FINANCIAL AND OPERATING HIGHLIGHTS
| (1) | Refer to Non-GAAP measures in this release and MD&A |
| FINANCIAL AND OPERATING HIGHLIGHTS TABLE | ||||||||||||
| (In thousand Canadian dollars except per share amounts and where stated otherwise) | ||||||||||||
| Three Months Ended | Year Ended December 31 | |||||||||||
| December 31, | September 30, | |||||||||||
| 2012 | 2012 | Change | % | 2012 | 2011 | Change | % | |||||
| FINANCIAL | ||||||||||||
| Petroleum and natural gas sales | 135,221 | 103,535 | 31 | 455,697 | 380,998 | 20 | ||||||
| Funds flow | ||||||||||||
| From operations(1) | 80,529 | 47,176 | 71 | 241,941 | 218,502 | 11 | ||||||
| Per share – diluted | 0.67 | 0.40 | 67 | 2.03 | 1.84 | 10 | ||||||
| Earnings | ||||||||||||
| Earnings (loss) before tax | 3,474 | (13,413 | ) | (126 | ) | (12,093 | ) | 25,042 | (148 | ) | ||
| Per share – diluted | 0.03 | (0.12 | ) | (125 | ) | (0.10 | ) | 0.21 | (149 | ) | ||
| Earnings (loss) after tax | 1,682 | (11,094 | ) | (115 | ) | (12,133 | ) | 17,415 | (170 | ) | ||
| Per share – diluted | 0.01 | (0.10 | ) | (115 | ) | (0.10 | ) | 0.15 | (171 | ) | ||
| Dividends declared | 12,255 | 12,242 | – | 48,956 | 48,656 | 1 | ||||||
| Per share | 0.105 | 0.105 | – | 0.420 | 0.420 | – | ||||||
| Capital expenditures | ||||||||||||
| Exploration, development, land, and facility | 76,544 | 61,824 | 24 | 349,294 | 351,744 | (1 | ) | |||||
| Acquisitions (dispositions) and other – net | 495 | (919 | ) | (154 | ) | 2,022 | (1,865 | ) | (208 | ) | ||
| Net capital expenditures | 77,039 | 60,905 | 26 | 351,316 | 349,879 | – | ||||||
| Total assets | 1,395,111 | 1,364,815 | 2 | 1,395,111 | 1,260,364 | 11 | ||||||
| Net debt(1) | 636,785 | 628,692 | 1 | 636,785 | 490,945 | 30 | ||||||
| Shareholders’ equity | 486,399 | 491,768 | (1 | ) | 486,399 | 530,445 | (8 | ) | ||||
| Total shares outstanding (thousands) | ||||||||||||
| – As at end of period (2) | 116,674 | 116,494 | – | 116,674 | 116,118 | – | ||||||
| OPERATING | ||||||||||||
| Production | ||||||||||||
| Natural gas (MMcf/d) | 118 | 125 | (6 | ) | 120 | 120 | – | |||||
| Oil (Bbl/d) | 10,780 | 8,014 | 35 | 9,153 | 3,759 | 143 | ||||||
| Natural gas liquids (Boe/d) | 4,555 | 4,517 | 1 | 4,315 | 4,287 | 1 | ||||||
| Total production (Boe/d @ 6:1) | 35,014 | 33,412 | 5 | 33,510 | 28,012 | 20 | ||||||
| Average prices before financial instruments | ||||||||||||
| Natural gas ($/Mcf) | 3.39 | 2.42 | 40 | 2.57 | 3.88 | (34 | ) | |||||
| Crude Oil ($/Bbl) | 78.96 | 78.03 | 1 | 79.76 | 89.21 | (11 | ) | |||||
| Natural gas liquids ($/Boe) | 47.85 | 43.56 | 10 | 47.85 | 56.99 | (16 | ) | |||||
| Average realized price | 41.98 | 33.68 | 25 | 37.16 | 37.26 | 0 | ||||||
| Drilling activity (gross) | ||||||||||||
| Gas | 5 | 1 | 400 | 28 | 34 | (18 | ) | |||||
| Oil | 12 | 13 | (8 | ) | 47 | 33 | 42 | |||||
| D&A | – | – | – | – | 1 | (100 | ) | |||||
| Total wells | 17 | 14 | 21 | 75 | 68 | 10 | ||||||
| (1) | Funds flow from operations and net debt are non-GAAP terms. Please refer to the advisory on Non-GAAP measures below. |
| (2) | Excluding shares held in trust for the benefit of Trilogy’s officers and employees under the Company’s Share Incentive Plan. Includes Common Shares and Non-voting Shares. Refer to the notes to the annual consolidated financial statements for additional information. |
OUTLOOK
Trilogy is forecasting that it will spend approximately $350 million to grow the existing asset base to an annual production of 40,000 – 42,000 Boe/d, representing approximately 20 – 25 percent year over year production growth. This includes spending approximately $175 million to drill, complete and tie-in approximately 40 Montney oil wells, $20 million towards Dunvegan oil wells and $155 million allocated toward Montney, Duvernay and Nikanassin oil and liquids-rich gas plays in the Kaybob and Grande Prairie areas. Trilogy is currently producing approximately 37,000 Boe/d, which is in line with budget expectations. First quarter 2013 production is forecast to be approximately 38,000 Boe/d which is also in line with expectations required to meet annual production guidance. Trilogy anticipates that most of the wells drilled and completed in the first quarter will be on production in March through early April, adding significant production volumes in the second quarter.
Trilogy’s 2013 annual guidance is as follows:
| Average production | 40,000 – 42,000 Boe/d (45% oil and NGLs) |
| Average operating cost | $8.00/Boe |
| Capital expenditures | $350 million |
ADDITIONAL INFORMATION
A copy of Trilogy’s 2012 annual report to Shareholders, including Management’s Discussion and Analysis and the audited annual consolidated financial statements and related notes can be obtained at http://media3.marketwire.com/docs/305tet.pdf. This report will also be made available at a later date through Trilogy’s website at www.trilogyenergy.com and SEDAR at www.sedar.com.
ADVANCE NOTICE REQUIREMENT FOR NOMINATING DIRECTORS
Trilogy’s board of directors today approved the adoption of amendments to the by-laws of the Corporation (the “By-laws”) which, among other things, include an advance notice requirement (the “Advance Notice Requirement”) for shareholders who wish to nominate a person for election as a director of the Corporation (other than pursuant to a requisition of a meeting or a shareholder proposal made pursuant to the provisions of the Business Corporations Act (Alberta)).
The purpose of the Advance Notice Requirement is to provide shareholders, directors and management of the Corporation with a clear framework for nominating directors. Among other things, the Advance Notice Requirement fixes a deadline by which shareholders must submit a notice of director nominations to the Corporation prior to any annual or special meeting of shareholders where directors are to be elected, and sets out the information that must be included in the notice for it to be valid. In the case of an annual meeting of shareholders, notice must be given to the Corporation not less than 30 days nor more than 65 days prior to the date of the annual meeting; provided, that if the first public announcement of the meeting is given less than 50 days prior to the meeting date notice must be given not later than the close of business on the 10th day following such public announcement.
In the case of a special meeting of shareholders (which is not also an annual meeting), notice must be given to the Corporation not later than the close of business on the 15th day following the first public announcement of the date of the special meeting.
Advance notice requirements have been adopted by a number of Canadian issuers. The deadlines in the Advance Notice Requirement are supported by Institutional Shareholder Services Inc.
The amendments to the By-laws (including the Advance Notice Requirement) are effective immediately. At the annual meeting of shareholders to be held on May 9, 2013, shareholders will be asked to confirm and ratify the amendments. A copy of the amended By-laws has been filed and is available under the Company’s profile at www.sedar.com.
ABOUT TRILOGY
Trilogy is a growing petroleum and natural gas-focused Canadian energy corporation that actively develops, produces and sells natural gas, crude oil and natural gas liquids. Trilogy’s geographically concentrated assets are primarily low-risk, high working interest properties that provide abundant infill drilling opportunities and good access to infrastructure and processing facilities, many of which are operated and controlled by Trilogy. Trilogy’s common shares are listed on the Toronto Stock Exchange under the symbol “TET”.
NON-GAAP MEASURES
Certain measures used in this document, including “funds flow from operations”, “operating income”, “net debt”, “finding and development costs”, “operating netback ” and “recycle ratio” collectively the “Non-GAAP measures” do not have any standardized meaning as prescribed by IFRS and previous GAAP and, therefore, are considered Non-GAAP measures. Non-GAAP measures are commonly used in the oil and gas industry and by Trilogy to provide shareholders and potential investors with additional information regarding the Company’s liquidity and its ability to generate funds to finance its operations. However, given their lack of standardized meaning, such measurements are unlikely to be comparable to similar measures presented by other issuers.
“Funds flow from operations” refers to the cash flow from operating activities before net changes in operating working capital. The most directly comparable measure to “funds flow from operations” calculated in accordance with IFRS is the cash flow from operating activities. “Funds flow from operations” can be reconciled to cash flow from operating activities by adding (deducting) the net change in operating working capital as shown in the consolidated statements of cash flows.
“Operating income” is equal to petroleum and natural gas sales before financial instruments and bad debt expenses minus royalties, operating costs, and transportation costs. “Operating netback” refers to Operating income plus realized financial instrument gains and losses and other income minus actual decommissioning and restoration costs incurred. “Net debt” is calculated as current liabilities minus current assets plus long-term debt. The components described for “operating income”, “operating netback” and “net debt” can be derived directly from Trilogy’s consolidated financial statements.
“Finding and development costs” refers to all current year net capital expenditures, excluding property acquisitions and dispositions with associated reserves, and including changes in future development capital on a proved and proved plus probable basis. “Finding and development costs per Barrel of oil equivalent” (“F&D $/Boe”) is calculated by dividing finding and development costs by the current year’s reserve extensions, discoveries and revisions on a proved or proved plus probable reserve basis.
“Recycle ratio” is equal to “Operating netback” on a production barrel of oil equivalent for the year divided by “F&D $/Boe” (computed on a proved or proved plus probable reserve basis as applicable).
Investors are cautioned that the Non-GAAP measures should not be considered in isolation or construed as alternatives to their most directly comparable measure calculated in accordance with IFRS, as set forth above, or other measures of financial performance calculated in accordance with IFRS.
FORWARD-LOOKING INFORMATION
Certain information included in this news release constitutes forward-looking statements under applicable securities legislation. Forward-looking statements or information typically contain statements with words such as “anticipate”, “believe”, “expect”, “plan”, “intend”, “estimate”, “propose”, “budget” or similar words suggesting future outcomes or statements regarding an outlook. Forward-looking statements or information in this news release pertain to, without limitation: expected average production volumes and the relative content of crude oil, natural gas, and natural gas liquids therein; average operating costs; capital expenditures and the relative allocation and timing thereof; planned drilling programs, well completions, well tie-ins and the anticipated costs and timing thereof; statements regarding sources of and plans for funding Trilogy’s exploration, development, facilities and other expenditures; business strategies and objectives for 2013 and beyond; among others. Such forward- looking statements or information are based on a number of assumptions which may prove to be incorrect. Statements regarding “reserves” or “resources” are forward-looking statements, as they involve implied assessments, based on estimates and assumptions, that the reserves and resources described exist in the quantities predicted or estimated, and can be profitably produced in the future.
Such assumptions include: current commodity price forecasts for petroleum, natural gas and natural gas liquids; current reserves estimates; current production forecasts and the relative mix of crude oil, NGLs and natural gas therein; geology applicable to Trilogy’s land holdings; the extent and development potential of Trilogy’s assets including, without limitation, Trilogy’s Kaybob area Montney oil and gas assets, the Duvernay Shale Gas development program and the Dunvegan oil program; continuity of the mutually beneficial NGL recovery agreement with Aux Sable Canada LP and pricing thereunder; assumptions regarding royalties and expenses and the continuity of government incentive programs and their applicability to Trilogy; operating and other costs; expected timelines and budgets being met; budget allocations and capital spending flexibility; access to capital markets and other sources of funding for Trilogy’s planned operations and expenditures; estimates of deferred tax amounts, tax assets and tax pools; the ability of Trilogy and its partners to achieve drilling, completion construction and other operational results consistent with our expectations; general business, economic, and market conditions; the ability of Trilogy to obtain equipment, services and supplies in a timely manner to carry out its activities; the ability of Trilogy to market oil and natural gas successfully to current and new customers; the timing and costs of pipeline, storage and facility construction and expansion facility run-times; the ability to secure adequate product processing, transmission and transportation and the timely receipt of required regulatory approvals: among others.
Although Trilogy believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements because Trilogy can give no assurance that such expectations will prove to be correct. Forward-looking statements or information are based on current expectations, estimates and projections that involve a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by Trilogy and described in the forward-looking statements or information.
These risks and uncertainties include, but are not limited to: fluctuations of oil, natural gas and natural gas liquids prices, foreign currency, exchange rates and interest rates, volatile economic and business conditions, the ability of management to execute its business plan; the risks of the oil and gas industry, such as operational risks in exploring for, developing and producing crude oil, natural gas and associated by- products and market demand; risks and uncertainties involving geology of oil and gas deposits; risks inherent in Trilogy’s marketing operations, including credit risk; the uncertainty of reserves estimates and reserves life; the uncertainty of estimates and projections relating to future production, NGL yields, costs and expenses; uncertainty in amounts and timing of royalty payments and applicability of and change to royalty regimes and government incentive programs including, without limitation, the Natural Gas Deep Drilling Programs and the Drilling Royalty Credit Program; potential delays or changes in plans with respect to exploration or development projects or capital expenditures; the availability of financing; the ability to generate sufficient cash flow from operations and other sources of financing at an acceptable cost to fund Trilogy’s exploration, development and construction plans and repay debt; Trilogy’s ability to secure adequate product transmission and transportation on a timely basis or at all; Trilogy’s ability to enter into or renew leases; health, safety and environmental risks; the ability of Trilogy to add production and reserves through development and exploration activities; weather conditions; the possibility that government policies, regulations or laws, including without limitation those relating to the environment and taxation, may change; imprecision in estimates of product sales, tax pools, tax shelters, tax deductions available to Trilogy, changes to and the interpretation of tax legislation and regulations applicable to Trilogy, and timing and amounts of reversals of temporary differences between assets and liabilities recognized for accounting and tax purpose; the possibility that regulatory approvals may be delayed or withheld; risks associated with existing and potential future lawsuits and regulatory actions against Trilogy; uncertainty regarding aboriginal land claims and co-existing local populations; hiring/maintaining staff; the impact of market competition; and other risks and uncertainties described elsewhere in this document or in Trilogy’s other filings with Canadian securities authorities.
The forward-looking statements and information contained in this news release are made as of the date hereof and Trilogy undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.
Refer to Trilogy’s Management’s Discussion and Analysis for additional information on forward-looking information.
OIL AND GAS ADVISORY
This news release contains disclosure expressed as “Boe”, “Boe/d”, “Mcf/d”, “MMcf/d”, “Bbl” and “Bbl/d “. All oil and natural gas equivalency volumes have been derived using the ratio of six thousand cubic feet of natural gas to one barrel of oil. Equivalency measures may be misleading, particularly if used in isolation. A 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 well head. For fiscal 2012, the ratio between Trilogy’s average realized oil price and the average realized natural gas price was approximately 31:1 (“Value Ratio”). The Value Ratio is obtained using the 2012 average realized oil price of $79.76 (CAD$/Bbl) and the 2012 average realized natural gas price of $2.57 (CAD$/mcf). This Value Ratio is significantly different from the energy equivalency ratio of 6:1 and using a 6:1 ratio would be misleading as an indication of value.
Trilogy Energy Corp.
J.H.T. (Jim) Riddell
Chief Executive Officer
Trilogy Energy Corp.
J.B. (John) Williams
President and Chief Operating Officer
Trilogy Energy Corp.
M.G. (Michael) Kohut
Chief Financial Officer
Trilogy Energy Corp.
1400 – 332 – 6th Avenue S.W.
Calgary, Alberta T2P 0B2
(403) 263-8915
(403) 290-2900
www.trilogyenergy.com