Southern Energy Corp. Announces Fourth Quarter and Year End 2023 Financial and Operating Results

CALGARY, AB / ACCESSWIRE / April 26, 2024 / Southern Energy Corp. ("Southern" or the "Company") (TSXV:SOU)(AIM:SOUC)(OTCQX:SOUTF), an established producer with natural gas and light oil assets in Mississippi, announces its fourth quarter and year end December 31, 2023 financial and operating results. Selected financial and operational information is outlined below and should be read in conjunction with the Company's audited consolidated financial statements and related management's discussion and analysis (the "MD&A") for the three and twelve months ended December 31, 2023, as well as the Company's annual information form for the year ended December 31, 2023, (the "AIF"), all of which are available on the Company's website at www.southernenergycorp.com and have been filed under the Company's profile on SEDAR+ at www.sedarplus.ca.

All figures referred to in this news release are denominated in U.S. dollars, unless otherwise noted.

FOURTH QUARTER AND YEAR END 2023 HIGHLIGHTS

• Average production of 16,755^[1] Mcfe/d (2,793 boe/d) (96% natural gas) during Q4 2023 and 16,305^[2] Mcfe/d (2,718 boe/d) (95% natural gas) for the year ended December 31, 2023, an increase of 4% and 5% from the same periods in 2022, respectively
• On June 1, 2023, Southern completed a strategic and highly synergistic acquisition in Gwinville of assets producing approximately 400 boe/d (99% natural gas) for cash consideration of $3.2 million (the "Gwinville Acquisition")
• Generated $0.8 million of adjusted funds flow from operations^[3] in Q4 2023 ($0.01 per share basic and diluted) and $3.2 million for the year ended December 31, 2023 ($0.02 per share basic and diluted)
• Petroleum and natural gas sales were $5.1 million in Q4 2023 and $19.3 million for the year ended December 31, 2023, a decrease of 48% and 57% from the same periods in 2022, respectively, largely due to a significant depreciation in the natural gas price
• Average realized natural gas and oil prices for Q4 2023 of $2.95/Mcf and $76.97/bbl compared to $6.35/Mcf and $81.98/bbl in Q4 2022
• Net loss of $39.6 million ($0.26 per share basic and diluted) and $46.8 million ($0.33 per share basic and diluted) for the three and twelve months ended December 31, 2023, respectively, due to a $38.0 million non-cash impairment charge recorded at December 31, 2023
• Year-end 2023 proved developed producing ("PDP") reserves were 7.5 MMboe and total proved plus probable ("2P") reserves were 29.6 MMboe, an increase of 21% and 16% from year-end 2022 and reflecting a reserve life index of eight years and 31 years, respectively
• Reserve replacement of 229% in PDP, 96% in total proved ("1P"), and 521% in 2P 2023 reserve categories
• Drilled six net wells at Gwinville in Q1 2023 from three padsites, with each subsequent pad drilling operation resulting in fewer drilling days per well depth adjusted
• On November 9, 2023, successfully closed an equity financing raising aggregate gross proceeds of $5.0 million
• In December 2023, Southern successfully completed the first of its four high quality uncompleted horizontal wells ("DUCs") from the Q1 2023 drilling program - the GH 14-06 #3 wellbore. The operation was completed safely and under budget

SUBSEQUENT EVENTS

• On February 28, 2024, entered into the sixth amendment (the "Sixth Amendment") to the Company's senior secured term loan (the "Credit Facility"), which among other amendments, included extending the term of the Credit Facility from August 31, 2025 to December 31, 2026 (see "Liquidity and Capital Resources - Credit Facility" in the December 31, 2023 MD&A for full details of the amendment)
• Southern monetized its fixed price swap derivative contracts to take advantage of the positive unrealized gain position, realizing net proceeds of $1.1 million.
• Entered into a fixed price swap derivative contract of 5,000 MMBtu/d for the period of May 2024 - December 2026 at a price of $3.40/MMBtu

Ian Atkinson, President and Chief Executive Officer of Southern, commented:

"Looking at 2023, Southern is pleased to have made significant progress re-developing its large scale Gwinville asset, highlighted by the recent completion of the GH 14-06 #3 well, which achieved an IP30 rate of 5.2 MMcf/d, while deploying 40% less capital than early 2023 completion costs. We have three remaining high impact DUCs at Gwinville that we plan to complete and bring online as natural gas prices are expected to continue to recover into Q3 and Q4 of 2024. Completing the highly accretive acquisition at Gwinville in Q2 2023 illustrates our ability to execute on the inorganic focus of our business plan in lower commodity price cycles. Southern believes the strategy of accretive acquisitions in commodity price troughs, coupled with cost-effective organic growth heading into commodity price peaks, strikes a balance to create long term shareholder value in volatile commodity price environments.

"We continue to be encouraged by the outlook of supply and demand dynamics for U.S. natural gas as the new Gulf Coast LNG export facilities will start accepting feed gas later this summer, significantly increasing demand for natural gas in the region. Additionally, we are now seeing some material increases in domestic power demand through artificial intelligence ("AI") data center build out, crypto-currency mining and the electrification of transportation which will add to the overall demand for gas-fired power generation. The supply dynamic is also changing as we are starting to see the effects of large U.S. natural gas producers' willingness to both curtail current production and significantly reduce drilling and completion activity. This is manifesting into the supply side of the equation with U.S. production below 100 bcf/d at the start of April 2024, down from the Q4 2023 peak of 106 bcf/d.

"Southern is well positioned to capitalize on rising natural gas prices with production behind pipe which can be brought on stream in a short time frame and we are excited to continue to grow the business with our new and longstanding shareholders."

Financial Highlights

Note:

(1) See "Reader Advisories - Specified Financial Measures".

2023 Year End Reserves Update

The Company is pleased to announce selected highlights of Southern's year end independent oil and gas reserves evaluation as of December 31, 2023.

Estimates of the Company's reserves and related estimates of net present value of future net revenues as at December 31, 2023, are based upon reports (the "NSAI Report") prepared by Southern's independent qualified reserves evaluator, Netherland, Sewell and Associates, Inc. ("NSAI"). All currency amounts are in United States dollars (unless otherwise stated) and comparisons refer to December 31, 2022.

Highlights:

• Relative to year-end 2022, the NSAI Report states:
  • an increase in PDP reserves of 21% to 7.5 MMboe,
  • unchanged 1P reserves of 14.0 MMboe,
  • an increase in 2P reserves of 16% to 29.6 MMboe, and
  • a PDP reserve life index of eight years and 31 years for 2P reserves based on the 2024 production forecast.
• Southern replaced 229%, 96% and 521% of 2023 production in the PDP, 1P and 2P reserve categories, respectively.
• Before-tax net present value ("NPV") of reserves, discounted at 10% ("NPV10"), is $39.9 million on a PDP basis, $63.4 million on a 1P basis and $119.3 million on a 2P basis evaluated using the average forecast pricing of four independent reserve evaluators as at January 1, 2024.
• New PDP reserves and additional Probable drilling locations booked at Gwinville following the synergistic acquisition of the remainder of the field in 2023.

In addition to the summary information disclosed in this press release, more detailed information regarding Southern's oil and gas reserves can be found in the AIF, which is available on the Company website and has been filed on SEDAR+ (www.sedarplus.ca).

Gary McMurren, Chief Operating Officer of Southern commented:

"We are excited to report another year of material reserves growth for the Company, highlighted by conservative additions to our Gwinville assets following our strategic 2023 acquisition and consolidation.

"With the three remaining, high quality DUC locations in Gwinville (two Lower Selma Chalk and one City Bank) waiting on more supportive natural gas pricing before completion operations, our producing reserve bookings will be strengthened even further. The Company has yet to book any future horizontal locations in the City Bank formation, so success from that modern completion design is expected to be extremely impactful to continued reserves growth in the Gwinville Field for years to come.

"The NSAI Report continues to highlight the extensive running room and future development potential of only one of our existing core assets which could deliver long term sustainable free funds flow and organic growth for Southern shareholders."

2023 Independent Qualified Reserve Evaluation

The following tables highlight the findings of the NSAI Report, which has been prepared in accordance with definitions, standards and procedures contained in National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities ("NI 51-101") and the most recent publication of the Canadian Oil and Gas Evaluation Handbook ("COGEH"). 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. The NSAI Report was based on the average forecast pricing of the following four independent external reserves evaluators: GLJ Ltd, Sproule Associates Limited, McDaniel & Associates Consultants Ltd and Deloitte. Additional reserves information as required under NI 51-101 is included in Southern's AIF, which will has been filed on SEDAR+. The numbers in the tables below may not sum due to rounding.

Summary of Reserves Volumes as at December 31, 2023

The Company's reserve volumes and undiscounted future development capital costs are summarized below as at December 31, 2023:

(1) Gross working interest reserves before royalty deductions.

The following table outlines the changes in Southern's reserves and reserve life index as at December 31, 2023 compared to December 31, 2022:

The Reserve Life Index as at December 31, 2023 is calculated as gross working interest reserves divided by the projected annual PDP production forecast for 2024. See "Reader advisories - Oil and Gas Advisories"

Southern's total 2P reserves increased by 16% to 29.6 MMboe resulting in a 2P reserve life index of 30.9 years on projected annual PDP production for 2024. Southern's Gwinville horizontal well development program and the Gwinville asset acquisition in 2023 helped the Company achieve a 21% increase in PDP reserves to 7.5 MMboe.

Net Present Value of Future Net Revenue as at December 31, 2023

The following table summarizes the NPV of the Company's reserves (before-tax) as at December 31, 2023. The reserves value on a $/boe basis, discounted at 10% per year, is also summarized for each category.

(1) Unit values are based on net reserves. Net reserves are the Company's working interest reserves after deduction of royalties

Forecast Prices Used in Estimates

The following table outlines the fore