Calgary, Alberta – January 16, 2023 – Lycos Energy Inc. (“Lycos” or the “Company”) (TSXV: LCX) is pleased to provide an operational update and announce a new $20.0 million senior-secured credit facility with the National Bank of Canada (the “Lender”).
Operational Update
Lycos is extremely optimistic about the results of its first multi-leg “fishbone” well drilled at 08-33-043-22W3. This 100% working interest well has been on production since late November 2022. The well achieved an average 30-day production (“IP30”) rate of 149 boe/d and is currently producing 150 boe/d (100% oil). At recent strip pricing of USD 50$/bbl WCS, the well is expected to achieve payout in less than 10 months.
A second 8 leg multi-lateral well was drilled at 08-31-043-22W3 from the same drilling pad. This well achieved an IP30 of 97 boe/d and is currently producing 89 boe/d (100% oil). At recent strip pricing of USD$50/bbl WCS, the well is expected to achieve payout in less than 15 months. The significantly better result on the fishbone is consistent with pre-drill estimates regarding production enhancement from the fishbone geometry well.
Based on the results of these two wells, Lycos has confirmed that the increased reservoir contact provided by the “fishbone” design appears to provide superior capital efficiency with an approximate 60% increase in productivity with a 10%-15% increase in capital expenditures, compared to single and multi-leg wells drilled in the vicinity.
As a follow up to these successful results, Lycos is embarking on a drilling campaign in Q1 2023 which will consist of fishbone drills and additional water disposal wells.
Credit Facility
Lycos entered into a credit agreement in respect of a new revolving credit facility for up to $20.0 million. The credit facility is undrawn, uncommitted and payable on demand. The credit facility provides added financial flexibility to support the Company’s growth.
Outlook
The Company’s current production is approximately 1,250 boe/d (98.5% oil) in Saskatchewan. Additionally, Lycos owns a 21.85% equity interest in Chronos Duvernay Limited Partnership, which is currently producing 1,225 boe/d (gross, 100% oil) in Alberta.
Lycos has demonstrated that its ability to apply multi-lateral well design to make previously uneconomic drilling locations economic. The new well shows very compelling returns and short payouts at current WCS pricing, and Lycos intends to use its strong cash position and balance sheet to organically develop and opportunistically acquire substantial inventory of new multi-lateral development prospects to drive increased shareholder returns.
About Lycos
Lycos is an oil-focused, exploration, development and production company based in Calgary, Alberta, operating high-quality, heavy-oil, development assets in the Gull Lake area of southwest Saskatchewan and heavy-oil assets in the Lloydminster area.
Additional Information
For further information, please contact:
Lycos Energy Inc.
Dave Burton
President and CEO
T: (403) 616-3327
E: dburton@lycosenergy.com
Lindsay Goos
Chief Financial Officer
T: (403) 542-3183
E: lgoos@lycosenergy.com
Reader Advisories
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 forwardlooking 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. Lycos 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: Lycos’ business strategy, objectives, strength and focus; anticipated capital program and operational results for 2023 including, but not limited to, estimated or anticipated growth, production levels, capital expenditures, drilling plans and locations; expectations regarding commodity prices; the performance characteristics of the Company’s oil and natural gas properties; the ability of the Company to achieve drilling success consistent with management’s expectations; and the source of funding for the Company’s activities including development costs. Statements relating to production, reserves, recovery, replacement, costs and valuation are also deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and that the reserves can be profitably produced in the future.
The forward-looking statements and information are based on certain key expectations and assumptions made by Lycos, including expectations and assumptions concerning the business plan of Lycos; the timing of and success of future drilling, development and completion activities; the geological characteristics of Lycos’ properties; prevailing commodity prices, price volatility, price differentials and the actual prices received for the Company’s products; the availability and performance of drilling rigs, facilities, pipelines and other oilfield services; the timing of past operations and activities in the planned areas of focus; the drilling, completion and tie-in of wells being completed as planned; the performance of new and existing wells; the application of existing drilling and fracturing techniques; prevailing weather and break-up conditions; royalty regimes and exchange rates; the application of regulatory and licensing requirements; the continued availability of capital and skilled personnel; the ability to maintain or grow its credit facility; the accuracy of Lycos’ geological interpretation of its drilling and land opportunities, including the ability of seismic activity to enhance such interpretation; and Lycos’ ability to execute its plans and strategies.
Although Lycos 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 Lycos can give no assurance that they will prove to be correct. By its nature, such forwardlooking 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, incorrect assessments of the value of benefits to be obtained from acquisitions and exploration and development programs (including the Acquisition); 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), volatility in the stock market and financial system, impacts of the current COVID19 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 the AIF and the MD&A for additional risk factors relating to Lycos, which can be accessed either on the Company’s website at www.lycosenergy.com or under the Company’s 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. Lycos 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.
Future Oriented Financial Information
This press release contains future oriented financial information and financial outlook information (collectively, “FOFI”) about Lycos’ prospective results of operations and production, organic growth and acquisitions, operating costs, 2023 outlook and guidance, including capital, development and acquisition expenditures in 2023 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 Lycos’ proposed business activities in 2023. Lycos 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 activities or results. Lycos 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 Lycos’ guidance. The Company’s actual results may differ materially from these estimates.
Disclosure of Oil and Gas Information
Unit Cost Calculation. The term barrels of oil equivalent (“boe”) may be misleading, particularly if used in isolation.
A boe conversion ratio of six thousand cubic feet per barrel (6 Mcf/bbl) of natural gas to barrels of oil equivalence is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All boe conversions in the report are derived from converting gas to oil in the ratio
mix of six thousand cubic feet of gas to one barrel of oil.
Product Types. Throughout this press release, “crude oil” or “oil” refers to heavy crude oil product types as defined
by NI 51-101.
Short-Term Production. References in this press release to peak rates, IP30 and other short-term production rates are useful in confirming the presence of hydrocarbons, however such rates are not determinative of the rates at which such wells will commence production and decline thereafter and are not indicative of long-term performance or of ultimate recovery. While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production of Lycos.
Reserves and Future Net Revenue Disclosure. All reserves values, future net revenue and ancillary information contained in this press release are derived from the Reserve 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 Sproule in evaluating Lycos’ reserves will be attained and variances could be material.
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 in the tables below represent the fair market value of the reserves. The recovery and reserve estimates of Lycos’ crude oil, natural gas liquids and natural gas reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual crude oil, natural gas and natural gas liquids 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.
Oil and Gas Metrics
This press release contains metrics commonly used in the oil and natural gas industry which have been prepared by management. These terms do not have a standardized meaning and may not be comparable to similar measures presented by other companies, and therefore should not be used to make such comparisons. Management uses these oil and gas metrics for its own performance measurements and to provide shareholders with measures to compare our operations over time. Readers are cautioned that the information provided by these metrics, or that can be derived from the metrics presented in this presentation, should not be relied upon for investment or other purposes.
“Development Capital” means the aggregate exploration and development costs incurred in the financial year on reserves that are categorized as development. Development capital excludes capitalized administration costs.
“FDC” (future development costs) are the future capital cost estimated for each respective category in year-end reserves attributed with realizing those reserves and associated future net revenue. FDC by reserves category are calculated by dividing the total capital expenditures for the year (including both Chronos and Lycos) plus the change in future development capital attributed to the reserve category as calculated from the 2022 Reserve Report and the 2021 Chronos Report, divided by the net change in reserves from the Chronos Report to the Reserve Report. For clarity, the production for the year 2022 is added to the net reserves to form the net change in reserves in the calculation.
“F&D costs” are calculated as the sum of capital, characterized as exploration or development excluding capital used to develop assets the company acquired in the period, plus the change in FDC for each respective reserve category in the period excluding FDC associated with assets acquired in the year.
“FD&A costs” (finding, development and acquisition costs) are the sum of capital expenditures incurred in the period and the change in FDC required to develop reserves. FD&A cost per boe is determined by dividing current period net reserve additions into the corresponding period’s FD&A cost. Readers are cautioned that the aggregate of capital expenditures incurred in the year, comprised of exploration and development costs and acquisition costs, and the change in estimated FDC generally will not reflect total FD&A costs related to reserves additions in the year.
“Recycle Ratio” is measured by dividing the Operating Netback, before hedging, by the F&D cost per boe or FD&A cost per boe for the year.
Specified Financial Measures
This press release includes various specified financial measures, including non-IFRS financial measures, non-IFRS financial ratios and capital management measures as further described herein. These measures do not have a standardized meaning prescribed by International Financial Reporting Standards (“IFRS”) and, therefore, may not be comparable with the calculation of similar measures by other companies.
“Adjusted Working Capital” is calculated as current assets less current liabilities, excluding the current portion of decommissioning liabilities. Adjusted working capital is a capital management measure which management uses to assess the Company’s liquidity. See the MD&A for a detailed calculation and reconciliation of Adjusted Working Capital to the most directly comparable measure presented in accordance with IFRS.
“Adjusted Funds Flow from Operations” is funds flow is calculated by taking cash flow from operating activities and adding back changes in non-cash working capital. Adjusted funds flow is further calculated by adding back decommissioning costs incurred and transaction costs. Management considers Adjusted Funds Flow from Operations to be a key measure to assess the performance of the Company’s oil and gas properties and the Company’s ability to fund future capital investment. Adjusted Funds Flow from Operations is an indicator of operating performance as it varies in response to production levels and management of costs. Changes in non-cash working capital, decommissioning costs incurred and transaction costs vary from period to period and management believes that excluding the impact of these provides a useful measure of Lycos’ ability to generate the funds necessary to manage the capital needs of the Company. See the MD&A for a detailed calculation and reconciliation of Adjusted Funds Flow from Operations to the most directly comparable measure presented in accordance with IFRS.
“Net Operating Expenses” is operating expenses, less processing income primarily generated by third party volumes at processing facilities where the Company has an ownership interest. The Company’s principal business is not that of a midstream entity whose activities are dedicated to earning processing and other infrastructure payments. Where the Company has excess capacity at its facilities, it will look to process third party volumes as a means to reduce the cost of operating/owning the facility.
“Operating Netback” is petroleum and natural gas revenues, less royalties, less net operating costs and transportation expenses, excluding the effects of financial derivatives. These metrics can also be calculated on a per boe basis, which results in them being considered a non-IFRS financial ratio. Management considers operating netback an important measure to evaluate Lycos’ operational performance, as it demonstrates field level profitability relative to current commodity prices. See the MD&A for a detailed calculation and reconciliation of operating netback per boe to the most directly comparable measure presented in accordance with IFRS.
Please refer to the MD&A for additional information relating to specified financial measures including non-IFRS financial measures, non-IFRS financial ratios and capital management measures. The MD&A can be accessed either on the Company’s website or under the Company’s profile on www.sedar.com.
Abbreviations
bbl barrels of oil
bbl/d barrels of oil per day
boe barrels of oil equivalent
boe/d barrels of oil equivalent per day
IP30 average production for the first 30 days that a well is onstream
Mbbl thousand barrels of oil
Mboe thousand barrels of oil equivalent
MMbbl million barrels of oil
MMboe million barrels of oil equivalent
MMcf million cubic feet
All dollar figures included herein are presented in Canadian dollars, unless otherwise noted.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
