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Spartan Delta Corp.: Strategic Repositioning Process and Preliminary Guidance for 2023

Press Release

Calgary, Alberta – November 30, 2022 – Spartan Delta Corp. (“Spartan” or the “Company”) (TSX:SDE) is pleased to announce that its Board of Directors (the “Board”) has commenced a formal process to evaluate strategic repositioning alternatives in an effort to enhance shareholder value (the “Repositioning Process”).

Spartan has been one of the most active consolidators in the Canadian oil and gas industry since April of 2020, building dominant positions in both the oil window of the Alberta Montney and the liquids-rich Deep Basin. The Company’s counter cyclical approach to acquisitions through a challenging time in the industry coupled with organic outperformance has generated significant returns for Spartan’s shareholders.

The Company has successfully integrated and demonstrated the organic productive potential of the full complement of its acquired assets. Over the past 15 months, Spartan has placed specific focus on the development of our Gold Creek and Karr assets located in the Montney oil window. The drilling programs to date have consistently exceeded the Company’s forecasted type curves and production targets, which facilitated the acceleration of debt repayment culminating in the full repayment of its revolving credit facility as of September 30, 2022. Following the achievement of these important milestones, Spartan previously announced a special dividend of $0.50 per common share payable on January 16, 2023 to shareholders of record at the close of business on December 15, 2022.

Spartan expects to generate approximately $455 million of forecasted Free Funds Flow in 2023 and is well positioned to continue growing the business organically by ~10% per year with decades of high-quality inventory and over $2 billion of tax pools, while accelerating a robust return of capital program with a specific focus on dividends.

Despite the achievement of these key milestones, the current trading price of the Company’s common shares does not fully reflect the underlying value of the asset base.

Before Spartan commits to a significant return of capital strategy for 2023, the Board has determined that it is timely and prudent to initiate a comprehensive process to explore, review and evaluate a number of strategic repositioning alternatives available to the Company with a view to maximizing and accelerating value to shareholders. The Repositioning Process will include the evaluation of a broad range of alternatives including, but not limited to, a corporate sale, merger, corporate restructuring, sale of select assets, sale of a royalty, purchase of assets, the spin-out of select assets into a newly-formed company whose securities would be distributed to shareholders or any combination of these potential alternatives in conjunction with a robust return of capital strategy.

Spartan’s business will not be impacted by this Repositioning Process and will continue to execute on the drilling program that has delivered some of the best results in Canada.

2023 BUDGET AND PRELIMINARY GUIDANCE

With strong operational performance from Spartan’s drilling program and forecasted continuation of commodity price tailwinds, Spartan is pleased to provide its financial and operating guidance for 2023.

Based on forecast average production of between 80,000 to 82,000 BOE/d and commodity price assumptions of US$80/bbl for WTI crude oil and $4.50/GJ for AECO natural gas, Spartan expects to generate approximately $885 million of Adjusted Funds Flow in 2023. Free Funds Flow is forecast to be $455 million on a capital expenditure budget of $430 million.

As part of the Company’s 2023 capital budget, Spartan plans to drill 26.7 net wells in the Montney, primarily targeting the oil-weighted areas of Gold Creek and Karr, and 15.0 net wells targeting both light oil and liquids-rich gas in the Spirit River and Cardium horizons within the Deep Basin. Spartan’s 2023 capital expenditure assumptions include an estimated 5% increase in costs year over year due to the impact of inflationary pressures within the industry and labor force.

Spartan’s preliminary 2023 guidance is summarized below:

ANNUAL GUIDANCE 2023
Year ending December 31, 2023 Guidance
Average Production (BOE/d) (a)(c) 80,000 to 82,000
% Liquids 39%
Benchmark Average Commodity Prices
WTI crude oil price (US$/bbl) 80.00
NYMEX Henry Hub natural gas price (US$/mmbtu) 5.31
AECO natural gas price ($/GJ) 4.50
Average exchange rate (US$/CA$) 1.33
Operating Netback, before hedging ($/BOE) (b)(c) 31.62
Operating Netback, after hedging ($/BOE) (b)(c) 31.94
Adjusted Funds Flow ($MM) (b)(c) 885
Capital Expenditures, before A&D ($MM) (b) 430
Free Funds Flow ($MM) (b) 455
Net Debt (Surplus), end of year ($MM) (b) (297)
Common shares outstanding, end of year (MM) (d) 173
  1. The financial performance measures included in the Company’s preliminary guidance for 2023 is based on the midpoint of the average production forecast of 81,000 BOE/d.
  2. “Operating Netback”, “Adjusted Funds Flow”, “Capital Expenditures, before A&D”, “Free Funds Flow” and “Net Debt (Surplus)” do not have standardized meanings under IFRS, see “Non-GAAP Measures and Ratios”.
  3. Additional information regarding the assumptions used in the forecasted Average Production, Operating Netbacks and Adjusted Funds Flow for 2023 are provided in the Reader Advisories section of this press release.
  4. The forecast of common shares outstanding at the end of 2023 includes restricted share awards expected to be released upon vesting and assumes outstanding share purchase warrants will be exercised in the fourth quarter of 2022, but does not include common shares potentially issuable in respect of stock options for which the exercise is discretionary on behalf of the holder (refer to “Share Capital” section of this press release for additional information regarding dilutive securities).

OUTLOOK

Spartan’s management team and Board are committed to acting in the best interests of the shareholders of the Company. Spartan has not yet established a definitive schedule to complete its identification, examination and consideration of strategic repositioning alternatives. The Company does not intend to disclose developments with respect to the Repositioning Process, periodically or otherwise, unless the Board has approved a definitive transaction or strategic repositioning alternative, or otherwise determines that disclosure is necessary or appropriate. The Company cautions that there are no assurances or guarantees that the process will result in a transaction or, if a transaction is undertaken, the terms or timing of such a transaction.

The Board and management team of Spartan believe that this Repositioning Process will ultimately benefit shareholders. Should no transaction be undertaken, Spartan will continue its operations as they currently exist with a focus on sustainable self-funded growth and executing on a return of capital strategy.

FINANCIAL ADVISOR

Spartan has engaged National Bank Financial Inc. (“NBF”) as its exclusive financial advisor in connection with the Repositioning Process. Spartan and NBF have created a virtual data room, which is available for review by interested parties upon execution of a confidentiality agreement.

ABOUT SPARTAN DELTA CORP.

Spartan is committed to creating a modern energy company, focused on sustainability both in operations and financial performance. The Company’s ESG-focused culture is centered on generating Free Funds Flow through responsible oil and gas exploration and development. The Company has established a portfolio of high-quality production and development opportunities in the Deep Basin and Montney. Spartan is focused on the execution of the Company’s organic drilling program, delivering operational synergies in a respectful and responsible manner to the environment and communities it operates in. The Company is well positioned to continue pursuing immediate production optimization, future growth with organic drilling, opportunistic acquisitions and the delivery of Free Funds Flow.

Spartan’s corporate presentation as of November 29, 2022 can be accessed on the Company’s website at www.spartandeltacorp.com.

FOR ADDITIONAL INFORMATION PLEASE CONTACT:

Fotis Kalantzis

Spartan Delta Corp.

President and Chief Executive Officer

1500, 308 – 4th Avenue SW

Calgary, Alberta, Canada T2P 0H7

Richard F. McHardy

Email: [email protected]

Executive Chairman

www.spartandeltacorp.com

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