Greenfire Resources Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 15, 2024

There are 5 speakers on the call.

Operator

Good morning, ladies and gentlemen. Welcome to the Greenfrier Resources Second Quarter 2024 Results Conference Call. As a reminder, all participants are in a listen only mode. The conference is being recorded. After the presentation, there will be an opportunity to ask questions.

Operator

I will now turn the meeting over to Mr. Robert Lobach, Vice President of Corporate Development and Capital Markets. Please go ahead, Robert.

Speaker 1

Thank you, operator. Good morning, everyone, and thank you for joining us for Greenfire's Q2 2024 Earnings Conference Call. Please note that Greenfire's financial statements, MD and A and press release are available on our website with the associated documents filed on EDGAR and SEDAR Plus. Our corporate presentation has also been updated and is available on our website. As we begin our discussion, I will remind everyone that this conference call contains forward looking statements, references non GAAP and other financial measures, and as such, listeners are encouraged to review the associated risks outlined in our most recent MD and A.

Speaker 1

All dollar amounts discussed today refer to Canadian dollars unless otherwise stated. All capital expenditures and production amounts discussed today are on a working interest basis net to the company unless otherwise stated. References to the Hangstone facilities refer to the expansion asset and demo asset collectively. On today's call is hosted by members of the Greenfire team, including Robert Logan, President and Chief Executive Officer Tony Kraljic, Chief Financial Officer and myself, Robert Loback, Vice President, Corporate Development and Capital Markets. Following the team's prepared remarks, we will be conducting a Q and A and will open the line to questions from participants.

Speaker 1

I will now turn it over to our President and Chief Executive Officer, Robert Logan. Robert, please go

Speaker 2

ahead. Thank you, Robert, and good morning, everyone. We are pleased to share details from Greenfire's 2nd quarter, which featured strong financial performance despite our team navigating some operational challenges, including the wildfires in Northern Alberta. 1st and foremost, I want to express appreciation for our team's swift response to the wildfires. Out of an abundance of caution, we temporarily evacuated all non essential personnel from our operating facilities and halted drilling operations at the expansion asset on 2 separate occasions, once in May and once in July, which I'll speak to shortly.

Speaker 2

Safety will always be a top priority at Green Fire and we are proud of the team's commendable job in taking prudent steps to minimize the risks to staff and contractors while protecting the assets during this difficult time. All staff are back in place, and we have fully resumed operating and drilling activities. Consolidated production in Q2 2024 averaged 18,993 barrels per day, about 3% lower than Q1 2024, but 5% higher than Q2 last year. The quarter over quarter delta reflects operational reductions to advance the necessary replacement work associated with 3rd party downhole temperature sensor failures at the expansion asset. At the demo asset, the impact of delayed regulatory approval to recommence disposal operations along with longer than anticipated steaming requirements at the 3 recently drilled refill wells also delayed production ramp up.

Speaker 2

With respect to the wildfire impacts in May, the fire was closer to our facilities And in addition to delaying drilling at the expansion asset, it also resulted in production rates being reduced in preparation for the potential risk of a full evacuation. The July wildfire impact again resulted in limiting site personnel to essential staff, reduced production rates and temporary halt of drilling and temperature sensor replacements. With these shifts in timing for the production growth that was originally expected during Q2, the company has adjusted our full year guidance with an updated 2024 outlook. This updated outlook anticipates consolidated average production of 20,000 to 21,000 barrels per day based on fully funded capital expenditure program between $80,000,000 $90,000,000 driving year over year production growth of between 13% 19%. Post quarter end, we have seen consolidated bitumen production increase to an average of approximately 19,660 barrels per day in the month of July and 21,050 barrels per day from August 1 to 13.

Speaker 2

These increases are largely owing to initial production additions from completed downhole temperature sensor replacements at the expansion asset. We have successfully replaced failed third party downhole temperature sensors at 3 of 5 refill wells at the expansion asset with the initial production from these wells being in line with the average productivity rates of the 5 refill wells where the temperature sensors did not fail. The remaining two sensors were damaged to the point where a redrill of the wells was required, timing of which was impacted by the wildfires. 1 of these redrills was completed successfully in June and the other is currently underway. As outlined in the press release, following these initiatives, production at expansion assets increased to 16,650 barrels per day in July 18,150 barrels per day from August 1 through August 13.

Speaker 2

At the demo asset, I am pleased to confirm receipt of regulatory approval to restart the existing disposal, which is now underway as the timing of this work had previously been delayed by the wildfires. Further, we have drilled a second disposal well at the demo asset that is awaiting regulatory approval, which is anticipated during the Q3 of 2024. Once both disposal wells are approved and have commenced operations, Green Fire's water handling and operational flexibility will be enhanced, which we anticipate will support higher production rates. 3 extended reach refill wells were successfully drilled at the demo asset during Q2 2024, which have been circulating steam in anticipation of first production, which utilizes water handling afforded by the disposal wells capacity. The initial temperatures of these refills were colder than expected, which necessitated the circulation.

Speaker 2

The cooler reservoir temperatures are potentially indicative of additional recoverable oil. To accelerate production in Q3 2024, we intend to pair 1 of the refill wells with an injector well to form a traditional SAGI well pair. In addition to our continued focus on optimizing our operations, we remain committed to debt reduction. In July 2024, we redeemed US61 $1,000,000 of the US300 $1,000,000 senior secured notes due 2028 during the inaugural semiannual redemption period, which Tony will expand on during his comments. To further support our production growth plans, Greenfire continues to grow the bench strength of its talented team of thermal experts.

Speaker 2

I want to take this opportunity to welcome Jonathan Candirka as our new Chief Operating Officer. Mr. Kandurka brings an extensive history with SAGD and Thermal Operations, most recently at MEG Energy. We look forward to applying his expertise to further enhance Greenfire's operational capabilities. Our Finance and Accounting group has also been bolstered with the addition of Mr.

Speaker 2

Dean Kustats as our new Vice President of Finance. He brings extensive expertise in oil and gas finance, accounting, planning and taxation and has a proven track record with growth companies in our sector. I am proud of this team's perseverance as we overcame various unforeseen operating challenges during the Q2. Following higher production at the expansion site in August, the Green Fire team remains focused on further advancing our drilling program and increasing production at both facilities into year end to deliver on the company's updated 2024 outlook. I will now hand the call back to Robert.

Speaker 1

Thank you, Robert. Aligned with our strategy, Greenfire has continued to execute our WTI focused commodity hedging approach, designed to reduce the volatility of adjusted fund flow and underpins the capital expenditure program. As of the end of Q2 2024, the company's hedging program for 2024 features 11,500 barrels per day of fixed price swaps for WTI at a price of just under US71 dollars per barrel. And for the first half of twenty twenty five, it features costless collars for 8,600 barrels per day with an average floor of almost US59 dollars per barrel and an average ceiling of over US85

Speaker 2

dollars per

Speaker 1

barrel. These contracts support Greenfire's ability to fund our capital program from internal cash flows in a volatile commodity price environment. Greenfire's production is 100% weighted to benchmarks linked to Canadian heavy oil pricing, providing material exposure to improvements in the WCS differential to further support Greenfire's adjusted free cash flow generation potential. Building on the momentum realized over the past several months, Greenfire continues to actively engage with the capital markets and enhance corporate name recognition with investors. We participated in multiple investor conferences, 1 on 1 meetings as well as in person events in New York, Calgary, Vancouver and Toronto.

Speaker 1

And analysts from a major Canadian bank launched coverage on the company, and we have an active fall schedule planned with conferences and marketing through the balance of 2024 in both Canada and the U. S. We look forward to continuing to hold meetings with new investors globally and share how Greenfire is redefining Oil Sands expectations. I will now hand the call over to Tony Kraljuk, our Chief Financial Officer, to discuss highlights from Greenfire's financial performance.

Speaker 3

Thank you, Robert, and good morning, everyone. Green Fire benefited from stronger realized commodity pricing through Q2 2024 and a more favorable WCS differential to WTI compared to both the previous quarter and to Q2 last year. This contributed to operating netbacks of $36.68 per barrel, a 49% increase over Q1 and a 59% increase over Q2 2023. Strong pricing and lower operating expenses in the quarter also drove adjusted EBITDA of $58,400,000 and adjusted funds flow of $47,200,000 again higher than both the previous quarter and the same quarter of 2023, even with $13,800,000 of realized losses on commodity risk management contracts. For our capital program, a total of $23,000,000 was invested on property plant and equipment during the quarter, of which 90% was allocated to drilling activities at both the demo and expansion assets, with the balance directed to various facility optimization projects.

Speaker 3

As such, Greenfire generated $24,200,000 of adjusted free cash flow in Q2. Liquidity at June 30 totaled approximately $210,000,000 comprised of $160,000,000 of cash and cash equivalents, including approximately $50,000,000 of additional working capital supported by the accelerated collection of oil sales for June 2024 and a $50,000,000 of available credit under our reserve based credit facility. The face value of the company's US300 million dollars senior secured notes due 20.28 was approximately CAD410 1,000,000 at quarter end assuming the US to Canadian dollar exchange rate at the end of Q2. As Robert mentioned earlier, we're pleased with our meaningful debt repayment in July by using the excess cash flow sweep mechanism to redeem approximately US61 $1,000,000 or 20 percent of the outstanding 20 28 senior notes. We continue to reduce debt in the near term using 70% of our excess cash flow to semi annually redeem a portion of these 20 28 notes until total indebtedness is less than US150 1,000,000 dollars At that point, we have greater flexibility to allocate up to 75% of excess cash to future investments and potential shareholder returns and 25% of that to debt repayment.

Speaker 3

With our US1 $800,000,000 of corporate tax pools, lower prepayout royalty rates at the expansion assets due to sizable unrecovered royalty balances and no gross overriding royalty obligations at the Hangingstone facilities, Greenfire remains favorably positioned. These advantages enhance our adjusted free cash flow generating potential, especially during periods of high commodity prices. Furthermore, we are seeing the benefit of the narrowing differentials following the completion of the Trans Mountain expansion, given 100% of our production is tied to crude oil benchmarks linked to WCS differentials. With that, I'll turn it back to the operator to open up the line for questions.

Operator

Thank you. We will now begin the question and answer session. The First question comes from Jason Wangler with Imperial Capital. Please go ahead.

Speaker 4

Thanks so much. Good morning, everybody. Wanted to just ask the production increase you guys have seen obviously July and of late, a lot of things were kind of going on during the Q2, I know. But do you have an idea of just how much of that uplift is kind of debottlenecking in the facilities kind of getting back to where you want them versus kind of these new drills? Because it seems like it's really ramping up maybe more quickly than I would have thought.

Speaker 2

Hi, Jason. Robert Logan here. I would say right now the majority of what we're seeing is due to the drilling. The reason for that is a lot of the facility debottlenecking happens during the turnarounds, which are scheduled for September October for expansion and demo respectively.

Speaker 4

Okay. And the other thing I was curious about, just noticed in the release, you talked about a couple of minor acquisitions. Could you maybe just talk about what was there and what you're seeing in the market? Obviously, I know there's some constraints, I think, with your notes right now, but just how you're seeing the M and A market, both with what you've already done and what you're thinking about doing in the future?

Speaker 2

Tony, did you want to kick that one off?

Speaker 3

Sure. Happy to. Hi, Jason. How are you today?

Speaker 4

Good. Thanks for

Speaker 3

the question. Good, good. So we acquired 2 small acquisitions here, mostly related to tuck in acquisitions. So the first one was small gas assets that were at a shallower reservoir over our existing oil sands acreage. So we made that acquisition to better control our land base.

Speaker 3

So it was more related to ensuring we had full control of the reservoir not having any competing interest with some of the small gas assets on that. So it's a pretty minor acquisition, very small volumes of gas. It was there purely to ensure our ability to operate our reserves most effectively. The second acquisition was acquiring the Mackay lease out of receivership. So this opportunity came to us at the right time.

Speaker 3

It's something we've acquired at this point for nominal consideration and it's something we'll assess in the future is when we look to advance that project. For now, we continue to remain focused on moving forward our fill the plan concept at existing expansion and demo. So this is something for the longer term.

Speaker 4

Great. I appreciate it. Thanks so much.

Speaker 2

No problem.

Operator

There are no more questions, this concludes the question and answer session. I would like to turn the conference back over to Robert Loback for any closing remarks.

Speaker 1

Thank you, operator. On behalf of Greenfire, we appreciate you joining us today on our Q2 2024 earnings conference call and encourage you to reach out to the team should you have any additional questions or wish to engage. Have a great day.

Operator

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

Powered by Quartr
Earnings Conference Call
Greenfire Resources Q2 2024
00:00 / 00:00