Twin Butte Energy Ltd. (“Twin Butte” or the “Company”) is pleased to provide an update on various corporate activities.
Twin Butte anticipates releasing Q4 and year end 2012 financial and operating results on March 21, 2013. The Company further anticipates that the year end 2012 independent reserve analysis will be complete within the next three weeks and intends to issue a press release with a summary of such results at that time.
Unaudited Q4 and full year 2012 corporate performance met or exceeded internal expectations and street consensus. Average production for the quarter was approximately 17,400 boe per day, a 27 percent increase from Q3 and was weighted 90 percent to oil and natural gas liquids. December average production was 19,200 boe per day. Although differentials between benchmark West Texas Intermediate (“WTI”) and Western Canadian Select (“WCS”) widened significantly late in the quarter, cash flow for the quarter was protected by Twin Butte’s strong hedge position and was approximately $36 million. Capital expenditures in the quarter were reduced by approximately $4 million from our budget due to the differential situation; therefore capital for the quarter, including the $20 million Auburndale asset acquisition completed during the quarter, was approximately $41 million. Average production for 2012 was approximately 14,600 boe per day an increase of 92 percent (25 percent per share) from 2012 with annual 2012 cash flow being $134 million. All in capital expenditures (excluding corporate transactions but including asset acquisitions and dispositions) was $91 million which when combined with the 2012 dividend paid to shareholders during the year, generated an all in payout ratio of 95 percent. In addition to our organic drilling and asset acquisition program the Company completed three corporate transactions valued at approximately $428 million. Year end 2012 net debt was approximately $205 million or 1.4 times Q4 annualized cash flow. All in all 2012 was a great transitional year for Twin Butte.
Since late December 2012, Twin Butte has been hampered by a number of operational and reservoir performance issues. Significant downtime was experienced early in January on a number of the Company’s heavy oil operations, as the Lloydminster area encountered cold temperatures which created freezing and run time related issues on a number of the Company’s wells. As the month progressed and weather and run time conditions improved, it became apparent that a number of wells at Twin Butte’s Primate Property in western Saskatchewan had lost inflow or were experiencing higher water cuts than in December. Primate was one of the Company’s best performing properties in 2012 but over the last 40 days, has seen its production drop from a high of 3,400 bbls per day, by 800-900 bbls per day. The Company’s technical and operating staff have been diligently reworking wells in an attempt to regain performance from this property, but at this time, the Company believes it is prudent to reduce its expectations from the property as well as current sustainable corporate production from 18,750 to 17,800 boe per day. When combined with the significant downtime experienced in January the Company’s expected Q1 production has been reduced to approximately 17,100 boe per day from 18,400 boe per day. Cash flow will be impacted by the lower production level and the historically wide differentials currently being experienced and is now anticipated to be $30.5 million for Q1. Including our dividend and a reduced capital plan for the quarter the all in payout ratio will be maintained at 100 percent or less.
Although Twin Butte anticipates that there may be an opportunity to regain some of the lost productive capability, the Company believes it is prudent to reduce 2013 operating targets. This isolated performance issue combined with wider than expected heavy oil differentials will have an impact on Twin Butte’s anticipated 2013 cash flow. Consistent with the Company’s fundamental principle of protecting the Company’s dividend, maintaining a healthy balance sheet and an all in payout ratio of 100 percent or less, Twin Butte now anticipates a 2013 capital program of $85 million. This cut in capital from the Company’s original $110 million capital plan will reduce 2013 forecast production by 900 boe per day. Corporate average production for 2013, because of the reduced capital plan and the Primate property’s performance, is now anticipated to average approximately 17,400 boe per day. Assuming an average $95 WTI, a $57 WCS and a $3.00 per gj AECO gas price, in combination with the Company’s current 2013 hedge position summarized below, Twin Butte anticipates corporate cash flow will be $130 million. Assuming current DRIP participation of 16 percent, Twin Butte’s annual dividend will be $40 million generating an all in payout ratio of 96 percent. Should differentials contract through 2013 as expected, Twin Butte will prudently increase the capital plan to maintain our target all in payout ratio of 100 percent or less.
Twin Butte current hedging summary
|Period||Daily Volume||Average Price||% of production|
|2013 Q1||7,000||$76.74||47% of heavy bbls|
|Q2||5,500||$76.26||37% of heavy bbls|
|Q3 & Q4||4,500||$76.17||30% of heavy bbls|
|2013 Q1||2,333||$95.54||58% of total oil|
|Q2||4,500||$97.81||63% of total oil|
|Q3 & Q4||4,500||$96.02||56% of total oil|
|2014 Q1 & Q2||4,000||$95.45||25% of total oil|
|Q3 & Q4||2,000||$95.00||13% of total oil|
|2013||7,800||$4.50||65% of gas volumes|
Although disappointing, the Company views the Primate situation as an isolated performance issue. In 2012 Twin Butte conducted a very active organic drilling and asset and corporate acquisition program. Twin Butte has grown its production, cash flow, and reserves, strengthened its inventory of highly economic heavy oil drilling locations, and materially expanded its undeveloped land position in the Lloydminster area. Preliminary year end 2012 reserve estimates suggest the Company has done this in a cost effective manner. The Company anticipates 2012 finding, development and acquisition costs to be below $20 per boe on a 2P basis and below $24 per boe including change in forward development capital. As noted, the Company anticipates releasing detailed year end reserve figures later in February.
Twin Butte has and will continue to take a very disciplined approach to running the business. The Company’s primary focus is long term sustainability of its dividend while maintaining a low debt to cash flow ratio providing balance sheet flexibility. The Company’s reduction in targets for 2013 is partially commodity price related due to the current differential situation. The Company believes it has taken the right steps with its hedge program, which although effective, cannot remove total volatility from the situation. The Company strongly believes there are enough options and alternatives on the horizon to alleviate the currently perceived transportation and refining shortfall for heavy barrels, some of which may dictate a narrowing of heavy differentials later in 2013. The Company is not however, prepared to risk its balance sheet or deviate from its fundamental principle of protecting the Company’s dividend, maintaining a healthy balance sheet and an all in payout ratio of 100 percent or less.
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: future dividend levels and aggregate payments, including payout ratios; Twin Butte’s anticipated timing for the release of its year end reserve and financial results; the volume and product mix of Twin Butte’s oil and natural gas production, including guidance on the Company’s estimates of future production levels ; future oil and natural gas prices, including anticipated differential pricing levels for heavy oil as compared to light oil; future operational activities; future cash flows and operational results, including estimates for Q1; and the anticipated ranges for the Company’s finding and development costs for 2012.
With respect to forward-looking statements contained in this news release, we have 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; our ability to obtain equipment in a timely manner to carry out development activities; continued productivity issues with respect to certain properties identified in this press release; that audited financial results will not differ materially from the Company’s internally prepared financial information; that preliminary results in regards to the Company’s reserves, as evaluated by the Company’s independent engineers, will not differ materially upon completion of such evaluation; participation in the Company’s DRIP; our ability to market our oil and natural gas successfully to current and new customers; the impact of increasing competition; our ability to obtain financing on acceptable terms; and our 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: volatility in market prices for oil and natural gas; production risks; 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. 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.
This press 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. 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 the best estimates and judgments, and represent, to the best of management’s knowledge and opinion.