Greenfire Resources Ltd. Price & Performance (GFR)

Adam, please go ahead. Thank you, Robert, and thanks, everyone, for joining our conference call this morning. Obviously, there's been a lot of change at Greenfire over the last few months. With Webb taking control of the Board and Colin Germanic being appointed President. Colin is a deeply experienced SAID professional with a proven track record of efficient organic growth in thermal oil operations. And with Colin in the driver's seat, we remain excited about our investment in Greenfire. Nevertheless, as WES has looked under the hood so to speak, the last two point five months, it's become clear that the previous stewards of the were fundamentally running the business for the short run, reflecting to prioritize near term production adds at the expense of long term net asset value maximization. And return on equity. Greenfire is currently formulating a new development plan for the company which at a high level will prioritize drilling new well pairs in undeveloped reservoir at the expansion asset. And managing the base production of the Demo asset. Greenfire will not be giving a specific 2025 production or capital guidance at this time. I'll now hand the call over to Colin. Good morning, everyone, and thanks, Adam, for the introduction.

I'm very excited to speak with you all today as we embark on a new chapter for our company. Greenfire is currently undergoing a significant transition I'm privileged to lead this talented group as we work together to reposition our company for sustained success The many changes we are going to discuss today reflect our commitment to addressing past challenges seizing new opportunities. As part of this transition, we're moving away from a short term mindset to a strategy focused on long term value creation. This overhaul will span our culture, operating strategy and capital structure The goal is clear, we're trying to maximize net value share per asset and the asset portfolio and enhance return on equity for Greenfire shareholders. This means prioritizing projects and investments that will deliver strong returns even if they don't yield immediate results. We're committed to building a sustainable future for Greenfire, not chasing quarterly results. So what does this look like in practice? First, we're overhauling our culture to prioritize safety, regulatory compliance and high performance. This includes embedding a safety first mindset throughout the business introducing new incentive programs, flattening the organization and revamping internal processes to strengthen our regulatory compliance systems and drive productivity Second, we're conducting a comprehensive review of our development plans, capital expenditures and operational strategies, Aaron, are in the process of building updated development plans for the Hangingstone facilities.

Will release our twenty twenty five guidance and provide further additional details on our new development plans when they're available. And finally, we are reassessing our capital structure and 10 intend to adjust it over time better position the company for longer term growth. With that, let's move to our twenty twenty four operational results and twenty twenty five operational update. Greenfire's production in Q4 twenty twenty four was 19,400 barrels a day which is a 1% increase above Q3 twenty twenty four and a 12% increase from Q4 twenty twenty three The full year production averaged 19,000 barrels a day 19,300 barrels a day, which is a 9% increase over 2023. Driven by our drilling campaign launched in August of twenty twenty three. Moving over to 2025, our production to date has averaged 18,000 barrels a day, which is a 7% decrease from the prior quarter This is a result of operating performance at the expansion asset which is including impacts from ongoing steam generation equipment repairs, unexpected facility downtime and natural production declines Currently, of our four steam generation units is offline within associated impact on production of about 1,500 barrels a day to 2,300 barrels a day.

We're implementing mitigation strategies to limit production impacts and are developing a comprehensive plan to restore full steam capacity and we'll provide updates in due course. Meanwhile, strong performance at the Demo asset has partially offset this reduction. Following a leadership change at Greenfire a review identified potential under reporting of sulfur dioxide emissions at the expansion [indiscernible] Greenfire takes its regulatory obligation very seriously and we immediately reported the potential exceedance to the Alberta energy regulator and we're currently in discussions with them exploring remedies including potentially adding a sulfur recovery unit to the expansion asset To the extent in any potential exceedance and any remedies, penalties or orders imposed by the AR are unknown at this time. Despite these challenges, I'm genuinely optimistic about what lies ahead. We own a high quality SAGD asset with substantial value generation potential for its long life and concentrated reserve space And we have a strong dedicated team of industry experts who bring experience and a shared commitment to turning things around These are the foundations of our future success, and I'm confident they'll carry us through this transformation. I'll now turn the call over to our Chief Operating Officer, Jonathan to discuss twenty twenty four reserves.

Thanks Colin. Greenfire achieved significant reserve growth in 2024, driven primarily by the inclusion of full field development plans across the proved land base at the expansion asset. At year end 2024, 1P reserves increased by 28% to two thirty five million barrels, while 2P reserve grew by 72% to four zero nine million barrels compared to the previous year. These initiatives have resulted in a 2P reserve life index of fifty eight years. The updated reserves reflect a before tax present value discounted at 10% of $2,500,000,000 for 1P reserves and $3,000,000,000 for 2P reserves. Making growth of 2125% respectively. From year end 2023. After adjusting for debt and cash, this translates to a twenty three percent and twenty seven increase per share for 1P and 2P reserves respectively. On the hand, I'll hand it back over to Robert to discuss our hedging program. Thank you, Jonathan. Greenfire executed an updated WTI hedging program in the first quarter of twenty twenty five to enhance price certainty for a portion of the company's production. Greenfire replaced its previous WTI costless collar contracts had an average price range of approximately 57 to $83 a barrel U. S. With fixed price swaps covering 9,400 barrels a day of WTI at an average price of approximately CAD101 a barrel for the full year of twenty twenty twenty five.

With this updated hedging program in place, we believe the company is well positioned to make long term investments to deliver value for shareholders in the current volatile commodity environment. I will now hand the call over to Tony to discuss Greenfire's financial performance. Thank you, Robert, good morning, everybody. Greenfire's adjusted funds flow for Q4 twenty twenty four reached $53,000,000 contributing to a full year total of $172,000,000 up significantly from $10,500,000 in Q4 of last year and $73,200,000 for the full year last year. Capital expenditures were $13,200,000 in Q4 and $92,000,000 for the full year. Adjusted free cash flow hit $39,800,000 in Q4 driven by favorable WCS differentials. As well as reduced operating and capital costs. Adjusted free cash flow for the full year 2024 was $80,000,000 The company maintains a robust liquidity of $117,000,000 including $67,000,000 in cash and cash equivalents on hand and $50,000,000 available under our senior credit facility supporting our ongoing business execution. In July of twenty twenty four, Greenfire redeemed approximately million dollars of its 2028 notes under the excess cash flow sweep mechanism As of the year end, no print lumber payment was due with the next redemption scheduled before September of twenty twenty five.

Following the change of control involving WEP, company was required to make an offer to repurchase twenty twenty eight notes at 101% of their par value pursuant to the terms of the notes. This offer concluded in February of twenty twenty five a total of $5,000 in aggregate principal amount of the 2028 notes.

Badly tendered and redeemed by the company. In Q1 twenty twenty five, with the support of the company's bondholders, Greenfire completed an amendment to the 2028 node indenture This raised the permitted capital expenditures under the 2028 notes from CAD100 million up to USD150 million over any twelve month period. This is expected to better position the company for operational stability and long term growth. Over time, we plan to reevaluate our capital structure to better serve Greenfire shareholders. In addition to strong liquidity, the company remains well positioned with $1,600,000,000 in federal taxables, lower prepaid royalty rates of expansion assets to substantial unrecovered royalty balances and no growth overriding royalty obligations at the Hangingstone facilities. With that, I'd like to turn it over to the operator open the line for questions.

Thank you. We will now begin the question and answer session. And today's first question comes from Michael Bowen at Sona. Please go ahead. Hi, I just like to ask in terms of what you found now you are in the operations shall we say. Are the assets worse than you expected or how would you describe the state of them And why is it taking so long to put together a formal business plan given the previous management's guidance essentially?

Sure. It's Adam Montrose. I'll take that question. We tried to give some sense The previous business plan was designed to optimize short term performance try and optimize production while minimizing capital. And on the face of that, that sounds maybe like a reasonable objective. If you take that sort of objective to extremes, you can lead to degradation of long term net asset value. We have a very different objective as an investor. And what we're trying to do is compound per share net asset value. And optimize return on equity at the same time. And that can end up being quite a dramatic difference in terms of how you allocate capital how you develop the resource.

So I think there may be two implications. For that. That you could expect. One is that when we ultimately determine what our capital spending program is going to be and development program is, it's going to look very different than the previous management's development plan. The second thing I would also tell you is that one of the dynamics that the company had been operating under is was extremely capital constrained, would be, I think, an adequate a fair description. And sometimes when you are extremely capital constrained, you make decisions which are not in the long term interest of compounding per share value. And let me give you maybe a simplistic mental picture. If you're running a car, and you don't go for your regularly scheduled oil change you can save some money. You actually maybe save some money for a while. Ultimately it catches up on you. And so we'll be very focused now on going for regular oil changes. And using prudent maintenance for two years. So that's how we think about it. [indiscernible] I mean it is, but I mean is the state of the business and the fact that we've got another step down in production in January, worse than you expected.

I would say I'll tell you what, reason is possible, we're very positive on the resource. The resource is what we think has long term development potential I would say a fair comment is that the business had been managed for the short term to an even greater degree than we would have expected. And [indiscernible] that would be a fair comment. It was managed I would just sort of have a perspective. It is the opposite of how we would have managed this business, the opposite. Okay. [indiscernible] gives you some sense in terms of how we thought about it.

Okay.

And what do you think about the old management team as plan? I mean, clearly production was supposed to be much higher than it ended up. Was it fantasy really to aim for that type of production over that timeframe? In your opinion?

I'd best answer this Try to maybe go back to what's a little bit earlier. The development plan that we will ultimately provide will be radically different. Than the previous management teams. So that gives you some perspective of what I thought of the last management team's development plan.

Listen, thank you very much for your time.

Thank you. And our next question today comes from Nick Ashterian, private investor. Please go ahead. [indiscernible] Appreciate all the help and the color on this stuff. Two questions I have. One is on capital allocation and one is on operations. On capital allocation, how do you guys see stabilizing prioritizing stabilizing the core business and the existing business? Versus future potential acquisitions? And I ask that just because you guys have water are obviously a private equity fund and with Strathcona your track record has been buying a bunch of businesses. And then on operations, is there any permanent damage or any structural issues surrounding their drilling plan that they had put in place that hadn't quite panned out on on productivity? Or is there anything else that perhaps the long term net asset value is permanently impaired from? That's like two questions. So this is Adam Wachis again. I'll take the the questions on acquisition, then I'll turn it over to Colin to talk about capital spending and that impact on [indiscernible] So we like a few things attracted us to Greenfire. One as I mentioned previously is the resource. We think that over time it can be effectively and profitably developed.

The second thing we like about Greenfire is we do like the neighborhood. From our firm's perspective, this is the first investment we've made in the Athabasca region. We like to say the business in general. This is the fifth SAGI business that our firm has bought over the last five years. And this is right in the heart of SAGD country so to speak. So we like so like now whether or not we might be able to make any further acquisitions is indeterminate. We do like the neighborhood. We think that one of the positives. About Greenfire. [indiscernible] yes, I'll let Colin answer that. It's Colin Germanic here. To your question about was the reservoir damage as a result of drilling. And the answer is no. You can't damage a reservoir through drilling operations. Performance might not have been where previous management expected it to, but there's no reservoir damage. We still like still very much like the quality of the asset. And our near term development plans will be going to kind of undeveloped reservoir. Got you. So and then to double click on that, was was the problem with the with the drilling plan the last couple you know, the last year or so, was it too ambitious and they had all these maintenance issues that were catching up with them?

Or was the infill and the reservoir engineering and design plan totally off base based off of say the steam chamber size and the dimensions of the reservoir. Was it kind of not it not make sense that they were drilling so long and they shouldn't have expected high productivity at scale. I think directionally, the plan might have made sense but they were drilling into a reservoir that had very high recovery factors. Already. I think the remaining oil was the remaining productivity was kind of less than what we originally expected. And from a cost perspective, drilling into a very high pressure reservoir is is it just adds more capital. So it was a some cost overruns there.

You. And this concludes the question and answer session. I'd like to turn the conference back over to Robert Lobach for closing remarks.

Thank you, operator. On behalf of Greenfire, we appreciate you joining us today for our fourth quarter and full year twenty twenty four results conference call. Have a great day.

Thank you. This concludes today's conference call. We thank you all for your participation. May now disconnect your lines and have a wonderful day.