Headwater Exploration Inc. (the “Company” or “Headwater“) is pleased to announce its operating and financial results for the three months ended March 31, 2025, NCIB approval and declaration of quarterly dividend. Selected financial and operational information is outlined below and should be read in conjunction with the unaudited interim condensed financial statements and the related management’s discussion and analysis (“MD&A”). These filings will be available at www.sedarplus.ca and the Company’s website at www.headwaterexp.com.
FIRST QUARTER 2025 HIGHLIGHTS
Achieved record production of 22,066 boe/d representing an increase of 13% from the first quarter of 2024.
Realized record adjusted funds flow from operations (1) of $92.4 million ($0.39 per share basic (2)), cash flows from operations of $69.9 million ($0.29 per share basic) and free cash flow (3) of $29.5 million.
Achieved an operating netback inclusive of financial derivatives (2) of $52.94/boe and an adjusted funds flow netback (2) of $46.61/boe.
Achieved net income of $50.0 million ($0.21 per share basic) equating to $25.23/boe.
Executed a $62.8 million capital expenditure (3) program inclusive of development and exploration tests in the Marten Hills West, Greater Nipisi and Greater Peavine areas.
Declared a cash dividend of $26.2 million, or $0.11 per common share. To date, Headwater has paid out a cumulative dividend of $239.0 million to shareholders ($1.01 per common share).
As at March 31, 2025, Headwater had adjusted working capital (1) of $63.6 million, working capital of $72.1 million, and no outstanding bank debt.
NCIB APPROVAL
The Toronto Stock Exchange (“TSX“) has granted approval for Headwater to commence a normal course issuer bid (the “NCIB“).
Under the NCIB, Headwater may purchase for cancellation up to 19,020,755 common shares of Headwater, representing approximately 10% of its 237,774,464 issued and outstanding common shares as at April 30, 2025 less common shares held by directors, executive officers and principal securityholders (holders holding greater than 10% of the issued and outstanding common shares) of the Company. The total number of common shares that Headwater is permitted to purchase is subject to a daily purchase limit of 177,411 common shares, representing 25% of the average daily trading volume of 709,647 common shares on the TSX calculated for the six-month period ended April 30, 2025; however, Headwater may make one block purchase per calendar week which exceeds the daily repurchase restrictions.
The NCIB is expected to commence on May 6, 2025, and will terminate on the earlier of: (i) the date on which the issuer has acquired all common shares sought pursuant to the NCIB; or (ii) to May 5, 2026 unless earlier terminated at the option of the Company, upon prior notice being given to the TSX. The common shares will be purchased on behalf of Headwater by a registered broker through the facilities of the TSX and through other alternative Canadian trading platforms at the prevailing market price at the time of such transaction.
The actual number of common shares purchased under the NCIB, the timing of purchases, and the price at which the common shares will be purchased, will depend on future market conditions.
Headwater believes that, from time to time, the market price of the common shares may not fully reflect the underlying value of the common shares and at such times the purchase of common shares would be in the best interests of the Company. As a result of such purchases, the number of issued common shares will be decreased and, consequently, the proportionate share interest of all remaining shareholders will be increased on a pro rata basis.
OPERATIONS UPDATE
Marten Hills West
In the first quarter of 2025 Headwater drilled 7 successful producing multi-lateral wells and 6 water injection wells across Marten Hills West, further delineating both the Clearwater sandstone and Clearwater E formations.
The south eastern pool boundaries in the Clearwater sandstone continue to deliver exceptional results with 02/12-16-075-01W5 achieving a 60-day initial production rate of 236 bbls/d and the 02/07-10-075-01W5 achieving a 30-day initial production rate of 267 bbls/d.
Stabilized volumes from secondary recovery implementation in the sandstone formation are now approaching 1,000 bbls/d from two sections. Results to date have been strong with water injection volumes exceeding 2,500 bbls/d and gas oil ratios continuing to fall. The balance of 2025 will see an additional 2-3 sections converted to secondary recovery, with an anticipated 2,000 bbls/d of oil production supported by year-end.
Headwater is excited to report commissioning our first Clearwater E full section secondary recovery pilot at Marten Hills West in sections 7 & 18 of 075-01W5. The full section pilot, configured as a lateral flood, is a follow-up to the positive results seen from the initial injection pilots at 02/16-07-075-01W5 and 00/13-07-075-01W5, where rates have now stabilized at more than 300 bbls/d from the two wells.
The 03/04-18-075-01W5 6-leg multi-lateral well, which achieved a 30-day initial production rate of 266 bbls/d and the 07/05-18-075-01W5M a 6-leg multi-lateral, which achieved a 30-day initial production rate of 188 bbls/d were both drilled in a lateral flood configuration and are part of the full section Clearwater E secondary recovery pilot mentioned above.
Marten Hills Core
With 8 of 9 sections under secondary recovery and 7,000 bbls/d of stabilized oil production, the core area remains our flagship commercial secondary recovery asset demonstrating the value proposition of lower declines and increasing recovery factors.
Greater Pelican
Headwater has finished drilling its first 8-leg multi-lateral exploration test in this area at 04/04-19-079-22W4, targeting the Wabiskaw formation. The geotechnical indications while drilling showed excellent reservoir with strong oil staining throughout. The well finished recovering load fluid April 25th and is currently producing 360 bbls/d oil. Headwater intends to evaluate results and compile technical data to better understand the opportunity for secondary recovery. A follow-up test will be planned for later in 2025.
Greater Nipisi
Two follow-up wells have been drilled and placed on production in our Little Horse South prospect. The first well at 09-29-076-14W5 achieved a 20-day initial producing rate of 150 bbls/d oil. The second new drill at 08-29-076-14W5 is still recovering load fluid.
Greater Peavine
Headwater recently finished the Seal area winter multi-well drilling campaign which included testing large diameter drilling technology. The 00/13-12-083-16W5 Falher B multi-lateral, drilled with large diameter hole has achieved a 20-day initial production rate of 350 bbls/d, which is a substantial improvement to historical results in the area. The last two wells in the program, a Bluesky large diameter multi-lateral and a Falher B large diameter multi-lateral drilled off the 12-05-083-15W5 pad, are currently recovering load fluid.
Handel Saskatchewan
Interpretation of the 3D seismic shoot was recently completed resulting in the identification of multiple Mannville targets. Headwater intends to drill up to 5 stratigraphic tests across the prospect in the third quarter of 2025, to further evaluate the viability of steam-assisted gravity drainage development from the Waseca formation. In addition, the 3D seismic has provided multiple other Mannville drilling opportunities targeting conventional heavy oil development.
McCully
McCully contributed $9.9 million of free cash flow (1) through the first quarter of 2025 and generated approximately $16.2 million of free cash flow (1) across the winter producing season (2). Headwater’s structured hedging program for its McCully asset has provided consistent cash flow against highly volatile gas pricing experienced during the winter season. As of May 1, 2025, the McCully asset has been shut-in and is expected to resume production in the fourth quarter of 2025, upon realization of premium winter pricing.
SECOND QUARTER DIVIDEND
The Board of Directors of Headwater has declared a quarterly cash dividend to shareholders of $0.11 per common share payable on July 15, 2025, to shareholders of record at the close of business on June 30, 2025. This dividend is an eligible dividend for the purposes of the Income Tax Act (Canada).
OUTLOOK
Headwater’s strong balance sheet and flexible capital budget allows for strategic optionality in capital allocation during times of market volatility.
We remain focused on total shareholder returns through a combination of organic expansion, enhanced oil recovery, dividends and strategic share buybacks.
Additional corporate information can be found in the Company’s corporate presentation and on Headwater’s website at www.headwaterexp.com.