Argent Energy Trust provides year-end 2012 results with over 300% production growth and increased reserves
CALGARY, March 5, 2013 /CNW/ - Argent Energy Trust ("Argent" or the "Trust") (TSX: AET.UN) is pleased to provide its audited financial results for the period from establishment of the Trust to December 31, 2012, and its reserves as at December 31, 2012. The Trust was created on January 31, 2012 and commenced operations on August 10, 2012 with the acquisition of 1,600 boe/d (33% oil) from Denali. The Trust has seen significant but prudent expansion with a portfolio approach of organic growth through the drill bit of 1,300 boe/d and growth by acquisition (from Energy Quest and Wapiti) of 2,300 boe/d in under five months. Argent exceeded its Q4 production guidance by successfully drilling five Austin Chalk wells, two Eagle Ford wells and one well in an additional formation since inception (100% success rate). Subsequent to year-end the Trust has successfully completed an additional Austin Chalk well and an Eagle Ford well, both of which are on production. Argent is currently producing at a 30-day average rate of approximately 5,300 boe/d (65% oil), on track to meet Q1 production guidance of 5,200 boe/d. Management has added reserves (mostly oil) at an attractive finding, development & acquisition ("FD&A") cost of $13.82/boe, resulting in a recycle ratio (operating netbacks divided by FD&A) of 2.3 times and a reserves replacement ratio of 316%. Operating netbacks continue to increase as more oil is successfully drilled and added, with Austin Chalk operating netbacks currently over $50/boe (recycle ratio of 2.6 times) and Eagle Ford operating netbacks of approximately $70/boe (recycle ratio of 3.4 times) driven by low operating costs of approximately $12.00/boe and attractive premium realized oil pricing (WTI plus approximately $10.00 per barrel).
This press release contains statements that are forward looking. For more information regarding forward-looking statements, see "Note about forward looking statements" in this press release and "Forward Looking Statements and Risk Factors", "The Industry" and "Risk Factors" in Argent's Annual Information Form dated March 4, 2013 (the "AIF") along with Argent's other public disclosure documents. The Trust's consolidated financial statements for the period ended December 31, 2012, related management's discussion and analysis ("MD&A"), and reserves information as required under National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities ("NI 51-101") along with the Trust's AIF, have been filed with the securities regulators. Copies of the MD&A, AIF and Argent's other public disclosure documents are available under the Trust's issuer profile on the SEDAR website at www.sedar.com and are available on the Trust's website at www.argentenergytrust.com
In this press release, references to "Argent" or the "Trust" include the Trust and its operating subsidiaries.
2012 Highlights
- Completed initial public offering ("IPO") for gross proceeds of $212.3 million together with over-allocation for additional gross proceeds of $31.84 million, through the issuance of a total of 24,414,500 units at $10.00 per unit. Proceeds were used to complete the acquisition of operated oil and gas assets in Texas ("Denali Assets") for cash consideration, including closing adjustments and restricted cash, of approximately $203.2 million.
- Completed acquisition on August 28, 2012, of an overriding royalty interest ("Forest Override") from Forest Oil Corporation for approximately US$19 million. The Forest Override generated $1.5 million in revenue, before royalties, for the Trust since acquisition.
- In each of October and December 2012, the Trust completed additional bought deal financings totaling $227 million which were used to acquire the EnergyQuest ("EQ Assets") and Wapiti ("Wapiti Assets") oil & gas properties respectively.
- Successfully drilled and completed five Austin Chalk wells, two Eagle Ford wells and one well in an additional oil formation (100% success) since the IPO in August. Argent's third Eagle Ford well has been successfully drilled with completion operations finalized in late February 2013.
- The Trust exited the year at approximately 3,700 barrels of oil equivalent ("boe") per day, (excluding the 1,400 boe/d from the Wapiti Assets acquired on December 28, 2012) about 100 boe per day above the year-end guidance target of 3,500 to 3,600 boe per day. The Trust continues to receive oil prices of US$5.00 to US$10.00 per barrel in excess of WTI on its Texas oil production.
- As at December 31, 2012, total working interest reserves were 32,333 MBoe on a proved plus probable basis, consisting of 17,364 Mbbls oil, 2,099 Mbbls NGLs and 77,221 MMcf of natural gas. The net present value of future net revenues of the proved plus probable reserves, discounted at 10%, was US$515.2 million, with 82.8% of the value represented by oil, 3.8% by NGLs and 13.4% by natural gas.
- Since acquiring its Assets, the Trust has added 2,327 Mboe of reserves at a cost of $52.7 million, with resulting finding and development ("F&D") cost of $22.65/Boe. Taking into account the acquisitions, the Trust's FD&A cost for the period was $13.82/boe and its recycle ratio was 2.3 times.
- Commenced Unitholder distributions at a rate of $1.05 per unit per year ($0.0875 per unit per month).
- In 2012 Q4, the first full three months of operations, the Trust recorded funds flow from operations of $7.4 million, or $0.21 per Unit. Average production in 2012 Q4 was 3,169 boe/d, consisting of 57% of oil and NGL, compared to 1,618 boe/d in 2012 Q3, consisting of 36% oil and NGL.
- Income for 2012 Q4 was $270,000, or $0.01 per Unit.
- For the period from inception on January 31, 2012 to December 31, 2012, funds flow from operations of $6.8 million, or $0.50 per unit, reflecting the expensing of $0.6 million of acquisition costs connected with completing the three property acquisitions, as well as the general and administrative expenses incurred in Calgary prior to active operations commencing on August 10, 2012.
- For the period from inception on January 31, 2012 to December 31, 2012, loss was $5.7 million, or $0.42 per Unit.
- Negotiated a US$95 million credit facility with a syndicate of Canadian and US banks.
Selected Annual Information
| ($000 unless stated) | January 31 to December 31, 2012 (1) |
| Total Revenue, before royalties | $22,255 |
| Production | |
| - Oil (bbl/d) | 1,225 |
| - NGL (bbl/d) | 145 |
| - Natural Gas (mcf/d) | 7,432 |
| Total Production (boe/d) | 2,609 |
| % Oil and NGLs | 53% |
| Total Netback | $13,373 |
| Netback from production only | $11,917 |
| - per boe | $31.72 |
| Funds flow from operations | $6,780 |
| - per boe | $18.05 |
| - per Trust Unit, basic | $0.50 |
| Loss | ($5,703) |
| - per Trust Unit, basic | ($0.42) |
| - per Trust Unit, fully diluted | ($0.42) |
| Total Assets | $548,475 |
| Non-current Liabilities | $62,107 |
| Distribution per Trust Unit | $0.41 |
| Capital Expenditures (2) | $52,669 |
| Unitholders' Equity | $421,810 |
| Note (1): | Oil, NGL and Natural Gas sales and production levels reflect the period from close of the Denali Assets acquisition on August 10th through December 31, 2012. |
| Note (2): | Capital expenditures exclude corporate acquisitions |
Oil, NGL and Natural Gas sales and production levels reflect the period from August 10 through December 31, 2012 which includes results from both the close of the Denali Assets acquisition on August 10th and the close of the EQ Assets acquisition on October 25th. Production during the period of operations from August 10th through December 31, 2012 (the "Operating Period") totaled 375,686 boe or an average of 2,609 boe/d, with oil and NGL sales at 1,370 bbls/d, being 53% of the total sales volume and natural gas sales being approximately 7.4 mmcf/d, or 47% of the total sales volume on a boe basis. As the Trust continues drilling oil wells, it is expected that the percentage of sales volume related to oil will increase in the near term.
Oil, NGL and Natural Gas sales totaled approximately $20.7 million. Oil and NGL sales during the Operating Period were approximately $17.8 million, or 86% of the total sales, while Natural Gas sales totaled $2.8 million or 14% of the total Oil, NGL and Natural Gas sales. The oil price received for the Operating Period averaged $96.60 per bbl which represents an uplift of $7.20 per bbl over the WTI oil price of $89.40 per bbl, while natural gas price averaged $2.66 per mcf compared to the Henry Hub spot gas price of $3.07 per mcf. This reflects the strong economics from oil production in Texas, such that with the Trust's focus on oil drilling in the near term, management expects the average aggregate netbacks to improve.
RESERVES INFORMATION
The Trust had its reserves independently evaluated by Sproule Associates Limited ("Sproule") and GLJ Petroleum Consultants Ltd ("GLJ") in accordance with NI 51-101. The following table summarizes the aggregate of the independent reserves estimates and values as at December 31, 2012, based on the evaluations by Sproule and GLJ:
| Company Gross (1) | NPV of Future Net Revenue before Income Taxes, discounted at 10%/yr (2) |
||
| Reserves Category | (Mboe) | (US$000) | |
| Proved: | |||
| Developed Producing | 8,922 | 214,597 | |
| Developed Non-Producing | 811 | 22,096 | |
| Undeveloped | 7,998 | 54,483 | |
| Total Proved | 17,731 | 291,175 | |
| Probable | 14,603 | 223,991 | |
| Total Proved Plus Probable | 32,333 | 515,166 | |
| Notes | |
| (1): | Gross reserves are Argent's total working interest share before the deduction of any royalties. |
| (2): | Estimates of after-tax future net revenue are not presented because neither US Opco nor the Trust will be subject to taxes in Canada. |
| (3): | Present values of estimated future net revenue shown above are based on Sproule's escalated price forecast as of December 31, 2012, which assumes a base 2013 WTI oil price of US$89.63/bbl and base 2013 Henry Hub gas price of US$3.65/MMBTU. |
| (4): | Totals may not add due to rounding. |
Capital Program Efficiency
The Trust's capital expenditures of $52.7 million since the IPO resulted in proved plus probable reserve additions from drilling and improved recoveries of 2,327 MBoe, at an F&D cost of $22.65/boe. This reflects the decision to drill and test two additional formations in addition to the Upper Austin Chalk and a higher cost on one of the Eagle Ford wells drilled, as it required sidetracking and re-drilling the horizontal portion of the well. The costs of the Eagle Ford well completed in February 2013 were significantly lower and Management expects the F&D costs to decrease. With the addition of proved plus probable reserves from the Denali, EQ and Wapiti Asset acquisitions for direct costs of $421.6 million, the FD&A cost was $13.82/boe, reflecting the accretive nature of the acquisitions undertaken by the Trust.
The following table shows the efficiency of Argent's capital program for the period ending December 31, 2012:
| Proved plus Probable |
||||
| Development Expenditures ($000) | 52,716 | |||
| Acquisitions ($000) (1) | 421,652 | |||
| Reserve additions (Mboe) | ||||
| Development (2) | 2,327 | |||
| Acquisitions | 31,995 | |||
| 34,322 | ||||
| Finding and Development costs ($/boe) | $22.65 | |||
| Finding, Development & Acquisitions costs ($/boe) (3) | $13.82 | |||
| Recycle Ratio (4) | 2.3x | |||
| Reserves Replacement (5) | 316% | |||
| Notes: | |
| (1) | Reflects the direct acquisition costs related to the acquisition of the Denali, EQ and Wapiti Assets during 2012. |
| (2) | Includes reserve additions from drilling, extensions and improved recovery. |
| (3) | Since acquisitions have a significant impact on Argent's annual reserves, Argent believes that FD&A costs provide a meaningful portrayal of Argent's cost structure. |
| (4) | The recycle ratio is calculated using the 2012 operating netback on a blended product basis of $31.72/bbl divided by FD&A, to properly reflect the netbacks arising from acquisitions. |
| (5) | The reserves replacement is calculated using the development reserve additions and the production from the effective date of the reserve additions of the acquired assets in the Reserve Reports, being January 1, 2012 for Denali Assets and September 1, 2012 for the EQ Assets. |
2013 Outlook
- The Trust's Board of Directors has approved a 2013 capital budget of US$41 million. The Trust intends to drill approximately 10 Austin Chalk and two Eagle Ford wells in 2013 in Fayette and Gonzales Counties. The budget excludes corporate and property acquisitions.
- The Trust expects first quarter production of approximately 5,200 boe /d (63% oil, 6% NGL and 31% natural gas) including 1,400 boe /d (64% oil, 14% NGLs and 22% natural gas) from the Wapiti Assets. The Trust is currently producing approximately 5,300 boe/d, with 68% being oil and NGL volumes and 32% being natural gas volumes.
- The Trust is forecasting a 2013 average production rate of approximately 5,500 to 5,600 boe per day (65% oil, 7% NGLs, and 28% natural gas) which includes relatively flat, low-decline, stable production from both the EQ and Wapiti Assets and production growth that will continue to come from Austin Chalk and Eagle Ford development.
- Operating costs per boe (including transportation and workovers) are expected to average between US$11.00 to US$12.00 per boe, resulting in an average operating cash flow netback of approximately US$44.00 per boe.
- The Trust plans to continue to actively hedge to ensure its distribution and its capital program. Oil production is approximately 60% hedged at US$90 per bbl WTI or better for 2013, and approximately 40% hedged at US$90 per bbl WTI or better in 2014. Natural Gas is approximately 35% hedged at an average of US$4.05/Mcf for 2013.
- The Trust adopted a Premium DistributionTM and Distribution Reinvestment Plan in February 2013. With a modest DRIP participation of 25%, Argent forecasts a payout ratio of 48% and a sustainability ratio (distribution plus capital budget) of 96% of net cash flow for 2013.
- Until further notice, the Trust intends to continue making monthly distributions at a rate of $0.0875 per Unit to Unitholders of record as of the close of business on the last business day of each month which are expected to be paid to Unitholders on or about the 23rd day of the following month or, if not a business day, the next business day thereafter. As results of operations may vary, the distribution of cash is not guaranteed. The Trust intends to make these monthly distributions from a portion of its available cash and use the remainder of its available cash, and advances under its credit facilities, to fund growth through additional acquisitions and capital expenditures.
Non-IFRS Financial Measures
Statements throughout this press release make reference to the terms "netback" and "funds flow from operations" which are non-International Financial Reporting Standards ("IFRS") financial measures that do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. Management believes that "netback" and "funds flow from operations" provide useful information to investors and management since such measures reflect the quality of production, the level of profitability, the ability to drive growth through the funding of future capital expenditures and the sustainability of distributions to unitholders. Funds flow from operations is calculated before changes in non-cash working capital. Netback is equal to oil, natural gas and NGL sales revenue less royalties, transportation costs, production taxes and operating expenses. See the "Non-IFRS measures" section of the MD&A for a reconciliation of funds flow from operations and netback to income for the period, the most directly comparable measure in the Trust's audited annual consolidated financial statements. Other financial data has been prepared in accordance with IFRS.
Note about forward-looking statements
Certain of the statements made and information contained in this press release are forward-looking statements and forward looking information (collectively referred to as "forward-looking statements") within the meaning of Canadian securities laws. All statements other than statements of historic fact are forward-looking statements. The Trust cautions investors that important factors could cause the Trust's actual results to differ materially from those projected, or set out, in any forward-looking statements included in this press release.
In particular, and without limitation, this press release contains forward looking statements pertaining to Argent's capital program, drilling and completion plans, oil, natural gas and NGL production rates, operating costs, hedging activities, forecast ratio and sustainability ratio, the payment of cash distributions by the Trust, including the amount and timing of payment of cash distributions, and the Trust's expectation regarding its average working interest production for the year and exiting 2013. With respect to forward-looking statements contained in this press release, assumptions have been made regarding, among other things, future oil and natural gas prices, future currency exchange and interest rates, the regulatory framework governing taxes in the US and Canada and the Trust's status as a "mutual fund trust" and not a "SIFT trust", estimates of anticipated production from both the Assets, which estimates are based on the proposed drilling program with a success rate that, in turn, is based upon historical drilling success and an evaluation of the particular wells to be drilled, future recoverability of reserves from the Assets, future capital expenditures and the ability of the Trust to obtain financing on acceptable terms for its capital projects and future acquisitions, and the Trust's capital budget (which is subject to change in light of ongoing results, prevailing economic circumstances, commodity prices and industry conditions and regulations).
In addition, statements relating to "reserves" are by their nature forward-looking information, as they involve the implied assessment, based on certain estimates and assumptions that the reserves described can be profitably produced in the future. The recovery and reserve estimates of the Trust's reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. The forward-looking information provided in this press release is based on management's current beliefs, expectations and assumptions, based on currently available information as to the outcome and timing of future events. Argent cautions that its future oil, natural gas and natural gas liquids production, revenues, cash flows, liquidity, plans for future operations, expenses, outlook for oil and natural gas prices, timing and amount of future capital expenditures, and other forward-looking information is subject to all of the risks and uncertainties normally incident to the exploration for and development and production and sale of oil and gas.
The Trust's actual results could differ materially from those anticipated in these forward-looking statements as a result of the volatility of commodity prices, commodity supply and demand, fluctuations in currency and interest rates, inherent risks and changes in costs associated in the drilling and development of petroleum properties, unexpected operational delays and challenges, access to drilling equipment on a timely basis and at reasonable prices, ultimate recoverability of reserves, timing, results and costs of drilling activities and resulting production, availability of financing and capital, and new regulations and legislation that apply to the Trust and the operations of its subsidiaries. Additional risks and uncertainties affecting the Trust are contained in the Trust's Annual Information Form dated March 4, 2013, under the heading "Risk Factors".
The success of Argent's drilling program is a key assumption in the production estimates for the 2013 financial year. The primary risk factors which could lead to Argent not meeting its production targets are: (i) production additions from drilling activity are less than expected; (ii) a lack of access to drilling rigs and related equipment on a timely basis and at reasonable prices due to high industry demand or poor weather; and (iii) unexpected operational delays and challenges. Increases in capital costs from forecast amounts can result from the foregoing reasons as well as general cost inflation in the industry.
Additionally, Argent may choose to decrease capital expenditures from those anticipated in its budget projections, therefore affecting production estimates for the 2013 financial year. There are many factors that could result in production levels being less than anticipated, including greater than anticipated declines in existing production due to poor reservoir performance, the unanticipated encroachment of water or other fluids into the producing formation, mechanical failures or human error or inability to access production facilities, among other factors.
As a result of these risks, actual performance and financial results in 2013 may differ materially from any projections of future performance or results expressed or implied by these forward looking statements. New factors emerge from time to time, and it is not possible for management to predict all of these factors or to assess, in advance, the impact of each such factor on the Trust's business, or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward looking statement. Undue reliance should not be placed on forward-looking statements, which are inherently uncertain, are based on estimates and assumptions, and are subject to known and unknown risks and uncertainties (both general and specific) that contribute to the possibility that the future events or circumstances contemplated by the forward looking statements will not occur. Although Management believes that the expectations conveyed by the forward-looking statements are reasonable based on information available to it on the date the forward-looking statements were made, there can be no assurance that the plans, intentions or expectations upon which forward-looking statements are based will in fact be realized. Actual results will differ, and the difference may be material and adverse to the Trust and its unitholders. The Trust does not undertake any obligation, except as required by applicable securities legislation, to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise.
Note regarding barrel of oil equivalency
This press release contains disclosure expressed as "boe" or "boe/d". All oil and natural gas equivalency volumes have been derived using the conversion ratio of six thousand cubic feet ("Mcf") of natural gas to one barrel ("bbl") of oil. Equivalency measures may be misleading, particularly if used in isolation. A conversion ratio of 6 Mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the well head. In addition, given that the value ratio based on the current price of oil as compared to natural gas is significantly different from the energy equivalent of six to one, utilizing a boe conversion ratio of 6 Mcf: 1 bbl would be misleading as an indication of value.
Argent is a mutual fund trust under the Income Tax Act (Canada) (the "Tax Act"). Argent's objective is to create stable, consistent returns for investors through the acquisition and development of oil and natural gas reserves and production with low risk exploration potential, located primarily in the United States. Material information pertaining to Argent Energy Trust may be found on www.sedar.com or www.argentenergytrust.com
SOURCE: Argent Energy Trust
For further information concerning this press release, please contact:
Brian Prokop
Chief Executive Officer
Argent Energy Trust
(403) 770-4807
Sean Bovingdon
Chief Financial Officer
Argent Energy Trust
(403) 770-4803
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