Greenfire Resources .(GFR) - 2025 Q1 - Quarterly Report

Introduction and Business Overview Greenfire is an oil sands producer focused on thermal oil assets in Alberta, Canada, with Waterous Energy Fund holding a controlling interest Description of Business Greenfire is an oil sands producer focused on developing its thermal oil assets in Alberta, Canada. Its common shares are listed on the NYSE and TSX under the symbol 'GFR'. As of March 31, 2025, Waterous Energy Fund (WEF) holds a controlling interest of approximately 56.2% following a Change of Control Transaction in December 2024 - Greenfire is an oil sands producer focused on long-life, low-decline thermal oil assets in the Athabasca region of Alberta, Canada[8] - Following a series of transactions in 2024, Waterous Energy Fund (WEF) acquired a controlling stake, holding 56.2% of the Company's common shares as of March 31, 2025[10][11] Greenfire's Assets and Strategy The company's principal assets are the Hangingstone Facilities, which consist of the Expansion Asset (75% working interest) and the Demo Asset (100% working interest). Greenfire's strategy is to maximize long-term value by investing in proven SAGD optimization techniques to increase production and leverage existing facility capacity while maintaining cost discipline - The company's main assets are the Hangingstone Facilities, comprising the Expansion Asset and the Demo Asset, both utilizing Steam-Assisted Gravity Drainage (SAGD) technology[12] - The core strategy involves using industry-standard SAGD optimization to boost production, utilize spare facility capacity, and control operating costs to maximize long-term net asset value per share[13] Recent Developments Recent operational updates include lower production due to an offline steam generator, addressing sulphur dioxide emissions, and planning new well developments Production and Steam Generation Update Production in the second quarter of 2025 to date has averaged approximately 15,650 bbls/d. This is lower than historical levels due to one of four steam generation units at the Expansion Asset being offline, causing a production impact of 1,500 to 2,250 bbls/d. The company aims to restore the offline generator by year-end 2025 - Q2 2025 production to date is approximately 15,650 bbls/d, impacted by downtime at a steam generation unit[14] - One of four steam generators is offline, reducing production by an estimated 1,500 to 2,250 bbls/d. The target for restoration is year-end 2025[14] Emissions Reporting and Regulatory Environment Greenfire is addressing sulphur dioxide emissions that have exceeded regulatory limits at its Expansion Asset. The company is in discussions with the Alberta Energy Regulator (AER) and has ordered sulphur removal facilities at an estimated cost of $15.0 million, with installation targeted for Q4 2025 to restore compliance - The company is addressing sulphur dioxide emissions at the Expansion Asset that exceeded regulatory limits[15] - Sulphur removal facilities have been ordered for an estimated $15.0 million, with commissioning planned for Q4 2025 to ensure regulatory compliance[15] Progress Update on Future Development Plans To counter production declines, Greenfire is planning to construct new well pads and drill new well pairs at the Expansion Asset. Subject to board approval, drilling could commence as early as Q4 2025. The company is also evaluating additional development targets to support future growth - Plans are underway to construct new well pads and drill new wells to address production declines, with a potential start in Q4 2025 pending board approval[16] Financial & Operating Highlights Q1 2025 saw a significant turnaround to net income, improved operating netback, and increased adjusted funds flow despite lower bitumen production Quarterly Highlights In Q1 2025, Greenfire reported net income of $16.2 million, a significant turnaround from a net loss of $46.9 million in Q1 2024. Bitumen production decreased to 17,495 bbls/d from 19,667 bbls/d year-over-year. Despite lower production and oil sales, operating netback increased to $31.67/bbl from $24.69/bbl, and adjusted funds flow grew to $31.4 million from $27.6 million Q1 2025 vs Q1 2024 Financial & Operating Highlights | | Three months ended March 31, | | :--- | :--- | :--- | | ($ thousands, unless otherwise noted) | 2025 | 2024 | | Bitumen production (bbls/d) | 17,495 | 19,667 | | Oil sales | 183,637 | 200,990 | | Gross profit (loss) | 34,392 | (12,068) | | Operating netback ($/bbl) | 31.67 | 24.69 | | Adjusted funds flow | 31,444 | 27,589 | | Capital expenditures | 26,299 | 34,449 | | Net income (loss) | 16,163 | (46,915) | | Per share - basic | 0.23 | (0.68) | | Adjusted EBITDA | 41,316 | 39,346 | Liquidity and Balance Sheet As of March 31, 2025, Greenfire had $72.2 million in cash and cash equivalents and $50.0 million available under its credit facilities. The face value of its long-term debt stood at $343.5 million Liquidity and Balance Sheet Summary | | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | ($ thousands) | | | | Cash and cash equivalents | 72,238 | 67,419 | | Available credit facilities | 50,000 | 50,000 | | Face value of long-term debt | 343,535 | 343,852 | Operational Performance Q1 2025 bitumen production decreased due to operational issues, while commodity prices saw a narrower WCS differential but lower natural gas and power prices Bitumen Production and Sales Bitumen production for Q1 2025 decreased by 11% year-over-year to 17,495 bbl/d, down from 19,667 bbl/d in Q1 2024. The decline is attributed to the unplanned loss of a steam generation unit and natural field declines Bitumen Production and Sales Volumes (bbls/d) | | Three months ended March 31, | | :--- | :--- | :--- | | (Average barrels per day) | 2025 | 2024 | | Bitumen production | 17,495 | 19,667 | | Bitumen sales | 17,404 | 19,869 | - The 11% decrease in Q1 2025 bitumen production compared to Q1 2024 was caused by an unplanned steam generator outage and natural field declines[21] Commodity Prices In Q1 2025, the WCS Hardisty benchmark price increased to C$84.29/bbl from C$77.76/bbl in Q1 2024. The WCS differential to WTI narrowed significantly to (C$18.18)/bbl from (C$26.05)/bbl, benefiting the company's realized prices. However, natural gas (AECO) and Alberta power prices were substantially lower year-over-year Benchmark Commodity Prices | | Three months ended March 31, | | :--- | :--- | :--- | | Benchmark Pricing | 2025 | 2024 | | WTI (US$/bbl) | 71.42 | 76.96 | | WCS differential to WTI (US$/bbl) | (12.67) | (19.31) | | WCS Hardisty (C$/bbl) | 84.29 | 77.76 | | AECO 5A (C$/GJ) | 2.05 | 2.36 | | Alberta power pool (C$/MWh) | 40.30 | 98.89 | - The commissioning of the Trans Mountain Pipeline expansion in May 2024 increased Western Canadian egress capacity, contributing to a narrower WCS differential[25] Financial Results of Operations Q1 2025 financial results show decreased oil sales, higher royalty rates, a significant gain on risk management contracts, and increased operating and G&A expenses Oil Sales Oil sales decreased by 9% to $183.6 million in Q1 2025 from $201.0 million in Q1 2024. This was driven by lower sales volumes, which was partially offset by a higher realized price per barrel ($82.10/bbl vs $75.41/bbl) due to improved Canadian-denominated WCS pricing Oil Sales Performance | | Three months ended March 31, | | :--- | :--- | :--- | | ($ thousands, unless otherwise noted) | 2025 | 2024 | | Oil Sales | 183,637 | 200,990 | | - ($/bbl) | 82.10 | 75.41 | Royalties The effective royalty rate increased to 6.90% in Q1 2025 from 6.42% in Q1 2024. The increase was due to the mechanics of the prescribed pre-payout royalty rate calculation, which is based on trailing benchmark prices, during a period of declining commodity prices in 2025 versus rising prices in 2024 Royalty Expense | | Three months ended March 31, | | :--- | :--- | :--- | | ($ thousands, unless otherwise noted) | 2025 | 2024 | | Royalties | 6,824 | 6,315 | | - ($/bbl) | 4.36 | 3.49 | | Effective royalty rate | 6.90% | 6.42% | Risk Management Contracts In Q1 2025, the company recorded a total gain of $5.2 million on risk management contracts, a significant reversal from a $47.5 million loss in Q1 2024. This was composed of a $1.1 million realized loss and a $6.3 million unrealized gain, compared to an $8.8 million realized loss and a $38.7 million unrealized loss in the prior year Risk Management Gains (Losses) | | Three months ended March 31, | | :--- | :--- | :--- | | ($ thousands) | 2025 | 2024 | | Realized loss | (1,101) | (8,797) | | Unrealized gain (loss) | 6,349 | (38,737) | | Total gain (loss) | 5,248 | (47,534) | Operating Expenses Operating expenses per barrel increased by 20% to $24.21/bbl in Q1 2025 from $20.10/bbl in Q1 2024. While energy costs per barrel decreased by 13% due to lower natural gas and power prices, non-energy costs rose by 38% due to higher staffing costs (from a shift to cash bonuses) and increased maintenance Operating Expenses Breakdown | | Three months ended March 31, | | :--- | :--- | :--- | | ($ thousands, unless otherwise noted) | 2025 | 2024 | | Operating expenses – energy ($/bbl) | 6.03 | 6.92 | | Operating expenses – non-energy ($/bbl) | 18.18 | 13.18 | | Total operating expenses ($/bbl) | 24.21 | 20.10 | - The increase in non-energy costs was driven by higher staffing costs after transitioning from stock-based compensation to annual cash bonuses, as well as higher maintenance costs[43] Operating Netback Operating netback per barrel increased by 28% to $31.67/bbl in Q1 2025, compared to $24.69/bbl in Q1 2024. The improvement was driven by higher Canadian-denominated WCS benchmark prices and a narrower WTI differential, which led to higher per-barrel oil sales and lower diluent costs Operating Netback Reconciliation | | Three months ended March 31, | | :--- | :--- | :--- | | ($ thousands, unless otherwise noted) | 2025 | 2024 | | Gross profit (loss) | 34,392 | (12,068) | | Add: Depletion | 21,561 | 17,980 | | Add: Loss (gain) on risk management contracts | (5,248) | 47,534 | | Operating netback | 49,604 | 44,649 | | Operating netback ($/bbl) | 31.67 | 24.69 | General & Administrative Expenses G&A expenses nearly doubled to $9.4 million in Q1 2025 from $4.7 million in Q1 2024. The increase includes a one-time expense of $1.9 million related to a shareholder rights plan challenge. The remainder of the increase is due to higher employee incentive compensation, which shifted from equity grants to annual cash bonuses - G&A expenses increased 98% YoY to $9.4 million, including a $1.9 million one-time expense related to a successful challenge by WEF against the company's shareholder rights plan[51] - The remaining increase in G&A is attributed to a change in employee compensation, with annual cash bonuses replacing equity grants after the suspension of the omnibus share incentive plan in January 2025[51] Net Income (Loss) and Adjusted EBITDA The company reported net income of $16.2 million in Q1 2025, a $63.1 million improvement from the $46.9 million net loss in Q1 2024, primarily due to unrealized gains on risk management contracts and warrant revaluations. Adjusted EBITDA increased by 5% to $41.3 million, driven by stronger commodity prices and lower diluent costs Adjusted EBITDA Reconciliation | | Three months ended March 31, | | :--- | :--- | :--- | | ($ thousands) | 2025 | 2024 | | Net income (loss) | 16,163 | (46,915) | | Add (deduct): | | | | Income tax expense | 3,210 | - | | Unrealized (gain) loss on risk management contracts | (6,349) | 38,737 | | Financing and interest | 12,280 | 15,456 | | Depletion and depreciation | 21,617 | 18,003 | | Non-recurring transactions | 1,853 | - | | Loss (gain) on revaluation of warrants | (7,996) | 6,379 | | Foreign exchange loss (gain) | (44) | 8,275 | | Adjusted EBITDA | 41,316 | 39,346 | Risk Management The company manages commodity price risk through hedging, with specific requirements from its 2028 Notes, and addresses foreign exchange, interest rate, credit, and liquidity risks Commodity Price Risk Greenfire uses a risk management program with instruments like swaps and collars to reduce cash flow volatility. As required by its 2028 Notes, the company must hedge at least 50% of its proved developed producing (PDP) reserve forecast for the next twelve months. As of March 31, 2025, the company had WTI fixed price swaps and costless collars in place for future quarters - The company is required by its 2028 Notes to maintain a hedging program covering at least 50% of its forward twelve-month PDP hydrocarbon output[71] Outstanding WTI Hedges at March 31, 2025 | Term | Type | Volume (bbls/d) | Price (C$/bbl) | | :--- | :--- | :--- | :--- | | Q2 2025 | Fixed Price Swap | 9,450 | $100.84 | | Q3 2025 | Fixed Price Swap | 9,450 | $101.00 | | Q4 2025 | Fixed Price Swap | 9,450 | $100.85 | | Q1 2026 | Costless Collar | 4,951 | $81.89 - $100.16 | | Q1 2026 | Fixed Price Swap | 2,549 | $96.95 | - Subsequent to quarter-end, the company entered into WCS Differential Swaps for Q3 and Q4 2025[74] Other Financial Risks The company is exposed to foreign exchange risk on its US dollar-denominated debt, with a net exposure of a US$217.5 million liability as of March 31, 2025. Interest rate risk is limited as the main debt (2028 Notes) is fixed-rate and the floating-rate credit facility is undrawn. Credit risk is managed by transacting with high-quality counterparties, and liquidity risk is managed through prudent capital spending and monitoring cash flows - As of March 31, 2025, the company's net foreign exchange risk exposure was a US$217.5 million liability, primarily from its US dollar-denominated 2028 Notes[75] - Interest rate risk is minimal as the Senior Credit Facility is undrawn and the 2028 Notes have a fixed interest rate[76] Capital Resources and Liquidity The company's liquidity improved with a working capital surplus, supported by an undrawn credit facility and fixed-rate long-term debt, while cash flow from operations increased Long Term Debt The company's primary long-term debt consists of US$300 million in senior secured notes due 2028 (the '2028 Notes'), bearing a fixed interest rate of 12.00%. The notes have non-financial covenants, including limits on capital expenditures and a requirement to hedge production. As of March 31, 2025, the company was in compliance with all covenants - The main debt instrument is US$300 million of 12.00% senior secured notes maturing in October 2028[82] - The 2028 Notes indenture includes non-financial covenants limiting capex to US$150 million annually (until principal is < US$150M) and requiring hedging of at least 50% of forward 12-month production (until principal is < US$100M)[83] Credit Facilities Greenfire has a $50 million reserve-based Senior Credit Facility, which was undrawn as of March 31, 2025. Additionally, it maintains a separate $55.0 million letter of credit facility (EDC Facility), of which $54.0 million was utilized for outstanding letters of credit - The company has a $50 million Senior Credit Facility, which was undrawn as of March 31, 2025[87][91] - A separate $55.0 million EDC Facility for letters of credit had $54.0 million outstanding as of March 31, 2025[92] Adjusted Working Capital The company's working capital position improved significantly to a surplus of $60.1 million at March 31, 2025, from a deficit of $191.6 million at year-end 2024. This was mainly because the 2028 Notes, previously classified as a current liability due to a repurchase offer, were reclassified to long-term after the offer expired. Adjusted working capital surplus increased to $66.2 million Adjusted Working Capital Reconciliation | | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | ($ thousands) | | | | Working capital surplus (deficit) | 60,114 | (191,621) | | Add: Current portion of long-term debt | 12,195 | 248,489 | | Less: Current portion of risk management contracts | (6,101) | 248 | | Adjusted working capital surplus | 66,208 | 57,116 | Cash Flow Summary In Q1 2025, cash provided by operating activities more than doubled to $34.7 million from $17.1 million in Q1 2024, primarily due to changes in non-cash working capital. Cash used in investing activities decreased to $27.8 million from $37.7 million due to lower capital expenditures. Overall, cash and cash equivalents increased by $4.8 million during the quarter Cash Flow Summary | | Three months ended March 31, | | :--- | :--- | :--- | | ($ thousands) | 2025 | 2024 | | Cash provided by operating activities | 34,673 | 17,064 | | Cash used in financing activities | (1,937) | (51) | | Cash used in investing activities | (27,814) | (37,681) | | Change in cash and cash equivalents | 4,819 | (19,291) | Adjusted Funds Flow and Adjusted Free Cash Flow Adjusted funds flow for Q1 2025 was $31.4 million, an increase from $27.6 million in Q1 2024, driven by higher adjusted EBITDA and lower interest expenses. The company generated adjusted free cash flow of $5.1 million, a positive swing from a negative $6.9 million in the prior-year quarter, reflecting higher adjusted funds flow and lower capital spending Adjusted Funds Flow and Free Cash Flow Reconciliation | | Three months ended March 31, | | :--- | :--- | :--- | | ($ thousands) | 2025 | 2024 | | Cash provided by operating activities | 34,673 | 17,064 | | Changes in non-cash working capital | (5,082) | 10,525 | | Non-recurring transactions | 1,853 | - | | Adjusted funds flow | 31,444 | 27,589 | | Less: Property, plant and equipment expenditures | (26,299) | (31,920) | | Less: Acquisitions | - | (2,529) | | Adjusted free cash flow | 5,145 | (6,860) | Other Information This section covers a related party transaction involving legal fee reimbursement and provides a summary of quarterly financial and operational results, along with non-GAAP measure definitions Related Party Transaction Following the Change of Control Transaction, Greenfire agreed to reimburse its controlling shareholder, WEF, for approximately $1.9 million in legal fees. These fees were associated with WEF's successful challenge of the company's shareholder rights plan, which ultimately led to the change of control and reconstitution of the board - The company reimbursed WEF approximately $1.9 million for legal fees related to a successful challenge of a shareholder rights plan, which led to the Change of Control Transaction[110] Summary of Quarterly Results The company's quarterly results show fluctuations in production, commodity prices, and financial performance. Q1 2025 saw lower production compared to most of 2024 but achieved a strong operating netback of $31.67/bbl and net income of $16.2 million, reversing the loss from Q1 2024. Adjusted funds flow and free cash flow also showed positive year-over-year trends Selected Quarterly Financial Data | ($ thousands, unless noted) | Q1 2025 | Q4 2024 | Q3 2024 | Q2 2024 | Q1 2024 | | :--- | :--- | :--- | :--- | :--- | :--- | | Bitumen production (bbls/d) | 17,495 | 19,384 | 19,125 | 18,993 | 19,667 | | Oil sales | 183,637 | 208,895 | 193,643 | 219,444 | 200,990 | | Operating netback ($/bbl) | 31.67 | 34.81 | 34.00 | 36.68 | 24.69 | | Adjusted EBITDA | 41,316 | 62,472 | 53,388 | 58,423 | 39,346 | | Net income (loss) | 16,163 | 78,562 | 58,916 | 30,848 | (46,915) | | Adjusted funds flow | 31,444 | 52,950 | 44,104 | 47,207 | 27,589 | | Adjusted free cash flow | 5,145 | 39,789 | 22,929 | 24,198 | (6,860) | Non-GAAP and Other Financial Measures This report utilizes several non-GAAP and supplementary financial measures to provide additional insight into the company's performance. Key non-GAAP measures include adjusted EBITDA, operating netback, adjusted funds flow, and adjusted free cash flow. The company provides reconciliations of these measures to their most directly comparable IFRS counterparts within the MD&A - The MD&A uses non-GAAP measures such as adjusted EBITDA, operating netback, adjusted funds flow, and adjusted free cash flow to evaluate performance[117] - The company believes these measures provide useful information for evaluating financial results and are commonly used in the oil and gas industry, though they may not be comparable to similar measures from other companies[118]