VitalEnergy Q3 2022 Results. Ending September 30, 2022 (All Information Available onSedar)
Ticker Symbol: VUX
Price: $0.31
Common Shares: 82,249,971
Warrants: Nil
Options: 1,250,000 @ $0.25
Market Cap: $25 million
Insider Holdings: 55,311,353 or 67.3% of the float
Tax Pools: $51 million (Less Q1-Q3 2022 earnings.Available in 2021 audited results)
2021 Reserves: 1,340,100 barrels (BreakdownAvailable on Sedar)Financials
ASSETS
Cash: $639,870
Short-Term Investments: $4,115,385
Trade & Receivables: $1,814,897
Prepaid Expenses: $136,659
Deposits: $566,229
Exploration & Evaluation Assets: $3,059,241
Right Of Use Assets: $150,807
Property & Equipment: $15,158,295
Total Assets: $25,641,383
LIABILITIES
Accounts Payable & Accrued Liabilities: $4,576,791
Contract Liabilities: $133,670
Lease Liability: $52,058
Current Decommissioning Liabilities: $305,739
Bank Loan: $60,000
Lease Liability: $103,921
Decommissioning Liabilities: $1,578,818
Total Liabilities: $6,810,997NineMonth Performance
Revenue: $15,715,827
Net Income: $6,693,694 or $0.081c EPSProjectUpdates
Properties
The Company’s strategical planincluded further drilling in 2022. As such, in Q3 2022, the Companysuccessfully completed its 2022 new drill program on three (3) Saskatchewanproperties where the Company holds a 100% working interest on each property.The properties are located in Steelman, Lampman and Hume. In total, five (5)wells were drilled and completed - Steelman three (3) wells, Lampman one (1)well and Hume one (1) well.
The initial production on the three(3) new wells at Steelman are meeting the Company’s economic expectation. Theone (1) new well at Lampman is on production with a lower production rate thanexpected. The one (1) new well at Hume is uneconomic.
The Company revised the 2022 drillingproject from the original plan of eight (8) new wells to five (5) new wells dueto (1) the drilling costs of the wells being higher than expected, (2) the reservoirsare more complicated than expected and the Company requires more time tomitigate the risks and uncertainties to an acceptable level and (3) the cost ofsurface pipeline and infrastructure is higher than planned.
The operational results of the propertiesfor the nine months ended September 30, 2022 were positively impacted by workcompleted on the properties in 2021. In Q3 2021, the Company completed threehorizontal wells at Lampman with production from all wells commencing inSeptember 30, 2021.
In the first nine months of 2021, theCompany completed a review of their other properties. As a result, workoverswere performed at thirteen (13) wells including two (2) wells at Sullivan lake,three (3) wells at Gull Lake, three (3) wells at Pennant, four (4) wells atBaxter Lake, and one (1) well at Standard Hill. The Company also replaced thedesulfurization tower at Sullivan Lake with a desulfurization tower withincreased capacity. This assisted in the resumption of operations and allowedthe Company to maintain a stable production.
Core Properties
Lampman
Three (3) Frobisher horizontal (“Hz”)wells drilled in July 2021 were from the same surface location and werecompleted in August 2021. All three (3) Hz wells has been demonstrating stableproduction rates with very reasonable natural production declines. All wellsare fully equipped with electrical primer drivers and pipelines and areperiodically tested with Vital’s own onsite 2 phase separator (satellite).
For the nine months ended September30,2022, the average production wass 278 bbls/d, (sweet light oil, API rangingfrom 32.5 -36.0)
In Q3 of 2022, the Company drilled oneadditional Hz well in the southern part of the Lampman property in order toproduce the remaining Frobisher reserves. The well was put on production inAugust 2022. The initial production rate is lower than expected as the well isgeologically located on the edge of reservoir, and the limestone target zonechanges in both lateral and vertical directions. In order to increaseproductivity, the Company has initiated a full-scale production optimizationanalysis. Future work may entail a frac or acid squeeze to stimulateproduction.
Sullivan Lake
This property has two (2) Ellerslie Hzproducing wells and one (1) Banff Hz producing well which were drilled in 2018and 2019. These Hz wells have a stable production rate with a naturalproduction decline. This property has completed surface facilities including adesulfurization tower and a gas pipeline. There are 6 potential Banff Hzdevelopment wells
This area produced 87 boe/d for thenine months ended September 30, 2022 compared to 104 boe/d for the same periodin 2021.
Gull Lake
In one of the Company’s core areas ofoperations, Gull Lake, Saskatchewan, Vital is the designated operator andmaintains a 50% working interest. The property is covered with 3D seismic dataand has 9 wells producing, or capable of producing, crude oil from the Roseray, Cantuar and Upper Shaunavon formations. This project has a salt-water disposalfacility and a gas collection pipeline system. In the Company’s opinion, futuredrilling opportunities remain on these lands.
At Gull Lake, Vital’s net daily oiland natural gas production for the nine months ended September 30, 2022 was 189boe/d (2021 – 197 boe/d). The decrease in production was attributable tonatural declines in the property. A Waterflood Project (Enhanced Oil Recovery)has been undertaken and it should be completed in Q4 2022.
In order to better evaluate the oildevelopment potential, the Company has utilized the 3D seismic survey whichcovers all of its Gull Lake lands. As of December 31, 2021, the reservesevaluator, Trimble Engineering, assigned 160,400 boe of proven oil and naturalgas reserves net to the Company and 79,400 boe of probable oil reserves net tothe Company.
Pennant
Vital is the Operator and maintains a100% working interest in 12 contiguous sections of land. To date one (1)vertical well and six (6) horizontal wells have been drilled. Four of thehorizontal wells and the vertical well have had production. The Company hascommenced abandonment and reclamation work on some well site.
3D seismic coverage on about 35% ofVital’s lands indicates the potential for additional drilling locations.
The company’s crude oil production was26 bbls/d for the nine months ended September 30, 2022 as compared to 33 bbls/din the comparable period in 2021 when the property was shut-in for aconsiderable time period due to depressed oil prices, 2 wells workover will becompleted in Q4 2022
Steelman
Vital acquired a quarter section ofcrown land in Saskatchewan in April 2022 and drilled 3 Frobisher Hz wells fromthe same surface location in Q3 2022. The facility equipment has been installedand the tie-in to the pipeline completed. The average initial production fromthe three (3) wells is 80 bbl/d which is meeting the Company’s economicexpectation and production targets.
Ante Creek
The Company purchased 2.5 sections ofcrown land in Alberta in Q1 2021. As part of the Company’s 2023 strategic plan,the Montney play in Ante Creek will be the Company’s main focus. Currently, theCompany has been working on a detailed geological study and finalizingdevelopment plan. The preliminary development plan indicates there are up to 25development wells.
Evaluation Properties
Hume
The property comprises 6 LSDs of crownland in Saskatchewan with a potential for three (3) Frobisher Hz developmentwells. In Q3 2022, one Frobisher Hz wells was drilled and was considereduneconomic. The drilling result showed the Frobisher limestone target zonechanges in both lateral and vertical directions that indicated that the risksof both geology and drilling engineering would be higher than expected. Therewere indications that main geological fractures might be encountered whichcould result in a much higher water cut and be uneconomic to produce. As aresult, the well was abandoned after swab test.
The Company will continue to reviewthe results of the first drilled well with the plan of drilling future wells.
Gainsborough
The company acquired 3 LSDs of crownland in Saskatchewan in April 2022 and had planned to drill 2 Hz wells in Q32022. The Gainsborough 2022 drilling project was postponed due to the risks anduncertainties related to the geology and projected higher costs than initiallyplanned for drilling operation, surface pipeline and infrastructure.
The Company will continue work on thereservoirs and the geology and will re-evaluate the feasibility of the projectat a later date. The drilling program will be resumed if risks anduncertainties are mitigated to an acceptable level.
Non-core Properties
Baxter Lake
The Company performed remedial work in2021 to reactivate certain wells in the Baxter Lake area as oil prices haveimproved. In 2022, this area produced 25 boe/d.
Pembina
The Company acquired a quarter section of crown land in Alberta in Q3 2021 and another adjoining quarter section of crown land in June 2022. The Company is currently working on a detailed geology study and development plan. This may allow the drilling of up to 4 Hz Cardium development wells.
