CALGARY, AB, March 2, 2023 /CNW/ - Spartan Delta Corp. ("Spartan" or the "Company") (TSX: SDE) is pleased to report its financial and operating results for the fourth quarter and year ended December 31, 2022, as well as highlights of the Company's year-end reserves evaluation.

Selected financial and operational information is set out below and should be read in conjunction with Spartan's audited consolidated annual financial statements and related management's discussion and analysis ("MD&A") for the years ended December 31, 2022 and 2021, which are filed on SEDAR at www.sedar.com and are available on the Company's website at www.spartandeltacorp.com. The highlights reported in this press release include certain non-GAAP financial measures and ratios which have been identified using capital letters. The reader is cautioned that these measures may not be directly comparable to other issuers; refer to additional information under the heading "Reader Advisories – Non-GAAP Measures and Ratios".

2022 FINANCIAL AND OPERATING HIGHLIGHTS

• The Company achieved 53% growth in average production from 47,674 BOE/d (33% liquids) in 2021 to 73,084 BOE/d (38% liquids) in 2022, which exceeded the high-end of the range of its 2022 production guidance of 71,000 to 73,000 BOE/d.
• Production averaged 74,639 BOE/d (39% liquids) during the fourth quarter of 2022.
• Spartan successfully executed a $434 million capital program in 2022, with specific focus placed on the development of its Gold Creek and Karr assets located in the Montney oil window as well as continued development across multiple horizons in the Deep Basin.
• In the Montney, Spartan drilled 24.2 net wells, completed 26.2 net wells and 2.0 disposals wells, and brought 23.9 net wells on production.
• In the Deep Basin, Spartan drilled and completed 21.0 net wells and brought 20.0 net wells on production.
• Oil and gas sales revenue increased by 141% to $1.464 billion in 2022 compared to $608 million in 2021, driven by the Company's production growth and materially higher oil and gas prices.
• Spartan reported net income for 2022 of $681 million ($3.88 per share, diluted), up 104% from $334 million ($2.50 per share, diluted) in 2021.
• The Company's operations generated Adjusted Funds Flow of $233 million ($1.31 per share, diluted) in the fourth quarter and $826 million ($4.66 per share, diluted) for the year ended December 31, 2022.
• Free Funds Flow of $392 million was used to:
• repay the Company's bank debt in full and significantly reduce its Net Debt to $138 million at December 31, 2022, down from $458 million at December 31, 2021;
• return capital to shareholders by declaring a special dividend of $86 million ($0.50 per share) payable on January 16, 2023, to eligible shareholders of record on December 15, 2022; and
• fund a strategic corporate acquisition for cash consideration of $6 million in August 2022, pursuant to which Spartan assumed approximately $625 million of non-capital loss tax pools which further extended the Company's tax horizon. Spartan's total available tax pools are estimated to be $2.1 billion at December 31, 2022.

The table below summarizes the Company's financial and operating results for the fourth quarters and years ended December 31, 2022 and December 31, 2021:

2022 RESERVES INFORMATION

Spartan is pleased to provide below select highlights from the results of its year end independent oil and gas reserves evaluation as of December 31, 2022 (the "McDaniel Report"), as prepared by its independent qualified reserves evaluator, McDaniel & Associates Consultants Ltd. ("McDaniel"). The evaluation of Spartan's properties was prepared in accordance with the definitions, standards and procedures contained in the most recent publication of the Canadian Oil and Gas Evaluation Handbook ("COGEH") and National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities ("NI 51-101").  

• Relative to year-end 2021, Spartan increased proved developed producing ("PDP") reserves 8% to 134.9 MMBOE, total proved ("TP") reserves 8% to 318.6 MMBOE, and total proved plus probable ("TPP") reserves 6% to 578.6 MMBOE at year-end 2022.
• The before-tax net present value ("NPV") of reserves, discounted at 10%, was approximately $1.624 billion on a PDP basis, $3.031 billion on a TP basis, and $5.011 billion on a TPP basis, representing an increase in NPV of 41% on a PDP basis, 28% on a TP basis and 26% on a TPP basis, year-over-year.
• The McDaniel Report includes future development capital ("FDC") of approximately $2.238 billion in the TP category with 260.6 net locations and approximately $3.952 billion in the TPP category with 463.6 net locations.

The following tables highlight the findings of the McDaniel Report. The McDaniel Report was based on the published average forecast pricing of McDaniel, GLJ Ltd. and Sproule Associates Limited. See "Reader Advisories – Reserves Disclosure" for more information. Additional reserves information as required under NI 51-101 will be included in Spartan's Annual Information Form for the year ended December 31, 2022, which will be filed on or before March 31, 2022, on SEDAR at www.sedar.com. The numbers in the tables below may not add due to rounding.

Summary of Reserves Volumes as at December 31, 2022

The Company's reserves volumes and undiscounted FDC costs as at December 31, 2022 are summarized below:

Net Present Value of Future Net Revenue as at December 31, 2022 (Before-Tax)

The following table summarizes the NPV of the Company's reserves (before-tax) as at December 31, 2022. The reserves value on a $/BOE basis, discounted at 10% per year, is also summarized for each category.  

Forecast Costs

The following table outlines estimated annual future development capital expenditures required to bring TP and TPP reserves on production per the McDaniel Report:

2023 OUTLOOK

In the fourth quarter of 2022, Spartan announced that its Board of Directors had commenced a formal process to evaluate strategic positioning alternatives in an effort to enhance shareholder value (the "Repositioning Process"). The Repositioning Process is progressing as planned and includes the evaluation of a broad range of alternatives including, but not limited to, a corporate sale, merger, corporate restructuring, sale of select assets, sale of a royalty, purchase of assets, the spin-out of select assets into a newly-formed company whose securities would be distributed to shareholders or any combination of these potential alternatives in conjunction with a robust return of capital strategy.

Spartan's business has not been impacted during this Repositioning Process and the Company continues to execute on the 2023 budget published in its press release dated November 30, 2022. The Company's budget of $430 million of capital expenditures and forecast average production of between 80,000 to 82,000 BOE per day for 2023 remains unchanged.

ABOUT SPARTAN DELTA CORP.

Spartan is committed to creating a modern energy company, focused on sustainability both in operations and financial performance. The Company's ESG-focused culture is centered on generating Free Funds Flow through responsible oil and gas exploration and development. The Company has established a portfolio of high-quality production and development opportunities in the Deep Basin and Montney. Spartan is focused on the execution of the Company's organic drilling program, delivering operational synergies in a respectful and responsible manner to the environment and communities it operates in. The Company is well positioned to continue pursuing immediate production optimization, future growth with organic drilling, opportunistic acquisitions and the delivery of Free Funds Flow.

Spartan's corporate presentation and updated ESG reporting as of March 2, 2023 can be accessed on the Company's website at www.spartandeltacorp.com.

READER ADVISORIES

Non-GAAP Measures and Ratios

This press release contains certain financial measures and ratios which do not have standardized meanings prescribed by International Financial Reporting Standards ("IFRS") or Generally Accepted Accounting Principles ("GAAP"). As these non-GAAP financial measures and ratios are commonly used in the oil and gas industry, Spartan believes that their inclusion is useful to investors. The reader is cautioned that these amounts may not be directly comparable to measures for other companies where similar terminology is used.

The non-GAAP measures and ratios used in this press release, represented by the capitalized and defined terms outlined below, are used by Spartan as key measures of financial performance and are not intended to represent operating profits nor should they be viewed as an alternative to cash provided by operating activities, net income or other measures of financial performance calculated in accordance with IFRS.

The definitions below should be read in conjunction with the "Non-GAAP Measures and Ratios" section of the Company's MD&A dated March 2, 2023, which includes discussion of the purpose and composition of the specified financial measures and detailed reconciliations to the most directly comparable GAAP financial measures.

Operating Income and Operating Netback

Operating Income, a non-GAAP financial measure, is a useful supplemental measure that provides an indication of the Company's ability to generate cash from field operations, prior to administrative overhead, financing and other business expenses. "Operating Income, before hedging" is calculated by Spartan as oil and gas sales, net of royalties, plus processing and other revenue, less operating and transportation expenses. "Operating Income, after hedging" is calculated by adjusting Operating Income for: (i) realized gains or losses on derivative financial instruments including settlements on acquired derivative financial instrument liabilities (together a non-GAAP financial measure "Settlements on Commodity Derivative Contracts"), and (ii) pipeline transportation revenue, net of pipeline transportation expense (the "Net Pipeline Transportation Margin"). The Company refers to Operating Income expressed per unit of production as an "Operating Netback" and reports the Operating Netback before and after hedging, both of which are non-GAAP financial ratios. Spartan considers Operating Netback an important measure to evaluate its operational performance as it demonstrates its field level profitability relative to current commodity prices.

Adjusted Funds Flow and Free Funds Flow

Cash provided by operating activities is the most directly comparable measure to Adjusted Funds Flow. "Adjusted Funds Flow" is reconciled to cash provided by operating activities by excluding changes in non-cash working capital, adding back transaction costs on acquisitions, and deducting the principal portion of lease payments. Spartan utilizes Adjusted Funds Flow as a key performance measure in the Company's annual financial forecasts and public guidance. Transaction costs, which primarily include legal and financial advisory fees, regulatory and other expenses directly attributable to execution of acquisitions, are added back because the Company's definition of Free Funds Flow excludes capital expenditures related to acquisitions and dispositions. For greater clarity, incremental overhead expenses related to ongoing integration and restructuring post-acquisition are not adjusted and are included in Spartan's general and administrative expenses. Lease liabilities are not included in Spartan's definition of Net Debt (non-GAAP measure defined herein) therefore lease payments are deducted in the period incurred to determine Adjusted Funds Flow.

The Company refers to Adjusted Funds Flow expressed per unit of production as an "Adjusted Funds Flow Netback".

"Free Funds Flow" is calculated by Spartan as Adjusted Funds Flow less Capital Expenditures before A&D, which is also a non-GAAP financial measure (defined herein). Spartan believes Free Funds Flow provides an indication of the amount of funds the Company has available for future capital allocation decisions such as to repay long-term debt, reinvest in the business or return capital to shareholders.

Adjusted Funds Flow per share

Adjusted Funds Flow ("AFF") per share is a non-GAAP financial ratio used by the Spartan as a key performance indicator. AFF per share is calculated using the same methodology as net income per share ("EPS"), however the diluted weighted average common shares ("WA Shares") outstanding for AFF may differ from the diluted weighted average determined in accordance with IFRS for purposes of calculating EPS due to non-cash items that impact net income only. The dilutive impact of stock options and share awards is more dilutive to AFF than EPS because the number of shares deemed to be repurchased under the treasury stock method is not adjusted for unrecognized share based compensation expense as it is non-cash. For periods in which the convertible promissory note was outstanding, it was always dilutive to AFF per share but could be antidilutive to EPS because of the non-cash change in fair value recognized through net income (see also, "Share Capital").

Capital Expenditures, before A&D

"Capital Expenditures before A&D" is used by Spartan to measure its capital investment level compared to the Company's annual budgeted capital expenditures for its organic drilling program. It includes capital expenditures on exploration and evaluation assets and property, plant and equipment, before acquisitions and dispositions. The directly comparable GAAP measure to capital expenditures is cash used in investing activities.

Adjusted Net Capital Acquisitions

"Adjusted Net Capital Acquisitions" is a supplemental measure disclosed by Spartan which aggregates the total amount of cash, debt and share consideration used to acquire crude oil and natural gas assets during the period, net of cash proceeds received on dispositions. The Company believes this is useful information because it is more representative of the total transaction value than the cash acquisition costs or total cash used in investing activities, determined in accordance with IFRS.

Net Debt (Surplus) and Adjusted Working Capital

References to "Net Debt (Surplus)" includes long-term debt under Spartan's revolving credit facility and second lien term facility, net of Adjusted Working Capital. Net Debt (Surplus) and Adjusted Working Capital are both non-GAAP financial measures. "Adjusted Working Capital" is calculated as current assets less current liabilities, excluding lease liabilities and derivative financial instrument assets and liabilities. As at December 31, 2022 and 2021, the Adjusted Working Capital (surplus) deficit includes cash and cash equivalents, accounts receivable, prepaid expenses and deposits, other current assets, accounts payable and accrued liabilities, dividends payable, and the current portion of decommissioning obligations.

Spartan uses Net Debt (Surplus) as a key performance measure to manage the Company's targeted debt levels. The Company believes its presentation of Adjusted Working Capital and Net Debt (Surplus) are useful as supplemental measures because lease liabilities and derivative financial instrument assets and liabilities relate to contractual obligations for future production periods. Lease payments and cash receipts or settlements on derivative financial instruments are included in Spartan's reported Adjusted Funds Flow in the production month to which the obligation relates.

References to "Cash Financing Expenses" includes interest and fees on long-term debt, net of interest income, and excludes financing costs related to lease liabilities and accretion of decommissioning obligations. Cash Financing Expenses is a non-GAAP financial measure used by Spartan in its budget and guidance as it corresponds to the Company's definition of Net Debt (Surplus), however it should not be viewed as an alternative to total financing expenses presented in accordance with IFRS.

Net Debt to Annualized AFF Ratio

The Company monitors its capital structure using a "Net Debt to Annualized AFF Ratio", which is a non-GAAP financial ratio calculated as the ratio of the Company's "Net Debt" to its "Annualized Adjusted Funds Flow" which is calculated by multiplying Adjusted Funds Flow for the most recent quarter, normalized for significant non-recurring items, by a factor of 4.  

O&G READER ADVISORIES

Reserves Disclosure

The reserves information and data provided in this press release presents only a portion of the disclosure required under NI 51-101. Spartan's Statement of Reserves Data and Other Oil and Gas Information on Form 51-101F1 dated effective as at December 31, 2022, which includes further disclosure of Spartan's oil and gas reserves and other oil and gas information in accordance with NI 51-101 and COGEH forming the basis of this press release, will be included in the Company's Annual Information Form for the year ended December 31, 2022, which will be available on or before March 31, 2023 on SEDAR at www.sedar.com. 

All reserves values, future net revenue and ancillary information contained in this press release are derived from the McDaniel Report unless otherwise noted. All reserve references in this press release are "Company gross reserves". Company gross reserves are the Company's total working interest reserves before the deduction of any royalties payable by the Company. Estimates of reserves and future net revenue for individual properties may not reflect the same level of confidence as estimates of reserves and future net revenue for all properties, due to the effect of aggregation. There is no assurance that the forecast price and cost assumptions applied by McDaniel in evaluating Spartan's reserves will be attained and variances could be material. All reserves assigned in the McDaniel Report are located in the Province of Alberta and presented on a consolidated basis.

All evaluations and summaries of future net revenue are stated prior to the provision for interest, debt service charges or general and administrative expenses and after deduction of royalties, operating costs, estimated well abandonment and reclamation costs and estimated future capital expenditures. It should not be assumed that the estimates of future net revenues presented represent the fair market value of the reserves. The recovery and reserve estimates of Spartan's oil, NGLs and natural gas reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual oil, natural gas and NGL reserves may be greater than or less than the estimates provided herein. There are numerous uncertainties inherent in estimating quantities of crude oil, reserves and the future cash flows attributed to such reserves. The reserve and associated cash flow information set forth herein are estimates only.

Proved reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated proved reserves. Probable reserves are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved plus probable reserves. Proved developed producing reserves are those reserves that are expected to be recovered from completion intervals open at the time of the estimate. These reserves may be currently producing or, if shut-in, they must have previously been on production, and the date of resumption of production must be known with reasonable certainty. Undeveloped reserves are those reserves expected to be recovered from known accumulations where a significant expenditure (e.g., when compared to the cost of drilling a well) is required to render them capable of production. They must fully meet the requirements of the reserves category (proved, probable, possible) to which they are assigned. Certain terms used in this press release but not defined are defined in NI 51-101, CSA Staff Notice 51-324 – Revised Glossary to NI 51-101, Revised Glossary to NI 51-101, Standards of Disclosure for Oil and Gas Activities ("CSA Staff Notice 51-324") and/or the COGEH and, unless the context otherwise requires, shall have the same meanings herein as in NI 51-101, CSA Staff Notice 51-324 and the COGEH, as the case may be.

Drilling Locations

This press release discloses drilling inventory in two categories: (a) proved locations; and (b) probable locations. Proved locations and probable locations are derived from the McDaniel Report and account for drilling locations that have associated proved and/or probable reserves, as applicable. Of the 463.6 net total booked drilling locations identified herein, 260.6 are net proved locations and 203.0 are net probable locations.

Other Measurements

All dollar figures included herein are presented in Canadian dollars, unless otherwise noted.

This press release contains various references to the abbreviation "BOE" which means barrels of oil equivalent. Where amounts are expressed on a BOE basis, natural gas volumes have been converted to oil equivalence at six thousand cubic feet (Mcf) per barrel (bbl). The term BOE may be misleading, particularly if used in isolation. A BOE conversion ratio of six thousand cubic feet per barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead and is significantly different than the value ratio based on the current price of crude oil and natural gas. This conversion factor is an industry accepted norm and is not based on either energy content or current prices. Such abbreviation may be misleading, particularly if used in isolation.

References to "oil" in this press release include light crude oil and medium crude oil, combined. NI 51-101 includes condensate within the product type of "natural gas liquids". References to "natural gas liquids" or "NGLs" include pentane, butane, propane and ethane. References to "gas" or "natural gas" relates to conventional natural gas.

References to "liquids" includes crude oil, condensate and NGLs.

Share Capital

Spartan's common shares are listed on the Toronto Stock Exchange ("TSX") and trade under the symbol "SDE". The volume weighted average trading price of Spartan's common shares on the TSX was $13.93 in the fourth quarter and averaged $12.01 per common share for the year ended December 31, 2022. Spartan's closing share price was $14.95 on December 31, 2022, compared to $5.97 on December 31, 2021.

As at December 31, 2022 and as of the date hereof, there are 171.4 million common shares outstanding. There are no preferred shares or special shares outstanding. The following securities are outstanding as of the date of this press release: 3.7 million restricted share awards; and 3.3 million stock options outstanding with an average exercise price of $4.56 per common share and average remaining term of 2.9 years.

The table below summarizes the weighted average number of common shares outstanding (000s) used in the calculation of diluted EPS and diluted AFF per share:

Forward-Looking and Cautionary Statements

Certain statements contained within this press release constitute forward-looking statements within the meaning of applicable Canadian securities legislation. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "anticipate", "budget", "plan", "endeavor", "continue", "estimate", "evaluate", "expect", "forecast", "monitor", "may", "will", "can", "able", "potential", "target", "intend", "consider", "focus", "identify", "use", "utilize", "manage", "maintain", "remain", "result", "cultivate", "could", "should", "believe" and similar expressions. Spartan believes that the expectations reflected in such forward-looking statements are reasonable as of the date hereof, but no assurance can be given that such expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. Without limitation, this press release contains forward-looking statements pertaining to: the business plan, cost model and strategy of Spartan, including commodity diversification and oil weighted production; Spartan's 2023 outlook, including anticipated 2023 production levels and capital expenditure budget for 2023; the expectation that the Repositioning Process may elicit change and enhance shareholder value; the estimated amount of available tax pools and the anticipated impact to Spartan's tax horizon; Spartan plans to deliver strong operational performance and to generate long term sustainable Free Funds Flow and organic growth; and being well positioned to take advantage of opportunities in the current business environment, and to continue pursuing immediate production optimization, responsible future growth with organic drilling, and opportunistic acquisitions.

The forward-looking statements and information are based on certain key expectations and assumptions made by Spartan, including expectations and assumptions concerning the business plan of Spartan, the timing of and success of future drilling, development and completion activities, the performance of existing wells, the performance of new wells, the availability and performance of facilities and pipelines, the geological characteristics of Spartan's properties, the successful integration of the recently acquired assets into Spartan's operations, the successful application of drilling, completion and seismic technology, prevailing weather conditions, prevailing legislation affecting the oil and gas industry, prevailing commodity prices, price volatility, price differentials and the actual prices received for the Company's products, impact of inflation on costs, royalty regimes and exchange rates, the application of regulatory and licensing requirements, the availability of capital, labour and services, the creditworthiness of industry partners and the ability to source and complete acquisitions.

Although Spartan believes that the expectations and assumptions on which such forward-looking statements and information are based are reasonable, undue reliance should not be placed on the forward-looking statements and information because Spartan can give no assurance that they will prove to be correct. By its nature, such forward-looking information is subject to various risks and uncertainties, which could cause the actual results and expectations to differ materially from the anticipated results or expectations expressed. These risks and uncertainties include, but are not limited to, the failure to achieve the anticipated benefits of the Repositioning Process or any transactions undertaken pursuant to the Repositioning Process, fluctuations in commodity prices, changes in industry regulations and political landscape both domestically and abroad, wars (including Russia's military actions in Ukraine), hostilities, civil insurrections, foreign exchange or interest rates, increased operating and capital costs due to inflationary pressures (actual and anticipated), stock market volatility, impacts of the current COVID-19 pandemic and the retention of key management and employees. Ongoing military actions between Russia and Ukraine have the potential to threaten the supply of oil and gas from the region. The long-term impacts of the actions between these nations remains uncertain.

Please refer to Spartan's MD&A for the year ended December 31, 2022 and annual information form for the year ended December 31, 2021 for discussion of additional risk factors relating to the Company, which can be accessed either on Spartan's website at www.spartandeltacorp.com or under Spartan's SEDAR profile on www.sedar.com. Readers are cautioned not to place undue reliance on this forward-looking information, which is given as of the date hereof, and to not use such forward-looking information for anything other than its intended purpose. Spartan undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by law.

This press release contains future-oriented financial information and financial outlook information (collectively, "FOFI") about Spartan's prospective results of operations and production, generating Free Funds Flow and organic growth, 2023 capital budget, expenditures and guidance, tax horizon and components thereof, all of which are subject to the same assumptions, risk factors, limitations, and qualifications as set forth in the above paragraphs. FOFI contained in this document was approved by management as of the date of this document and was provided for the purpose of providing further information about Spartan's future business operations. Spartan and its management believe that FOFI has been prepared on a reasonable basis, reflecting management's best estimates and judgments, and represent, to the best of management's knowledge and opinion, the Company's expected course of action. However, because this information is highly subjective, it should not be relied on as necessarily indicative of future results. Spartan disclaims any intention or obligation to update or revise any FOFI contained in this document, whether as a result of new information, future events or otherwise, unless required pursuant to applicable law. Readers are cautioned that the FOFI contained in this document should not be used for purposes other than for which it is disclosed herein. Changes in forecast commodity prices, differences in the timing of capital expenditures, and variances in average production estimates can have a significant impact on the key performance measures included in Spartan's guidance. The Company's actual results may differ materially from these estimates. 

Abbreviations

SOURCE Spartan Delta Corp.

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