Twin Butte Energy 2012 Year End Reserve and Operational Update

CALGARY , Feb. 27, 2013 /CNW/ – Twin Butte Energy Ltd. (TBE.TO) (“Twin Butte” or the “Company”) is pleased to provide an operations update and information on its oil and gas reserves as of December 31, 2012 . Twin Butte anticipates releasing Q4 and year end 2012 audited financial and operating results after market close on March 21, 2013 .

Operations Update

On January 31, 2013 , Twin Butte provided an operational update that noted it had encountered reservoir performance issues at its Primate property in western Saskatchewan. At that time, the Company noted that the property’s production had declined during the month of January from a peak of 3,400 bbls per day to 2,500 bbls per day due to increased water cuts and reduction of inflow on a number of producing wells. Since that time, the Company has successfully stabilized the property’s production at approximately 2,600 bbls per day.  Twin Butte will continue to monitor and optimize production at Primate but believes that the property’s sharp decline will not continue and that the property’s point forward performance will be more analogous to other area properties. Based on analogy work conducted by both Twin Butte and McDaniel, it is believed that the property will continue to produce for a number of years and that the annual property production decline should be approximately 35 percent. Twin Butte’s December 31, 2012 reserve analysis includes this assumption. As a result of positive technical revisions for Primate, the property’s performance continues to exceed expectations of both our independent evaluators and internally.

Current corporate production is in excess of 18,000 boe per day up from the reported 17,800 boe per day at the end of January. Year to date, the Company has successfully drilled 20 gross (20 net) wells, including two horizontal wells at its Wildmere asset which was acquired in Q4 2012. Based on very encouraging early production data from the Wildmere wells, Twin Butte will be drilling another 2 to 4 horizontal wells on the property late in Q1 or early Q2.

Highlights of Twin Butte’s Year End 2012 reserves are as follows:

• Completed an organic capital program of $58.4 million including the drilling of 95 gross (77 net) wells at a 96 percent success rate.
• Drilling program generated total proved plus probable finding and development (“F&D”) costs of $18.18 per boe including changes in future development costs, representing a 1.6 times organic recycle ratio based on average 2012 operating netback of $29.14 per boe.
• Completed three corporate and two asset acquisitions as well as two non-core dispositions for a total cost of $455.5 million . The acquisitions materially grew Twin Butte’s production, cash flow, and reserves, as well as significantly expanded its undeveloped land position in its core heavy oil operating area at Lloydminster. Excluding the value of the undeveloped land acquired ( $57.5 million ) the overall proved plus probable acquisition and divestiture costs were $22.61 per boe including changes in future development costs, representing a 1.3 times recycle ratio.
• Generated one and three year average total proved plus probable finding, development and acquisition (“FD&A”) costs of $24.00 and $21.38 respectively per boe including changes in future development costs.
• Grew corporate proved and probable reserves by 58 percent from 35.6 Mboe at December 31, 2011 to 56.2 Mboe at December 31, 2012 .
• Increased corporate proved plus probable reserves liquids weighting to 73 percent at December 31, 2012 from 55 percent at December 31, 2011 .
• Primate property performance generated positive reserve revisions after accounting for January production reductions, showing the pool has exceeded our original expectations.

Reserves Summary

The Company’s independent reserve engineering firm, McDaniel & Associates Consultants Ltd (“McDaniel”) has evaluated 100 percent of Twin Butte’s petroleum and natural gas reserves. This evaluation was conducted pursuant to National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (“NI 51-101”) and the Canadian Oil and Gas Evaluation Handbook (“COGEH”) reserve definitions.

⁽¹⁾ “Gross” reserves means the total working interest share of remaining recoverable reserves owned by Twin Butte before deductions of royalties payable to others.
⁽²⁾ “Net” reserves means Twin Butte gross reserves less all royalties payable to others.
⁽³⁾ “Oil Equivalent” amounts have been calculated using a conversion of six thousand cubic feet of natural gas to one barrel of oil. BOEs may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of natural gas to one barrel of oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6 mcf: 1 bbl, utilizing a conversion ratio of 6 Mcf: 1 bbl may be a misleading indication of value.
⁽⁴⁾ Numbers in tables may not add due to rounding

Reserve Reconciliation

⁽¹⁾ Gross Company interest reserves include solution gas but do not include royalty
⁽²⁾ Reserve information as at December 31, 2010 and 2011 is prepared in accordance with NI 51-101
⁽³⁾ Oil equivalent amounts have been calculated using a conversion of six thousand cubic feet of natural gas to one barrel of oil. BOEs may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of natural gas to one barrel of oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6 mcf: 1 bbl, utilizing a conversion ratio of 6 Mcf: 1 bbl may be a misleading indication of value.
⁽⁴⁾  Numbers in tables may not add due to rounding

Capital Expenditures⁽¹⁾

⁽¹⁾ Capital numbers are unaudited and subject to change

Capital Program Efficiency

⁽¹⁾ The aggregate of the additions and revisions costs incurred in the most recent financial year and the change during that year in estimated future development costs generally will not reflect total finding and development costs related to reserve additions for that year.
⁽²⁾ Recycle ratio is calculated as operating netback divided by FD&A costs (proved plus probable). Operating netback is calculated as revenue (including realized hedging gains and losses) minus royalties, production and operating expenses and transportation expenses.
⁽³⁾ Oil equivalent amounts have been calculated using a conversion of six thousand cubic feet of natural gas to one barrel of oil. BOEs may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of natural gas to one barrel of oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6 mcf: 1 bbl, utilizing a conversion ratio of 6 Mcf: 1 bbl may be a misleading indication of value.

Under NI 51-101, the methodology to be used to calculate FD&A costs includes incorporating changes in future development capital required to bring the proved undeveloped and probable reserves to proved producing status. For continuity, Twin Butte has presented FD&A costs calculated both excluding and including FDC. Changes in forecast FDC occur annually as a result of development, acquisition and disposition activities and capital cost estimates that reflect the independent evaluators best estimate of what it will cost to bring the proved undeveloped and probable reserves on production.

Reserve Life Index

The following table sets forth Twin Butte’s reserve life index based on total proved and proved plus probable reserves and actual Q4 2012 production of 17,531 boe/d.

McDaniel December 31, 2012 Forecast Prices

Select Summary Pricing and Inflation Rate Assumptions (Forecast Prices)

Future Development Costs (Undiscounted)

Net Asset Value

The following net asset value (“NAV”) table shows a NAV calculation under which the Company’s reserves would be produced at forecast future prices and costs. The value is a snapshot in time and is based on various assumptions, including commodity prices and foreign exchange rates that vary over time. It should not be assumed that the NAV per share represents the fair market value of Twin Butte shares. The calculations below do not reflect the value of the Company’s prospect inventory to the extent that the prospects are not recognized within the NI 51-101 compliant reserve assessment.

Using Twin Butte’s Reserve Value at December 31, 2012 – Forecast Pricing and Costs (Pre tax)

(1)   Independent assessment of 441,695 net undeveloped acres at average price of $190 /acre.
(2)   Net debt unaudited and subject to change

Twin Butte significantly grew all aspects of its business in 2012 through the execution of a focused organic drilling program as well as the completion of five strategic acquisitions. The organic drilling program of $58.4 million , which included the drilling of 95 gross (77 net) locations at a 96 percent success rate, replaced 90 percent of the 5.4 million boe’s the Company produced in 2012. This high replacement ratio while only spending 43 percent of Twin Butte’s 2012 cash flow demonstrates the Company’s strong capital efficiency. This organic drilling and recompletion program generated total proved plus probable finding and development (“F&A”) costs of $18.18 per boe including changes in future development costs, representing a 1.6 times organic recycle ratio based on 2012 operating netbacks of $29.14 per boe.

In addition to the organic program, Twin Butte completed three corporate and two asset acquisitions (summarized below) as well as two non-core dispositions for a total cost of $455.5 million . These acquisitions materially grew Twin Butte’s production, cash flow, and reserves, as well as significantly expanded its undeveloped land position in its core heavy oil operating area at Lloydminster. Excluding the value of the undeveloped land acquired the overall proved plus probable acquisition and divestiture costs were $22.61 per boe including changes in future development costs, representing a 1.3 times recycle ratio. The Company added approximately 190,000 net undeveloped acres in Lloydminster increasing its undeveloped land from approximately 30,000 net acres at the end of 2011 to approximately 220,000 net undeveloped acres at the end of 2012. These lands will provide Twin Butte with the ability to continually add to its drilling inventory for many years.

TBE 2012 Acquisition Summary – Effective Date and Land Impact

The overall 2012 capital plan (organic and acquisitions) of $513.9 million generated total proved plus probable finding, development and acquisition (“FD&A”) costs of $24.00  per boe including changes in future development costs.

Outlook

Twin Butte’s strategy of moderate growth while paying a sustainable dividend has and will continue to work. With year end 2012 debt of approximately $201 million and anticipated 2013 cash flow in excess of $130 million , the Company is well financed to complete its forecast 2013 capital plan of $85 million maintaining an all in payout ratio of under 100 percent. The Company will continue to match its capital plan to forecast cash flow less dividends.  Recent positive movement in both oil pricing and the light to heavy oil differentials, combined with the Company’s strong hedge position, allows Twin Butte to remain confident in the long term sustainability of the dividend and anticipates a possible expansion to its capital plan.

Twin Butte is a value oriented, intermediate producer with a significant and growing scalable and repeatable 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 production growth potential over the long term.

Forward-Looking Statements

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: anticipated timing of the release of audited 2012 results; the Company’s expectations on well declines at its Primate property; 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.

Reserve Life Index

The reader is also cautioned that this news release contains the term reserve life index (“RLI”), which is not a recognized measure under generally accepted accounting principles (“GAAP”).  Management believes that this measure is a useful supplemental measure of the length of time the reserves would be produced over at the rate used in the calculation.  Readers are cautioned, however, that this measure should not be construed as an alternative to other terms 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.

Operating Netback

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.

Analogous Information

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.

SOURCE: Twin Butte Energy Ltd.