Hammerhead Energy Inc. is pleased to announce record 2022 annual financial and operating results, year-end 2022 reserves and provide 2023 guidance.
On February 23, 2023, HEI completed a plan of arrangement pursuant to a business combination agreement with Decarbonization Plus Acquisition Corporation IV (“DCRD”), an affiliate of HEI's controlling shareholder, Riverstone Holdings LLC, Hammerhead Resources Inc. (the "Company") and certain other parties and their respective shareholders. Pursuant to the plan of arrangement, DCRD amalgamated with a wholly owned subsidiary of the Company which was incorporated for the purpose of effecting the business combination to form Hammerhead Energy Inc. Also pursuant to the Plan of Arrangement, the Company amalgamated with a wholly owned subsidiary of DCRD incorporated to effect the business combination to form Hammerhead Resources ULC, a wholly owned subsidiary of HEI. In this press release, unless otherwise indicated or the context otherwise requires, "Hammerhead” and "the Company” refers to Hammerhead Resources Inc.
Scott Sobie notes “I am extremely proud of our accomplishments during 2022 as an organically grown business that continues to deliver sustainable and reliable energy while generating among the best returns in North America. Our successful entry into the public markets represents a significant milestone in the progression of our business. We are excited about the record results delivered in 2022, and our results to date in 2023 have been exceptional. Our corporate netback8 in 2022 exceeded $36/boe and has continued in that range thus far in 2023 due to excellent operational execution and strong realized prices as a result of prudent hedging and natural gas marketing diversification. Prior to the most recent drop in oil prices, we added 7,000 bbl/d of new hedges for Q2 and Q3 2023 at US$75.28. Our Lower Montney lands remains 99% un-booked to date. Our recent 9-well 5-12 pad at North Karr has continued to deliver very strong production with nominal declines to date. A new 7-well pad at North Karr as well as a 7-well pad at Gold Creek are currently being completed and tied in. In 2023 we expect to generate significant cash flow per share growth and complete our infrastructure build-out, such that starting in 2024 we expect to generate substantial free cash flow.”
2022 Highlights:
The Company achieved record annual average production of 32,081 boe/d (43% liquids)1 for the year ended December 31, 2022. Liquids weighting increased to 43% from 39% in 2021 as the Company increased development in the Karr area. Annual average production increased 15% and oil production increased 40% over 2021.
Oil and gas revenue was $844.6 million and operating netback2 was $457.9 million or $39.10/boe for the year ended December 31, 2022, an increase of 146% from the same period of 2021.
Net cash from operating activities for the year ended December 31, 2022 was $371.4 million. Adjusted funds from operations3 was $423.5 million during the year ended December 31, 2022, which is a record level and an increase of 218% from the previous year.
The Company reported record net profit of $225.1 million for the year ended December 31, 2022.
The Company realized the benefit of market diversification for its natural gas production, generating an average 2022 natural gas price of $7.84/Mcf, 46% above the 2022 average AECO 5A monthly index price of $5.36/Mcf. The Company has 25 MMcf/d of exposure to Malin gas pricing, which averaged $11.20/Mcf for the year ended December 31, 2022.
Net cash used in investing activities for the year ended December 31, 2022 was $368.2 million. Capital expenditures4 during the year ended December 31, 2022 were $383.9 million, inclusive of $74.0 million of infrastructure expansion capital. The exploration and development program included the drilling of 31.0 gross (29.1 net), completion of 26.0 gross (26.0 net), and on-stream of 34.0 gross (34.0 net) Montney light-oil wells.
Net cash from operating activities for the year ended December 31, 2022 was $371.4 million. In a year of significant production growth (up 15% year-over-year), during which the Company allocated substantial capital to Karr infrastructure expansion, the Company generated free funds flow5 of $39.5 million.
The Company exited 2022 with net debt6 of $291.6 million and a net debt to adjusted EBITDA ratio of 0.7 times7.
On September 26, 2022 the Company and DCRD announced a business combination that resulted in the formation of HEI which commenced trading on the Toronto Stock Exchange (“TSX”) and the Nasdaq Stock Market LLC (“Nasdaq”) on February 27, 2023. As at March 28, 2023, HEI had 90,927,765 Class A common shares issued and outstanding (96,779,752 fully diluted).
2022 Reserves:
Hammerhead delivered substantial reserves additions in 2022, including the following highlights:
Proved, Developed, Producing (“PDP”) reserves of 57 MMboe, an increase of 13% year-over-year, representing a 156% replacement of 2022 production. PDP reserves at the Karr core area increased 92% to 25 MMboe due to increased development, exceptional well results and infrastructure build-out.
Total Proved (“1P”) reserves of 183 MMboe and Total Proved plus Probable (“2P”) reserves of 314 MMboe, an increase of 9% and 1% year-over-year, respectively.
PDP net present value of reserves at a 10% discount rate (“NPV10”) of $901.4 million, 1P NPV10 of $2.1 billion and 2P NPV10 of $3.5 billion (an increase of 36% on 2P year-over-year).
PDP Finding, Development and Acquisition (“FD&A”) cost of $21.06/boe (2.3x recycle ratio) and 3-year average PDP FD&A cost of $12.42/boe (3-year average recycle ratio of 2.3x), inclusive of significant infrastructure investments in 2022.
2023 Corporate Outlook and Guidance
Hammerhead Energy's 2023 capital program is development-focused with a continuous 2-rig program expected to drill approximately 40 wells. HEI is continuing to increase its drilling focus on the North and South Karr assets with plans to allocate approximately 75% of drilling and completion activity to Karr with the remaining 25% at Gold Creek. Hammerhead Energy expects significant production and cash flow growth while targeting free funds flow neutrality in 2023 notwithstanding approximately $100.0 million in infrastructure expenditures at North and South Karr in the year. Significant investment in field infrastructure in 2022 and 2023 will maximize operational control, minimize cash costs and allow for “half cycle” economics from 2024 forward.
Hammerhead Energy is committing approximately $100.0 million to infrastructure expansions within its North and South Karr areas in order to accommodate its ongoing and expected growth in production at Karr. In the North Karr area, the Company completed a second expansion to its current facility in Q1 2023. In South Karr, HEI is building a new facility targeted to be on-stream by Q4 2023, bringing total in-field infrastructure capability to over 80,000 boe/d.
HEI expects to achieve an inflection point in material free funds flow generation in Q4 2023 as major infrastructure expansion capital expenditures will be largely complete. Hammerhead Energy plans to roughly double production in the next three years (as compared to the 2022 annual average) while generating significant amounts of free funds flow starting in the fourth quarter of this year.
Hammerhead Energy is targeting greater than 25% production growth in 2023, with oil production growth expected to exceed 40%. HEI expects to achieve these results on an internally funded basis.
Senior Leadership Team Update
HEI is pleased to announce the appointment of Dick Unsworth and Kurt Molnar to its Senior Leadership Team.
Dick Unsworth has assumed the role of Senior Vice President, Business & Organizational Effectiveness. Dick brings over 40 years of broad-based industry experience, including executive roles in multinational corporations working both domestically and internationally.
Kurt Molnar has assumed the role of Vice President, Capital Markets & Corporate Planning. Kurt brings over 35 years of highly diversified experience in energy finance and senior executive level exploration and production business development.
2022 Reserves
Hammerhead delivered substantial reserves additions in 2022, including the following highlights:
PDP reserves of 57 MMboe, an increase of 13% year-over-year, representing a 156% replacement of 2022 production. PDP reserves at the Karr core area increased 92% to 25 MMboe due to increased development, exceptional well results and infrastructure build-out.
1P reserves of 183 MMboe and 2P reserves of 314 MMboe, an increase of 9% and 1% year-over-year, respectively.
PDP NPV10 of $901.4 million, 1P NPV10 of $2.1 billion and 2P NPV10 of $3.5 billion (an increase of 36% on 2P year-over-year).
PDP FD&A cost of $21.06/Boe (2.3x recycle ratio) and 3-year average PDP FD&A cost of $12.42/Boe (3-year average recycle ratio of 2.3x), inclusive of significant infrastructure investments in 2022.
The Company's 2022 year-end reserves evaluation was conducted by McDaniel & Associates Consultants Ltd. ("McDaniel"), the
Company's independent qualified reserves evaluator with an effective date of December 31, 2022 (the "McDaniel Report").
Proved Developed Producing
Proved developed producing reserves at December 31, 2022 were 57 MMboe, an increase of 13% from 51 MMboe at December 31, 2021, and representing a 156% replacement of 2022 production (December 31, 2021 - 143%). The increase was primarily a result of successful execution of the capital program.
At December 31, 2022, the proved developed producing NPV10 was $901.4 million, representing a 42% increase from $632.6 million at December 31, 2021. The increase was primarily due to improved commodity price forecasts in addition to volume growth.
FD&A costs associated with proved developed producing reserves were $21.06/boe (December 31, 2021 - $9.57/boe), resulting in a recycle ratio of 2.3x (December 31, 2021 - 2.6x).
Total Proved
Total proved reserves at December 31, 2022 were 183 MMboe, an increase of 9% from 167 MMboe at December 31, 2021. The increase was primarily due to additional development in North and South Karr bringing additional probable wells into proved.
At December 31, 2022, the total proved NPV10 was $2.1 billion, a 50% increase from $1.4 billion at December 31, 2021. The increase was primarily due to improved commodity price forecasts and acceleration of some locations from probable to proved reserves.
Future development costs associated with total proved reserves at December 31, 2022 were $1.7 billion, an increase of 30% from $1.3 billion at December 31, 2021. The increase was largely a result of cost inflation. FD&A costs, including future development costs associated with total proved reserves of $29.02/boe (December 31, 2021 - $10.13/boe), resulting in a recycle ratio of 1.7x (December 31, 2021 - 2.5x).
Total Proved Plus Probable
Total proved plus probable reserves at December 31, 2022 were 314 MMboe, an increase of 1% from 310 MMboe at December 31, 2021 as new reserve bookings were largely offset by production in 2022.
At December 31, 2022, the total proved plus probable NPV10 was $3.5 billion, a 36% increase compared to $2.6 billion at December 31, 2021. The increase was primarily due to improvements in price forecasts.
Future development costs associated with total proved plus probable reserves at December 31, 2022 were $2.8 billion, an increase of 17% from $2.4 billion at December 31, 2021. The increase was largely a result of cost inflation. FD&A costs, including future development costs associated with total proved plus probable reserves of $52.27/boe (December 31, 2021 - $3.87/boe), resulting in a recycle ratio of 0.9x (December 31, 2021 - 6.5x).
Net Present Value of Future Net Revenue Before Income Taxes Discounted at (%/year)1,2,3,4
