CALGARY, ALBERTA–(Marketwired – Aug. 10, 2017) – Chinook Energy Inc. (“our”, “we”, or “us”) (TSX:CKE) is pleased to announce its second quarter 2017 financial and operating results.
Our operational and financial highlights for the three and six months ended June 30, 2017 are noted below and should be read in conjunction with our condensed consolidated financial statements for the three and six months ended June 30, 2017 and 2016 and our related management’s discussion and analysis which have been posted on the SEDAR website (www.sedar.com) and our website (www.chinookenergyinc.com).
Second Quarter 2017 Financial and Operating Highlights
|Three months ended||Six months ended|
|June 30||June 30|
|Natural gas liquids (boe/d)||441||604||461||669|
|Natural gas (mcf/d)||19,065||22,776||18,546||23,995|
|Crude oil (bbl/d)||19||769||24||793|
|Average daily production (boe/d)||3,638||5,169||3,576||5,461|
|Average natural gas liquids price ($/boe)||$||44.48||$||25.78||$||48.07||$||26.81|
|Average natural gas price ($/mcf)||$||2.77||$||1.35||$||2.74||$||1.39|
|Average oil price ($/bbl)||$||59.55||$||50.59||$||60.01||$||42.76|
|Average commodity pricing ($/boe)||$||20.22||$||16.50||$||20.81||$||15.61|
|Realized gains on derivative contracts ($/boe)||$||1.01||$||0.14||$||1.19||$||0.08|
|Net production expenses ($/boe) (1)||$||(11.82||)||$||(14.75||)||$||(11.55||)||$||(14.95||)|
|Operating Netback ($/boe) (1)||$||9.08||$||1.45||$||10.38||$||0.01|
|Wells Drilled (net)|
|Total natural gas wells drilled (net)||3.63||–||3.63||–|
|Three months ended||Six months ended|
|June 30||June 30|
|FINANCIAL ($ thousands, except per share amounts)|
|Petroleum & natural gas revenues, net of royalties||$||6,583||$||7,550||$||13,421||$||14,794|
|Adjusted funds (outflow) from operations(1)||$||1,195||$||(1,721||)||$||3,231||$||(4,611||)|
|Per share – basic and diluted ($/share)||$||0.01||$||(0.01||)||$||0.01||$||(0.02||)|
|Net (loss) income||$||(2,253||)||$||(12,520||)||$||8,169||$||(25,295||)|
|Per share – basic and diluted ($/share)||$||(0.01||)||$||(0.06||)||$||0.04||$||(0.12||)|
|Net surplus (1)||$||18,294||$||6,207||$||18,294||$||6,207|
|Common Shares (thousands)|
|Weighted average during period|
|Outstanding at period end||217,115||215,350||217,115||215,350|
- Adjusted funds (outflow) from operations, adjusted funds (outflow) from operations per share, net surplus (debt), operating netback, and net production expense are non-GAAP measures.
These terms do not have any standardized meanings as prescribed by IFRS and, therefore, may not be comparable with the calculations of similar measures presented by other companies.
See headings entitled “Adjusted Funds (outflow) from Operations”, “Net Surplus (Debt)”, “Operational Netback” and “Net Production Expense” in the Reader Advisory below for further information on such terms.
Highlights for the three months ended June 30, 2017
- We ended the second quarter of 2017 with a strong balance sheet and a net surplus of $18.3 million.
- We generated funds from operations of $1.2 million compared to outflow from operations of $1.7 million in the second quarter of 2016. This is our fourth consecutive quarter of reported positive funds flow since we started our transition to a pure Montney company.
- Our operating costs were reduced by 20% to $11.82 per boe over the same period in 2016 and will continue to decrease as we bring on more profitable volumes at Birley/Umbach in 2017.
- We secured an increased credit facility of $8.0 million from the previous $2.0 million which provides us with further financial flexibility. We remain undrawn on this facility and anticipate remaining undrawn through 2017.
- We are reinvesting the proceeds from our first quarter 2017 dispositions at Gold Creek and Knopcik/Pipestone into our Montney drilling program. We incurred $8.2 million of capital reinvestment during the second quarter which included drilling another four (3.63 net) horizontal wells at Birley/Umbach as well as engineering and purchasing of long lead items for our Birley/Umbach facility expansion.
- We are currently preparing these four (3.63 net) wells for completions operations and fracking equipment is scheduled to arrive shortly. Two of the wells have approximately 1,800 metre lateral sections and the other two have approximately 1,600 metre lateral sections with a frac density of 35 stages and 30 stages, respectively. Each stage will be stimulated with nitrified slick water placing 55 tonnes of sand per stage.
- Preparations for our Birley/Umbach facility expansion are ongoing with an expected construction commencement date of September 1, 2017 and an on-stream date of December 1, 2017.
- We are maintaining our 2017 production guidance of 4,200 – 4,300 boe/d despite lower production volumes during June and July which resulted from delays in the McMahon Plant turnaround, which took an additional unscheduled three weeks to complete and carried over into July.
Second Quarter 2017 Financial Results
Our production during the second quarter of 2017 averaged 3,638 boe/d, an increase of 3.5% from the previous quarter primarily due to additional production from our three (2.64 net) Birley/Umbach wells which were drilled in the fourth quarter of 2016 and came on production at the end of the first quarter of 2017. During the second quarter, these wells added 1,450 boe/d of production during the days that they were producing. This increase in second quarter volumes was despite June’s volumes decreasing by 4,300 boe/d compared to May as a result of a planned McMahon Plant turnaround. This planned turnaround was expected and we have included the majority of the production decreases in our 2017 forecasted volumes. Our Montney production was back on-stream in mid-July immediately following the completion of the McMahon Plant turnaround. We averaged approximately 4,850 boe/d of production from July 18 – 24, 2017, but these volumes have since been impacted by further McMahon Plant restrictions. We still expect to meet our 2017 guidance production of 4,200 – 4,300 boe/d.
Our production in the second quarter of 2017 decreased 30% from the same quarter of 2016 primarily as a result of the disposition of the majority of our Alberta assets through the 2016 distribution of a subsidiary’s shares to our shareholders (the “Share Distribution”) and various other property dispositions.
For the second quarter of 2017, our operating netback increased 526% to $9.08/boe compared to the same quarter of 2016. This increase was driven by improvements in each component of the operating netback. Our realized commodity price increases generally trended with the increase in benchmark pricing resulting in a realized price of $20.22/boe for the second quarter. Royalties per boe of $0.33/boe decreased from the same quarter of 2016 primarily as a result of royalty credits that we were granted from the BC’s Infrastructure Royalty Credit Program in addition to the absence of comparatively higher Alberta royalty rate production due to the Share Distribution and divestitures. Our net production expense of $11.82/boe during the second quarter decreased from the same period of 2016 primarily due to the divestiture of higher cost properties and the signing of a new BC gas handling agreement during the third quarter of 2016. However, our net production expense was higher than our expectations mostly due to higher fluid hauling costs resulting from weather induced road bans and seasonal costs including the repair and maintenance of our processing plants and our Birley/Umbach access road. We expect our on-going operations to incur production costs under $10/boe once production volumes from our 2017 four well drilling campaign are brought on-stream.
Our adjusted funds from operations for second quarter of 2017 of $1.2 million increased from an adjusted outflow from operations of $1.7 million during the second quarter of 2016, but decreased from an adjusted funds from operations of $2.0 million in the first quarter of 2017. This increase from the prior year resulted from higher commodity benchmark prices, realized gains on commodity price contracts and a lower cash-based cost structure for our Montney focused operations. The decrease from the first quarter was primarily driven by the expected decrease in production volumes, and correspondingly lower petroleum and natural gas revenue, driven by the McMahon Plant turnaround.
We reported a net loss for the second quarter of 2017 of $2.3 million compared to a loss of $12.5 million during the same quarter of 2016. This improvement reflects higher commodity prices, a lower cost structure associated with our transition to a pure Montney play in addition to a $0.6 million gain on commodity price contracts.
Second Quarter 2017 Operational Results
During the second quarter, we drilled four (3.63 net) horizontal Montney gas wells with various downhole locations on our Birley/Umbach property in northeastern BC on our D-93-F pad. Two of the wells have approximately 1,800 metre horizontal lateral sections. Drilling costs of these wells were consistent with our guidance despite road restrictions that delayed operations and increased transportation costs. Completions and equipping are scheduled for the third quarter of 2017. All four wells will use 55 tonne fracs at 52 metre spacing and are scheduled to be on-stream during the fourth quarter of 2017 bringing our exit production to our guidance of 6,300 – 6,500 boe/d.
We budgeted $10 million of our 2017 capital program for the expansion of our Birley/Umbach facility to 50 mmcf/d, of which we spent $2.3 million during the first half of 2017.
Production from our Birley/Umbach property is as follows:
|24 Hour Test
Rate End Date
|Final 24 Hour
Total Gas Rates
|Final 24 Hour
Total FCGR (1)
- Free condensate gas ratio.
- Production for well C-095-F is for 83 days.
Financial Commodity Price Contracts
We use financial commodity price contracts to support our capital investment and growth by providing more certainty regarding our adjusted funds from operations and balance sheet management. Our internal policy permits us to hedge up to a maximum period of 24 months, based on our total estimated oil and natural gas production volumes, consisting of no more than 50% for the first 12 months and 25% for the last 12 months. Our current financial commodity price contracts in place are as follows:
|Indexed Price||Notional Volumes||Company’s Received Price||Remaining Contractual Term|
|AECO||7,500 GJ/d||$3.205/GJ||July 1, 2017 to December 31, 2017|
|AECO||4,000 GJ/d||$2.50/GJ||July 1, 2017 to October 31, 2017|
We continue to execute on our previously announced $40 million capital program for 2017 and remain excited about the growth it will provide. As we implement this capital program we will continue to closely monitor our balance sheet and commodity prices. As in previous years, we will remain prudent in how we deploy our capital in order to defend our strong balance sheet.
We have made great strides over the past 12 months to improve our cost structure, including completing the Craft Share Distribution and executing a new gas handling agreement in BC. On a per boe basis, for fourth quarter of 2017, our net production expense is expected to approximate $8.00/boe. As we begin to increase our production at Birley/Umbach, our cost structure and profitability significantly improve.
We forecasted the McMahon Plant outages during the second quarter of 2017, resulting in us achieving production guidance for the quarter. However, this McMahon Plant turnaround continued past our expectations in July. Additionally, we have been experiencing some Enbridge downstream line issues and TCPL maintenance issues upstream of James River that may negatively impact our Birley/Umbach production volumes and/or field prices during the latter part of August. We are evaluating the impact of these unbudgeted proposed production outages and their impact on field prices. However, for the interim, we are maintaining our previously announced production guidance for 2017 as follows:
|($ millions, except boe/d)||2017 Guidance (1)|
|Average production (boe/d)||4,200 – 4,300|
|Exit production (boe/d)||6,300 – 6,500|
|Capital expenditures (2)||$||40|
|Net surplus as at December 31, 2017||$||2|
- 2017 guidance assumptions: AECO natural gas price $2.64/mmbtu, Station 2 natural gas price $2.11/mmbtu and Chicago Alliance natural gas price $2.92/mmbtu.
- Includes decommissioning obligation expenditures and capitalized general and administrative costs.
About Chinook Energy Inc.
Chinook is a Calgary-based public oil and natural gas exploration and development company which is focused on realizing per share growth from its large contiguous Montney liquids-rich natural gas position at Birley/Umbach, British Columbia.
|Oil and Natural Gas Liquids||Natural Gas|
|bbl||barrel||mcf||thousand cubic feet|
|bbls||barrels||mcf/d||thousand cubic feet per day|
|bbls/d||barrels per day||GJ||gigajoules|
|GJ/d||gigajoules per day|
|boe||barrel of oil equivalent on the basis of 6 mcf/1 boe for natural gas and 1 bbl/1 boe for crude oil and natural gas liquids (this conversion factor is an industry accepted norm and is not based on either energy content or current prices)|
|boe/d||barrel of oil equivalent per day|