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VUX - Vital Energy Inc. (TSX.V)

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Vital Energy Earns $9 Million In 2021 - $0.11c EPS

Vital Energy Inc. (Audited Year End Results). All Information Can Be Found On Sedar.

Ticker Symbol: VUX
Price: $0.39
Common Shares: 82,249,971
Warrants: Nil
Options: 1,250,000 @ $0.25
Market Cap: $32 million
Insider Holdings: 55,311,353 or 67.3% of the float

*Note* Q1 2022 Results (January – March) will be out end of May 2022.
Financials (Ending December 31, 2021)

ASSETS
Cash: $1,456,841
Short Term Investments: $205,022
Receivables: $2,050,711
Prepaid Expenses: $17,146
Deposits: $564,101
Exploration & Evaluation Assets: $66,273
Right Of Use Assets: $190,725
Property & Equipment: $11,731,118
Total Assets: $16,281,937

LIABILITIES
Accounts Payable & Accrued Liabilities: $792,568
Contract Liabilities: $1,288,648
Portion Of Lease Liability: $49,773
Portion Of Decommissioning Liability: $258,574
Bank Loan: $60,000
Lease Liability: $143,254
Decommissioning Liability: $1,552,428
Total Liabilities: $4,145,245

Asset/Debt Ratio – 3.93:1

2021 Performance
Revenue: $15,066,687
Net Income: $8,945,770
Earnings per Share: $0.11

2021 Reserves (51-101) Available On Sedar – Oil Pricing under $70 & Gas Under $4
Light Oil – 537,400 Barrels NET
Heavy Oil – 306,900 Barrels NET
Natural Gas – 493,700 Barrels NET
Natural Gas Liquids – 2,100 Barrels NET
Total Net Barrels: 1,340,100

Management Discussion and Analysis Highlights

Overall Performance

Highlights

· The Company reported net income of $8,945,770 in 2021 as compared to a net loss of $7,564,554 in 2020.
· Revenue was $15,066,687 in 2021 as compared to 2020 revenue of $4,940,701, an increase of $10,125,986.
· The 2021 realized oil price was $71.33 as compared to $36.22 in 2020.
· Production increased to 579 boe/d in 2021 from 373 boe/d in 2020 with the increase being mainly attributable to improvements in operations at Sullivan Lake and the commencement of production of three new horizontal wells at Lampman.
· The Company exited the 2021 year with production of 809 boe/d.
· A loan payable of $3,800,643 was repaid in the year

Properties

In Q3 2021, the Company completed three horizontal wells at Lampman with production from all wells commencing in September. In the first nine months of 2021, the Company completed a review of their other properties. As a result, workovers were performed at eleven (11) wells including 3 wells at Gull Lake, 3 wells at Pennant, 4 wells at Baxter Lake, and 1 well at Standard Hill. The Company also replaced the desulfurization tower at Sullivan Lake with a desulfurization tower with increased capacity. This assisted in the resumption of operations and allowed the Company to maintain a stable production.

Core Properties

Lampman

The Company purchased a quarter section of crown land in Saskatchewan in Q3 2020. In order to confirm the Frobisher reservoir quality and the potential in the deeper Winnipegosis zone, a vertical pilot hole 1-4- 6-5-W2 was designed and drilled. The results indicated the Frobisher reservoir was promising and the Winnipegosis zone was uneconomic. The pilot hole was abandoned in the deeper section and was plugged back. This existing vertical well bore was utilized to drill Hz C7-4-6-5W2 in the Frobisher zone from 1-4 to 7-4 (second event for the pilot well 1-4). The other two Frobisher horizontal wells were drilled in July 2021 from the same surface pad as the pilot hole and were completed in August 2021. The Company produced 709 bbl/d of sweet light oil (API ranging from 32.5 -36.0) from these multiple well projects in Q4 2021.

Sullivan Lake

The successful appraisal development well, 10-1, was drilled in the Banff limestone reservoir in December 2019 and two additional horizontal wells were drilled in 2020 and all are now on production. The 10-1well was shut down for several months in 2020 and 2021 because of the Covid-19 pandemic and low crude oil prices. In addition, gas with small amounts of H2S was discovered. As the Sullivan Lake desulfurization tower was replaced with a larger desulfurization tower with more capacity, the Company believes it has resolved the long-standing production and operating issues. This area produced 37,630 boe in 2021 and produced 99 boe/d in Q4 2021. The Company has built production facilities at Sullivan Lake with a capacity of 300 boe/d.

Gull Lake

In one of the Company’s core areas of operations, Gull Lake, Saskatchewan, Vital is the designated operator and maintains a 50% working interest. The property is covered with 3D seismic data and has 9 wells producing, or capable of producing, crude oil from the Roseray , Cantuar and Upper Shaunavon formations. This project has a salt-water disposal facility and a gas collection pipeline system. In the Company’s opinion, future drilling opportunities remain on these lands. At Gull Lake, Vital’s net daily oil and natural gas production for the year ended December 31, 2021 was 209 boe/d (2020 – 223 boe/d). The decrease in production was attributable to natural declines in the property. In order to better evaluate the oil development potential, the Company has utilized the 3D seismic survey which covers all of its Gull Lake lands. As of December 31, 2021, the reserves evaluator, Trimble Engineering, assigned 160,400 (2020 – 216,200) boe of proven oil and natural gas reserves net to the Company and 79,400 (2020 – 116,700) boe of probable oil reserves net to the Company.

Pennant

Vital is the Operator and maintains a 100% working interest in 12 contiguous sections of land. To date one (1) vertical well and six (6) horizontal wells have been drilled. Four of the horizontal wells and the vertical well have had production. The Company has commenced abandonment and reclamation work on some well sites. 3D seismic coverage on about 35% of Vital’s lands indicates the potential for additional drilling locations. The company’s crude oil production was 34 bbls/d in 2021 as compared to 17 bbls/d in 2020 when the property was shut-in for a considerable time period due to depressed oil prices.

Non-core Properties

Baxter Lake

The Company performed remedial work in 2021 to reactivate certain wells in the Baxter Lake area as oil prices have improved.

Ante Creek

The Company purchased 2.5 sections of crown land in Alberta in Q1 2021 and is currently working on a detailed geology study and development plan. This may allow the drilling of up to 25 horizontal Montney development wells.

Pembina

The Company purchased a quarter section of crown land in Alberta in Q2 2021 and is currently working on a detailed geology study and development plan. This may allow the drilling of up to 4 horizontal Cardium development wells.

Hume

The Company purchased 2 LDS of crown land in Saskatchewan in Q4 2021 and is currently working on a detailed geology study and development plan. This may allow the drilling of up to 2 horizontal Frobisher development wells.

Outlook

The company plans to continue to acquire crown lands from upcoming crown land sales. The company will continue to optimize production from the existing properties and from the plan to drill 4 to 6 wells in 2022.
 
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RBC Report Showing VUX Has Some Top Tier Wells In Saskatchewan



#12 and #14 spots, up there with the majors.
 
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VUX is a cash monster and I can't wait to see the Q1 2022 results with likely more production and of course $95 Q1 average oil pricing vs $71 they got in 2021. CBV.V (Cobra Venture Corporation) Q1 results already came out and they spent $80k(their portion) to increase production at Gull Lake. VUX owns 50% of that asset, so their production went up for sure on that one asset alone, nevermind whatever else was drilled.

From page 2 of CBV's recent MD&A(Gull Lake is their only producing oil asset at the moment): Direct costs for the three-month period ended February 28, 2022, were $211,391 compared to $157,055 in the comparative three-month period ended November 30, 2021. The costs increased in comparison to the comparative period due to increased production. The overall direct costs as a percentage of revenue has returned to pre-pandemic levels during the three months ended February 28, 2022, of 56.5% of sales compared to 73.5 during the period ended November 30, 2020.

Also on page 3 of CBV's MD&A, which VUX has not yet mentioned in their Gull Lake MD&A section: The Company currently participates in 12 wells, 7 wells of which are operated by Taku Gas Ltd. ("Taku"), and 5 wells operated by Vital Energy Ltd. ("Vital"). As well, the Company has also elected to participate in the drilling of two development well locations. The additional wells will target the primary producing reservoir in the wells operated by Vital. Following the drilling of these two wells, and evaluation of the well results, Cobra has the option to elect to further participate in the drilling of a horizontal well.
 
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Ideally White Cap Resources should partner and then eventually takeover VUX because they have assets in similar areas( Montney, Cardium, Southeast Saskatchewan):


OPERATIONS UPDATE

Whitecap’s operational performance through the winter drilling program was exceptional as the optimization and development enhancements applied to the acquired assets have continued to generate positive results. Including the 44 (34.2 net) wells drilled in the fourth quarter, we have drilled a total of 115 (97.6 net) wells through the winter season up to the end of the first quarter of 2022 with the following highlights:

Kakwa Montney. Our three well 14-13 pad was tied into permanent facilities during the first quarter with the wells quickly cleaning up and production stabilizing. Over the first 90 days on production, the three wells have averaged 1,831 boe/d (36% condensate and NGLs) per well, which is more than 75% higher than our budget expectations of 1,026 boe/d (34% condensate and NGLs). We are currently drilling the final well of a four-well pad at Kakwa with the wells expected to be brought on production during the third quarter. A total of nine (6.0 net) wells are expected to be brought on production at Kakwa in the second half of 2022.

Central Alberta Glauconite and Cardium. Whitecap closed the acquisition of TimberRock Energy Corp. at the start of the first quarter and drilled a total of four (3.8 net) Glauconite wells during the quarter. Three of the wells have been on production for over 30 days, averaging approximately 1,138 boe/d (74% oil and NGLs) per well, which is above our budget expectations of 627 boe/d (56% oil and NGLs) over the first 30 days on production. We have also executed on multiple optimization opportunities on the acquired assets, including well reactivations and gathering system optimizations which increase production rates as well as the percentage of volumes that flow through Whitecap owned facilities. Subsequent to the quarter, the Company has secured operatorship of Pembina Cardium Unit No. 11 (55.2% working interest) and has partner-approved plans to commence development of the unit utilizing longer laterals and optimized waterflood technology and configurations which have been proven in our nearby Cardium developments.

Southeast Saskatchewan Conventional. The Company drilled a total of 18 (17.7 net) Mississippian conventional wells over the winter drilling program, achieving strong results on both legacy and acquired acreage. The average production rate over the first 30 days of 223 bbls/d of oil per well is 45% above our budget expectations, and we have 289 (258.4 net) locations of similar quality remaining in inventory.
 
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VUX also has $51.3 million in tax pools that expire between 2028 and 2040. Based on their current profitability, this will likely get all used up over the next 2-3 years.

At December 31, 2021, the Company has tax pools and non-capital losses as described below totaling approximately $51,308,000 (2020 - $57,622,000) that are available to shelter future taxable income. The Company’s non-capital losses expire between the years 2028 and 2040.
 
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Vital Energy took down their corporate presentation a while ago to likely update it. Then Covid hit and it was probably put on the back burner while they spent time acquiring most of their new leases between 2020-2021. However, this old one I found hidden on their website shows big potential just on Pennant, Baxter and Gull Lake. Now if you include their 5 new leases, the entire portfolio has dozens of drill locations, plus already established production/cash flow to fund this operation and a clean balance sheet.


Based On Presentation & Recent Management Highlights. Includes Producers + Locations
Gull Lake - 30+ (9 Drilled)
Pennant - 30+ (7 Drilled)
Baxter - 6+ (Several Drilled & To Be Reactivated)
Lampman - 3+ (3 Drilled)
Sullivan - 1+ (1 Drilled, Has Facility For Higher Output)
Ante(Montney) - 25+
Pembina(Cardium) 4+
Hume - 2+
 
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Vital Energy May 2022 Company Presentation - http://www.vitalenergyoil.com/presentations/Vital Assets 2022 Presentation .pdf

Good to know that they're listening, considering the last presentation was released in 2017. Dare I even say a marketing campaign could come later on? Some people were correct in saying that Lampman would decline as 600bopd last September was off the hop and every single well declines, especially from initial production rates. But it's likely stabilized now(slower declines) and there's one more drill location. At the same time, Gull Lake doubled in production and Baxter started producing again. The company has lots of drill locations and can easily bounce production from 600-1000bopd (not considering Montney wells yet because they'll add 2000bopd+ each and cost a lot).

Cost associated with adding production vs cash coming in for Vital is in a sweet spot. Add $4-6 million cash per quarter while spending around $1-1.5 million in drilling (based on the 2021 numbers). Here's a breakdown of all the wells they have to drill from that presentation, including some new properties:

Lampman - 1 well
Gull Lake - 2 wells
Sullivan - 2 wells
Pennant - Done, no more locations
Baxter - 4 wells (cheaper wells)
Ante - 25 Montney wells (More expensive, ideal case is a JV)
Pembina - 4 Cardium wells
Steelman - 4 wells (same zone as lampman wells)
Gainsborough - 2 wells (same zone as lampman wells)
Hume - 2 wells (same zone as lampman wells)

From the MD&A - Plan is to drill 4-6 wells in 2022. If they're going to bring in $16-24 million, spending $4-6 million drilling wells and another $2 million for G&A/other expenses, earnings should be massive, especially if they can hit a few more Lampman wells and get 1-2 quarters of boosted production like last year. I believe they'll hit the low hanging fruit before going for the bigger and more expensive wells, which makes sense.
 
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Vital Energy Inc. Q1 2022 Results. Ending March 31, 2022 (All Information Available On Sedar)

Ticker Symbol: VUX
Price: $0.385
Common Shares: 82,249,971
Warrants: Nil
Options: 1,250,000 @ $0.25
Market Cap: $32 million
Insider Holdings: 55,311,353 or 67.3% of the float
Tax Pools: $51 million (Less Q1 2022 earnings. Available in 2021 audited results)

Financials (Ending March 31, 2022)

ASSETS
Cash: $2,487,862
Short Term Investments: $2,705,022
Trade & Receivables: $2,499,958
Prepaid Expenses: $68,321
Deposits: $564,797
Exploration & Evaluation Assets: $80,013
Right Of Use Assets: $177,419
Property & Equipment: $11,029,479
Total Assets: $19,612,871

LIABILITIES
Accounts Payable: $1,068,494
Contract Liabilities: $848,300
Current Lease Liability: $50,523
Current Decommissioning Liability: $258,574
Bank Loan: $60,000
Lease Liability: $130,339
Decommissioning Liability: $1,538,934
Total Liabilities: $3,955,164

Asset/Debt Ratio – 4.96:1

Q1 2022 Performance
Revenue: $5,854,810
Net Income: $3,521,015
Earnings per share: $0.043

2021 Performance
Revenue: $15,066,687
Net Income: $8,945,770
Earnings per share: $0.11

2021 Reserves (51-101) Available On Sedar – Oil Pricing under $70 & Gas Under $4
Light Oil – 537,400 Barrels NET
Heavy Oil – 306,900 Barrels NET
Natural Gas – 493,700 Barrels NET
Natural Gas Liquids – 2,100 Barrels NET
Total Net Barrels: 1,340,100 (Less Q1 2022 sales)

Q1 2022 Management Discussion Highlights (Available on Sedar)

Overall Performance Highlights
• The Company reported net income of $3,521,015 in Q1 2022 as compared to net income of $136,839 in Q1 2021.
• Revenue was $5,854,810 in Q1 2022 as compared to Q1 2021 revenue of $1,655,257, an increase of $4,199,553.
• The Q1 2022 realized oil price was $97.73 as compared to $54.59 in Q1 2021.
• Production increased to 666 boe/d in Q1 2022 from 337 boe/d in Q1 2021 with the increase being mainly attributable to improvements in operations at Sullivan Lake and the production of three horizontal wells at Lampman

Outlook

The Company plans to continue to acquire crown lands from upcoming crown land sales. The Company will continue to optimize production from the existing properties and plans to drill seven (7) horizontal wells in SE Saskatchewan that are expected to increase production by approximately 500 bbl/d in 2022.

Core Properties

Lampman
The Company purchased a quarter section of crown land in Saskatchewan in Q3 2020. In order to confirm the Frobisher reservoir quality and the potential in the deeper Winnipegosis zone, a vertical pilot hole 1-4- 6-5-W2 was designed and drilled. The results indicated the Frobisher reservoir was promising and the Winnipegosis zone was uneconomic. The pilot hole was abandoned in the deeper section and was plugged back. This existing vertical well bore was utilized to drill Hz C7-4-6-5W2 in the Frobisher zone from 1-4 to 7-4 (second event for the pilot well 1-4). The other two Frobisher horizontal wells were drilled in July 2021 from the same surface pad as the pilot hole and were completed in August 2021. The Company produced 318 bbls/d of sweet light oil (API ranging from 32.5 -36.0) from these multiple well projects in Q1 2022.

Sullivan Lake
The successful appraisal development well, 10-1, was drilled in the Banff limestone reservoir in December 2019 and two additional horizontal wells were drilled in 2020 and all are on production. As the Sullivan Lake desulfurization tower was replaced with a larger desulfurization tower in 2021 with more capacity, the Company believes it has resolved the long-standing production and operating issues. This area produced 102 boe/d in Q1 2022 compared to 99 boe/d in Q4 2021. The Company has built production facilities at Sullivan Lake with a capacity of 300 boe/d

Gull Lake
In one of the Company’s core areas of operations, Gull Lake, Saskatchewan, Vital is the designated operator and maintains a 50% working interest. The property is covered with 3D seismic data and has 9 wells producing, or capable of producing, crude oil from the Roseray , Cantuar and Upper Shaunavon formations. This project has a salt-water disposal facility and a gas collection pipeline system. In the Company’s opinion, future drilling opportunities remain on these lands. At Gull Lake, Vital’s net daily oil and natural gas production in Q1 2022 was 192 boe/d (Q1 2021 – 240 boe/d). The decrease in production was attributable to natural declines in the property. In order to better evaluate the oil development potential, the Company has utilized the 3D seismic survey which covers all of its Gull Lake lands. As of December 31, 2021, the reserves evaluator, Trimble Engineering, assigned 160,400 boe of proven oil and natural gas reserves net to the Company and 79,400 boe of probable oil reserves net to the Company.

Pennant
Vital is the Operator and maintains a 100% working interest in 12 contiguous sections of land. To date one (1) vertical well and six (6) horizontal wells have been drilled. Four of the horizontal wells and the vertical well have had production. The Company has commenced abandonment and reclamation work on some well sites. 3D seismic coverage on about 35% of Vital’s lands indicates the potential for additional drilling locations. The company’s crude oil production was 21 bbls/d in Q1 2022 as compared to 15 bbls/d in Q1 2021 when the property was shut-in for a considerable time period due to depressed oil prices.

Non-core Properties

Baxter Lake

The Company performed remedial work in 2021 to reactivate certain wells in the Baxter Lake area as oil prices have improved. In Q1 2022, this area produced 25 boe/d.
Ante Creek
The Company purchased 2.5 sections of crown land in Alberta in Q1 2021 and is currently working on a detailed geology study and development plan. This may allow the drilling of up to 25 horizontal Montney development wells.

Pembina
The Company purchased a quarter section of crown land in Alberta in Q2 2021 and is currently working on a detailed geology study and development plan. This may allow the drilling of up to 4 horizontal Cardium development wells.

Hume
The Company purchased 2 LDS of crown land in Saskatchewan in Q4 2021 and is currently working on a detailed geology study and development plan. This may allow the drilling of up to 2 horizontal Frobisher development wells.
 
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Average monthly prices for WTI in Apil and May were $101.78 and $109.55 ( https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RWTC&f=M ). As per VUX's last presentation from May, average production was around 650 barrels per day. Let's do a rough calculation to what they've should of earned over the last 60 days, assuming no additional costs from drilling, land acquisitions, workovers, etc. Rounding WTI price to $100, dropping production to 600bopd average for 60 days, using similar cost metrics from Q1, which was $13 all in ($100-$13=$87 net) $87 WTI X 60 Days X 600 bpd = $3,132,000 profit (round down to $3 million). I always like to go worse case on pricing, production and profit.
 
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Vital Energy Q2 results will be out end of August and the company should be able to show another hefty profit, given their production cost is around $13 per barrel. At the same time, the company has just started drilling a series of wells in Saskatchewan, in the same area as the three Lampman wells that were put into production last year.

I am estimating that the company cash position + receivables will have gone up by at least $3 million and if all four wells hit, total company production should be around 1000bopd.

Image link: https://cdn-ceo-ca.s3.amazonaws.com/1hf2995-Vital Level 2 more wells.JPG
 
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Nothing earth shattering, but good to know there's lots of activity in the area now. Means the leases and production are more sought after:

https://pipelineonline.ca/saskatchewan-drilling-rig-report-for-aug-2/#/?playlistId=0&videoId=0


The Lampman area is the new centre of activity in recent years, with five rigs in close proximity. Stampede Drilling Rig 4 was east of Lampman, drilling for Tundra Oil & Gas. Panther Drilling Rig 4 was just south of Lampman drilling for Vital Energy Inc.
 
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Vital Energy Q2 2022 Results. Ending June 30, 2022 (All Information Available On Sedar)

Ticker Symbol: VUX
Price: $0.375
Common Shares: 82,249,971
Warrants: Nil
Options: 1,250,000 @ $0.25
Market Cap: $31 million
Insider Holdings: 55,311,353 or 67.3% of the float
Tax Pools: $51 million (Less Q1-Q2 2022 earnings. Available in 2021 audited results)
2021 Reserves: 1,340,100 barrels (Breakdown Available On Sedar)

Financials

ASSETS
Cash: $1,512,995
Short Term Investments: $4,415,385
Receivables: $2,269,103
Prepaid Expenses: $539,581
Deposits: $566,229
Exploration & Evaluation Assets: 2,205,136
Right Of Use Assets: $164,113
Property & Equipment: $10,812,367
Total Assets: $22,484,909

LIABILITIES
Accounts Payable: $1,666,485
Contract Liabilities: $419,522
Current Lease Liability: $42,522
Current Decommissioning Liability: $268,279
Bank Loan: $60,000
Lease Liability: $125,991
Decommissioning Liabilities: $1,482,304
Total Liabilities: $4,065,103

2022 Six Month Performance
Revenue: $11,654,334
Net Income: $6,283,114
Earnings Per Share: $0.0764c

Rather than posting the usual MD&A highlights as stated on Vital Energy’s MD&A, I have put a link below to a well documented video that breaks down everything in fantastic detail:

 
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Vital Energy Q3 2022 Results. Ending September 30, 2022 (All Information Available on Sedar)
Ticker Symbol: VUX
Price: $0.31
Common Shares: 82,249,971
Warrants: Nil
Options: 1,250,000 @ $0.25
Market Cap: $25 million
Insider Holdings: 55,311,353 or 67.3% of the float
Tax Pools: $51 million (Less Q1-Q3 2022 earnings. Available in 2021 audited results)
2021 Reserves: 1,340,100 barrels (Breakdown Available on Sedar)

Financials

ASSETS
Cash: $639,870
Short-Term Investments: $4,115,385
Trade & Receivables: $1,814,897
Prepaid Expenses: $136,659
Deposits: $566,229
Exploration & Evaluation Assets: $3,059,241
Right Of Use Assets: $150,807
Property & Equipment: $15,158,295
Total Assets: $25,641,383

LIABILITIES
Accounts Payable & Accrued Liabilities: $4,576,791
Contract Liabilities: $133,670
Lease Liability: $52,058
Current Decommissioning Liabilities: $305,739
Bank Loan: $60,000
Lease Liability: $103,921
Decommissioning Liabilities: $1,578,818
Total Liabilities: $6,810,997

Nine Month Performance
Revenue: $15,715,827
Net Income: $6,693,694 or $0.081c EPS

Project Updates

Properties

The Company’s strategical plan included further drilling in 2022. As such, in Q3 2022, the Company successfully completed its 2022 new drill program on three (3) Saskatchewan properties where the Company holds a 100% working interest on each property. The properties are located in Steelman, Lampman and Hume. In total, five (5) wells were drilled and completed - Steelman three (3) wells, Lampman one (1) well and Hume one (1) well.

The initial production on the three (3) new wells at Steelman are meeting the Company’s economic expectation. The one (1) new well at Lampman is on production with a lower production rate than expected. The one (1) new well at Hume is uneconomic.

The Company revised the 2022 drilling project from the original plan of eight (8) new wells to five (5) new wells due to (1) the drilling costs of the wells being higher than expected, (2) the reservoirs are more complicated than expected and the Company requires more time to mitigate the risks and uncertainties to an acceptable level and (3) the cost of surface pipeline and infrastructure is higher than planned.
The operational results of the properties for the nine months ended September 30, 2022 were positively impacted by work completed on the properties in 2021. In Q3 2021, the Company completed three horizontal wells at Lampman with production from all wells commencing in September 30, 2021.
In the first nine months of 2021, the Company completed a review of their other properties. As a result, workovers were performed at thirteen (13) wells including two (2) wells at Sullivan lake, three (3) wells at Gull Lake, three (3) wells at Pennant, four (4) wells at Baxter Lake, and one (1) well at Standard Hill. The Company also replaced the desulfurization tower at Sullivan Lake with a desulfurization tower with increased capacity. This assisted in the resumption of operations and allowed the Company to maintain a stable production.

Core Properties

Lampman

Three (3) Frobisher horizontal (“Hz”) wells drilled in July 2021 were from the same surface location and were completed in August 2021. All three (3) Hz wells has been demonstrating stable production rates with very reasonable natural production declines. All wells are fully equipped with electrical primer drivers and pipelines and are periodically tested with Vital’s own onsite 2 phase separator (satellite).

For the nine months ended September 30,2022, the average production wass 278 bbls/d, (sweet light oil, API ranging from 32.5 -36.0)

In Q3 of 2022, the Company drilled one additional Hz well in the southern part of the Lampman property in order to produce the remaining Frobisher reserves. The well was put on production in August 2022. The initial production rate is lower than expected as the well is geologically located on the edge of reservoir, and the limestone target zone changes in both lateral and vertical directions. In order to increase productivity, the Company has initiated a full-scale production optimization analysis. Future work may entail a frac or acid squeeze to stimulate production.

Sullivan Lake

This property has two (2) Ellerslie Hz producing wells and one (1) Banff Hz producing well which were drilled in 2018 and 2019. These Hz wells have a stable production rate with a natural production decline. This property has completed surface facilities including a desulfurization tower and a gas pipeline. There are 6 potential Banff Hz development wells

This area produced 87 boe/d for the nine months ended September 30, 2022 compared to 104 boe/d for the same period in 2021.

Gull Lake

In one of the Company’s core areas of operations, Gull Lake, Saskatchewan, Vital is the designated operator and maintains a 50% working interest. The property is covered with 3D seismic data and has 9 wells producing, or capable of producing, crude oil from the Roseray , Cantuar and Upper Shaunavon formations. This project has a salt-water disposal facility and a gas collection pipeline system. In the Company’s opinion, future drilling opportunities remain on these lands.

At Gull Lake, Vital’s net daily oil and natural gas production for the nine months ended September 30, 2022 was 189 boe/d (2021 – 197 boe/d). The decrease in production was attributable to natural declines in the property. A Waterflood Project (Enhanced Oil Recovery) has been undertaken and it should be completed in Q4 2022.

In order to better evaluate the oil development potential, the Company has utilized the 3D seismic survey which covers all of its Gull Lake lands. As of December 31, 2021, the reserves evaluator, Trimble Engineering, assigned 160,400 boe of proven oil and natural gas reserves net to the Company and 79,400 boe of probable oil reserves net to the Company.

Pennant

Vital is the Operator and maintains a 100% working interest in 12 contiguous sections of land. To date one (1) vertical well and six (6) horizontal wells have been drilled. Four of the horizontal wells and the vertical well have had production. The Company has commenced abandonment and reclamation work on some well site.

3D seismic coverage on about 35% of Vital’s lands indicates the potential for additional drilling locations.
The company’s crude oil production was 26 bbls/d for the nine months ended September 30, 2022 as compared to 33 bbls/d in the comparable period in 2021 when the property was shut-in for a considerable time period due to depressed oil prices, 2 wells workover will be completed in Q4 2022

Steelman

Vital acquired a quarter section of crown land in Saskatchewan in April 2022 and drilled 3 Frobisher Hz wells from the same surface location in Q3 2022. The facility equipment has been installed and the tie-in to the pipeline completed. The average initial production from the three (3) wells is 80 bbl/d which is meeting the Company’s economic expectation and production targets.

Ante Creek

The Company purchased 2.5 sections of crown land in Alberta in Q1 2021. As part of the Company’s 2023 strategic plan, the Montney play in Ante Creek will be the Company’s main focus. Currently, the Company has been working on a detailed geological study and finalizing development plan. The preliminary development plan indicates there are up to 25 development wells.

Evaluation Properties

Hume

The property comprises 6 LSDs of crown land in Saskatchewan with a potential for three (3) Frobisher Hz development wells. In Q3 2022, one Frobisher Hz wells was drilled and was considered uneconomic. The drilling result showed the Frobisher limestone target zone changes in both lateral and vertical directions that indicated that the risks of both geology and drilling engineering would be higher than expected. There were indications that main geological fractures might be encountered which could result in a much higher water cut and be uneconomic to produce. As a result, the well was abandoned after swab test.

The Company will continue to review the results of the first drilled well with the plan of drilling future wells.

Gainsborough

The company acquired 3 LSDs of crown land in Saskatchewan in April 2022 and had planned to drill 2 Hz wells in Q3 2022. The Gainsborough 2022 drilling project was postponed due to the risks and uncertainties related to the geology and projected higher costs than initially planned for drilling operation, surface pipeline and infrastructure.

The Company will continue work on the reservoirs and the geology and will re-evaluate the feasibility of the project at a later date. The drilling program will be resumed if risks and uncertainties are mitigated to an acceptable level.

Non-core Properties

Baxter Lake

The Company performed remedial work in 2021 to reactivate certain wells in the Baxter Lake area as oil prices have improved. In 2022, this area produced 25 boe/d.

Pembina

The Company acquired a quarter section of crown land in Alberta in Q3 2021 and another adjoining quarter section of crown land in June 2022. The Company is currently working on a detailed geology study and development plan. This may allow the drilling of up to 4 Hz Cardium development wells.
 
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