Information Regarding Disclosure on Oil and Gas Reserves and Operational Information
All amounts on this website are stated in Canadian dollars unless otherwise specified. Our oil and gas reserves statement for the year ended December 31, 2022, which will include complete disclosure of our oil and gas reserves and other oil and gas information in accordance with NI 51-101, will be contained within our Annual Information Form which will be available on our SEDAR profile at www.sedar.com on or before March 31, 2023. The recovery and reserve estimates contained herein are estimates only and there is no guarantee that the estimated reserves will be recovered. In relation to the disclosure of estimates for individual properties or subsets thereof, such estimates may not reflect the same confidence level as estimates of reserves and future net revenue for all properties, due to the effects of aggregation.
This website contains metrics commonly used in the oil and natural gas industry, such as “recycle ratio”, “finding and development costs”, “finding, development and acquisition costs, “future development capital”, “maintenance capital”, “operating netback per boe”, “exploration and development expenditures” and “reserves replacement”. Each of these metrics are determined by CP Energy Ltd as specifically set forth on this website. These terms do not have standardized meanings or standardized methods of calculation and therefore may not be comparable to similar measures presented by other companies, and therefore should not be used to make such comparisons. Such metrics have been included to provide readers with additional information to evaluate the Company’s performance however, such metrics are not reliable indicators of future performance and therefore should not be unduly relied upon for investment or other purposes. Recycle Ratio is calculated as operating netback per boe divided by F&D costs on a per boe basis. Exploration and development expenditures as used herein is equivalent to property, plant and equipment expenditures, a term with a standardized meaning prescribed under IFRS. Reserves Replacement is calculated as total reserve additions (including acquisitions net of dispositions) divided by annual production. CP's annual 2022 production averaged 33,277 boe per day. Management uses these metrics for its own performance measurements and to provide readers with measures to compare CP's performance over time.
Both F&D and FD&A costs take into account reserves revisions during the year on a per boe basis. The aggregate of the costs incurred in the financial year and changes during that year in estimated FDC may not reflect total F&D costs related to reserves additions for that year. Finding and development costs both including and excluding acquisitions and dispositions have been presented in this website because acquisitions and dispositions can have a significant impact on our ongoing reserves replacement costs and excluding these amounts could result in an inaccurate portrayal of our cost structure.
Unaudited Financial Information
Certain financial and operating information included in this website for the quarter and year ended December 31, 2022, including, without limitation, exploration and development expenditures, acquisitions / dispositions, finding and development costs, finding, development and acquisition costs, recycle ratio, operating netbacks and debt are based on estimated unaudited financial results for the quarter and year then ended, and are subject to the same limitations as discussed under Forward Looking Information set out below. These estimated amounts may change upon the completion of audited financial statements for the year ended December 31, 2022 and changes could be material.
Non-IFRS and Other Financial Measures
Throughout this website and other materials disclosed by the Company, CP Energy Ltd uses certain measures to analyze financial performance, financial position and cash flow. These non-IFRS and other specified financial measures do not have any standardized meaning prescribed under IFRS and therefore may not be comparable to similar measures presented by other entities. The non-IFRS and other specified financial measures should not be considered alternatives to, or more meaningful than, financial measures that are determined in accordance with IFRS as indicators of CP's performance. Management believes that the presentation of these non-IFRS and other specified financial measures provides useful information to shareholders and investors in understanding and evaluating the Company’s ongoing operating performance, and the measures provide increased transparency and the ability to better analyze CP's business performance against prior periods on a comparable basis.
Capital Management Measures
Funds from Operations and Adjusted Funds Flow (“AFF”)
Funds from operations represents cash provided by operating activities before changes in operating non-cash working capital, accretion of deferred financing costs and transaction costs on property dispositions. Adjusted funds flow represents funds from operations before decommissioning obligations settled (recovered). The Company considers these metrics as key measures that demonstrate the ability of the Company’s continuing operations to generate the cash flow necessary to maintain production at current levels and fund future growth through capital investment and to service and repay debt. Management believes that such measures provide an insightful assessment of the Company’s operations on a continuing basis by eliminating certain non-cash charges, actual settlements of decommissioning obligations and transaction costs on property dispositions, the timing of which is discretionary. Funds from operations and adjusted funds flow should not be considered as an alternative to or more meaningful than cash provided by operating activities as determined in accordance with IFRS as an indicator of the Company’s performance. CP's determination of funds from operations and adjusted funds flow may not be comparable to that reported by other companies. CP Energy Ltd also presents adjusted funds flow per share whereby per share amounts are calculated using weighted average shares outstanding consistent with the calculation of income per share.
Net Debt and Working Capital Surplus (Deficiency)
CP Energy Ltd closely monitors its capital structure with a goal of maintaining a strong balance sheet to fund the future growth of the Company. The Company monitors net debt as part of its capital structure. The Company uses net debt (bank debt plus working capital deficiency or surplus, excluding the current portion of the fair value of financial instruments) as an alternative measure of outstanding debt. Management considers net debt and working capital deficiency (surplus) an important measure to assist in assessing the liquidity of the Company.
Non-IFRS Financial Measures and Ratios
Net Capital Expenditures
Net capital expenditures equals exploration and development expenditures less net property acquisitions (dispositions). CP Energy Ltd uses net capital expenditures to measure its total capital investment compared to the Company’s annual capital budgeted expenditures. The most directly comparable IFRS measure to net capital expenditures is property, plant and equipment expenditures.
EBITDA
EBITDA is calculated as consolidated net income (loss) before interest and financing expenses, income taxes, depletion, depreciation and amortization, adjusted for certain non-cash, extraordinary and non-recurring items primarily relating to unrealized gains and losses on financial instruments and impairment losses. The Company considers this metric as key measures that demonstrate the ability of the Company’s continuing operations to generate the cash flow necessary to maintain production at current levels and fund future growth through capital investment and to service and repay debt. The most directly comparable IFRS measure to EBITDA is cash provided by operating activities.
Free Adjusted Funds Flow
Free adjusted funds flow represents adjusted funds flow less capital expenditures, excluding acquisitions and dispositions. The Company considers this metric a key measure that demonstrates the ability of the Company’s continuing operations to fund future growth through capital investment and to service and repay debt. The most directly comparable IFRS measure to free adjusted funds flow is cash provided by operating activities.
Operating Netback per boe
Operating netback per boe equals petroleum and natural gas sales including realized gains and losses on commodity related derivative financial instruments, marketing income, less royalties, net operating costs and transportation costs calculated on a boe basis. Management considers operating netback per boe an important measure to evaluate its operational performance as it demonstrates its field level profitability relative to current commodity prices.
Supplementary Financial Measures
“Net debt to last twelve months (“LTM”) EBITDA” is calculated as net debt at a point in time divided by EBITDA earned from that point back for the trailing twelve months.
Forward-Looking Information and Statements
This website 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”, “may”, “will”, “project”, “should”, “believe”, “plans”, “intends” “forecast” and similar expressions are intended to identify forward-looking information or statements. In particular, but without limiting the foregoing, this website contains forward-looking information and statements pertaining to the following: Estimates of Q4 operating netbacks per boe, the potential recognition of significant additional reserves under the heading 2022 Reserves Detail; the volumes and estimated value of CP's oil and gas reserves, the future net value of CP's reserves, the future development capital and costs, the future ARC, the life of CP's reserves, the estimated volumes, and product mix of CP's oil and gas production; production estimates; CP's commodity risk management programs; future liquidity and financial capacity required to carry out our planned program; future results from operations and operating metrics; future development activities (including drilling and completion plans and associated timing and cost estimates) and related production estimates; the potential attributes of the recently announced agreements among the BC Government, BRFN and Treaty 8 First Nations, and the anticipated positive impact on the Company’s ability to execute an active drilling and completions program across its asset base; and methods of funding our capital program.
In addition, forward-looking statements or information are based on a number of material factors, expectations or assumptions of CP Energy Ltd which have been used to develop such statements and information but which may prove to be incorrect. Although CP Energy Ltd believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements because CP Energy Ltd can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified herein, assumptions have been made regarding, among other things: that CP Energy Ltd will continue to conduct its operations in a manner consistent with past operations; results from drilling and development activities consistent with past operations; the quality of the reservoirs in which CP Energy Ltd operates and continued performance from existing wells; the continued and timely development of infrastructure in areas of new production; the accuracy of the estimates of CP's reserve volumes; certain commodity price and other cost assumptions; continued availability of debt and equity financing and cash flow to fund CP's current and future plans and expenditures; the impact of increasing competition; the general stability of the economic and political environment in which CP Energy Ltd operates; the general continuance of current industry conditions; the timely receipt of any required regulatory approvals and permits; the ability of CP Energy Ltd to obtain qualified staff, equipment and services in a timely and cost efficient manner; drilling results; the ability of the operator of the projects in which CP Energy Ltd has an interest in to operate the field in a safe, efficient and effective manner; the ability of CP Energy Ltd to obtain financing on acceptable terms; field production rates and decline rates; the ability to replace and expand oil and natural gas reserves through acquisition, development and exploration; the timing and cost of pipeline, storage and facility construction and expansion and the ability of CP Energy Ltd to secure adequate product transportation; future commodity prices; currency, exchange and interest rates; regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which CP Energy Ltd operates; and the ability of CP Energy Ltd to successfully market its oil and natural gas products.
In this website and other disclosures reference is made to the Company’s longer range Four-Year Plan. Such information reflects internal targets used by management for the purposes of making capital investment decisions and for internal long range planning and budget preparation. Readers are cautioned that events or circumstances could cause capital plans and associated results to differ materially from those predicted and CP's guidance for 2023 and beyond may not be appropriate for other purposes. Accordingly, undue reliance should not be placed on same.
The forward-looking information and statements included in this website are not guarantees of future performance and should not be unduly relied upon. Such information and statements, including the assumptions made in respect thereof, involve known and unknown risks, uncertainties and other factors that may cause actual results or events to defer materially from those anticipated in such forward-looking information or statements including, without limitation: the continuing and uncertain impact of COVID-19; changes in commodity prices; changes in the demand for or supply of CP's products, the early stage of development of some of the evaluated areas and zones the potential for variation in the quality of the Montney formation; interruptions, unanticipated operating results or production declines; changes in tax or environmental laws, royalty rates; climate change regulations, or other regulatory matters; changes in development plans of CP Energy Ltd or by third party operators of CP's properties, increased debt levels or debt service requirements; inaccurate estimation of CP's oil and gas reserve volumes; limited, unfavourable 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 CP's public disclosure documents (including, without limitation, those risks identified in this website and CP's Annual Information Form).
The forward-looking information and statements contained in this website speak only as of the date of this website, and CP Energy Ltd does not assume any obligation to publicly update or revise any of the included forward-looking statements or information, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.
Test Results and Initial Production Rates
A pressure transient analysis or well-test interpretation has not been carried out and thus certain of the test results provided herein should be considered to be preliminary until such analysis or interpretation has been completed. Test results and initial production rates disclosed herein, particularly those short in duration, may not necessarily be indicative of long-term performance or of ultimate recovery.
BOE and MMCFE Conversions
Barrel of oil equivalents or BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 mcf : 1 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. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different than the energy equivalency of 6:1, utilizing the 6:1 conversion ratio may be misleading as an indication of value.
