CALGARY, ALBERTA–(Marketwired – May 10, 2016) – Arsenal Energy Inc. (“Arsenal” or the “Company”) (TSX:AEI) (OTCQX:AEYIF)
Financial:
Arsenal’s Q1 2016 financial and operational results were severly impacted by lower commodity prices and lower production. Commodity prices declined 28% from Q4 2015 and 28% from Q1 2015 to $27.21 per boe. Q1 2016 average production of 3,058 boe/d was down 8% from Q4 2015 and 25% from Q1 2015 due to production declines, lack of development and tie-in activities, property sales and uneconomic wells being shut in. Due primarily due to low operating margins, the Company recorded a loss in Q1 2016 of $5.8 million ($0.30 per share basic and duiluted) versus a loss in Q1 2015 of $466,316 ($0.03 per share basic and diluted).
SUMMARY OF FINANCIAL RESULTS | |||||
Three Months Ended March 31 | |||||
(000’S Cdn. $ except per share amounts) | 2016 | 2015 | |||
Oil and gas revenue | 7,570 | 13,866 | |||
Funds (used in) from operations | (263 | ) | 15,760 | ||
Per share – basic | (0.01 | ) | 0.88 | ||
Per share – diluted | (0.01 | ) | 0.87 | ||
Net income (loss) | (5,779 | ) | (466 | ) | |
Per share – basic | (0.30 | ) | (0.03 | ) | |
Per share – diluted | (0.30 | ) | (0.03 | ) | |
Total debt | 53,169 | 57,229 | |||
Capital expenditures | 896 | 6,671 | |||
Property dispositions | (1,060 | ) | – | ||
Net wells drilled | |||||
Oil | – | 0.89 | |||
Common share trading range | |||||
High | 1.44 | 6.84 | |||
Low | 0.87 | 3.05 | |||
Close | 1.25 | 3.30 | |||
Average daily volume | 17,402 | 26,758 | |||
Shares outstanding – end of period | 19,423 | 17,897 |
Lower operating margins reduced oil and natural gas revenues for the current quarter 45% to $7.6 million from $13.9 million in the first quarter of 2015. Cash used in operations for Q1 2016 totaled ($262,583) or ($0.01) per share, a decrease from $15.8 million in Q1 2015. Q1 2015 included a realized crude hedging gain of $13.2 million or $35.91 per boe.
Net debt at Q1 quarter end 2016 was $53.2 million compared to $57.2 million at Q1 quarter end in 2015.
Full financial and operational details are contained in the financial statements and MD&A filed on SEDAR and on the Company’s website.
Operations:
SUMMARY OF OPERATIONAL RESULTS | ||||
Three Months Ended March 31 | ||||
(000’S Cdn. $ except per share amounts) | 2016 | 2015 | ||
Daily production | ||||
Heavy oil (bbl/d) | 4 | 40 | ||
Medium oil and NGL’s (bbl/d) | 1,495 | 1,698 | ||
Light oil and NGLs (bbl/d) | 965 | 1,392 | ||
Natural gas (mcf/d) | 3,559 | 5,648 | ||
Oil equivalent (boe/d @ 6:1) | 3,058 | 4,071 | ||
Realized commodity prices ($Cdn.) | ||||
Heavy oil (bbl) | 40.10 | 42.20 | ||
Medium oil and NGL’s (bbl) | 29.46 | 41.16 | ||
Light oil and NGLs (bbl) | 34.31 | 49.31 | ||
Natural gas (mcf) | 1.65 | 2.46 | ||
Oil equivalent (boe @ 6:1) | 27.21 | 37.85 | ||
Netback ($ per boe) | ||||
Revenue | 27.21 | 37.85 | ||
Royalty | (5.99 | ) | (9.74 | ) |
Operating and transportation | (15.93 | ) | (16.37 | ) |
Operating netback per boe | 5.29 | 11.74 | ||
General and administrative | (4.27 | ) | (3.01 | ) |
Interest and other financing | (2.20 | ) | 0.00 | |
Realized gain (loss) on risk management contracts | (0.26 | ) | 35.84 | |
Other (FX and current tax) | 0.49 | (1.46 | ) | |
Fund from operations per Boe | (0.94 | ) | 43.10 |
Compared to Q1 2015, the average price received for oil and gas sales decreased from $37.85 per boe to $27.21 per boe. Royalties decreased from 26% to 22% and operating costs, compared to Q1 2015, decreased to $15.93 per boe from $16.37 per boe. The resulting Q1 2016 operating netback or margin was $5.29 per boe versus $11.74 per boe in Q1 2015.
Average production of 3,058 boe/d during the first quarter of 2016 declined when compared to 4,071 in the first quarter of 2015. Arsenal’s Q1 2016 production mix was 44% light oil, 37% medium and heavy oil, and 19% natural gas.
The Company spent $895,780 on capital in Q1 2016, a decrease from $6.7 million spent in Q1 2015. The Company did not participate in the drilling of any wells in Q1 2016. Spending was targeted on facility work at Princess, Alberta and on non-operated wells in North Dakota. The Company sold its non-core Desan, BC property for proceeds of $1.1 million and transferred to the buyer $2.9 million of decommissioning liabilities related to the property.
Arsenal has reduced and deferred its 2016 capital budget to lower debt and to take advantage of what is anticipated to be higher commodity prices later in 2016. At Princess, Alberta, the tie-in of three wells drilled in Q4 2015 was postponed. One of the three wells is now being tied in, with the remaining wells scheduled for tie-in during Q3 2016. The production capability of the three wells is estimated at approximately 600 boe/d with total tie in costs estimated at approximately $1.0 million.
During the first quarter at Lindahl, in North Dakota, clean out operations were completed on 5 out of the 6 Evelyn pad wells drilled in Q1 2015. All five wells are in various stages of production ramp up. In addition, the completion of the drill outs allowed two offset producers that were shutin to come back online. Current production from Lindahl is net approximately 300 boe/d higher than Q1. Additional volumes should come online over the next couple of weeks as the ramp up continues and the last of the six wells is drilled out.
Outlook
Oil prices have staged a modest recovery over the past 2 months. Operating netbacks or margins that averaged $5.29 per boe in Q1 2016 are estimated at approximately $13.00 per boe for Q2 2016. At these prices, Arsenal’s Princess development delivers acceptable rates of return. In order to provide an acceptable return, Bakken drilling will require lower drilling costs or WTI prices to recover to the low US $60.00 level.
As previously announced, Arsenal has engaged a US based property broker to market all of the Company’s US assets. That process is ongoing. There is strong interest in the properties but in the current environment of distressed asset sales and the ongoing volatility for oil prices, negotiations are proceeding more slowly than anticipated. Arsenal’s borrowing facility is set to expire on May 25th. At that time, the $14 million non conforming portion of Arsenal’s facility comes due, and since it is anticipated that Arsenal will not have the cash at that time to satisfy the payment, Arsenal is working with its lenders on an amending agreement to allow the completion of the US sale process.
Full financial and operational details are contained in the financial statements and MD&A filed on SEDAR and on the Company’s website.
Information
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