CALGARY, March 27, 2013 /CNW/ – Connacher Oil and Gas Limited (CLL – TSX; “Connacher” or the “Company”) today released its financial and operating results for 2012, a summary of which is set out below. Connacher faced a considerable number of challenges during 2012. A curtailed capital program imposed by budgetary constraints caused the Company to focus its efforts on a number of strategic initiatives, culminating in the sale of two of its business units, the Montana refinery (the “Refinery”) and the remainder of the Company’s conventional oil and gas properties. These transactions resulted in cash proceeds of approximately $225 million, thus allowing the Company to repay all amounts outstanding under its credit facility, with the balance of the proceeds being added to working capital to fund growth projects relating to its oil sands properties. As a result, Connacher is now a single purpose company active solely in the development, production and sale of bitumen. Year-end cash balances of $127 million position the Company to meet all of its 2013 financial obligations and execute a meaningful capital program as described in earlier press releases.
Other significant events include the following:
- Completed an organizational realignment to reflect the needs of the business going forward including streamlining at the executive level and appointment of a new CEO
- The 24,000 bbl/d Great Divide Expansion Project received regulatory approval
- Connacher’s revolving credit facility was continued at $95 million
- Marketing efforts continue to develop options to improve netbacks, particularly in moving bitumen to market by rail
- Initiated a series of low risk near term capital projects designed to increase bitumen production
2012 Financial and Operational Summary
To properly reflect the disposition of the Refinery and the Company’s conventional assets in the financial statements, the results attributable to the Refinery and conventional assets have been segregated from ongoing operations and separately disclosed as “Discontinued Operations”.
|FINANCIAL ($000 except per share amounts)||Q4 2012||Q4 2011||YTD 2012||YTD 2011||%|
|Revenue, net of royalties (continuing operations)||94,959||119,377||384,946||430,029||(10)|
|EBITDA (continuing operations) (1)||11,181||30,269||40,669||81,045||(50)|
|Net earnings (loss) (continuing operations)||(40,527)||(49,076)||(109,172)||(142,810)||24|
|Net earnings (loss) (discontinued operations)||33,360||(10,401)||24,703||28,705||(14)|
|Net earnings (loss)||(7,167)||(59,477)||(84,469)||(114,105)||26|
|Per share, basic and diluted||(0.02)||(0.13)||(0.19)||(0.26)||27|
|Cash on hand||126,844||117,045|
|OPERATIONAL||Q4 2012||Q4 2011||%||YTD 2012||YTD 2011||%|
|Daily production volumes
|Pricing (net of diluent and transportation)|
|(1)||EBITDA is a non-GAAP measure, which is defined in the Advisory section of the
Company’s Management’s Discussion and Analysis for the years ended December
31, 2012 and December 31, 2011 (“MD&A”). EBITDA is reconciled to net loss in the
At December 31, 2012, cash balances were $127 million, working capital was $112 million and long term debt, consisting solely of the Company’s outstanding second lien notes due in 2018 and 2019, totaled $850 million. Convertible debentures with face value of $100 million were repaid in June of 2012. Connacher has available bank credit lines of $95 million less outstanding letters of credit totaling $2.4 million which were issued by the Company at year end 2012.
Total capital expenditures during the year were approximately $50 million, which amount was financed from operating cash flow and cash balances. Capital expenditures relating to continuing operations were approximately $36 million. Please refer to the MD&A for a more detailed discussion of 2012 Financial and Operating results.
Review of 2012
Connacher owns a 100 percent working interest in approximately 87,000 net acres of oil sands leases, primarily located at its Great Divide project in northeastern Alberta, approximately 80 kilometers southwest of Fort McMurray. Numerous oil accumulations in the McMurray formation have been identified for continuing and future development on Connacher’s properties. Connacher’s first steam-assisted gravity drainage (“SAGD”) project at Great Divide, Pod One, has been producing bitumen since late 2007, with commercial production commencing March 1, 2008. Algar commenced producing bitumen in August 2010 and commerciality was achieved October 1, 2010. Production of bitumen from both projects since startup through December 31, 2012 totals approximately 17 million barrels.
As at December 31, 2012, Connacher’s estimated proved (“1P”) bitumen reserves, as evaluated by GLJ Petroleum Consultants Ltd. (“GLJ”), independent qualified reserves evaluators, totaled approximately 214 million barrels. 1P bitumen reserve volumes increased by 22 per cent over year-end 2011 volumes, due largely to the approval of the Great Divide Expansion Project. The ten per cent present value (“10% PV”) of 1P bitumen reserves is approximately $1.0 billion.
Proved and probable (“2P”) reserve volumes totaled approximately 451 million barrels of bitumen. 2P bitumen reserve volumes decreased by approximately 10 per cent, due primarily to the implementation of an updated GLJ recovery model for estimating future recoverable volumes and pad performance. The 10% PV of 2P bitumen reserves decreased to approximately $1.8 billion, due primarily to increased estimated future capital costs, adjusted near-term production forecasts and lower future commodity prices, as estimated by GLJ.
Fourth Quarter 2012
Production of bitumen in the fourth quarter of 2012 (“Q4 2012”) averaged 11,945 bbl/d, which was 9 per cent lower than the comparable period in 2011, largely due to previously scheduled maintenance at Algar and limited capital expenditures. Cash flow from continuing operations was also lower in Q4 2012, with net outflows of $7.8 million, compared to cash flow from continuing operations of $11.5 million in Q4 2011, primarily due to lower benchmark pricing and higher transportation costs. Connacher incurred a loss of $7.2 million or $0.02 per share for Q4 2012, compared with a loss of $59.5 million or $0.13 per share for Q4 2011.
Connacher is focused on delivering successive and sustained improvement in operating and financial results and liquidity. Based on currently available information and prevailing commodity prices, the Company anticipates 2013 results that reflect strong operational performance. Production in the months of January and February 2013 was 12,045 bopd and 12,971 bopd, respectively. February production volumes were the highest since December 2011 and were achieved prior to the effects of the capital projects designed to add new production beginning later in 2013. A SAGD+™ commercial application was submitted in the first quarter of 2013 for Algar and the remaining steam generator retrofit work will be completed in the second quarter of 2013.
As a means of managing the risk of commodity price volatility, management monitors crude oil markets and enters into risk management commodity sales contracts from time to time, to ensure Connacher has adequate downside commodity price protection, having regard to its established hedging policy, financial leverage and capital commitments. The Company currently has risk management contracts in place covering approximately 6,000 barrels per day through the end of the year, with minimum prices of approximately $85 to $91 per barrel.
Connacher remains bullish regarding the long term price of bitumen, however a constrained capacity to move land-locked Alberta crude oil to markets continues to pressure differentials and wellhead pricing. The Company intends to continue and expand its dilbit by rail strategy.
2013 Capital Expenditure Budget
Connacher’s 2013 capital budget has been set at $95 million, including $68 million for growth expenditures and $27 million for normal maintenance. The Company has drilled one new well pair at Algar, completed drilling four new producer wells on Pad 104 at Pod One, and expects to finish drilling the four related injector wells in April and subsequently drill up to four infill wells at Pod One.
The Annual and Special Meeting of Shareholders of the Company is scheduled to be held in Calgary at 4:00 P.M. on May 14, 2013 on the second level (Plus 15) conference room at 332 6th Avenue SW, Calgary, Alberta. At the Meeting, shareholders will be voting on the election of directors, appointment of auditors, confirmation of a by-law providing advance notice requirements for the nomination of directors, the approval of unallocated stock options under the Stock Option Plan, the replenishment of the common shares under the Share Award Incentive Plan and the extension of the Company’s Shareholder Rights Plan Agreement.
Connacher Oil and Gas Limited is a single purpose company active in the development, production and sale of bitumen. The Company’s principal assets are holdings in the Great Divide oil sands project in northern Alberta, south of Fort McMurray.
Forward Looking Information
This press release contains forward looking information including but not limited to expectations regarding future commodity prices, future capital expenditures, Connacher’s ability to meet all of its financial obligations in 2013, future well drilling activities and timing of completing the remaining steam generator retrofit work, commodity price protection afforded by the use of risk management contracts, Connacher’s intention to continue to expand its dilbit by rail strategy and future operating results.
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.
Information relating to “reserves” and “future net revenues” associated therewith are deemed to be forward-looking information, 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 to achieve the future net revenue calculated in accordance with certain assumptions. The assumptions relating to the reserves and associated future net revenues reported herein are contained in the reports of GLJ Petroleum Consultants Ltd. December 31, 2012 and December 31, 2011 and are summarized in Connacher’s Annual Information Form for the year ended December 31, 2012 and December 31, 2011, both of which are available on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com. Future net revenues associated with reserves do not necessarily represent fair market value.
In addition, reported average production levels may not be reflective of sustainable production rates and future production rates may differ materially from the production rates reflected in this press release due to, among other factors, difficulties or interruptions encountered during the production of bitumen.
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, 2012. 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