Breaker Energy Ltd. announces third quarter results and provides operational
update
Financial and Operating Summary
3 Months 9 Months
Ended % Ended %
Sept 30, Sept 30, Change Sept 30, Sept 30, Change
2009 2008 2009 2008
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Financials ($000s
except per
share amounts)
Oil and NGL sales 17,782 36,721 (52) 47,509 93,962 (49)
Natural gas sales 6,627 13,778 (52) 26,188 40,119 (35)
Processing sales 98 531 (82) 341 1,385 (75)
Total oil, natural
gas and NGL
revenue 24,507 51,029 (52) 74,038 135,466 (45)
Funds from
operations(1) 10,309 30,216 (66) 25,745 80,571 (68)
Per share
basic ($) 0.20 0.76 (74) 0.54 2.06 (74)
Per share
diluted ($) 0.20 0.74 (73) 0.54 2.02 (73)
Net earnings
(loss) (3,131) 11,078 (128) (14,316) 31,845 (145)
Per share
basic ($) (0.06) 0.28 (121) (0.30) 0.81 (137)
Per share
diluted ($) (0.06) 0.27 (122) (0.30) 0.80 (138)
Capital
expenditures(2) 24,322 99,773 (76) 53,988 149,299 (64)
Net debt (end of
period) (87,391) (86,418) 1 (87,391) (86,418) 1
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Operating Highlights
Production:
Oil & NGL (bbls
per day) 2,847 3,402 (16) 2,957 3,019 (2)
Natural gas (mcf
per day) 22,617 18,408 23 23,333 16,804 39
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Total (boe per
day) (6:1) 6,617 6,470 2 6,845 5,820 18
Average realized
price:
Oil & NGL
($ per bbl) 67.88 117.34 (42) 58.86 113.59 (48)
Natural gas
($ per mcf) 3.18 8.14 (61) 4.11 8.71 (53)
Realized loss on
commodity
contracts
($ per boe) (0.41) - nm (0.83) - nm
Combined average
(incl.
processing
revenue) ($
per boe) 39.85 85.73 (54) 38.79 84.95 (54)
Netback ($ per boe)
Oil, natural gas
and NGL sales 39.85 85.73 (54) 38.79 84.95 (54)
Royalties (7.09) (16.23) (56) (8.56) (16.83) (49)
Operating expenses (9.36) (11.64) (20) (10.39) (10.59) (2)
Transportation
expenses (2.17) (2.58) (16) (2.18) (2.81) (22)
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Operating netback 21.23 55.28 (62) 17.66 54.72 (68)
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G&A expenses (2.45) (2.75) (11) (2.76) (2.69) 3
Interest expense (0.95) (1.69) (44) (0.74) (1.34) (45)
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Corporate netback 17.83 50.84 (65) 14.16 50.69 (72)
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Common Shares (000s)
Class A Shares
outstanding, end
of period 52,143 40,204 30 52,143 40,204 30
Weighted average
Class A shares 52,128 39,713 31 47,806 39,120 22
Weighted average
basic shares
outstanding 52,128 39,713 31 47,806 39,120 22
Stock option
dilution
(treasury method) - 981 (100) - 740 (100)
Weighted average
diluted shares
outstanding 52,128 40,694 28 47,806 39,860 20
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(1) Management uses funds from operations (before changes in non-cash
working capital) to analyze operating performance and leverage. Funds
from operations as presented does not have any standardized meaning
prescribed by Canadian GAAP and, therefore, may not be comparable
with the calculation of similar measures for other entities.
(2) Capital expenditures includes cash additions for the period including
acquisition additions net of dispositions.
Overview and Highlights
- Breaker's operations continue to focus on developing its portfolio of
large oil-in-place resource plays while reducing costs and
maintaining financial and operational flexibility during the
depressed natural gas price environment of the third quarter of 2009.
- The Company took advantage of the Alberta government's royalty
incentive programs during the third quarter, achieving a 79 percent
success rate drilling 14 gross (14.0 net) wells and investing $24.3
million of capital.
- Breaker shut-in approximately 2.5 mmcf/d of production for a portion
of the third quarter due to the depressed natural gas price
environment. Even with the impact of the shut-in natural gas
production, Breaker averaged 6,617 boe/d in the third quarter of
2009, a two percent increase over the third quarter of 2008
production rate of 6,470 boe/d. Breaker realized a 43 percent
production weighting to oil and natural gas liquids in the third
quarter of 2009.
- The Company continues its strategic shift to oil and expects to
achieve a balanced production weighting of oil and natural gas
liquids to natural gas in the fourth quarter of 2009. Breaker re-
started its shut-in natural gas wells in October resulting in a
projected fourth quarter average production of more than 7,000 boe/d.
- Breaker continued to develop its resource plays during the third
quarter. At Irricana, Breaker drilled four gross (4.0 net) horizontal
wells and completed the wells using horizontal multi-frac technology.
Resource development continued at Provost with eight gross (8.0 net)
wells. Breaker continued its exploration activities in the
Girouxville area drilling two gross (2.0 net) wells. The Company also
made two new oil pool discoveries, one at Girouxville and one at
Provost.
- Breaker obtained cost savings in recent projects compared with prior
quarters and remains focused on finding further operational
efficiencies. Breaker achieved a six percent operating cost reduction
during the third quarter of 2009 as compared to the second quarter of
2009 and a 20 percent reduction compared to the same period of 2008.
Operating costs were $9.36 per boe in the third quarter of 2009 as
compared to $9.95 per boe in the second quarter of 2009 and $11.64
per boe in the same period of 2008.
- Subsequent to September 30, 2009, Breaker reaffirmed its $125 million
bank line. At the end of the third quarter, Breaker had $87.4 million
of net debt, leaving $37.6 million available on its credit facility.
- On October 13, 2009 Breaker and NAL Oil & Gas Trust (NAL) jointly
announced they have entered into an arrangement agreement pursuant to
which NAL will acquire all of the issued and outstanding Class A
shares of Breaker (the "Transaction") by way of Plan of Arrangement
under the Business Corporations Act (Alberta). The total
consideration for the Transaction is approximately $403 million which
will be paid through the issuance of approximately 24.7 million NAL
trust units representing $310 million at a deemed price of $12.54 per
trust unit and the assumption of an estimated $93 million in Breaker
net debt. Based on an exchange ratio of 0.475 NAL trust units for
each Breaker Class A share, the consideration represents a price of
approximately $5.96 per Breaker Class A share and a 12 percent
premium using the preceding 20-day volume weighted average trading
prices for Breaker Class A shares and NAL trust units. In certain
circumstances, a non-completion fee of $12 million may be payable by
the Corporation to NAL. The Transaction is subject to the approval of
the Corporation's shareholders, the Court of Queen's Bench of the
Province of Alberta and regulatory authorities, and is expected to
close on or about December 11, 2009.
Breaker has filed with Canadian securities regulatory authorities its
Information Circular dated November 6, 2009 which is available for
review at www.sedar.com.
The Board of Directors of Breaker have unanimously approved the
Transaction and determined it is in the best interest of Breaker's
shareholders. Breaker's Board of Directors considered many factors in
the decision; including the fairness opinion provided by FirstEnergy
Capital Corp. that the consideration offered under the Transaction is
fair, from a financial point of view, to Breaker shareholders.
The Board of Directors of Breaker recommend that Breaker shareholders
vote their Breaker shares in favour of the Transaction at the special
meeting of Breaker shareholders scheduled to take place on
December 9, 2009.
Breaker believes that the Transaction presents an attractive
opportunity for shareholders to realize the value of their Breaker
Class A shares by receiving NAL trust units which will provide the
opportunity to continue to participate in the development of
Breaker's existing assets while gaining exposure to an entity with a
lower cost of capital and a larger producing asset base.
Operations Update
During the third quarter of 2009 Breaker continued to yield excellent oil drilling results at its large OOIP Irricana and Provost properties. Four horizontal multi-frac wells were drilled during the quarter at Irricana and two horizontal oil wells at Provost. Breaker also drilled a horizontal multi-frac gas well at Provost during the quarter. Late in the quarter Breaker spudded its third horizontal multi-frac well at Fireweed. Prior to year-end, the Company plans to have this liquids-rich natural gas on production through its facilities which were expanded during the third quarter of 2009. In addition, Breaker made a new oil discovery at each of Girouxville and Provost.
Irricana, Alberta
Breaker continues to increase its significant light oil production with its horizontal multi-frac drilling development. During the second quarter of 2009, the Company drilled its first well down-spaced to approximately 200 metre inter-well spacing. The well averaged approximately 270 and 285 boe/d respectively for its first two full months of production and continues to produce approximately 165 boe/d into its fourth month of production. Following on this success, Breaker drilled four more wells at 200 metre inter-well spacing in the third quarter and all have performed above initial internal expectations. The four wells are on production and producing between 325 and 375 boe/d, averaging approximately 340 boe/d. Breaker spud a fifth well in the third quarter of 2009 which should be completed and on production in November of this year. After three years of significantly increasing light oil production at Irricana through technological improvements, Breaker believes that development at tighter inter-well spacing will maximize reserve recovery and value. Early well results and pressure data are confirming this hypothesis. The 11 remaining locations at 400 metre inter-well spacing and additional 52 locations at 200 metre inter-well spacing provide many years of future light oil development.
Breaker plans to drill, complete and test prior to year-end 2009 its first Irricana Viking horizontal multi-frac gas well. In the third quarter of 2009, Breaker acquired approximately 7,000 acres of additional undeveloped land on this trend.
Provost, Alberta
During the third quarter of 2009, Breaker drilled two horizontal wells into its large oil-in-place Leduc oil pool and brought two wells drilled in the second quarter on production at restricted rates of approximately 70 bbls/d each. Ongoing field optimization has increased production from both of these wells to over 100 bbls/d after approximately 3.5 months of production. The Company's first well drilled in the third quarter of 2009 averaged approximately 135 bbls/d for its first two months of production and continues to produce at a similar rate during its third month. The second well drilled in the third quarter continues to produce approximately 70 bbls/d with a low 16 percent watercut. Drilling costs in this area have been significantly reduced from those experienced in recent years, which combined with royalty incentives and high heavy oil prices has led to expected rates of return that are higher than previous years. New undeveloped acreage totaling approximately 1,100 acres adjacent to recent successful wells was acquired in the third quarter.
Breaker continued work in the extensive Viking resource play by conducting completion operations on the second and third multi-frac horizontal wells recently drilled into the play, which came on-stream in July and August. The third well was an offset to Breaker's first well on the play and has exhibited better initial productivity of both oil and gas with a first-month average production rate of more than 150 boe/d, approximately 20 percent of which is light oil (calendar-day average from field estimates). The second well had a lower initial rate of approximately 75 boe/d, but with a higher ratio of oil to gas (approximately 30 percent light oil). Breaker will equip this well with a pump in the fourth quarter of 2009 to allow efficient lifting of produced oil and load fluid which may increase its total production rate on a boe/d basis.
Breaker made a heavy oil discovery in the third quarter, with initial production obtained from the Cummings formation. Reservoir thickness and quality is similar to the nearby Cummings S pool. Subsequent to drilling the discovery well, Breaker drilled a step-out well approximately one mile away and acquired additional, nearby acreage that is prospective for the Cummings formation. The step-out well has a potential pay zone that is thinner and poorer quality but structurally higher than the discovery well.
Fireweed, British Columbia
Breaker continues to realize strong production performance from its Fireweed liquids-rich natural gas resource play in northeast British Columbia. The Company's two horizontal multi-frac wells have entered into their shallow decline profile as forecasted. The third horizontal multi-frac well is planned to be drilled, completed and tested prior to year-end 2009. The gathering system loop was also completed in September, allowing the Company to fully realize the benefit of new high pressure production anticipated from the new well.
The Company's first horizontal multi-frac well at Fireweed continues to perform with a flattening decline rate. After the first eight months of production ending
Breaker's second horizontal multi-frac well has performed up to expectations set by its closest vertical legacy offsets. Breaker drilled this well in the north end of the property where wells historically produce at lower rates. This well has a cumulative total production of approximately 55 mboe after six months of production, and averaged approximately 200 boe/d for the month of
Both horizontal wells measured initial bottom hole pressures exceeding 16 MPa at a true vertical depth of approximately 1,645 metres, indicating only a small amount of drainage from more than 20 vertical legacy wells which have cumulative production of more than 17 bcf.
Due to the high pressure and flow rates of Breaker's two recent horizontal wells, a portion of Breaker's pre-existing production was curtailed before the two new wells stabilized at a flowing pressure similar to that observed prior to horizontal drilling. To mitigate future production curtailments from new wells, new pipeline infrastructure has been installed to allow both high and low pressure production to be sent to the Company-operated compression and dehydration facilities. Going forward, this should allow Breaker to realize the full production benefit from all of its new high pressure, high rate volumes from horizontal development wells.
Breaker's third horizontal multi-frac well is located in the historically more prolific southern area of the pool. In addition to the value of the natural gas liquids produced at Fireweed, the high heat content of the gas enables Breaker's Fireweed natural gas production to obtain a sales price approximately 10 percent higher per mcf than typical dry gas.
Girouxville, Alberta
Breaker continued drilling deep light oil exploratory prospects to take advantage of the Alberta Government's new drilling incentive program in addition to the
Financial Statements and Management's Discussion and Analysis
Breaker has filed with Canadian securities regulatory authorities its unaudited financial statements for the three and nine-month periods ending
Breaker Energy Ltd. is a junior oil and gas company focused on creating shareholder value by growing per share production and reserves through acquisitions and a focused exploration, development and exploitation plan.
Breaker has 52.1 million Class A shares and 4.8 million stock options outstanding at
Breaker Energy trades on the TSX under the symbol WAV.
Forward-looking Statements
This press release contains forward-looking statements. More particularly, this press release contains statements concerning Breaker's anticipated: (i) production weighting for 2009, (ii) changes to the Alberta royalty regime regulations in force, (iii) effect on Breaker of changes to the Alberta royalty structure, (iv) capital expenditures for 2009 and (v) exploration and development activities and results. This press release also contains forward-looking statements including, among others, statements regarding: the Transaction, the completion of the Transaction and the outcome of the Transaction.
The forward-looking statements are based on certain key expectations and assumptions made by Breaker, including expectations and assumptions concerning the performance of existing wells and success obtained in drilling new wells, anticipated expenses, cash flow and capital expenditures and the application of regulatory and royalty regimes.
Although Breaker believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because Breaker can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, risks associated with the oil and gas industry in general (e.g., operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), commodity price and exchange rate fluctuations and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures. Certain of these risks are set out in more detail in Breaker's Annual Information Form which has been filed on SEDAR and can be accessed at www.sedar.com.
The forward-looking statements contained in this press release are made as of the date hereof and Breaker undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.
Note: Boe means barrel of oil equivalent on the basis of 1 boe to 6,000 cubic feet of natural gas. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 1 boe for 6,000 cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Boe/d means barrel of oil equivalent per day.
In this press release: (i) mcf means thousand cubic feet; (ii) bopd means barrels of oil per day; (iii) mmcf means million cubic feet; (iv) mmcf/d means million cubic feet per day; (v) bbl means barrel; (vi) bbls means barrels; (vii) bbls/d means barrels per day; (viii) mboe means thousand barrels of oil equivalent; (ix) MPa means million pascals; and * bcf means billion cubic feet.
The TSX does not accept responsibility for the adequacy or accuracy of this release.
For further information: Dan O'Neil, President & Chief Executive Officer, (403) 215-5264; or Max Lof, Vice President, Finance & Chief Financial Officer, (403) 215-5264, [email protected], www.breakerenergy.com
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