TSX-V: CWV: Crown Point Energy Inc. (“Crown Point”, the “Company” or “we“) today announced its operating and financial results for the three and nine months ended September 30, 2022.
Copies of the Company’s September 30, 2022 unaudited condensed interim consolidated financial statements and management’s discussion and analysis (“MD&A”) filings are being filed with Canadian securities regulatory authorities and will be made available under the Company’s profile at www.sedar.com and on the Company’s website at www.crownpointenergy.com. All dollar figures are expressed in United States dollars (“USD”) unless otherwise stated. References to “ARS” are to Argentina Pesos.
In the following discussion, the three and the nine months ended September 30, 2022 may be referred to as “Q3 2022” and “the September 2022 period”, respectively, and as “the 2022 periods” collectively. The comparative three and nine months ended September 30, 2021 may be referred to as “Q3 2021” and “the September 2021 period”, respectively, and as “the 2021 periods”, collectively.
Q3 2022 SUMMARY
During Q3 2022, the Company:
- Acquired a 50% working interest in the Puesto Pozo Cercado Oriental concession (the “PPCO Concession” or “PPCO”) from Petrolera Aconcagua Energía S.A. The PPCO Concession, which expires in August 2043, is located in the Cuyo (or Cuyana) basin in the Province of Mendoza adjacent to the Chañares Herrados concession (the “CH Concession” or “CH“) and covers approximately 63 square kilometers.
Consideration was a cash payment of $5 million and up to an additional $7.53 million in quarterly installments based on a percentage of the net operating income (oil and gas sales revenue less royalties, turnover and other taxes and operating expenses) derived from the Company’s 50% working interest in the PPCO Concession (the “Contingent Consideration”), provided that the Contingent Consideration is not payable until the Company has recovered its initial $5 million investment from its share of the net operating income derived from the PPCO Concession.
Under the terms of the exploitation license agreement, the joint venture will pay an 18.2% royalty on oil production and commit to a $26.8 million ($13.4 million net to Crown Point) work program which includes well work overs, infrastructure optimization and a multi-well drilling program that must be fulfilled by August 2028.
- Reported loss before taxes of $0.5 million and a net loss of $0.9 million as compared to Q3 2021 when the Company reported income before taxes of $1.1 million and a net income of $1.4 million;
- Reported net cash provided by operating activities of $2.7 million and funds flow provided by operating activities of $1.2 million as compared to Q3 2021 when the Company reported $2.4 million of net cash provided by operating activities and $1.4 million of funds flow provided by operating activities;
- Earned $10.8 million of oil and natural gas sales revenue on total average daily sales volumes of 1,863 BOE per day, up from $6.9 million of oil and natural gas sales revenue earned on total average daily sales volumes of 1,690 BOE per day in Q3 2021 due to higher volumes of oil exported by trucks and ships combined with the acquisition of the PPCO Concession working interest;
- Received an average of $5.97 per mcf for natural gas and $74.68 per bbl for oil compared to $4.31 per mcf for natural gas and $56.88 per bbl for oil received in Q3 2021;
- Reported an operating netback of $17.63 per BOE , up from $14.29 per BOE in Q3 2021;
- Received $0.06 million of royalty and turnover tax credits under the Mendoza Activa Hydrocarbons Programs;
- Obtained a $2.4 million working capital loan;
- Repaid overdraft loans by an amount of $3 million, working capital loans by an amount of $0.6 million and repaid a $1 million export financing loan;
- Repaid $0.7 million of Series I and Series II notes payable; and
- Issued a total of $14.7 million principal amount of Series III secured fixed-rate notes (“Series III Notes“), of which: $10.2 million principal amount of Series III Notes were issued for cash consideration, payable in ARS; $3.1 million principal amount of Series III Notes were issued in exchange for the surrender and cancellation of $3.4 million principal amount of Series I Notes at an exchange ratio of $93.77 principal amount of Series III Notes for every $100 principal amount of Series I Notes; and $1.3 million principal amount of Series III Notes were issued in exchange for the surrender and cancellation of 190,000,000 ARS ($1.4 million) principal amount of Series II Notes at an exchange ratio of $90.31 principal amount of Series III Notes for every $100 principal amount of Series II Notes. Series III Notes are denominated in USD, payable in ARS, and are due 36 months after the issue date. The principal amount of Series III Notes will be repaid in seven quarterly equal installments, starting on February 10, 2024 and ending on August 10, 2025. Series III Notes will accrue interest at a fixed rate of 4% per annum, payable every three months in arrears from the issue date. Following closing of the Series III Note offering, the Company repurchased the remaining $50,000 principal amount of outstanding Series I Notes. All Series I Notes and Series II Notes were cancelled.
- Reported a working capital surplus of $0.3 million.
Subsequent to September 30, the Company:
- Obtained a $0.9 million export financing loan at an annual interest rate of 4% repayable on December 4, 2022, and
- Repaid an ARS 300 million ($2.4 million) working capital loan.
Tierra del Fuego Concession (“TDF”)
During Q3 2022, San Martin oil production averaged 1,200 (net 413) bbls of oil per day. Completion and flow testing of SM a-1004, drilled in Q1 2022 and located on the western crest of the San Martín high, was carried out between March 22 and May 11. During July and August 2022, the water production in SM a-1004 and SM a-1002 increased considerably, leading to exhaustive testing of the San Martín cluster for further investigation of the reservoir’s behavior and the performance of production tests in SM x-1001 and pressure interference tests in the other wells in the area. In addition, the joint venture tested three zones in SM a-1004 and the well is currently on production with a packer from all opened zones and is awaiting installation of an electro-submergible pump in order to increase gross production in the well. The Company expects that the pump installation will decrease the water cut in wells other than SM a-1004.
During Q3 2022, natural gas production from the Las Violetas concession averaged 11,514 (net 3,958) mcf per day and oil production averaged 265 (net 91) bbls of oil per day. Drilling operations on the LV-118(h) well, a 700 meter lateral horizontal well located in the northeast corner of the concession spud in during Q1 2022, were halted on May 3, 2022 after an obstruction was encountered in the cased horizontal build section at a depth of 1,720 meters. The re-entry on LV-118(h) performed in August 2022 to determine the causes of obstruction was unsuccessful.
Chañares Herrados (“CH”) Concession
During the September 2022 period, the UTE carried out workovers on four shut-in oil wells and performed four extractive system enhancements. Oil production for Q3 2022 averaged 1,105 (net 551) bbls of oil per day.
Oil production for Q3 2022 averaged 238 (net 119) bbls of oil per day.
Cerro de Los Leones (“CLL”) Exploration Permit
The directional well, CPE.MdN.VS.xp-3(d), was drilled and cased in Q1 2022 after encountering eight volcanic sills with oil shows and increased mud gas in the Mendoza Group, and log indicated gas bearing zones in the overlying Neuquén Group sandstones. Subsequent acid stimulation and swabbing of the volcanic sills recovered uneconomic amounts of oil with water. The well has been suspended pending testing of the gas bearing sandstone layers in the Neuquén Group in the first half of 2023.
The Company’s capital spending on developed and producing assets for fiscal 2022 is budgeted at approximately $9.5 million. During the September 2022 period, the Company incurred $8.4 million of capital expenditures comprised of $5.6 million in the TDF Concessions, $2.7 million in the CH Concession and $0.1 million in the PPCO Concession.
The Company will spend the remaining $1.1 million in the last quarter of 2022 on expenditures for the following proposed activities:
- $0.4 million in the construction of an oil field pipeline and for the optimization of wells in the San Martín field in TDF;
- $0.1 million for facilities improvements and optimization in CH; and
- $0.6 million for extractive system enhancements in PPCO.
The Company’s capital spending on developed and producing assets for fiscal 2023 is budgeted at $15.0 million based on expenditures for the following proposed activities:
- $0.6 million in improvements to facilities in TDF;
- $2.2 million for well workovers in CH;
- $7.0 million to drill two vertical wells in CH;
- $0.9 million for facilities improvements and optimization in CH;
- $0.5 million for well workovers in PPCO;
- $3.5 million to drill one vertical well in PPCO; and
- $0.3 million for facilities improvements and optimization in PPCO.
The Company’s capital spending on exploration and evaluation assets for fiscal 2022 was originally budgeted at $3.3 million to drill and complete one exploration well in CLL of which $2.5 million was incurred during the September 2022 period. The Company plans to spend the remaining $0.8 million on the testing of the gas bearing sandstone layers of the Neuquén Group in the first half of 2023.
Argentina – International Monetary Fund
The International Monetary Fund (“IMF“) approved, at a technical level, the quarterly objectives committed to by Argentina in accordance with the 30-month agreement under an Expanded Fund Facility (“EFF“) for the second and third quarter of 2022 jointly. The approval highlights that the technical staff of the IMF and the Argentine authorities agree that the objectives established in the EFF agreement will remain unchanged until 2023 and the original goals will be maintained until the end of the year. Despite this achievement, the implementation of policies aimed at lowering Argentina’s deficit remains essential to achieve macroeconomic stability and begin to address Argentina’s entrenched challenges, particularly high and persistent inflation. The rate of inflation reached 66% for the September 2022 period, and 83% for the 12 months ended September 30, 2022.
(1) We adhere to International Financial Reporting Standards (“IFRS”), however the Company also employs certain non-IFRS measures to analyze financial performance, financial position, and cash flow, including “operating netback”. Additionally, other financial measures are also used to analyze performance. These non-IFRS and other financial measures do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures provided by other issuers. The non-IFRS and other financial measures should not be considered to be more meaningful than financial measures which are determined in accordance with IFRS, such as net income (loss), oil and natural gas sales revenue and net cash provided by (used in) operating activities, as indicators of our performance.
(2) “Working capital” is a capital management measure. “Non-current financial liabilities” is a supplemental financial measure. “Net cash per share – operating activities” is a supplemental financial measure. “Funds flow per share – operating activities” is a supplemental financial measure. See “Non-IFRS and Other Financial Measures”.
(3) All per share figures are based on the basic weighted average number of shares outstanding in the period. The effect of options is anti-dilutive in loss periods. Per share amounts may not add due to rounding.
For inquiries please contact:
Gabriel Obrador Marisa Tormakh
President & CEO Vice-President, Finance & CFO
Ph: (403) 232-1150 Ph: (403) 232-1150
Crown Point Energy Inc. Crown Point Energy Inc.
About Crown Point
Crown Point Energy Inc. is an international oil and gas exploration and development company headquartered in Calgary, Canada, incorporated in Canada, trading on the TSX Venture Exchange and operating in Argentina. Crown Point’s exploration and development activities are focused in three producing basins in Argentina, the Austral basin in the province of Tierra del Fuego, and the Neuquén and Cuyo (or Cuyana) basins in the province of Mendoza. Crown Point has a strategy that focuses on establishing a portfolio of producing properties, plus production enhancement and exploration opportunities to provide a basis for future growth.
Non-IFRS and Other Financial Measures: Throughout this press release and in other materials disclosed by the Company, we employ certain measures to analyze financial performance, financial position, and cash flow. These non-IFRS and other financial measures do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures provided by other issuers. The non-IFRS and other financial measures should not be considered to be more meaningful than financial measures which are determined in accordance with IFRS, such as net income (loss), oil and natural gas sales revenue and net cash provided by (used in) operating activities as indicators of our performance.
“Funds flow per share – operating activities” is a supplemental financial measure. Funds flow per share – operating activities is comprised of funds flow provided by (used in) operating activities divided by the basic and diluted weighted average number of common shares outstanding for the period. See “Summary of Financial Information”.
“Net cash per share – operating activities” is a supplemental financial measure. Net cash per share – operating activities is comprised of net cash provided by (used in) operating activities divided by the basic and diluted weighted average number of common shares outstanding for the period. See “Summary of Financial Information”.
“Non-current financial liabilities” is a supplemental financial measure. Non-current financial liabilities is comprised of the non-current portions of trade and other payables, taxes payable, notes payable and lease liabilities as presented in the Company’s consolidated statements of financial position. See “Summary of Financial Information”.
“Operating Netback” is a non-IFRS measure. Operating netback is comprised of oil and natural gas sales revenue less export tax, royalties and turnover tax and operating costs. Management believes this measure is a useful supplemental measure of the Company’s profitability relative to commodity prices. See “Operating Netback” for a reconciliation of operating netback to oil and natural gas sales revenue, being our nearest measure prescribed by IFRS.
“Operating netback per BOE” is a non-IFRS ratio. Operating netback per BOE is comprised of operating netback divided by total BOE sales volumes in the period. Management believes this measure is a useful supplemental measure of the Company’s profitability relative to commodity prices. In addition, management believes that operating netback per BOE is a key industry performance measure of operational efficiency and provide investors with information that is also commonly presented by other crude oil and natural gas producers. Operating netback is a non-IFRS measure. See “Operating Netback” for the calculation of operating netback per BOE.
“Working capital” is a capital management measure. Working capital is comprised of current assets less current liabilities. Management believes that working capital is a useful measure to assess the Company’s capital position and its ability to execute its existing exploration commitments and its share of any development programs. See “Summary of Financial Information” for a reconciliation of working capital to current assets and current liabilities, being our nearest measures prescribed by IFRS.
Abbreviations and BOE Presentation: “API” means American Petroleum Institute gravity, being an indication of the specific gravity of crude oil measured on the API gravity scale; “bbl” means barrel; “bbls” means barrels; “BOE” means barrels of oil equivalent; “km” means kilometers; “km2” means square kilometers; “m” means meters; “”mm” means millimeters; “mcf” means thousand cubic feet, “mmcf” means million cubic feet, “NGL” means natural gas liquids; “psi” means pounds per square inch; “UTE” means Union Transitoria de Empresas, which is a registered joint venture contract established under the laws of Argentina; “WI” means working interest; and “YPF” means Yacimientos Petrolíferos Fiscales S.A. All BOE conversions in this press release are derived by converting natural gas to oil in the ratio of six mcf of gas to one bbl of oil. BOE may be misleading, particularly if used in isolation. A BOE conversion ratio of six mcf of gas to one bbl of oil (6 mcf: 1 bbl) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the price of crude oil as compared to natural gas in Argentina from time to time may be different from the energy equivalency conversion ratio of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.
Initial Production Rates: Any references herein to initial production rates are useful in confirming the presence of hydrocarbons, however, such rates are not determinative of the rates at which such wells will continue production and decline thereafter. Additionally, such rates may also include recovered “load oil” fluids used in well completion stimulation. While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production for the Company. Initial production rates may be estimated based on third party estimates or limited data available at the time. In all cases herein, initial production rates are not necessarily indicative of long-term performance of the relevant well or fields or of ultimate recovery of hydrocarbons.
Forward-looking Information: This document contains forward-looking information. This information relates to future events and the Company’s future performance. All information and statements contained herein that are not clearly historical in nature constitute forward-looking information. Such information represents the Company’s internal projections, estimates, expectations, beliefs, plans, objectives, assumptions, intentions or statements about future events or performance. This information involves known or unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information. In addition, this document may contain forward-looking information attributed to third party industry sources. Crown Point believes that the expectations reflected in this forward-looking information are reasonable; however, undue reliance should not be placed on this forward-looking information, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. This press release contains forward-looking information concerning, among other things, the following: under “Operational Update”, the Company’s plans for future operations on its TDF Concessions, CH Concession, PPCO Concession and CLL Permit and the anticipated benefits to be derived therefrom (including the ability of the joint venture to decrease the water cut on the San Martin wells) and timing thereof; under “Outlook”, our estimated capital expenditure budget for the last quarter of fiscal 2022 and fiscal 2023, the capital expenditures that we intend to make in our TDF Concessions, CH Concession, PPCO Concession and CLL Permit; under “Argentina – International Monetary Fund”, the anticipated terms of Argentina’s EFF provided by the IMF going forward and the ability of Argentina to comply with such terms; under “About Crown Point”, all elements of the Company’s business strategy and focus. In addition, note that information relating to reserves and resources is deemed to be forward-looking information, as it involves the implied assessment, based on certain estimates and assumptions that the reserves and resources described can be economically produced in the future. The reader is cautioned that such information, although considered reasonable by the Company, may prove to be incorrect. Actual results achieved during the forecast period will vary from the information provided in this document as a result of numerous known and unknown risks and uncertainties and other factors. A number of risks and other factors could cause actual results to differ materially from those expressed in the forward-looking information contained in this document including, but not limited to, the following: that the Company experiences delays building the pipeline to the Rio Cullen marine terminal or is unable to build the pipeline at all; that the Company is unable to truck oil to the Enap refinery and/or the Rio Cullen marine terminal and/or that the cost to do so rises and/or becomes uneconomic; the price received by the Company for its oil is at a substantial discount to the Brent oil price; the risks and other factors described under “Business Risks and Uncertainties” in our MD&A for the three and nine month periods ended September 30, 2022 and under “Risk Factors” in the Company’s most recently filed Annual Information Form, which is available for viewing on SEDAR at www.sedar.com. With respect to forward-looking information contained in this document, the Company has made assumptions regarding, among other things: the cost to build the aforementioned pipeline and the timing thereof; trucking costs; the impact (and the duration thereof) that the COVID-19 (coronavirus) pandemic will have on (i) the demand for crude oil, NGLs and natural gas, (ii) our supply chain, including our ability to obtain the equipment and services we require, (iii) our ability to produce, transport and/or sell our crude oil, NGLs and natural gas, and (iv) the ability of our customers, joint venture partners and other contractual counterparties to comply with their contractual obligations to us; the ability and willingness of OPEC+ nations and other major producers of crude oil to balance crude oil production levels and thereby sustain higher global crude oil prices; that Roch S.A.’s voluntary reorganization will not have an adverse impact on its ability to operate the TDF concessions, and therefore will not have an adverse impact on the TDF UTE, the TDF concessions and/or the Company; matters relating to the acquisition of our 50% interest in the CH Concession and our 50% interest in the PPCO Concession, including the amount and timing of capital expenditures thereon, production rates therefrom, revenues to be derived therefrom, and the ability of the joint venture to reduce operating costs; the impact of inflation rates in Argentina and the devaluation of the Argentine peso against the USD on the Company; the impact of increasing competition; the general stability of the economic and political environment in which the Company operates, including operating under a consistent regulatory and legal framework in Argentina; future oil, natural gas and NGL prices (including the effects of governmental incentive programs and government price controls thereon); the timely receipt of any required regulatory approvals; the ability of the Company to obtain qualified staff, equipment and services in a timely and cost efficient manner; drilling results; the costs of obtaining equipment and personnel to complete the Company’s capital expenditure program; the ability of the operators of the projects which the Company has an interest in to operate the fields in a safe, efficient and effective manner; that the Company will not pay dividends for the foreseeable future; the ability of the Company to obtain financing on acceptable terms when and if needed; the ability of the Company to service its debt repayments when required; field production rates and decline rates; the ability to replace and expand oil and natural gas reserves through acquisition, development and exploration activities; the timing and costs of pipeline, storage and facility construction and expansion and the ability of the Company to secure adequate product transportation; currency, exchange and interest rates; the regulatory framework regarding royalties, taxes and environmental matters in Argentina; and the ability of the Company to successfully market its oil and natural gas products. Management of Crown Point has included the above summary of assumptions and risks related to forward-looking information included in this document in order to provide investors with a more complete perspective on the Company’s future operations. Readers are cautioned that this information may not be appropriate for other purposes. Readers are cautioned that the foregoing lists of factors are not exhaustive. The forward-looking information contained in this document are expressly qualified by this cautionary statement. The forward-looking information contained herein is made as of the date of this document and the Company disclaims any intent or obligation to update publicly any such forward-looking information, whether as a result of new information, future events or results or otherwise, other than as required by applicable Canadian securities laws.
Neither 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 news release.