Headwater Exploration Inc. Announces 2022 Budget, 2021 Guidance Update, Third Quarter Financial Results and Operational Update

Canada NewsWire

CALGARY, AB, Nov. 10, 2021

CALGARY, AB, Nov. 10, 2021 /CNW/ - Headwater Exploration Inc. (the "Company" or "Headwater") (TSX: HWX) is pleased to announce its operating and financial results for the three and nine months ended September 30, 2021. Selected financial and operational information is outlined below and should be read in conjunction with the unaudited condensed interim financial statements and the related management's discussion and analysis ("MD&A"). These filings will be available at www.sedar.com and the Company's website at www.headwaterexp.com.

Financial and Operating Highlights

                               Three months              Nine months 
                               endedSeptember 30,        endedSeptember 30, 
                              2021     2020             2021     2020 
Financial (thousands of 
dollars except share data) 
Sales, net of blending (1)     48,841                -  109,392            2,873 
Cash flow provided by 
 operating activities          27,888            (364)   63,903            1,681 
    Per share - basic            0.14           (0.00)     0.32             0.01 
                    - 
                     diluted 
                     (3)         0.12           (0.00)     0.27             0.01 
Adjusted funds flow (used 
 in) from operations (2)       31,524            (837)   69,185            3,966 
    Per share - basic            0.16           (0.01)     0.35             0.03 
                    - 
                     diluted 
                     (3)         0.13           (0.01)     0.29             0.03 
Net income (loss)              26,106          (1,723)   17,901         (10,212) 
    Per share - basic            0.13           (0.01)     0.09           (0.08) 
                    - 
                     diluted     0.12           (0.01)     0.08           (0.08) 
Adjusted net income (loss) 
 (2)                           28,868          (1,723)   45,831         (10,212) 
    Per share - basic            0.14           (0.01)     0.23           (0.08) 
                    - 
                     diluted 
                     (3)         0.12           (0.01)     0.19           (0.06) 
Capital expenditures           37,293               61   91,346              529 
Adjusted working capital (2)                             63,709          112,667 
Shareholders' equity                                    295,528          155,148 
Weighted average shares 
(thousands) 
    Basic                     202,313          145,044  198,385          131,997 
    Diluted                   218,190          145,044  214,166          131,997 
Shares outstanding, end of 
period (thousands) 
    Basic                                               202,466          145,044 
    Diluted (4)                                         240,447          158,627 
Operating (6:1 boe 
conversion) 
Average daily production 
 Heavy crude oil (bbls/d)       7,637                -    5,751                - 
 Natural gas (mmcf/d)             0.3                -      3.7              3.7 
 Natural gas liquids 
  (bbls/d)                          -                -        3                2 
 Barrels of oil equivalent 
  (5) (boe/d)                   7,688                -    6,363              625 
Average daily sales (6) 
 (boe/d)                        7,613                -    6,355              625 
Netbacks ($/boe) (7) 
 Operating 
    Sales, net of blending 
     (1)                        69.73                -    63.05            16.76 
    Royalties                 (10.46)                -   (8.66)           (0.42) 
    Transportation (1)         (8.68)                -   (7.86)                - 
    Production expenses        (4.42)                -   (4.88)           (9.92) 
Field netback (2)               46.17                -    41.65             6.42 
    Realized gains on 
     financial derivatives          -                -   (0.23)            22.97 
 Operating netback (2)          46.17                -    41.42            29.39 
    General and 
     administrative expense    (1.40)                -   (1.61)          (12.44) 
    Interest income and 
     other (8)                   0.24                -     0.08             6.19 
 Adjusted funds flow netback 
  (2)                           45.01                -    39.89            23.14 
(1)  Heavy oil sales are netted with blending expense to 
      compare the realized price to benchmark pricing while 
      transportation expense is shown separately. In the 
      interim condensed financial statements blending is 
      recorded within blending and transportation expense. 
(2)  See "Non-IFRS Measures" and "Operating Metrics". 
(3)  Calculated based on fully diluted shares outstanding 
      for both the three and nine months ended September 
      30, 2021 (refer to note (4)). 
(4)  Includes in-the-money dilutive instruments as at September 
      30, 2021 which include 7.6 million stock options with 
      a weighted average exercise price of $1.63, 15.4 million 
      warrants issued pursuant to the recapitalization transaction 
      with an exercise price of $0.92 and 15 million warrants 
      with an exercise price of $2.00. 
(5)  See '"Barrels of Oil Equivalent." 
(6)  Includes sales of unblended heavy crude oil, natural 
      gas and natural gas liquids. The Company's heavy crude 
      oil sales and production volumes differ due to changes 
      in inventory. 
(7)  Netbacks are calculated using average sales volumes. 
(8)  Excludes accretion on decommissioning liabilities 
      and interest on lease liability. 

THIRD QUARTER 2021 HIGHLIGHTS

   -- Generated average production of 7,688 boe/d representing an increase of 
      17% over the second quarter of 2021 and an increase of 60% over the first 
      quarter of 2021. 
   -- Achieved adjusted funds flow from operations of $31.5 million ($0.16 per 
      share basic), representing an increase of 36% over the second quarter of 
      2021 and an increase of 118% over the first quarter of 2021. 
   -- Achieved an operating netback of $46.17/boe and an adjusted funds flow 
      netback of $45.01/boe. 
   -- Achieved adjusted net income of $28.9 million ($0.14 per share basic). 
   -- Commissioned the Company's joint gas processing facility in the Marten 
      Hills area which resulted in first sales gas and an approximate 50% 
      reduction in CO2e emissions intensity from the first quarter of 2021. 
   -- Executed a $37.3 million capital program in the Marten Hills area 
      including 3 successful exploration wells and 16 multi-lateral development 
      wells at a 100% success rate. 
   -- As at September 30, 2021, Headwater had adjusted working capital of $63.7 
      million and no outstanding debt. 

OPERATIONS UPDATE

Marten Hills Core Area

As of September 30(th) , the Company has drilled 30 multi-lateral horizontal wells in the core development area which has grown oil production from 3,385 bbls/d in the first quarter of 2021 to current levels exceeding 9,000 bbls/d.

Significant capital efficiency improvements have been realized with the drilling technique changes that were implemented after the first quarter. As of September 30(th) , 18 producing wells have been drilled with the improved drilling techniques and 11 of these wells have been on production post load recovery for at least 30 days. The 30-day average rate post load recovery production of these 11 wells is approximately 400 bbls/d per well. This represents a 33% improvement in capital efficiency from our first quarter wells that achieved 30-day average rates of 300 bbls/d per well.

Construction on the 100% owned Headwater oil processing facility is currently in progress. Once complete, the facility will tie-in directly to the Rangeland pipeline system and is anticipated to reduce our corporate transportation costs by approximately $4.00/boe resulting in a facility payout in less than 2 years. Commissioning of the facility is expected to occur in mid-January 2022.

Headwater has expanded its waterflood pilot operations with 2 additional injection wells placed on injection in mid-October. Results from our first pilot that commenced in April 2021 continue to be strong, with oil rates stabilizing at approximately 280-300 bbls/d which is 20% above the oil rates prior to injection.

Marten Hills Exploration Update

During the third quarter, Headwater drilled its first 3 successful exploration tests in Marten Hills west. Headwater is highly encouraged by the results which have begun to validate and provide confidence in the value associated with the Company's 285 net sections of exploration lands.

The first two of these wells were drilled as 6-leg lateral wells targeting the upper Clearwater formation in section 32-75-02W5. The first exploration well drilled, 11-32-75-02W5, achieved load recovery on September 19(th) and achieved average oil production in October of 127 bbls/d of 16.5 degree API crude oil. Based on current pricing, this well is expected to achieve payout within its first 7 months of production. The second exploration well, 13-32-75-02W5, is still producing load fluid however the inflow characteristics are very similar to the 11-32 well. With the encouragement provided from these two successful wells, Headwater has licensed an additional 17 development locations in this area with plans to drill 2 additional delineation wells prior to year-end.