NuVista Announces Record Production & Positive Second Quarter 2023 Financial and Operating Results

Source: www.gulfoilandgas.com 8/9/2023, Location: North America

NuVista Energy Ltd. is pleased to announce record high weekly production and positive financial and operating results for the three and six months ending June 30, 2023. Despite facing temporary production challenges from the Alberta wildfires and moderation in commodity prices, the quality and capacity of our asset base enabled us to continue to deliver strong returns. We continued to invest in a disciplined manner in new high-return wells to fill and optimize existing facilities. New well results continued to be strong, and our most recent Gold Creek pad set a new record for cost and speed of drilling for the Wapiti area. During the quarter, we successfully completed and then renewed our Normal Course Issuer Bid (“NCIB”), reaffirming our commitment to returning capital to shareholders. Additionally, NuVista once again increased our future natural gas export pipeline capacity.

Second Quarter 2023 Operational and Financial Highlights

During the second quarter of 2023, NuVista:
• Produced an average of 71,029 Boe/d in the quarter, in line with our guidance of 71,000 Boe/d following the impact of the wildfires in the Grande Prairie region of Alberta (the “Alberta wildfires”). This represented a 9% increase in production from the second quarter of 2022. Production benefited from the addition of 12 new wells brought online. Included in this figure is the temporary challenge due to the Alberta wildfires, which resulted in approximately 11,000 Boe/d of shut-in production during the quarter, along with delays in certain capital projects. Second quarter production consisted of 31% condensate, 9% NGLs and 60% natural gas;

• Generated adjusted funds flow(1) of $145.5 million ($0.67/share, basic(3)), which includes $20.8 million of free adjusted funds flow(2) despite a decline in commodity prices, particularly natural gas. Adjusted funds flow was enhanced in the quarter due to positive one-time adjustments in royalties and taxes;

• Achieved net earnings of $87.1 million ($0.40/share, basic) in the quarter;

• Executed a successful net capital expenditures(2) program, investing $125.1 million in well and facility activities including the drilling of 13 gross (12.8 net) wells and the completion of 14 gross (14.0 net) wells in our condensate rich Wapiti Montney play;

• Expanded on our existing natural gas diversification strategy by successfully acquiring 50 MMcf/d of new Empress delivery capacity along with TC Energy Mainline capacity to deliver to the U.S. Midwest and Central Canadian markets starting in April 2026;

• Exited the quarter with $8.0 million drawn on our $450 million credit facility, maintaining a favorable net debt(1) to annualized second quarter adjusted funds flow(1) ratio of 0.3x;

• Redeemed $22.4 million of senior unsecured notes (“2026 Notes”) through open market repurchases, further reducing the outstanding principal to $165.4 million; and

• Completed our existing NCIB (the “2022 NCIB”), having repurchased and subsequently cancelled 3,646,761 of our outstanding common shares during the quarter. In the quarter, we received TSX approval for the renewal of our NCIB (the “2023 NCIB”) to allow for the repurchase of up to 16,793,779 common shares, being 10% of the public float at the time of renewal.

Excellence in Operations
We are pleased to provide another operational update that showcases NuVista’s consistent delivery and ability to adapt to various challenges. As previously announced, production at the end of the second quarter had rebounded to approximately 80,000 Boe/d after the Alberta wildfires disrupted much of the industry’s northern and central Alberta production. Volumes have now advanced to a weekly high of approximately 85,000 Boe/d.

Although inflationary pressures have not been fully abated, execution on drilling and completion operations has gone exceptionally well in the first half of the year. In Pipestone, year-to-date drilling costs have averaged $980 per horizontal meter, which is 30% below 2019 pre-Covid corporate levels. Completion costs per tonne of sand have also decreased a similar amount over that time period, to an average of $670 per tonne. Our latest six-well pad in Pipestone South came on-stream in the second quarter and has reached its IP30 milestone with per-well rates averaging 1,800 Boe/d, including 50% condensate, fully meeting expectations. Current activity in Pipestone includes two drilling rigs active on a 10-well pad, which is expected to come on-stream in early 2024.

In addition, new records have been set drilling on our most recent pad in the Gold Creek area of Wapiti. This pad, which includes three Lower Montney and three Middle Montney wells, represents a clear breakthrough in the area with spud to total depth times which averaged 12 days for 6,500 meters total depth drilled per well. Costs of $875 per horizontal meter drilled represented a new record low for the Wapiti area, and the drilling time is 20% below our 2022 Wapiti area average. This pad is currently being completed and is expected to come on-stream late in the third quarter. In the Bilbo area of Wapiti, drilling operations are ongoing on a 5-well pad, and flowback has commenced on a new pad that includes a pilot infill well in the Montney C zone between two legacy producers in the Montney B zone. Although we have only a few days on production thus far, early results are highly encouraging.

Pipestone Area Full Cycle Payout – A Major Company Milestone
In the third quarter of this year we expect to reach a major long-term milestone in the Pipestone area where full cycle payout including acquisition costs shall be reached. Production in the area has grown from 9,600 Boe/d in 2018, when the Pipestone North asset was acquired, to more than 45,000 Boe/d.

Cumulative net capital expenditures invested through the end of the second quarter is approximately $1.4 billion. Cumulative adjusted funds flow is anticipated to exceed this amount during the third quarter, despite experiencing extremely low commodity pricing during the Covid period. We have consistently held the view that these assets are among the highest quality in North America, and are looking forward to continuing to develop these properties over the next 20+ post-payout years with exceptional half-cycle returns.

Balance Sheet Strength and Return of Capital to Shareholders
We remain committed to our disciplined and value-adding growth strategy, prioritizing low net debt levels and providing significant shareholder returns. Our target remains to return approximately 75% of free adjusted funds flow to shareholders. The remaining portion will be primarily allocated to further reducing our net debt, while also allowing us to take advantage of potential opportunities for facility repurchases and tuck-in acquisitions.

At the end of the second quarter, our net debt was $197.9 million, well below our net debt target of $300 million. The net debt target ensures that based on current production levels, our net debt to adjusted funds flow ratio remains comfortably below 1.0x in a stress test price environment of US$45/Bbl WTI oil and US$2.00/MMBtu NYMEX natural gas. Our net debt to annualized second quarter adjusted funds flow was 0.3x. Low debt levels allowed us the flexibility to increase returns to shareholders temporarily above 100% of free adjusted funds flow in the quarter, in order to fully retire the 2022 NCIB prior to its one-year deadline.

On June 12, 2023, we successfully completed our 2022 NCIB having repurchased 18,190,261 common shares at a weighted average price of $11.59 per share. Since the inception of the 2022 NCIB, repurchases represent a 7.9% net reduction in common shares outstanding and return to shareholders. Our 2023 NCIB became effective on June 16, 2023 and will terminate on June 15, 2024, and allows for the purchase and cancellation of up to a maximum of 16,793,779 common shares of NuVista. As of today, we have purchased and subsequently cancelled 676,000 common shares under the 2023 NCIB at a weighted average price $11.06 per share.

We continue to believe that the best method for return of capital to shareholders is initially to repurchase shares, however we will re-evaluate over the next year as our growth plan proceeds. This evaluation will consider commodity prices, the economic and tax environment, and will include all options including continued disciplined growth to facility capacity of 105,000 Boe/d, share repurchases, and dividend payments.

Environment, Social and Governance (“ESG”) Update
We have made significant progress on our ESG targets and continue to advance projects that support and enhance our objectives. Our 2022 ESG Report is expected to be released before the fall of this year.

2023 Guidance Update
We are extremely well positioned with top-tier assets and highly favorable economics. Our disciplined execution has allowed us to achieve growth in production and adjusted funds flow, while generating positive free adjusted funds flow, even amid the significant moderation of natural gas pricing in the first half of 2023. Due to our high condensate weighting, our execution economics remain very strong. Although the Alberta wildfires did have an impact on our second-quarter production, all production has since been restored and increased, with no damage to our assets or facilities. We have recently achieved a new weekly production record of approximately 85,000 Boe/d. We have well capability to produce more than this figure, but are currently working through some temporary in-field and midstream facility capacity constraints to allow us to push beyond 85,000 Boe/d. Average production for the third quarter is expected in the range of 80,000 – 82,000 Boe/d, including an impact on the quarter of 1,250 Boe/d due to unplanned third party facility outages which were experienced in July. Our full year production guidance range is tightened to 76,000 – 78,000 Boe/d versus the original range of 76,000 – 79,000 Boe/d.

Cost inflation remained limited but persistent through the first quarter of 2023, partially offset by improving execution and capital efficiency. Inflation appears to have moderated into the summer, but this will remain somewhat dependent on commodity prices. At this time, we are maintaining our outlook for full year spending by optimizing phasing toward the end of the year, and our 2023 net capital expenditure guidance is unchanged at $425 - $450 million.

We intend to continue our track record of carefully directing free adjusted funds flow towards a prudent balance of return to shareholders and debt reduction, while investing in production growth until our existing facilities are filled and debottlenecked to maximum efficiency. NuVista has an exceptional business plan that targets production levels, reaching approximately 100,000 Boe/d in 2025.

NuVista possesses top-quality assets, supported by a management team dedicated to continuous improvement. With a strong balance sheet and ample liquidity, we are prepared to deliver significant value for our shareholders. We will continue to adjust to the environment in order to maximize the value of our asset base and ensure the long-term sustainability of our business. We would like to thank our staff, contractors, and suppliers for their continued dedication and delivery, and we thank our Board of Directors and our shareholders for their continued guidance and support.

Please note that our corporate presentation will be available at www.nuvistaenergy.com on August 9, 2023. NuVista’s management’s discussion and analysis, condensed consolidated interim financial statements for the three and six months ended June 30, 2023 and notes thereto, will be filed on SEDAR (www.sedar.com) under NuVista Energy Ltd. on August 9, 2023 and can also be accessed on NuVista’s website.


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