Chart Scan – Jul 26, 2024
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Author: TSX Stocks
Chart Scan – Jul 26, 2024
Chart Scan – Jul 26, 2024
ABI.V – Abcourt Mines, Inc.
ATI.V – Altai Resources Inc.
ENTG.V – Entourage Health Corp.
KGC.V – Kestrel Gold, Inc.
LBC.V – Libero Copper & Gold Corporation
LNGE.V – LNG Energy Group Corp.
SOP/H.V – SOPerior Fertilizer Corp.
SWAN.V – Black Swan Graphene Inc.
TAO.V – TAG Oil Ltd.
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Osisko Development Reports Lifting of Fire Evacuation Order Near Cariboo Gold Project; All Project Activities to Resume
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Osisko Development Reports Lifting of Fire Evacuation Order Near Cariboo Gold Project; All Project Activities to Resume
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Friday, July 26, 2024
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First Quantum copper mine not on government agenda this year, Panama’s Mulino says
PANAMA CITY – Panamanian President Jose Raul Mulino said on Thursday the government will not address issues around a major shuttered First Quantum copper mine until the early 2025.
The lucrative Cobre Panama mine, one of the world’s top sources of copper, was shut down in November hours after the country’s Supreme Court declared its contract unconstitutional. Panama had provided First Quantum a 20-year mining right with an option to extend for another 20 years, in return for $375-million in annual revenue to Panama.
Critics say the contract was too generous, and environmental protests against the mine have morphed into broader anti-government demonstrations.
Mulino told reporters the Cobre Panama project will be addressed as needed, but stressed that issues such as social security have higher priority.
Shares of First Quantum fell 1.19% on the Toronto Stock Exchange in early afternoon trading.
Mulino said he has not had official contact with anyone from First Quantum over the dispute.
In an earnings call this week First Quantum CEO told analysts that they do not expect the mine to reopen this year.
“We expect this to evolve slowly given the sensitivity around the mine, RBC Capital Markets said in a research note.
First Quantum shares would benefit from any progress in resolving the dispute, he said, including government discussions with the company and improvement in public sentiment.
Headwater Exploration : Q2 2024 MD&A
Q2 2024 Management’s Discussion and Analysis
The following management’s discussion and analysis (“MD&A”) as provided by the management of Headwater Exploration Inc. (“Headwater” or the “Company”) is dated July 25, 2024 and should be read in conjunction with the unaudited interim condensed financial statements as at and for the three and six months ended June 30, 2024, and the MD&A and the audited financial statements and the notes thereto for the year ended December 31, 2023, copies of which are available through SEDAR+ at www.sedarplus.ca. The unaudited interim condensed financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as issued by the International Accounting Standards Board (“IASB”). All dollar amounts are referenced in Canadian dollars unless otherwise stated.
DESCRIPTION OF THE COMPANY
Headwater is a Canadian resource company engaged in the exploration for and development and production of petroleum and natural gas in Canada. Headwater currently has heavy oil production and reserves in the Clearwater/Falher formations in the Marten Hills, Greater Nipisi and Greater Peavine areas of Alberta and natural gas production and reserves in the McCully field near Sussex, New Brunswick. In 2023, Headwater began accumulating a significant land position outside of the Clearwater/Falher acreage across Western Canada. During the six months ended June 30, 2024, the Company drilled its first stratigraphic test and single-leg horizontal well, prospective for heavy oil, in Handel, Saskatchewan, with first sales realized in April of 2024.
Unless otherwise indicated herein, all production information presented herein has been presented on a gross basis, which is the Company’s working interest prior to deduction of royalties and without including any royalty interests.
HIGHLIGHTS FOR THREE MONTHS ENDED JUNE 30, 2024
-
Production averaged 19,805 boe/d (consisting of 18,825 bbls/d of heavy oil, 5.5 mmcf/d of natural gas and 67 bbls/d of natural gas liquids) representing an increase of 15% from the second quarter of 2023.
Realized adjusted funds flow from operations (1) of $88.0 million ($0.37 per share basic (2)) and cash flows from operations of $90.4 million ($0.38 per share basic).- Achieved an operating netback inclusive of financial derivatives (2) of $57.66/boe and an adjusted funds flow netback (2) of $48.96/boe.
- Achieved net income of $53.9 million ($0.23 per share basic).
Executed a $50.7 million capital expenditure (3) program inclusive of 18 net crude oil wells in Marten Hills West and 5 net crude oil wells in Seal.- Declared a cash dividend of $23.8 million, or $0.10 per common share.
As at June 30, 2024, Headwater had adjusted working capital (1) of $62.4 million, working capital of $72.4 million, and no outstanding bank debt.
- Capital management measure that does not have any standardized meaning under IFRS and therefore may not be comparable with the calculation of similar measures of other entities. Refer to “Management of capital” in note 12 of the interim financial statements and to “Non-GAAP and Other Financial Measures” within this MD&A.
- Non-GAAPratio that does not have any standardized meaning under IFRS and therefore may not be comparable with the calculation of similar measures of other entities. Refer to “Non-GAAP and Other Financial Measures” within this MD&A.
- Non-GAAPfinancial measure that does not have any standardized meaning under IFRS and therefore may not be comparable with the calculation of similar measures of other entities. Refer to “Non-GAAP and Other Financial Measures” within this MD&A.
1
RESULTS OF OPERATIONS
Production and Pricing
|
Three months ended |
Six months ended |
|||||
|
June 30, |
Percent |
June 30, |
Percent |
|||
|
2024 |
2023 |
Change |
2024 |
2023 |
Change |
|
|
Average daily production |
||||||
|
Heavy oil (bbls/d) |
18,825 |
15,624 |
20 |
18,168 |
15,203 |
20 |
|
Natural gas (mmcf/d) |
5.5 |
8.5 |
(35) |
8.5 |
10.7 |
(21) |
|
Natural gas liquids (bbls/d) |
67 |
107 |
(37) |
77 |
99 |
(22) |
|
Barrels of oil equivalent (boe/d) |
19,805 |
17,152 |
15 |
19,661 |
17,078 |
15 |
|
Average daily sales (1) |
||||||
|
Heavy oil (bbls/d) |
18,774 |
15,625 |
20 |
18,114 |
15,186 |
19 |
|
Natural gas (mmcf/d) |
5.5 |
8.5 |
(35) |
8.5 |
10.7 |
(21) |
|
Natural gas liquids (bbls/d) |
67 |
107 |
(37) |
77 |
99 |
(22) |
|
Barrels of oil equivalent (boe/d) |
19,754 |
17,154 |
15 |
19,607 |
17,061 |
15 |
|
Headwater average sales price (2) |
||||||
|
Heavy oil ($/bbl) (3) |
90.89 |
77.14 |
18 |
83.74 |
71.48 |
17 |
|
Natural gas ($/mcf) |
2.04 |
2.51 |
(19) |
4.06 |
4.35 |
(7) |
|
Natural gas liquids ($/bbl) |
93.25 |
75.01 |
24 |
80.51 |
71.13 |
13 |
|
Barrels of oil equivalent ($/boe) |
87.26 |
71.98 |
21 |
79.44 |
66.75 |
19 |
|
Average Benchmark Price |
||||||
|
WTI (US$/bbl) (4) |
80.57 |
73.78 |
9 |
78.77 |
74.95 |
5 |
|
WCS differential to WTI (US$/bbl) |
(13.58) |
(15.13) |
(10) |
(16.45) |
(19.95) |
(18) |
|
WCS (Cdn$/bbl) (5) |
91.66 |
78.77 |
16 |
84.72 |
74.12 |
14 |
|
Condensate at Edmonton (Cdn$/bbl) |
104.86 |
96.12 |
9 |
101.11 |
100.79 |
– |
|
AGT (US$/mmbtu) (6) |
1.52 |
1.90 |
(20) |
3.58 |
4.32 |
(17) |
|
AECO 5A (Cdn$/GJ) |
1.12 |
2.32 |
(52) |
1.74 |
2.69 |
(35) |
|
NYMEX Henry Hub (US$/mmbtu) |
1.89 |
2.10 |
(10) |
2.07 |
2.76 |
(25) |
|
Exchange rate (US$/Cdn$) |
0.73 |
0.74 |
(1) |
0.74 |
0.74 |
– |
- Includes sales of heavy crude oil excluding the impact of purchased condensate and butane. The Company’s heavy oil sales volumes and production volumes differ due to changes in inventory.
Average sales prices are calculated using average sales volumes.
Realized heavy oil prices are based on sales, net of blending expense.
WTI = West Texas Intermediate.
WCS = Western Canadian Select.
AGT = Algonquin city-gates. The AGT price is the average for the winter producing months in the McCully field which include January to April, November and December.
|
Three months ended |
Six months ended |
|||||
|
June 30, |
Percent |
June 30, |
Percent |
|||
|
2024 |
2023 |
Change |
2024 |
2023 |
Change |
|
|
(thousands of dollars) |
(thousands of dollars) |
|||||
|
Heavy oil sales |
162,505 |
116,085 |
40 |
289,951 |
212,507 |
36 |
|
Blending expense |
(7,224) |
(6,407) |
13 |
(13,892) |
(16,046) |
(13) |
|
Heavy oil, net of blending (1) |
155,281 |
109,678 |
42 |
276,059 |
196,461 |
41 |
|
Natural gas |
1,020 |
1,947 |
(48) |
6,287 |
8,384 |
(25) |
|
Natural gas liquids |
566 |
732 |
(23) |
1,123 |
1,278 |
(12) |
|
Gathering, processing and transportation |
190 |
203 |
(6) |
954 |
1,007 |
(5) |
|
Total sales, net of blending expense (1) |
157,057 |
112,560 |
40 |
284,423 |
207,130 |
37 |
(1) Non-GAAP financial measure. Refer to “Non-GAAP and Other Financial Measures” within this MD&A.
2
Heavy Oil – Western Canada
The Company’s realized price received for its heavy crude oil is determined by the quality of crude compared to the benchmark price of WCS. Headwater’s heavy crude oil production (average 18 – 22˚ API) is blended with diluent in order to meet pipeline transportation specifications. The majority of Headwater’s heavy oil is produced out of the Clearwater region in Alberta. In addition, during the six months ended June 30, 2024, the Company drilled its first stratigraphic test and single-leg horizontal well, prospective for heavy oil, in Handel, Saskatchewan, with first sales realized in April of 2024.
WTI pricing has improved over the prior year due to improved supply and demand fundamentals primarily due to sustained OPEC+ output cuts. The WCS differential to WTI narrowed during both the three and six months ended June 30, 2024, due to declining Western Canadian heavy oil inventories as a result of improved egress out of Western Canada with the Trans Mountain pipeline expansion commencing commercial service May 1, 2024. Headwater’s discount to WCS also narrowed during the three and six months ended June 30, 2024, compared to the corresponding periods of the prior year, primarily due to blending optimization and stronger realized pricing relative to WCS.
During the three months ended June 30, 2024, Headwater’s heavy oil sales, net of blending expense, increased to $155.3 million from $109.7 million in the corresponding period of 2023. This increase was attributable to an 18% increase in realized commodity pricing, relatively consistent with the increase in benchmark WCS pricing, combined with a 20% increase in sales volumes.
During the six months ended June 30, 2024, Headwater’s heavy oil sales, net of blending expense, increased to $276.1 million from $196.5 million in the corresponding period of 2023. This increase was attributable to a 17% increase in realized commodity pricing, relatively consistent with the increase in benchmark WCS pricing, combined with a 19% increase in sales volumes.
During the three and six months ended June 30, 2024, Headwater’s heavy oil sales volumes averaged 18,774 bbls/d and 18,114 bbls/d, respectively, compared to 15,625 bbls/d and 15,186 bbls/d in the corresponding periods of 2023. The Company’s heavy oil sales volumes have increased as a result of Headwater’s growth-oriented drilling program. Headwater drilled 90.0 total net crude oil wells during the year ended December 31, 2023, and drilled 43.0 total net crude oil wells in the first half of 2024, increasing the Company’s heavy oil production.
Natural Gas – New Brunswick and Western Canada
The Company produces natural gas out of the McCully field in New Brunswick. Effective April 1, 2024, the transaction price is based on the AGT daily benchmark price adjusted for a premium contract adder. Consistent with prior years, the Company shut-in McCully natural gas production for the upcoming summer season effective May 1, 2024.
Headwater also produces natural gas in Alberta, as the Company commissioned its Marten Hills joint gas processing facility and started generating sales from its associated natural gas production in the third quarter of 2021. The natural gas sales transaction price is based on the AECO 5A daily benchmark price adjusted for delivery location and heat content.
Both AGT and AECO 5A saw a decrease in pricing over the periods due to increasing storage levels resulting from the current El Nino climate pattern. Natural gas inventories are currently at the top of the historical five-year average in both the northeastern United States and Western Canada.
For the three and six months ended June 30, 2024, Headwater’s natural gas sales decreased to $1.0 million and $6.3 million, respectively, from $1.9 million and $8.4 million in the corresponding periods of the prior year, due to a decrease in both realized commodity pricing and natural gas sales volumes. Realized natural gas pricing decreased due to lower benchmark pricing for both AGT and AECO 5A.
3
During the three and six months ended June 30, 2024, Headwater’s natural gas sales volumes decreased to 5.5 mmcf/d and 8.5 mmcf/d, respectively, from 8.5 mmcf/d and 10.7 mmcf/d in the corresponding periods of the prior year as a result of lower natural gas production out of Alberta as Headwater realized declining natural gas production in the core area of Marten Hills due to secondary recovery efforts.
Financial Derivative Gains (Losses)
|
Three months ended |
Six months ended |
|||||
|
June 30, |
Percent |
June 30, |
Percent |
|||
|
2024 |
2023 |
Change |
2024 |
2023 |
Change |
|
|
(thousands of dollars) |
(thousands of dollars) |
|||||
|
Realized gains (losses) |
(789) |
329 |
(340) |
5,325 |
7,569 |
(30) |
|
Unrealized gains (losses) |
1,730 |
(913) |
(289) |
(4,111) |
1,090 |
(477) |
|
Financial derivative gains (losses) |
941 |
(584) |
(261) |
1,214 |
8,659 |
(86) |
|
Per boe |
0.52 |
(0.37) |
(241) |
0.34 |
(2.80) |
(112) |
Natural gas and crude oil commodity contracts
Headwater enters into financial derivative commodity contracts to manage the risks associated with fluctuations in commodity prices.
The realized financial derivative losses recognized during the three months ended June 30, 2024, relate to losses on the Company’s crude oil contracts referenced to the WCS differential to WTI, partially offset by gains on its Alberta natural gas contracts referenced to the AECO 5A price. Headwater recognized $1.0 million of losses on its WCS differential contracts during the three months ended June 30, 2024, as the commodity contracts to fix the WCS to WTI spread were less favorable than the settlement differential. The settlement differential was narrower than expected due to timing and availability of additional pipeline capacity in Western Canada. The Company recognized $0.2 million of gains on its AECO 5A contracts as the commodity contracts to fix the AECO 5A price exceeded the settlement price in the period, due to sustained high natural gas storage levels in Western Canada.
The realized financial derivative gains recognized during the six months ended June 30, 2024, primarily represent Headwater’s McCully natural gas contracts referenced to the AGT price which generated gains in the first quarter of 2024. The AGT settlement price was lower than expected due to warmer winter weather experienced in the northeastern US natural gas market resulting in significantly reduced natural gas demand in the area and above average natural gas storage levels.
The unrealized gains and losses recorded during the three and six months ended June 30, 2024, are a result of the change in fair value of the Company’s outstanding financial derivative commodity contracts over the periods. As at June 30, 2024, the fair value of Headwater’s outstanding financial derivative commodity contracts was a net unrealized liability of $0.4 million as reflected in the interim condensed financial statements. The fair value or mark to market value of these contracts is based upon the estimated amount that would have been payable as at June 30, 2024, had the contracts been monetized or terminated. Subsequent changes in the fair value of the contracts are recognized in each reporting period and could be materially different than what is recorded as at June 30, 2024. For the three and six months ended June 30, 2024, Headwater recognized unrealized gains of $1.7 million and unrealized losses of $4.1 million, respectively, compared to unrealized losses of $0.9 million and unrealized gains of $1.1 million in the corresponding periods of 2023.
4
As at June 30, 2024, Headwater had the following financial derivative commodity contracts outstanding:
|
Commodity |
Index |
Type |
Term |
Daily Volume |
Contract Price |
|
Natural Gas |
AECO 5A |
Fixed |
July 2024 – Oct 2024 |
2,000 GJ |
Cdn$2.12/GJ |
|
Natural Gas |
AECO 5A |
Fixed |
April 2025 – Oct 2025 |
2,000 GJ |
Cdn$2.78/GJ |
|
Natural Gas |
AGT |
Fixed |
Dec 2024 – Mar 2025 |
2,500 mmbtu |
Cdn$10.65/mmbtu |
|
Natural Gas |
AGT |
Fixed |
Dec 2024 – Jan 2025 |
2,500 mmbtu |
Cdn$13.75/mmbtu |
|
Crude Oil |
WCS Basis |
Differential |
Jul 2024 – Sep 2024 |
3,000 bbl |
US$13.25/bbl |
Subsequent to June 30, 2024, the Company entered into an additional financial derivative commodity contract. Refer to the heading “Subsequent Events”.
Foreign exchange contracts
As of April 1, 2024, all of Headwater’s revenue contracts are settled in Canadian dollars. However, the Company is exposed to fluctuations in the Canadian to U.S. dollar exchange rate given realized pricing is directly influenced by U.S. dollar denominated benchmark pricing and from exposure to its U.S. dollar denominated WCS commodity contracts. Headwater may decide to mitigate a portion of this risk by periodically entering into foreign exchange contracts.
Royalty Expense
|
Three months ended |
Six months ended |
|||||
|
June 30, |
Percent |
June 30, |
Percent |
|||
|
2024 |
2023 |
Change |
2024 |
2023 |
Change |
|
|
(thousands of dollars) |
(thousands of dollars) |
|||||
|
Royalty expense |
29,653 |
19,717 |
50 |
51,497 |
35,049 |
47 |
|
Percentage of total sales, net of blending (1) |
18.9% |
17.5% |
8 |
18.1% |
16.9% |
7 |
|
Per boe |
16.49 |
12.63 |
31 |
14.43 |
11.35 |
27 |
- Non-GAAPratio. Refer to the advisory “Non-GAAP and Other Financial Measures”.
Royalty expense primarily consists of crown royalties payable to the Alberta and New Brunswick provincial governments and the gross overriding royalty (“GORR”) payable to Topaz Energy Corp. In conjunction with its first producing well in Handel, Saskatchewan, the Company has commenced paying crown royalties to the Saskatchewan provincial government as well.
Under the Alberta Modernized Royalty Framework, the Company will pay a flat royalty of 5% on a well’s production until the well’s total revenue exceeds the drilling and completion cost allowance, then royalty rates increase on a sliding scale up to 40% depending on commodity reference pricing.
For the three and six months ended June 30, 2024, royalty expense increased to $29.7 million and $51.5 million, respectively, from $19.7 million and $35.0 million in the corresponding periods of 2023, due to a higher average corporate royalty rate combined with an increase in total sales, net of blending expense. For the three and six months ended June 30, 2024, Headwater’s average corporate royalty rate was 18.9% and 18.1%, respectively, compared to 17.5% and 16.9% in the corresponding periods of 2023. The increase in royalty rate is attributed to higher commodity pricing in 2024, as WCS averaged $84.72/bbl in the first half of 2024 compared to $74.12/bbl in the first half of 2023, reflecting a 14% increase.
5
Transportation Expense
|
Three months ended |
Six months ended |
|||||
|
June 30, |
Percent |
June 30, |
Percent |
|||
|
2024 |
2023 |
Change |
2024 |
2023 |
Change |
|
|
(thousands of dollars) |
(thousands of dollars) |
|||||
|
Transportation expense |
9,964 |
8,561 |
16 |
19,432 |
16,958 |
15 |
|
Per boe |
5.54 |
5.48 |
1 |
5.45 |
5.49 |
(1) |
Transportation expense includes clean oil trucking, terminal fees and pipeline tariffs incurred to move production to the sales point.
For the three and six months ended June 30, 2024, transportation expense increased to $10.0 million and $19.4 million, respectively, from $8.6 million and $17.0 million in the corresponding periods of the prior year as a result of an increase to heavy oil sales volumes.
Transportation expense per boe was consistent over the periods.
Headwater has firm transportation service commitments in place to secure pipeline capacity to the point of sale. Refer to “Contractual Obligations and Commitments” for more information.
Production Expense
|
Three months ended |
Six months ended |
|||||
|
June 30, |
Percent |
June 30, |
Percent |
|||
|
2024 |
2023 |
Change |
2024 |
2023 |
Change |
|
|
(thousands of dollars) |
(thousands of dollars) |
|||||
|
Production expense |
13,010 |
11,435 |
14 |
25,469 |
21,414 |
19 |
|
Per boe |
7.24 |
7.33 |
(1) |
7.14 |
6.93 |
3 |
Production expense in the three and six months ended June 30, 2024, was $13.0 million and $25.5 million, respectively, compared to $11.4 million and $21.4 million in the corresponding periods of 2023. The increase in production expense reflects the increase in the Company’s production volumes over the periods.
Production expense per boe was consistent over the periods.
6
Netbacks
Operating netback reflects the Company’s margin on a per-barrel of oil equivalent basis. The following table provides a reconciliation of Headwater’s operating netback and operating netback, including financial derivatives. Refer to the heading “Non-GAAP and Other Financial Measures” for more information.
|
Three months ended |
Six months ended |
|||||
|
June 30, |
Percent |
June 30, |
Percent |
|||
|
2024 |
2023 |
Change |
2024 |
2023 |
Change |
|
|
($/boe) |
($/boe) |
|||||
|
Sales |
91.39 |
76.22 |
20 |
83.60 |
72.27 |
16 |
|
Royalties |
(16.49) |
(12.63) |
31 |
(14.43) |
(11.35) |
27 |
|
Transportation and blending |
(9.56) |
(9.59) |
– |
(9.34) |
(10.69) |
(13) |
|
Production expense |
(7.24) |
(7.33) |
(1) |
(7.14) |
(6.93) |
3 |
|
Operating netback (1) |
58.10 |
46.67 |
24 |
52.69 |
43.30 |
22 |
|
Realized gains (losses) on financial |
||||||
|
derivatives |
(0.44) |
0.21 |
(310) |
1.49 |
2.45 |
(39) |
|
Operating netback, including |
financial |
|||||
|
derivatives (1) |
57.66 |
46.88 |
23 |
54.18 |
45.75 |
18 |
- Non-GAAPratio. Refer to the advisory “Non-GAAP and Other Financial Measures”.
For the three and six months ended June 30, 2024, the Company’s operating netback, including financial derivatives, increased to $57.66 per boe and $54.18 per boe, respectively, from $46.88 per boe and $45.75 per boe in the corresponding periods of 2023. The increase in operating netback, including financial derivatives in both the three and six months ended June 30, 2024, is primarily due to increased realized heavy oil commodity pricing partially offset by higher royalties and lower realized gains on financial derivatives.
General and Administrative (“G&A”) Expenses
|
Three months ended |
Six months ended |
|||||
|
June 30, |
Percent |
June 30, |
Percent |
|||
|
2024 |
2023 |
Change |
2024 |
2023 |
Change |
|
|
(thousands of dollars) |
(thousands of dollars) |
|||||
|
G&A expenses |
3,773 |
3,307 |
14 |
7,418 |
6,211 |
19 |
|
Capitalized G&A |
(1,070) |
(980) |
9 |
(2,114) |
(1,821) |
16 |
|
Net G&A expenses |
2,703 |
2,327 |
16 |
5,304 |
4,390 |
21 |
|
Per boe ($) |
1.50 |
1.49 |
1 |
1.49 |
1.42 |
5 |
For the three and six months ended June 30, 2024, net G&A expenses increased to $2.7 million and $5.3 million, respectively, from $2.3 million and $4.4 million in the corresponding periods of 2023. Increased net G&A expenses on an absolute basis were mainly a result of increased employee related costs due to the growth experienced by the Company over the periods. G&A expenses per boe were consistent over the periods.
7
Interest Income and Other Expense
|
Three months ended |
Six months ended |
|||||
|
June 30, |
Percent |
June 30, |
Percent |
|||
|
2024 |
2023 |
Change |
2024 |
2023 |
Change |
|
|
(thousands of dollars) |
(thousands of dollars) |
|||||
|
Interest income |
1,438 |
1,579 |
(9) |
3,109 |
3,367 |
(8) |
|
Realized and unrealized foreign exchange |
1 |
(227) |
(100) |
34 |
(230) |
(115) |
|
gains (losses) |
||||||
|
Accretion on decommissioning liability |
(356) |
(265) |
34 |
(665) |
(527) |
26 |
|
Interest on repayable contribution |
(218) |
(121) |
80 |
(432) |
(238) |
82 |
|
Interest on lease liability |
(15) |
(8) |
88 |
(30) |
(18) |
67 |
|
Total interest income and other expense |
850 |
958 |
(11) |
2,016 |
2,354 |
(14) |
|
Per boe ($) |
0.47 |
0.61 |
(23) |
0.56 |
0.76 |
(26) |
For the three and six months ended June 30, 2024, interest income and other expense decreased to $0.9 million and $2.0 million, respectively, from $1.0 million and $2.4 million in the corresponding periods of the prior year due to lower interest income and higher accretion on decommissioning liability and interest on repayable contribution, partially offset by a small foreign exchange gain compared to a loss in the corresponding periods of the prior year. The slight decrease in interest income for the three and six months ended June 30, 2024, is a result of carrying a lower average cash balance, partially offset by a higher interest rate, when compared to the same periods in 2023. Interest on repayable contribution has increased due to the receipt of two additional grants from NRCan (as defined below) in late 2023.
The Company manages fluctuations in foreign exchange gains and losses by entering into foreign exchange contracts to fix the foreign exchange rate. Refer to “Financial Derivatives Gains (Losses)” for more information.
Stock-based Compensation
|
Three months ended |
Six months ended |
|||||
|
June 30, |
Percent |
June 30, |
Percent |
|||
|
2024 |
2023 |
Change |
2024 |
2023 |
Change |
|
|
(thousands of dollars) |
(thousands of dollars) |
|||||
|
Stock options |
26 |
255 |
(90) |
175 |
764 |
(77) |
|
Deferred share units (“DSUs”) |
(51) |
128 |
(140) |
1,164 |
793 |
47 |
|
Share awards |
2,480 |
1,281 |
94 |
4,239 |
2,068 |
105 |
|
Capitalized stock-based compensation |
(401) |
(439) |
(9) |
(801) |
(785) |
2 |
|
Stock-based compensation |
2,054 |
1,225 |
68 |
4,777 |
2,840 |
68 |
|
Per boe ($) |
1.14 |
0.78 |
46 |
1.34 |
0.92 |
46 |
During the three and six months ended June 30, 2024, stock-based compensation expense increased to $2.1 million and $4.8 million, respectively, from $1.2 million and $2.8 million in the corresponding periods of the prior year, primarily due to new grants of share awards and the corresponding amortization expense. The expense for stock options was lower in both the three and six months ended June 30, 2024, due to the majority of outstanding stock options being fully vested. The expense for DSUs reflects the changes in the Company’s share price over the periods.
8
Share Awards
The Company’s performance and restricted award plan (“Award Plan”) provides for the grant of restricted share units (“RSUs”) and performance share units (“PSUs”) to officers, employees and consultants of the Company. Under the Award Plan, the aggregate number of common shares reserved for issuance may not exceed the lesser of: (i) 6.0% of the aggregate number of issued and outstanding common shares less the aggregate number of common shares reserved for issuance under the Company’s stock option plans; and
4.5% of the aggregate number of issued and outstanding common shares. Generally, one third of the RSUs will vest on each of the first, second and third anniversaries of the date of grant and all PSUs will vest on the third anniversary of the date of grant, unless otherwise determined by the Board of Directors of the Company (the “Board”). The common shares underlying PSUs are adjusted based on a performance multiplier ranging from 0 to 2 times, which is determined based on certain corporate performance measures, as determined by the Board.
During the year ended December 31, 2023, the Board approved the cash settlement of RSUs. Previously, these awards had been accounted for as equity-settled. As a result of this modification to the Company’s outstanding RSUs from equity-settled to cash-settled, the fair value of the awards previously expensed was reclassified from contributed surplus to stock-based compensation payable. Subsequent to this modification, the grant date fair value is used to record the cost of the RSUs and any subsequent remeasurement of the liability is also recognized in the Statement of Income and Comprehensive Income.
It is the intention of the Company to equity settle any outstanding PSUs. The Award Plan allows a holder to receive common shares upon vesting. Headwater uses the fair value method for valuing the PSUs. The fair value of PSUs is determined based on the volume weighted average trading price of the five days preceding the grant date. This fair value is recognized as stock-based compensation expense, with a portion being capitalized, over the vesting period with a corresponding increase to contributed surplus. The amount of stock-based compensation expense is reduced by an estimated forfeiture rate determined at the date of the grant and updated each period. Upon vesting of the PSUs and settlement in common shares, the previously recognized value in contributed surplus will be recorded as an increase to capital stock.
As at June 30, 2024, there were 457,155 RSUs outstanding and 2,744,817 PSUs outstanding.
Deferred Share Units
The deferred share unit plan (“DSU Plan”) provides for grants of DSUs to non-management directors. Each DSU vests on the date of grant; however, settlement of the DSU occurs when the individual ceases to be a director of the Company. DSUs are to be settled in cash or by payment in common shares acquired through the facilities of the Toronto Stock Exchange (“TSX”). It is the intention of the Company to settle the DSUs in cash. The directors may also elect to receive all of their annual cash compensation in the form of DSUs provided that such election must be made on December 1st of the preceding calendar year (or within a certain prescribed time frame if an individual becomes a director after the commencement of a calendar year or after the initial adoption of the DSU Plan) and after such date the election will be irrevocable for such year. DSUs are measured at fair value using the Company’s closing share price on June 30, 2024.
As at June 30, 2024, there were 376,207 DSUs outstanding.
9
Stock Options
The Company has an old and new stock option plan (the “Option Plans”) under which options to purchase common shares of the Company could be granted to directors, officers, employees and consultants of the Company. The exercise price of each option granted is based on the closing price of the common shares on the TSX on the trading day prior to the date the option was granted. Options granted generally vest as to one third of the number granted on each of the first, second and third anniversaries of the date of grant over a three-year period and expire four to five years after the grant date. The Company did not grant any stock options in 2024 or 2023 and does not intend to grant any further options under the Option Plans.
As at June 30, 2024, there were 468,670 stock options outstanding under the Option Plans.
Depletion & Depreciation
|
Three months ended |
Six months ended |
|||||
|
June 30, |
Percent |
June 30, |
Percent |
|||
|
2024 |
2023 |
Change |
2024 |
2023 |
Change |
|
|
(thousands of dollars) |
(thousands of dollars) |
|||||
|
Depletion |
30,898 |
29,127 |
6 |
61,365 |
57,568 |
7 |
|
Depreciation |
60 |
214 |
(72) |
121 |
430 |
(72) |
|
Depletion & depreciation |
30,958 |
29,341 |
6 |
61,486 |
57,998 |
6 |
|
Depletion – Per boe ($) |
17.19 |
18.66 |
(8) |
17.20 |
18.64 |
(8) |
|
Depreciation – Per boe ($) |
0.03 |
0.14 |
(79) |
0.03 |
0.14 |
(79) |
|
Depletion & depreciation – Per boe ($) |
17.22 |
18.80 |
(8) |
17.23 |
18.78 |
(8) |
Depletion expense is calculated using the unit-of-production method which is based on production volumes in relation to the proved plus probable reserves base.
Depletion expense for the three and six months ended June 30, 2024 increased slightly to $30.9 million and $61.4 million, respectively, from $29.1 million and $57.6 million in the corresponding periods of 2023, due to an increase in the Company’s production volumes over the period.
Depletion and depreciation expense per boe decreased during the three and six months ended June 30, 2024, when compared to the corresponding periods of 2023, primarily due to significant reserve additions recorded in Headwater’s 2023 year-end reserves report, resulting from successful drilling and waterflood results.
Impairment Assessment
As at June 30, 2024, there are no indicators of impairment identified for the Company’s E&E (as defined herein) or property, plant and equipment (“PP&E”) assets. As such, an impairment test was not performed.
10
Headwater Exploration : Q2 2024 Financial Statements
HEADWATER EXPLORATION INC.
Interim Condensed Statements of Financial Position
(unaudited)
|
June 30, |
December 31, |
|
|
2024 |
2023 |
|
|
(Cdn$ thousands) |
$ |
$ |
|
ASSETS |
||
|
Current assets |
||
|
Cash and cash equivalents |
128,255 |
146,052 |
|
Restricted cash |
350 |
350 |
|
Accounts receivable (note 12) |
75,447 |
46,744 |
|
Contribution receivable (note 6) |
– |
1,771 |
|
Financial derivative receivable (note 12) |
644 |
3,758 |
|
Inventories |
820 |
788 |
|
Prepaids and deposits |
2,258 |
1,461 |
|
Total current assets |
207,774 |
200,924 |
|
Financial derivative receivable (note 12) |
42 |
– |
|
Exploration and evaluation assets (note 3) |
30,784 |
17,930 |
|
Property, plant and equipment (note 4) |
662,656 |
616,375 |
|
Other assets |
1,050 |
1,106 |
|
Total assets |
902,306 |
836,335 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||
|
Current liabilities |
||
|
Accounts payable and accrued liabilities (note 12) |
95,531 |
73,715 |
|
Stock-based compensation payable (note 8) |
3,802 |
2,431 |
|
Financial derivative liability (note 12) |
1,136 |
79 |
|
Current portion of lease liability |
23 |
34 |
|
Current income tax liability |
9,791 |
22,397 |
|
Dividends payable (note 7) |
23,765 |
23,658 |
|
Repayable contribution (note 6) |
1,322 |
– |
|
Total current liabilities |
135,370 |
122,314 |
|
Stock-based compensation payable (note 8) |
430 |
498 |
|
Lease liability |
806 |
808 |
|
Decommissioning liability (note 5) |
45,300 |
40,951 |
|
Repayable contribution (note 6) |
10,515 |
11,405 |
|
Deferred income tax liability |
51,437 |
49,861 |
|
Total liabilities |
243,858 |
225,837 |
|
Shareholders’ Equity |
||
|
Capital stock (note 7) |
486,520 |
483,013 |
|
Contributed surplus |
19,420 |
18,970 |
|
Retained earnings |
152,508 |
108,515 |
|
Total shareholders’ equity |
658,448 |
610,498 |
|
Total liabilities and shareholders’ equity |
902,306 |
836,335 |
Subsequent events (note 13)
See accompanying notes to the interim condensed financial statements
Approved on behalf of the Board of Directors:
|
(signed) “Chandra Henry” |
(signed) “Neil Roszell” |
|
Chandra Henry, CPA, CA |
Neil Roszell |
|
Director |
Executive Chairman |
1
HEADWATER EXPLORATION INC.
Interim Condensed Statements of Income and
Comprehensive Income
(unaudited)
|
Three months ended |
Six months ended |
|||
|
June 30, |
June 30, |
|||
|
2024 |
2023 |
2024 |
2023 |
|
|
(Cdn$ thousands, except per share data) |
$ |
$ |
$ |
$ |
|
REVENUE |
||||
|
Sales (note 9) |
164,281 |
118,967 |
298,315 |
223,176 |
|
Royalties |
(29,653) |
(19,717) |
(51,497) |
(35,049) |
|
Revenue, net of royalties |
134,628 |
99,250 |
246,818 |
188,127 |
|
Gains (losses) on financial derivatives (note 12) |
941 |
(584) |
1,214 |
8,659 |
|
135,569 |
98,666 |
248,032 |
196,786 |
|
|
EXPENSES |
||||
|
Blending and transportation |
17,188 |
14,968 |
33,324 |
33,004 |
|
Production |
13,010 |
11,435 |
25,469 |
21,414 |
|
General and administrative |
2,703 |
2,327 |
5,304 |
4,390 |
|
Stock-based compensation |
2,054 |
1,225 |
4,777 |
2,840 |
|
Depletion and depreciation |
30,958 |
29,341 |
61,486 |
57,998 |
|
65,913 |
59,296 |
130,360 |
119,646 |
|
|
Interest income and other expense (note 10) |
850 |
958 |
2,016 |
2,354 |
|
Income before income taxes |
70,506 |
40,328 |
119,688 |
79,494 |
|
Income taxes |
||||
|
Current income tax expense |
14,392 |
6,103 |
26,625 |
14,675 |
|
Deferred income tax expense |
2,246 |
3,278 |
1,576 |
3,893 |
|
16,638 |
9,381 |
28,201 |
18,568 |
|
|
Net income and comprehensive income |
53,868 |
30,947 |
91,487 |
60,926 |
|
Net income per share (note 7) |
||||
|
Basic |
0.23 |
0.13 |
0.39 |
0.26 |
|
Diluted |
0.22 |
0.13 |
0.38 |
0.26 |
See accompanying notes to the interim condensed financial statements
2
HEADWATER EXPLORATION INC.
Interim Condensed Statements of Cash Flows
(unaudited)
|
Three months ended |
Six months ended |
|||
|
June 30, |
June 30, |
|||
|
Cash flow related to the following activities: |
2024 |
2023 |
2024 |
2023 |
|
(Cdn$ thousands) |
$ |
$ |
$ |
$ |
|
OPERATING |
||||
|
Net income |
53,868 |
30,947 |
91,487 |
60,926 |
|
Items not involving cash: |
||||
|
Unrealized (gains) losses on financial derivatives (note 12) |
(1,730) |
913 |
4,111 |
(1,090) |
|
Stock-based compensation |
2,054 |
1,225 |
4,777 |
2,840 |
|
Depletion and depreciation |
30,958 |
29,341 |
61,486 |
57,998 |
|
Income tax expense |
16,638 |
9,381 |
28,201 |
18,568 |
|
Non-cash finance charges |
627 |
531 |
1,127 |
825 |
|
Settlement of decommissioning liability (note 5) |
– |
– |
(95) |
– |
|
Income taxes paid |
(10,227) |
(4,348) |
(39,231) |
(20,290) |
|
Change in non-cash operating working capital (note 11) |
(1,786) |
(1,133) |
(6,414) |
7,281 |
|
Cash flows provided by operating activities |
90,402 |
66,857 |
145,449 |
127,058 |
|
FINANCING |
||||
|
Payment of lease liability |
(21) |
(197) |
(43) |
(394) |
|
Proceeds from exercise of stock options & warrants (note 7) |
516 |
– |
551 |
743 |
|
Dividends paid (note 7) |
(23,729) |
(23,539) |
(47,387) |
(46,931) |
|
Proceeds from repayable contribution (note 6) |
708 |
– |
1,417 |
– |
|
Cash flows used in financing activities |
(22,526) |
(23,736) |
(45,462) |
(46,582) |
|
INVESTING |
||||
|
Capital expenditures – property, plant and equipment (note 4) |
(43,596) |
(55,535) |
(89,771) |
(109,270) |
|
Capital expenditures – exploration and evaluation (note 3) |
(7,121) |
(8,559) |
(26,213) |
(24,318) |
|
Government grant (note 6) |
177 |
– |
354 |
– |
|
Change in non-cash investing working capital (note 11) |
(15,664) |
(4,917) |
(2,154) |
6,620 |
|
Cash flows used in investing activities |
(66,204) |
(69,011) |
(117,784) |
(126,968) |
|
Change in cash and cash equivalents |
1,672 |
(25,890) |
(17,797) |
(46,492) |
|
Cash and cash equivalents, beginning of period |
126,583 |
154,845 |
146,052 |
175,447 |
|
Cash and cash equivalents, end of period |
128,255 |
128,955 |
128,255 |
128,955 |
See accompanying notes to the interim condensed financial statements
3
HEADWATER EXPLORATION INC.
Interim Condensed Statements of Changes in Shareholders’ Equity
(unaudited)
|
Total |
||||||
|
Capital |
Contributed |
Retained |
shareholders’ |
|||
|
Notes |
stock |
Warrants |
surplus |
earnings |
equity |
|
|
(Cdn$ thousands) |
$ |
$ |
$ |
$ |
$ |
|
|
Balance at January 1, 2023 |
479,157 |
2 |
17,312 |
46,864 |
543,335 |
|
|
Exercise of stock options |
7 |
2,804 |
– |
(2,066) |
– |
738 |
|
Exercise of warrants |
7 |
7 |
(2) |
– |
– |
5 |
|
Stock-based compensation |
– |
– |
2,463 |
– |
2,463 |
|
|
Reclassification to stock-based |
8 |
– |
– |
(563) |
– |
(563) |
|
compensation payable |
||||||
|
Net income |
– |
– |
– |
60,926 |
60,926 |
|
|
Dividends declared |
7 |
– |
– |
– |
(47,125) |
(47,125) |
|
Balance at June 30, 2023 |
481,968 |
– |
17,146 |
60,665 |
559,779 |
|
|
Balance at January 1, 2024 |
483,013 |
– |
18,970 |
108,515 |
610,498 |
|
|
Exercise of stock options |
7 |
3,507 |
– |
(2,956) |
– |
551 |
|
Stock-based compensation |
– |
– |
3,406 |
– |
3,406 |
|
|
Net income |
– |
– |
– |
91,487 |
91,487 |
|
|
Dividends declared |
7 |
– |
– |
– |
(47,494) |
(47,494) |
|
Balance at June 30, 2024 |
486,520 |
– |
19,420 |
152,508 |
658,448 |
See accompanying notes to the interim condensed financial statements
4
HEADWATER EXPLORATION INC.
Notes to the Interim Condensed Financial Statements
(unaudited)
As at and for the three and six months ended June 30, 2024, and 2023
(All tabular amounts in thousands, unless otherwise stated)
1. NATURE OF OPERATIONS
Headwater Exploration Inc. (“Headwater” or the “Company”) is a Canadian resource company engaged in the exploration for and development and production of petroleum and natural gas in Canada. Headwater is a public company existing under the Alberta Business Corporations Act with common shares listed on the Toronto Stock Exchange (“TSX”) under the symbol “HWX”.
Headwater’s principal place of business is located at 1400, 215 – 9th Avenue S.W., Calgary, Alberta, T2P 1K3 and its registered office is located at 2400, 525 – 8th Avenue S.W., Calgary, Alberta, T2P 1G1.
2. BASIS OF PREPARATION
These unaudited interim condensed financial statements have been prepared in accordance with IAS 34 – Interim Financial Reporting as issued by the International Accounting Standards Board (“IASB”). The unaudited interim condensed financial statements do not include all information required for annual financial statements and should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2023. These unaudited interim condensed financial statements have been prepared following the same accounting policies as the Company’s audited financial statements for the year ended December 31, 2023, except for the below.
The IASB issued amendments to IAS 1 “Presentation of financial statements” re: classification of liabilities as current or non-current which is effective for annual periods beginning on or after January 1, 2024. The amendment clarifies that the classification of liabilities as current or non-current should be based on rights that are in existence at the end of the reporting period. These amendments to IAS 1 did not have a material impact on the Company’s financial statements.
The timely preparation of these financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amount of assets, liabilities, income and expenses. Actual results may differ materially from these estimates. Significant judgments, estimates and assumptions made by management in these financial statements are outlined in the audited financial statements for the year ended December 31, 2023.
These unaudited interim condensed financial statements were approved and authorized for issue by the Company’s Board of Directors on July 25, 2024.
5
3. EXPLORATION AND EVALUATION (“E&E”) ASSETS
The following table reconciles the movements of the Company’s E&E assets for the periods:
|
June 30, 2024 December 31, 2023 |
||
|
$ |
$ |
|
|
Balance, beginning of period |
17,930 |
42,872 |
|
Additions |
26,213 |
28,556 |
|
Dispositions (1) |
– |
(3,750) |
|
Transfers to PP&E |
(13,359) |
(49,748) |
|
Balance, end of period |
30,784 |
17,930 |
(1) Relates to the sale of a gross overriding royalty. No gain or loss was recorded related to the sale.
The Company concluded there are no indicators of impairment for its E&E assets as at June 30, 2024.
4. PROPERTY, PLANT AND EQUIPMENT (“PP&E”)
The following table reconciles the movements of the Company’s PP&E assets for the periods:
|
Oil and gas |
||||
|
properties |
Corporate |
Total |
||
|
Cost |
$ |
$ |
$ |
|
|
Balance at December 31, 2022 |
835,220 |
2,835 |
838,055 |
|
|
Additions |
213,179 |
38 |
213,217 |
|
|
Transfers from E&E |
49,748 |
– |
49,748 |
|
|
Government grant |
(2,474) |
– |
(2,474) |
|
|
Changes in decommissioning liability |
7,425 |
– |
7,425 |
|
|
Balance at December 31, 2023 |
1,103,098 |
2,873 |
1,105,971 |
|
|
Additions (1) |
90,548 |
25 |
90,573 |
|
|
Transfers from E&E |
13,359 |
– |
13,359 |
|
|
Changes in decommissioning liabilities |
3,779 |
– |
3,779 |
|
|
Balance at June 30, 2024 |
1,210,784 |
2,898 |
1,213,682 |
|
|
Accumulated depletion, depreciation and impairment |
||||
|
Balance at December 31, 2022 |
367,717 |
2,296 |
370,013 |
|
|
Depletion or depreciation expense |
119,510 |
73 |
119,583 |
|
|
Balance at December 31, 2023 |
487,227 |
2,369 |
489,596 |
|
|
Depletion and depreciation expense |
61,395 |
35 |
61,430 |
|
|
Balance at June 30, 2024 |
548,622 |
2,404 |
551,026 |
|
|
Net book value at December 31, 2023 |
615,871 |
504 |
616,375 |
|
|
Net book value at June 30, 2024 |
662,162 |
494 |
662,656 |
- Includes capitalized general and administrative expenses of $2.1 million and capitalized stock-based compensation of $0.8 million.
The Company concluded there are no indicators of impairment for its PP&E assets as at June 30, 2024.
6
5. DECOMMISSIONING LIABILITY
The following table reconciles the movements of the Company’s decommissioning liability for the periods:
|
June 30, 2024 |
December 31, 2023 |
|
|
$ |
$ |
|
|
Balance, beginning of period |
40,951 |
32,343 |
|
Additions |
5,831 |
12,975 |
|
Settlements |
(95) |
– |
|
Change in estimate (1) |
(2,052) |
(5,550) |
|
Accretion |
665 |
1,183 |
|
Balance, end of period |
45,300 |
40,951 |
|
Key assumptions |
||
|
Risk free rate |
3.4% |
3.0% |
|
Inflation rate |
1.8% |
1.6% |
- Relates to changes in the inflation rate and risk-free rate. Of this amount, a $2.1 million upward revision is a result of an increase in the inflation rate over the period from 1.6% at December 31, 2023 to 1.8% at June 30, 2024 and a $4.2 million downward revision is a result of an increase in the risk-free rate over the period from 3.0% at December 31, 2023 to 3.4% at June 30, 2024.
The Company has estimated the net present value of its total decommissioning liabilities to be $45.3 million as at June 30, 2024 (December 31, 2023 – $41.0 million). The total future inflated and undiscounted amount of estimated cash flows required to settle these obligations is $116.8 million (December 31, 2023 – $97.4 million). Management estimates the settlement of these obligations will occur over the next 25 to 40 years.
6. REPAYABLE CONTRIBUTION (NRCan ERF)
In 2022 and 2023, the Company received approval of a total of four claims pursuant to a repayable contribution agreement with the Department of Natural Resources Canada (“NRCan”), under the Emissions Reduction Fund (“ERF”) Onshore Program. As at June 30, 2024, all funds were received by the Company (December 2023 – $1.8 million related to the holdback amount).
The Company has recognized a repayable contribution of $14.2 million, undiscounted, and $11.8 million discounted as at June 30, 2024 (December 31, 2023 – $14.2 million and $11.4 million respectively), with respect to claims submitted to the ERF and confirmed by NRCan. The Company discounts the repayable contribution at a weighted average interest rate of 7.7%. The undiscounted repayable portion of the funds received are to be repaid as follows: 10% on June 30, 2025, 33% on June 30, 2026, and 57% on June 30, 2027.
|
June 30, 2024 |
December 31, 2023 |
|
|
$ |
$ |
|
|
Balance, beginning of period |
11,405 |
6,720 |
|
Repayable contribution |
– |
4,195 |
|
Interest |
432 |
490 |
|
Balance, end of period |
11,837 |
11,405 |
|
Current portion of repayable contribution |
1,322 |
– |
|
Long-term portion of repayable contribution |
10,515 |
11,405 |
The Company is in compliance with all terms and conditions of the repayable contribution agreement.
7
|
7. CAPITAL STOCK |
||||
|
a) Issued, authorized and outstanding |
||||
|
June 30, 2024 |
December 31, 2023 |
|||
|
Number of |
Number of |
|||
|
shares |
Amount |
shares |
Amount |
|
|
$ |
$ |
|||
|
Balance, beginning of period |
236,580 |
483,013 |
233,920 |
479,157 |
|
Exercise of stock options |
1,074 |
3,507 |
2,654 |
3,849 |
|
Exercise of warrants |
– |
– |
6 |
7 |
|
Balance, end of period |
237,654 |
486,520 |
236,580 |
483,013 |
Stock Options
During the six months ended June 30, 2024, 1.9 million stock options were exercised for 0.9 million common shares on a cashless basis and 144 thousand stock options were exercised for 144 thousand common shares for total proceeds of $0.6 million. Contributed surplus related to the options exercised of $3.0 million was transferred to capital stock.
During the six months ended June 30, 2023, 2.2 million stock options were exercised for 1.5 million common shares on a cashless basis, and 0.4 million stock options were exercised for 0.4 million common shares for total proceeds of $0.7 million. Contributed surplus related to the options exercised of $2.1 million was transferred to capital stock.
b) Per share amounts
Basic per share amounts are calculated using the weighted average number of shares outstanding. The Company uses the treasury stock method to determine the impact of dilutive securities. The reconciling items between basic and diluted average common shares outstanding are stock options, warrants, RSUs, PSUs and accrued dividends on RSUs and PSUs.
|
Three months ended |
Six months ended |
|||
|
June 30, |
June 30, |
|||
|
2024 |
2023 |
2024 |
2023 |
|
|
Weighted average shares outstanding |
||||
|
Basic |
237,275 |
235,631 |
236,096 |
234,854 |
|
Diluted |
239,452 |
237,913 |
238,026 |
236,925 |
c) Dividends
On November 3, 2022, Headwater announced its inaugural quarterly cash dividend of $0.10 per common share ($0.40 per common share annualized). The first dividend was paid on January 16, 2023, to shareholders of record at the close of business on December 30, 2022. In 2023, Headwater declared $94.4 million related to its quarterly cash dividend.
During the six months ended June 30, 2024, the Company declared $47.5 million (six months ended June 30, 2023 – $47.1 million) related to its quarterly cash dividend. Included in current liabilities is the dividend payable of $23.8 million for the dividend declared on May 9, 2024 and paid out on July 15, 2024.
8
8. STOCK-BASED COMPENSATION
Share awards
The Company has an awards plan (the “Awards Plan”) which provides for grants of restricted share units (“RSUs”) and performance share units (“PSUs”) to officers, employees and consultants of the Company. Generally, one third of the RSUs will vest on each of the first, second and third anniversaries of the date of grant and all PSUs will vest on the third anniversary of the date of grant, unless otherwise determined by the Board of Directors. RSUs are cash settled and PSUs are equity settled.
RSUs (Cash Settled)
The following table summarizes the changes in the RSU liability for the periods:
|
June 30, 2024 December 31, 2023 |
||
|
Balance, beginning of period |
1,188 |
– |
|
Reclassified from contributed surplus |
– |
563 |
|
Increase in liability/fair value adjustment (1) |
1,009 |
968 |
|
Payout |
(869) |
(343) |
|
Balance, end of period |
1,328 |
1,188 |
|
Current portion of stock-based compensation payable |
898 |
690 |
|
Long-term portion of stock-based compensation payable |
430 |
498 |
(1) Includes dividend adjustment.
The RSU liability as at June 30, 2024 of $1.3 million is based on a fair value of $7.25 per RSU which is the Company’s closing share price on June 30, 2024.
The following table summarizes the changes in the number of outstanding RSUs for the periods:
|
June 30, 2024 December 31, 2023 |
||
|
Outstanding, beginning of period |
377 |
179 |
|
Granted |
205 |
274 |
|
Forfeited |
(12) |
(22) |
|
Exercised |
(113) |
(54) |
|
Outstanding, end of period |
457 |
377 |
PSUs (Equity Settled)
The following table summarizes the changes in the number of outstanding PSUs for the periods:
|
June 30, 2024 December 31, 2023 |
||
|
Outstanding, beginning of period |
1,917 |
838 |
|
Granted |
827 |
1,082 |
|
Forfeited |
– |
(3) |
|
Outstanding, end of period |
2,744 |
1,917 |
For the six months ended June 30, 2024, with respect to RSUs and PSUs outstanding, the Company recorded gross stock-based compensation expense of $4.2 million, of which $0.8 million was capitalized.
9
b) Deferred share units (“DSUs”)
The Company has a DSU plan (the “DSU Plan”) which provides for grants of DSUs to non-management directors. Each DSU vests on the date of grant; however, settlement of the DSU occurs when the individual ceases to be a director of the Company. DSUs are to be settled in cash or by payment in common shares acquired through the facilities of the TSX. It is the intention of the Company to settle DSUs in cash.
The following table summarizes the changes in the DSU liability for the periods:
|
June 30, 2024 December 31, 2023 |
||
|
$ |
$ |
|
|
Balance, beginning of period |
1,741 |
825 |
|
Increase in liability/fair value adjustment (1) |
1,163 |
916 |
|
Balance, end of period |
2,904 |
1,741 |
|
Current portion of stock-based compensation payable |
2,904 |
1,741 |
(1) Includes dividend adjustment.
The DSU liability as at June 30, 2024 of $2.9 million is based on a fair value of $7.25 per DSU which is the Company’s closing share price on June 30, 2024.
The following table summarizes the changes in the number of outstanding DSUs for the periods:
|
June 30, 2024 December 31, 2023 |
||
|
Outstanding, beginning of period |
264 |
141 |
|
Granted |
112 |
123 |
|
Outstanding, end of period |
376 |
264 |
c) Stock options
The Company has an old and new stock option plan (the “Option Plans”) under which options to purchase common shares of the Company may be granted to directors, officers, employees and consultants of the Company. The Company does not intend to grant any further options under the Option Plans.
The following table summarizes the changes in the outstanding stock options for the periods:
|
Six months ended |
Year ended |
|||
|
June 30, 2024 |
December 31, 2023 |
|||
|
Weighted |
Weighted |
|||
|
Number of |
average |
Number of |
average |
|
|
options |
exercise price |
options |
exercise price |
|
|
Options outstanding, beginning of period |
2,508 |
$ 3.88 |
6,086 |
$ 2.74 |
|
Forfeited or expired |
– |
– |
(8) |
$ 2.39 |
|
Exercised (1) |
(2,040) |
$ 3.75 |
(3,570) |
$ 1.94 |
|
Options outstanding, end of period |
468 |
$ 4.42 |
2,508 |
$ 3.88 |
|
Options exercisable, end of period |
330 |
$ 4.37 |
1,383 |
$ 3.60 |
- The Company’s weighted average share price, at the date of exercise, for stock options exercised during the six months ended June 30, 2024 was $7.35 per common share (six months ended June 30, 2023 – $6.27 per common share).
There were no stock options granted in the six months ended June 30, 2024, or in the year ended December 31, 2023.
10
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