They just announced their capital budget appended below with a detailed multi-year growth plan. What is not in their plan is direct shareholder return or statements to that effect, and that is a short term mistake. The shares are getting hit hard by people with similar disappointment.
This is the opposite of what PEY announced by cranking up their dividend at the expense of more rapid debt reduction. CR should have said shareholder returns are a top priority (buybacks and/or a small divi) along with reserve (not necessarily production) growth for future LNG export. The market would have reacted more positively.
Now I'm watching and wondering. We are about two years or possibly longer from LNG Canada and that's an eternity for investors. We've been waiting for LNG export from BC for a lot longer than a decade so I've got patience but CR now needs to be cheaper for me to increase. Not because they are doing the wrong thing for the company, but because it might be the wrong thing for investor sentiment. Sigh. Have to ponder.
CREW ENERGY ANNOUNCES 2023 CAPITAL BUDGET AND 4-YEAR PLAN TO SIGNIFICANTLY INCREASE SIZE AND SCALE THROUGH 2026 BY BUILDING ON SUCCESS OF PREVIOUS TWO-YEAR PLAN
Crew Energy Inc.'s board of directors has approved a capital expenditure budget for full-year 2023, and has unveiled a new, longer-range asset development plan that builds on the successful execution realized with its 2020 two-year plan. Having provided preliminary guidance for the first half of 2023 ("H1/23") within our Q3 2022 results press release, Crew is pleased to share details of our 2023 Budget, along with our preliminary longer-range plan through 2026 (the "Four-Year Plan")1.
Successful execution of this Four-Year Plan would position Crew to significantly increase production, targeting average annual volumes of approximately 61,000 boe per day2 upon completion. In addition, the Four-Year Plan sets the stage for the Company to realize further enhanced margins and increased adjusted funds flow ("AFF")3, while maintaining conservative leverage metrics of approximately one times or less net debt3 to last twelve months ("LTM") EBITDA4 .
TARGETS EXCEEDED IN PRIOR TWO-YEAR PLAN
At the end of 2022, Crew will have successfully concluded the execution of our 2020 two-year plan that was originally announced in December 2020, with financial results coming in well ahead of initial forecasts:
BACKGROUND TO THE FOUR-YEAR PLAN
As part of the Company's regular strategic planning, Crew evaluated a number of value creating strategies for our shareholders, particularly in light of our vast high-quality strategic resource in NE BC. After careful consideration, Crew's management and the Board believe that our shareholders' best interests would be served by continuing to invest in our assets and grow production at a pace that also allows the Company to:
- control the speed of development to ensure a conservative balance sheet is maintained;
- maintain ownership and control of strategic infrastructure;
- invest in our highly economic assets to increase AFF3 and free AFF5 per share which should enhance the equity value of Crew's shares;
- position Crew to be an active participant in what is expected to be an improved natural gas pricing environment when LNG Canada is commissioned;
- continue to drive down per unit costs and improve margins;
- continue building on the momentum achieved in our ESG and sustainability initiatives; and
- ensure there are contingency plans in place to maintain a position of operational control and strength for Crew during periods of adversity.
While Crew successfully increased production and expanded development of our asset base over the past two years, the Company has adapted and compromised on certain capital allocation decisions related to limited regulatory permits being issued in NE BC associated with the ongoing negotiation between the BC Government and the Blueberry River First Nation that has persisted for the past 17-months. Recent public statements by the BC Government indicate that a resolution is "very close", and as such, Crew is cautiously optimistic that the issuance of regulatory permits may soon resume. In that case, Crew would be ideally positioned to regain flexibility around capital allocation decisions across our asset base. The Company currently has an inventory of 65 actionable well permits of which 47 are tier one locations and has submitted numerous permit applications for approval, representing 93 well locations, the future Groundbirch Plant, gathering lines, facilities, and ancillary activities. This is expected to support the Company's active drilling and completions program as contemplated in the Four-Year Plan.
Crew's Four-Year Plan is designed to build on the momentum gained over the last two years, underpinned by a planned active hedging program and continued focus on operational excellence and execution. The Company's long runway of more than 2,500 identified potential drilling locations6, of which only 219 are currently booked, supports our goal to double Crew's production to more than 60,000 boe per day2 between 2023 and 2026, while maintaining a net debt3 to LTM EBITDA4 ratio of approximately one times or less through that period. In the development of our dynamic and flexible Four-Year Plan, the Company has taken a measured approach and considered a variety of potential adverse events7. By doing so, Crew plans to implement cost-effective contingencies available for exercise at our option to maintain the position of financial strength that we successfully realized by executing our previous 2020 two-year plan.
With the unveiling of this new Four-Year Plan, we are extremely excited to continue demonstrating the strength of Crew's strategy, the skills and abilities of our people, and the value of our world-class Montney assets.
FOUR-YEAR PLAN OVERVIEW
Crew's previously expanded 2022 capital budget allowed the Company to complete five (5.0 net) extended reach horizontal ultra-condensate rich wells in Q4/22 into a higher forecasted winter natural gas price environment, and to drill six (6.0 net) wells at Tower to realize efficiency gains through continuous drilling operations. Crew has also submitted permit applications to build an electrified 180 mmcf per day deep-cut gas plant at Groundbirch (the Groundbirch Plant") allowing the Company to reduce operating costs associated with carbon taxes, while materially reducing emissions intensity. The planned Groundbirch development further supports the Company's goal to reach average production of over 60,000 boe per day2 in 2026. Total capital investments through 2026 are modeled at $1.4 to $1.5 billion, while targeting a net debt3 to LTM EBITDA4 ratio of approximately one times or lower at commodity price assumptions of US$70 per bbl WTI and C$4.00 per mcf AECO through the Four-Year Plan. Crew has secured an additional 120 mmcf per day of natural gas transportation, expected to come on-line in two tranches in 2025. This transportation is additive to our existing natural gas transportation portfolio and sequenced to provide flexibility to manage exposure to long term commitments if required.
The acceleration of capital from 2023 into 2022, as outlined in our Q3 results press release, results in lower forecast net capital expenditures5 for the first half of 2023, estimated at $45 to $50 million. Additionally, the 2023 Budget facilitates the redemption of the balance of Crew's $172 million outstanding Senior Unsecured Notes (the "Notes") during the first six months of 2023, utilizing a combination of free AFF5 and a draw on the Company's recently increased $200 million credit facility. The planned redemption of the Notes and reduced capital expenditures are designed to support the achievement of specific goals in H1/23, including realizing net debt3 of less than $100 million and being positioned to obtain regulatory permits to prudently and strategically develop our assets under our new Four-Year Plan.
Crew's full year 2023 net capital expenditures5 budget is forecasted to be $230 to $250 million, with H2/23 expected to be $185 to $200 million, of which $55 to $65 million is planned to be directed to infrastructure and deposits on long-lead items. Infrastructure investment plans include:
- condensate stabilization and waste heat recovery at Septimus during H1/23 designed to increase Septimus Gas Plant condensate capacity to 5,000 bbls per day, facilitating expanded development of our ultra-condensate rich area, building on the success of our 4-14 wells;
- construction of 20 kilometers of both 12-inch and 10-inch pipeline from Groundbirch to West Septimus, of which 50% is planned to be completed in H2/23;
- expenditures for long lead equipment for the planned expansion of compression at West Septimus in 2024 designed to increase the facility's inlet capacity to over 135 mmcf per day; and
- payment to secure a line position for electrification of the planned Groundbirch Plant with final investment decision ("FID") anticipated by year end 2023, which will be dependent on receiving regulatory approvals to complete the project, supportive commodity prices and securing financing for the project.
The focus on achieving specific goals in H1/23 is expected to result in Crew's 2023 drilling and completions being predominantly focused in H2/23. The 2023 Budget includes the drilling of 18 (18.0 net) wells and completion of 19 (19.0 net) wells in the Greater Septimus and Groundbirch areas of NE BC during H2/23. With timing of the new drills beginning in Q3/23, coupled with anticipated shut-ins of existing wells to accommodate offsetting completions activity, volumes in 2023 are forecast to be in line with 2022, averaging 30,000 to 32,000 boe per day2 with a forecast exit rate of 35,000 to 37,000 boe per day2 (exit being defined as average production through the month of December 2023).
Active Hedging Program Through 2023
Crew has been actively hedging natural gas and condensate volumes for 2023 and plans to begin hedging for 2024 and 2025. Through 2023, Crew has approximately 72,000 GJ's hedged at C$4.47 per GJ (or $5.45 per mcf using Crew's higher heat content factor) and 1,500 bbls per day of condensate at an average price of C$106.00 per bbl for the first six months of 2023 and 250 bbls per day at an average price of C$102.50 per bbl for the second half of 2023. 2024 PLAN 1
Crew's Four-Year Plan assumes the investment of between $400 to $450 million in net capital expenditures5 in 2024, with $165 to $185 million allocated to infrastructure. The plan includes drilling approximately 30 (30.0 net) wells, completing approximately 24 (24.0 net) wells, as well as drilling and completing one (1.0 net) disposal well and initiating construction of the Groundbirch Plant, which will be integral to support the Company's long-term growth and expanded scale.
Between H2/23 and H2/24, Crew would be required to identify and secure financing for the Groundbirch Plant, which could potentially be sourced from AFF, bank or other debt instruments, asset sales, equity issuances, an infrastructure financing partner or some combination thereof. Crew's 2024 average annual production is targeted at 35,000 to 37,000 boe per day2 with a targeted exit rate between 38,000 to 40,000 boe per day2.
2025 PLAN 1
Crew assumes 2025 net capital expenditures5 between $400 to $450 million, of which approximately $135 to $155 million is expected to be allocated to infrastructure. The 2025 plan targets drilling of approximately 37 (37.0 net) wells and completing approximately 28 (28.0 net) wells, along with construction, completion and tie-in of the Groundbirch Plant in Q4/25. Average annual production in 2025 is targeted at 41,000 to 43,000 boe per day2, resulting in a targeted exit rate of over 55,000 boe per day2, with the higher volumes designed to support improved per unit cash costs5 declining to between $8.00 to $9.00 per boe in Q4/25.
2026 PLAN 1
In the final year of the Four-Year Plan, Crew has the potential to increase average production to between 60,000 to 62,000 boe per day2. Based on current strip prices it is expected that this level of production would generate significant free AFF5 based on a preliminary model comprising 2026 maintenance capital investment of approximately $325 million to $375 million, the majority of which would be directed to drill approximately 33 (33.0 net) wells and complete approximately 40 (40.0 net) wells, designed to enable Crew to fill the Groundbirch Plant.
At Greater Septimus, the three Upper Montney "B" wells drilled to the west on the 4-14 pad have continued to outperform with average IP270 wellhead production rates of 7,436 mcf per day and 391 bbls per day of condensate. The five Upper Montney "B" wells drilled to the east on the 4-14 pad have also continued to outperform with average IP210 wellhead production rates of 1,700 mcf per day and 568 bbls per day of condensate.
At Groundbirch, the five new wells drilled into three distinct zones in the Upper Montney have been produced intermittently and are currently producing an average wellhead rate of 7,680 mcf per day. Although pipeline restricted, current wellhead production from this eight well pad is approximately 52,000 mcf per day with three wells restricted with bottom hole chokes and one well shut-in.
Crew is currently drilling a six (6.0 net) well pad at Tower and is completing a five (5.0 net) well pad at Greater Septimus.
ONGOING SUSTAINABILITY AND ESG INITIATIVES
Crew's environment, social and governance ("ESG") initiatives continue to be a core focus, most recently evidenced by the Company achieving independent certification of the natural gas and natural gas liquids production from our NE BC development area under the Equitable Origin EO100 Standard for Responsible Energy Development. From our baseline in 2019 to the end of 2021, Crew's focus on reducing emissions has resulted in a 23% reduction in emission intensity while production increased by 16%. Crew's goal to increase production by 83%, in addition to implementing meaningful emissions reduction projects such as Waste Heat Recovery and Electrification, is expected to result in Crew's emissions intensity declining by 64% from 2019 levels by 2026.
Crew is a growth-oriented natural gas and liquids producer, committed to pursuing sustainable per share growth through a balanced mix of financially and socially responsible exploration and development. The Company's operations are exclusively located in northeast British Columbia and feature a vast Montney resource with a large contiguous land base in the Greater Septimus and Groundbirch areas in British Columbia, offering significant development potential over the long-term. Crew has access to diversified markets with operated infrastructure and access to multiple pipeline egress options. The Company's common shares are listed for trading on the Toronto Stock Exchange ("TSX") under the symbol "CR" and on the OTCQB in the US under ticker "CWEGF".
1 Crew's plans, goals and targets for 2024 and beyond remain preliminary in nature and do not reflect a Board approved capital expenditures budget. Accordingly, undue reliance should not be placed on the same.
2 See table in the Advisories for production breakdown by product type as detailed in NI 51-101, with 2025 and 2026 volumes dependent on modeled construction timelines from BC Hydro to support the electrification of the Groundbirch Plant.
3 Capital management measure that does not have any standardized meaning as prescribed by International Financial Reporting Standards, and therefore, may not be comparable with the calculations of similar measures for other entities. See "Advisories - Non-IFRS and Other Financial Measures" contained within this press release.
4 Supplementary financial measure that does not have any standardized meaning as prescribed by International Financial Reporting Standards, and therefore, may not be comparable with the calculations of similar measures for other entities. See "Advisories - Non-IFRS and Other Financial Measures" contained within this press release.
5 Non-IFRS financial measure or ratio that does not have any standardized meaning as prescribed by International Financial Reporting Standards, and therefore, may not be comparable with calculations of similar measures or ratios for other entities. See "Advisories - Non-IFRS and Other Financial Measures" contained within this press release and in our most recently filed MD&A, available on SEDAR at www.sedar.com.
6 See "Drilling Locations" in the Advisories.
7 See "Advisories - Risk Factors to the Four-Year Plan".
We seek Safe Harbor.