Southern Energy Corp (TSX-V:SOU, AIM:SOUC, OTC:MAXMD) told investors that 2022 was a record year for the company due to strong output from its production base and assets, as well as its appraisal program at the Gwinville gas field in the Mississippi Interior Salt Basin.
Reporting results for the fourth quarter and the full year to December 31, 2022, the natural gas exploration and production company said it also benefited from the strength of natural gas spot and basis pricing premiums to NYMEX (New York Mercantile Exchange) in the Southwestern US.
While natural gas prices have come off the boil in 2023, Southern Energy said it has used derivative instruments to protect it from some of the volatility and may hedge additional exposure if necessary.
The company reported adjusted funds flow from operations of $3.1 million for the final quarter of 2022 compared to $1.4 million a year earlier. For the full year, adjusted funds flow from operations reached $17.2 million, a 500% increase from 2021.
Sales of petroleum and natural gas increased by 37% in Q4 to $9.8 million, taking full-year sales 127% higher to $45.2 million. Average production for Q4 was up 26%, taking full-year production 24% higher. It realized average natural gas and oil prices of $6.35 per thousand cubic feet (Mcf) and $81.98 per barrel.
A decline in net earnings to $1.7 million for the quarter and $9.3 million for the full year, from $3.3 million and $10.1 million previously, was due to the inclusion of a one-time recognition of an impairment recovery as well as a gain on debt retirement in 2021, the company said.
During the year, it raised a total of $31 million through a bought deal prospectus offering in Canada and an equity placing in the UK. It also increased its total credit facility to $35 million after negotiating a $25 million increase.
"Our Q4 and full year 2022 results have provided a preview of what Southern can and expects to achieve, with its strong underlying production base and technical ability to organically grow our assets at constructive natural gas prices,” Southern president and CEO Ian Atkinson said in a statement.
“Our equity financing in July and Credit Facility expansion in September have put the company in a position to weather the natural gas price volatility and provide flexibility and patience as we continue to work towards our goal to reach 25,000 boe/d (barrels of oil equivalent per day).”
To protect its balance sheet and in response to current lower natural gas prices, the company said it has “taken a pause” on the Gwinville organic growth programme, adding that four drilled but uncompleted wells can be completed and brought online at higher natural gas prices.
“We're excited to build upon the learnings from our three-well appraisal program in Q2, as well as the seven wells drilled as part of the follow-up program at Gwinville which will continue to translate into future drilling and cost efficiencies when the program resumes,” Atkinson said.
The company said it positioned itself to “re-ignite” its organic growth in a more supportive natural gas price environment and will continue to look for other growth opportunities.
“Southern is in an enviable position being able to operate in a nimble and dynamic way around our drilling program, and with a constructive outlook for the US natural gas market in the short to medium term, we are confident in maximising value from our assets by sensible well management,” the company’s chief financial officer Calvin Yau added.
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