Compton reports third quarter 2009 results
The full text of Management's Discussion and Analysis ("MD&A") and the Corporation's audited consolidated financial statements can be found on the Corporation's website at www.comptonpetroleum.com and at www.sedar.com.
Summary of Quarterly Performance
- Cash flow of $7.3 million, or $0.06 per diluted share
- Operating loss was $19.1 million, largely due to depletion and
depreciation
- Net earnings of $13.0 million, or $0.10 per diluted share
- Average production was 19,760 boe/d
- Capital expenditures of $8.3 million, before acquisitions and
divestitures
Depressed natural gas prices continued to impact Compton's financial performance throughout the quarter. In this environment, Compton remains focused on its defensive strategy of living within cash flow until a clear signal that the recovery of commodity prices is evident.
A key challenge for Compton in 2009 has been to realign and strengthen its capital structure, with the objective of significantly reducing its overall debt level in order to be able to realize future value for shareholders from the Corporation's significant portfolio of assets. Compton has taken a multi-faceted, staged approach to recapitalization, which is intended to support the needs of all stakeholders.
In
- an equity issue of 138 million units composed of one common share and
one share purchase warrant for net proceeds of $161.4 million; and
- the sale of various overriding royalties for total gross proceeds of
$54.5 million with an option for an additional $47.5 million.
Proceeds from these transactions have been used to decrease the Corporation's debt level. Taking into account the proceeds from the equity issue and the overriding royalty sales, total bank debt and senior notes has been reduced by 26% to
Compton now has greater flexibility, choice and time, allowing the Corporation to start shifting its focus to growth opportunities. The Corporation has identified several potential opportunities from its existing asset base that may be incorporated in its 2010 budget, which is currently being developed. Depending upon commodity prices, Management expects, at a minimum, to maintain stable production, assuming a 2010 AECO natural gas price of
Financial Review
Three Months Ended Sept 30 Nine Months Ended Sept 30
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(000s, except
per share % %
amounts) 2009 2008 Change 2009 2008 Change
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Total
revenue(1) $ 47,258 $157,979 (70%) $170,281 $505,526 (66%)
Cash
flow(1)(2) $ 7,312 $ 91,942 (92%) $ 38,926 $226,286 (83%)
Per share
- basic(1)(2) $ 0.06 $ 0.71 (92%) $ 0.31 $ 1.74 (82%)
-diluted(1)(2)$ 0.06 $ 0.70 (91%) $ 0.31 $ 1.70 (82%)
Operating
earnings
(loss)(1)(2) $(19,081) $ 35,728 (153%) $(37,613) $ 78,549 (148%)
Net earnings $ 12,990 $ 59,882 (78%) $ 15,470 $ 52,940 (71%)
Per share
- basic $ 0.10 $ 0.46 (78%) $ 0.12 $ 0.41 (71%)
- diluted $ 0.10 $ 0.46 (78%) $ 0.12 $ 0.40 (71%)
Capital
expenditures
before
acquisitions
and
divestments $ 8,295 $106,012 (92%) $ 41,329 $270,486 (85%)
Total bank
debt &
senior
notes(3) $802,840 $704,685 14%
Shareholders
equity $851,865 $933,448 (9%)
Shares
outstanding(4) 125,573 125,575 -
(1) Prior periods have been revised to conform to current period
presentation
(2) Cash flow and operating earnings are non-GAAP measures and are
addressed in detail in the MD&A
(3) $593,990 at the date of this release; includes interest
(4) 263,573 thousand at the date of this release
Revenue decreased by 70% over the third quarter of 2009 due to significantly lower realized natural gas and liquids prices and reduced production volumes.
Compton recognized net earnings of
Depressed natural gas prices largely contributed to reduced cash flow in the third quarter of 2009. As a result, a condition of Compton's senior note indenture currently limits the amount the Corporation can borrow under is credit facility to
Capital spending, before acquisitions, divestments and corporate expenses decreased by 85% in 2009 compared to the comparable period in 2008 due to decreased and delayed activity during 2009. The Corporation commenced drilling two wells in the third quarter of 2009 as compared to 101 in 2008, largely due to the decline in commodity prices which has adversely impacted economic returns on drilling projects.
Operations Review
Three Months Ended Sept 30 Nine Months Ended Sept 30
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% %
2009 2008 Change 2009 2008 Change
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Average daily
production
Natural gas
(mmcf/d) 99 130 (24%) 108 150 (28%)
Liquids
(bbls/d) 3,208 4,323 (26%) 3,428 4,989 (31%)
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Total
(boe/d) 19,760 26,006 (24%) 21,452 29,931 (28%)
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Realized prices
Natural gas
($/mcf) $ 3.14 $ 8.75 (64%) $ 4.09 $ 8.50 (52%)
Liquids
($/bbl) $ 55.42 $ 124.05 (55%) $ 47.60 $ 109.22 (56%)
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Total
($/boe) $ 24.78 $ 64.41 (62%) $ 28.22 $ 60.68 (54%)
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Field
netback(1)
($/boe) $ 18.61 $ 36.27 (49%) $ 19.21 $ 35.60 (46%)
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(1) Field netback is a non-GAAP measures and is addressed elsewhere in
detail in the MD&A
As anticipated, third quarter production volumes were lower than the previous year primarily due to asset sales, natural declines and minimal new production additions due to lower capital expenditures in 2009. With continued lower natural gas prices, Compton does not anticipate increasing its capital budget for the remainder of 2009.
In Niton, Compton completed the 4-30 well (100% working interest) during the third quarter. The well was tied-in at the beginning of October and is producing at a current rate of approximately 3.0 mmcf/d. The well's cost was reduced by approximately 15% compared to previous horizontal wells drilled in the area due to the Corporation's focus on internal cost reduction and lower industry rates. Compton commenced drilling another horizontal well (100% working interest) targeting the Rock Creek formation during the third quarter, which is anticipated to be completed prior to year-end.
During the third quarter, Compton commenced drilling a step-out well at
A review of Compton's operating costs including a benchmarking study undertaken in the second quarter has been substantially completed. The study will assist in better understanding operating costs and identifying cost savings opportunities specific to Compton. The Corporation will then prioritize cost savings initiatives and schedule implementation plans for 2010.
Compton is also in the process of developing its multi-year exploitation strategic plan for its core areas. As the Corporation shifts its focus to growth activities, this plan will be integral to unlocking the potential in its large asset base.
Outlook
The combination of low natural gas prices and a relatively high debt level has created challenges for the Corporation. In this environment, Compton has focused on strategic initiatives to overcome these issues, including:
- Identifying options to reduce debt levels and rebalance its capital
structure;
- Establishing appropriate rate of return criteria on investment
opportunities;
- Reducing internal cost structures; and
- Re-evaluating depletion strategies to optimize asset value.
Substantial progress has been made in meeting these goals in 2009: Compton has realized reductions in administrative and drilling costs, adjusted its capital investment philosophy to maintain minimum investment rates of returns and implemented optimization initiatives. In addition, Compton has solidified its capital structure through the recent equity issue and overriding royalty sale, providing greater financial flexibility and the ability to shift focus to identifying growth opportunities.
The Corporation's reduced debt level has provided Compton with options for further deleveraging as well as the time and flexibility to assess various other opportunities. As the de-leveraging process is completed, Compton will emerge as a stronger company that is focused on its assets and growth in production and cash flow.
The Corporation is in the process of developing a multi-year exploitation plan for its assets. In the creation of this plan, management is focused on activities that meet internal rate of return hurdles and increase capital efficiencies. Compton is on target to meet its 2009 average production guidance of between 20,500 and 21,500 boed for the year. In addition, Compton's improved financial position provides management with the ability to act on other value-accretive growth opportunities as they are identified for the long-term benefit of the Corporation and its shareholders.
Additional Information
Compton has filed its audited Consolidated Financial Statements for the three months ended
2009 Third Quarter Conference Call
Compton will host a conference call and web cast on
Advisories
Non-GAAP Financial Measures
Included in this document are references to terms used in the oil and gas industry such as, cash flow, operating earnings (loss), free cash flow, cash flow per share, adjusted EBITDA, field netback, funds flow netback, debt and capitalization. Non-GAAP measures do not have any standardized meaning and therefore reported amounts may not be comparable to similarly titled measures reported by other companies. These measures have been described and presented in this document in order to provide shareholders and potential investors with additional information regarding the Company's liquidity and its ability to generate funds to finance its operations.
Cash flow should not be considered an alternative to, or more meaningful than, cash provided by operating, investing and financing activities or net earnings as determined in accordance with Canadian GAAP, as an indicator of the Corporation's performance or liquidity. Cash flow is used by Compton to evaluate operating results and the Corporation's ability to generate cash to fund capital expenditures and repay debt.
Operating earnings (loss) is used by the Corporation to facilitate comparability of earnings between periods. Operating earnings (loss) represents net earnings excluding certain items that are largely non-operational in nature, primarily of a non-cash nature or one-time non-recurring items, and should not be considered an alternative to, or more meaningful than, net earnings as determined in accordance with Canadian GAAP.
Adjusted EBITDA is a non-GAAP measure defined as net earnings, before interest and finance charges, income taxes, depletion and depreciation, accretion of asset retirement obligations, and foreign exchange and other gains and losses.
Field netback equals the total petroleum and natural gas sales, including realized gains and losses on commodity hedge contracts, less royalties and operating and transportation expenses, calculated on a $/boe basis. Funds flow netback equals field netback including general and administrative costs and interest costs. Field netback and funds flow netback are non-GAAP measures that management uses to analyze operating performance.
Free cash flow is a non-GAAP measure that Compton defines as cash flow in excess of capital investment, excluding net acquisitions and divestitures, and is used by Management to determine the funds available for other investing activities, and/or other financing activities.
Debt is comprised of floating rate bank debt and fixed rate senior term notes. Capitalization is defined as bank debt plus shareholder's equity.
Use of Boe Equivalents
The oil and natural gas industry commonly expresses production volumes and reserves on a barrel of oil equivalent ("boe") basis whereby natural gas volumes are converted at the ratio of six thousand cubic feet to one barrel of oil. The intention is to sum oil and natural gas measurement units into one basis for improved measurement of results and comparisons with other industry participants. We use the 6:1 boe measure which is the approximate energy equivalency of the two commodities at the burner tip. However, boes do not represent a value equivalency at the well head and therefore may be a misleading measure if used in isolation.
Forward-Looking Statements
Certain information regarding the Corporation contained herein constitutes forward-looking information and statements and financial outlooks (collectively, "forward-looking statements") under the meaning of applicable securities laws, including Canadian Securities Administrators' National Instrument 51-102 Continuous Disclosure Obligations and the
The forward-looking statements contained herein are made as of the date of this news release solely for the purpose of generally disclosing Compton's views of its financial and operational results as of
About Compton Petroleum Corporation
Compton Petroleum Corporation is a public company actively engaged in the exploration, development and production of natural gas, natural gas liquids, and crude oil in western
%CIK: 0001043572
For further information: Susan J. Soprovich, Director, Investor Relations, Ph: (403) 668-6732, Fax: (403) 237-9410, Email: [email protected], Website: www.comptonpetroleum.com
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