CALGARY , May 14, 2013 /CNW/ – (TBE.TO) – Twin Butte Energy Ltd. (“Twin Butte” or the “Company“) is pleased to report financial and operational results for the three months ended March 31, 2013 .
Highlights of Twin Butte’s first quarter 2013 are as follows:
- Continued demonstration of a disciplined capital program, providing our sustainable dividend paying model with a payout ratio of 97 percent and a total payout ratio net of the DRIP of 94 percent in the first quarter 2013. This was accomplished during a challenging commodity and operational environment for Canadian heavy oil producers. Since implementation of the Company’s dividend in January 2012 , $0.23 per share in dividends have been paid as at the end of March.
- Recorded quarterly production of 17,254 boe per day, an increase of 30 percent over the same period of 2012.
- Generated quarterly funds flow of $32.4 million , a 23 percent increase over the same period of 2012.
- Executed an organic capital program of $19.6 million which included the drilling of 28 gross (28 net) wells at an 89 percent success rate. The Company successfully sold $4.0 million in non-core assets in the quarter. A further $3.2 million of noncore assets have been sold in the second quarter of 2013 to date.
- Maintained a solid balance sheet with net debt at $200.5 million relative to the existing credit facility of $280 million .
Certain selected financial and operations information for the three months ended March 31, 2013 and 2012 comparatives are outlined below and should be read in conjunction with Twin Butte’s interim financial statements and accompanying Management Discussion and Analysis (“MD&A”) for the three months ended March 31, 2013 and the audited annual Financial Statements and accompanying MD&A for the year ended December 31 , 2012. Full versions of the statements and accompanying notes will be filed on SEDAR and also on the Company website.
|Three months ended March 31|
|Financial ( $ 000 ‘s, except per share amounts)|
|Petroleum and natural gas sales||71,764||72,497||-1%|
|Funds flow (1)||32,423||26,400||23%|
|Per share basic||0.13||0.14||-7%|
|Per share diluted||0.13||0.14||-7%|
|Net income (loss)||(29,633)||14,983||-298%|
|Per share basic||(0.12)||0.08||-250%|
|Per share diluted||(0.12)||0.08||-250%|
|Dividends declared, Post DRIP||10,727||8,624||24%|
|Capital expenditures (2)||19,625||8,058||144%|
|Corporate acquisitions (2)||–||203,000||-100%|
|Net debt (3)||200,542||126,467||59%|
|Average daily production|
|Crude oil (bbl per day)||14,673||10,187||44%|
|Natural gas (Mcf per day)||13,907||16,139||-14%|
|Natural gas liquids (bbl per day)||263||351||-25%|
|Barrels of oil equivalent (boe per day, 6:1)||17,254||13,228||30%|
|% Oil and NGLs||87%||80%||9%|
|Average sales price|
|Crude oil ($ per bbl)||49.62||86.57||-43%|
|Natural gas ($ per Mcf)||3.50||2.34||50%|
|Natural gas liquids ($ per bbl)||78.01||90.01||-13%|
|Barrels of oil equivalent ($ per boe, 6:1)||46.21||60.23||-23%|
|Operating netback ($ per boe) (4)|
|Petroleum and natural gas sales||46.21||60.23||-23%|
|Cash (loss) gain on derivative instruments||11.26||2.10||436%|
|Shares outstanding, end of period||249,797,912||191,682,653||30%|
|Weighted average shares outstanding – diluted||250,435,239||186,404,231||34%|
(1) Funds flow from operations and funds flow from operations netback are non-GAAP measures that represent the total and the average per boe, respectively, of cash provided by operating activities, before adjusting for changes in non-cash working capital items and expenditures on decommissioning liabilities.
(2) Corporate acquisitions is a non-GAAP measure and includes total consideration plus working capital deficiency acquired in a corporate acquisition. Capital expenditures is a non-GAAP measure calculated as the purchase or sale price of an asset, plus development capital expenditures added to PP&E. Corporate acquisitions are excluded from this measure.
(3) Net debt is a non-GAAP measure representing the total of bank indebtedness, accounts payables and accrued liabilities, cash dividend payable, less accounts receivables, deposits and prepaids.
(4) Operating netback is a non-GAAP measure calculated as the average per boe of the Company’s oil and gas sales plus realized gains on derivatives, less royalties, operating and transportation expenses.
The first quarter of 2013 was dominated by the dramatic widening of the differential between benchmark pricing of WTI (West Texas Intermediate) and the Canada heavy oil benchmark WCS (Western Canadian Select) from the historical average differential levels of under $20.00 in the fourth quarter of 2012. The differentials hit record levels in February of over $35.00 but have fortunately contracted and are forecasted to average about $19.00 in the second quarter. The first quarter differential was $31.96 per bbl versus the fourth quarter average of $18.69 per bbl. These all-time high oil differentials combined with extreme weather-related operating conditions made early 2013 a most challenging environment for virtually all Western Canadian heavy oil producers. In addition the Company experienced abnormally high blending costs of $15.66 in the first quarter as compared to average $10-11 costs which further reduced the wellhead price received as a result of above average condensate costs. Even with these financial and operational challenges Twin Butte executed an extremely disciplined capital plan, managing to underspend cash flow including dividends paid by approximately $2.0 million leading to a total payout ratio for the quarter of 94 percent. It is this constant focus on dividend sustainability and balance sheet management which should provide investors with great comfort that Twin Butte is being managed for the long term sustainability of its dividend and asset base.
Consistent with the Company’s increasing production volumes and liquids weighting, first quarter 2013 funds flow from operations increased by 23 percent when compared to the same period of 2012 reaching $32.4 million . This level of funds flow, although significantly impacted by reduced heavy oil pricing, internally funded $12 million of dividend payments and a net capital program of $19.6 million leading to a total payout ratio of 94 percent.
Although hampered by challenging weather related field conditions, the sale of 80 boe per day of non-core production, and the previously announced reduction of approximately 800 bbls per day of production at Primate, the Company exceeded its previously reported guidance of 17,100 boe per day, with first quarter production averaging 17,254 boe per day. With current production capability of just over 17,600 boe per day, Twin Butte remains on track to achieve its forecasted 2013 production average of 17,400 boe per day.
The Company’s first quarter capital plan of $19.6 million was funded by internal funds flow and included the disposition of $4.0 million of noncore assets. These divested assets were predominantly undeveloped land in West Central Alberta and B.C., but had associated production of approximately 80 boe per day. The Company recently closed the additional disposition of 50 bbls per day of non-core assets in British Columbia for $3.2 million .
Operating costs in the first quarter increased to just under $22.00 per boe mainly as a result of unseasonable weather conditions which resulted in higher than normal workover expenses, snow clearing and propane costs. The Company expects to see operating costs fall back below $20.00 per boe for the balance of the year.
The Company’s balance sheet remains very strong with end of first quarter net debt of $200.5 million , which represented just over 1.5 times first quarter annualized cash flow, and was well within with our existing credit facility of $280 million . It is anticipated that net debt will remain fairly constant for the remainder of 2013, and that with improved heavy oil pricing for the remainder of 2013 quarterly cash flow will increase, bringing the Company’s run rate debt to cash flow to our long term goal of less than 1.5 times. It is anticipated the Company’s current credit facility will be renewed without any changes during the second quarter of 2013.
As noted earlier, the recent contraction in oil price differentials in combination with relatively strong WTI pricing for the remainder of 2013, gives Twin Butte confidence in its 2013 cash flow forecast of $130 million . Even with ongoing potential volatility in commodity pricing, our hedging program has and will continue to give good downside price protection. Currently the Company has approximately 59 percent of its heavy oil volumes for 2013 hedged at an average WCS price of $75.50 , and an additional 17 percent of oil volumes hedged at an average WTI price of $97.00 . On the natural gas side Twin Butte has approximately 65 percent of expected 2013 volumes hedged at a price of $4.50 /gj. At the current annual dividend rate of $0.192 per share this cash flow forecast suggests a sustainable total (dividend and capital expenditure) payout ratio of less than 100 percent of cash flow, one of the lowest of the dividend-paying E&P companies.
During the first quarter of 2013, Twin Butte drilled 28 gross (28 net) wells with an 89 percent success rate, demonstrating the predictable and repeatable potential of the Company’s drilling inventory which currently is estimated to be over 700 net conventional heavy oil wells. The Company’s drilling focus continues to be within the Company’s core heavy oil fairway, and it is anticipated one hundred percent of Twin Butte’s 2013 capital will continue to be spent in this area.
As part of it’s ongoing effort to maintain and improve the Company’s capital efficiencies, Twin Butte has recently expanded it’s horizontal drilling plans for 2013. The Company now anticipates upward of 30 horizontal wells will be drilled in 2013, a trend that Twin Butte sees continuing in its heavy oil fairway. Although the initial focus is on reducing well costs and enhancing initial productivity to maximize capital efficiency, reservoir modeling suggests the horizontals should enhance ultimate recoverable reserves leading to lower overall decline rates and better finding and development costs.
In the first quarter of 2013, Twin Butte has drilled four horizontal test wells in various strategic areas in the greater Lloydminster area. Performance monitoring of the wells continues but early positive results from drilling in the first quarter at Wildmere, has led to the drilling of an additional five wells thus far in the second quarter. It is anticipated post breakup, drilling will resume at Wildmere.
Frog Lake, the Company’s most active area for the last number of years, has been operationally quiet for the last two quarters. With numerous newly acquired properties and undeveloped lands added to our portfolio in 2012, the Company’s focus has been on derisking and identifying long term upside potential on these assets. Operational momentum has again commenced at Frog Lake where horizontal drilling activity is currently ongoing and will accelerate late in the third quarter focused on exploitation of the Mannville formation. In late 2011, the Company drilled a horizontal Mannville well which after 16 months of production has proved the economic viability of a larger scale program.
At Primate in Western Saskatchewan, the Company’s second most active area in 2012, Twin Butte encountered some reservoir performance issues in late December and early January that reduced property production by approximately 800 bbls per day. Since the announcement in late January the property has stabilized and is on a normal decline profile. Current production on the property is approximately 2,400 bbls per day and has been very consistent over the past number of months. Twin Butte will continue to monitor and optimize the property’s production to ensure continued long term reserve and cash flow optimization.
In addition the Company was very active in Western Saskatchewan, drilling on the recently acquired properties from Emerge, Avalon, and Waseca. This activity has continued through early 2013 with 22 successful wells drilled to date in this area. A series of exploratory wells will be drilled this summer on the new lands to continue with the derisking of the lands and the long term enhancement of the Company’s drilling inventory.
To optimize the Company’s heavy oil pricing, approximately 15 percent of its heavy barrels are being transported via rail car. This marketing operation has generated an increase of approximately $6.00 to $8.00 per barrel net to the Company in the first quarter. During the second quarter of 2013, Twin Butte will complete construction of a cleaning/staging facility at Lashburn which should allow a potential doubling of its rail car shipments. Twin Butte will also continue with its hedging program, looking to lock in cash flow levels that will provide sustained positive corporate netbacks.
Twin Butte will continue to execute its business plan in 2013. We believe the combination of a sustainable dividend and moderate per share growth will attract investor interest over the long term. We remain committed to continually enhance the Company’s asset quality through organic growth and strategic acquisitions.
The Company remains on track to meet its previously reported operating and financial guidance of $130 million in cash flow and 17,400 boe per day of average production. The Company’s level of capital expenditures, which are currently forecast to be $85 million net, will be monitored and potentially increased should actual cash flow less dividends increase.
Twin Butte remains in an enviable position in that it has a strong balance sheet, a predictable production profile and a current inventory of over 700 net heavy oil drilling locations. These wells generate some of the top percentile return on investment, of all plays in North America and the Company believes its current sizable drilling inventory has the ability to fuel the Company’s dividend and moderate growth strategy for years to come.
This will allow a sustained pace of repeatable development drilling and disciplined capital spending to maximize capital efficiencies, economic returns and minimize payout times, providing visible sustainability to Twin Butte’s dividend and anticipated Company growth.
About Twin Butte
Twin Butte is a value oriented, intermediate producer with a significant and growing scalable and repeatable drilling inventory focused on large original oil in-place conventional heavy oil exploitation. With a stable low decline production base the Company is well positioned to live within cash flow while providing shareholders with a sustainable dividend and moderate per share production growth potential over the long term.
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: the Company’s expectations on well declines; future dividend levels; 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; our 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 our 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: further instability in the production volumes at the Company’s Primate property; 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.
The reader is also cautioned that this news release contains the term operating netback, which is not a recognized measure under GAAP and 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. Management uses this measure to assist them in understanding Twin Butte’s profitability relative to current commodity prices and it provides 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.
In this news release, Twin Butte has provided certain information on the production profile and estimates of decline rates on its Primate property which is “analogous information” as defined by applicable securities laws. This analogous information is derived from publicly available information sources which the Company believes are predominantly independent in nature. Some of this data may not have been prepared by qualified reserves evaluators or auditors and the preparation of any estimates may not be in strict accordance with Canadian Oil & Gas Evaluation Handbook. Regardless, estimates by engineering and geo-technical practitioners may vary and the differences may be significant. Twin Butte believes that the provision of this analogous information is relevant to Twin Butte’s activities and forecasting, given its property ownership in the area; however, readers are cautioned that there is no certainty that the forecasts provided herein based on analogous information will be accurate.
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.
President and C.E.O.
May 14, 2013
SOURCE: Twin Butte Energy Ltd.
President and Chief Executive Officer
Tel: (403) 215-2040
Fax: (403) 215-2055
R. Alan Steele
Vice President, Finance, Chief Financial
Officer and Corporate Secretary
Tel: (403) 215-2692
Fax: (403) 215-2055