Connacher Announces the Sale of Two Business Units: Montana Refining Company and Conventional Oil and Gas Assets; Releases Second Quarter Results
CALGARY, Aug. 14, 2012 /CNW/ - Connacher Oil and Gas Limited (CLL-TSX) ("Connacher" or the "company") today announced that it has entered into an agreement with Calumet Specialty Products Partners, L.P., a leading refiner and processor of specialty hydrocarbon products in the United States, to sell its heavy oil refinery and related assets (the "Refinery") in Great Falls, Montana for total proceeds of US$155 to US$170 million, prior to the potential deduction of a tax liability of approximately US$20 million. The total proceeds consist of a purchase price for the Refinery of US$120 million plus working capital, including inventory at market value at the time of closing. Management estimates that the working capital adjustment could result in additional cash proceeds of US$35 to US$50 million, depending primarily on the quantity of asphalt sales prior to closing and the corresponding market prices of refined products. The transaction is subject to customary regulatory approvals and third party consents. Closing of this transaction is expected in October 2012.
This sale transaction represents one of the steps in the strategic review process initiated by the Board of Directors earlier this year. The sale capitalizes on the significant value of the Refinery arising from the disconnect between North American posted prices, heavy oil differentials and crack spreads, which have resulted in strong refining margins.
Another step in the strategic review process is the proposed sale of the company's conventional oil and gas assets. In this regard, the company has entered into a letter of intent to sell all of its conventional petroleum and natural gas properties effective July 1, 2012, for cash consideration of $18.3 million, subject to normal post‐closing adjustments. This transaction is expected to close in September 2012.
The completion of these transactions will enhance the company's liquidity and allow it to pursue development opportunities to increase production at Great Divide.
Connacher's Board of Directors continues to actively pursue its strategic review process.
Summary operating and financial results for the three and six month periods of 2012 are set forth below and complete copies of Connacher's financial statements and management's discussion and analysis ("MD&A") are available on SEDAR at www.sedar.com.
| FINANCIAL ($000 except per share amounts) | Q2 2012 | Q2 2011 | % | YTD 2012 | YTD 2011 | % | |||
| Revenue, net of royalties (1) | $203,831 | $230,152 | (11) | $394,104 | $403,921 | (2) | |||
| EBITDA (1) (2) | 28,676 | 34,553 | (17) | 50,118 | 47,260 | 6 | |||
| Net loss | 45,062 | 44,169 | 2 | 65,620 | 58,270 | 13 | |||
| Per share, basic and diluted | (0.10) | (0.10) | - | (0.15) | (0.13) | 15 | |||
| Capital expenditures | 15,030 | 38,988 | (61) | 27,683 | 79,818 | (65) | |||
| Cash on hand | 41,499 | 31,525 | 32 | 41,499 | 31,525 | 32 | |||
| Working capital surplus | 110,555 | 18,954 | 483 | 110,555 | 18,954 | 483 | |||
| Long-term debt | 939,623 | 829,310 | 13 | 939,623 | 829,310 | 13 | |||
| Shareholders' equity | $357,742 | $467,057 | (23) | $357,742 | $467,057 | (23) | |||
| OPERATIONAL | Q2 2012 | Q2 2011 | % | YTD 2012 | YTD 2011 | % | |||
| Daily production volumes (3) | |||||||||
| Bitumen (bbl/d) | 11,651 | 13,720 | (15) | 12,040 | 13,462 | (11) | |||
| Crude oil (bbl/d) | 305 | 398 | (23) | 332 | 468 | (29) | |||
| Natural gas (Mcf/d) | 2,139 | 3,755 | (43) | 2,107 | 5,271 | (60) | |||
| Barrels of oil equivalent (boe/d) (4) | 12,312 | 14,744 | (16) | 12,723 | 14,808 | (14) | |||
| Upstream pricing (5) | |||||||||
| Bitumen ($/bbl) | 34.31 | 54.49 | (37) | 42.87 | 48.23 | (11) | |||
| Crude oil ($/bbl) | 67.46 | 90.93 | (26) | 74.68 | 79.91 | (7) | |||
| Natural gas ($/Mcf) | 1.89 | 3.94 | (52) | 1.70 | 3.70 | (54) | |||
| Barrels of oil equivalent ($/boe) (5) | 34.47 | 54.15 | (36) | $42.80 | $47.68 | (10) | |||
| Downstream | |||||||||
| Throughput - Crude charged (bbl/d) | 9,676 | 9,860 | (2) | 9,891 | 9,812 | 1 | |||
| Refinery utilization (%) | 102 | 104 | (2) | 104 | 103 | 1 | |||
| Refining netbacks (% of revenue)(2) | 18 | 10 | 80 | 16 | 8 | 100 | |||
| (1) |
Excludes revenue and results of conventional operations which has been presented as discontinued |
| (2) | A non-GAAP measure which is defined in the Non-GAAP Measurements section of this press release |
| (3) | Represents bitumen, crude oil and natural gas produced in the period. Actual sales volumes may be different due to inventory or other changes during the period. Actual volumes sold were 11,975 boe/d in Q2 2012, 14,340 boe/d in Q2 2011, 12,614 boe/d in YTD 2012 and 14,535 in YTD 2011 |
| (4) | All references to barrels of oil equivalent (boe) are calculated on the basis of 6 Mcf: 1 bbl. This conversion is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Boes may be misleading, particularly if used in isolation. Additionally, given the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion ratio of 6:1 may be misleading as an indication of value |
| (5) | Before royalties and risk management contract gains or losses and after applicable diluent and transportation costs divided by actual sales volumes |
Connacher's upstream operating and financial results in the quarter ("Q2 2012") were lower than the comparable period of 2011 ("Q2 2011") primarily due to slightly lower production volumes and significantly lower commodity prices. The Refinery continued to post strong financial results, contributing $22.8 million in refining netbacks in Q2 and $33.3 million year to date ("YTD").
Net proceeds from the aforementioned dispositions will be used in part to repay the company's revolving credit facility, with the remainder added to working capital pending deployment in 2013 in the following development projects.
Connacher continues to advance two significant projects that have the potential to materially enhance the economics of the company's oil sands projects: "SAGD+™" (the injection of solvent into the steam injectors to increase production, reduce steam:oil ratios ("SOR") and potentially increase reserve recovery) and "dilbit by rail" (utilizing railcars as opposed to pipelines to move dilbit to refineries thereby improving pricing and netback for dilbit).
A second SAGD+™ phase was initiated during the second quarter on a single well with medium quality pay located at Algar. The objective of the test was to demonstrate repeatability from the previously reported fall 2011 two-well pilot. Additionally, this test is intended to quantify production improvements on lesser pay quality wells and test additional solvent recovery surface equipment and design parameters. The results to date on this well have been very encouraging. Comparing July 2012 to April 2012 bitumen production and steam injection volumes, results in an approximate 25% increase in bitumen production and an approximate 28% decrease in SOR for this well pair. Based on these results and subject to capital allocation, the Algar SAGD+™ project may be expanded to the full Algar field in 2013.
As previously announced the company recently entered into a five year agreement with Canexus Corporation for "Transloading Services" at their North American Terminal Operations facility in Bruderheim, Alberta as well as "Transportation Management Services" which includes the use of 300 newly constructed railcars to be delivered over a nine month period. These efforts have resulted in current "dilbit by rail" sales amounting to approximately 40% of the company's production. It is anticipated that "dilbit by rail" as a percentage of total production will continue to rise as more rail cars become available thereby improving pricing for bitumen.
In addition to these significant innovations, Connacher has a number of approved development projects designed to increase production and throughput at its existing plants. In addition to SAGD+™ there are two re-drills at Algar; up to six SAGD well pairs on the new Pad 104 at Pod One; the drilling of a number of infill wells at Pod One and the addition of a diluent recovery unit ("DRU") at Pod One to reduce overall diluent usage and recycle diluent to the plants rather than selling it as part of the sales stream at a discount. Reducing overall diluent usage required for treating and transportation of bitumen will reduce overall diluent purchase costs and transportation costs and enhances bitumen value to refineries. The commencement of such projects will depend on, among other factors, the completion of the aforementioned dispositions, the conclusion of the strategic review process and the company's balance sheet position.
Non‐GAAP Measurements:
This press release contains terms commonly used in the oil and gas industry, such as refining netbacks and earnings before interest, taxes, depreciation and amortization ("EBITDA"). These terms are not defined by the financial measures used by Connacher to prepare its financial statements and are referred to herein as non‐GAAP measures. These non‐GAAP measures should not be considered an alternative to, or more meaningful than, cash provided by operating activities or net earnings (loss) as determined in accordance with Canadian GAAP as an indicator of Connacher's performance. Management believes that in addition to net earnings (loss), refining netbacks and EBITDA are useful financial measurements which assist in demonstrating the Company's ability to make interest payments, fund capital expenditures necessary for future growth or to repay debt. Connacher's determination of refining netbacks and EBITDA may not be comparable to that reported by other companies. Refining netbacks are calculated by deducting crude oil purchases and operating costs from refining sales revenues. EBITDA is calculated as net earnings (loss) from continuing operations before finance charges, current and deferred income tax provisions and recoveries, depletion, depreciation and amortization, exploration and evaluation expense, share‐based compensation, foreign exchange gains/losses, unrealized gains/losses on risk management contracts, interest and other income, gain (loss) on disposition of assets, defined benefit plan expense, share of interest in and loss on associate and costs of refinancing long‐term debt. Refining netbacks and EBITDA are reconciled to net loss in the Company's MD&A for the three and six months ended June 30, 2012 and 2011.
Forward Looking Information:
This press release contains forward looking information including, but not limited to, the proposed sale of the company's Refinery and conventional oil and gas assets (the "Dispositions"), the timing of closing the Dispositions, the anticipated sales proceeds to be realized as a result of the Dispositions and the uses thereof, the quantum of a potential tax liability related to the sale of the Refinery, the impact of the Dispositions on the company's liquidity and its ability to pursue development opportunities, the potential impact of the "SAGDTM" and "dilbit by rail" projects on the economics of the company's oil sands projects, the possible expansion of the Algar SAGDTM project to the full Algar field, the anticipated increase of "dilbit by rail" by the company and the impact that this will have on the price of bitumen, the possible commencement of development projects including the drilling of new and existing wells at Algar and Pod One and the addition of a DRU at Pod One and the anticipated impact that such development projects are expected to have on production, throughput, overall diluent purchase costs and transportation costs and the value of bitumen to refineries.
Forward looking information is based on management's expectations regarding, future asphalt sales, the closing of the Dispositions and the receipt of the required approvals therefore, the sales proceeds to be realized upon the closing of the Dispositions, the conclusion of the strategic review process, the company's future financial position, the company's future growth, results of operations and production, future commodity prices and foreign exchange rates, future capital and other expenditures (including the amount, nature and sources of funding thereof), plans for and results of drilling activity, environmental matters, business prospects and opportunities and future economic conditions. Forward looking information involves significant known and unknown risks and uncertainties, which could cause actual results to differ materially from those anticipated. These risks include, but are not limited to: the risk that the Dispositions are not completed or are not completed on the terms currently contemplated, the risks associated with the oil and gas industry (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 and resource estimates, the uncertainty of geological interpretations, the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), risk of commodity price and foreign exchange rate fluctuations, risks associated with the impact of general economic conditions, risks and uncertainties associated with securing and maintaining the necessary regulatory approvals and financing to proceed with the operation and continued expansion of the Great Divide oil sands project. In addition, there can be no assurance that any additional opportunities will result from the strategic review currently being undertaken by the company's Board or, if a further opportunity does materialize, no assurance can be made with respect to the terms or timing associated therewith.
Additional risks and uncertainties affecting Connacher and its business and affairs are described in further detail in Connacher's Annual Information Form for the year ended December 31, 2011, which is available at www.sedar.com. Although Connacher believes that the expectations in such forward looking information are reasonable, there can be no assurance that such expectations shall prove to be correct. The forward looking information included in this press release is expressly qualified in its entirety by this cautionary statement. The forward looking information included herein is made as of the date of this press release and Connacher assumes no obligation to update or revise any forward looking information to reflect new events or circumstances, except as required by law.
SOURCE: Connacher Oil and Gas Limited
Kelly J. Ogle or Peter Sametz
Phone: 403 538-6201
[email protected]
connacheroil.com
Share this article