Category: Oil and Gas

Calgary, Alberta–(Newsfile Corp. – November 9, 2023) – Gear Energy Ltd. (“Gear” or the “Company”) (TSX: GXE) (OTCQX: GENGF) is pleased to provide the following third quarter operating results to shareholders. Gear’s Interim Consolidated Financial Statements and related Management’s Discussion and Analysis (“MD&A”) for the period ended September 30, 2023 are available for review on Gear’s website at www.gearenergy.com and on www.sedar.com.

	Three months ended									Nine months ended
(Cdn$ thousands, except per share, share and per boe amounts)		Sep 30, 2023			Sep 30, 2022			Jun 30, 2023			Sep 30, 2023				Sep 30, 2022
FINANCIAL
Funds from operations (1)		20,978			22,544			17,108			51,098				75,096
Per boe		41.38			42.79			32.74			32.64				47.96
Per weighted average basic share		0.08			0.09			0.07			0.20				0.29
Cash flows from operating activities		17,532			26,196			13,311			45,776				71,204
Per boe		34.58			49.72			25.47			29.24				45.48
Per weighted average basic share		0.07			0.10			0.05			0.18				0.27
Net income		8,150			17,750			5,550			15,690				47,286
Per weighted average basic share		0.03			0.07			0.02			0.06				0.18
Capital expenditures		12,008			14,872			7,370			37,370				31,650
Decommissioning liabilities settled- Gear		2,202			2,859			912			3,555				4,871
Decommissioning liabilities settled- Government (2)		–			433			–			37				683
Net (debt) surplus (1)		(13,297	)		6,959			(14,322	)		(13,297		)		6,959
Dividends declared and paid		5,243			7,751			7,849			20,918				10,361
Dividends declared and paid per share		0.02			0.03			0.03			0.08				0.04
Weighted average shares, basic (thousands)		262,139			258,385			261,629			261,549				259,752
Shares outstanding, end of period (thousands)		262,220			259,367			262,115			262,220				259,367
OPERATING
Production
Heavy oil (bbl/d)		2,601			2,546			2,698			2,677				2,756
Light and medium oil (bbl/d)		1,890			1,971			1,955			1,963				1,845
Natural gas liquids (bbl/d)		233			320			279			268				278
Natural gas (mcf/d)		4,720			5,339			4,860			4,953				5,135
Total (boe/d)		5,511			5,727			5,742			5,734				5,735
Average prices
Heavy oil ($/bbl)		89.65			89.32			73.92			73.30				100.62
Light and medium oil ($/bbl)		102.43			109.95			89.63			94.49				118.37
Natural gas liquids ($/bbl)		46.53			60.62			40.74			46.01				65.15
Natural gas ($/mcf)		2.64			4.47			2.22			2.67				5.51
Netback ($/boe)
Petroleum and natural gas sales		81.67			85.10			69.10			71.03				94.53
Royalties		(9.74	)		(12.14	)		(8.20	)		(8.51		)		(12.39	)
Operating costs		(23.57	)		(21.16	)		(21.54	)		(22.51		)		(20.95	)
Transportation costs		(3.28	)		(3.67	)		(3.75	)		(3.77		)		(3.55	)
Operating netback (1)		45.08			48.13			35.61			36.24				57.64
Realized risk management gain (loss)		1.00			(1.94	)		1.37			1.08				(5.60	)
General and administrative		(3.45	)		(3.20	)		(3.12	)		(3.65		)		(3.65	)
Interest and other		(1.25	)		(0.20	)		(1.12	)		(1.03		)		(0.43	)

 

(1) Funds from operations, net debt and operating netback do not have any standardized meanings under Canadian generally accepted accounting principles (“GAAP”) and therefore may not be comparable to similar measures presented by other entities. For additional information related to these measures, including a reconciliation to the nearest GAAP measures, where applicable, see “Non-GAAP and Other Financial Measures” in this press release.
(2) Decommissioning liabilities settled by the federal government’s Site Rehabilitation Program, which ended during the first nine months of 2023.

MESSAGE TO SHAREHOLDERS

Gear is pleased to announce strong third quarter results, with funds from operations increasing 23 per cent and net debt reduced by seven per cent from the prior quarter. The third quarter was also active from a capital investment perspective as Gear drilled eight wells with an additional two wells rig released in October. As a result of the new wells, fourth quarter production is expected to average approximately 5,900 boe per day or an approximate seven per cent increase from the third quarter. Additionally, during the third quarter Gear brought on-stream one new heavy oil waterflood project, further advancing Gear’s continued commitment to invest in long-life enhanced oil recovery opportunities.

With this third quarter release, Gear is also pleased to provide guidance for 2024 highlighted by a $57 million budget targeting steady growth, continued shareholder returns, maintenance of a strong balance sheet, further reductions in corporate liability and the potential for incremental funds from operations less capital and abandonment expenditures and dividends at oil prices above US $74 WTI.

During the third quarter Gear also announced the commencement of a formal process to explore, review and evaluate strategic repositioning alternatives with a view to enhancing shareholder value (the “Strategic Process”). The Board of Directors of Gear (the “Board”) continues to undertake a comprehensive review to identify and consider a broad range of alternatives to enhance shareholder value, including, but not limited to, a merger, corporate sale, corporate restructuring, sale of select assets, purchase of assets, potential spin-out of select assets, optimization of future capital allocation and return of capital strategies, or any combination of these alternatives. The Strategic Process is ongoing and Gear does not intend to disclose developments unless the Board has approved a specific transaction, or otherwise determines that disclosure is necessary or appropriate.

QUARTERLY HIGHLIGHTS

• Production for the third quarter of 2023 was 5,511 boe per day, a four per cent decrease over the 5,742 boe per day reported in the second quarter of 2023 as a result of natural declines and the disposition of non-core heavy oil assets. Production is anticipated to average approximately seven per cent higher in the fourth quarter of 2023 as all the new wells drilled during the summer and fall come on production and are optimized.

• Funds from operations for the third quarter of 2023 were $21.0 million, an increase of 23 per cent from the second quarter of 2023 as a result of higher commodity prices and partially offset by higher royalties and operating costs. For the third quarter, realized prices improved from $69.10 per boe to $81.67 per boe due to a higher WTI price and a narrowing of both heavy and light oil differentials. Field netback of $45.08 per boe for the third quarter was a 27 per cent increase from the second quarter.

• A total of $12.0 million of capital was invested through the third quarter including the drilling of eight gross (eight net) wells: three single leg lined heavy oil wells in Maidstone, Saskatchewan, three multi-lateral unlined heavy oil wells in Wildmere, Alberta, and two single leg lined heavy oil wells in Celtic, Saskatchewan. Subsequent to the quarter end, two light oil wells in Tableland, Saskatchewan were successfully rig released and are expected to be completed and on production in November.

• Gear continues to invest to reduce its abandonment and reclamation liability. For the first nine months of 2023, Gear has incurred $3.6 million in settling its decommissioning liabilities with 71 gross (68.1 net) wells abandoned and 5 gross (5 net) leases reclaimed. Gear’s undiscounted and unescalated decommissioning liability has fallen from $87.6 million at the start of 2023 to $78.4 million as at September 30, 2023.

• In August 2023, Gear closed a minor disposition of non-core heavy oil assets for nominal proceeds. The transaction included the disposition of 93 wells, 15 facilities and two pipelines that carried a decommissioning liability of $3.0 million. Production from the assets was approximately 120 boe per day.

• Net debt to quarterly annualized funds from operations was 0.2 times, with net debt falling seven per cent from $14.3 million on June 30, 2023 to $13.3 million on September 30, 2023.

2024 BUDGET GUIDANCE

The Board has approved a 2024 capital budget of $57 million dollars designed to target the following four key strategic goals:

1. Three to four per cent annual production growth through investment into core area drilling and waterflood opportunities;
2. Continuation of the half cent per share monthly dividend;
3. Maintenance of the strong balance sheet; and
4. Continued commitment to improving Gear’s environmental footprint through abandonment and reclamation activities

The details of the 2024 capital budget are as follows:

• $40.0 million (71%) focused on drilling 22 gross (22 net) wells including 13 Lloydminster area heavy oil wells, three Cold Lake, Alberta oil sands wells, three Killam, Alberta medium oil wells, two light oil wells in Wilson Creek, Alberta, and one light oil well Southeast Saskatchewan

• $5.3 million (10%) invested in water flood expansions including continued expansion of various heavy oil water floods, continued expansion of the Killam medium oil water flood, expansion of the Tableland light oil water flood and further expansions of the light oil water floods in Wilson Creek. Gear continues to increase capital investment into water flood projects to target increases in oil recovery factors and lowering production decline rates

• $6.3 million (11%) directed to continued reduction in liabilities associated with abandonment and reclamations

• $5.0 million (8%) invested in land, seismic, field capital projects, recompletions and other corporate costs

The budget is forecast to deliver the following results:

		2024 Guidance			2023 Guidance			Q3 2023 YTD Actuals
Annual production (boe/d)		6,000			5,700 – 5,900			5,734
Heavy oil weighting (%)		51			49			47
Light oil, medium oil and NGLs weighting (%)		37			37			39
Royalty rate (%)		12			13			12
Operating and transportation costs ($/boe)		24.70			25.00			26.28
General and administrative expense ($/boe)		3.20			3.50			3.65
Interest and other expense ($/boe)		0.50			1.00			1.03
Capital and abandonment expenditures ($ millions)(1)		57			50			41

 

(1) Capital and abandonment expenditures includes decommissioning liability expenditures made by Gear and excludes any expenditures made by the federal government’s Site Rehabilitation Program.

Using various WTI price forecasts for 2024 and assuming a WCS differential of US$18 per barrel, MSW and LSB differentials of US$5 per barrel, AECO gas price of C$3 per GJ, and a foreign exchange of US$0.73 per C$, Gear is forecasting 2024 funds from operations (“FFO”) as follows:

WTI US$		70			80			90
FFO ($ millions)		63			87			111

 

On an annualized basis, Gear forecasts its $0.005 per share per month dividend to total approximately $16 million. Gear estimates that WTI would have to average US$74 per barrel in order for FFO to equal the 2024 forecasted capital and abandonment expenditures of $57 million and the current annualized dividend. Any future increase in commodity prices beyond these base assumptions will provide incremental FFO less capital and abandonment expenditures and dividends which would be dedicated to potential future capital expansions, cash funded acquisitions, share buybacks and/or future dividend increases. Conversely, any future decrease in commodity prices may result in incremental debt and/or future dividend reductions.

Forward-looking Information and Statements
This press release contains certain forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words “expect”, “anticipate”, “continue”, “estimate”, “objective”, “ongoing”, “may”, “will”, “project”, “should”, “believe”, “plans”, “intends”, “strategy” and similar expressions are intended to identify forward-looking information or statements. In particular, but without limiting the foregoing, this press release contains forward-looking information and statements pertaining to the following: Gear’s expectation of fourth quarter production to average approximately 5,900 boe per day, an increase of seven per cent from the third quarter as a result of new wells drilled in the summer and fall coming on production; the Board’s expectations to continue to review potential strategic alternatives to enhance shareholder value; Gear’s expectations of two light oil wells in Tableland, Saskatchewan to be completed and on production in November; the expected details of the 2024, $57 million capital budget including the expectation that the capital budget will deliver three to four per cent annual production growth, continuation of the half cent per share monthly dividend, maintenance of Gear’s strong balance sheet and continued improvement in Gear’s environmental footprint; Gear’s 2024 guidance and anticipated benefits thereof including expected annual average production (including commodity weightings), expected royalty rate, expected operating and transportation costs, expected general and administrative costs, expected interest expense and expected capital and abandonment expenditures; Gear’s forecasting of 2024 funds from operations (including based on certain commodity price sensitivities); Gear’s forecasted $0.005 per share per month dividend to total approximately $16 million; Gear’s estimates of the WTI price per barrel required for the capital and abandonment expenditures and dividend to be fully funded by FFO; and Gear’s plans for potential incremental FFO.

The forward-looking information and statements contained in this press release reflect several material factors and expectations and assumptions of Gear including, without limitation: that Gear will continue to conduct its operations in a manner consistent with past operations; the general continuance of current industry conditions; the continuance of existing (and in certain circumstances, the implementation of proposed) tax, royalty and regulatory regimes; the accuracy of the estimates of Gear’s reserves and resource volumes; certain commodity price and other cost assumptions; and the continued availability of adequate debt and equity financing and funds from operations to fund its planned expenditures. Gear believes the material factors, expectations and assumptions reflected in the forward-looking information and statements are reasonable but no assurance can be given that these factors, expectations and assumptions will prove to be correct.

To the extent that any forward-looking information contained herein may be considered a financial outlook, such information has been included to provide readers with an understanding of management’s assumptions used for budgeting and developing future plans and readers are cautioned that the information may not be appropriate for other purposes. The forward-looking information and statements included in this press release are not guarantees of future performance and should not be unduly relied upon. Such information and statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information or statements including, without limitation: the impact of the Russian-Ukraine war on the global economy and commodity prices; the impacts of inflation and supply chain issues; changes in commodity prices; changes in the demand for or supply of Gear’s products; unanticipated operating results or production declines; changes in tax or environmental laws, royalty rates or other regulatory matters; changes in development plans of Gear or by third party operators of Gear’s properties, increased debt levels or debt service requirements; inability to obtain debt or equity financing as necessary to fund operations, capital expenditures and any potential acquisitions; any ability for Gear to repay any of its indebtedness when due; inaccurate estimation of Gear’s oil and gas reserve and resource volumes; limited, unfavorable or a lack of access to capital markets; increased costs; a lack of adequate insurance coverage; the impact of competitors; and certain other risks detailed from time to time in Gear’s public documents including in Gear’s most current annual information form which is available on SEDAR at www.sedar.com.

The amount of future cash dividends paid by Gear, if any, will be subject to the discretion of the Board and may vary depending on a variety of factors and conditions existing from time to time, including, among other things, funds from operations, fluctuations in commodity prices, production levels, capital expenditure requirements, debt service requirements and debt levels, operating costs, royalty burdens, foreign exchange rates and the satisfaction of the liquidity and solvency tests imposed by applicable corporate law for the declaration and payment of dividends. Depending on these and various other factors, many of which will be beyond the control of the Company, future cash dividends declared and paid by the Company may be increased, reduced or suspended entirely.

The forward-looking information and statements contained in this press release speak only as of the date of this press release, and Gear does not assume any obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable laws.

Non-GAAP and Other Financial Measures
This press release includes references to non-GAAP and other financial measures that Gear uses to analyze financial performance. These specified financial measures include non-GAAP financial measures, non-GAAP ratios, capital management measures and supplementary financial measures, and are not defined by IFRS and are therefore referred to as non-GAAP and other financial measures. Management believes that the non-GAAP and other financial measures used by the Company are key performance measures for Gear and provide investors with information that is commonly used by other oil and gas companies. These key performance indicators and benchmarks as presented do not have any standardized meaning prescribed by Canadian GAAP and therefore may not be comparable with the calculation of similar measures for other entities. These non-GAAP and other financial measures should not be considered an alternative to or more meaningful than their most directly comparable financial measure presented in the financial statements, as an indication of the Company’s performance. Descriptions of the non-GAAP and other financial measures used by the Company as well as reconciliations to the most directly comparable GAAP measure for the three and nine months ended September 30, 2023 and year ended December 31, 2022, where applicable, are provided below.

Funds from Operations
Funds from operations is a non-GAAP financial measure defined as cash flows from operating activities before changes in non-cash operating working capital and decommissioning liabilities settled. Gear evaluates its financial performance primarily on funds from operations and considers it a key measure for management and investors as it demonstrates the Company’s ability to generate the funds from operations necessary to fund its capital program, settle decommissioning liabilities, repay debt and finance dividends.

Reconciliation of cash flows from operating activities to funds from operations:

		Three months ended									Nine months ended
($ thousands)		Sep 30, 2023			Sep 30, 2022			Jun 30, 2023				Sep 30, 2023			Sep 30, 2022
Cash flows from operating activities		17,532			26,196			13,311				45,776			71,204
Decommissioning liabilities settled (1)		2,202			2,859			912				3,555			4,871
Change in non-cash operating working capital		1,244			(6,511	)		2,885				1,767			(979	)
Funds from operations		20,978			22,544			17,108				51,098			75,096

 

(1) Decommissioning liabilities settled includes only expenditures made by Gear.

Funds from Operations per BOE
Funds from operations per boe is a non-GAAP ratio calculated as funds from operations, as defined and reconciled to cash flows from operating activities above, divided by sales production for the period. Gear considers this a useful non-GAAP ratio for management and investors as it evaluates financial performance on a per boe level, which enables better comparison to other oil and gas companies in demonstrating its ability to generate the funds from operations necessary to fund its capital program, settle decommissioning liabilities, repay debt and finance dividends.

Funds from operations per weighted average basic share
Funds from operations per weighted average basic share is a non-GAAP ratio calculated as funds from operations, as defined and reconciled to cash flows from operating activities above, divided by the weighted average basic share amount. Gear considers this non-GAAP ratio a useful measure for management and investors as it demonstrates its ability to generate the funds from operations, on a per weighted average basic share basis, necessary to fund its capital program, settle decommissioning liabilities, repay debt and finance dividends.

Net (debt) surplus
Net (debt) surplus is a capital management measure defined as debt less current working capital items (excluding debt, risk management contracts and decommissioning liabilities). Gear believes net (debt) surplus provides management and investors with a measure that is a key indicator of its leverage and strength of its balance sheet. Changes in net (debt) surplus are primarily a result of funds from operations, capital and abandonment expenditures, equity issuances and dividends paid.

Reconciliation of debt to net debt:

Capital Structure and Liquidity ($ thousands)		Sep 30, 2023			Dec 31, 2022
Debt		(20,994	)		(7,123	)
Working capital surplus (1)		7,697			4,903
Net debt		(13,297	)		(2,220	)

 

(1) Excludes risk management contracts and decommissioning liabilities.

Net Debt to Quarterly Annualized Funds from Operations
Net debt to quarterly annualized funds from operations is a non-GAAP ratio and is defined as net debt, as defined and reconciled to debt above, divided by the annualized funds from operations, as defined and reconciled to cash flows from operating activities above, for the most recently completed quarter. Gear uses net debt to quarterly annualized funds from operations to analyze financial and operating performance. Gear considers this a key measure for management and investors as it demonstrates the Company’s ability to pay off its debt and take on new debt, if necessary, using the most recent quarter’s results. When the Company is in a net surplus position, the Company’s net debt to annualized funds from operations is not applicable.

Operating Netback
Operating netbacks are non-GAAP ratios calculated based on the amount of revenues received on a per unit of production basis after royalties and operating costs. Management considers operating netback to be a key measure of operating performance and profitability on a per unit basis of production. Management believes that netback provides investors with information that is commonly used by other oil and gas companies. The measurement on a per boe basis assists management and investors with evaluating operating performance on a comparable basis.

Barrels of Oil Equivalent
Disclosure provided herein in respect of BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of six Mcf to one Bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Additionally, given that the value ratio based on the current price of crude oil, as compared to natural gas, is significantly different from the energy equivalency of 6:1; utilizing a conversion ratio of 6:1 may be misleading as an indication of value.

FOR FURTHER INFORMATION PLEASE CONTACT:

Ingram Gillmore
President & CEO
403-538-8463

David Hwang
Vice President Finance & CFO
403-538-8437

Email: [email protected]
Website: www.gearenergy.com

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The decommissioning sector is facing a myriad of challenges including inflationary pressures, skills shortages and a lack of project visibility according to Decom Mission, the Aberdeen-based trade body representing the industry.

Formerly known as Decom North Sea, in May the group underwent a rebranding to better reflect the “broader trends of the energy transition”.

The decision followed the appointment last year of a new leadership team in the form of current chief executive officer Sam Long and operations director Callum Falconer.

Speaking to Energy Voice, Mr Long said the rebrand reflected the international scope of the decommissioning sector.

“For Decom Mission, our goal is global,” he said.

“We don’t just fixate around the North Sea.”

Decom sector survey

Mr Long told Energy Voice one of the major challenges currently facing the decom sector is a lack of data on areas ranging from supply chain capacity to project pipelines and asset ownership.

Aiming to change this, Decom Mission has launched a sector survey with data science firm Empirisys.

“We want to be able to stand on stage and not just tell our members, ‘We know there’s a capacity issue’, I’d like to stand there and say 62% of members say that it’s critical,” Mr Long said.

© Supplied by Kenny Elrick/DC Thom

Figures from the North Sea Transition Authority (NSTA) UKCS Decommissioning Cost and Performance Report 2023 estimate there will be £21 billion of spending on decommissioning in the next decade.

But while the demand for decom work is significant, Mr Long said the survey is aiming to find out if the supply chain can meet that demand.

“Our survey is designed to counter the demand signal and say, ‘what is the reality? What are people really going to be able to execute?’,” he said.

“It is an activity set that the operator doesn’t really want to do until they get to a tipping point where they have to do it.

“There’s a lot of complexity because of net zero, and there’s a lot of complexity because of tax, (but) the economic and technical pressure to decommission is building.”

Mr Falconer said because decommissioning is happening at the same time as construction in renewables many operators are in competition with themselves for the supply chain.

“That’s not right, that’s just going to push prices back up,” he said.

Skilled labour shortages

Alongside the lack of project visibility, the decom sector is facing a range of issues including inflationary and tax pressures.

But Mr Falconer said one of the biggest challenges facing the space was the availability of skilled labour.

The situation has only been worsened by recent downturns in the oil and gas sector, with as many as 30,000 people leaving the industry in 2020 according to figures from Oil and Gas UK, now OEUK.

“Therefore, as we transition from oil and gas into decommissioning or into carbon sequestration, hydrogen etc., the whole idea would be to take the people with us and retrain or upskill,” Mr Falconer said.

“But there’s a big gap now as we move into decommissioning.

“Our members say they just can’t get people.”

Even for those still in the oil and gas industry wanting to retrain, Mr Falconer said there simply were not enough training courses currently available.

“(Often) a member will get somebody in and they’ll say, ‘I’d like to go on a training course’ and learn generic decommissioning or more niche skills and they just don’t exist,” he said.

In addition, Mr Long said the transition situation is further complicated by the higher levels of automation expected to be part of the future energy complex.

“We used to have 200,000 people working directly in oil and gas and we’re down to about 120,000,” he said.

© Supplied by Allseas

“But you’ve also got to bear in mind the forward analysis of where we might be in 2040 and 2045, when there’s net zero kicking, which might be down to 70,000.

“Now a lot of that (reduction) is going to happen naturally, so we’re seeing a lot of retirement in this. But the skill sets are going to have to change. So how are you going to keep people in there?”

Mr Long said while it was great to have the industry forecasting 20 years ahead, in the meantime “just the decommissioning sector needs a piece of the pie”.

“Nuclear new build and offshore wind new build, they’re all going to require people,” he said.

“But decommissioning also needs people to come onboard.”

‘The Great Crew Change’

Operators are also struggling with a loss of corporate knowledge of assets due to retirements.

The ‘Great Crew Change’, as the Society of Petroleum Engineers calls it, means that over the last 20 years the people who largely established offshore oil and gas in the North Sea in the 1970s have left the industry, taking their extensive knowledge with them.

“Many of these assets are now 30 to 40 years old, and they were built under far simpler engineering principles and capabilities than we have right now,” Mr Long said.

“Quite often you may not have a digital footprint of it, and so as a generation retire… we don’t have people with that deep knowledge, then many of these jobs are getting more complicated.”

Mr Long said in the early days of the decom sector they would often ask clients, ‘Who built this?’.

“Literally. We used to try and find people who had built it in the 70s and you can’t do that anymore,” he said.

Mr Falconer said the more common question he asked Decom Mission members nowadays was ‘who has owned this?’.

“Because many of them are a third or fourth generation operator,” he said.

“The ownership is become complex.”

© Supplied by Taqa

Because of the inconsistent nature of the decommissioning pipeline, Mr Falconer said corporate knowledge is even lost internally between projects.

Operators tend to assemble a decommissioning team for a large project, and once completed the team disbands.

“Then when they do another big decommissioning project, there’s a new team and so that knowledge from the old team just disperses and it’s not brought forward into the new project,” he said.

OSPAR uncertainty delaying projects

Decommissioning projects are also being held up due to regulatory uncertainty surrounding the Ospar Convention, which the UK is party to.

Ospar governs the protection of the marine environment of the North-East Atlantic and was agreed between 15 national governments and the EU in the 1970s.

Plans by operators like Shell and Fairfield Energy to leave parts of their assets in the North Sea have caused a dispute between Ospar members, and Mr Long said many Decom Mission members were waiting for a resolution before pushing ahead with projects.

But Mr Falconer said there was a risk supply chain companies will take on renewables projects or overseas work instead.

Once again, the challenge of linking up operators and supply chain members is part of the role of Decom Mission, Mr Long said.

“What we’re here for is to try and give a little bit of guidance and an independent voice,” he said.

“We are there to go and ask questions that maybe others can’t.”

Renewables, carbon trading tariff

With the EU set to introduce a carbon tariff on imported steel, Mr Long said the renewables sector would soon need to take stock of its decommissioning and recycling plans.

“The industry has clearly got very good green credentials, but its materials use is not very good and it is starting to become very aware of that,” he said.

“And so even for materials like steel, the market for that may radically change and actually shipping it transboundary to be reprocessed and brought back may not work anymore.

© Supplied by SSE

“What this might look like in 10 or 15 years’ time is more remanufacturing, more local manufacturing, more materials being recycled and reused.”

Industry sees greater role for regulator

Mr Long said governments are slowly recognising the importance of decom to decarbonisation and achieving net zero, as well as recognising its economic benefits.

“The UK Government is very conscious that there’s an export potential and we are seen as the centre of excellence for decommissioning,” he said.

“Then you’ve got the Australian government deliberately coming and looking for expertise in the North Sea because they know that they’ve got a problem coming around the corner.”

In terms of policy change, Mr Long said Decom Mission members are focused on three areas.

Firstly, Mr Long said members are concerned there is insufficient visibility of current decom projects.

“We need to know, who is the operator, what’s the scope and when is it coming down in real-time. I’m hearing that, that’s not good enough,” he said.

Secondly, members say the power of the regulator in the UK could be increased.

“In the Gulf of Mexico, the regulator there is an empowerment regulator,” Mr Long said.

“They don’t do that here and there is a call among some of our members for the regulator to do that so that these projects are executed in a logical manner.”

And finally, many UK members would like to see more done to keep decommissioning projects within the country.

But Mr Long said the importance of retaining onshore decommissioning projects needed to be kept in perspective.

“Remember that the disposal activity where they’re taken and put to a yard to be cut up is still only 3% of the total spend,” he said.

The Decom Mission sector survey conducted with Empirisys is open until the end of November and available online.

With the market awash in supply and staring at bearish forecast maps stretching deep into November, regional natural gas forwards sold off sharply across the winter strip during the Nov. 2-7 trading period, NGI’s Forward Look data show.

Henry Hub fixed prices saw deep discounts week/week, with December dropping 35.5 cents to $3.144/MMBtu. January, February and March at the benchmark each saw fixed price discounts of around 7% for the period.

Basis shifts week/week showed steeper declines at elevated New England hubs amid easing winter risks, particularly at the front of the curve. Iroquois Zone 2 December basis tumbled $1.189 to finish at plus-$2.854.

More impressive cold for the Lower 48 might not materialize until late November at the earliest, which could mean “bearish weather headwinds” for the natural gas market until then, NatGasWeather said Wednesday.

Midday weather data was slightly warmer trending, and forecasts continued to advertise widespread above-normal conditions for the Lower 48 between next Tuesday and Nov. 20, according to the firm.

“Long-range weather maps maintain a mild setup over much of the U.S. for the 16- to 20-day period,” NatGasWeather said. “…Some of the weather data has been teasing colder patterns showing up around Nov. 22-23 but hasn’t been consistent with it.” Thus, it would “require more evidence if the natural gas markets are to believe it.”

Basis Diffs Widen In Texas

With forecasts giving bulls little encouragement, and with LNG export demand potentially a lone fundamental bright spot heading into the early stretch of the heating season, basis differentials came under downward pressure throughout much of the Lower 48 to varying extents.

In South Texas, Agua Dulce basis shed 2.5 cents for December to end at a 35.0-cent discount to Henry Hub. January and February basis swings at the location also trended negative week/week but finished around 35 cents ahead of the Louisiana benchmark.

The week/week decline in basis prices comes with the peak summer season in the rearview mirror for Mexico, a key outlet for Texas natural gas supplies. After topping 7 Bcf/d this summer, pipeline exports to Mexico are expected to average only around 6.24 Bcf/d for the remainder of the year.

With minimal domestic production, Mexico relies heavily on U.S. gas supplies to meet its demand. Mexico natural gas production averaged 2.54 Bcf/d this summer and fell to 2.13 Bcf/d in October. It is projected to decline further, to only 2.01 Bcf/d by summer 2025.

Basis price dynamics were similar at Houston Ship Channel and Katy in East Texas.

Meanwhile, over in West Texas, basis shifts pointed to a glut of supply flowing out of the Permian Basin at this point in the season, weighing on prices at producing area hubs.

Waha basis conceded ground across the strip; however, the hub remained in positive basis territory for January and February, trading at plus-11.5 cents and plus-12.5 cents, respectively.

Waha prices were a mixed bag in the 2022/23 winter, Daily GPI historical data show. At times, regional sellers enjoyed strong prices that coincided with premiums downstream at West Coast hubs like SoCal Citygate.

However, price blowouts and supply constraints at SoCal Citygate from late November through December 2022 coincided with occasional stretches of negatively priced day-ahead deals in oil-focused West Texas, suggesting severe congestion in connecting the region’s associated natural gas supply to where it was demanded.

West Coast Wobbles

California hubs continued to see large basis swings during the Nov. 2-7 period as traders attempted to find fair value for winter prices following extreme blowouts last winter.

SoCal Citygate January basis plunged 52.9 cents for the period to end at plus-$5.645. SoCal Border Avg. exited the period at plus-$4.453 for January, a 33.0-cent swing lower.

Daily market conditions at SoCal Citygate proved something of a contradiction during the Nov. 2-7 period, as day-ahead prices traded at elevated levels despite supply exceeding sendout on the Southern California Gas (SoCalGas) system, according to the operator’s electronic bulletin board. Excess supplies appeared to go toward daily net injections of around 400,000 Dth/d or more, SoCalGas data show.

The situation frustrated buyers at SoCal Citygate, a location known for its supply constraints, amid significantly cheaper day-ahead prices at the nearby hubs comprising the SoCal Border Avg.

Still, even as near-term conditions suggested a supply cushion in Southern California, and as U.S. Energy Information Administration data has shown Pacific region stockpiles recovering to above-average levels, to some extent the western Lower 48 natural gas market has been riding its luck.

That’s according to a recent blog post from RBN Energy LLC analyst Sheetal Nasta, who pointed out the “dire straits” the U.S. West Coast found itself in exiting the 2022/23 winter.

Harsh winter conditions regionally had left stockpiles at historic lows, “and it seemed like the region would be hard-pressed to refill storage to a reasonable given limited and constrained pipeline options to flow incremental gas west,” Nasta said. “Instead, a combination of mild weather and operational changes eased demand and pipeline constraints, and Pacific region storage staged a remarkable comeback this summer.”

Regional injections totaled 210 Bcf season-to-date as of early October, Nasta estimated, close to twice the rate of injections for the year-earlier period.

The California Public Utilities Commission (CPUC) decision in late summer to ease regulatory restrictions on the Aliso Canyon storage facility in Southern California also played a role in helping to alleviate the tight conditions out West, according to Nasta.

Ultimately, “it took a combination of mercurial factors – including mild weather, strong hydropower, favorable operation and pricing dynamics, and regulatory intervention – to improve the supply picture in the region,” Nasta said.

The region “clearly remains vulnerable to dislocations, and we’re likely to see some price blowouts this winter during peak demand days, albeit perhaps not to the extent of last winter,” Nasta added. “Moreover, long term, without additional capacity there’s always the risk that the next time West Coast storage gets depleted, it may not be so lucky.”

Futures Weighed Down By Oversupply

As reflected in regional forward price action, Nymex futures sold off heavily during the Nov. 2-7 trading period. Soaring production figures, a healthy storage buffer and widespread warmer-than-normal temperatures in forecasts resulted in double-digit declines for the December contract on both Monday and Tuesday.

The front month on Wednesday shed another 3.4 cents to settle at $3.106.

Looking at underlying fundamentals, domestic production clocked in at 103.9 Bcf/d for Wednesday in the latest estimates from Wood Mackenzie. That was close to the recent seven-day average of 104.4 Bcf/d and notably above the 30-day average of 103.2 Bcf/d.

Recent futures selling reflected production readings reaching “fresh all-time highs” just as November forecasts lowered weather-driven demand expectations, EBW Analytics Group analyst Eli Rubin said in a recent note.

A normal weather scenario at recent Nymex prices would see the market exit March with storage near 1,675 Bcf, a level “hardly indicative of massive oversupply,” according to the analyst.

An El Nino pattern this winter alongside rising production volumes that threaten “tremendous oversupply for next spring and early summer” pose “significant downside risks” for prices moving forward, Rubin said.

“It is unclear how the market will price these risks in November 2023, however, with the full winter withdrawal season still ahead,” the analyst said. “In our view, strong technical support near $3.07 may offer a short-term respite from selling pressures.”

The shift away from hydrocarbons and towards renewable and low-carbon technologies is not only changing the way we power our lives, but also offers a wealth of investment opportunities for those who can decipher the complex landscape. Traditional institutional investors looking to gain a competitive edge in this sector need a single source of truth to inform on market trends and new technologies to make the best long-term investments. In this blog, our Enverus Intelligence® Research (EIR) team delves into the winners and losers of the energy transition, shedding light on key insights that can guide your investment decisions.

(Winner) Regulated utilities and IPPS: The vanguard of the energy transition

Regulated utilities and independent power producers (IPPs) stand out as primary drivers of energy transition technologies, specifically as they work to increase their low-carbon power generation. These sectors provide the most exposure to a diverse array of renewable energy technologies due to the increased demand for clean power generation. While they have experienced some challenges, with only 2-3% sector revenue year-over-year (Y/Y) growth, their long-term potential remains robust as power demand expectations keep growing.

(Loser) Supply Chain and Regulatory Challenges in Renewable Technologies

While renewable energy technologies, including wind and solar manufacturers, have faced headwinds with a more significant 10% M/M decline, the root causes are clear. Supply chain challenges and regulatory uncertainties have hampered their growth. Geopolitical tensions –  especially with China, a crucial manufacturing partner in renewables –add to the uncertainty. However, these challenges may be temporary, making it a sector to watch closely.

(Winner) Lithium: A key player in the energy transition

Lithium, a critical component in energy storage, has experienced a 10% quarter-over-quarter and a 56% Y/Y price drop to settle at a more sustainable level after supply increases eased imminent shortage concerns. Direct lithium extraction (DLE) is an energy transition technology that extracts lithium from produced water in oil and gas wells, therefore companies well positioned to capitalize on lithium’s role in the transition stand to benefit from both strong oil and lithium prices, making it a potentially attractive investment avenue. For more details check out our blog, “Securing domestic supply of lithium.“

(Tie) Energy security concerns: Large-caps and majors locking up inventory and strategic energy transition assets

While ExxonMobil’s recent acquisition of Pioneer ensures a longer inventory runway,  the company’s acquisition of Denbury for their strategic CCUS assets also signals a clear message on how they are thinking about their role as an energy company through the energy transition. Companies are strategically locking up energy transition assets today to secure their place as an energy company over the next ten years. This heightened focus on energy security could create opportunities for savvy investors who can identify companies with robust strategies in this regard.

(Winner) CCUS: A growing sector with enormous potential

Carbon capture, utilization, and storage (CCUS) is a sector that has exhibited impressive  Y/Y growth. The significant increase in research and development, investment and exponential revenue growth in this area makes it an exciting prospect for investors. As the world seeks to reduce carbon emissions, CCUS technology will play a pivotal role, and those invested early could reap substantial rewards. Be sure to watch our recent webinar, “Potentials and Challenges to Executing CCUS at Scale” and hear how current executives at the front lines of the CCUS movement are meeting the demands of challenges faced.  

Why choose Enverus for in-depth research:

In this dynamic landscape of the energy transition, it is crucial to stay well informed to guide investment decisions. Enverus provides comprehensive energy transition solutions at every step:

• Single source of truth within the energy transition: Enverus offers unbiased data and analytics to help you stay ahead of the curve and make informed investment decisions.
• Expertise: Our EIR team is composed of energy experts across the industry to provide a comprehensive view from all levels of the industry. 
• Most coverage of renewable assets and companies: We cover 54,000+ renewable assets and companies, 150,000+ EV charging stations, 1,100+ generators and 9,300+ power constraints.
• Customized reports: Tailored reports and analysis help you focus on the specific areas of the energy transition that align with your investment goals.

The energy transition is reshaping the energy landscape and providing unique investment opportunities for those who can navigate its complexities. As the distinctions between winners and losers become more evident, Enverus stands ready to be a reliable partner in your quest for valuable insights and research to empower your journey. Regulated utilities, lithium, energy security and CCUS are just a few examples of the avenues worth exploring, and Enverus can help you make the most of these opportunities.

 Interested in learning more about how Enverus Intelligence® can help you? Fill in the form below:

*About Enverus Intelligence^®| Research

Enverus Intelligence® | Research, Inc. (EIR) is a subsidiary of Enverus that publishes energy-sector research focused on the oil, natural gas, power and renewable industries. EIR publishes reports including asset and company valuations, resource assessments, technical evaluations, and macro-economic forecasts and helps make intelligent connections for energy industry participants, service companies, and capital providers worldwide. EIR is registered with the U.S. Securities and Exchange Commission as a foreign investment adviser. See additional disclosures here.

In the United States, the adoption of solar photovoltaic (PV) technology continues to rise, following recent market investment from the Inflation Reduction Act. The U.S. Energy Information Administration reveals that in 2022, approximately 10.9 GW (gigawatts) of new solar PV capacity became operational, a 19% decline from 2021, largely attributed to supply chain challenges. 

According to Enverus Foundations™ | Power & Renewables Project Tracking Analytics, this trend of capacity deployment is projected to continue its upward trajectory. This growth is propelled by the comparatively lower cost of generating electricity from solar PV when compared to other alternative energy sources, and by companies diversifying their energy portfolios across different sources. It is worth noting that the forces of energy evolution will play a significant role in influencing future growth. 

As the overall production from solar PV continues to expand, so does the potential for investment opportunities. Below, you’ll find a list of the top 10 U.S. solar developers ranked by total capacity (in megawatts) they pushed into operational status in 2022 as of October 2023, available through the Enverus Foundations™ | Power & Renewables:

Out of the projects these top 10 developers brought into operations. Majority of the MW’s were in ERCOT as image below shows. MISO, PJM, and CAISO were next markets that these developers focused on. 

Now, lets take a look at what these developers have in the queue for the next few years. The top 10 solar developers in 2022 seems like they also have a good amount of MW’s in the queue right now. The first image shows the aggregate MW’s these developers have in the queue right now.

ERCOT was the main market these developers brought their projects operational into in 2022. Their queued projects follows the same trend with ERCOT hosting the majority of the MW’s as the image below shows. MISO, PJM and NYISO follows ERCOT as the next three major markets for the permitted projects.

As we look into when these projects are expected come on line with the image below, majority of the projects have a 2024 and 2025 first power date (COD). The image shows that there is already a substantial amount of MW’s under construction to become operational in 2024 and 2025. It will be interesting to see, how much more capacity by these developers can become operational in the next 2 years as the queue back-logs are becoming a real problem.

1. Nextera Energy Resources

Power brought online: 923 MW

Projects: 18

A subsidiary of NextEra Energy, Inc., NextEra Energy Resources is a trailblazer in developing, constructing and operating renewable energy projects. Its contributions have played a pivotal role in expanding clean energy sources across the United States.

2. Cypress Creek Renewables

Power brought online: 769 MWs

Projects: 17

Cypress Creek Renewables is a solar energy company with a significant portfolio of projects across the United States. Notably, Cypress Creek Renewables has a strong community engagement strategy, partnering with local stakeholders to ensure that its solar installations align with community needs and values.

3. Recurrent Energy

Power brought online: 490 MW

Projects: 2

Recurrent Energy is a prominent solar project developer known for its expertise in utility-scale solar installations. The firm is focused on innovative financing solutions, enabling it to deliver cost-effective solar power projects to communities and businesses.

4. AP Solar Holdings LLC

Power brought online: 477 MW

Projects: 1

AP Solar Holdings LLC made a mark with its noteworthy solar capacity additions in 2022. Notably, its distinctive approach involves collaborating with educational institutions to create solar installations that not only generate clean energy but also serve as educational platforms for the next generation of renewable energy enthusiasts.

5. Savion

Power brought online: 460 MW

Projects: 3

Savion made waves in the solar development arena, contributing significantly to the U.S. megawatt surge. Its unique contribution lies in its focus on repurposing underutilized land and transforming it into productive solar farms, showcasing their commitment to sustainable land use practices.

6. Lightsource BP

Power brought online: MW

Projects: 2

Lightsource BP solidified its position as a solar industry leader by adding an impressive 451 megawatts online in the US. Distinguished for their global footprint, they stand out with their integrated approach, seamlessly combining solar projects with battery storage solutions for enhanced reliability.

7. Florida Power & Light Company

Power brought online: 447 MW

Projects: 6

A stalwart in the energy landscape, Florida Power & Light Company brought substantial solar megawatts online. Notably, its commitment extends to innovative solar research, including advanced technologies that enhance solar efficiency in hot and humid climates.

8. Silicon Ranch Corporation

Power brought online: 383 MW

Projects: 8

Silicon Ranch Corporation emerged as a solar power leader, ranking in the 2022 megawatt race. Its unique approach includes establishing solar projects in close collaboration with local communities, fostering sustainable development and widespread support for renewable energy.

9. EDF Renewable Energy

Power brought online: 330 MW

Projects: 7

EDF Renewables North America is a market-leading independent power producer and service provider with over 35 years of experience. The Company delivers grid-scale power: wind (onshore and offshore), solar photovoltaic, and storage projects; distribution-scale power: solar and storage; asset optimization: technical, operational, and commercial expertise to maximize performance of generating projects, and onsite solutions, through the Company’s PowerFlex affiliate, offering a full suite of onsite energy solutions for commercial and industrial customers: solar, storage, EV charging, energy management systems, and microgrids.

10. National Grid Renewables

Power brought online: 324 MW

Projects: 2

National Grid Renewables, part of the competitive, unregulated National Grid Ventures division of National Grid (NYSE: NGG), develops, owns and operates large-scale renewable energy assets across the United States, including solar, wind and battery storage. As a farmer-friendly and community-focused business, National Grid Renewables develops projects for corporations and utilities that seek to repower America’s electricity grid by reigniting local economies and reinvesting in a sustainable, clean energy future. National Grid Renewables has a robust development pipeline of wind, solar and battery storage projects in various stages of development throughout the United States, as well as geographically diverse operational assets across the country. It supports National Grid’s vision of being at the heart of a clean, fair and affordable energy future for all.

WTI (Dec) $80.51 -$1.95, Brent (Jan) $84.89 -$1.96, Diff -$4.38 -1c. 

USNG (Dec) $3.52 +5c, UKNG (Dec) 117.6p -8.4p, TTF (Dec) €45.95 -€3.7.

Oil price

Oil had a bad week, both contracts fell by just over $5 as a combination of economic woes kept on coming, the NFP data in the states was short of the whisper whilst the unemployment rate was 3.9%, the highest since January 2022. Today was PMI day in Europe with only Spain showing anything decent form and in China numbers were mixed also. 

The rig count fell by 7 units overall and by 8 in oil, clearly not everyone is using their DUC’s…

And it seems that in tomorrow’s Kings Speech the UK Government are to mandate Annual North Sea licensing rounds. 

Union Jack Oil

Union Jack has announced that the Planning Inspectorate has upheld the appeal against the refusal of planning permission by Lincolnshire County Council for a side-track drilling operation, associated testing and long-term oil production at the Biscathorpe-2 wellsite.

The Biscathorpe project is covered by onshore UK licence PEDL253.  The PEDL253 Joint Venture partnership will review the decision notice and associated planning conditions in detail before providing an update on plans for progressing operations.  As part of this, the Operator, Egdon Resources Limited, will look to engage with the local community to ensure activities have minimal impact on local amenity.

Union Jack holds a 45% economic interest in PEDL253.

David Bramhill, Executive Chairman of Union Jack commented: 

“I am delighted to report this highly positive news in respect of Biscathorpe, one of our highest ranked projects, in which Union Jack holds a material 45% economic interest.

“While drilling the Biscathorpe-2 well, there were hydrocarbon shows, elevated gas readings and sample fluorescence observed over the entire interval from the top of the Dinantian to the Total Depth of the well, with 68 metres being interpreted as oil-bearing.

“Independent Consultants Applied Petroleum Technology also conducted analyses, confirming a hydrocarbon column of 33-34 API gravity oil, comparable with the oil produced at the nearby Keddington oilfield where Union Jack holds a 55% economic interest.

“Re-processing of 264 square kilometres of 3D seismic, indicate a material and potentially commercially viable hydrocarbon resource remaining to be appraised.

“The Operator has assessed, in accordance with the PRMS Standard, gross Mean Prospective Resources of approximately 6.5 million barrels of oil.  Commercial screening has indicated break-even full cycle economics to be US$18.07per barrel of oil.

“Union Jack`s technical team believe that Biscathorpe remains one of the largest unappraised conventional onshore discoveries within the UK.  I thank shareholders for their patience and remain confident that both investors and the Company will be well rewarded in due course.”

This means that Biscathorpe is a significant step nearer to becoming a meaningful part of the UK’s domestic hydrocarbon equation and given the substantial amount of work already completed the economics look pretty good. Permission extends through to production so action can now begin. 

With a pump fitted at Wressle I expect a return to significant revenues there before long and the UJO portfolio is starting to deliver on the hydrocarbons that should see it remaining one of the major players in the important UK onshore for the foreseeable future. 

Sound Energy

Sound has announced that, following discussions with certain holders of the Company’s Luxembourg listed EUR 28.8m 5.0% senior secured notes due 2027, it has today published a Consent Solicitation Memorandum in respect of a restructuring of the Notes and that a meeting of the holders of the Notes has been convened to consider the Proposal for 10:00 a.m. on 20 November 2023.

Pursuant to the Proposal, the Company is seeking the consent of the Noteholders to remove the current obligation to commence amortisation of the Notes at a rate of 5.0% of the EUR 25.3m Note principal outstanding every six months from 21 December 2023 until maturity in December 2027. Instead, and should the Proposal be approved by Noteholders, the Notes would mature in full in December 2027, with no prior amortisation. The remaining terms of the Notes would be unchanged by the Proposal, with 40% of interest accruing on the Notes continuing to be payable quarterly, with the remaining interest rolled up and payable on the redemption of the Notes.

A sensible piece of financial housekeeping by Sound which defers €1.265m every 6 months and ahead of inbound revenue next year is extremely helpful. The company continues to advance with its MicroLNG construction and impressed delegates at the recent Morocco summit including ONHYM. 

Kosmos Energy

Kosmos has announced today its financial and operating results for the third quarter of 2023. For the quarter, the Company generated a net income of $85 million, or $0.18 per diluted share. When adjusted for certain items that impact the comparability of results, the Company generated an adjusted net income⁽¹⁾ of $126 million, or $0.26 per diluted share for the third quarter of 2023.

THIRD QUARTER 2023 HIGHLIGHTS

•     Net Production⁽²⁾: ~68,200 barrels of oil equivalent per day (boepd), with sales of ~73,100 boepd

•     Start up of the Jubilee South East development offshore Ghana

•     Post quarter-end, Tiberius infrastructure-led exploration (ILX) oil discovery offshore U.S. Gulf of Mexico

•   Post quarter-end, assumption of operatorship and a greater working interest at Yakaar-Teranga offshore Senegal, subject to customary government approvals

•     Repayment of Gulf of Mexico Term Loan, reducing our cost of capital and simplifying our capital structure

•     Revenues: $526 million, or $78.24 per boe (excluding the impact of derivative cash settlements)

•     Production expense: $139 million, or $20.63 per boe 

•     Capital expenditures: $193 million

Commenting on the Company’s third quarter 2023 performance, Chairman and Chief Executive Officer Andrew G. Inglis said:

“Kosmos continues to create value for its stakeholders through the consistent delivery of its strategy to grow production, advance its advantaged oil and LNG projects, and add resource through infrastructure-led exploration.

“Production in the quarter increased by around 17% versus the second quarter following the successful startup of the Jubilee South East development, with three producers brought online taking gross field production up to around 100,000 barrels of oil per day, with continued growth expected.

“In addition, Kosmos advanced its two key development projects at Winterfell and Tortue Phase 1. When online, these projects together with Jubilee South East are expected to increase production by around 50% from the second half of 2022, generating the cash flow inflection we have been working towards. 

“Looking to options for future growth, Kosmos recently announced the Tiberius oil discovery in the U.S. Gulf of Mexico, as well as the assumption of operatorship of the Yakaar-Teranga gas fields offshore Senegal. These low cost, lower carbon oil and gas projects are expected to provide the next phase of growth for the company beyond 2024. We plan to balance the pace and working interest of these future projects to ensure we can manage our growth and generate material free cash flow.”

Kosmos has reported a cracking set of figures which are set to grow as the architecture of a really significant and high quality portfolio will take on as a mighty force with hydrocarbon prices as they are. The only fly in the ointment might be a delay at Tortue but even if that runs a bit late other developments will carry it no problem.

I’ve always been a big fan of Kosmos and these numbers show why, I remember the day that Andy Inglis took over and he has proved that an active management policy combined with rigorous control of costs can be successful, there is plenty of upside here. BP’s loss in Kosmos’ gain….

And finally…

Another crazy weekend in the footy, and again it was VAR that caused so much trouble. Anyway there were wins for the Red Devils, just, the Bees, the Eagles, the Noisy Neighbours put 6 on the Cherries, the Blades won, yup won and Saturday ended with the Bar Coders beating the Gooners who were apoplectic about the VAR call. On Sunday Forest beat Villa and the Hatters nearly beat Liverpool who equalised in injury time. Tonight Spurs host Chelsea…

Aussie racegoers have their big day later with the Melbourne Cup going off at 0400 hours our time.

And in the Cricket World Cup a rare happening, Angelo Mathews was timed out, now the Cup has a shorter time than normal but this was hard going on him in my view, he was at the crease on time but the strap on his helmet broke and the Bangas appealed when he wasnt in position to face the next ball, hardly in the spirit of cricket eh?

At the weekend hopeless England lost again, and India thrashed the Proteas who were bowled out for 83…Pakistan were set 402 by the Black Caps and won on the D/L method.

In the 18 months since I profiled Trillion Energy (TCF-TSXv / TRLEF-OTC) has drilled 6 successful wells—with zero misses, and raised CAD$60 million in debt and equity!  They made 3 new discoveries and tripled their reserve base to 63 bcf—billion cubic feet of gas.

They’re now producing –net to them—over 7 million cubic feet a day of natural gas in the lucrative European market—where prices are bouncing between US$10-$15/mcf lately.

Yet the stock is trading at 3 year lows, despite gushing cash flow.

To give you a sense of the numbers—their October gas price was US$12.33 or CAD$17 per mcf, which generates just under CAD$120,000 a day in revenue.

But get this–that was with only 3 of the 6 wells online! Three wells that have already been drilled—that money is spent—are coming online by the end of January 2024.

In total, in the next 13 months, Trillion expects to bring 5 more wells into production, for a total of 11, which should increase production 70%+. By the end of 2025—17 wells online!

That’s all good news—really, it’s great news.  But as they now start their biggest growth curve in history, the stock is cheaper now—at 40 cents a share–than it was when I first profiled them, and they had nothing!

As recently as October 30, 2023, Canadian brokerage firm Eight Capital has a $4 price target after the latest update on more drilling success.

The main reason for this low share price is crazy—in October, a small cap fund manager went bankrupt, and had to blow out their shares—just as the company’s growth curve is about to start:

Well, I shouldn’t say Trillion had nothing back then.  They owned 49% of 4 offshore drilling platforms—for which they paid US$2.5 million, buying it in a bankruptcy sale from a trustee.  Those platforms originally cost US$270 million—that’s a 99% discount!

Combine that super cheap asset with new technology—long, flexible underwater drilling technology—and suddenly Trillion was able to start growing quickly, and cheaply.

And now that growth curve will accelerate—with the first three new wells coming on very quickly, and very cheaply—as they have already been drilled!

There’s a bonus play here I’ll tell you about at the end of this story—an oil play, onshore, with well costs of just $2.5 million and surrounding wells have 10,000 bopd production—ten thousand barrels a day.  It will get drilled in 2024, and it’s a game-changer for shareholders if it produces what neighboring wells recently have.

But there is so much momentum in their core gas play in the next 6 months, Trillion is set to reward investors NOW—especially from these levels.

THIS IS ONE OF THE MOST
PROFITABLE NATGAS MARKETS
IN THE WORLD

Turkey is a GREAT market for natural gas—with 86 million people, it’s the 7^th largest natgas market in the world.  And they import 98% of their gas, and 90% of their oil (mostly from Iran and Russia)—one of the reasons their prices are 2-4X what they are in Canada and the US, all the time.

It’s a G20 and NATO country, but the Turkish lira has been weak this year—which reduces costs.  You get to sell gas in USD, but produce it in lira.

More good news for producers is—even though European natgas storage is essentially full, prices are still very high.  You see, every year the news service Bloomberg writes a story reminding investors—European storage only lasts anywhere from a third to a half of a cold winter.  Last year’s super warm winter may not repeat.

Trillion’s 2024 guidance (Sept 29 release) conservatively calls for their net production to be at 15 million cubic feet per day by year end.  The company’s projections have them producing—net to them—over 20 mmcf/d by YE 2025.

CME futures pricing for the main European benchmark (shortform is “TTF”), which you can track HERE– https://bit.ly/TTF-price-2024  shows US$15+ per mcf each month in 2024, even in spring and summer.

Turkey’s gas price is within a couple dollars per mcf of TTF; sometimes less, sometimes more.

But even at the current US$12.33/CAD$17 per mcf, their YE 2024 target rate equals CAD$255,000 revenue per day, or CAD$93 million annualized—IF they meet their guidance.  Now, so far, CEO Art Halleran is 6-for-6 on his wells, and the next 3 get to come online at a very cheap price—roughly $150,000 in new parts, as the wells are already drilled.

The current market cap of the company is CAD$32 million.

Please remember, their overall 2023 revenue will be smaller than that number, as these wells come online throughout the year.  But the hoped-for prize at the end of the year in 2024 is pretty good!

THE MOST WATCHED OIL WELL IN 2024

On May 1 this year, there was an incredible new oil discovery in southeast Turkey—way at the other end of the country, far from where Trillion was drilling in the Black Sea.  The Yalcin-1 oil well—just north of the Iraq border, but inside a G20 country that belongs to NATO—hit BIG paydirt…and is now producing 10,000 barrels of oil per day.

This well only cost US$3 million. At current oil prices, it would pay out in less than a month.

Trillion gets to drill a nearby well in this same prolific field in 2024!

Because of Trillion’s success in drilling—6 for 6 remember—they were invited to earn 50% of oil exploration block M47. It’s three large properties, totalling more than xx km2, and the first well will be drilled only 11 km from Yalcin-1.

Yalcin-1 is credited with over 1 BBBBillion Original Oil In Place (OOIP).  It had a payzone of 162 metres of beautiful light crude at 41 API (that’s very light!).

This is an incredible opportunity for Trillion and its shareholders.  This one well is a company-maker on its own.

1. They will be drilling into a known field, with well control data from a nearby producer.
2. It’s not a deep, expensive well—only US$3 million to drill down roughly 2600 metres, or 8500 feet
3. Trillion gets a simple joint venture agreement, not a Production-Sharing-Contract (PCS) which is usually heavily tilted in the gov’t’s favour

Just to give you an idea of what a repeat of Yalcin-1 would mean for Trillion—at US$80/b ($84 today) their 50% would equal 5000 x 80 x 365 = US$146 million gross revenue, or CAD$197 million.

That all sounds exciting doesn’t it?  But remember—this is still exploration!!!

CEO Art Halleran has a great track record now, but they COULD still miss on this big well.  That’s the risk.

But they do have fast growing cash flow from their gas production to help pay for everything.

IF they DO hit, however, they will be gushing record cash flows, and easily able to meet their  CAD$16 million commitment to earn their full 50% interest in all three large blocks in this prolific oil field.

CONCLUSION

Trillion is starting a huge growth curve now, with THREE already drilled wells coming online in the coming months—just as one fund manager was forced to liquidate a large position in Trillion stock.

When you see the stock chart, you can see the impact this has had—and that’s why I’m updating you on this story NOW.  The stock has traded 39.4 million shares in the last two weeks—there’s only 78 million shares out now!  Fifty percent of the stock has now turned over, and volume has soared as savvy investors try to get a position at a historically low valuation here.

The steady natgas drilling will continue to lift production and cash flow for Trillion.  Europe WANTS more domestic gas, especially Turkey.  Trillion has hit on every single well so far, and increased the number of producing gas fields from 4 – 7.   They understand those reservoirs very, very well.

But when I talk to CEO Art Halleran, it’s the excitement around this oil well that he gets to drill in 2024 that stands out.  Their success has earned them this opportunity.

Success here would create a mid-tier producer instantly, with diversified production of both oil and gas in a low cost country—a G20 nation that’s part of NATO.

It’s a rare opportunity—in both 2024 and…due to this fund liquidation—right now.

Trillion Energy has reviewed and sponsored this article. The information in this newsletter does not constitute an offer to sell or a solicitation of an offer to buy any securities of a corporation or entity, including U.S. Traded Securities or U.S. Quoted Securities, in the United States or to U.S. Persons. Securities may not be offered or sold in the United States except in compliance with the registration requirements of the Securities Act and applicable U.S. state securities laws or pursuant to an exemption therefrom. Any public offering of securities in the United States may only be made by means of a prospectus containing detailed information about the corporation or entity and its management as well as financial statements. No securities regulatory authority in the United States has either approved or disapproved of the contents of any newsletter.

CALGARY, Alberta, Nov. 02, 2023 (GLOBE NEWSWIRE) — FLINT Corp. (“FLINT” or the “Company”) (TSX: FLNT) today announced its results for the three and nine months ended September 30, 2023. All amounts are in Canadian dollars and expressed in thousands of dollars unless otherwise noted.

“EBITDAS” and “Adjusted EBITDAS” are not standard measures under IFRS. Please refer to the Advisory regarding Non-GAAP Financial Measures at the end of this press release for a description of these items and limitations of their use.

“Demand for our services remained strong in the third quarter with revenue of $187.0 million, representing a new quarterly record for the Company and an increase of 8.8% from the third quarter of 2022. The increase was due to strong demand for our maintenance, construction and environmental services, which more than offset lower revenues from wear technology overlay services and turnaround projects, which benefited in 2022 from a backlog due to the Covid-19 pandemic,” said Barry Card, Chief Executive Officer.

“We continue to progress our organic growth strategy that targets both industrial end market and geographic diversification. We recently opened an operating facility in Winnipeg as we continue to grow with our existing customers and pursue new customers across Canada. The commitment of our employees to deliver our services safely and with the utmost professionalism has been instrumental to our customer retention and attraction strategies,” added Mr. Card.

THIRD QUARTER HIGHLIGHTS

• Revenue for the three months ended September 30, 2023 was $187.0 million, representing an increase of $15.1 million or 8.8% from the same period in 2022 and an increase of $18.5 million or 10.9% from the second quarter of 2023.
• Gross profit for the three months ended September 30, 2023 was $19.7 million, representing a decrease of $0.9 million or 4.3% from the same period in 2022 and an increase of $2.5 million or 14.4% from the second quarter of 2023.
• Gross profit margin for the three months ended September 30, 2023 was 10.6%, as compared to 12.0% in the same period in 2022 and 10.2% in the second quarter of 2023.
• Adjusted EBITDAS for the three months ended September 30, 2023 was $10.8 million, representing a decrease of $1.6 million or 12.8% from the same period in 2022 and an increase of $2.9 million or 36.8% from the second quarter of 2023.
• Adjusted EBITDAS margin was 5.8% for the three months ended September 30, 2023 representing a decrease of 1.4% from the same period in 2022 and an increase of 1.1% from the second quarter of 2023.
• Selling, general and administrative (“SG&A”) expenses for the three months ended September 30, 2023 were $9.0 million, representing a decrease of $0.9 million or 9.3% from the same period in 2022 and a decrease of $0.5 million or 5.5% from the second quarter of 2023. As a percentage of revenue, SG&A expenses for the three months ended September 30, 2023 were 4.8%, as compared to 5.8% in the same period in 2022 and 5.7% in the second quarter of 2023.
• Liquidity, including cash and available credit facilities, was $34.4 million at September 30, 2023, as compared to $37.0 million at December 31, 2022.
• New contract awards and renewals totaled approximately $62.6 million for the three months ended September 30, 2023 and $14.6 million for the month of October. Approximately 74% of the work is expected to be completed in 2023.

Maintenance and Construction Services

Revenue for the Maintenance and Construction Services segment was $177.8 million for the three months ended September 30, 2023, compared to $159.3 million for the same period in 2022, representing an increase of $18.5 million or 11.6%. The increase in revenue was due to the results of our organic growth strategy and continued momentum in energy markets which benefited from strong oil prices.

Gross profit margin was 10.5% for the three months ended September 30, 2023 compared to 11.3% for the same period in 2022. The decrease was due to higher margins realized in major projects and turnarounds completed during the third quarter of 2022.

Wear Technology Overlay Services

Revenue for the Wear Technology Overlay Services segment for the three months ended September 30, 2023 was $10.9 million, compared to $14.0 million for the same period in 2022, representing a decrease of $3.1 million or 21.9%. The decrease in revenue related to a delay in orders from a large customer that experienced some operational issues.

Gross profit margin was 9.3% for the three months ended September 30, 2023, compared to 19.1% for the same period in 2022. The decrease was primarily due to a change in the mix of work compared to the same period in 2022.

Environmental Services

We continue to grow and further enhance the technical abilities of our professional services and consulting capabilities to serve our growing customer base in Energy and Industrial markets. We offer full-scope environmental consulting and regulatory services, from the initial planning stage (pre-construction assessments, regulatory licensing and permitting), through the operational stage (amendments or renewal applications, water, air, and soil monitoring, waste management reporting and spill response), to the site abandonment, decommissioning, remediation and reclamation stage (environmental site assessments, remedial excavations, and full site reclamation including required regulatory submissions or notifications).

Corporate

On July 28, 2023, Jennifer Stubbs was appointed as Chief Financial Officer with responsibility for leading the Company’s Finance and Information Technology teams, as well as continuous improvement initiatives.

Ms. Stubbs started her career at KPMG in Assurance and went on to hold financial roles with companies involved in engineering, manufacturing, real estate and energy infrastructure. Prior to joining FLINT, Ms. Stubbs was with Pembina Pipeline Corporation for 11 years, where she progressed through various financial roles and most recently held the title of Vice President, Continuous Improvement, where she was responsible for Internal Audit, oversight and reporting of corporate productivity initiatives and capital project governance. Ms. Stubbs is a Chartered Professional Accountant and holds a Bachelor of Commerce from the University of British Columbia.

THIRD QUARTER FINANCIAL RESULTS

^{(1) The eliminations includes eliminations of inter-segment transactions. FLINT accounts for inter-segment sales based on transaction price.
(2) “Adjusted EBITDAS” is not a standard measure under IFRS. Please refer to the Advisory regarding Non-GAAP Financial Measures at the end of this press release for a description of this measure and limitations of its use.}

Revenue for the three and nine months ended September 30, 2023 was $187,017 and $506,063 compared to $171,883 and $454,927 for the same periods in 2022, representing an increase of 8.8% and 11.2%, respectively. The increase in quarterly revenue was driven by strong market momentum in the Maintenance and Construction Services segment.

Gross profit for the three and nine months ended September 30, 2023 was $19,740 and $50,368 compared to $20,617 and $46,059 for the same periods in 2022, representing a decrease of 4.3% and an increase of 9.4%, respectively. The decrease in quarterly gross profit for the three month ended September 30, 2023 was primarily due to lower activity levels and a change in the mix of work in the Wear Technology Overlay Services segment. The increase in gross profit for the nine months ended September 30, 2023 was primarily driven by an increase in the volume of work in the Maintenance and Construction Services segment. Gross profit margin for the three and nine months ended September 30, 2023 was 10.6% and 10.0%, compared to 12.0% and 10.1% for the same periods in 2022.

SG&A expenses for the three and nine months ended September 30, 2023 were $9,045 and $26,785, in comparison to $9,970 and $27,821 for the same periods in 2022, representing a decrease of 9.3% and 3.7%, respectively. As a percentage of revenue, SG&A expenses for the three and nine months ended September 30, 2023 were 4.8% and 5.3% compared to 5.8% and 6.1% for the same periods in 2022. The decrease in SG&A expenses as a percentage of revenue is primarily due to the ability to grow the business more efficiently and the non-recurrence of implementation costs for the Company’s new enterprise resource planning system that were incurred in 2022.

For the three and nine months ended September 30, 2023, Adjusted EBITDAS was $10,796 and $24,134 compared to $12,381 and $23,296 for the same periods in 2022. As a percentage of revenue, Adjusted EBITDAS was 5.8% and 4.8% for the three and nine months ended September 30, 2023 compared to 7.2% and 5.1% for the same periods in 2022.

Income from continuing operations for the three months ended September 30, 2023 was $2,789 compared to $1,174 for the same period in 2022. The income variance was driven by the lower SG&A expenses, restructuring expenses and long-term incentive plan expenses. This was partially offset by the lower gross profit margin in the Wear Technology Overlay Services segment. Loss from continuing operations for the nine months ended September 30, 2023 was $12,639 compared to $7,582 for the same period in 2022. The loss variance was driven by the impairment of assets of $11,462 that was recorded in the second quarter of 2023 combined with higher interest expense and higher long-term incentive plan expense. This was partially offset by the improvement in gross profit for the Maintenance and Construction Services segment, lower restructuring expenses and lower SG&A expenses.

LIQUIDITY AND CAPITAL RESOURCES

The Company has an asset-based revolving credit facility (the “ABL Facility”) with a Canadian charted bank providing for maximum borrowings of up to $50.0 million. The amount available under the ABL Facility will vary from time to time based on the borrowing base determined with reference to the accounts receivable of FLINT and certain of its subsidiaries. The maturity date of the ABL Facility is April 14, 2025.

The Company anticipates that its liquidity (cash on hand and available credit facilities) and cash flow from operations will be sufficient to meet its short-term contractual obligations and maintain compliance with its financial covenants through September 30, 2024. To maintain compliance with its financial covenants through September 30, 2024, the Company may need to continue to satisfy its obligation to pay interest on the Senior Secured Debentures in kind, which requires approval by the holder of the Senior Secured Debentures at their sole discretion.

As at September 30, 2023, the issued and outstanding share capital included 110,001,239 Common Shares, 127,732 Series 1 Preferred Shares, and 40,111 Series 2 Preferred Shares.

The Series 1 Preferred Shares (having an aggregate value of $127.732 million) are convertible at the option of the holder into Common Shares at a price of $0.35/share and the Series 2 Preferred Shares (having an aggregate value of $40.111 million) are convertible into Common Shares at a price of $0.10/share.

The Series 1 and Series 2 Preferred Shares have a 10% fixed cumulative preferential cash dividend payable when the Company has sufficient monies to be able to do so, including under the provisions of applicable law and contracts affecting the Company. The Board of Directors of the Company does not intend to declare or pay any cash dividends until such times as the Company’s balance sheet and liquidity position supports the payment. As at September 30, 2023, the accrued and unpaid dividends on the Series 1 and Series 2 shares totaled $89.2 million. Any accrued and unpaid dividends are convertible in certain circumstances at the option of the holder into additional Series 1 and Series 2 Preferred Shares.

On June 6, 2023, Canso, in its capacity as portfolio manager for and on behalf of certain accounts that it manages and sole holder of the Senior Secured Debentures, agreed to (i) accept the issuance of Senior Secured Debentures on June 30, 2023 with a principal amount of $4,812 in order to satisfy the interest that would otherwise become due and payable on such date (the “Payment in Kind Transaction”) and (ii) amend the trust indenture governing the Senior Secured Debentures to, among other things, establish a mechanism by which the Company may request, and the holder of the Senior Secured Debentures may approve (at their sole discretion), the payment of interest owing on the Senior Secured Debentures on future interest payment dates in kind (the “Indenture Amendment”). On June 28, 2023, the Company entered into the Ninth Supplemental Senior Secured Indenture to affect the Payment in Kind Transaction and the Indenture Amendment.

OUTLOOK

The Bank of Canada continues to maintain interest rates at elevated levels in an effort to bring inflation back to its target level without pushing the economy into a recession. Despite these broad economic concerns, our business has continued to grow as demand for our services from customers in the energy and industrial markets remains positive. We expect activity levels to moderate in the fourth quarter relative to the seasonal peaks experienced in the second and third quarter due to the spring and fall turnaround and construction projects.

For our customers in the energy industry, the Organization of Petroleum Exporting Countries and its allies continue to provide support to world oil markets by curtailing production. The strength in oil prices in 2023 has allowed these customers to generate strong cash flows which they have used to pay down debt, increase returns to shareholders and reinvest in their businesses. Assuming continued strength in oil prices, we expect these customers will modestly increase their spending on both maintenance projects (to enhance operational reliability) and capital projects (to maintain or expand production capacity).

FLINT has a suite of more than 40 service offerings that encompass the full asset lifecycle. Through the extensive regional coverage provided by our 20 operating facilities, we believe that FLINT is well-positioned to further consolidate the services required at various operating sites while generating efficiencies and cost reductions for our customers. We are also continually working to improve our service delivery to help our customer’s bring their resources to our world.

Additional Information

Our unaudited condensed consolidated interim financial statements for the three and nine months ended September 30, 2023 and the related Management’s Discussion and Analysis of the operating and financial results can be accessed on our website at www.flintcorp.com and will be available shortly through SEDAR at www.sedar.com.

About FLINT Corp.

With a legacy of excellence and experience stretching back more than 100 years, FLINT provides solutions for the Energy and Industrial markets including: Oil & Gas (upstream, midstream and downstream), Petrochemical, Mining, Power, Agriculture, Forestry, Infrastructure and Water Treatment. With offices strategically located across Canada and a dedicated workforce, we provide maintenance, construction, wear technology and environmental services that help our customers bring their resources to our world. For more information about FLINT, please visit www.flintcorp.com or contact:

Advisory regarding Forward-Looking Information

Certain information included in this press release may constitute “forward-looking information” within the meaning of Canadian securities laws. In some cases, forward-looking information can be identified by terminology such as “may”, “will”, “should”, “expect”, “plan”, “anticipate”, “believe”, “estimate”, “predict”, “potential”, “continue” or the negative of these terms or other similar expressions concerning matters that are not historical facts. This press release contains forward-looking information relating to: our business plans, strategies and objectives; contract renewals and project awards, including the estimated value thereof and the timing of completing the associated work; the sufficiency of our liquidity and cash flow from operations to meet our short-term contractual obligations and maintain compliance with our financial covenants through September 30, 2024; the payment of interest owing on the Senior Secured Debentures in kind; our dividend policy; activity levels in the fourth quarter of 2023; the supply/demand fundamentals for oil and natural gas and its impact on the demand for our services; and the spending plans of our customers in the energy industry.

Forward-looking information involves significant risks and uncertainties. A number of factors could cause actual events or results to differ materially from the events and results discussed in the forward-looking information including, but not limited to, compliance with debt covenants, access to credit facilities and other sources of capital for working capital requirements and capital expenditure needs, availability of labour, dependence on key personnel, economic conditions, commodity prices, interest rates, future actions by governmental authorities in response to Covid-19 or another pandemic, regulatory change, weather and risks related to the integration of acquired businesses. These factors should not be considered exhaustive. Risks and uncertainties about FLINT’s business are more fully discussed in FLINT’s disclosure materials, including its annual information form and management’s discussion and analysis of the operating and financial results, filed with the securities regulatory authorities in Canada and available at www.sedar.com. In formulating the forward-looking information, management has assumed that business and economic conditions affecting FLINT will continue substantially in the ordinary course, including, without limitation, with respect to general levels of economic activity, regulations, taxes and interest rates. Although the forward-looking information is based on what management of FLINT consider to be reasonable assumptions based on information currently available to it, there can be no assurance that actual events or results will be consistent with this forward-looking information, and management’s assumptions may prove to be incorrect.

This forward-looking information is made as of the date of this press release, and FLINT does not assume any obligation to update or revise it to reflect new events or circumstances except as required by law. Undue reliance should not be placed on forward-looking information. Forward-looking information is provided for the purpose of providing information about management’s current expectations and plans relating to the future. Readers are cautioned that such information may not be appropriate for other purposes.

Advisory regarding Non-GAAP Financial Measures

The terms ‘‘EBITDAS’’ and “Adjusted EBITDAS” (collectively, the ‘‘Non-GAAP Financial Measures’’) are financial measures used in this press release that are not standard measures under IFRS. FLINT’s method of calculating the Non-GAAP Financial Measures may differ from the methods used by other issuers. Therefore, the Non-GAAP Financial Measures, as presented, may not be comparable to similar measures presented by other issuers.

EBITDAS refers to income (loss) from continuing operations in accordance with IFRS, before depreciation and amortization, interest expense, income tax expense (recovery) and long-term incentive plan expenses. EBITDAS is used by management and the directors of FLINT as well as many investors to determine the ability of an issuer to generate cash from operations. Management also uses EBITDAS to monitor the performance of FLINT’s reportable segments and believes that in addition to income (loss) from continuing operations and cash provided by operating activities, EBITDAS is a useful supplemental measure from which to determine FLINT’s ability to generate cash available for debt service, working capital, capital expenditures and income taxes. FLINT has provided a reconciliation of income (loss) from continuing operations to EBITDAS below.

Adjusted EBITDAS refers to EBITDAS excluding impairment of assets, restructuring expense, gain on sale of property, plant and equipment, loss (recovery) of contingent consideration liability and one time incurred expenses. FLINT has used Adjusted EBITDAS as the basis for the analysis of its past operating financial performance. Adjusted EBITDAS is a measure that management believes (i) is a useful supplemental measure from which to determine FLINT’s ability to generate cash available for debt service, working capital, capital expenditures, and income taxes, and (ii) facilitates the comparability of the results of historical periods and the analysis of its operating financial performance which may be useful to investors. FLINT has provided a reconciliation of income (loss) from continuing operations to Adjusted EBITDAS below.

Investors are cautioned that the Non-GAAP Financial Measures are not alternatives to measures under IFRS and should not, on their own, be construed as an indicator of performance or cash flows, a measure of liquidity or as a measure of actual return on the shares. These Non-GAAP Financial Measures should only be used with reference to FLINT’s consolidated interim and annual financial statements, which are available on SEDAR at www.sedar.com or on FLINT’s website at www.flintcorp.com.