Q3 2024 Greenfire Resources Ltd Earnings Call

Jonathan Kanderka

Thanks Robert. What differentiates the Hanging Stone facilities from others? The assets is a relatively low producing well count compared to the facility’s current production levels. We believe it’s relatively high productivity per well combined with our structural cost advantage from not having to run down all pumps. Demonstrates that we have a tier one s the expansion asset currently had 24 producing wells online of the 32 wells drilled with estimated production of approximately 22,500 barrels per day on a 100% working interest basis or 16,900 barrels per day Net to Greenfire in 2024. The demo asset currently has eight well pairs online at a 24 well pairs drill following planned annual maintenance in October. We recently began production of three new refill wells at the demo asset marking the first new drills at the project since 2013. Initial results are strong with the first low averaging production of 1,000 barrels a day over the first two weeks of production. Supporting estimated November production of approximately 4,400 barrels per day as we remain ramping up wells as remaining ramping up wells. We expect continued improvement in December and beyond. At both the dental and expansion assets, we believe the high per well production rates of refill wells despite relatively high recovery levels is very promising, the existing paths of the facilities achieved oil ratios or so in the low two with strong per well performance and available facility capacity of both assets. We expect similar sol performance as we advance new sed well pair, it supports our future development plans to drill a new sustaining pad at the expansion asset and green fires ultimate strategy to drill to fill our 33,800 barrels per day of production capacity at the facilities to demonstrate the full potential of the asset.
We recently announced green’s future growth plans at the hanging facilities including projects to expand production capacity by 74% to approximately 59,000 bales per day which remain under development and subject to board approval and funding.
These projects include a brownfield expansion and the relocation of an existing facility at the expansion asset, as well as the reactivation of an existing facility at the dental asset.
The company plans to release its updated independent reserve report in the second half of November which is expected to incorporate greenfire 2024 operational initiatives, an expanded development area and an updated development plan.
I’ll now hand the call over to Robert Loebach, VP of corporate development and capital markets to discuss our hedging strategy and exposure to Canadian heavy oil prices.

Robert Loebach

Thank you. Jonathan Greenfire continued to execute on its WTI focused commodity hedging approach.
As of the end of Q3 2024 Green Fires hedging program features 11,500 barrels a day of fixed WTI price swaps at a price of just under $71 a barrel Us for 2024. For the first three quarters of 2025, our program features costless callers on 8,600 barrels a day with an average floor of almost $58 per barrel of WTI and an average ceiling of over $83 per barrel.
These contracts support green fire’s ability to fund our capital program from internally generated cash flows in a volatile commodity environment.
Greenfire production is 100% weighted to benchmarks that are linked to Canadian heavy oil pricing, thereby providing material exposure to improvements in the WCS differential in order to further support greenfire free adjusted cash flow generation potential. The transmountain expansion pipeline was completed in May of 2024 which added 5,900 barrels a day of new export capacity from Western Canada to tide water. This new pipeline capacity has supported Canadian heavy oil pricing particularly in the winter with current year end differentials averaging $12 a barrel of WC compared to $27 a barrel last year. This improved outlook for the WCS differential is expected to support pricing for green fires production.
I will now hand the call over to Tony Kraljic, our Chief Financial Officer to discuss the highlights of Greenfire financial performance.

Tony Kraljic

Thank you, Robert and good morning, everybody.
Greenfire generated CAD53.4 million of adjusted EBITA in Q3 of 2024.
This represents a 15% increase from the CAD44.4 million achieved in the same quarter last year.
The company also reported CAD58.9 million of net income for the quarter which is a significant improvement over the CAD138.7 million loss reported in the same period last year.
Our capital expenditures for the quarter totaled CAD21.2 million or CAD78.6 million for the first three quarters of the year. For the quarter Capital is allocated at CAD13.6million for drilling related activities and CAD7.6 million spent on various facility projects.
Justice fund flow was CAD44.1 million while cash used in operating activities was CAD17.9 million in Q3 of 2024 which included the impact of a $61 million of changes to non cash working capital due to the Q2 acceleration of collection of oil sales in June ahead of the July 2024 debt redemption.
Also, I realized loss on commodity risk management contracts for the quarter was $6.1 million.
We were able to generate CAD22.9 million in adjusted free cash flow in the quarter. Well, this is slightly lower than the CAD26.6 million generated in the same period last year. It’s a solid result given the less favorable commodity pricing and our continued investments in production growth.
Greenfire maintains a strong financial position with CAD87.7 million of available liquidity consisting of CAD37.7 million of cash and cash equivalents, as well as CAD50 million of available credit under our senior credit facility, which gives us significant flexibility to continue executing on our business plan.
As part of our commitment to reduce debt, we plan to continue to use 75% of our excess cash flow to redeem portions of the 2028 notes semiannually until our consolidated debt is reduced to $150 million. Notably in July of 2024 we redeemed CAD84.3 million or $61 million of the 2020 2020 28 notes, reducing the principal balance by 20% from $300 million to $239 million.
Greenfire is positively positioned with the current processing capacity of 33.8000 barrels a day, CAD1.8 billion of corporate tax pools, a lower prepay royalty rate at the expansion asset associated with sizable and recovered royalty balances and no gross royalty, no gross overriding royalty obligations at any of our hangings facilities.
As Jonathan mentioned, briefly announced Greenfire future growth plans to optimize our existing production capacity of 33,800 barrels a day at the hanging some facilities with further future growth initiatives to increase production capacity by 74% to 75,000 barrels a day, gross or 59,000 barrels a day net to Greenfire. If sanctioned, these growth projects are expected to allow for further cost structure improvements and increased future cash flow generation potential, which combined with relatively low sustaining capital requirements of our tier one SAGD reservoir is anticipated to support significant longterm shareholder return programs.
With that, I’ll turn it over to the operator to open up the lines for questions.

Operator

(Operator Instructions)
Jason Wangler with Imperial Capital.

Jason Wangler

Hey, good morning.
I know obviously the reserve report will come out here soon. But we just kind of curious as you look at the success you’ve had, you know, with the drilling this year is this program something kind of relatively repeatable for next year is that kind of how you’re looking at it or just, I guess what you’ve learned and what you’re thinking as you head into next year, you know, not necessarily a CapEx number but just kind of an activity level, I suppose.

Robert Logan

Thanks, Jason. Jonathan, why don’t you feel free to jump in with me? I can maybe kick that off. In terms of refill targets there’s still many targets left, there’s north of 15 targets between both sites.
And as you said, we’ve had a very successful program here including recently at the demo. The next part for increasing production will be additional refill pairs as well as getting ready with our sustaining pad. Jonathan. Do you want to maybe add a little bit more details around that in the 2025 program, please?

Jonathan Kanderka

Yeah, sure. The 2025 program, we’re going to focus primarily on targets that are in Koar Reservoir at demo, the potential refills are even sed pairs. And then the majority of the work and expansion will be the final refills that we have. And then as Robert said, the sustaining well pads that we’re really excited to get going on new well pairs and prove the asset can get back to the SR levels that we achieved earlier in its all pretty nice.

Jason Wangler

Okay, great, thanks. And then just, I guess on the financial side, you know, the the cash flows continue to be pretty good looks like you kind of build the cash up. Obviously, after the first sweep, the sweeps are obviously there, they’re stated, is there anything else you guys can do or you’re thinking of doing or is it pretty much just as of now kind of build the cash up, sweep it every six months or so? And then as you get to that, I believe it’s $150 million threshold, then you have more flexibility or I just wanted to see if that’s kind of the road map or if there’s other thoughts you guys have.

Robert Logan

There, Tony. Do you want to take that one?

Tony Kraljic

Happy to. Thanks Jason for the question. You know, as we continue to move forward, we need to focus on deleveraging our debt. That’s a prime directive of the company.
Our debt is available for potential refinancing to the two year anniversary mark which comes up next October. So that is something we’re considering as we move up to that point in time, we have a strong capital program ahead of us and we’ll look to finance that through our cash flows and continue to focus on that deleveraging once we hit that 150 million face, we’ll be able to change the capital occasion from 75% to debt and ship that to 75% for retention of the company. And that’s probably the appropriate time to start looking at your older returns.

Jason Wangler

Great.
I appreciate it. Thank you.

Tony Kraljic

You’re welcome.

Operator

Nicholas Zakarian

Nicholas Zakarian

Hey, guys, really good quarter. Just wanted to ask on the production of expansion, you didn’t seem to say that December was going to be stronger than November and post turnaround and post steam generator breakup or downtime as the performance is lagged versus where it was early. August. Can you give any color if this is related to the refill wells not working as you know, design or is it related to maybe the steam chamber needing to be heated up and how you look at that performance going forward? Thank you.

Robert Logan

For sure. Maybe Jonathan, do you want to start off with what we’re seeing at the demo and what the production is going to be in there and then I can maybe hit on the expansion if that works.

Jonathan Kanderka

Yeah, 100%. Thanks for the question. The, the new refills that we did a demo were very, we just got turned on after the October outage. The initial results are very promising. The first of all has come online at 1,000 barrels a day for the first two weeks. On average, we’re expecting continued growth from that Well, and then as the other two refill can start contributing more, we expect further develop, further production increases through December and beyond the one refill was turned into ad we pair by putting an inject over top of it. So we’re, and the reason for that, we encountered cooler apertures than we initially had thought. And therefore we have more recovery in front of us. So, very excited at the demo asset for these refills and then 2025 we will be doing more of the same. Robert, I’ll pass over to you for expansion.

Robert Logan

Awesome.
So, I mean, as you’ve seen, the production has been very good with only 24 wells on, you know, we’ve been in that, you know, 21 to 22,000 barrels per day as high as 24,000 barrels per day, you know, averaging almost 1,000 barrels per day per well, that’s turned on.
So what’s limiting us is the produced gas handling and the produced water handling capabilities, which we’ve got some bottlenecks coming on here including Q4 as we tie those in, we have to take some short outages to be able to tie into the well pads there. And so we expect to see continued production growth at the expansion as these bottlenecks come online.

Nicholas Zakarian

Got it. And, and is everything, I guess on the refill? Well, productivity, is it still stabilizing to the levels that you guys were expecting earlier or has there been changes after they’ve come on? That, you know, maybe that’s why you have to drill more wells.

Robert Logan

No, I think we’re happy with the productivity coming out of the wells. I mean, they’ve been quite high, there is decline that’s happening. I mean, the first refills have now been on for over a year and while, you know, for the 1st 270 days, you know, there were over 1500 barrels per day, you know, there is some decline that’s going on, which is natural and we have a lot more targets to bring on as well. So it’s us just trying to optimize the site and produce as much oil as possible every day. And the team is doing an incredible job of that.

Nicholas Zakarian

Okay, great, appreciate it and appreciate all your hard work and you know, looking forward to continuing executing on the growth plan.

Robert Logan

Thank you.

Operator

The next question is from [Ed Ajun]
Please go ahead.

Unidentified Participant

Good morning guys. Thanks for taking my questions. I, I’m a little bit confused by the recent discussion in terms of, so in 2023 the worlds you put on the extended reach refills as you showed in your presentation, as you just said a minute ago, averaged 1,500 around $1500 a day, first nine months. But then I did I hear that more recently that they come, they’re coming in at more like a 1000 barrels a day for the IP270.

Robert Logan

Hi Ed, Robert Logan here.
No, when I was talking about the 1,000 barrels per day per, well, that’s the average of the 24 wells that are turned on. Obviously, the 10 refill wells are higher than that and we have other wells that are turned on that are lower than that.

Unidentified Participant

Yeah, the older ones, I guess.

Robert Logan

Yeah. But I guess the point is, you know, when you look at the productivity of these wells, especially given their age and their recovery factor, these are absolutely outstanding wells within the industry much higher than what the rest of the industry is on a per well basis, which is really exciting for us as we continue to grow the site.

Unidentified Participant

Absolutely. Yeah, thank you for clarifying that.
So I’m just trying to get just to elaborate a little bit on the previous question of for next year, I know you’re not putting out actual guidance or anything, but how should I be thinking of where you think you can get to?
Let’s just leave the current constraints of 100 million a year cash flow. I mean, CapEx, do you think you could ultimately fill out the current production capacity by then? I think you said it was like 34,000 gross or something.

Robert Logan

Tony. Do you want to kick off? And then I can fill in?

Tony Kraljic

Yeah. If we look at 2025 in the front half of the year, we’re going to focus on the refill targets to bring those, you know, easier barrels on. If you will, as we move into the back half, we’re going to be looking to open up a new reservoir and move to new sustaining pads, which will take a bit more time to heat up cooler reservoir. So we don’t expect to fill the plant in 2025. We’ll move into a new sustaining pad in 2026 as well and we will target looking to hit that max capacity towards the back end of 2026.

Unidentified Participant

Oh, okay. Okay. Thank you. That’s very helpful. I guess the last question or line of questions is why don’t you can help me understand you figure on your balance sheet for what you’re showing as short term debt.
It might from a high level point of view is can I think about that as basically the what you think, what you’re projecting you’re going to owe under the terms of your current note over the next 6 month payments.

Tony Kraljic

Both under accounting requirements, the current portion of the of the debt is what you’re expected to pay in the next 12 months. So the number you’re seeing in the current portion is the estimated amount over the next 12 months. That would be repaid on the debt. That that’s a fair assumption. Yes, but over 12 months.

Unidentified Participant

So, which are which are the two the subject that the next?
Okay. And that, yeah, that’s in interestingly that’s going to get you just just above the $150 million. It looks like but, I guess any, so you, you can’t, you can’t voluntarily prepay anymore until October 25 you can’t really voluntarily prepay anymore. Is that correct?

Robert Logan

That is correct. Yes.

Unidentified Participant

Yeah.
All right. Well, I mean, it’s, you know, your debt metrics are such that even now you could probably, easily, it seems to me anyway that you could easily refinance, with the, that with better terms than what you have now. So, seems like, you know, as long as all prices don’t crash between now and October, we should be able to, we get a good refinancing, so we’re looking forward to that.
All right. I think that’s it.

Tony Kraljic

Wonderful. Thank you.

Operator

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

Robert Loebach

Thank you operator. On behalf of Greenfire, we appreciate you all joining us today on our third quarter, 2024 earnings conference call. Have a great day.

Operator

This brings today’s conference to a close, but you may disconnect your lines. Thank you for participating and have a pleasant day.