Greenfire Resources Ltd. — FY2023 Form 20-F
Reporting period: Fiscal year ended December 31, 2023; the filing also reports the three months ended December 31, 2023. This is an annual report, not a standalone quarterly filing. Amounts below are Canadian dollars unless otherwise indicated. Financial statements are audited and prepared under IFRS.
Business context
Greenfire is an Alberta oil-sands producer using steam-assisted gravity drainage (SAGD) at the Hangingstone Demo and Expansion assets. It owns a 100% interest in Demo and a 75% interest in Expansion. The September 20, 2023 business combination brought Greenfire Resources Inc. and the SPAC, MBSC, under Greenfire Resources Ltd.; the company’s common shares trade as GFR on the NYSE and TSX.
Financial and operating performance
| Metric | Q4 2023 | FY2023 | Comparable 2022 |
|---|---|---|---|
| Oil sales | $161.7 million | $676.0 million | Q4 $180.7 million; FY $998.8 million |
| Average bitumen production | 17,335 bbl/d | 17,639 bbl/d | Q4 19,579 bbl/d; FY 20,503 bbl/d |
| Operating netback | $17.19/bbl | $20.56/bbl | Q4 $19.27/bbl; FY $30.58/bbl |
| Adjusted EBITDA | $23.4 million | $117.3 million | Q4 $32.5 million; FY $218.0 million |
| Net income (loss) | $(4.7) million | $(135.7) million | Q4 $88.0 million; FY $131.7 million |
| Cash from operating activities | $25.5 million | $86.5 million | Q4 $17.3 million; FY $164.7 million |
| Adjusted funds flow | $10.5 million | $73.2 million | Q4 $16.9 million; FY $163.9 million |
| Adjusted free cash flow | $(8.9) million | $39.8 million | Q4 $4.5 million; FY $124.3 million |
| Capital expenditures | $19.4 million | $33.4 million | Q4 $12.4 million; FY $39.6 million |
Annual oil sales fell about 32% year over year, reflecting lower realized heavy-oil prices and lower production. Average WCS was $58.91/bbl in 2023 versus $75.96/bbl in 2022; average WTI was $77.62/bbl versus $94.23/bbl. Annual operating netback and adjusted EBITDA also declined. The filing identifies adjusted EBITDA, operating netback, adjusted funds flow and adjusted free cash flow as non-GAAP measures that may not be comparable across issuers.
Operating expenses totaled $149.0 million for FY2023, or $23.08/bbl, versus $160.8 million and $21.41/bbl in 2022. Lower natural gas and electricity costs reduced energy expense per barrel, but non-energy expense per barrel increased amid emissions fees, turnaround costs, inflation and lower sales volumes. Annual diluent expense was $304.7 million ($16.39/bbl), while transportation and marketing expense was $55.7 million ($8.63/bbl).
Liquidity, debt and capital
- Year-end cash and cash equivalents were $109.5 million, compared with $35.4 million in 2022; restricted cash was nil after the release of approximately $43.3 million through the replacement letter-of-credit facility.
- Working capital was positive $33.5 million, versus a $13.4 million deficit in 2022. Adjusted working capital, a non-GAAP measure, was $78.3 million.
- Year-end 2028 Notes had US$300 million principal, equivalent to approximately $396.8 million at period-end exchange rates; carrying value was $376.4 million. The notes bear 12% interest and mature October 1, 2028. Greenfire redeemed the 12% 2025 Notes in connection with the business combination.
- The $50 million senior revolving credit facility was undrawn at year-end. A separate $55 million EDC-supported letter-of-credit facility had $54.3 million of letters of credit outstanding; it is a letter-of-credit facility, not reported as drawn cash borrowing.
- Management reported net debt of approximately $279.5 million using its non-GAAP reconciliation. The debt carrying value, face value and net-debt measure use different bases; see investor verification items below.
- FY2023 cash used in investing activities was $12.1 million. Management planned approximately $85.2 million of net capital expenditures in 2024, funded from operating cash flow.
Material changes and unusual items
- FY2023 net loss included a $106.5 million non-cash listing expense associated with the SPAC transaction, $12.2 million of transaction costs, and refinancing charges including a $19.2 million redemption premium and $42.1 million of accelerated unamortized debt costs.
- The company reported $16.4 million of net risk-management gains for 2023, compared with $121.5 million of losses in 2022. FY2023 included $10.2 million of realized losses and $26.6 million of unrealized gains.
- Performance warrants vested at the business-combination closing, contributing $9.8 million of FY2023 stock-based compensation. Warrants issued in the transaction were classified as a liability; a $35.0 million fair-value gain was recorded as their value declined.
- Interest and finance expense rose to $110.2 million from $77.1 million, including the unusual refinancing costs described above. The 2028 Notes also require specified excess-cash-flow redemptions and ongoing commodity hedging, subject to indenture terms.
Outlook, management commentary and risks
Management expects operating cash flow, together with available cash and credit, to meet operating commitments and financial obligations over the next 12 months, assuming forecast production, costs, hedges and commodity prices. It expects the 2024 capital program to focus on Refill wells and facility optimization. Expansion’s ten-well Refill program was completed in the first quarter of 2024; management expected higher reservoir pressure and production support around mid-2024 following natural-gas co-injection work. Demo disposal-well remediation was complete, but restarting disposal operations—and the associated estimated production increase of about 1,000 bbl/d—was subject to regulatory approval. A seven-well Demo Refill program was underway after year-end.
Key risks include volatile oil prices and heavy-oil differentials; SAGD reservoir and operating performance; dependence on Trafigura as the sole marketer and counterparty for substantially all sales and diluent supply; production and transportation constraints; water-license and regulatory requirements; climate and emissions rules; abandonment and reclamation costs; and substantial debt, refinancing, covenant and foreign-exchange exposure. The 2028 Notes require hedging of at least 50% of forecast production under specified conditions. The company disclosed no litigation or regulatory matter likely to have a material adverse effect. It also reported an NYSE notice regarding failure to meet the 400-public-stockholder minimum, with a cure plan and 18-month period; continued listing is not assured.
The company reported effective disclosure controls at December 31, 2023. Its annual report did not include management’s assessment of internal control over financial reporting or an auditor attestation, citing the transition period for newly public companies. Deloitte issued an unmodified audit opinion on the IFRS financial statements.
Most important facts for investors to verify
- Reconcile the reported net-debt figure with the $376.4 million debt carrying value and approximately $396.8 million face value, including the treatment of current debt and warrant liabilities in the non-GAAP calculation.
- Track 2024 production recovery, Refill-well results, Expansion reservoir pressure and the Demo disposal-well restart and required approvals against management’s expectations.
- Review the $85.2 million 2024 capital plan against realized cash flow, the notes’ capital-expenditure limits and mandatory excess-cash-flow repayments.
- Assess Trafigura concentration, receivable collection and the terms and performance of the marketing and diluent agreements.
- Monitor compliance with 2028 Notes hedging and other covenants, credit-facility availability, and the NYSE public-stockholder listing deficiency.
- Evaluate sensitivity to commodity prices, WCS differentials, Canadian-dollar movements, emissions costs and future decommissioning obligations.