Participants

Robert Loebach; VP of Corporate Development and Capital Markets; Greenfire Resources Ltd

Robert Logan; President, CEO & Director; Greenfire Resources Ltd

Tony Kraljic; CFO; Greenfire Resources Ltd

Michael Boam; Analyst; Sona Asset Management

Christopher Lembo; Analyst; Brigade Capital Management, LP

Jason Wangler; Analyst; Imperial Capital

Nicholas Akarian

Presentation

Operator

And a good morning, ladies and gentlemen. Welcome to the Greenfire Resources first quarter 2024 results conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. (Operator Instructions)
I will now turn the meeting over to Robert Loebach, Vice President of Corporate Development and Capital Markets. Please go ahead, Robert.

Robert Loebach

Thank you, operator. Good morning, everyone, and thank you for joining us for Greenfire's Q1 2024 earnings conference call. Please note that Greenfire's, financial statements and MD&A and press release are available on our corporate website with the associated documents filed on EDGAR and SEDAR+. Our corporate presentation has also been updated and is available on our website.
As we begin our discussion of these results and details, 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 on our most recent MD&A. All dollar amounts discussed today refer to Canadian dollars, unless otherwise stated.
All capital expenditures and production amounts discussed today on a working interest basis net to the company, unless otherwise stated, references to the Hangingstone Facilities refer to the Expansion Asset and Demo Asset collectively.
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 Loebach, Vice President, Corporate Development and Capital Markets.
Following the team's prepared remarks, we will be conducting a Q&A with our management team on the call, and we'll open the line to questions from participants.
I will now turn it over to our President and Chief Executive Officer, Robert Logan. Robert, please go ahead.

Robert Logan

Thank you, Robert and good morning to everyone joining us on this call. Given we have shared full details of our financial and operating results and the Q1 2024, press release and MD&A. This morning's call will be focused on providing additional context around Greenfire's current activities and our outlook for the future.
Before we get started, I wanted to provide a brief update on the wildfires situation in Northern Alberta. Out of an abundance of caution, Greenfire temporarily evacuated all nonessential personnel from its operated facilities on May 11. The company is actively monitoring the situation to ensure the protection and safety of our people and assets as the situation continues to evolve. Our thoughts and appreciation go out to the firefighters and other brave responders who are battling the fires.
Operationally, we are very pleased with Greenfire's continued performance through the first quarter of 2024, during which we navigated some challenges associated with extreme cold weather, regulatory delays at demo and five third-party downhole sensor failures that expansion.
Nonetheless, we had a responsible, safe and successful start to the year with consolidated bitumen production averaging 19,667 barrels per day in Q1, 13% or 2,300 barrels per day higher than Q4 of 2023. These results reflect strong production performance from the refill drilling program that began in August of 2023 and surface facility optimizations at the expansion asset, partially offset by unplanned impacts from the five previously disclosed downhole temperature sensor failures.
I'm also proud of how our team responded quickly and efficiently to changing circumstances during the quarter. Following continued delays with regulatory approval required to restart the disposal well the Demo Asset. Greenfire elected to reallocate the drilling rig from the Demo Asset to the Expansion Asset to advance redevelopment drilling activities. Once this drilling program concludes in Q3, we plan to mobilize the drilling rig back to the Demo Asset to continue to drill additional extended-reach refill wells.
The expansion drilling program is highly economic as expected, to have a significant positive impact on Greenfire's production growth in 2024. Production performance is anticipated to be further enhanced by continued increases in reservoir pressure at the expansion asset owing to sustained high rates of NCG co-injection.
In addition, we have now replaced failed downhole temperature sensors in three of the five refill wells and expect to see increases in average productivity from the affected refill wells that align with the current productivity of the remaining five refill wells that have had functional temperature sensors.
Despite the challenges with the faulty third-party downhole temperature sensors. We believe the initial positive results from our refill drilling program and the ongoing facility optimizations clearly demonstrate the high quality and potential productivity of Greenfire's Tier-1 SAGD assets.
Prior to moving the drilling rig over to the Expansion Asset, Greenfire drills three extended-reach refill wells at the Demo Asset, each having lateral lengths of approximately 2,300 meters or 700 meters longer than the refills we recently drilled at the Expansion Assets. In addition, the company drilled the second disposal well at the Demo Asset for additional operational flexibility, which is also awaiting regulatory approval to commence operations.
With the Trans Mountain Expansion Project operational as of May, Western Canadian heavy oil producers are positioned to benefit from approximately 600,000 barrels per day of incremental export capacity, which is anticipated to result in a structural tightening of WCS differentials over time. We are seeing summer differentials in the $11 to $12 per barrel range.
While Greenfire does not have any volumes contracted on TMX. The company'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 the company's free adjusted cash flow generation potential.
We are pleased to reiterate our 2024 outlook, including consolidated average production of 22,000 barrels per day to 25,000 barrels per day, assuming a fully funded capital expenditure range of between $70 million and $90 million, which is anticipated to result in meaningful free cash flow generation over the balance of 2024 assuming continued strong commodity prices.
This cash flow generation potential supports our ability to continue to prioritize repaying debt and evaluate implementing a return of capital strategy for our shareholders over time.
I will now hand the call over to Robert Loebach, our Vice President of Corporate Development and Capital Market.

Robert Loebach

Thank you, Robert. Greenfire continues to execute its WTI focused commodity hedging strategy to support the company's ability to fund its capital program in the current volatile commodity environment. The company's hedging program for 2024 features 11,500 barrels per day of fixed WTI price swaps at a price of approximately USD71 a barrel, which enables the company to fund its capital program from internal cash flows down to WTI prices as low as USD35 a barrel assuming a USD15 per barrel WCS differential.
For Q1 2025, the company added 8,600 barrels per day of WTI costless collars with a floor of about USD58 and a ceiling of approximately USD84 per barrel.
Our conference call timing announcement issued earlier this week included a notice that Greenfire has resolved the compliance requirement issued by the New York Stock Exchange in February of 2024. NYSE, previously indicated, that the company needed to comply with one of their continued listing standards, which required all listed companies to have a minimum of 400 public stockholders on a continuous basis. Greenfire now exceeds that threshold following our TSX listing, and the expiration of our six month lockup period related to the destock transaction.
I will now hand the call over to Tony Kraljic, our Chief Financial Officer, to discuss highlights from Greenfire's financial performance.

Tony Kraljic

Thank you, Robert. And good morning, everyone, for higher consolidated basement production with tighter WTI, WCS differential. Greenfire recorded strong realizations for bitumen in the first quarter of 2024 compared to the same period in 2023.
As such, we generated adjusted EBITDA of $39.3 million in the quarter, including $8.8 million of realized losses on commodity risk management contracts with an adjusted funds flow of 427.6 million. Greenfire invested $31.9 million in our capital program on property plant equipment in the quarter of which $21.9 million was allocated to drilling refill wells at both the Demo Asset and Expansion Asset.
Approximately $10 million was directed to various facility projects. The company had available liquidity of approximately $140.2 million at quarter end was $90.2 million of cash, cash equivalents and $50 million of available credit for the company's three year reserve-based credit facilities. The outstanding principal amount on the 2028 notes is USD300 million for approximately CAD407 million, assuming a US to Canadian dollar exchange rate at the end of Q1 2024 period.
As Robert mentioned previously, we remain committed to debt reduction and securing the cash financial flexibility. With Greenfire planning to use center extended active cash flow to semi-annually to redeem our 2028 notes until total indebtedness is less than USD150 million. That's our first excess cash sweep under our senior secured notes have scheduled around March 2024 of this year.
Well, of course our safety appears Greenfire favorably positioned with $1.8 billion of corporate tax rules cycles, unrecovered royalty balances resulting in lower prepaid royalty rates of expansion assets and no gross overriding royalty obligations of the Hangingstone Facilities collectively through the data to support strong just free cash flow generation, particularly during periods of high commodity price.
Yesterday afternoon, Greenfire released our first AGM as a publicly traded company, and we're pleased to report that the resolution is passed in favor, including our director nominees. Appreciate all serves to ten-fold to their profits.
At this point, I'll turn it back to the operator to open up the line for questions.

Question and Answer Session

Operator

(Operator Instructions)
Michael Boam, Sona.

Michael Boam

Hi, I wondered if you could kind of bridge your production guidance from where you are today. If we start with the disposal well, clearly that is disadvantageous to output demo. One, do you expect to get those permits or that authorization cleared? And how should we think about the ramp-up of the wells drilled that sponge in one, will the remaining senses the installed and complete on a monthly basis, should we start to see production increasing subject to the fires obviously, from here on in?

Robert Logan

Hi, Michael. Robert Logan here. Yeah, it's been frustrating with the continued regulatory delays on the disposal well, particularly since we already have one disposal well that's been operating at the expansion for years without issue. I will say that the industry as a whole has seen a bit of a slowdown in regulatory approvals. And I think the governments noticed that and taken steps to expedite that.
I'm not sure if you saw the news, but the Chairman of the Board and about half the directors that they are have been changed out now. So I think that we're going to be seeing our approvals imminently here. There's no reason why we wouldn't get the approval here, and we're highly confident that it's going to happen very soon. We saw an immediate 1,000 barrel per day reduction when that disposal well went off.
So there's 1,000 barrels a day right there that brings us from now I'll just call it 20,000 barrels a day to 21,000 barrels per day as the refills at demo ramp up, you're going to be seeing production from all of those. So that's all coming on at the expansion, you saw that the first five refills average 1,500 barrels a day each gross numbers, 1,200 barrels a day net to Greenfire with us or [11 15] with a 75% to us.
There's five more where we have the temperature sensors that failed. It's just a manufacturing issue. These sensors are used throughout the industry, including at all of the existing wells. In fact, you know, I actually installed some of the sensors at the site back in 2002 and 2003, and they're still working. So once you get through the manufacturing issue and they're highly ratable and they get a good long life out of it.
So the way to think about how we operate the wells, it's similar to how you're driving down a highway. If you're driving down and your windscreen is starting to fall again, similar to how has our downhole temperature sensors start to fail, for a while you can still drive at your normal speed. But as more and more of these sensors fail it's like your windscreen fogging up, so you have to drive slower and slower or you could get a wreck.
So the math doesn't mean that all five are going to turn on at 1,500 barrels per day because we have a combination of those that are just slow down or turned off, but you know, it'll be quite significant on the increase because well, but five wells down that a not a small part of our production, Michael, there's --

Michael Boam

That understood. I guess one should the other five temperature sensors be completed. One is the work to be completed on. I guess the other question I asked was will we start to see production increase on a meaningful basis prior to the end of the second quarter?

Robert Logan

Three of the five have now been finished. The third one, just recently we've got two more to do. I would have said I absolutely would see a meaningful production increase before the end of the quarter. The fire potential is what gives me pause where I can't put my hand on my heart because it's out of our control. So let's hope for some wet weather here.

Michael Boam

So what do you think your run rate will? I mean, assuming everything was working, or do you think is your current run rate production pro forma run rate production?

Robert Logan

That's where our guidances. I mean we would be well within our guidance of 22,000 barrels per day to 25,000 barrels per day.

Michael Boam

Okay. On the other point, I just wanted to check the hedging loss that you took in the quarter that was booked prior to EBITDA?

Robert Logan

Obviously, Tony do you want to weigh in on that?

Tony Kraljic

Yeah, we calculate our EBITDA. We show the EBITDA before and after the hedging loss. Michael's, if you look in the details of our breakdown, we had it before. So the $39 million include that $8.2 million losses we said in the script because we do have a breakout room at Francesca's.

Michael Boam

And then obviously far from the sort of the top down, you know, WHI was higher in April and remains reasonable. You've talked about the WTI WCS spread. There's no reason. Well, I mean, I know we're still in the second quarter, but if things stay where they are, there's no reason to think that the actual overlying economics shouldn't improve the guys going through Q2 versus Q1, think with the exception of output?

Robert Logan

Exactly.

Michael Boam

Fine. Thank you very much.

Robert Logan

Appreciate the questions, Michael.

Operator

Christopher Lembo, Brigade Capital.

Christopher Lembo

Hey, guys. I know the company can't do share buybacks until later this year, but has management been buying shares? And if so, could you share details on the quantum or just more detail in general and maybe your view on the public equity valuation today? Thanks.

Robert Logan

One is for you or for me to answer.

Tony Kraljic

That's the first part you're probably best to answer the second part about management by. So we yielded you’re correct until we get to our first case that we cannot look at shareholder returns, and it is something we're actually discussing as with our quarter and our plan is going forward as we look to deleverage the debt. In the longer term basis, we do see ourselves significantly undervalued where it appeared as if you look at our corporate presentation.
We do show easy to flowing barrel comparison to through our top computers in the Athabasca region, and we're at a 60%-ish discount to our peers, and we've done that for Parametric basis. So that's where we believe the amount of our shares has to be definitive about it, especially as we look to ramp up production of the remainder of the year.
I'll probably pass over to you. You can talk a bit about management by insurance.

Robert Logan

I agree I believe we're significantly undervalued. That's why I bought CAD1 million worth of shares.

Christopher Lembo

Great. Thank you.

Operator

Jason Wangler, Imperial Capital.

Jason Wangler

Good morning. I wanted to just ask on the capital spending side. I think you spent a little over $30 million in the first quarter. Just kind of how you see kind of the break down the next a few quarters to your budget as well as kind of what's the breakdown of that $30 million in terms of drilling versus facilities and infrastructure?

Robert Logan

Sure. Jason. On the call, Tony actually gave the breakdown of $31.9 million on that capital program of $21.9 million was allocated to drilling the refill wells and $10 million was on the facility projects. If you look at that breakdown, that includes a significant amount of long-lead items. Obviously, with a year-long drilling program and facilities, we had to buy some significant long lead equipment and a lot of that was bought in Q1.
A couple of other things that contribute to higher Q1 costs versus other months when we do what's called a winter drilling program. So a delineation program to look for where the best places to put our sustaining wells. You can only do that in the wintertime because the ground is frozen. So we actually brought in the second rig to help us with that.
And then additionally, during the wintertime, it's a much higher burn rate than what you have during the non- wintertime. Obviously, when it gets to minus 40 and minus 50, we need to spend a lot of money on keeping things are warm, especially on the drilling rig. So you bring in boilers and hot oilers, we go through a lot more diesel fuel.
So if you look at the other companies there, you'll see usually a higher Q1 than what you do on your Q2 and Q3 numbers. So we expect Q2 and Q3 to be down from there and still within our $70 million to $90 million capital target for the year.

Jason Wangler

Okay. Great. I appreciate it. Thank you.

Operator

(Operator Instructions)
[Nicholas Akarian], a private investor.

Nicholas Akarian

Hi, guys. Congrats on the quarter, my question is on the demo wells that you guys have drilled and how are you that it's an older reservoir and the Expansion Asset? And how should you think about the productivity on a per-foot basis relative to the productivity of the Expansion Assets of wells. The comparable is it a little bit lighter or like how should you be thinking about that to forecast the production that will come out of it?

Robert Logan

Hey, Nick. Robert Logan here, you hit the nail on the head in terms of it's an older reservoir. It's also a thinner reservoir than what the expansion is. The expansion is 25 to 30 meters, whereas the demo was 20 to 25 meters. So we're immediately you're not going to get as productive per meter length in the horizontal.
The second part of that is the demo has been producing for 25 years now, the expansion is at seven. So some of your recovery factors you see at the demo are higher than what you see at the expansion. And as a result, your productivity will be a little bit less because your chambers are more mature. They've come down a little bit more.
There's less of a pay column there now the thing that we can do to counter that is to just drill more well lengths. With a expansion we were drilling 1,600 meter long wells mile long wells and now with a demo where almost 50% longer than that of, we've been able to push the edges of what the industry has seen. And we're very happy that not only did we drill it.
But the harder thing to do with a much harder thing to do in the oil sands is to get your liner to bottom all the way in and we got our liner to bottom all the way on all of our wells. So we're in warmer process, having a disposal well would help us warm up a little bit faster because then we can push harder on there. But I think we're going to be quite happy with what we see on our the demo wells.

Nicholas Akarian

Got you. And then the other two questions I have are more capital allocation related. One is just post debt paydown. As that process goes on, how do you guys think about your hedging?

Tony Kraljic

Under unsecured bond issuance here, we have a got a 12 months rolling such requirements and that is in place. And so via bonds is under our USD100 million, USD50 million. So that will continue to look at that point. And then once we are beyond that point, we'll then look at hedging as part of our risk management going forward, depending on what the market is. So we'll make that decision at that time.

Nicholas Akarian

Got chat. And then on the on the capital return side, how do you guys think about different options? So whether it's a base dividend and variable dividends, special dividends and [NCIG or NSID]. How do you think in ways that, especially with them the liquidity, low liquidity in the stock?

Tony Kraljic

No, great question. It's one of our active debates right now we're having a clearly are these immediate focus is to delever, and that's where citing their percent of our cash is being allocated to them. And as we get beyond that, deleveraged it manageable, we'll look at all the options and conventions and to your point. I think it's a great debate here.
Right, when we look at our share price, as we talked about, we do believe a significant value. So we do see a benefit of participating in an NCIP program, some of the assets and looking to buy back shares. But we recognize liquidity is that it works out in one of our thoughts and buy back shares and pretax sure support, we could see the share price rise.
And with that, you could see other shares come from our consumer liquidity. So that could be an option. But at this point, we continue to monitor. It means though, when we make a final decision, we'll provide that update the market in due course.

Nicholas Akarian

Okay. Great. Thanks, guys for taking my questions.

Robert Logan

Thank you.

Operator

This concludes the question and answer session. I'd like to turn the conference back over to Robert Loebach back for any closing remarks.

Robert Loebach

Thank you, operator. On behalf of Greenfire, we appreciate you joining us today on our first quarter 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 brings to close today's conference call, and you may disconnect your lines, and thank you. For participating and have a pleasant day.