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Cuda Oil & Gas Second Quarter 2021 Results

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Cuda Oil and Gas Inc. reported its Q2 2021 results.

Second Quarter Highlights:

• Second quarter oil production from Wyoming increased 8% to 374 bbls/d, from 347 bbls/d in the first quarter of 2021, and increased 22% from 307 bbls/d in the second quarter of 2020. The production increase in the second quarter of 2021 was due to higher quantities of gas injection as second quarter propane prices were lower after reaching seasonal highs in the first quarter of 2021.

• Realized higher WTI prices and stable natural gas prices during the second quarter of 2021. Wyoming oil production realized 9% higher WTI prices, $64.01 per boe compared to $58.63 per boe during the first quarter of 2021, and 86% higher compared to $34.33 per boe for the same quarter of 2020 which were negatively impacted by COVID-19 and OPEC+ supply constraint disagreements. The continuation of stable natural gas prices in Alberta allowed the Company to continuously produce in higher price environments. Realized natural gas prices in Alberta were $2.88 per mcf in the second quarter of 2021, following realized gas prices of $3.47 per mcf from the first quarter of 2021.

• Improving operating netback prices in 2021. The Company’s operating netback in 2021 improved in the first and second quarter of 2021 to $20.16 per boe and $15.57 per boe respectively, compared to operating netbacks of $16.87 per boe and $7.38 per boe in the same quarters of 2020.

• On August 7, 2021 the Company and its lenders (Senior and Subordinated Facilities) agreed to an amended and restated agreement whereby the Senior Facility lender agreed to increase the credit facility from $9.0 million to $13.0 million with the advance of an additional $4.0 million under the Senior Facility B. Proceeds from the Senior Facility B will be used to repay outstanding joint interest billings owed under the unit operating agreement to the operator of the Company’s exploration, development and production assets in Wyoming.

Financial Position

For the three and six months ended June 30, 2021, the Company reported net losses of approximately $5.2 million and $8.3 million, respectively, and cash flows from operating activities of approximately $0.05 million and $0.1 million, respectively, compared to net losses of $5.4 million and $4.5 million, respectively, and cash flows from operating activities of $0.4 million and $1.3 million respectively, for the three and six months ended June 30, 2020. At June 30, 2021, the Company had a working capital deficiency of approximately $74.4 million including outstanding credit facilities, convertible debenture, and a promissory note, compared to a working capital deficiency of approximately $59.1 million at June 30, 2020.29dk2902l

The Company has determined that it was not in compliance with the operational and financial covenants, and the repayment schedule of the Senior Facility during the three months ended June 30, 2021, which represents an event of default. When the Company is not in compliance with the covenants of the Senior Facility, this constitutes an event of default under the Subordinated Facilities and the promissory note. An event of default enables each of the lenders to demand immediate payment of all amounts owing for which the Company is incapable of making such payments. As such, a material uncertainty exists that casts significant doubt on the Company’s ability to continue as a going concern.

The Company continues to be in discussions with each of its lenders to attempt to remedy the events of default, as well as the ultimate settlement of finance charges and fees. There can be no guarantee that the Company will be successful in any negotiation, or settlement with the lenders either with respect to the rectification of each of the events of default, or with respect to an ultimate settlement of finance changes and fees. Further strategic alternatives will be required to continue as a going concern.

At June 30, 2021, the Company had credit facilities with an outstanding balance of approximately $67.1 million including all unpaid interest and financing fees. On August 23, 2021, the Company received a limited waiver from the Senior Facility lender. The Senior Facility lender waived the principal and interest repayments required to June 30, 2021, and the ability to apply the default interest rate of 19% per annum up to June 30, 2021. The Senior Facility lender has not waived the operational and financial covenant breaches at June 30, 2021. The Company also had a convertible debenture with an outstanding balance of approximately $1.8 million including accrued interest. The terms of the convertible debenture is still subject to regulatory approval.

The Company and the Senior Facility lender have agreed to engage a sales advisor by August 9, 2021 to pursue a sales process, including the opening of an online data room by August 27, 2021. Additionally, the Company shall execute one or more non-binding letters of intent by September 30, 2021 and a binding offer to purchase by October 31, 2021.