NuVista Energy Ltd. Announces Record Quarterly Production and Positive Third Quarter 2023 Financial and Operating Results and Provides 2024 Guidance
Press Release
CALGARY, Alberta, Nov. 08, 2023 — NuVista Energy Ltd. (“NuVista” or the “Company”) (TSX:NVA) is pleased to announce strong financial and operating results for the three and nine months ending September 30, 2023. We continued to invest in a disciplined manner in new high-return wells to fill and optimize existing facilities. New well production results continue to meet and exceed expectations, driving our production to new highs. At the same time as achieving record production, we made significant progress in returning capital to shareholders under our existing Normal Course Issuer Bid (the “2023 NCIB”) while continuing to reduce debt.
Third Quarter 2023 Operational and Financial Highlights
During the third quarter of 2023, NuVista:
- Produced a record average of 80,382 Boe/d, meeting our guidance expectations and reflecting a 17% increase in production from the third quarter of 2022. The production composition for the third quarter was richer than expected at 33% condensate, 8% NGLs and 59% natural gas, and this included approximately 3,500 Boe/d of planned and unplanned midstream and NuVista downtime;
- Generated adjusted funds flow(1) of $202.0 million ($0.94/share, basic(3)) and delivered $91.2 million of free adjusted funds flow(2);
- Achieved net earnings of $110.3 million ($0.51/share, basic);
- Executed a successful capital expenditures(2) program, investing $110.0 million in well and facility activities including the drilling of 16 gross (16.0 net) wells and the completion of 11 gross (10.5 net) wells in our condensate rich Wapiti Montney asset base;
- Exited the quarter with net debt(1) of $150.2 million, a 43% reduction from the third quarter of 2022 and 13% lower than year end 2022, resulting in a favorable net debt to annualized third quarter adjusted funds flow(1) ratio of 0.2x;
- Repurchased and subsequently cancelled 3.4 million NuVista shares for an aggregate cost of $42.5 million under the terms of our 2023 NCIB(4). Year to date, we have repurchased and subsequently cancelled 8.1 million shares, bringing the total to 21.6 million shares since inception of our share repurchase program in mid-2022, with a weighted average price of $11.73 per share;
- Continued to make significant progress in advancing our environment, social and governance (“ESG”) efforts, as demonstrated by the release of our 2022 ESG report, which is available on our website (see www.nvaenergy.com). Importantly, the report highlights our continued achievements in reducing methane and greenhouse gas (GHG) emissions; and
- Recognized as part of the TSX30 for the second consecutive year. The TSX30 recognizes the thirty top-performing companies on the Toronto Stock Exchange (TSX) over the prior three-year period (see www.tsx.com/tsx30). NuVista placed a very compelling second place overall.
Notes:
(1) Each of “adjusted funds flow”, “net debt” and “net debt to annualized third quarter adjusted funds flow ratio” are capital management measures. Reference should be made to the section entitled “Non-GAAP and Other Financial Measures” in this press release.
(2) Each of “free adjusted funds flow”, “capital expenditures” and “net capital expenditures” are non-GAAP financial measures. Reference should be made to the section entitled “Non-GAAP and Other Financial Measures” in this press release.
(3) “Adjusted funds flow per share” is a supplementary financial measure. Reference should be made to the section entitled “Non-GAAP and Other Financial Measures” in this press release.
(4) In the second quarter of 2023, NuVista received TSX approval for the renewal of its 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 demonstrates excellence in operations and proves the continuing emergence of new opportunities in our expansive resource base. A total of 9 pads will have been brought on production by the end of 2023. Cost and production performance have been strong and predictable. In addition, successful testing of new zones has allowed us to enter the planning stage for additional projects that we expect to underpin growth beyond our existing outlook of 100,000 Boe/d.
We achieved a quarterly production record of just over 80,000 Boe/d(1) with peak-day rates of approximately 85,000 Boe/d(1). Infrastructure capacity in the area has become tight but staged expansions are currently in progress with expected on-stream dates beginning in the second quarter of 2024 and running through to the second quarter of 2025. These are expected to bring our total capacity to over 105,000 Boe/d over that period.
In the Wapiti area, a 6-well pad on the Gold Creek block was drilled in record time, testing full co-development of the Middle Montney with the emerging zone – the Lower Montney. The wells all averaged 1,975 Boe/d (55% condensate)(2) each over the first 30 days of production. The three Lower Montney wells on the pad exhibited strong deliverability and particularly high condensate rates, averaging over 2,200 Boe/d and 63% condensate each(3). This result drives the expansion of the Gold Creek infrastructure capacity in 2024 and reinforces the exceptional economics in this area of growing well inventory. Additionally, a 5-well pad was drilled on the Bilbo block, including one infill pilot well in the C zone, drilled between two legacy wells which have produced for almost a decade from the B zone immediately below. The infill well has produced an IP30 of 1,200 Boe/d (67% condensate)(4), versus the pad average IP30 of 1,400 Boe/d (52% condensate)(5) per well. This is a highly encouraging initial result regarding future infill opportunities on the block, showing depletion from the two legacy wells below the infill is well within acceptable economic bounds.
We have continued to achieve very favorable results in the Pipestone area. We have just finished drilling a 12-well pad that will be completed in early 2024. Drilling costs for this pad were the best achieved in the area in 2023 at $830 per horizontal meter, which is 10% below the 2023 area average. Production results continue to meet or exceed our expectations in a highly repeatable fashion.
The Lower Montney at Pipestone also continues to show significant improvements in productivity on our latest pads. Changes to the completion design have driven a 70% increase in IP90 production from our 2023 vintage Lower Montney wells as compared to our 2022 Lower Montney wells. This reinforces our continued confidence in multi-zone co-development as we continue across the block.
Notes:
(1) 33% condensate, 59% natural gas and 8% NGLs.
(2) 55% condensate, 40% natural gas and 5% NGLs.
(3) 63% condensate, 32% natural gas and 5% NGLs.
(4) 67% condensate, 29% natural gas and 4% NGLs.
(5) 52% condensate, 44% natural gas and 4% NGLs.
Balance Sheet Strength and Return of Capital to Shareholders
We remain focused on our disciplined and value-adding growth strategy, prioritizing low net debt levels and providing significant shareholder returns. We are committed to returning approximately 75% of free adjusted funds flow (“FAFF”) to shareholders. With net debt already well below our defined soft ceiling level, we regard the remaining 25% of FAFF as going to net debt only temporarily, since this dry powder allows us to take advantage of potential opportunities for tuck-in acquisitions, facility repurchases, or other value-adding items.
At the end of the third quarter, our net debt was $150.2 million, well below our soft ceiling of approximately $350 million, and our net debt to annualized third quarter adjusted funds flow ratio was 0.2x. The net debt ceiling 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.
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 of facility capacity, share repurchases, and dividend payments.
Environment, Social and Governance (“ESG”) Update
In September 2023, we proudly published our 2022 ESG Report, underscoring our accomplishments in achieving specific targets and advancing ongoing projects to support our commitment to ESG objectives. Notably, in 2022, we exceeded expectations by achieving a 34% reduction in CO2e emission intensity from our 2020 baseline, surpassing our target of a 20% reduction by 2025. Additionally, our methane emission intensity decreased by 86% compared to our 2012 benchmark. As part of our continuous efforts to improve our emissions performance, we are on schedule with the construction of the Wembley Gas Plant cogeneration project, scheduled to commence operations in early 2024. Our dedication to Social and Governance issues is also prominently featured in our 2022 ESG Report, as we have surpassed our donation targets to the communities in which we live and operate and made significant progress in our First Nations initiatives.
The 2022 ESG Report is available and can be accessed on our Company’s website (see www.nuvistaenergy.com).
2023 Guidance Update
We continue to produce with best-day facility capacity of approximately 85,000 Boe/d and well deliverability that exceeds this figure. Facilities in all areas are performing well, however we did incur planned and unplanned midstream and NuVista outages (including for expansion tie-in work) in October, which totaled approximately 1,000 Boe/d reduction to the fourth quarter production average. Guidance for the fourth quarter of 2023 is set at 82,000 – 84,000 Boe/d. Full year guidance is tightened to 76,000 – 77,000 Boe/d from 76,000 – 78,000 Boe/d.
As a result of mild fall weather and free adjusted funds flow well ahead of expectations, we have moved the completion and facilities work on the recently drilled Bilbo 5-well pad from the first quarter of 2024 into the fourth quarter of 2023. This schedule adjustment smooths out crew and equipment schedules for maximum efficiency, and significantly reduces winter frac water heating costs, leading to expected savings of approximately 10% or $2.5 million. Net capital expenditure guidance for 2023 is therefore changed to approximately $475 million from the previous $450 million ceiling.
With low net debt levels and approximately 85% of our planned capital expenditures completed for the year, we have the flexibility in the fourth quarter to focus on the acceleration of return of capital to shareholders. As such, we expect to more than double the progress on our 2023 return of capital, as compared to the third quarter, to over $100 million in the fourth quarter, assuming November 8th strip prices.
2024 Plan Has Been Set
In 2024 we plan to drill, complete, and tie in 7 pads (approximately 40 wells) which is in line with 2023 activity levels, and they will be split evenly between the Pipestone and Wapiti areas. All pads are located immediately adjacent to existing development so we carry a high level of predictability once again, on the outcome of our capital expenditure program. Capital per well is budgeted to be flat versus 2023 levels on a length-adjusted basis. We currently expect our execution performance to continue trending positively, offsetting any mild inflation.
Several facility debottlenecking and expansion projects are continuing through 2024 in the Wapiti area to enhance corporate facility capacity, in stages, to over 95,000 Boe/d by year end. Subsequently, in Pipestone North we will be adding capacity to reach a corporate total of approximately 105,000 Boe/d facility capacity with the startup of the CSV Midstream Albright gas plant prior to the second quarter of 2025.
Our Board of Directors has approved a capital expenditure budget of approximately $500 million for 2024 which, when coupled with the planned facility capacity expansions, leads to 2024 production guidance of 83,000 – 87,000 Boe/d.
We intend to continue our track record of carefully directing free adjusted funds flow towards a prudent balance of 75% return to shareholders and 25% debt reduction in 2024, while investing in production growth until our existing facilities are filled and debottlenecked to maximum efficiency. NuVista has an exceptional business plan that targets production levels reaching a plateau of approximately 100,000 Boe/d in 2025. As we continue to add to our proven inventory of wells, we are in the early planning stages of adding more capacity to facilitate a plateau production level of approximately 110,000 Boe/d, and thereby extend our prudent growth well through 2026+.
NuVista possesses top-quality assets, supported by a management team dedicated to continuous improvement. With a strong balance sheet and ample liquidity, we are prepared to deliver significant value for our shareholders. We will continue to adjust to the environment in order to maximize the value of our asset base and ensure the long-term sustainability of our business. We would like to thank our staff, contractors, and suppliers for their continued dedication and delivery, and we thank our Board of Directors and our shareholders for their continued guidance and support.
Please note that our corporate presentation will be available at www.nuvistaenergy.com on November 8th, 2023. NuVista’s management’s discussion and analysis, condensed consolidated interim financial statements for the three and nine months ended September 30th, 2023 and notes thereto, will be filed on SEDAR+ (www.sedarplus.com) under NuVista Energy Ltd. on November 8th, 2023 and can also be accessed on NuVista’s website.
| FINANCIAL AND OPERATING HIGHLIGHTS | ||||||||||||
| Three months ended September 30 | Nine months ended September 30 | |||||||||||
| ($ thousands, except otherwise stated) | 2023 | 2022 | % Change | 2023 | 2022 | % Change | ||||||
| FINANCIAL | ||||||||||||
| Petroleum and natural gas revenues | 360,373 | 445,007 | (19 | ) | 1,032,600 | 1,290,107 | (20 | ) | ||||
| Cash provided by operating activities | 160,194 | 228,018 | (30 | ) | 509,581 | 618,128 | (18 | ) | ||||
| Adjusted funds flow (3) | 202,010 | 246,115 | (18 | ) | 554,956 | 635,818 | (13 | ) | ||||
| Per share, basic (6) | 0.94 | 1.09 | (14 | ) | 2.55 | 2.79 | (9 | ) | ||||
| Per share, diluted (6) | 0.91 | 1.04 | (13 | ) | 2.47 | 2.67 | (7 | ) | ||||
| Net earnings | 110,323 | 223,463 | (51 | ) | 278,165 | 471,673 | (41 | ) | ||||
| Per share, basic | 0.51 | 0.99 | (48 | ) | 1.28 | 2.07 | (38 | ) | ||||
| Per share, diluted | 0.50 | 0.95 | (47 | ) | 1.24 | 1.98 | (37 | ) | ||||
| Net capital expenditures (1) | 110,036 | 111,746 | (2 | ) | 405,036 | 346,733 | 17 | |||||
| Net debt (3) | 150,158 | 261,409 | (43 | ) | ||||||||
| OPERATING | ||||||||||||
| Daily Production | ||||||||||||
| Natural gas (MMcf/d) | 283.1 | 244.7 | 16 | 264.4 | 233.0 | 13 | ||||||
| Condensate (Bbls/d) | 26,704 | 22,478 | 19 | 23,873 | 21,742 | 10 | ||||||
| NGLs (Bbls/d) | 6,491 | 5,529 | 17 | 6,295 | 6,245 | 1 | ||||||
| Total (Boe/d) | 80,382 | 68,792 | 17 | 74,240 | 66,816 | 11 | ||||||
| Condensate & NGLs weighting | 41 | % | 41 | % | 41 | % | 42 | % | ||||
| Condensate weighting | 33 | % | 33 | % | 32 | % | 33 | % | ||||
| Average realized selling prices (5) | ||||||||||||
| Natural gas ($/Mcf) | 3.36 | 8.32 | (60 | ) | 4.49 | 7.33 | (39 | ) | ||||
| Condensate ($/Bbl) | 103.92 | 111.14 | (6 | ) | 100.33 | 121.71 | (18 | ) | ||||
| NGLs ($/Bbl) (4) | 29.19 | 55.14 | (47 | ) | 31.54 | 59.25 | (47 | ) | ||||
| Netbacks ($/Boe) | ||||||||||||
| Petroleum and natural gas revenues | 48.73 | 70.32 | (31 | ) | 50.95 | 70.73 | (28 | ) | ||||
| Realized gain (loss) on financial derivatives | 1.30 | (5.63 | ) | (123 | ) | 0.39 | (8.57 | ) | (105 | ) | ||
| Royalties | (3.64 | ) | (6.23 | ) | (42 | ) | (4.92 | ) | (7.92 | ) | (38 | ) |
| Transportation expense | (4.91 | ) | (5.12 | ) | (4 | ) | (4.86 | ) | (5.09 | ) | (5 | ) |
| Operating expense | (11.49 | ) | (12.23 | ) | (6 | ) | (11.69 | ) | (11.57 | ) | 1 | |
| Operating netback (2) | 29.99 | 41.11 | (27 | ) | 29.87 | 37.58 | (21 | ) | ||||
| Corporate netback (2) | 27.30 | 38.89 | (30 | ) | 27.37 | 34.87 | (22 | ) | ||||
| SHARE TRADING STATISTICS | ||||||||||||
| High ($/share) | 13.55 | 11.88 | 14 | 13.55 | 14.29 | (5 | ) | |||||
| Low ($/share) | 10.34 | 8.11 | 27 | 9.93 | 6.94 | 43 | ||||||
| Close ($/share) | 13.00 | 9.81 | 33 | 13.00 | 9.81 | 33 | ||||||
| Common shares outstanding (thousands of shares) | 213,209 | 224,297 | (5 | ) | ||||||||
Notes:
(1) Non-GAAP financial measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other companies where similar terminology is used. Reference should be made to the section entitled “Non-GAAP and other financial measures”.
(2) Non-GAAP ratio that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other companies where similar terminology is used. Reference should be made to the section entitled “Non-GAAP and other financial measures”.
(3) Capital management measure. Reference should be made to the section entitled “Non-GAAP and other financial measures”.
(4) Natural gas liquids (“NGLs”) include butane, propane and ethane revenue and sales volumes, and sulphur revenue.
(5) Product prices exclude realized gains/losses on financial derivatives.
(6) Supplementary financial measure. Reference should be made to the section entitled “Non-GAAP and other financial measures”.
FOR FURTHER INFORMATION CONTACT:
| Jonathan A. Wright | Ivan J. Condic | Mike J. Lawford |
| President and CEO | VP, Finance and CFO | Chief Operating Officer |
| (403) 538-8501 | (403) 538-1945 | (403) 538-1936 |
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