Connacher Releases First Quarter Results: Solid Performance
CALGARY, May 15, 2012 /CNW/ - Connacher Oil and Gas Limited (CLL-TSX) ("Connacher" or the "Company") today announced its financial and operating results for the first quarter of 2012. The Company achieved solid performance and financial results in the quarter ("Q1 2012") when compared to results for the comparable period of 2011 ("Q1 2011"). Total revenue increased eight percent in Q1 2012 to $193 million (2011 - $179 million), with increased revenues from both upstream and downstream operations. Increased revenue was driven by higher realized commodity prices, offset somewhat by lower sales volumes of bitumen, crude oil, natural gas and refined products.
Upstream netbacks improved significantly in Q1 2012 to $29.22 on a barrel of oil equivalent ("boe") basis ($17.97 per boe in Q1 2011) which represents an increase of 63 percent. Oil sands netbacks were $34.4 million ($20.7 million in Q1 2011) or $30.11 per barrel ($17.61 per barrel in Q1 2011). Connacher's refinery in Great Falls, Montana also posted strong financial results, particularly when compared to normal seasonal results, contributing $10.5 million in downstream margins ($13.46 per barrel) as compared to $4.7 million ($5.56 per barrel) for Q1 2011. Operating costs in Connacher's oil sands operations continued to trend downwards and were $17.62 per barrel of bitumen as compared to $22.14 per barrel of bitumen in Q1 2011.
EBITDA increased by forty-one percent to $22.3 million in Q1 2012 (Q1 2011 - $15.8 million). Connacher realized a net loss of $20.6 million in Q1 2012 compared to $14.1 million in Q1 2011, primarily due to higher depletion, depreciation and amortization and lower unrealized foreign exchange gains in Q1 2012.
The Company had cash balances of $49 million at the end of the first quarter, after meeting its interest obligations of $39 million in respect of the senior secured second lien notes in February 2012.
Average production for Q1 2012 of 13,134 boe/d consisting of 12,429 bbl/d of bitumen (13,200 bbl/d for Q1 2011) and 705 boe/d conventional production (1,674 boe/d for Q1 2011) was down slightly from the comparable period in Q1 2011. Reduction in conventional production was due primarily to the sale of mature natural gas properties. Reduction in bitumen production (decrease of 6 percent) for the comparable period in 2011 was due primarily to normal and anticipated declines and curtailment of Connacher's capital program in the fourth quarter of 2011. The Company is maintaining its previously announced production guidance of 12,600 to 13,900 boe/d for the full year 2012. Connacher has a number of approved projects designed to maintain and increase bitumen production, which will be undertaken as sufficient capital becomes available. These include new drills at Pad 104 and infill wells at Pod One, two re-drills, infill wells, a diluent recovery system and the implementation of solvent injection (SAGD+™) on a larger scale at Algar.
Connacher's capital expenditure programs have been constrained due to the fact that the Company's outstanding convertible debentures, with a face value of $100 million, mature on June 30, 2012. It is the Company's intention to settle the convertible debentures in cash at that time, utilizing its current cash balances and a portion of its $100 million bank credit facility.
Summary operating and financial results for the periods 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) | Q1 2012 | Q1 2011 | % | |
| Revenue, net of royalties | $192,818 | $178,990 | 8 | |
| EBITDA (1) | 22,285 | 15,845 | 41 | |
| Net loss | (20,558) | (14,101) | 46 | |
| Per share, basic and diluted | (0.05) | (0.03) | 67 | |
| Capital expenditures | 12,653 | 40,830 | (69) | |
| Cash on hand | 48,852 | 42,865 | 14 | |
| Working capital surplus (deficit) | (5,059) | 80,902 | (106) | |
| Long-term debt | 848,256 | 843,089 | 1 | |
| Shareholders' equity | $399,087 | $512,143 | (22) | |
| OPERATIONAL | ||||
| Daily production volumes (2) | ||||
| Bitumen (bbl/d) | 12,429 | 13,200 | (6) | |
| Crude oil (bbl/d) | 359 | 540 | (34) | |
| Natural gas (Mcf/d) | 2,075 | 6,805 | (70) | |
| Barrels of oil equivalent (boe/d) (3) | 13,134 | 14,874 | (12) | |
| Upstream pricing (4) | ||||
| Bitumen ($/bbl) | 50.59 | 41.78 | 21 | |
| Crude oil ($/bbl) | 80.82 | 71.70 | 13 | |
| Natural gas ($/Mcf) | 1.50 | 3.57 | (58) | |
| Barrels of oil equivalent ($/boe) (3) | 50.33 | 41.31 | 22 | |
| Netbacks (1) | 29.22 | 17.97 | 63 | |
| Downstream | ||||
| Throughput - Crude charged (bbl/d) | 10,106 | 9,764 | 4 | |
| Refinery utilization (%) | 106 | 103 | 3 | |
| Margins (%)(1) | 12 | 6 | 100 | |
| (1) | A non-GAAP measure which is defined in the Advisory section of the MD&A. |
| (2) | 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 13,253 boe/d in Q1 2012 and 14,732 boe/d in Q1 2011. |
| (3) | 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. |
| (4) | Before royalties and risk management contract gains or losses and after applicable diluent and transportation costs divided by actual sales volumes. |
There has been significant volatility in crude oil prices and in the differential between light and heavy oil in the North American market. Connacher continues to manage this volatility as follows:
- By employing an active hedging program utilizing swaps and collars based on WTI pricing.
- By taking advantage of fluctuations in the differential between heavy and light crudes at our refinery and maximizing Canadian heavy crude as the supply. The refinery processes Canadian heavy sour crude into a range of higher value refined petroleum products, thereby capturing more of the value chain in a produced barrel of bitumen. Accordingly, the refinery provides a physical hedge for the Company's bitumen revenue.
- By continuing to expand Connacher's pioneering "dilbit by rail" strategy and leased railcar fleet in order to take advantage of excellent pricing (after transportation costs) for diluted bitumen railed to refineries on three coasts where dilbit is not currently accessible by pipeline. This dilbit by rail strategy allows Connacher to mitigate volatility to a considerable degree and provides additional options to its normal Alberta-based sales.
Connacher expects regulatory approval of its proposed Great Divide expansion in the relatively near future, likely by the end of the second quarter of 2012. Regulatory authorities required a third round of supplemental information requests related to oil sands projects proximal to transportation corridors that affect Connacher and some other companies in the EIA process. These responses were submitted to the regulatory bodies in May.
As previously advised, Connacher's Board of Directors continues to review the Company's business plans and review strategic options. Goldman Sachs and RBC Capital Markets have been engaged to assist the Board of Directors in connection with this strategic review. The Company and its advisors continue to be engaged with a number of highly qualified parties regarding the Company's future plans. Interested parties' due diligence examinations are active and ongoing and Connacher will be advising shareholders of any significant developments in due course.
ANNUAL MEETING
Our Annual Meeting of Shareholders is scheduled for June 28, 2012 at 3:00 PM (MT) at the Calgary Petroleum Club. All Shareholders are encouraged to attend.
ABOUT CONNACHER
Connacher Oil and Gas Limited is a fully integrated Calgary-based exploration, development and production company active in the production and sale of bitumen, crude oil, natural gas and natural gas liquids. The Company's principal assets are holdings in the Great Divide oil sands project in northern Alberta, as well as conventional light gravity crude oil and natural gas properties in central Alberta and a wholly-owned subsidiary which operates a 9,500 bbl/d heavy crude oil refinery in Great Falls, Montana.
Non‐GAAP Measurements:
This press release contains terms commonly used in the oil and gas industry, such as netbacks, margins 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), netbacks, margins 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 netbacks, margins and EBITDA may not be comparable to that reported by other companies. Upstream netbacks, including by product, are calculated by deducting the related diluent, transportation, field operating costs and royalties from upstream revenue. Downstream margins are calculated by deducting crude oil purchases and operating and transportation costs from refining sales revenues. EBITDA is calculated as net earnings (loss) 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. Upstream netbacks, downstream margins and EBITDA are reconciled to net earnings (loss) in the Company's MD&A for the three months ended March 31, 2012 and 2011.
Forward Looking Information:
This press release contains forward looking information including but not limited to anticipated average production for 2012, planned capital projects, the Company's intentions with respect to settling its convertible debentures and development of additional oil sands reserves (including the anticipated timing of required regulatory approvals associated therewith). Forward looking information is based on management's expectations regarding future growth, results of operations, 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 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), the 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 a transaction will result from the strategic review currently being undertaken by the Company's Board or, if a transaction 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.
Colin M. Evans or Kelly J. Ogle
Phone: 403 538-6201
[email protected]
connacheroil.com
Peter Sametz
Phone: 403 538-6201
[email protected]
connacheroil.com
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