Southern Energy Corp. ('Southern' or the 'Company') (TSXV: SOU) (AIM:SOUC)(OTCQX:SOUTF), an established producer with natural gas and light oil assets in Mississippi, announces its second quarter financial and operating results for the three and six months ended June 30, 2023.
Selected financial and operational information is outlined below and should be read in conjunction with the Company's unaudited consolidated financial statements (the 'Financial Statements') and related management's discussion and analysis (the 'MD&A') for the three and six months ended June 30, 2023, which are available on the Company's website at www.southernenergycorp.com and have been filed under the Company's profile on SEDAR+ at www.sedarplus.ca. SECOND QUARTER 2023 HIGHLIGHTS
Generated $0.2 million of adjusted funds flow from operations1 in Q2 2023, excluding $0.5 million of one-time transaction costs and general and administrative costs
Net loss of $3.8 million in Q2 2023 ($0.03 net loss per share basic and diluted), compared to net earnings of $2.8 million in Q2 2022
Petroleum and natural gas sales of $3.7 million in Q2 2023 and $8.9 million for the six months ended June 30, 2023
On June 1, 2023, Southern completed a strategic and highly synergistic acquisition in Gwinville of approximately 400 boe/d (99% natural gas) for cash consideration of $3.2 million (the 'Gwinville Acquisition')
Q2 2023 average production of 15,9072 Mcfe/d (2,651 boe/d) (96% natural gas), an increase of 12% from Q2 2022. Current field sales production is approximately 2,900 boe/d (96% natural gas), with four new horizontal wellbores awaiting completion operations. Once Southern commits to completing these two padsites, it is expected that all four wells could be on production within approximately eight weeks
Average realized natural gas and oil prices for Q2 2023 of $2.18/Mcf and $72.83/bbl compared to $7.53/Mcf and $109.01/bbl in Q2 2022. The current NYMEX strip price forecast for the remainder of 2023 is averaging approximately $3.10/MMBtu, a 47% increase compared to the benchmark price in Q2 2023
Ian Atkinson, President and Chief Executive Officer of Southern, commented: 'Our focus for Q2 2023 was primarily on completing and integrating the Gwinville Acquisition. We have started and will continue, to maximize operational synergies of the assets, as well as position the Company for the return to growth as commodity prices continue to improve. In addition to considerable synergistic value and high-quality drilling inventory, the Gwinville Acquisition provides Southern with access to sell gas into the Florida Gas Transmission system where, similar to Transco Zone 4, we are realizing continuous premium pricing to the NYMEX natural gas price. As the warm summer temperatures in the southern U.S. have elevated natural gas power demand and we now head into a period of slowing production growth due to lack of capital spending by the industry and incremental demand from additional LNG export capacity, we are encouraged by the outlook of supply and demand dynamics for U.S. natural gas. Southern is well positioned to capitalize on natural gas prices with production behind pipe which can be brought on stream in a short time frame.
We remain committed to reaching our goal of 25,000 boe/d and continue to assess opportunities to grow inorganically further building shareholder value as commodity prices continue to recover to a point where we plan to re-launch our organic growth program.'
Gwinville Development Update
As previously reported in the Company's announcement on May 30, 2023, the Company concluded operations on the latest drilling campaign which included seven new horizontal wells into three separate productive horizons from three distinct padsites in the Gwinville Field. The program added three Upper Selma Chalk wells, two Lower Selma Chalk wells and two City Bank wells. The drilling campaign was initially planned for 13 horizontal wells, but the Company paused the capital program in response to the weaker natural gas pricing that has persisted throughout Q2 2023. Of the seven wells that were drilled, only the three wells from the 18-10 padsite were completed with the other four wells (two on the 14-06 pad and two on the 13-13 pad) remaining as uncompleted, waiting on more supportive natural gas prices.
The four wells that are awaiting completion include the first two Lower Selma Chalk laterals, along with the second City Bank lateral and one of the Upper Selma Chalk laterals. These four wells are some of Southern's longest laterals to-date. They were drilled with an average lateral length of approximately 5,400 ft and were steered within the high-graded intervals for an average of 95% of the wellbore length. The two padsites can be brought on production within a matter of weeks once completion operations are resumed. At current strip pricing, Southern will consider commencing completion operations in Q4 2023.
The Company continues to flow back its first City Bank horizontal well at Gwinville 18-10 1, with load fluid recovery of approximately 20%. The well was brought on-line in late February 2023 with gas rates increasing to approximately 600 Mcf/d and having remained flat for the past few months. The Company believes that the most plausible explanation for the lower than expected gas rate is due to fracture communication with an offset well which had previously been produced from the deeper Tuscaloosa formation from the 1940'-1960's. It is expected that production will remain flat and/or increase as more load fluid is recovered and bottom hole pressure can be decreased, and that the overall recovery from the well should not be materially impacted. In future operations in City Bank horizontal wells, Southern will likely choose to create a buffer zone around the vintage abandoned Tuscaloosa wells by eliminating proximal frac stages to avoid any potential communication. The Company is very excited to complete the 13-13 City Bank horizontal well where it does not foresee any of these potential issues.
Remediation plans for the 18-10 3 Upper Selma Chalk well that experienced a mechanical integrity issue with the production casing during completion operations have been finalized and services contracted to commence operations in late Q3 2023. The 18-10 3 well was drilled to a total lateral length of 5,091 ft, achieved 80% of the lateral placed in the targeted porosity zone and was successfully completed in 44 stages prior to the mechanical issue.
Gwinville Acquisition Integration
Southern has been very successful in quickly integrating the acquired assets in Gwinville over the first few months following closing of the transaction on June 1, 2023. Immediate cost savings in the form of labour and supervision redundancies, as well as reduced maintenance contracts have been realized. Southern is currently in the process of installing the necessary pipeline infrastructure to consolidate the two gathering systems, allowing the Company to run one central compressor station versus the five that were running before the transaction. These synergies will not only remove costly rental compression and allow us to monetize spare owned compressors but will also eliminate approximately 250 Mcf/d of fuel gas and associated emissions and add this gas directly to sales volumes. The Company expects this field work to be completed by the end of Q3 2023.
The Company plans to workover a number of acquired wellbores that have significant upside production potential, also expected to be completed by the end of Q3 2023.
Additionally, marketing arrangements assumed from the previous operator have given Southern access to the Florida Gas Transmission Zone 3 that was not previously available. During Q3 2023, Southern has thus far been able to sell as much as 4,000 MMBtu/d into the system, which has had an average premium to Henry Hub/NYMEX over that period of approximately $0.40 - $0.60/MMBtu. The Company will continue to maximize our exposure to this sales delivery point as much as possible to optimize our field netbacks.
Outlook
Southern has four high-impact, uncompleted wells ('DUCs') that can be quickly completed and brought online through Southern's 100% owned equipment at higher natural gas prices, greatly improving per Mcfe operating expenses, expected in Q4 2023. This will allow Southern to react quickly to changing commodity prices to maximize returns. Additionally, The Company currently has $11.5 million of unused capacity on its senior secured term loan (the 'Credit Facility'), which can be utilized to complete the DUCs at supportive natural gas prices.
As part of its risk management and sustainability strategy, Southern continuously monitors both the price of NYMEX as well as the basis differentials in order to mitigate some of volatility of natural gas prices. Southern's current commodity hedge program includes: Fixed basis swap on 1,000 MMBtu/d at a $0.32/MMBtu premium to NYMEX from April 1, 2023 to October 31, 2023
Fixed price swap on 1,000 MMBtu/d at a price of $3.88/MMBtu from January 1, 2024 to December 31, 2025
Costless collar on 2,000 MMBtu/d with a floor of $3.00/MMBtu and a ceiling of $3.98/MMBtu from September 1, 2023 through March 31, 2024
Southern will continue to monitor NYMEX prices and the basis differential prices and is prepared to hedge additional volumes in a tactical manner going forward.
Southern thanks all of its stakeholders for their ongoing support and looks forward to providing future updates on operational activities and continuing to create shareholder value.
Contact:
Tel: +1 587 287 5401
About Southern Energy Corp.
Southern Energy Corp. is a natural gas exploration and production company characterized by a stable, low-decline production base, a significant low-risk drilling inventory and strategic access to premium commodity pricing in North America. Southern has a primary focus on acquiring and developing conventional natural gas and light oil resources in the southeast Gulf States of Mississippi, Louisiana, and East Texas. Our management team has a long and successful history working together and have created significant shareholder value through accretive acquisitions, optimization of existing oil and natural gas fields and the utilization of re-development strategies utilizing horizontal drilling and multi-staged fracture completion techniques.
READER ADVISORY
MCFE Disclosure. Natural gas liquids volumes are recorded in barrels of oil (bbl) and are converted to a thousand cubic feet equivalent (Mcfe) using a ratio of six (6) thousand cubic feet to one (1) barrel of oil (bbl). Natural gas volumes recorded in thousand cubic feet (Mcf) are converted to barrels of oil equivalent (boe) using the ratio of six (6) thousand cubic feet to one (1) barrel of oil (bbl). Mcfe and boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf:1 bbl or a Mcfe conversion ratio of 1 bbl:6 Mcf is based in an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, given that the value ratio based on the current price of oil as compared with natural gas is significantly different from the energy equivalent of six to one, utilizing a boe conversion ratio of 6 Mcf:1 bbl or a Mcfe conversion ratio of 1 bbl:6 Mcf may be misleading as an indication of value.
Throughout this press release, 'crude oil' or 'oil' refers to light and medium crude oil product types as defined by National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities ('NI 51-101'). References to 'NGLs' throughout this press release comprise pentane, butane, propane, and ethane, being all NGLs as defined by NI 51-101. References to 'natural gas' throughout this press release refers to conventional natural gas as defined by NI 51-101.
SOUTHERN ENERGY CORP. 
