Calgary, Alberta–(Newsfile Corp. – April 3, 2024) – Lycos Energy Inc. (TSXV: LCX) (“Lycos” or the “Company“) is pleased to provide an operations update, preliminary first quarter production results and an increase to guidance.
Q1 2024 production is expected to average in excess of 3,800 boe/d (99% crude oil) with forecasted Q2 2024 average production expected to exceed 4,500 boe/d (99% crude oil). Drilling operations will continue through break up with 7 to 9 wells expected to be drilled in Q2 2024.
Operations Update
Lycos executed on multiple acquisitions last year as part of a multi-year strategy to increase drillable inventory of multi-lateral/fishbone drilling locations. Currently, Lycos has more than 200 drillable multi lateral/fishbone locations representing more than seven years of drilling inventory.
In Q1 2024, Lycos drilled 6 gross (6 net) crude oil multi-lateral/fishbone, Mannville heavy oil wells on lands accumulated in 2023. Currently, 4 (4 net) have been placed on production, two of these wells have been on production for less than 30 days and both are showing excellent results with average current rates above type curve. The remaining two wells had excellent geological indications and will be placed on production imminently.
Wine Rack Drilling Results
The Company’s wine rack design uses multi-lateral drilling to develop two zones at once (Sparky and General Petroleum zones). To date, Lycos has drilled 5 (5 net) wine rack design multi-laterals. The first three wine rack wells came on in Q3 and Q4 of 2023 and are all anticipated to pay out in less than six months.
The following table highlights Lycos’ drilling results on the three wine rack wells drilled in the second half of 2023.
| Well UWI | IP 30 (bbl/d) |
IP 60 (bbl/d) |
IP 90 (bbl/d) |
IP 180 (bbl/d) |
Cumulative Oil to Date (Mbbl) |
| 00/16-24-048-06W4 | 318 | 276 | 245 | 189 | Â Â Â Â Â Â Â Â Â Â Â Â Â Â 35,522 |
| 02/16-24-048-06W4 | 239 | 201 | 175 | 137 | Â Â Â Â Â Â Â Â Â Â Â Â Â Â 24,920 |
| 03/16-24-048-06W4 | 212 | 188 | 169 | N/A | Â Â Â Â Â Â Â Â Â Â Â Â Â Â 23,840 |
During Q1 2024, Lycos drilled an additional two wine rack wells with the following results:
| Well UWI | IP 30 (bbl/d) |
Cummulative Oil to Date (Mbbl) |
| 04/09-30-048-05W4 | 402 | Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 23,032 |
| 02/14-30-048-05W4 | 301 | Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 14,458 |
The wine rack well results drilled by the Company to date have all substantially outperformed Lycos’ forecasted type curve expectations.
Guidance Increase
With the outperformance of drilling results as well as recent commodity price increases, the Lycos Board of Directors has approved an expansion of the Company’s 2024 capital budget from $61.0 million to $66.0 million (the “Updated 2024 Guidance“).
| Prior 2024 Guidance (2) | Updated 2024 Guidance (3) | |||||
| Year Ended | Year Ended | |||||
| December 31, 2024 | December 31, 2024 | |||||
| Annual average production (boe/d) | 4,700 boe/d (99% oil) | 4,800 boe/d (99% oil) | ||||
| Average Q4 2024 production (boe/d) | 5,500 boe/d (99% oil) | 5,700 boe/d (99% oil) | ||||
| Capital expenditures (1) | $ | 61.0 million | $ | 66.0 million | ||
| Adjusted funds flow from operations(1) | $ | 61.0 million | $ | 65.8 million | ||
| Adjusted working capital (net debt), end of year (1)  | ($20.0) million | ($19.8) million | ||||
| Net debt to adjusted funds flow from operations ratio, end of year (1) | 0.3X | 0.3X |
(1)Â See Non-IFRS Measures, Non-IFRS Financial Ratios and Capital Management Measures.
(2)Â Prior guidance as updated on February 1, 2024.
(3)Â 2024 Budget numbers are based on 2024 average pricing assumptions of: US$77.58 bbl WTI; (US$18.68) WCS differential; and $1.35 CAD/USD.
Saskatchewan Royalty Incentive
The Province of Saskatchewan announced a new royalty program titled “The Multi-Lateral Oil Well Program Regulations” (the “MLWP“) which is meant to incentivize development of multi-lateral heavy oil wells. The program specifically incentivizes multi-lateral and fishbone drilling. The incentive program has markedly increased the value and proposed pace of development on the Company’s Saskatchewan drilling inventory which represents 38% of Lycos’ currently identified 200 locations. As a result of this program, the Company’s single well before tax net present values at a 10% discount rate are expected to increase between 21% and 25% per location depending on type curve.
About Lycos
Lycos is an oil-focused, exploration, development and production company based in Calgary, Alberta, operating high-quality, heavy-oil, development assets in the Lloydminster, Greater Lloydminster area and Gull Lake, Saskatchewan.
Additional Information
For further information, please contact:
Dave Burton
President and Chief Executive Officer
T: (403) 616-3327
E:Â dburton@lycosenergy.com
Lindsay Goos
Vice President, Finance and Chief Financial Officer
T: (403) 542-3183
E:Â lgoos@lycosenergy.com
Reader Advisories
Forward-Looking and Cautionary Statements
Certain statements contained within this press release constitute forward-looking statements within the meaning of applicable Canadian securities legislation. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as “anticipate”, “budget”, “plan”, “endeavor”, “continue”, “estimate”, “evaluate”, “expect”, “forecast”, “monitor”, “may”, “will”, “can”, “able”, “potential”, “target”, “intend”, “consider”, “focus”, “identify”, “use”, “utilize”, “manage”, “maintain”, “remain”, “result”, “cultivate”, “could”, “should”, “believe” and similar expressions. Lycos believes that the expectations reflected in such forward-looking statements are reasonable as of the date hereof, but no assurance can be given that such expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. Without limitation, this press release contains forward-looking statements pertaining to: Lycos’ business strategy, objectives, strength and focus; capital program and operational results for 2024, including the Updated 2024 Guidance; the Company’s expectations regarding drilling plans, payout of recently drilled wells, forecasted annual average production, net operating expenses, and growth forecasts; expectations regarding commodity prices and heavy oil differentials; expectations regarding the anticipated impact of the MLWP; the performance characteristics of the Company’s oil and natural gas properties; the ability of the Company to achieve drilling success consistent with management’s expectations; expectations in respect of the Company’s wells, including anticipated benefits and results; and the source of funding for the Company’s activities.
The forward-looking statements and information are based on certain key expectations and assumptions made by Lycos, including expectations and assumptions concerning the business plan of Lycos; the timing of and success of future drilling, development and completion activities; the geological characteristics of Lycos’ properties; the successful integration of the recently acquired assets into Lycos’ operations; prevailing commodity prices, price volatility, price differentials and the actual prices received for the Company’s products; the availability and performance of drilling rigs, facilities, pipelines and other oilfield services; the timing of past operations and activities in the planned areas of focus; the drilling, completion and tie-in of wells being completed as planned; the performance of new and existing wells; the application of existing drilling and fracturing techniques; prevailing weather and break-up conditions; royalty regimes and exchange rates; the application of regulatory and licensing requirements; the continued availability of capital and skilled personnel; the ability to maintain or grow its credit facility; the accuracy of Lycos’ geological interpretation of its drilling and land opportunities, including the ability of seismic activity to enhance such interpretation; and Lycos’ ability to execute its plans and strategies.
Although Lycos believes that the expectations and assumptions on which such forward-looking statements and information are based are reasonable, undue reliance should not be placed on the forward-looking statements and information because Lycos can give no assurance that they will prove to be correct. By its nature, such forward-looking information is subject to various risks and uncertainties, which could cause the actual results and expectations to differ materially from the anticipated results or expectations expressed. These risks and uncertainties include, but are not limited to: unforeseen difficulties in integrating recently acquired assets into Lycos’ operations; incorrect assessments of the value of benefits to be obtained from acquisitions and exploration and development programs; fluctuations in commodity prices, changes in industry regulations (including the MLWP) and political landscape both domestically and abroad, wars (including Russia’s military actions in Ukraine, the Israel-Hamas conflict in Gaza and Houthi attacks in the Red Sea), hostilities, civil insurrections, foreign exchange or interest rates, increased operating and capital costs due to inflationary pressures (actual and anticipated), volatility in the stock market and financial system, impacts of pandemics, the risk that weather events such as wildfires, flooding, droughts or extreme hot or cold temperatures force shut-in production or otherwise adversely affects the Company’s operations; the retention of key management and employees, risks with respect to unplanned third-party pipeline outages, including in respect of safety, asset integrity and shutting in production. Ongoing military actions between Russia and Ukraine have the potential to threaten the supply of oil and gas from the region. The long-term impacts of the actions between these nations remains uncertain. Please refer to the annual information form for the year ended December 31, 2022, and the management discussion and analysis for the period ended September 30, 2023 (the “MD&A“) for additional risk factors relating to Lycos, which can be accessed either on the Company’s website at www.lycosenergy.com or under the Company’s SEDAR+ profile at www.sedarplus.ca. Readers are cautioned not to place undue reliance on this forward-looking information, which is given as of the date hereof, and to not use such forward-looking information for anything other than its intended purpose. Lycos undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by law.
Future Oriented Financial Information
This press release contains future oriented financial information and financial outlook information (collectively, “FOFI“) about Lycos’ prospective results of operations and production, anticipated payout of certain recently completed wine rack wells, the Updated 2024 Budget (including forecasted annual average production, capital expenditures, adjusted funds flow from operations, adjusted working capital (net debt) and net debt to adjusted funds flow from operations ratio) and components thereof, all of which are subject to the same assumptions, risk factors, limitations and qualifications as set forth in the above paragraphs. FOFI contained in this document was approved by management as of the date of this document and was provided for the purpose of providing further information about Lycos’ proposed business activities in 2024. Lycos and its management believe that FOFI has been prepared on a reasonable basis, reflecting management’s best estimates and judgments, and represent, to the best of management’s knowledge and opinion, the Company’s expected course of action. However, because this information is highly subjective, it should not be relied on as necessarily indicative of future activities or results. Lycos disclaims any intention or obligation to update or revise any FOFI contained in this document, whether as a result of new information, future events or otherwise, unless required pursuant to applicable law. Readers are cautioned that the FOFI contained in this document should not be used for purposes other than for which it is disclosed herein. Changes in forecast commodity prices, differences in the timing of capital expenditures, and variances in average production estimates can have a significant impact on the key performance measures included in Lycos’ guidance. The Company’s actual results may differ materially from these estimates.
Disclosure of Oil and Gas Information
Unit Cost Calculation. The term barrels of oil equivalent (“boe“) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet per barrel (6 Mcf/bbl) of natural gas to barrels of oil equivalence is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All boe conversions in the report are derived from converting gas to oil in the ratio mix of six thousand cubic feet of gas to one barrel of oil.
Product Types. Throughout this press release, “crude oil” or “oil” refers to heavy crude oil product types as defined by National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (“NI 51-101“).
Short Term Results. References in this press release to peak rates, initial production rates, IP30, IP60, IP90, IP180 and other short-term production rates are useful in confirming the presence of hydrocarbons, however such rates are not determinative of the rates at which such wells will commence production and decline thereafter and are not indicative of long-term performance or of ultimate recovery. While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production of Lycos.
Type Curves. This press release contains references to type well production and economics, which are derived, at least in part, from available information respecting the well economics of other companies and, as such, there is no guarantee that Lycos will achieve the stated or similar results per well. Type curve disclosure referenced herein represents volumes expected to be recovered from wells. The type curves represent what management thinks an average well will achieve, based on methodology that is analogous to wells with similar geological features. Individual wells may be higher or lower but over a larger number of wells, management expects the average to come out to the type curve. Over time, type curves can and will change based on achieving more production history on older wells or more recent completion information on newer wells.
Drilling Locations. This press release discloses multi-lateral/fishbone drilling locations in two categories: (i) booked locations and (ii) unbooked locations. Booked locations are proved and probable locations internally estimated by the Company’s internal qualified reserves evaluator effective as of April 1, 2024, in accordance with NI 51-101 and the most recent publication of the Canadian Oil and Gas Evaluations Handbook, and account for drilling locations that have associated proved and/or probable reserves, as applicable. Unbooked locations are internal estimates based on the Company’s assumptions as to the number of wells that can be drilled per section based on industry practice and internal review. Unbooked locations do not have attributed reserves or resources. Of the approximately 220 (200 net) drilling locations identified herein 37 (35.7 net) are proved locations, 22 (20.8 net) are probable locations and 161 (143.5 net) are unbooked locations. Unbooked locations have been identified by management as an estimation of Company’s multi-year drilling activities based on evaluation of applicable geologic, seismic, engineering, production and reserves information. There is no certainty that the Company will drill all unbooked drilling locations and if drilled there is no certainty that such locations will result in additional oil and gas reserves, resources or production. The drilling locations considered for future development will ultimately depend upon the availability of capital, regulatory approvals, seasonal restrictions, oil and natural gas prices, costs, actual drilling results, additional reservoir information that is obtained and other factors. While certain of the unbooked drilling locations have been derisked by the drilling of existing wells in relative close proximity to such unbooked drilling locations, other unbooked drilling locations are farther away from existing wells where management has less information about the characteristics of the reservoir and therefore there is more uncertainty whether wells will be drilled in such locations and if drilled there is more uncertainty that such wells will result in additional oil and gas reserves, resources or production.
Non-IFRS Measures, Non-IFRS Financial Ratios and Capital Management Measures
This press release includes various specified financial measures, including non-IFRS financial measures, non-IFRS financial ratios and capital management measures as further described herein. These measures do not have a standardized meaning prescribed by International Financial Reporting Standards (“IFRS“) and, therefore, may not be comparable with the calculation of similar measures by other companies.
“Adjusted working capital (net debt) (capital management measure)” is calculated as current assets less current liabilities, excluding the current portion of decommissioning liabilities and financial derivative receivable and liabilities. Adjusted working capital (Net Debt) is a capital management measure which management uses to assess the Company’s liquidity. See the MD&A for a detailed calculation and reconciliation of adjusted working capital (net debt) to the most directly comparable measure presented in accordance with IFRS.
“Adjusted funds flow from operations (capital management measure)” is funds flow is calculated by taking cash flow from operating activities and adding back changes in non-cash working capital. Adjusted funds flow is further calculated by adding back decommissioning costs incurred and transaction costs. Management considers adjusted funds flow from operations to be a key measure to assess the performance of the Company’s oil and gas properties and the Company’s ability to fund future capital investment. Adjusted funds flow from operations is an indicator of operating performance as it varies in response to production levels and management of costs. Changes in non-cash working capital, decommissioning costs incurred and transaction costs vary from period to period and management believes that excluding the impact of these provides a useful measure of Lycos’ ability to generate the funds necessary to manage the capital needs of the Company. See the MD&A for a detailed calculation and reconciliation of adjusted funds flow from operations to the most directly comparable measure presented in accordance with IFRS.
“Capital expenditures (non-IFRS financial measure)” includes exploration and development capital, facilities, land and seismic and acquisitions and dispositions. Management considers capital expenditures to be a key measure to assess the Company’s capital investment in exploration and production activity, as well as property acquisitions and dispositions. The directly comparable IFRS measure to capital expenditures is net cash used in investing activities.
“Net debt to adjusted funds flow from operations ratio (non-IFRS financial ratio)” is calculated as net debt divided by adjusted funds flow from operations for the applicable period. Lycos utilizes net debt to adjusted funds flow from operations to measure the Company’s overall debt position and to measure the strength of the Company’s balance sheet. Lycos monitors this ratio and uses this as a key measure in making decisions regarding financing, capital expenditures and shareholder returns.
“Net operating expenses (non-IFRS financial measure)” is operating expenses, less processing income primarily generated by third party volumes at processing facilities where the Company has an ownership interest. The Company’s principal business is not that of a midstream entity whose activities are dedicated to earning processing and other infrastructure payments. Where the Company has excess capacity at its facilities, it will look to process third party volumes as a means to reduce the cost of operating/owning the facility.
Please refer to the MD&A for additional information relating to specified financial measures, including non-IFRS financial measures, non-IFRS financial ratios and capital management measures. The MD&A can be accessed either on the Company’s website or under the Company’s SEDAR+ profile on www.sedarplus.ca.
Assumptions for Updated 2024 Guidance
The significant assumptions used in the forecast of adjusted funds flow from operations for Updated 2024 Guidance include: annual average production of 4,800 boe/d, WTI of US$77.58/bbl, WCS of CDN$79.52, annual average foreign exchange rate of CDN$/US$ of $1.35, annual average blending expense of WCS less $7.92/bbl, royalty rate of 14%, net operating costs of $22.12/boe, transportation costs of $1.62/boe, general and administrative expense of $3.01/boe, and interest expense and other of $1.11/boe.
Abbreviations
| bbl | barrels of oil |
| bbl/d | barrels of oil per day |
| boe | barrels of oil equivalent |
| boe/d | barrels of oil equivalent per day |
| CDN$ | Canadian dollars |
| Mbbl | thousand barrels of oil |
| Mboe | thousand barrels of oil equivalent |
| Mcf | thousand cubic feet |
| MMbbl | million barrels of oil |
| MMboe | million barrels of oil equivalent |
| MMcf | million cubic feet |
| Q1 | first financial quarter (January 1 – March 31) |
| Q2 | second financial quarter (April 1 – June 30) |
| Q3 | third financial quarter (July 1 – September 30) |
| Q4 | fourth financial quarter (October 1 – December 31) |
| US | United States |
| US$ | US dollars |
| WCS | Western Canadian Select |
| WTI | West Texas Intermediate |
All dollar figures included herein are presented in Canadian dollars, unless otherwise noted.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
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