Argent Energy Trust reports third quarter results, record funds flow from operations and provides reserves update
CALGARY, Nov. 12, 2014 /CNW/ - Argent Energy Trust ("Argent" or the "Trust") (TSX: AET.UN) is pleased to provide its financial and operating results for the quarter ended September 30, 2014. Average Q3 2014 production was 7,264 barrels of oil equivalent per day ("boe/d"), (approximately 65% oil and NGLs), significantly exceeding previously announced Q3 production guidance of 6,400-6,500 boe/d. This strong level of production generated record funds flow from operations of $24.0 million ($0.38 per Unit). Excluding impairment charges, the reported income for Q3 2014 would have been $14.2 million ($0.22 per Unit). However, based on an updated reserve report noted below, the Trust booked non-cash impairment charges, on oil and gas properties and on exploration and evaluation properties, totaling $156.1 million which resulted in a net loss of $141.9 million ($2.24 per Unit).
As part of the ongoing strategic review process, Argent commissioned an updated Canadian National Instrument 51-101 ("NI 51-101") compliant reserve report by independent reserves evaluator GLJ Petroleum Consultants Ltd. ("GLJ") effective September 30, 2014. Proved plus probable (2P) working interest reserves have been assessed at 39.1 MMboe with an associated before tax discounted (10%) present value of $624.8 million (US$557.8 million). Proved (1P) working interest reserves have been assessed at 22.4 MMboe with an associated before tax discounted (10%) present value of $399.0 million (US$356.2 million). Given the values in the reserve report and allowing for working capital and net debt position as at September 30, 2014 per the interim consolidated financial statements, management's internal assessment of net asset value is $1.82 per Unit on a 1P basis and $5.38 per Unit on a 2P basis.
The Trust's unaudited interim consolidated financial statements for the three months ended September 30, 2014 and related management's discussion and analysis have been filed with the securities regulators and will be 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.
This press release contains statements that are forward looking. Investors should read the Note Regarding Forward-Looking Statements at the end of this press release. In this press release, references to "Argent" or the "Trust" include the Trust and its operating subsidiaries.
Highlights for the three months ended September 30, 2014
- Increased production by 34% to 7,264 boe/d (65% Oil & NGL) in Q3 2014 from 5,407 boe/d (72% Oil & NGL) in Q3 2013, reflecting the acquisition of Wyoming assets in Q4 2013, new wells coming on production during 2014 and successful workovers completed in Q2 2014. Q3 2014 production exceeded the previously announced production guidance of 6,400 to 6,500 boe/d and is also an increase from the 6,373 boe/d in Q2 2014.
- Successfully completed and brought onstream in Q3 2014 two additional Eagle Ford wells (Haydens 2H and Haydens 3H) that were drilled in Q2 2014.
- Netbacks from sales volumes for Q3 2014 were $25.7 million ($38.47 per boe), as compared to $21.1 million ($42.48 per boe) for Q3 2013 and $22.0 million ($38.03 per boe) in Q2 2014. An additional $2.2 million in netback was received from overriding royalties in Q3 2014, compared to $3.2 million in Q3 2013, and $2.4 million in Q2 2014.
- Reduced Q3 2014 operating expense excluding workovers to $13.68 per boe, as compared to $13.69 per boe in Q3 2013, and $17.42 per boe in Q2 2014. Adjusted for the impact of higher US$/CAD$ exchange rate, operating expense per boe decreased by 5% over Q3 2013.
- Capital expenditures decreased in Q3 2014 to $7.2 million as compared to $36.3 million for Q3 2013 and $29.7 million for Q2 2014.
- Increased Q3 2014 funds flow from operations to $24.0 million ($0.38 per Unit), as compared to $18.4 million ($0.34 per Unit) in Q3 2013, and $15.8 million ($0.25 per Unit) in Q2 2014.
- During Q3 2014, the Trust sold certain oil and gas properties located in Kansas for proceeds of $10.7 million, leading to a gain on sale of $2.4 million. The proceeds from disposition were used to pay down the credit facility.
- Declared unitholder distributions of $0.06 per Unit during Q3 2014 ($0.02 per Unit per month).
- Q3 2014 loss was $141.9 million ($2.24 per Unit), as compared to Q3 2013 loss of $16.0 million ($0.29 per Unit), and Q2 2014 loss of $25.3 million ($0.40 per Unit). The Q3 2014 loss was mainly due to non-cash impairment charges on its oil and gas properties and exploration and evaluation properties. Excluding the impairment charges, the reported income for Q3 2014 would have been $14.2 million ($0.22 per Unit).
| Summary Results | |||
| ($000 unless stated) | Q3 2014 | Q2 2014 | Q3 2013 |
| Oil and gas sales, before royalties | $49,680 | $47,538 | $42,151 |
| Production | |||
| - Oil (bbl/d) | 4,426 | 4,071 | 3,396 |
| - NGL (bbl/d) | 277 | 324 | 516 |
| - Natural Gas (mcf/d) | 15,365 | 11,867 | 8,967 |
| Oil & gas production (boe/d) | 7,264 | 6,373 | 5,407 |
| % Oil and NGLs | 65% | 69% | 72% |
| Total Netback | $27,918 | $24,383 | $24,264 |
| Netback from sales volume only | $25,710 | $21,962 | $21,069 |
| - per boe | $38.47 | $38.03 | $42.48 |
| Funds flow from (used in) operations | $23,958 | $15,791 | $18,364 |
| - per boe | $35.85 | $27.23 | $36.92 |
| - per Trust Unit, basic | $0.38 | $0.25 | $0.34 |
| Income (Loss) | ($141,884) | ($25,334) | ($15,986) |
| - per Trust Unit, basic | ($2.24) | ($0.40) | ($0.29) |
| - per Trust Unit, fully diluted | ($2.24) | ($0.40) | ($0.29) |
| Total Assets | $574,959 | $734,230 | $668,668 |
| Non-current Liabilities | $253,508 | $278,202 | $132,642 |
| Distribution per Trust Unit | $0.06 | $0.06 | $0.26 |
| Capital Expenditures | $7,157 | $29,702 | $36,285 |
| Unitholders' Equity | $279,615 | $394,023 | $478,798 |
Oil and gas production of 7,264 boe/d in Q3 2014 increased by 14% from 6,373 boe/d in Q2 2014 as the Trust brought new oil and gas wells on production and completed successful workover programs during Q2 and Q3 2014. Oil and gas sales before royalties in Q3 2014 increased by approximately 5% from Q2 2014 due to higher oil and gas production, partially offset by lower realized oil and gas prices.
While commodity prices realized decreased to $70.93 per boe in Q3 2014, from $77.82 per boe in Q2 2014, the Trust was successful with reducing operating expenses and workover expenses in Q3 2014. Additionally, the spending on workover programs in Q2 2014 successfully led to the increased production in existing wells during Q3 2014.
Netbacks from sales volume in Q3 2014 increased by approximately 17% to $25.7 million from $22.0 million in Q2 2014 due to lower operating expenses and higher oil & gas production. On a per boe basis, netbacks from sales volume in Q3 2014 was $38.47 per boe, relatively flat compared to $38.03 per boe in Q2 2014.
Funds flow from operations increased by approximately 52% to $24.0 million ($0.38 per Unit) in Q3 2014, from $15.8 million ($0.25 per Unit) in Q2 2014, mainly due to higher oil and gas production, lower operating expenses and lower general and administrative expenses.
Loss for Q3 2014 increased to $141.9 million, or $2.24 per Unit, from $25.3 million, or $0.40 per Unit in Q2 2014. Higher loss in Q3 2014 was mainly due to the impairment charges on its oil & gas properties and exploration and evaluation properties.
During Q3 2014, the Trust incurred capital expenditures of approximately $7 million in the development of its oil and gas properties, focusing on completing and bringing on stream two Eagle Ford wells (Haydens 2H and Haydens 3H) that were drilled at the end of Q2 2014. Approximately $2.6 million was spent on facilities upgrade and capital workovers on approximately 38 wells. Capital expenditures for the remainder of 2014 are expected to be minimal.
Reserves
As part of the strategic review process, GLJ Petroleum Consultants Ltd. ("GLJ"), an independent reserves evaluator has generated an evaluation of 100% of Argent's reserves effective September 30, 2014. The evaluation was completed in accordance with the definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook ("COGE Handbook") and National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities ("NI 51-101").
Highlights from the updated reserve report include:
- Proved plus probable (2P) working interest reserves assessed at 39.1 MMboe with an associated before tax discounted (10%) present value of $624.8 million (US$557.8 million).
- Proved (1P) working interest reserves assessed at 22.4 MMboe with an associated before tax discounted (10%) present value of $399.0 million (US$356.2 million).
- Total proved reserves comprise approximately 57% of total proved plus probable reserves on a volume basis and approximately 64% on a NPV10 basis.
- Reserve life index ("RLI") for proved plus probable reserves is 16.5 years and for proved reserves is 9.4 years based on Q4 2014 production guidance.
- In the first nine months of 2014, Argent added 4.2 MMboe of reserves in the form of drilling extensions, infill drilling and improved recovery. Approximately 51% of this increase is attributable to the Parkman formation opportunities in Wyoming.
- These gains were offset by reductions in reserves of 5.5 MMboe largely due to utilizing a lower future oil price deck and widening basis differential (having a direct impact on net revenues and impacting the economics of potential locations to the point that they drop from being reasonably prospective), and technical revisions in the Eagle Ford and Austin Chalk assets arising from mechanical failures in two wellbores and recent performance issues on some wells.
- Working interest total proved plus probable reserves of 39.1 MMboe and total proved reserves of 22.4 MMboe compare to the 42.0 MMboe and 25.9 MMboe, respectively, recorded at year-end 2013.
The following table summarizes the aggregate of the independent reserves estimates and values effective September 30, 2014, based on the GLJ evaluations:
|
| Notes: | |
| (1) | Argent's total working interest share before the deduction of any royalties. |
| (2) | Estimates of after-tax future cash flow are not presented because neither US Opco nor the Trust will be subject to taxes in Canada. |
| (3) | Present values of estimated future cash flow shown above are based on GLJ's escalated price forecast as of September 30, 2014, which assumes a 2015 WTI oil price of US$92.50/bbl and 2015 Henry Hub gas price of US$4.25/mmbtu. |
| (4) | Totals may not add due to rounding |
Given the above, management's internal assessment of the net asset value of the Trust is as follows:
| Net Asset Value (C$mm) | Proved | Proved plus Probable |
| Reserves Value, per GLJ | $ 399.00 | $ 624.79 |
| Land value (1) | 4.43 | 4.43 |
| Less: | 403.43 | 629.22 |
| - Net working capital (2) | (16.85) | (16.85) |
| - Credit Facility (3) | (122.08) | (122.08) |
| - Convertible debentures (4) | (148.75) | (148.75) |
| Net Asset Value - Total | 115.75 | 341.54 |
| Units outstanding (mm) | 63.5 | 63.5 |
| Net Asset Value - per Unit | $ 1.82 | $ 5.38 |
| Notes: | |
| (1) | Carrying value of "Exploration and evaluation assets" in Q3 2014 financial statements. |
| (2) | Based on "Current liabilities" less "Current assets" in Q3 2014 financial statements. |
| (3) | Based on US$109mm drawn per Q3 2014 financial statements. |
| (4) | Face value of convertible debentures outstanding as at September 30, 2014. |
Strategic Objectives
On October 1, 2014, the Trust announced a decision by its Board of Directors to initiate a process to explore a range of strategic alternatives to maximize unitholder value. Following an extensive review of the Trust's current unit price in the context of its operations, production and reserves, the Board has concluded that the Trust trades at a substantial discount to the value of its underlying assets and is not getting recognition for the strategic direction implemented in April of this year which has resulted in a stabilized production base and a focus on debt repayment. The Board has determined that exploring strategic alternatives is the best course of action in order to maximize unitholder value. The Board will oversee the strategic alternatives review process with the assistance of senior management and its appointed external financial advisor, BMO Capital Markets.
The Board will consider all alternatives to increase unitholder value, which include, but not limited to: a sale of a material portion of the assets of the Trust; a sale of the Trust, either in one transaction or in a combination of transactions; a merger or other business combination; or a joint venture or a farmout on a material portion of the assets.
The Board and its external financial advisor have not set a definitive schedule to complete this strategic review process. Argent does not intend to make any further announcements regarding the process unless and until the Board of Directors has approved a specific transaction or course of action or otherwise determines that disclosure of developments is appropriate. Argent cautions that there can be no assurances that this strategic review process will result in an acceptable transaction of any form.
In the meantime, the Trust's monthly distribution of $0.02 per unit remains intact. This current level of distribution represents approximately 30% of cash flow from operations and as such it is at a level the Trust is currently able to comfortably maintain.
As at the date of the Q3 2014 MD&A, the Trust has approximately US$106 million drawn on its US$160 million credit facility, leaving approximately US$54 million of undrawn capacity. With the vast majority of the 2014 capital program having been spent, the Trust expects to utilize the positive cash flow being generated from operations to further reduce indebtedness over the remainder of the year. The Trust continues to be compliant with all the credit facility covenants.
For the remainder of 2014 Argent is approximately 65% hedged on its oil volumes at WTI oil prices of US$90/bbl or higher and approximately 55% hedged on its natural gas volumes at an average price ofUS$4.09/mmbtu, meaning fluctuations in oil and natural gas prices have less of an impact than likely perceived by the market. In 2015, Argent has approximately 2,000 net bbl/d of oil hedged at WTI oil prices of US$91/bbl equivalent or higher and approximately 6,000 net mmbtu/d of natural gas hedged at an average price of US$4.12/mmbtu.
Outlook
Given continued strong production performance, as reflected in the Trust's recent 30-day production average of approximately 6,800 boe/d, Argent increased its average annual production guidance for 2014 from the previously expected range of 6,200-6,300 boe/d to 6,500-6,600 boe/d. Fourth quarter 2014 production is expected to be approximately 6,500 boe/d.
Subject to any adjustments arising from the strategic alternatives review process, the Trust will focus its 2015 capital expenditure program on opportunities that should provide more predictable results. The Trust intends to manage its balance sheet and maintain a spending discipline that will ensure sufficient liquidity, including cash resources and available credit. The Board has approved a preliminary capital budget for 2015 of US$39.5 million with a targeted annual production for 2015 of approximately 6,500 boe/d. The majority of this capital will be allocated to drilling wells and acquiring seismic within the Parkman and Turner formations in the Powder River Basin of Wyoming. These opportunities were identified by the Trust during its acquisition of the Wyoming assets in 2013. The Parkman and Turner formations are being successfully drilled by a number of offset operators including Devon, EOG, Yates, Petro Hunt and Anadarko. The recent drilling has further delineated the Parkman providing GLJ the information necessary to quantify potential reserves captured in the reserve report discussed above. Although plans and permits are not final at this time, Argent has the potential and is planning to participate as a non-operated working interest owner in a number of Parkman and Turner wells in 2015. To a lesser extent, the Trust has identified a number of low risk infill drilling opportunities within its existing fields along the Gulf Coast of Texas as well. Additionally, the Trust plans to utilize a portion of its capital for high impact workover opportunities.
The Trust believes this capital strategy is appropriate for its portfolio of assets given the current commodity pricing environment while ensuring that sufficient liquidity is maintained to meet its objectives.
Conference Call Details
Management of Argent will host a conference call for investors, financial analysts, media and any interested persons on Thursday, November 13, 2014 at 9:00 a.m. MST (11:00 a.m. EST) to discuss Q3 2014 results. To participate in the live call please use one of the following methods:
| Dial toll free from Canada or the US: | 1-888-390-0546 | |
| Dial from outside Canada or the US: | 1-416-764-8688 | |
| Pass Code: | 03812940 |
Participants should dial in five to ten minutes before the call.
The conference call will be recorded and available until November 20, 2014 at 23:59 EST. You can listen to an archive of the call by dialing in:
| Dial toll free from Canada or the US: | 1-888-390-0541 | |
| Dial from outside Canada or the US: | 1-416-764-8677 | |
| Pass Code: | 812940 |
Non-IFRS Financial Measure
Statements throughout this press release make reference to the term "netbacks", which is a non-IFRS financial measure that does not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers. Management believes that "netbacks" provides useful information to investors and management since this measure is commonly used by other oil and gas companies. "Netbacks" 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 netbacks to income for the period, the most directly comparable measure in the Trust's unaudited interim consolidated financial statements. Other financial data has been prepared in accordance with IFRS.
Additional GAAP Measure
In this press release, the Trust refers to an additional GAAP measure that does not have any standardized meaning as prescribed by IFRS. "Funds flow from operations" is considered an additional GAAP measure and is equal to cash provided by operating activities, before changes for non-cash working capital, as stated in the Trust's unaudited interim consolidated financial statements. We believe funds flow from operations, which is not impacted by fluctuations in non-cash working capital balances, is more indicative of operational performance.
Note About Forward-Looking Statements
This press release includes forward-looking information within the meaning of applicable Canadian and United States securities legislation. All statements, other than statements of historical facts, that address activities, circumstances, events, outcomes and other matters that Argent budgets, forecasts, plans, projects, estimates, expects, believes, assumes or anticipates (and other similar expressions) will, should or may occur in the future, are considered forward-looking information. 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, forward-looking information contained in this press release includes, but is not limited to, Argent's capital program, drilling and completion plans, oil, natural gas and NGL production rates, cash flow generated from operations, operating costs, production growth, hedging activities, the payment of cash distributions by the Trust, including the amount and timing of payment of cash distributions, level of debt drawn on its credit facilities, the realizable value of the Trust's assets, the net asset value of the Trust, its ability to dispose of certain or all of its assets, completion of a strategic review process, source of funding for capital expenditures and the Trust's expectation regarding its average working interest production rate for Q4 2014, the year 2014 and 2015.
In particular, and without limitation, this press release contains forward looking statements pertaining to Argent's reserves, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and that the reserves can be profitably produced in the future. It should not be assumed that the present worth of estimated future cash flow presented in the table above represents the fair market value of the reserves. There is no assurance that the forecast prices and costs assumptions will be attained and variances could be material. The recovery and reserve estimates of Argent's crude oil, natural gas liquids and natural gas reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual crude oil, natural gas and natural gas liquids reserves may be greater than or less than the estimates provided herein. All future net revenues are stated prior to provision for interest, general and administrative expenses and after deduction of royalties, operating costs and estimated future capital expenditures. Future net revenues have been presented on a before tax basis. Estimated values of future net revenue disclosed herein do not necessarily represent fair market value.
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 the Trust's 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).
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.
These risks include, but are not limited to, oil and natural gas price volatility, Argent's access to cash flows and other sources of liquidity to fund its capital expenditures, its level of indebtedness, its ability to replace production, the impact of the current financial climate on Argent's anticipated business and financial condition, a lack of availability of or increases in costs of goods and services, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in estimating future oil and gas production or reserves, economic conditions and other risks as described in documents and reports that Argent files with the securities commissions or similar authorities in applicable Canadian jurisdictions on the System for Electronic Document Analysis and Retrieval (SEDAR). Any of these factors could cause Argent's actual results and plans to differ materially from those contained in the forward-looking information.
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. Furthermore, unlike fixed income securities, Argent has no obligation to distribute any fixed amount and reductions in, or suspension of, cash distributions may occur that would reduce future yield.
Forward-looking information is subject to a number of risks and uncertainties, including those mentioned above, that could cause actual results to differ materially from the expectations set forth in the forward-looking information. Forward-looking information is not a guarantee of future performance or an assurance that our current assumptions and projections are valid. All forward-looking information speaks only as of the date of this press release, and Argent assumes no obligation to, and expressly disclaims any obligation to, update or revise any forward-looking information, except as required by law. You should not place undue reliance on forward-looking information. You are encouraged to closely consider the additional disclosures and risk factors contained in Argent's periodic filings on SEDAR that discuss in further detail the factors that could cause future results to be different than contemplated in this press release.
Note regarding barrel of oil equivalency
Barrels of oil equivalent (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of six Mcf to one bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and do not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of oil as compared to natural gas is significantly different from the energy equivalency conversion ratio of six to one, utilizing a boe conversion ratio of six Mcf to one bbl may be misleading as an indication of value.
Argent is a mutual fund trust under the Income Tax Act (Canada) (the "Tax Act"). 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:
John Elzner
President & Chief Executive Officer
Argent Energy Trust
(832) 320-9206
Sean Bovingdon
Chief Financial Officer
Argent Energy Trust
(403) 770-4809
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