March 27, 2019

Corridor Announces 2018 Year End Results and Reserves

HALIFAX, Nova Scotia, March 27, 2019, (TSX – CDH): Corridor Resources Inc. (“Corridor” or the “Company”) announced today its 2018 year-end financial results and reserves evaluations. Corridor’s annual financial statements, annual management’s discussion and analysis and Annual Information Form for the year ended December 31, 2018 have been filed on SEDAR at www.sedar.com and are available on Corridor’s website at www.corridor.ca. All amounts referred to in this press release are in Canadian dollars unless otherwise stated.

Year End Financial Results

The following table provides a summary of Corridor’s financial and operating results for the three and twelve months ended December 31, 2018 with comparisons to the three and twelve months ended December 31, 2017.

Selected Financial Information

    Three months ended December 31 Twelve months ended December 31
thousands of dollars except per share amounts 2018 2017 2018 2017
Sales $ 3,525 $ 3,161 $ 16,944 $ 7,674
Net income (loss)  $ 6,104  $ 13,598  $ (314) $ 17,739
Net income (loss) per share

   – basic and diluted

$ 0.068 $ 0.153 $ (0.004) $ 0.200
Field operating netback $ 3,486 $ 2,442 $ 13,069 $ 5,622
Cash flow from operations (1) $ 3,022 $ 1,549 $ 11,987 $ 2,441
Working capital $ 57,190 $ 46,918 $ 57,190 $ 46,918
Total assets $ 125,301 $ 124,360 $ 125,301 $ 124,360
           

(1) Cash flow from operations is a non-IFRS measure.  Cash flow from operations represents net earnings adjusted for non-cash items including depletion, depreciation and amortization, deferred income taxes, share-based compensation and other non-cash expenses.  See “Non-IFRS Financial Measures” in Corridor’s management’s discussion and analysis for the year ended December 31, 2018.

2018 Highlights

  • As at December 31, 2018, Corridor had cash and cash equivalents of $53,652 thousand, net working capital of $57,190 thousand and no outstanding debt.
  • Corridor’s sales increased to $16,944 thousand in 2018 from $7,674 thousand in 2017 due to the increase in the average daily natural gas production to 4.2 mmscfpd in 2018 from 2.5 mmscfpd in 2017 and an increase in the average realized natural gas sales price to $10.57/mscf in 2018 from $8.08/mscf in 2017. The increase in natural gas production at the McCully Field is largely the result of more than a month of additional production in 2018 as compared to 2017 due to Corridor’s decision to shut-in its natural gas wells for less than seven months in 2018 compared to eight months in 2017, all in accordance with its production optimization strategy.
  • A key component of the Company’s production optimization strategy is to enter into financial hedges to mitigate the risks associated with the volatility of natural gas prices when production resumes following a shut-in period at the McCully Field. The settlement of the Company’s financial hedges resulted in realized financial derivatives losses of $530 thousand in 2018 compared to realized financial derivatives gains of $1,101 thousand in 2017.
  • Cash flow from operations increased to $11,987 thousand for the year ended December 31, 2018 from $2,441 thousand for the year ended December 31, 2017 due in large part to higher natural gas sales partially offset by realized financial derivatives losses of $530 thousand in 2018.
  • While Corridor continued to evaluate opportunities with a disciplined approach to deploy surplus working capital and enhance shareholder value in 2018, none of the opportunities assessed met Corridor’s objectives. The Corporation suspended this evaluation process due to: (i) the lack of opportunities that satisfied the Corporation’s objectives; and (ii) the possibility that the moratorium on hydraulic fracturing in New Brunswick may be lifted, and determined to focus on the further evaluation of the Frederick Brook shale as the scope and scale of the opportunity in the Frederick Brook shale represents significant upside potential for Corridor’s shareholders. Accordingly, Corridor will focus its activities in 2019 on attracting a joint venture partner to bring capital and shale gas expertise to assist with further evaluation of the Frederick Brook shale.

2018 Netback Analysis

    Three months ended December 31 Twelve months ended December 31
thousands of dollars except $/mscf and $/boe(2) 2018 2017 2018 2017
Natural gas sales $ 3,422 $ 3,088 $ 16,360 $ 7,292
Other revenues 103 73 584 382
Realized financial derivatives gains (losses) 868 7 (530) 1,101
Current year royalty expense(3)  (96)  (103) (506) (196)
Transportation expense  –  (10) (100) (438)
Production expense  (811)  (613) (2,739) (2,519)
Field operating netback $ 3,486 $ 2,442 $ 13,069 $ 5,622
         
Natural gas production per day(4)  (mmscfpd) 4.4 2.7 4.2 2.5
Natural gas production per day(4)  (boepd) 726 447 707 412
Average natural gas price ($/mscf) $ 8.53 $ 12.51 $ 10.57 $ 8.08
         
Natural gas revenues ($/boe) $ 51.20 $ 75.06 $ 63.43 $ 48.46
Other revenues ($/boe) 1.54 1.78 2.26 2.54
Realized financial derivatives

  gain (loss) ($/boe)

12.99 0.17 (2.05) 7.32
Current year royalty expense ($/boe) (1.44) (2.50) (1.96) (1.30)
Transportation expense ($/boe) (0.23) (0.39) (2.91)
Production expense ($/boe) (12.12) (14.90) (10.62) (16.74)
Field operating netback ($/boe) $ 52.17 $ 59.38 $ 50.67 $ 37.37
General and administrative expenses ($/boe) (12.25) (21.38) (10.10) (19.43)
Interest, foreign exchange and other(3)  ($/boe) 5.30 (0.34) 5.91 (1.72)
Cash flow from operations(1) netback ($/boe) $ 45.22 $ 37.66 $ 46.48 $ 16.22
             

(1)       Cash flow from operations is a non-IFRS measure.  Cash flow from operations represents net earnings adjusted for non-cash items including depletion, depreciation and amortization, deferred income taxes, share-based compensation and other non-cash expenses. See “Non-IFRS Financial Measures” in Corridor’s management’s discussion and analysis for the year ended December 31, 2018 for a reconciliation to Corridor’s financial statements.

(2)       For the purpose of calculating unit revenues and costs, natural gas has been converted to barrels of oil equivalent (“boe”) on the basis of six thousand cubic feet (“mscf”) of natural gas being equal to one barrel of oil.  Boe may be misleading, particularly if used in isolation. The boe conversion ratio of six mscf to one barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

(3)       Prior year’s royalty audit assessment of $198 thousand is included in interest, foreign exchange and other.

(4)       Corridor shut-in most of its natural gas production for less than seven months in 2018 from May to November and for eight months in 2017 from April to December. The shorter duration of the shut-in period in 2018 as compared to 2017 resulted in an increase in natural gas production for the three and twelve months ended December 31, 2018.

  • Corridor’s cash flow from operations netback for 2018 increased to $46.48/boe from $16.22/boe in 2017 as a result of higher natural gas sales prices in 2018 partially offset by realized financial derivatives losses.
  • Natural gas sales increased to $3,422 thousand for Q4 2018 from $3,088 thousand in Q4 2017 due to an increase in natural gas production to 4.4 mmscfpd in Q4 2018 from 2.7 mmscfpd in Q4 2017 partially offset by a decrease in the average natural gas price to $8.53/mscf in Q4 2018 from $12.51/mscf in Q4 2017. The increase in the average daily natural gas production is due to management’s decision to resume production two weeks earlier in 2018, on November 14, as compared to December 1 in 2017.

2018 Reserve Information

Corridor currently has natural gas reserves in the McCully Field near Sussex, New Brunswick.  GLJ Petroleum Consultants Ltd. (“GLJ”) assessed Corridor’s reserves in its reports dated effective December 31, 2018 and December 31, 2017 (“the GLJ Reports”), which were prepared in accordance with standards of the Canadian Oil and Gas Evaluation Handbook and National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities. Additional information regarding reserves data and other oil and gas information is included in Corridor’s Annual Information Form for the year ended December 31, 2018.                      

Key Highlights

  • An increase in well recovery estimates of 1.1 bscf in the GLJ Report effective December 31, 2018 has largely replaced the decrease resulting from production of 1.5 bscf in 2018. As a result, the total proved plus probable reserves as at December 31, 2018 only decreased by 0.3 bscf to 22.2 bscf from GLJ’s estimate of 22.5 bscf as at December 31, 2017.
  • Net present value (calculated on a before tax basis using a 10% discount factor) for proved plus probable reserves of $60.7 million decreased by only $2.8 million from GLJ’s estimate of $63.5 million as at December 31, 2017, notwithstanding that Corridor generated $13.1 million of field operating netback in 2018.
  • 86% of the net present value of reserves are attributed to the proved developed producing category.
  • Shallow long-term annual decline of approximately 9-11%.
  • Minimal future development capital of only $2.7 million. 

The following table presents a summary from the GLJ Reports of Corridor’s total gross natural gas and shale gas reserves, before the deduction of royalties, using forecast prices and costs.

 

Reserves Category

  2018

Gross Reserves

 bscf

2017

Gross Reserves

bscf

 
Total proved   17.9 18.1  
Total probable   4.2 4.4  
Total proved plus probable   22.2 22.5  

GLJ assessed the net present value of Corridor’s natural gas, oil and natural gas liquids reserves in the GLJ Reports, based on GLJ’s forecast prices as at January 1, 2019 and January 1, 2018, as applicable, as follows:

Net Present Value ($ in million) – undiscounted                                                                                                

   2018   2017
 

Reserves Category

Before Income Tax(1) After Income Tax(1) Before Income Tax(1) After Income Tax(1)
Proved 76.9 76.9 83.3 83.3
Proved plus probable 99.7 99.7 107.5 107.5

(1)     The estimated value of future net revenue does not represent the fair market value of Corridor’s reserves.

 Net Present Value ($ in million) – discounted at 10%                                                             

  2018 2017
 

Reserves Category

Before Income Tax(1) After Income Tax(1) Before Income Tax(1) After Income Tax(1)
Proved 52.2 52.2 55.1 55.1
Proved plus probable 60.7 60.7 63.5 63.5

(1)     The estimated value of future net revenue does not represent the fair market value of Corridor’s reserves.

Guidance

Corridor is on track to achieve its guidance for the period from April 1, 2018 to March 31, 2019 as disclosed in its press release dated November 13, 2018 and updated in the press release dated December 19, 2018. Corridor’s estimated working capital balance as of March 31, 2019 remains at $63.4 million as lower than expected natural gas prices in Q1 2019 are expected to be largely offset by the Company’s financial hedges in place from December 1, 2018 to March 31, 2019, a strengthening in the U.S. dollar in Q1 2019 and lower than estimated general and administrative expenses in Q4 2018.

Corridor is currently evaluating alternatives for its production optimization strategy for the period from April 1, 2019 to March 31, 2020 and anticipates providing guidance for that period in the next few weeks.

“Corridor is well positioned for 2019” said Steve Moran, President and Chief Executive Officer.  “Our balance sheet is very strong, with a forecast of $63.4 million of working capital at the end of Q1 2019. Corridor’s disciplined approach has resulted in the Company being in an excellent position, with considerable flexibility to pursue opportunities in 2019 and beyond.”

Corridor is a Canadian junior resource company engaged in the exploration for and development and production of petroleum and natural gas onshore in New Brunswick and offshore in the Gulf of St. Lawrence. Corridor currently has natural gas production and reserves in the McCully Field near Sussex, New Brunswick. In addition, Corridor has a shale gas prospect in New Brunswick and an offshore conventional hydrocarbon prospect in the Gulf of St. Lawrence.

For further information:

Contact:  Steve Moran, President

Corridor Resources Inc.

#301, 5475 Spring Garden Road, Halifax, Nova Scotia B3J 3T2             

Ph: (902) 429-4511 F: (902) 429-0209

Web: www.corridor.ca

Forward Looking Statements

This press release contains certain forward-looking statements and forward-looking information (collectively referred to herein as “forward-looking statements”) within the meaning of Canadian securities laws. All statements other than statements of historical fact are forward-looking statements.  Forward-looking information typically contains statements with words such as “anticipate”, “believe”, “plan”, “continuous”, “estimate”, “expect”, “may”, “will”, “project”, “should”, or similar words suggesting future outcomes. In particular, this press release contains forward-looking statements pertaining to: the characteristics of Corridor’s  properties; business plans and strategies (including plans to shut-in production to take advantage of expected price differentials and Corridor’s optimization strategy, including entering into hedging and plans to seek a joint venture partner in the development of the Frederick Brook prospect); expectations regarding Corridor’s positioning for 2019; estimate of working capital at March 31, 2019; expectations regarding the Canada – U.S. exchange rate, natural gas prices and production and plans to provide future guidance and timing of such plans.

Statements relating to “reserves” are 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 can profitably be produced in the future. 

Undue reliance should not be placed on forward-looking statements, which are inherently uncertain, are based on estimates and assumptions, and are subject to known and unknown risks and uncertainties (both general and specific) that contribute to the possibility that the future events or circumstances contemplated by the forward-looking statements will not occur.  There can be no assurance that the plans, intentions or expectations upon which forward-looking statements are based, will in fact be realized.  Actual results will differ, and the difference may be material and adverse to the Corporation and its shareholders. Forward-looking statements are based on the Corporation’s current beliefs as well as assumptions made by, and information currently available to, the Corporation concerning anticipated financial performance, business prospects, strategies, regulatory developments, future natural gas commodity prices, exchange rates, future natural gas production levels, the ability to obtain equipment in a timely manner to carry out development activities, the ability to market natural gas successfully to current and new customers, the impact of increasing competition, the ability to obtain financing on acceptable terms, the ability to add production and reserves through development and exploration activities, and the terms of agreements with third parties such as the Corporation’s forward sales contracts and hedging contracts. Although management considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect.  By their very nature, forward-looking statements involve inherent risks and uncertainties (both general and specific) and risks that forward-looking statements will not be achieved.  These factors include, but are not limited to, risks associated with oil and gas exploration, development and production, operational risks, development and operating costs, substantial capital requirements and financing, volatility of natural gas and oil prices, government regulation, environmental, hydraulic fracturing, third party risk, dependence on key personnel, co-existence with mining operations, availability of drilling equipment and access, variations in exchange rates, expiration of licenses and leases, reserves and resources estimates, trading of common shares, seasonality, disclosure controls and procedures and internal controls over financial reporting, competition, conflicts of interest, issuance of debt, title to properties, hedging, information systems, litigation and aboriginal land and rights claims.  Further information regarding these factors may be found under the heading “Risk Factors” in the Corporation’s Annual Information Form for the year ended December 31, 2018. Readers are cautioned that the foregoing list of factors that may affect future results is not exhaustive.

The forward-looking statements contained in this press release are made as of the date hereof and Corridor does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, except as required by applicable law. The forward-looking statements contained herein are expressly qualified by this cautionary statement.