Strathcona Resources Ltd. Reports Second Quarter 2024 Financial and Operating Results and Announces Inaugural Quarterly Dividend
Highlights
- Production of 181,766 boe/d (72% oil and condensate, 78% liquids)(1)
- Operating Earnings of
$306.1 million ($1.43 / share)(2) - Free Cash Flow of
$247.3 million ($1.15 / share)(2)
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|
Three Months Ended |
Six Months Ended |
|||
|
($ millions, unless otherwise indicated) |
|
|
|
|
|
|
|
|
|
|
|
|
|
WTI (US$ / bbl) |
80.57 |
73.78 |
76.96 |
78.76 |
74.96 |
|
WCS Hardisty (C$ / bbl) |
91.63 |
78.76 |
77.77 |
84.70 |
74.03 |
|
AECO 5A (C$ / mcf) |
1.18 |
2.45 |
2.50 |
1.84 |
2.83 |
|
|
|
|
|
|
|
|
Bitumen (bbls/d) |
59,581 |
53,825 |
60,150 |
59,865 |
52,469 |
|
Heavy oil (bbls/d) |
51,111 |
53,470 |
51,835 |
51,473 |
55,446 |
|
Condensate and light oil (bbls/d) |
20,120 |
10,600 |
19,279 |
19,700 |
9,341 |
|
Total oil production (bbls/d) |
130,812 |
117,895 |
131,264 |
131,038 |
117,256 |
|
Other NGLs (bbls/d) |
11,426 |
7,780 |
11,738 |
11,582 |
8,139 |
|
Natural gas (mcf/d) |
237,170 |
108,612 |
252,720 |
244,945 |
111,442 |
|
Production (boe/d) |
181,766 |
143,778 |
185,122 |
183,444 |
143,968 |
|
Sales (boe/d) |
185,841 |
143,239 |
182,862 |
184,351 |
145,048 |
|
% Oil and condensate |
72 % |
82 % |
71 % |
71 % |
81 % |
|
% Liquids(1) |
78 % |
87 % |
77 % |
78 % |
87 % |
|
|
|
|
|
|
|
|
Oil and natural gas sales, net of blending costs and other income(2) |
1,184.8 |
862.6 |
1,004.3 |
2,189.1 |
1,624.1 |
|
Royalties |
194.0 |
106.2 |
126.2 |
320.2 |
219.3 |
|
Production and operating – Energy(2) |
64.9 |
79.7 |
78.8 |
143.7 |
168.4 |
|
Production and operating - Non-energy(2) |
149.5 |
110.9 |
135.4 |
284.9 |
226.8 |
|
Transportation and processing |
149.2 |
104.8 |
143.4 |
292.6 |
232.7 |
|
General and administrative |
25.2 |
20.8 |
22.0 |
47.2 |
46.7 |
|
Depletion, depreciation and amortization |
229.1 |
170.7 |
221.8 |
450.9 |
333.8 |
|
Interest and finance costs |
66.8 |
68.1 |
67.7 |
134.5 |
140.0 |
|
Current income tax recovery |
— |
— |
— |
— |
(46.9) |
|
Operating Earnings(2) |
306.1 |
201.4 |
209.0 |
515.1 |
303.3 |
|
Other items(3) |
78.9 |
(72.7) |
108.4 |
187.3 |
(61.3) |
|
Income and comprehensive income |
227.2 |
274.1 |
100.6 |
327.8 |
364.6 |
|
|
|
|
|
|
|
|
Operating Earnings(2) |
306.1 |
201.4 |
209.0 |
515.1 |
303.3 |
|
Non-cash items(4) |
252.4 |
188.5 |
244.1 |
496.5 |
369.1 |
|
(Loss) gain on risk management contracts and foreign exchange - realized |
(10.9) |
(0.7) |
2.5 |
(8.4) |
(6.3) |
|
Funds from Operations(2) |
547.6 |
389.2 |
455.6 |
1,003.2 |
666.1 |
|
Capital expenditures |
(297.4) |
(231.7) |
(286.1) |
(583.5) |
(460.4) |
|
Decommissioning costs |
(2.9) |
(4.9) |
(11.6) |
(14.5) |
(16.7) |
|
Free Cash Flow(2) |
247.3 |
152.6 |
157.9 |
405.2 |
189.0 |
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|
|
|
|
|
|
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Debt |
2,435.6 |
2,898.2 |
2,642.5 |
2,435.6 |
2,898.2 |
|
Common shares (millions)( 5) |
214.2 |
2,186.7 |
214.2 |
214.2 |
2,186.7 |
|
(1) |
See "Presentation of Oil and Gas Information" section of this press release. |
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(2) |
A non-GAAP financial measure which does not have a standardized meaning under IFRS; see "Non-GAAP Measures and Ratios" section of this press release. |
|
(3) |
Other items is an aggregation of (gain) loss on risk management contracts, foreign exchange loss (gain), transaction related costs, unrealized loss (gain) on Sable remediation fund and deferred tax expense. |
|
(4) |
Non-cash items is an aggregation of depletion, depreciation and amortization, finance costs, and decommissioning government grant. |
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(5) |
On |
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Three Months Ended |
Six Months Ended |
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($/boe, unless otherwise indicated) |
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Oil and natural gas sales, net of blending costs and other income(1) |
70.05 |
66.17 |
60.36 |
65.24 |
61.80 |
|
Royalties |
11.47 |
8.15 |
7.58 |
9.54 |
8.35 |
|
Production and operating – Energy(1) |
3.84 |
6.11 |
4.74 |
4.28 |
6.41 |
|
Production and operating - Non-energy(1) |
8.84 |
8.51 |
8.14 |
8.49 |
8.64 |
|
Transportation and processing |
8.82 |
8.04 |
8.62 |
8.72 |
8.86 |
|
General and administrative |
1.49 |
1.59 |
1.32 |
1.40 |
1.78 |
|
Depletion, depreciation and amortization |
13.55 |
13.10 |
13.33 |
13.44 |
12.71 |
|
Interest and finance costs |
3.95 |
5.22 |
4.07 |
4.01 |
5.33 |
|
Current income tax recovery |
— |
— |
— |
— |
(1.79) |
|
Operating Earnings (1) |
18.09 |
15.45 |
12.56 |
15.36 |
11.51 |
|
Effective royalty rate (%)(1) |
16.4 % |
12.3 % |
12.6 % |
14.6 % |
13.5 % |
|
(1) |
A non-GAAP financial measure which does not have a standardized meaning under IFRS; see "Non-GAAP Measures and Ratios" section of this press release. |
Quarter Review and Near-Term Priorities
Strathcona delivered stable performance in the second quarter, highlighted by flat quarter-over-quarter oil production of approximately 131 Mbbls / day driven by steady execution in
In
In
In the
On
Return of Capital
Over the past seven years, the capital on Strathcona's balance sheet has grown from zero to
Going forward, maximizing return on equity will remain the primary goal of Strathcona. However, unlike much of the first seven years of Strathcona's history, the business is now generating more excess cash flow than Strathcona's board and management believe can be profitably employed in the business while maintaining our current return on equity. At the same time, Strathcona's leverage and liquidity are now at levels the board views as prudent, with the company ending the second quarter below its
As a result, Strathcona is pleased to announce that its board of directors has declared its inaugural base quarterly dividend of
The base dividend has been sized to increase Strathcona's full-cycle WTI breakeven by less than
Strathcona's debt target remains at
Outlook
Strathcona's 2024 capital budget remains unchanged at
In light of continued weakness in natural gas prices, Strathcona is electing to further defer production from the Groundbirch 13-25 pad. This deferral, combined with a previously unscheduled third-party gas facility outage late in the third quarter and third-party outages experienced in the second quarter, are expected to reduce full year natural gas production by approximately 15 MMcf / d. Strathcona's updated full year production guidance is therefore 185 to 190 Mboe / d, with an increased liquids weighting of 79% (from 78%) and an increased oil weighting of 72% (from 71%).
Strathcona is also pleased to announce that it will be hosting its first Investor Day on
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(1) A non-GAAP financial measure which does not have a standardized meaning under IFRS; see "Non-GAAP Measures and Ratios" section of this press release. |
Conference Call Details
Strathcona will host a conference call on
Date: Wednesday, August 14, 2024
Time: 11:00AM ET (
URL Entry: To join without operator assistance, register at https://emportal.ink/4b3399J up to 15 minutes before the start time. Enter your name and phone number to receive an automated call-back.
Telephone Entry: Alternatively, you can join with operator assistance by dialing 1 (888) 390-0605 (North American Toll Free) and quote conference ID 146205
Webcast Link: https://app.webinar.net/y1JGnDLnaYD
For those unable to participate in the conference call at the scheduled time, a recording of the conference call will be available for seven days following the call and can be accessed by dialing 1 (888) 390-0541 and entering the conference number 146205.
About Strathcona
Strathcona is one of
For more information about Strathcona, visit www.strathconaresources.com.
Non-GAAP Measures and Ratios
"Oil and natural gas sales, net of blending and other income" is calculated by deducting purchased product and blending costs from oil and natural gas sales, sales of purchased product and other income. Management uses this metric to isolate the revenue associated with the Company's production after accounting for the unavoidable cost of blending. The following table contains a quantitative reconciliation of Oil and natural gas sales, net of blending and other income to the most directly comparable GAAP financial measure, oil and natural gas sales.
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Three Months Ended |
Six Months Ended |
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($ millions, unless otherwise indicated) |
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Oil and natural gas sales |
1,472.3 |
1,112.8 |
1,298.8 |
2,771.1 |
2,160.5 |
|
Sales of purchased products |
13.0 |
14.0 |
2.0 |
15.0 |
27.8 |
|
Other (loss) income |
(0.1) |
0.2 |
0.1 |
— |
0.2 |
|
Purchased product |
(13.0) |
(14.6) |
(2.0) |
(15.0) |
(29.4) |
|
Blending costs |
(287.4) |
(249.8) |
(294.6) |
(582.0) |
(535.0) |
|
Oil and natural gas sales, net of blending and other income |
1,184.8 |
862.6 |
1,004.3 |
2,189.1 |
1,624.1 |
"Operating Earnings" is considered a key financial metric for evaluating the profitability of Strathcona's principal business and is derived from income (loss) and comprehensive income (loss) adjusted for amounts which are considered non-recurring or not directly attributable to the Company's operations.
"Production and operating – Energy" is the portion of production and operating expenses reflecting the cost of gas and propane fuel, utilities and carbon tax incurred to operate facilities. This metric allows management to analyze the portion of production and operating expenses subject to non-controllable market prices. "Production and operating – Non-energy" is the portion of production and operating expenses reflecting the cost of operating activities relating to the production of resources. This metric allows management to analyze the portion of production and operating expenses that is within the Company's control. A quantitative reconciliation of Production and operating – Energy and Production and operating – Non energy to the most directly comparable GAAP financial measure, Production and operating expenses, is set forth below.
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Three Months Ended |
Six Months Ended |
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|
($ millions, unless otherwise indicated) |
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|
|
|
|
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Production and operating – Energy |
64.9 |
79.7 |
78.8 |
143.7 |
168.4 |
|
Production and operating – Non-energy |
149.5 |
110.9 |
135.4 |
284.9 |
226.8 |
|
Production and operating expenses |
214.4 |
190.6 |
214.2 |
428.6 |
395.2 |
"Funds from Operations" is used by management to analyze operating performance and provides an indication of the funds generated by Strathcona's principal business to either fund operating activities, re-invest to either maintain or grow the business or make debt repayments. Funds from Operations is derived from income (loss) and comprehensive income (loss) adjusted for non-cash items and transaction costs.
"Free Cash Flow" indicates funds available for deleveraging, funding future growth, or shareholder returns. Free Cash Flow is derived from income (loss) and comprehensive income (loss) adjusted for non-cash items, transaction costs, capital expenditures and decommissioning costs.
A quantitative reconciliation of Operating Earnings, Funds from Operations and Free Cash Flow to the most directly comparable GAAP financial measure, income (loss) and comprehensive income (loss), is set forth below.
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|
Three Months Ended |
Six Months Ended |
|||
|
($ millions, unless otherwise indicated) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income and comprehensive income |
227.2 |
274.1 |
100.6 |
327.8 |
364.6 |
|
(Gain) loss on risk management contracts |
(2.1) |
(142.1) |
39.7 |
37.6 |
(206.3) |
|
Foreign exchange loss (gain) |
6.9 |
(12.2) |
20.4 |
27.3 |
(18.1) |
|
Transaction related costs |
0.3 |
0.4 |
0.1 |
0.4 |
1.6 |
|
Unrealized loss (gain) on Sable remediation fund |
— |
0.1 |
0.1 |
0.1 |
(0.1) |
|
Deferred tax expense |
73.8 |
81.1 |
48.1 |
121.9 |
161.6 |
|
Operating Earnings |
306.1 |
201.4 |
209.0 |
515.1 |
303.3 |
|
Depletion, depreciation and amortization |
229.1 |
170.7 |
221.8 |
450.9 |
333.8 |
|
Finance costs |
23.1 |
17.8 |
22.3 |
45.4 |
35.6 |
|
Decommissioning government grant |
0.2 |
— |
— |
0.2 |
(0.3) |
|
(Loss) gain on risk management contracts - realized |
(11.4) |
(0.4) |
4.5 |
(6.9) |
(5.8) |
|
Foreign exchange gain (loss) - realized |
0.5 |
(0.3) |
(2.0) |
(1.5) |
(0.5) |
|
Funds from Operations |
547.6 |
389.2 |
455.6 |
1,003.2 |
666.1 |
|
Capital expenditures |
(297.4) |
(231.7) |
(286.1) |
(583.5) |
(460.4) |
|
Decommissioning costs |
(2.9) |
(4.9) |
(11.6) |
(14.5) |
(16.7) |
|
Free Cash Flow |
247.3 |
152.6 |
157.9 |
405.2 |
189.0 |
"Effective royalty rate" is calculated by dividing royalties by oil and natural gas sales and sales of purchased product, net of blending and purchased product. This metric allows management to analyze the movement of royalty expenses in relation to realized and benchmark commodity prices.
"Operating Return on Equity" is calculated by dividing Operating Earnings for the six months ended
Supplementary Financial Measures
"Interest and finance costs" is an aggregation of interest and finance costs. Management uses this metric to obtain a fulsome understanding of all interest and accretion costs the Company is subject to.
"Other items" is an aggregation of risk management contracts, foreign exchange, transaction related costs, unrealized loss (gain) on Sable remediation fund, and deferred tax expense. They are presented in such a manner to yield prominence to key financial metrics such as income and comprehensive income, Funds from Operations and Free Cash Flow.
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|
Three Months Ended |
Six Months Ended |
|||
|
($ millions, unless otherwise indicated) |
|
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|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on risk management contracts |
(2.1) |
(142.1) |
39.7 |
37.6 |
(206.3) |
|
Foreign exchange loss (gain) |
6.9 |
(12.2) |
20.4 |
27.3 |
(18.1) |
|
Transaction related costs |
0.3 |
0.4 |
0.1 |
0.4 |
1.6 |
|
Unrealized loss (gain) on Sable remediation fund |
— |
0.1 |
0.1 |
0.1 |
(0.1) |
|
Deferred tax expense |
73.8 |
81.1 |
48.1 |
121.9 |
161.6 |
|
Other items |
78.9 |
(72.7) |
108.4 |
187.3 |
(61.3) |
"Non-cash items" is an aggregation of depletion, depreciation and amortization, finance costs, and other income – ARO government grant. They are presented in such a manner to yield prominence to key financial metrics such as income and comprehensive income, Funds from Operations and Free Cash Flow.
|
|
Three Months Ended |
Six Months Ended |
|||
|
($ millions, unless otherwise indicated) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depletion, depreciation and amortization |
229.1 |
170.7 |
221.8 |
450.9 |
333.8 |
|
Finance costs |
23.1 |
17.8 |
22.3 |
45.4 |
35.6 |
|
Other income - ARO government grant |
0.2 |
— |
— |
0.2 |
(0.3) |
|
Non-cash items |
252.4 |
188.5 |
244.1 |
496.5 |
369.1 |
Presentation of Oil and Gas Information
This press release contains various references to the abbreviation "boe" which means barrels of oil equivalent. All boe conversions in this press release are derived by converting gas to oil at the ratio of six thousand cubic feet ("mcf") of natural gas to one barrel ("bbl") of crude oil. Boe may be misleading, particularly if used in isolation. A boe conversion rate of 1 bbl : 6 mcf is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio of oil compared to natural gas based on currently prevailing prices is significantly different than the energy equivalency ratio of 1 bbl : 6 mcf, utilizing a conversion ratio of 1 bbl : 6 mcf may be misleading as an indication of value.
References to "liquids" in this press release refer to, collectively, bitumen, heavy oil, condensate and light oil (comprised of condensate and light oil) and other natural gas liquids ("NGL") (comprised of ethane, propane and butane only). References to "oil and condensate" in this press release refer to, collectively, light and medium crude oil, heavy crude oil, bitumen and natural gas liquids. References to "natural gas" in this press release refer to conventional natural gas.
References to initial production rates and other short-term production rates are useful in confirming the presence of hydrocarbons, however, such rates are not determinative of the rates at which such wells will commence production and decline thereafter and are not indicative of long-term performance or of ultimate recovery. While encouraging, readers are cautioned not to place reliance on such rates in calculating aggregate production for us or the assets for which such rates are provided. Accordingly, we caution that the initial production rates should be considered to be preliminary.
Forward-Looking Information
Certain statements contained in this press release constitute forward-looking information within the meaning of applicable securities laws. The forward-looking information in this press release is based on Strathcona's current internal expectations, estimates, projections, assumptions and beliefs. Such forward-looking information is not a guarantee of future performance and involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward- looking information. The Company believes the material factors, expectations and assumptions reflected in the forward-looking information are reasonable as of the time of such information, but no assurance can be given that these factors, expectations and assumptions will prove to be correct, and such forward-looking information included in this press release should not be unduly relied upon.
The use of any of the words "expect", "target", "anticipate", "intend", "estimate", "objective", "ongoing", "may", "will", "project", "believe", "depends", "could" and similar expressions are intended to identify forward-looking information. In particular, but without limiting the generality of the foregoing, this press release contains forward-looking information pertaining to the following: the Company's business strategy and future plans; expected operating strategy; the Company's production and capital spending guidance for 2024; the Company's 2024 capital budget, including the anticipated composition, timing, benefits thereof, including increased production capacity at Cold
All forward-looking information reflects Strathcona's beliefs and assumptions based on information available at the time the applicable forward-looking information is disclosed and in light of the Company's current expectations with respect to such things as: Strathcona's ability to generate sufficient cash flow to fund debt repayment and dividend payments; Strathcona's ability to declare and pay dividends; the success of Strathcona's operations and growth and expansion projects; expectations regarding production growth, future well production rates and reserve volumes; expectations regarding Strathcona's capital program, including the outlook for general economic trends, industry trends, prevailing and future commodity prices, foreign exchange rates and interest rates; the availability of third party services; prevailing and future royalty regimes and tax laws; future well production rates and reserve volumes; fluctuations in energy prices based on worldwide demand and geopolitical events; the impact of inflation; the integrity and reliability of Strathcona's assets; decommissioning obligations; Strathcona's ability to comply with its financial covenants; and the governmental, regulatory and legal environment. In addition, certain forward-looking information with respect to the Company's 2024 capital budget assumes commodity prices and exchange rates of:
The forward-looking information included in this press release is not a guarantee of future performance and involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward- looking information, including, without limitation: changes in commodity prices; changes in the demand for or supply of Strathcona's products; the continued impact, or further deterioration, in global economic and market conditions, including from inflation and/or certain geopolitical conflicts, such as the ongoing
Declaration of dividends is at the sole discretion of the board of directors of Strathcona and will continue to be evaluated on an ongoing basis. There are risks that may result in Strathcona changing, suspending or discontinuing its quarterly dividends, including changes to its free cash flow, operating results, capital requirements, financial position, debt levels, market conditions or corporate strategy and the need to comply with requirements under its credit agreement and applicable laws respecting the declaration and payment of dividends. There are no assurances as to the continuing declaration and payment of future dividends or the amount or timing of any such dividends.
Management approved the capital budget and production guidance contained herein as of the date of this press release. The purpose of the capital budget and production guidance is to assist readers in understanding Strathcona's expected and targeted financial position and performance, and this information may not be appropriate for other purposes.
This earnings release contains information that may constitute future-oriented financial information or financial outlook information (collectively, "FOFI") about Strathcona's prospective financial performance, financial position or cash flows, all of which is subject to the same assumptions, risk factors, limitations and qualifications as set forth above. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise or inaccurate and, as such, undue reliance should not be placed on FOFI. Strathcona's actual results, performance and achievements could differ materially from those expressed in, or implied by, FOFI. Strathcona has included FOFI in order to provide readers with a more complete perspective on Strathcona's future operations and management's current expectations relating to Strathcona's future performance. Readers are cautioned that such information may not be appropriate for other purposes.
The foregoing risks should not be construed as exhaustive. The forward-looking information contained in this press release speaks only as of the date of this press release and Strathcona does not assume any obligation to publicly update or revise such forward-looking information to reflect new events or circumstances, except as may be required pursuant to applicable laws. Any forward-looking information contained herein is expressly qualified by this cautionary statement.
Product Type Production Information
The Company's quarterly and year-to-date average daily production volumes, and the references to "natural gas", "crude oil" and "condensate", reported in this press release consist of the following product types, as defined in NI 51-101 and using a conversion ratio of 6 mcf : 1 bbl where applicable:
|
|
Three Months Ended |
Six Months Ended |
|||
|
|
|
2023 |
|
|
2023 |
|
|
|
|
|
|
|
|
Heavy crude oil (bbl/d) |
51,111 |
53,470 |
51,835 |
51,473 |
55,446 |
|
Light and medium crude oil (bbl/d) |
790 |
672 |
551 |
671 |
697 |
|
Total crude oil (bbl/d) |
51,901 |
54,142 |
52,386 |
52,144 |
56,143 |
|
Bitumen (bbl/d) |
59,581 |
53,825 |
60,150 |
59,865 |
52,469 |
|
NGLs (bbl/d) |
30,756 |
17,708 |
30,466 |
30,611 |
16,783 |
|
Total liquids (bbl/d) |
142,238 |
125,675 |
143,002 |
142,620 |
125,395 |
|
Conventional natural gas (mcf/d) |
237,170 |
108,612 |
252,720 |
244,945 |
111,442 |
|
Total (boe/d) |
181,766 |
143,778 |
185,122 |
183,444 |
143,968 |
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