Selected financial and operational information is set out below and should be read in conjunction with Spartan’s audited consolidated annual financial statements and related management’s discussion and analysis (“MD&A“) for the years ended December 31, 2023 and 2022, which are filed on SEDAR+ at www.sedarplus.ca and are available on the Company’s website at www.spartandeltacorp.com. The highlights reported in this press release include certain non-GAAP financial measures and ratios which have been identified using capital letters. The reader is cautioned that these measures may not be directly comparable to other issuers; please refer to additional information under the heading “Reader Advisories – Non-GAAP Measures and Ratios”.
MESSAGE TO SHAREHOLDERS
“2023 was a transformational year for Spartan strategically executing on the opportunity to crystalize outsized shareholder returns.
From growing the Company to over 80,000 BOE/d in Q1 2023, to divesting its Montney assets in Q2 2023, Spartan has created tremendous value for its shareholders by having declared, since our initial recapitalization transaction in 2019, $1.8 billion in dividends and distributions, after only having raised $537 million in equity. As a result of the Montney divestitures, certain metrics year over year in the reported year-end financials and reserves may not be comparable.
Spartan continues to demonstrate the underlying strength of its foundational Deep Basin asset by executing on a successful second half 2023. We are excited to continue building value for Spartan’s shareholders in 2024 through the optimization and development of its Deep Basin asset, participating in the consolidation of the Deep Basin, and leveraging the strength of the Company’s balance sheet and Free Funds Flow to continue advancing our Duvernay strategy,” commented Fotis Kalantzis, President and CEO of Spartan.
2023Â FINANCIAL AND OPERATINGÂ HIGHLIGHTS
- Spartan successfully closed the sale of its Gold Creek and Karr Montney assets on May 10, 2023, to Crescent Point Energy Corp. for cash consideration of $1.7 billion (the “Asset Sale“).
- The Company declared $1.7 billion, or $9.60 per share, in dividends and distributions to its shareholders during the year ended December 31, 2023. Since inception Spartan has raised $537 million of equity at an average cost of $3.16 per share.
- On June 20, 2023, Spartan successfully completed the spin-out of its early stage Montney assets (the “Spin-Out“) to Logan Energy Corp. (“Logan“) at a net asset value of $0.35 per share by distributing 1.0 Logan Share and 1.0 Logan Warrant per Spartan Share, with each warrant entitling the holder to acquire 1.0 Logan Share at an exercise price of $0.35 per share.
- The Company reported production of 53,179 BOE/d in 2023, a decrease from 73,084 BOE/d in 2022. The decrease in production volume year over year is a result of the Asset Sale and the Spin-Out.
- Fourth quarter 2023 production averaged 37,664 BOE/d (31% liquids), reflecting a slight increase in production and an 8% increase in liquids production from the third quarter of 2023.
- As a result of the Asset Sale, the Spin-Out, and reduced commodity prices, Spartan reported oil and gas sales of $652.8 million in 2023 compared to $1.5 billion in 2022.
- Fourth quarter 2023 oil and gas sales increased to $85.8 million, up 5% from the third of quarter 2023.
- The Company’s operations generated Adjusted Funds Flow of $425.2 million ($2.45 per share, diluted) in 2023, 7% higher than 2023 guidance. In H2 2023, Spartan generated Adjusted Funds Flow of $119.6 million, 29% higher than H2 2023 guidance.
- Spartan successfully executed a capital program of $295.0 million in 2023, of which $31.9 million was in the fourth quarter.
- Spartan generated Free Funds Flow of $130.1 million in 2023, 10% higher than 2023 guidance. In H2 2023, Spartan generated Free Funds Flow of $60.2 million, 32% higher than H2 2023 guidance.
- In the fourth quarter of 2023, Spartan closed acquisitions in the West Shale Basin Duvernay (the “Duvernay“) for aggregate cash consideration of approximately $32.5 million. The acquisitions included undeveloped acreage, 3D seismic, and approximately 400 BOE/d of Duvernay production. To date, Spartan has accumulated greater than 170,000 net acres in the Duvernay.
- On December 29, 2023, the Company fully repaid its term facility of $150 million and exited 2023 with Net Debt of $75.3 million resulting in a 0.3X Net Debt to Annualized AFF ratio.
- As at December 31, 2023, Spartan had $641.3 million tax pools, of which $398.0 million are non-capital losses.
- Subsequent to December 31, 2023, Spartan increased its 2024 AECO 7A hedge position to 41% of net natural gas production at an average price of $2.79/GJ and has hedged 21% of its net oil and condensate production at an average price of $101.06/bbl.
The table below summarizes the Company’s financial and operating results for the fourth quarters and years ended December 31, 2023, and December 31, 2022:
|
Three months ended December 31 |
Year ended December 31 |
|||||
|
(CA$ thousands, except as otherwise noted) |
2023 |
2022 |
% |
2023 |
2022 |
% |
|
FINANCIAL HIGHLIGHTS |
||||||
|
Oil and gas sales |
85,832 |
357,126 |
(76) |
652,769 |
1,464,467 |
(55) |
|
Net income and comprehensive income |
110,584 |
152,919 |
(28) |
663,107 |
681,086 |
(3) |
|
    $ per share, basic (a) |
0.64 |
0.95 |
(33) |
3.84 |
4.36 |
(12) |
|
    $ per share, diluted (a) |
0.64 |
0.87 |
(26) |
3.82 |
3.88 |
(2) |
|
Cash provided by operating activities |
51,289 |
200,363 |
(74) |
475,669 |
795,371 |
(40) |
|
Adjusted Funds Flow (b) |
55,722 |
232,839 |
(76) |
425,173 |
825,667 |
(49) |
|
    $ per share, basic (a)(b) |
0.32 |
1.45 |
(78) |
2.46 |
5.29 |
(53) |
|
    $ per share, diluted (a)(b) |
0.32 |
1.31 |
(76) |
2.45 |
4.66 |
(47) |
|
Free Funds Flow (b) |
23,798 |
73,689 |
(68) |
130,128 |
391,510 |
(67) |
|
Cash (provided by) used in investing activities |
68,457 |
134,048 |
(49) |
(1,324,930) |
442,303 |
(400) |
|
    Capital Expenditures before A&D (b) |
31,924 |
159,150 |
(80) |
295,045 |
434,157 |
(32) |
|
    Adjusted Net Capital A&D (b) |
32,661 |
231 |
 nm |
(1,670,197) |
5,183 |
 nm |
|
Total assets |
819,524 |
2,099,475 |
(61) |
819,524 |
2,099,475 |
(61) |
|
Long-term debt |
44,476 |
145,180 |
(69) |
44,476 |
145,180 |
(69) |
|
Net Debt (b) |
75,296 |
138,376 |
(46) |
75,296 |
138,376 |
(46) |
|
    Net Debt to Annualized AFF Ratio (b) |
0.3X |
0.2X |
50 |
0.3X |
0.2X |
50 |
|
Shareholders’ equity |
429,717 |
1,516,821 |
(72) |
429,717 |
1,516,821 |
(72) |
|
Common shares outstanding (000s), end of period (a) |
173,201 |
171,410 |
1 |
173,201 |
171,410 |
1 |
|
Three months ended December 31 |
Year ended December 31 |
||||||
|
2023 |
2022 |
% |
2023 |
2022 |
% |
||
|
OPERATING HIGHLIGHTS AND NETBACKSÂ (e) |
|||||||
|
Average daily production |
|||||||
|
 Crude oil (bbls/d) |
570 |
13,714 |
(96) |
5,838 |
12,976 |
(55) |
|
|
 Condensate (bbls/d) (c) |
1,870 |
2,549 |
(27) |
2,192 |
2,328 |
(6) |
|
|
    Natural gas liquids (bbls/d) (c) |
9,196 |
12,757 |
(28) |
10,541 |
12,612 |
(16) |
|
|
    Natural gas (mcf/d) |
156,170 |
273,716 |
(43) |
207,645 |
271,010 |
(23) |
|
|
    BOE/d |
37,664 |
74,639 |
(50) |
53,179 |
73,084 |
(27) |
|
|
    % Liquids (d) |
31Â % |
39Â % |
(21) |
35Â % |
38Â % |
(8) |
|
|
Average realized prices, before financial instruments |
|||||||
|
    Crude oil ($/bbl) |
95.93 |
109.76 |
(13) |
100.07 |
119.94 |
(17) |
|
|
    Condensate ($/bbl) (c) |
100.76 |
111.19 |
(9) |
100.81 |
119.70 |
(16) |
|
|
    Natural gas liquids ($/bbl) (c) |
31.22 |
44.94 |
(31) |
34.00 |
50.45 |
(33) |
|
|
    Natural gas ($/mcf) |
2.58 |
5.55 |
(54) |
3.01 |
5.69 |
(47) |
|
|
    Combined average ($/BOE) |
24.77 |
52.01 |
(52) |
33.63 |
54.90 |
(39) |
|
|
Netbacks ($/BOE)Â (e) |
|||||||
|
    Oil and gas sales |
24.77 |
52.01 |
(52) |
33.63 |
54.90 |
(39) |
|
|
    Processing and other revenue |
0.59 |
0.39 |
51 |
0.49 |
0.35 |
40 |
|
|
    Royalties |
(3.05) |
(5.53) |
(45) |
(3.58) |
(5.99) |
(40) |
|
|
    Operating expenses |
(5.32) |
(8.64) |
(38) |
(7.08) |
(8.75) |
(19) |
|
|
    Transportation expenses |
(1.70) |
(2.76) |
(38) |
(2.36) |
(2.80) |
(16) |
|
|
Operating Netback, before hedging ($/BOE)Â (e) |
15.29 |
35.47 |
(57) |
21.10 |
37.71 |
(44) |
|
|
    Settlements on Commodity Derivative Contracts(e)(f) |
5.41 |
(1.19) |
(555) |
3.52 |
(4.81) |
(173) |
|
|
    Net Pipeline Transportation Margin (e)(g) |
– |
– |
– |
– |
(0.01) |
(100) |
|
|
Operating Netback, after hedging ($/BOE)Â (e) |
20.70 |
34.28 |
(40) |
24.62 |
32.89 |
(25) |
|
|
    General and administrative expenses |
(1.37) |
(0.98) |
40 |
(1.04) |
(0.95) |
9 |
|
|
    Cash Financing Expenses (e)(h) |
(1.82) |
(0.76) |
139 |
(0.72) |
(0.94) |
(23) |
|
|
    Realized foreign exchange gain (loss) |
0.05 |
(0.01) |
(600) |
(0.02) |
0.03 |
(167) |
|
|
    Other income |
– |
2.08 |
(100) |
– |
0.56 |
(100) |
|
|
    Settlement of decommissioning obligations |
(0.66) |
(0.28) |
136 |
(0.33) |
(0.19) |
74 |
|
|
    Lease payments (i) |
(0.82) |
(0.42) |
95 |
(0.61) |
(0.45) |
(36) |
|
|
Adjusted Funds Flow Netback ($/BOE)Â (e) |
16.08 |
33.91 |
(53) |
21.90 |
30.95 |
(29) |
|
|
a)Â Â Â |
Refer to “Share Capital” section of this press release. |
|
b)Â Â Â |
“Adjusted Funds Flow”, “Free Funds Flow”, “Capital Expenditures before A&D”, “Adjusted Net Capital A&D”, “Net Debt” and “Net Debt to Annualized AFF Ratio” do not have standardized meanings under IFRS Accounting Standards, refer to “Reader Advisories – Non-GAAP Measures and Ratios” section of this press release. |
|
c)Â Â Â |
Condensate is a natural gas liquid (“NGL“) as defined by NI 51-101 (as defined herein). See “Other Measurements”. |
|
d)Â Â Â |
“Liquids” includes crude oil, condensate and NGLs. |
|
e)Â Â Â |
“Netbacks” are non-GAAP financial ratios calculated per unit of production. “Operating Netback”, “Settlements on Commodity Derivative Contracts”, “Net Pipeline Transportation Margin”, “Cash Financing Expenses” and “Adjusted Funds Flow Netback” do not have standardized meanings under IFRS Accounting Standards, refer to “Non-GAAP Measures and Ratios” section of this press release. |
|
f)Â Â Â |
Includes realized gains or losses on derivative financial instruments plus settlements of acquired derivative liabilities. |
|
g)Â Â Â |
Pipeline transportation revenue, net of pipeline transportation expense. |
|
h)Â Â Â |
Includes interest and fees on long-term debt, net of interest income. |
|
i)Â Â Â Â |
Includes total lease payments comprised of the principal portion and financing cost of lease liabilities. |
2023 CAPITAL ACTIVITY
In 2023, Spartan successfully executed a $295.0 million capital program focusing on continued development across multiple horizons in the Deep Basin and completed a pre-disposition development program of its Gold Creek and Karr assets located in the Montney.
- In the Deep Basin, Spartan drilled 20.2 net wells, completed 22.9 net wells, and brought 23.9 net wells on production.
- In the Montney, Spartan drilled 14.6 net wells, completed 9.0 net wells, and brought 7.3 net wells on production.
Spartan’s 2023 capital program was $15.0 million higher than guidance, as a result of higher than anticipated activity related to the divested Montney assets, 3D seismic, land sales, and modifications to the Deep Basin drilling program to ensure continuous and efficient rig operations.
2023 RESERVES INFORMATION
Spartan is pleased to provide select highlights from the results of its year end independent oil and gas reserves evaluation as of December 31, 2023 (the “McDaniel Report“), as prepared by its independent qualified reserves evaluator, McDaniel & Associates Consultants Ltd. (“McDaniel“). The evaluation of Spartan’s properties was prepared in accordance with the definitions, standards and procedures contained in the most recent publication of the Canadian Oil and Gas Evaluation Handbook (“COGEH“) and National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (“NI 51-101“).
The following tables highlight the findings of the McDaniel Report. The McDaniel Report was based on the published average forecast pricing of McDaniel, GLJ Ltd. and Sproule Associates Limited. See “O&G Reader Advisories – Reserves Disclosure” for more information. Additional reserves information as required under NI 51-101 will be included in Spartan’s Annual Information Form for the year ended December 31, 2023, which will be filed on or before March 31, 2024, on SEDAR+ at www.sedarplus.ca. The numbers in the tables below may not add due to rounding.
Summary of Reserves Volumes as at December 31, 2023
The Company’s reserves volumes and undiscounted Future Development Costs (“FDC“) as at December 31, 2023 are summarized below:
|
SUMMARY OF RESERVE VOLUMESÂ (a) |
Crude Oil (Mbbls) |
NGLÂ (b) (Mbbls) |
Natural Gas (MMcf) |
Combined (MBOE) |
FDC Costs ($MM) |
|
Proved developed producing |
1,491 |
22,949 |
346,989 |
82,271 |
15.4 |
|
Proved developed non-producing |
– |
189 |
2,802 |
656 |
1.8 |
|
Proved undeveloped |
6,127 |
20,694 |
268,607 |
71,589 |
783.0 |
|
Total Proved |
7,618 |
43,831 |
618,397 |
154,516 |
800.2 |
|
Probable |
8,719 |
30,097 |
407,151 |
106,674 |
628.6 |
|
Total Proved plus Probable |
16,337 |
73,928 |
1,025,548 |
261,190 |
1,428.8 |
|
a) Gross working interest reserves before royalty deductions. |
|
b) Natural gas liquids include condensate volumes. |
Net Present Value of Future Net Revenue as at December 31, 2023 (Before-Tax)
The following table summarizes the Net Present Value (“NPV“) of the Company’s reserves (before-tax) as at December 31, 2023. The reserves value on a $/BOE basis, discounted at 10% per year, is also summarized for each category.
|
NET PRESENT VALUE BEFORE-TAX |
0Â % |
5Â % |
10Â % |
15Â % |
20Â % |
Unit Value (a) Before Tax |
|
($MM) |
($MM) |
($MM) |
($MM) |
($MM) |
||
|
    Developed Producing |
794.8 |
702.5 |
591.4 |
504.3 |
438.7 |
8.27 |
|
    Developed Non-Producing |
9.6 |
7.5 |
6.1 |
5.1 |
4.4 |
11.80 |
|
    Undeveloped |
981.8 |
621.6 |
413.7 |
283.2 |
196.4 |
6.75 |
|
Total Proved |
1,786.1 |
1,331.5 |
1,011.2 |
792.6 |
639.5 |
7.58 |
|
Probable |
1,852.7 |
1,014.7 |
617.1 |
408.2 |
288.2 |
6.97 |
|
Total Proved plus Probable |
3,638.8 |
2,346.2 |
1,628.3 |
1,200.8 |
927.8 |
7.34 |
|
a) Unit values are based on net reserves. Net reserves are the Company’s working interest reserves after deduction of royalties, plus its royalty interests in reserves. |
||||||
Forecast Costs
The following table outlines estimated annual future development capital expenditures required to bring total proved (“TP“) and total proved plus probable (“TPP“) reserves on production per the McDaniel Report:
|
FUTURE DEVELOPMENT CAPITAL |
TP Reserves ($MM) |
TPP Reserves ($MM) |
|
2024 |
112.1 |
112.1 |
|
2025 |
117.6 |
117.6 |
|
2026 |
221.0 |
221.0 |
|
2027 |
223.1 |
223.1 |
|
2028 |
109.4 |
210.5 |
|
Thereafter |
17.0 |
544.5 |
|
Total FDC, undiscounted |
800.2 |
1,428.8 |
|
Total FDC, discounted at 10% |
624.8 |
968.8 |
UPDATED 2024 GUIDANCE
Spartan is encouraged by the initial results of its Deep Basin asset optimization campaign and drilling improvements, and is pleased to announce that it is reducing its 2024 forecast operating costs by 9% to $6.07/BOE and reducing its Capital Expenditures, before A&D, by $5 million to $125 million, exclusive of Duvernay activity, while production guidance remains unchanged at 38,500 – 40,500 BOE/d.
As a result of the significant decrease in natural gas prices due to high North American supply growth and challenging weather conditions impacting demand, Spartan has increased its 2024 AECO 7A hedge position to 41% of net natural gas production at an average price of $2.79/GJ and has hedged 21% of its net oil and condensate production at an average price of $101.06/bbl. Despite a drastic decrease in natural gas prices, Spartan expects to generate Adjusted Funds Flow of $170 million and Free Funds Flow of $45 million in 2024.
In 2024, Spartan is focused on optimizing its foundational Deep Basin asset, participating in the consolidation of the Deep Basin, and leveraging the Company’s strong balance sheet and Free Funds Flow to progress its Duvernay strategy. Spartan believes it is well positioned to continue generating shareholders significant return on investment through optimization, consolidation, and development.
|
ANNUAL GUIDANCE |
Updated |
Previous |
Variance (a) |
|
|
Year ending December 31, 2024 |
Guidance |
Guidance |
Amount |
% |
|
Average Production (BOE/d)Â (a)(c) |
38,500 – 40,500 |
38,500 – 40,500 |
– |
– |
|
     % Liquids |
31Â % |
31Â % |
– |
– |
|
Benchmark Average Commodity Prices |
||||
|
     WTI crude oil price (US$/bbl) |
75.00 |
75.00 |
– |
– |
|
     AECO 7A natural gas price ($/GJ) |
2.00 |
2.75 |
(0.75) |
(27) |
|
     Average exchange rate (US$/CA$) |
1.35 |
1.37 |
(0.02) |
(1) |
|
Operating Netback, before hedging ($/BOE)Â (b)(c) |
13.05 |
14.78 |
(1.73) |
(12) |
|
Operating Netback, after hedging ($/BOE)Â (b)(c) |
14.20 |
14.97 |
(0.77) |
(5) |
|
Adjusted Funds Flow ($MM)Â (b)(c) |
170 |
177 |
(7) |
(4) |
|
Capital Expenditures, before A&D ($MM)Â (b) |
125 |
130 |
(5) |
(4) |
|
Free Funds Flow ($MM)Â (b) |
45 |
47 |
(2) |
(4) |
|
Net Debt, end of year ($MM)Â (b) |
30 |
19 |
11 |
58 |
|
Common shares outstanding, end of year (MM) |
174 |
174 |
– |
– |
|
a)Â Â Â |
The financial performance measures included in the Company’s preliminary guidance for 2024 is based on the midpoint of the average production forecast. |
|
b)Â Â Â |
“Operating Netback”, “Adjusted Funds Flow”, “Capital Expenditures, before A&D”, “Free Funds Flow” and “Net Debt” do not have standardized meanings under IFRS Accounting Standards, see “Readers Advisories – Non-GAAP Measures and Ratios”. |
|
c)Â Â Â |
Additional information regarding the assumptions used in the forecasted Average Production, Operating Netbacks and Adjusted Funds Flow for 2024 are provided in the Reader Advisories section of this press release. |
ABOUT SPARTAN DELTA CORP.
Spartan is committed to creating value for its shareholders, 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 the Duvernay. Spartan will continue to focus on the execution of the Company’s organic drilling program in the Deep Basin, 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 growth in the Deep Basin, participate in the consolidation of the Deep Basin fairway, and continue advancing its Duvernay strategy by leveraging Spartan’s balance sheet and Free Funds Flow.
Spartan’s corporate presentation as of February 26, 2024, can be accessed on the Company’s website at www.spartandeltacorp.com.
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