Second Wave Petroleum Inc. Announces Filing of Second Quarter 2012 Financials Results

Toronto Stock Exchange: SCS
Common Shares: 83,989,631

CALGARY, Aug. 15, 2012 /CNW/ - Second Wave Petroleum Inc. ("Second Wave" or the "Company") announced today the filing of its interim financial statements and management's discussion and analysis for the quarter ended June 30, 2012, which have been filed on SEDAR at www.sedar.com

Quarterly Highlights:

• Achieved record quarterly production of 2,641 boe/d (79% oil and natural gas liquids) representing a year-over-year increase of 60%.
  
  
• Increased Beaverhill Lake production in Judy Creek to 1,918 boe/d (89% oil and natural gas liquids) increasing 62% from the first quarter and added 1,744 boe/d of new production on a year-over-year basis.
  
  
• Operating revenue increased to $15.9 million with net operating income of $9.4 million representing year-over-year increases of 56% and 92%, and quarter-over-quarter increases of 23% and 40%, respectively.
  
  
• Increased corporate production weighting to oil and natural gas liquids to 79% from 60% in Q2, 2011.
  
  
• Operating netbacks increased to $39.08 per boe, a 20% year-over-year increase as the Company's increased production weighting to light oil and natural gas liquids off-set the year-over-year decrease in commodity prices.
  
  
• At quarter end the Company had drilled 36.0 gross (16.8 net) Beaverhill Lake light oil wells in Judy Creek with 27.0 gross (13.2 net) wells on production, 4.0 gross (1.6 net) wells completed and standing waiting on the installation of surface and downhole pumping equipment and a further 5.0 gross (2.0 net) wells standing waiting on completions.

Selected Second Quarter Financial Information

		Three months ended June 30						Three months ended March 31
($000s, except per share and per boe amounts)		2012		2011		% Change		2012		% Change *
	Petroleum and natural gas sales	15,864		8,962		77		12,898		23
	Royalties	(1,017	)	(590	)	72		(887	)	15
	Lease operating costs	(4,962	)	(3,041	)	63		(4,864	)	2
	Transportation	(492	)	(435	)	13		(450	)	9
Operating netback		9,393		4,896		92		6,697		40
Operating netback per boe		39.08		32.62		20		34.60		13
Net capital expenditures		18,824		9,188		105		34,316		(45	)
Net Income (loss)		4,869		1,734		181		(2,039	)	-
Cash from operating activities per share		0.11		0.05		120		0.06		83
Net income (loss) per share		0.06		0.02		200		(0.02	)	(400	)
Sales volumes
	Oil (bbl/d)	1,961		853		130		1,559		26
	Natural gas liquids (bbl/d)	137		127		8		84		63
	Natural gas (mcf/d)	3,257		4,015		(19	)	2,904		12
Combined (boe/d) (6:1)		2,641		1,650		60		2,126		24
Crude oil and liquids weighting (%)		79		60		32		77		3

*  Percentage change from Q1, 2012 to Q2, 2012

Second Quarter Review

The Company remained focused on its Judy Creek Beaverhill Lake light oil play in the second quarter drilling an additional 7.0 gross (2.8 net) horizontal light oil wells and exiting the quarter having drilled a total of 36.0 gross (16.8 net) horizontal light oil wells on the play to date. The Company exited the quarter with 27.0 gross (13.2 net) Beaverhill Lake horizontal light oil wells on production, 4.0 gross (1.6 net) wells standing waiting on the installation of surface and down hole pumping equipment and 5.0 gross (2.0 net) wells standing waiting on completion operations.

As a result of wet ground conditions and commodity price volatility in the second quarter the Company and its joint venture partners have taken the opportunity to delay the start up of certain tie-in and completion operations on its standing Beaverhill Lake wells as cost control was prioritized at the expense of cycle times on these projects.

Second Wave achieved record production in the second quarter averaging 2,641 boe/d (79% oil and natural gas liquids) which represents a year-over-year and quarter-over-quarter production increase of 60% and 24%, respectively. The Company remains focused in its Judy Creek core area with 94% of its production in the second quarter coming from this field. The Company's Beaverhill Lake production increased to 1,918 boe/d from 174 boe/d in the second quarter of 2011, representing a year-over-year increase of 1,000% or 1,744 boe/d. With the success of its Beaverhill Lake light oil drilling program the Company's production weighting to oil and natural gas liquids has increased year-over-year to 79% from 60%.    

Of its 36.0 gross (16.8 net) horizontal light oil wells on the Judy Creek Beaverhill Lake play at quarter-end, Second Wave had 31.0 gross (13.0 net) wells drilled in its core area and an additional 5.0 gross (3.8 net) delineation wells drilled outside of its core area. Of the 31.0 gross wells drilled in its core area, the Company has completed and tested 27.0 gross wells by the end of the second quarter with type curve data reflecting an average initial 30 day production rate per well estimated at 550 bbl/d of light oil and an average production rate estimated at 200 bbl/d over the initial 180 day production period. Exiting gross production rates after 180 days have averaged 120 bbl/d of light oil per well. At quarter end the Company had an inventory of 9.0 gross (3.6 net) wells waiting on the installation of production equipment or completions. All of these wells are currently scheduled to be on production by the end of the third quarter.

Each Beaverhill Lake horizontal well is estimated to cost $5.5 million to drill, complete and tie-in however the Company expects that capital costs may improve on a go forward basis by 10 to 15% as the recent slowdown in drilling activities in the western sedimentary basin has resulted in continued downward pressure on service pricing. Although the Company has not drilled a Beaverhill Lake well in the third quarter it has experienced a 10 to 20% cost reduction on completion operations in the quarter when compared to historical costs levels.

Revenue from operating activities increased in the second quarter to $15.9 million with operating cash flow increasing to $9.4 million representing year-over-year increases of 77% and 92%, respectively. The increase in revenue and net operating cash flow was a result of the 60% increase in corporate production year-over-year and a marginal increase in the revenue per boe received in the quarter. Revenue per boe increased by 11% year-over-year to $66.01 per boe as the Company has increased its production oil weighting, particularly its light oil weighting which off-set the year-over-year decreases  in commodity prices (Edmonton Par (40 API) down 17%, Western Canadian Select (20° API) down 15%, AECO Natural Gas down 49%).

Corporate operating netbacks increased 20% year-over-year to $39.02 per boe with operating and transportation costs remaining relatively static over the same time period. The Company's Beaverhill Lake production with its oil priced at Edmonton Par levels had operating netbacks of $53.31 per boe in the second quarter. These netbacks were negatively impacted by widening Edmonton Par light oil differentials in the second quarter with average realized pricing of $82.72 per bbl versus $84.35 per bbl in the first quarter of 2012 and $98.52 per bbl in the fourth quarter of 2011. Third quarter Edmonton Par pricing to date has been consistent with second quarter levels.

The Company's second quarter operating and transportation costs were $20.65 per boe and $2.05 per boe, respectively, which were relatively static year-over-year. The Company's Beaverhill Lake production in the second quarter had operating and transportation costs of $14.86 per boe and $2.07 per boe, respectively. Year-over-year production increases from the Company's lower operating cost Beaverhill Lake play were off-set by costs related to wet weather conditions in the second quarter and higher operating costs in the Company's non-core areas. The Company continues to work on improving its operating cost structure in Judy Creek as it progresses with pipeline connecting its sales oil production and electrifying its Judy Creek oil field. The Company expects that its Judy Creek oil production will be pipeline connected by the end of the first quarter of 2013 and that approximately one-third of its oil field will be electrified at the end of the third quarter of 2012 with an additional one-third of the field expected to be electrified by the end of the first quarter of 2013. Pipeline connecting the Company's oil production in Judy Creek is expected to significantly reduce its trucking, transportation and processing costs which exceeded $7.50 per boe on its Beaverhill Lake production in the second quarter. Electrification of the oil field is expected to yield incremental reductions in per unit operating expense by facilitating increased run time and reduced maintenance, although less significant in scale than the pipeline connection.

Outlook

Coming into the third quarter, the Company and its joint venture partners continue to focus on reducing its inventory of standing Beaverhill Lake light oil wells in a cost efficient manner. As of August 15, 2012, the Company currently has 31.0 gross (14.8 net)  Beaverhill Lake wells on production with 2.0 gross (0.8 net) wells standing waiting on the installation of pumping equipment and 3.0 gross (1.2 net) wells standing waiting on completion operations. Due primarily to wet weather conditions during the second and third quarter the Company experienced cycle times associated with the installation of pumping equipment post fracture stimulation on new Beaverhill Lake wells in excess of 60 days from a previous average of 14 days. Similar delays have been experienced on its completion operations on new wells. In light of these delays, the Company expects that its third quarter production levels will remain static with its second quarter levels although this forecast is, and actual production levels will be, directly dependent on the timing and results of its remaining completion and tie-in activities.

The Company expects to have all of its remaining standing wells producing by the end of the third quarter, after which it currently plans to re-initiate its Beaverhill Lake drilling program consisting of one drilling rig increasing to two drilling rigs by year end 2012. The Company currently anticipates running at least two Beaverhill Lake drilling rigs for the first half of 2013. Corporate production growth is expected to resume in the fourth quarter with the re-commencement of the Beaverhill Lake drilling program. The Company expects that it can maintain and grow its light oil production base in the near future on a cash flow based budget.

The Company estimates that it has an unrisked Beaverhill Lake drilling inventory of 90.0 net locations in Judy Creek of which 16.8 net have been drilled to date. The Company's estimates its undrilled inventory represents approximately $403 million of unrisked net investment opportunity on primary production and based on the type curve data disclosed above potential unrisked 30 day and 180 day average net light oil production rates exceeding 40,000 bbl/d and 14,000 bbl/d, respectively. The Company remains focused on maximizing its shareholders exposure to the successful development of this light oil resource.

The Company may provide a further operational update later in the third quarter or as results dictate.

READER ADVISORIES

Barrels of Oil Equivalent (BOEs).  The term BOE refers to barrel of oil equivalent, with natural gas converted to crude oil equivalent at a ratio of six thousand cubic feet to one barrel.  BOEs may be misleading, particularly if used in isolation.  A BOE conversion ratio of six mcf (six thousand cubic feet) to one bbl (one barrel) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Forward-Looking Statements.  This news release contains forward-looking statements as to the Company's internal projections, expectations and beliefs relating to future events or circumstances. Forward-looking statements are typically (but not necessarily) identified by words such as "anticipate", "believe", "budget", "estimate", "expect", "plan", "intend", "potential", "may", "will", "should" or similar words suggesting future outcomes. Although the Company believes that these forward-looking statements are reasonable, undue reliance should not be placed on them as they are subject to known and unknown risks and uncertainties, many of which are beyond the Company's control. Forward-looking statements are not guarantees of future outcomes. There can be no assurance that the plans, intentions or expectations contained in the forward-looking statements or upon which they are based will in fact occur or be realized, and actual results may differ from those expressed or implied in the forward-looking statements. The difference may be material.

Second Wave is subject to the inherent risks associated with the exploration, development, exploitation and production of oil and gas. More particularly, material risk factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements contained in this news release include: adverse changes in commodity prices, interest rates or currency exchange rates; accessibility of capital when required and on acceptable terms; lower than expected production of crude oil and natural gas; production delays; lower than expected reserve volumes on the Company's properties; increased operating costs; ability to attract and retain qualified personnel or to secure drilling rigs and other services on acceptable terms; competition for labour, equipment and materials necessary to advance the Company's projects; unforeseen engineering, environmental or geological problems; ability to obtain all required regulatory approvals on a timely basis and on satisfactory terms; and changes in laws and governmental regulations (including with respect to taxes and royalties). This list is not exhaustive. Readers should also review the risk factors described in other documents filed by the Company from time to time with securities regulatory authorities in Canada, including its most recent annual information form, copies of which are available electronically at www.sedar.com and at www.secondwavepetroleum.com.

Specific forward-looking statements contained in this news release include statements regarding: future growth in shareholder value generally; closing of the $15 million development drilling credit facility with Brookfield Bridge Lending Fund Inc.; the potential for accelerating the Beaverhill Lake drilling program; the scheduled number and pace of completions this month and for the remainder of 2012; expected increases in stable pumping volumes during 2012; the ability to increase rig count in the future; expectations regarding downward pressure on service costs for the remainder of 2012; the availability of acid and number of competing service providers in the Judy Creek area; expected increase in capital efficiencies in 2012.  In making such forward-looking statements, Second Wave has made various assumptions regarding, among other things: the accuracy of geological and geophysical data and interpretations of that data; future oil and natural gas prices; future capital requirements; future exchange rates; the accessibility and cost of capital (including credit); the Company's ability to economically produce oil and gas from its properties and the timing and cost to do so; and its ability to obtain qualified staff, equipment and supplies in a timely and cost-efficient manner.

The forward-looking statements included herein are made as of the date of this news release and Second Wave undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by securities laws. 

SOURCE: Second Wave Petroleum Inc.

Contact:

Colin B. Witwer, President and CEO

Second Wave Petroleum Inc.
Calgary, Alberta, Canada
Telephone: [phone]
Email: [email protected]
Web:  www.secondwavepetroleum.com