstone Expansion Facility (the "Expansion Asset") and a 100% working interest in the Hangingstone Demonstration Facility (the "Demo Asset" and together with the Expansion Asset, the "Hangingstone Facilities"). Unless indicated otherwise, production volumes and per unit statistics are presented throughout this press release on a "gross" basis as determined in accordance with National Instrument 51-101 - Standards for Disclosure for Oil and Gas Activities, which is the Company's gross working interest basis before deduction of royalties.
Q2 2024 Highlights
Delivered consolidated bitumen production of 18,993 barrels per day ("bbls/d") in Q2 2024 (18,036 bbls/d - Q2 2023), while managing operational disruptions, and drilling delays associated with wildfires in northern Alberta.
Generated adjusted EBITDA(1) of $58.4 million in Q2 2024 ($34.4 million - Q2 2023), and adjusted funds flow(1) of $47.2 million in Q2 2024 ($23.5 million - Q2 2023). Adjusted EBITDA(1) and adjusted funds flow(1) in the period were 48% and 71% higher, respectively, than in Q1 2024, despite realized losses on commodity risk management contracts of $13.8 million compared to $8.8 million in Q1 2024 ($6.8 million - Q2 2023).
Invested capital on property, plant and equipment of $23.0 million in Q2 2024 ($1.9 million - Q2 2023), with approximately 90% of capital spending in the period allocated to drilling activities, with the balance primarily directed to various facility projects.
Generated adjusted free cash flow(1) of $24.2 million in Q2 2024 ($21.5 million - Q2 2023).
Maintained available liquidity of approximately $210.0 million at June 30, 2024, consisting of:
$160.0 million of cash and cash equivalents, including approximately $50 million of additional working capital, including the accelerated collection of oil sales for June 2024; and
$50.0 million of available credit under Greenfire's reserve-based credit facility ("Senior Credit Facility").
In July 2024, the Company directed excess cash flow to redeem approximately US$61 million of the Company's US$300 million Senior Secured Notes due 2028 (the "2028 Notes").
Operational Update
Consolidated production in Q2 2024 averaged approximately 18,993 bbls/d, compared to 19,667 bbls/d in Q1 2024, with the reduction caused by operational reductions to advance repair work associated with the previously disclosed failure of third-party downhole temperature sensors at the Expansion Asset, delayed regulatory approval to recommence disposal operations and longer than anticipated steaming requirements at three recently drilled Refill wells at the Demo Asset.
In response to the recent wildfires in northern Alberta, Greenfire temporarily evacuated all non-essential personnel from its facilities, operated at reduced rates, and halted drilling operations at the Expansion Asset in May and July 2024, which caused additional delays to planned production growth initiatives relative to the Company's previous expectations.
Consolidated production in July 2024 averaged approximately 19,660 bbls/d and continues to increase through August, with production up to August 13th averaging approximately 21,050 bbls/d, reflecting initial production additions from completed downhole temperature sensor replacements at the Expansion Asset.
Expansion Asset (75% Working Interest, Operator)
Production at the Expansion Asset averaged 15,824 bbls/d in Q2 2024, compared to 17,361 bbls/d in Q1 2024. Production was lower due to the previously disclosed failure of third-party downhole temperature sensors and production disruptions associated with sensor replacement operations, which impacted production from five Refill wells. Greenfire has replaced the failing downhole temperature sensors at three of five Refill wells, with initial production in line with the average productivity rates of the five Refill wells where temperature sensors did not fail. The remaining two of the five refill wells with failing sensors were damaged to the point where a redrill of the two wells was required, the timing of which was impacted by the wildfires. The first damaged well was successfully redrilled in June, with the second redrill well underway in August 2024. Following these initiatives, production at the Expansion Asset increased in July and August 2024 to 16,650 bbls/d and 18,150 bbls/d, respectively.
Demo Asset (100% Working Interest, Operator)
Greenfire received regulatory approval for the disposal well at the Demo Asset in Q2 2024 and is currently recommencing disposal operations, as the timing of this work was delayed by the wildfires. The Company has drilled a second disposal well at the Demo Asset that is awaiting regulatory approval, which is anticipated in Q3 2024. Subject to regulatory approval, enhanced water handling and operational flexibility are expected to be realized, which is anticipated to support higher production rates.
Production at the Demo Asset averaged 3,169 bbls/d in Q2 2024, above 2,306 bbls/d in Q1 2024, which was impacted by drilling operations. The Company completed drilling three extended reach Refill wells in Q2 2024, which have been circulating steam in anticipation of first production, utilizing constrained water handling capacity and limiting additional production from the producing wells. To accelerate production, Greenfire plans to pair one of the Refill wells with an injector well in Q3 2024.
Updated 2024 Outlook and Reaffirmed Commitment to Prioritize Continued Debt Repayment
Greenfire has provided updated production and capital expenditure guidance for 2024 ("Updated 2024 Outlook").
Greenfire's reduced production range for 2024 reflects delays in planned production growth, including multiple delays caused by required downhole temperature sensor repairs and redrill operations at the Expansion Asset, regulatory delays for disposal well operations and additional required steaming for new Refill wells at the Demo Asset.
The Company's planned capital expenditures for 2024 will continue to be focused on drilling activities at the Hangingstone Facilities, which, combined with investments in surface facility optimizations, is anticipated to result in a continued increase in production and the potential for meaningful free cash flow generation. The planned capital expenditure range for 2024, is inclusive of two minor acquisitions for $3.7 million that were executed by the Company in the 2024.
The Company remains committed to prioritizing debt repayment and intends to reduce debt in the near-term using 75% of excess cash flow(1) to semi-annually redeem a portion of the 2028 Notes until consolidated indebtedness(1) is less than US$150 million.
In July 2024, the Company redeemed US$61 million of the US$300 million 2028 Notes. The next scheduled excess cash flow redemption is in Q1 2025.
Greenfire is positively positioned with $1.8 billion of corporate tax pools, lower pre-payout royalty rates at the Expansion Asset associated with sizable unrecovered royalty balances and no gross overriding royalty obligations at the Hangingstone Facilities, which the Company expects will support heightened free cash flow generation potential, particularly at higher commodity prices. Greenfire is poised to continue to benefit from the completion of the Trans Mountain Expansion ("TMX"), given 100% of its production is weighted to crude oil benchmarks that are linked to WCS differentials, which could improve given that an incremental 590,000 bbls/d of pipeline egress to tidewater became operational in Western Canada with the completion of TMX in May 2024.
(1) As defined in the indenture governing the Company's 2028 Notes.
Appointment of Chief Operating Officer and New Finance Executive
Greenfire is also pleased to announce that Jonathan Kanderka has been appointed Chief Operating Officer of the Company and Dean Custance has been appointed Vice President, Finance.
Mr. Kanderka has over 20 years of steam-assisted gravity drainage ("SAGD") and thermal oil experience, including 17 years at MEG Energy Corp. ("MEG Energy") working in sub-surface development and operations, with a demonstrated track record of technical capability and leadership, supporting MEG Energy's growth from undeveloped land to production of over 100,000 barrels per day. Mr. Kanderka received his Bachelor of Applied Science in Petroleum Engineering from University of Regina, is a registered professional engineer with the Association of Professional Engineers and Geoscientists of Alberta and has a Diploma in Petroleum Engineering Technology from the Southern Alberta Institute of Technology.
Mr. Custance has over 30 years of experience working in finance, planning, taxation and accounting in the oil and gas industry. Mr. Custance previously served as Director, Controller of Tamarack Valley Energy Ltd, and was employed and consulted for numerous companies, most notably Northrock Resources Ltd., and Iron Bridge Resources Inc., including its predecessor entities RMP Energy Inc. and Orleans Energy Ltd. Mr. Custance has Bachelor of Science and Commerce degrees from the University of Alberta and is a Chartered Professional Accountant.
Greenfire's Growth-oriented Strategy Underpinned by Concentrated Tier-1 SAGD Assets
Greenfire has a large, long-life and relatively low decline Tier-1 oil sands resource base, with two producing and adjacent SAGD assets at the Hangingstone Facilities and expandable pipeline infrastructure in place for diluted bitumen and diluent at the Expansion Asset. The Company's structural cost advantages from its Tier-1 SAGD reservoir at the Hangingstone Facilities, combined with its relatively moderate capital expenditure profile due to its projected multi-year inventory of Refill well targets, is anticipated to result in continued near-term production growth and potential meaningful free cash flow generation. The Company believes that the Hangingstone Facilities offer significant opportunities for additional value generation. In addition to Greenfire's existing commitment to repay debt, the Company intends to return capital to its shareholders over time. Greenfire also plans to evaluate and consider additional potential prospects for further production growth, including external acquisitions that compete with the expected returns from its existing Tier-1 SAGD assets, if the Company believes they are accretive to Greenfire's shareholders.
Conference Call Details
Greenfire plans to host a conference call on Thursday, August 15, 2024 at 7:00 a.m. Mountain Time (9:00 a.m. Eastern Time), during which members of the Company's executive team will discuss its Q2 2024 results as well as host a question-and-answer session with investors.
Date: Thursday, August 15, 2024
Time: 7:00 a.m. Mountain Time (9:00 a.m. Eastern Time)
Webcast Link:
https://www.gowebcasting.com/13412
Dial In:
North America: 1-844-763-8274
International: +1-647-484-8814