HIGHLIGHTS & OUTLOOK

2021 Third Quarter Highlights

Stronger than expected well performance along with continued improvement in commodity prices resulted in funds flow increasing to $33 million in the quarter while capital investment at $37 million was less than guidance for $43 to $48 million due to weather related delays in July.  Production and funds flow are both forecast to increase in the fourth quarter and into 2022 with 12.5 net new wells expected to start production at Nig Creek, Umbach and Fireweed in the fourth quarter and early 2022 (first production was achieved from the Fireweed area on November 4).

Subsequent to the end of the quarter, on November 9, 2021, Storm entered into a definitive arrangement agreement with Canadian Natural Resources Limited (“Purchaser”) pursuant to which the Purchaser has agreed to acquire all of the issued and outstanding common shares of Storm (“Storm Shares“) for cash consideration of $6.28 per Storm Share (the “Purchase Price“).  The proposed transaction is expected to close in December 2021 and offers attractive value for Storm shareholders with the Purchase Price implying an enterprise value for Storm of approximately $965 million using financial results from the third quarter of 2021 and including transaction related expenses plus the decommissioning liability. This represents 4.8 times annualized funds flow in the third quarter of 2021 excluding the loss on risk management contracts (hedging losses).  The Purchase Price also represents an all-time high share price for Storm as well as a premium of 10% to Storm’s 10-day volume weighted average trading price on the Toronto Stock Exchange as of the close of markets on November 9, 2021.

  • Production was 27,499 Boe per day, a 45% increase year over year and a 2% increase from the previous quarter. This was at the higher end of guidance for an average of 25,000 to 28,000 Boe per day and was achieved with the Nig Creek Gas Plant shut in for nine days in July to install inlet compression and to conduct a maintenance turnaround.  Comparisons to the previous year are less meaningful given the effect of planned maintenance turnarounds at third party gas plants which reduced production in the third quarter of 2020.
  • Liquids production (condensate plus NGL) totaled 5,094 barrels per day which was 19% of total production and provided 32% of total revenue. Liquids production increased 35% from last year.
  • Well performance continues to be strong with third quarter corporate production increasing by 6% from the first quarter of 2021 which was accomplished with only three new wells starting production at Umbach.
  • Recent well performance continues to exceed expectations with the calendar day IP365 for the last four wells starting production at Nig Creek averaging 1,940 Boe per day sales (22% liquids) and the calendar day IP180 for the last three wells starting production at Umbach averaging 1,080 Boe per day sales (21% liquids).
  • Revenue net of transportation was $29.08 per Boe, a 172% increase from last year as a result of higher commodity prices and a 28% decrease in the per-Boe transportation cost as incremental sales volumes are directed to BC Station 2 which has the lowest pipeline tariff.
  • Production, general and administrative, and interest and finance costs totaled $5.44 per Boe, a year-over-year reduction of 18%. Production costs are expected to decline as volumes directed to the Nig Creek Gas Plant are increased.
  • Realized hedging loss was $16.6 million, or $6.57 per Boe, a result of the continued improvement in commodity prices.
  • Funds flow was $33.4 million, or $0.27 per share, an increase of 400% from last year. This was largely from both higher production and higher commodity prices, partially offset by a $16.6 million hedging loss.
  • Net loss was $8.9 million, or $0.07 per share, and was largely due to the unrealized loss on risk management contracts totaling $31.1 million (non-cash hedging loss) which reflects the change in the mark-to-market valuation of future contracts.
  • Cash return on capital employed (CROCE) was 24% and return on capital employed (ROCE) was 4% with both calculated on a 12-month trailing basis. ROCE was reduced by non-cash hedging losses of $31.1 million in the quarter and $70.1 million for the year to date.
  • Capital investment was $36.8 million and included $23.1 million to drill 6.5 net and complete 1.5 net horizontal wells, $6.9 million to advance construction of the new facility at Fireweed, and $2.0 million to complete installation of inlet compression at the Nig Creek Gas Plant.
  • Total debt including working capital deficiency was $104 million which represents 0.8 X annualized quarterly funds flow.
  • Commodity price hedges protect revenue for approximately 41% of forecast production for the fourth quarter of 2021. The financial liability for future hedging contracts totaled $78 million using forward strip pricing at the end of the quarter.

Production in the fourth quarter of 2021 is forecast to average 30,000 to 32,000 Boe per day (production to date in the quarter has averaged approximately 28,400 Boe per day based on field estimates).  Capital investment in the quarter is forecast to be $40 to $45 million which includes $10 million to drill 5.0 net wells, $27 million to complete and equip 10.0 net wells, and $6 million ($3.0 million net) to complete construction of the Fireweed facility.

Updated guidance for 2021 is provided below.  Capital investment is expected to be $115 to $120 million, an increase of $5 million from previous guidance in order to drill and complete an additional well at Umbach.  Forecast pricing was updated to reflect actual prices to date with assumed prices for the remainder of the year being approximately equal to the current forward strip.

2021 Guidance
Previous

August 11, 2021

Current

November 10, 2021

Cdn$/US$ exchange rate 0.80 0.80
Chicago daily natural gas – US$/Mmbtu(1) $4.10 $4.70
AECO daily natural gas – Cdn$/GJ(1) $3.25 $3.60
BC Station 2 daily natural gas – Cdn$/GJ $3.20 $3.30
WTI – US$/Bbl $65 $68
Edmonton condensate diff – US$/Bbl ($0.00) $0.35
Est transportation cost – $/Boe $4.50 – $4.75 $4.50 – $4.75
Est revenue net of transport (excl hedges) – $/Boe $26.25 – $26.75 $29.00 – $30.50
Est royalty rate (% revenue net transportation) 8% – 9% 10% – 12%
Est production cost – $/Boe $4.00 – $4.50 $4.25 – $4.50
Est mid-point field operating netback – $/Boe(2) $20.00 $22.10
Est realized hedging gains or (losses) – $ million ($40.0 – $45.0) ($55.0 – $60.0)
Est cash G&A – $ million $5.0 – $6.0 $6.5
Est interest expense – $ million $6.0 – $7.0 $6.0 – $7.0
Est capital investment (excluding A&D) – $ million $110 – $115 $115 – $120
Forecast fourth quarter Boe/d

Forecast fourth quarter liquids Bbls/d

30,000 – 32,000

6,800 – 7,300

30,000 – 32,000

6,800 – 7,300

Forecast annual Boe/d

Forecast annual liquids Bbls/d

26,000 – 28,000

5,600 – 6,000

27,000 – 28,000

5,600 – 6,000

Est annual funds flow – $ million(3) $135 – $149 $148 – $156
Horizontal wells drilled – gross

Horizontal wells completed – gross

Horizontal wells starting production – gross

16 (12.0 net)

17 (14.0 net)

19 (15.0 net)

17 (13.0 net)

17 (14.5 net)

16 (14.0 net)

  • Approximately 50% of natural gas sales are at the daily or spot price and 50% at the monthly index price.
  • Based on the mid-point for each of revenue net of transportation, royalty rate and production costs.
  • Based on the range for forecast annual production and using the mid-points for the estimated field operating netback, estimated cash G&A, estimated hedging gain or loss and estimated interest expense.
2021 Investment and Activity by Area
Capital Investment

($million)

% for Infrastructure Net Wells

Drilled

Net Wells

Completed

Net Wells

Starting Production

Fireweed $42 – $45 50% 4.0 2.5 2.0
Nig Creek $31 – $32 25% 4.0 4.0 4.0
Umbach $42 – $43 5.0 8.0 8.0
Total $115 – $120 13.0 14.5 14.0

 

2021 Guidance History
  Chicago

Daily

(US$/Mmbtu)

BC Station 2

Daily

(Cdn$/GJ)

WTI

(US$/Bbl)

Capital Investment

($ million)

Forecast

Annual

Funds Flow

($ million)

Forecast Annual

Production

(Boe/d)

Nov 10, 2020 $2.65 $2.50 $40 $85 – $90 $90 – $99 26,000 – 28,000
Mar 2, 2021 $3.50 $2.55 $51 $85 – $90 $109 – $120 26,000 – 28,000
May 12, 2021 $3.50 $2.55 $57 $85 – $90 $112 – $122 26,000 – 28,000
Aug 11, 2021 $4.10 $3.20 $65 $110 – $115 $135 – $149 26,000 – 28,000
Nov 10, 2021 $4.70 $3.30 $68 $115 – $120 $148 – $156 27,000 – 28,000

First production was achieved from the Fireweed area after start-up of the new facility on November 4, 2021 with net sales currently being approximately 2,100 Boe per day from three wells (1.5 net).  Four additional wells (2.0 net) are expected to start production by early January. To date, completion results have been encouraging and management is optimistic regarding future well performance.

 The financial liability for future hedges increased to $78 million at the end of the third quarter from $47 million at the end of the previous quarter.  With the improvement in the balance sheet and given the backwardation in pricing (future prices are below current spot prices), hedging activity has been reduced since last summer. This will result in approximately 45% of current production being hedged six to nine months forward with a lesser volume 10 to 18 months forward (future growth is not hedged).

There is no additional information available at this time regarding the Judgement in the Supreme Court of British Columbia in the Yahey (Blueberry River First Nations) v. British Columbia case on June 29, 2021 which declared that cumulative effects of industrial development have infringed on rights guaranteed under Treaty 8.  At this time, the Judgement is not expected to affect Storm’s planned activity.  Potential longer term effects, if any, are not known at this time.

The summer and fall were busy in terms of field operations with two drilling rigs running from August to October and completion results to date being very encouraging.  This is translating into higher production levels in the fourth quarter of 2021 with the successful and safe start-up of the new Fireweed facility being a notable contributor.

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