Southern Energy has announced the release of its fourth quarter and year end December 31, 2022, financial and operating results.

FOURTH QUARTER AND YEAR END 2022 HIGHLIGHTS

• $3.1 million of adjusted funds flow from operations in Q4 2022 ($0.02 per share basic and diluted) compared $1.4 million in Q4 2021 ($0.02 per share basic and diluted) and $17.2 million for the year ended December 31, 2022 ($0.16 per share basic and $0.14 per share diluted), an increase of 500% from the same period in 2021
• Net earnings of $1.7 million ($0.01 per share basic and diluted) and $9.3 million ($0.09 per share basic and $0.08 per share diluted) for the three and twelve months ended December 31, 2022; as compared to net earnings of $3.3 million ($0.06 per share basic and $0.05 per share diluted) and $10.1 million ($0.24 per share basic and $0.19 per share diluted) in the same period of 2021. 2021 results included the one-time recognition of an impairment recovery and gain on debt retirement
• Petroleum and natural gas sales were $9.8 million in Q4 2022 and $45.2 million for the full year 2022, an increase of 37% and 127% from the same periods in 2021, respectively
• Average production of 16,084 Mcfe/d (2,681 boe/d) (96% natural gas) during Q4 2022 and 15,584 Mcfe/d (2,597 boe/d) (95% natural gas) for the full year 2022, an increase of 26% and 24% from the same periods in 2021, respectively
• Average realized natural gas and oil prices for Q4 2022 of $6.35/Mcf and $81.98/bbl, respectively, reflecting the benefit of strategic access to premium-priced US sales hubs in a geographic region with strong industrial and power generation natural gas demand
• On July 7, 2022, successfully closed a $17.5 million bought deal prospectus offering in Canada and a $13.5 million placing in the UK, raising aggregate gross proceeds of $31.0 million
• Successfully negotiated a $25.0 million borrowing capacity increase in respect of its senior secured term loan to increase the total Credit Facility to $35.0 million
• Exited Q4 2022 with positive net cash of $13.4 million
• In November 2022, spud three horizontal wells from the 18-10 padsite at Gwinville which included the first City Bank appraisal well

Ian Atkinson, President and CEO of Southern, commented:
"Our Q4 and full year 2022 results have provided a preview of what Southern can and expects to achieve, with its strong underlying production base and technical ability to organically grow our assets at constructive natural gas prices. Our equity financing in July and Credit Facility expansion in September have put the Company in a position to weather the natural gas price volatility and provide flexibility and patience as we continue to work towards our goal to reach 25,000 boe/d. We're excited to build upon the learnings from our three well appraisal program in Q2, as well as the seven wells drilled as part of the follow up program at Gwinville which will continue to translate into future drilling and cost efficiencies when the program resumes. We have positioned ourselves to re-ignite our organic growth in a more supportive natural gas price environment and will continue to seek growth opportunity to increase significant shareholder value as we continue through the year."

Outlook 

In order to be diligent in protecting the Company balance sheet and respond to the current low natural gas prices, Southern has moderated and taken a pause on the Gwinville organic growth program. Southern has left four drilled, uncompleted wells (“DUCs”) that can be quickly completed and brought online through Southern’s 100% owned equipment at higher natural gas prices. Southern currently has $23.0 million of unused capacity on its Credit Facility, which can be utilized to complete the DUCs at supportive natural gas prices or be opportunistic with counter cyclical inorganic growth opportunities.

Natural gas prices have been under pressure in 2023 coming off a mild winter in North America and increased production from the depletion of the DUC well inventory as a result of higher prices in 2022. In Q1 2023, Southern was protected from some of the volatility with a costless collar on 2,000 MMBtu/d of production with a floor price of $3.50/MMBtu. To further protect against the volatility, Southern has entered into a basis swap transaction to secure a premium to NYMEX of $0.32 per MMBtu on 1,000 MMBtu/d from April 1, 2023 to October 31, 2023. The Company continues to monitor the basis differential prices and is prepared to hedge additional basis exposure at elevated basis premiums.

Calvin Yau, Chief Financial Officer of Southern, commented: 
“2022 was a record year for Southern thanks to strong production from our base assets and the Gwinville appraisal program along with the continued strength of natural gas spot and basis pricing premiums to NYMEX in Southeastern U.S., building a solid foundation for Southern as we enter 2023. While we were excited to begin our long‐term drilling program, we felt it was prudent to take a pause and protect our balance sheet in order to be flexible and able to capitalize on potential opportunities or quickly resume our organic growth program at the right time. Southern is in an enviable position being able to operate in a nimble and dynamic way around our drilling program, and with a constructive outlook for the U.S. natural gas market in the short to medium term, we are confident in maximising value from our assets by sensible well management.  

“The Company’s long‐term strategy remains consistent, with an unwavering commitment to environmental, social and governance (“ESG”) principles that support the continued development and consolidation of prolific reservoirs that are outside of the more expensive shale basins. Cost savings and financial discipline will remain a priority through the continued enhancement of operations and the ongoing evaluation of opportunities to reduce operating and capital costs. 

“Southern thanks all of its stakeholders for their ongoing support and looks forward to providing future updates on operational activities and continuing to create shareholder value.” 

Operational Update

The Company continues to flow back the Gwinville 18-10 #1 City Bank well, with load fluid recovery of approximately 9%. Based on historic vertical and early generation horizontal well completions in the City Bank reservoir in Gwinville, peak gas rates are not expected until the load fluid recovery is closer to 20%, which is expected to be towards the end of this quarter. Early gas rates are encouraging and Southern is excited to provide further operational updates in Q2 2023 as the modern generation City Bank type curve results are established.

Remediation plans for the 18-10 #3 Upper Selma Chalk well that experienced a mechanical integrity issue with the production casing during completion operations continue to be finalized, with field execution expected in late Q2 2023.

The four wells that are awaiting completion include our first two Lower Selma Chalk laterals, along with our second City Bank lateral and one Upper Selma Chalk lateral. These four wells are some of our longest laterals to-date. They were drilled with an average lateral length of approximately 5,400’ and were steered within the high-graded intervals for an average of 95% of the wellbore length. The two padsites can be brought on production within a matter of weeks once completion operations are resumed.