Twin Butte Energy Announces Record First Quarter Funds Flow, Progress on Transition to Higher Value Asset Base
CALGARY, May 13, 2015 /CNW/ - (TSX: TBE) – Twin Butte Energy Ltd. ("Twin Butte" or the "Company") is pleased to report its financial and operational results for the three months ended March 31, 2015.
Highlights of Twin Butte's successful first quarter 2015 are as follows:
- Generated record funds flow of $55.4 million ($0.16/share).
- Continued the transition to a medium gravity, oil-focused producer with medium barrels accounting for 50% of oil production in the first quarter.
- Reduced per boe operating and transportation costs by 16.5% to $19.83 as compared to Q1 2014 costs of $23.74 per boe.
- Reduced net debt by $19.4 million to $333.9 million from year end 2014, providing a debt to cash flow ratio of 1.5 times on an annualized basis.
- Completed a prudent capital program of $25.2 million, including the drilling of 17 gross (17 net) wells.
- Declared $10.7 million in first quarter dividends.
- Maintained financial discipline by managing total payout to 64% in response to low oil prices.
- Delivered successful results on both the new Sparky and Lithic channel plays at Provost at lower than anticipated capital costs.
- Drilled, completed and brought on stream the Company's first unlined multi-lateral well, in the Lloydminster heavy area, opening up the potential for significant long term, high value, redevelopment across the Heavy oil asset.
Priorities for Twin Butte in 2015 remain:
1. Continue to maintain and enhance balance sheet flexibility through decreasing total debt, and improving cost structure
- Maintain financial discipline
- Actively manage total capital spending and, adjust if necessary, the dividend through a volatile commodity pricing environment.
- Realize targeted corporate cost savings both through improved operating and capital efficiency, and lower service costs.
2. Continue the transition to a more predictable, longer life, higher netback medium oil production base
- Direct over 80% of capital spending to Provost development wells, and construct incremental oil and water handling facilities to ensure low decline, long term base production.
- Selectively allocate development capital within the Company's Lloydminster - heavy oil core area.
- By year-end 2015 Provost is expected to represent over 50% of corporate production (Q4 2014 41%).
3. Further expand the Company's drilling inventory
- Following 2014 drilling successes on three of the core plays at Provost (Dina/Cummings, Sparky and Lithic channels) the Company has, and will continue to actively grow its footprint and drilling inventory through a combination of crown land sales, property swaps, small asset purchases and farm-ins.
Certain selected financial and operational information for the three months ended March 31, 2015 and 2014 is outlined below and should be read in conjunction with Twin Butte's condensed interim financial statements for the three months ended March 31, 2015 and 2014 and accompanying management discussion and analysis filed with the Canadian securities regulatory authorities which may be accessed through the SEDAR website (www.sedar.com) and also on the Company's website.
| Three months ended March 31 |
||||
| 2015 |
2014 |
% Change |
||
| Financial ($ 000's, except per share amounts) |
||||
| Petroleum and natural gas sales |
61,713 |
149,200 |
-59% |
|
| Funds flow (1) |
55,367 |
51,384 |
8% |
|
| Per share basic |
0.16 |
0.15 |
7% |
|
| Per share diluted |
0.16 |
0.15 |
7% |
|
| Net income (loss) |
(22,447) |
(15,240) |
-47% |
|
| Per share basic |
(0.06) |
(0.04) |
-50% |
|
| Per share diluted |
(0.06) |
(0.04) |
-50% |
|
| Dividends declared |
10,698 |
16,550 |
-35% |
|
| Dividends declared, Post DRIP |
10,155 |
14,897 |
-32% |
|
| Capital expenditures(1) |
25,042 |
37,890 |
-34% |
|
| Net debt (1) |
333,916 |
363,659 |
-8% |
|
| Operating |
||||
| Average daily production |
||||
| Light & Medium crude oil (bbl per day) |
8,480 |
7,614 |
11% |
|
| Heavy crude oil (bbl per day) |
8,480 |
12,682 |
-33% |
|
| Natural gas (Mcf per day) |
12,141 |
12,200 |
0% |
|
| Natural gas liquids (bbl per day) |
174 |
200 |
-13% |
|
| Barrels of oil equivalent (boe per day, 6:1) |
19,158 |
22,529 |
-15% |
|
| % Oil and NGLs |
89% |
91% |
-2% |
|
| Average sales price |
||||
| Light & Medium crude oil ($ per bbl) |
40.91 |
82.73 |
-51% |
|
| Heavy crude oil ($ per bbl) |
35.29 |
73.81 |
-52% |
|
| Natural gas ($ per Mcf) |
2.71 |
6.08 |
-55% |
|
| Natural gas liquids ($ per bbl) |
37.82 |
88.18 |
-57% |
|
| Barrels of oil equivalent ($ per boe, 6:1) |
35.79 |
73.58 |
-51% |
|
| Field netback ($ per boe) (1) |
||||
| Petroleum and natural gas sales |
35.79 |
73.58 |
-51% |
|
| Royalties |
(4.31) |
(12.41) |
-65% |
|
| Operating expenses |
(18.87) |
(22.81) |
-17% |
|
| Transportation expenses |
(0.96) |
(0.93) |
3% |
|
| Field netback (1) |
11.65 |
37.43 |
-69% |
|
| Cash (loss) gain on financial derivatives |
24.81 |
(8.71) |
385% |
|
| Operating netback (1) |
36.46 |
28.72 |
27% |
|
| Wells drilled |
||||
| Gross |
17.0 |
34.0 |
-50% |
|
| Net |
17.0 |
34.0 |
-50% |
|
| Success (%) |
94 |
94 |
0% |
|
| Common Shares |
||||
| Shares outstanding, end of period |
353,326,551 |
345,071,217 |
2% |
|
| Weighted average shares outstanding – diluted |
352,979,775 |
344,452,929 |
2% |
|
| (1) |
Funds flow, Corporate acquisitions, Capital expenditures, Net debt and Field netback, and operating |
Corporate:
In Q1 2015, Twin Butte made progress on all of our 2015 priorities: net debt and operating costs decreased; the transition to a higher value netback asset base that is more predictable accelerated; and additional prospective lands were captured at Provost and in key Lloydminster horizontal areas.
Twin Butte remains committed long term to the dividend model believing it is the best way to monetize the Company's asset base for maximum shareholder return. With the Company's strong hedge book in 2015 and the recent modest improvements in oil prices Twin Butte's board of directors has approved continuation of the existing $0.01 per share monthly dividend.
Financial:
Twin Butte's first quarter 2015 financial and operating results saw the Company continue to demonstrate disciplined spending while reducing net debt by $19.4 million to $333.9 million providing a 1.5 times debt to cash flow ratio on an annualized basis. The Company declared $10.7 million in dividends which when combined with net capital spending of $25 million, generated an all-in payout ratio of 64%.
Despite average realized commodity prices dropping 51% year over year, funds flow for the first quarter 2015 was a record for the Company at $55.4 million ($0.16/share) or an increase of 8% from Q1 2014. Twin Butte's strong 2015 hedge book, combined with lower royalties and significantly lower operating costs all contributed to this result. Of particular note operating costs and transportation costs were $19.83 on a boe basis down $3.91 per boe (16.5%) from Q1 2014.
Twin Butte's commodity hedging strategy, in place over the last several years to minimize cash flow volatility, provided $42.8 million of realized gains in the first quarter, delivering the cash flow support it was designed to in a low price commodity environment. The Company has favorable hedge coverage through the balance of 2015, providing the time to make rational strategic decisions.
Annual discussions with our banking syndicate are underway with confirmation of bank lending level anticipated later this month.
Operations:
The Company's reduced Q1 2015 net capital investment program of $25.0 million was focused on horizontal drilling in its medium oil Provost and heavy oil Lloydminster areas. The capital program included the drilling of 17 gross wells (17 net) of which 14 are oil producers, 2 salt water disposal wells and 1 D&A stratigraphic test well.
As expected first quarter production was impacted by reduced capital spending and the shut-in of ~1000 boe per day of high operating cost, vertical, heavy oil production. Production averaged 19,158 boe/d in first quarter 2015 as compared to 20,430 boe/d in fourth quarter 2014.
Provost – Medium oil
Confidence in the depth and quality of the Provost area inventory continues to grow. As disclosed in our March press release, new wells were drilled below budgeted cost estimates and successfully brought on stream in all 3 key plays (Dina/Cummings, Sparky and Lithic channels). Per well capital costs decreased between 5 and 25%, relative to the second half of 2014, depending on well bore configuration. The majority of these savings were related to efficiency improvements in both drilling approach and completion delivery. Further savings have been identified related to additional efficiencies along with reductions in service costs. Land consolidation continues with an additional 13 sections added in Q1 2015 at Provost through crown land sales and farm in. In Provost Q1 2014 to Q1 2015 operating and transportation costs decreased 9% from $17.63 per boe to $16.06 per boe reflecting improved operating practices, lower power prices and rate reductions in goods and services.
The Company expects to recommence drilling late in Q2 2015 focused on further development of all three established plays at Provost. At Sounding Lake, construction of our new battery is expected to be on stream in mid Q3 2015, providing significant room for future Sparky development. Lithic channel drilling will focus on the prolific Gillespie trend, extending the productive area established in Q4 2014 and Q1 2015. On the Dina/Cummings play, the first of 2 new fluid handling facilities is scheduled to come on stream in June at Rosenheim North with an additional facility expected to come on stream at Rosenheim South in early Q4. Both of these facilities provide the foundation for long term low decline production from these recently developed pools.
Lloydminster - Heavy
Vertical heavy oil production declined in the quarter as high operating cost wells were shut in and no new vertical heavy drilling occurred. Significant progress has been, and continues to be, made on Lloydminster area operating and transportation costs. Relative to Q1 2014, area costs have dropped $4.28 per boe from $27.11 to $22.83 per boe due to a combination of shutting in high cost barrels, targeted capital investments, improved operational practices, increased horizontal production and rate reductions in goods and services. Cost savings are expected to continue as the Company transitions its heavy asset base away from scattered vertical production to more concentrated horizontal development.
In Q1 2015 two key, unlined, horizontal assessment wells were drilled on the Heavy asset targeting previously unexploited intervals. After two months of production, both the dual lateral and single lateral tests are producing at levels above expectation (125 and 105 bbls per day respectively). Both wells were brought on stream for under $1.0 million. The Company sees multiple opportunities to decrease per lateral costs further, enhancing the economic potential of this opportunity. Adding this technology to the Company's tool kit has the potential to significantly open up existing defined undeveloped resources across Twin Butte's established Lloydminster land position with economics and production predictability comparable to the Provost area.
Outlook
Twin Butte is successfully transitioning to a higher value, financially stronger, more predictable company. The Company shut-in 1000 boepd through Q1 of uneconomic production and is allowing legacy vertical heavy oil production to decline. TBE's activity has and will continue to focus on developing lower cost, higher value barrels, positioning the Company with a longer life, more predictable, asset base. By year end the transition is expected to be complete and the Company positioned to thrive with a continued oil price recovery.
Guidance Update
| May Update |
December |
Notes |
|
| 2015 Cash Flow |
$180 MM |
$171 MM |
Increase associated with improved per barrel netbacks |
| 2015 Capital Expenditures |
$100 MM |
$120 MM |
Decreased associated with reduced 1st half activity and current expected savings |
| 2015 Operating Costs |
$135 MM |
$160 MM |
Total costs, and more importantly costs per boe, decreasing as transition to lower cost structure production base occurs |
| 2015 Year end Debt |
$325 MM |
$354 MM |
~$30MM decrease, maintaining financial prudence through the transition |
| Annual Average Production |
17,500 |
19,100 |
Impact of reduced 1st half capital investment, decision not to replace low value vertical heavy barrels |
| pricing assumptions (2015 average) |
|||
| WTI (US$/bbl) |
$57.18 |
$60.00 |
Q2 $58, Q3 $60, Q4 $62 |
| WCS - WTI differential (US$/bbl) |
$15.25 |
$17.00 |
Differentials tightened due to increase heavy demand |
| Exchange Rate (Cdn$ per US$) |
$1.210 |
$1.169 |
|
| AECO gas price ($/Gj) |
$2.69 |
$3.40 |
Gas prices remain under stress due to high US production |
Twin Butte delivered an excellent financial quarter despite the significant drop in commodity prices due to our 2015 hedge book, significant operating cost reductions and the impact of transitioning the production base to a higher value barrel. The Company's updated guidance continues to follow the path of building a higher value company. We look forward to updating shareholders with our progress through the year.
About Twin Butte:
Twin Butte Energy Ltd. is a dividend paying value oriented intermediate producer with a significant low risk, high rate of return drilling inventory focused on large original oil and gas in place play types. With a stable low decline production base, Twin Butte is well positioned to provide shareholders with a dividend and growth potential over both the short and long term. Twin Butte is committed to continually enhance its asset quality while focusing on the sustainability of its dividend. The common shares of Twin Butte are listed on the TSX under the symbol "TBE".
Reader Advisory
Forward-Looking Statements
In the interest of providing Twin Butte's shareholders and potential investors with information regarding Twin Butte, including management's assessment of the future plans and operations of Twin Butte, certain statements contained in this news release constitute forward-looking statements or information (collectively "forward-looking statements") within the meaning of applicable securities legislation. Forward-looking statements are typically identified by words such as "anticipate", "continue", "estimate", "expect", "forecast", "may", "will", "project", "could", "plan", "intend", "should", "believe", "outlook", "potential", "target" and similar words suggesting future events or future performance. In particular but without limiting the foregoing, this news release contains forward-looking statements pertaining to the following: future dividend levels; funds flow and cash flow forecasts; the volumes and estimated value of Twin Butte's oil and natural gas reserves; the life of Twin Butte's reserves; the volume and product mix of Twin Butte's oil and natural gas production; future oil and natural gas prices; future operational activities; future results from operations and operating metrics, including future production growth and other matters set forth under the heading "Outlook" herein, including estimated budget levels and targeted pay-out ratio in respect of the payment of dividends. In addition, statements relating to "reserves" are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and can be profitably produced in the future.
With respect to forward-looking statements contained in this news release, Twin Butte has made assumptions regarding, among other things: future capital expenditure levels; future oil and natural gas prices and differentials between light, medium and heavy oil prices; results from operations including future oil and natural gas production levels; future exchange rates and interest rates; Twin Butte's ability to obtain equipment in a timely manner to carry out development activities; decline rates based on analogous information; its ability to market its oil and natural gas successfully to current and new customers; the impact of increasing competition; Twin Butte's ability to obtain financing on acceptable terms; and Twin Butte's ability to add production and reserves through its development and exploitation activities. Although Twin Butte believes that the expectations reflected in the forward looking statements contained in this news release, and the assumptions on which such forward-looking statements are made, are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned not to place undue reliance on forward-looking statements included in this news release, as there can be no assurance that the plans, intentions or expectations upon which the forward-looking statements are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur, which may cause Twin Butte's actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things, the following: the risks associated with the oil and gas industry; commodity prices; operational risks in exploration; development and production; delays or changes in plans; risks associated with the uncertainty of reserve estimates; health and safety risks, and; the uncertainty of estimates and projections of production, costs and expenses. volatility in market prices for oil and natural gas; general economic conditions in Canada, the U.S. and globally; and the other factors described under "Risk Factors" in Twin Butte's most recently filed Annual Information Form available in Canada at www.sedar.com. The recovery and reserve estimates of Twin Butte's reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Readers are cautioned that this list of risk factors should not be construed as exhaustive.
The forward-looking statements contained in this news release speak only as of the date of this news release. Except as expressly required by applicable securities laws, Twin Butte does not undertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.
Barrels of Oil Equivalent
Barrels of oil equivalents (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl (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. In addition, as the value ratio between natural gas and crude oil based on the current prices of natural gas and crude oil is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indicated value.
Funds Flow from Operations
The reader is cautioned that this news release contains the term funds flow from operations, which is not a recognized measure under generally accepted accounting principles ("GAAP") and is a measure that represents the total of cash provided by operating activities, before adjusting for changes in non-cash working capital items and expenditures on decommissioning liabilities. Management uses this measure in order to assist them in understanding Twin Butte's liquidity and its ability to generate funds to finance its operations. The term funds flow from operations or funds flow should not be considered an alternative to, or more meaningful than, cash flow from operating activities as determined in accordance with GAAP as an indicator of the Company's performance. Twin Butte's method of calculating this measure may differ from other companies, and accordingly, may not be comparable to measures used by other companies.
Capital Expenditures
The reader is cautioned that this news release contains the term Capital Expenditures, which is not a recognized measure under generally accepted accounting principles ("GAAP") and is a measure that represents the total of expenditures on property and equipment, expenditures on exploration and evaluation assets, proceeds on disposition of property and equipment and proceeds on disposition of exploration and evaluation assets, as per the Statement of Cash Flows. Management uses this measure in order to assist them in understanding Twin Butte's cash used in investing activities. Twin Butte's method of calculating this measure may differ from other companies, and accordingly, may not be comparable to measures used by other companies.
Field and Operating Netback
The reader is also cautioned that this news release contains the terms field and operating netback, which are not recognized measures under GAAP. Field Netback is calculated as a period's sales of petroleum and natural gas, net of royalties less net production and operating expenses as divided by the period's sales volumes. Operating netback is the field netback, adjusted for realized gains/losses on derivatives. Management uses these measures to assist them in understanding Twin Butte's profitability relative to current commodity prices and they provide an analysis tool to benchmark changes in operational performance against prior periods and to peers on a comparable basis. Readers are cautioned, however, that this measure should not be construed as an alternative to other terms such as net income determined in accordance with GAAP as a measure of performance. Twin Butte's method of calculating this measure may differ from other companies, and accordingly, they may not be comparable to measures used by other companies.
Net Debt
The reader is cautioned that this news release contains the term net debt, which is not a recognized measure under GAAP and is calculated as bank debt, convertible debentures, and adjusted for working capital excluding mark-to-market derivative contracts. Working capital excluding mark-to-market derivative contracts is calculated as current assets less current liabilities both of which exclude derivative contracts and current liabilities excludes the current portion of debt. Management uses net debt to assist them in understanding Twin Butte's liquidity at specific points in time. Mark-to-market derivative contracts are excluded from working capital, in addition to net debt, as management intends to hold each contract through to maturity of the contract's term as opposed to liquidating each contract's fair value or less.
Future Oriented Financial Information
This news release, in particular the information in respect of anticipated cash flows, may contain Future Oriented Financial Information ("FOFI") within the meaning of applicable securities laws. The FOFI has been prepared by management of the Company to provide an outlook of the Company's activities and results and may not be appropriate for other purposes. The FOFI has been prepared based on a number of assumptions including the assumptions discussed under the heading "Forward-Looking Statements" and assumptions with respect to production rates and commodity prices. The actual results of operations of the Company and the resulting financial results may vary from the amounts set forth herein, and such variation may be material. The Company and its management believe that the FOFI has been prepared on a reasonable basis, reflecting management's best estimates and judgments.
SOURCE Twin Butte Energy Ltd.
Twin Butte Energy Ltd., Rob Wollmann, President and Chief Executive Officer; R. Alan Steele, Vice President Finance, Chief Financial Officer and Corporate Secretary; Jim Saunders, Executive Chairman, Tel: (403) 215-2045, Website: www.twinbutteenergy.com
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