The Company’s focus for 2012 was centered on the disposition of mainly non-producing assets during a period of continued low natural gas prices. The Company’s 2012 financial and operating results were generally impacted by limited cashflows and the Company’s efforts to reduce capital expenditures. Proceeds from asset sales during the year were used to reduce the Company’s credit facility (the “Credit Facility”).
Terra’s 2012 year-end financial results may be obtained at www.sedar.com or www.terraenergy.ca.
2012 Financial and Operating Summary
Reserves Evaluation and Related Metrics
The GLJ reserves evaluation was performed in accordance with the requirements of National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities (“NI 51-101”). Additionally, the Company would like to announce the results of its independent evaluation of undeveloped lands, as prepared by Seaton-Jordan & Associates Ltd. (“Seaton-Jordan”) as presented below.
Oil and Gas Reserves
Total proved and probable reserves, net of 2012 production decreased by 22% from 33,945 mboe to 26,571 mboe at December 31, 2012, based upon forecast prices and costs. The breakdown of the Company’s reserves consisted of 80% natural gas, 9% crude oil and 11% natural gas liquids as at December 31, 2012.
The following tables summarize certain information contained in the GLJ Report effective December 31, 2012. Detailed reserves information as required under NI 51-101 is included in Terra’s Annual Information Form filed on SEDAR. Oil equivalent amounts have been calculated using a conversion rate of 6,000 cubic feet of natural gas to one barrel of oil.
Summary of Gross Before Royalty Working Interest Reserves by Category
| Forecast Prices and Costs | December 31, 2011 | December 31, 2012 | % Change | |||||
| Reserves Category | Total(mboe) | Light and Medium Oil(mbbl) | Heavy Oil(mbbl) | Natural Gas Liquids (mbbls) |
Natural Gas(mmcf) | Coal Bed Methane (mmcf) |
Total Oil Equivalent (mboe) | Total (mboe) |
| Proved Producing | 11,034 | 758 | 2 | 888 | 40,442 | 314 | 8,442 | -23% |
| Proved Developed Non-Producing | 3,278 | 392 | 32 | 292 | 15,068 | – | 3,227 | -2% |
| Proved Undeveloped | 3,052 | 74 | – | 193 | 7,749 | 185 | 1,589 | -48% |
| Total Proved | 17,364 | 1,225 | 34 | 1,373 | 63,259 | 499 | 13,258 | -24% |
| Total Probable | 16,582 | 1,046 | 9 | 1,500 | 64,377 | 168 | 13,313 | -20% |
| Total Proved + Probable | 33,945 | 2,271 | 43 | 2,873 | 127,636 | 667 | 26,571 | -22% |
Totals may not add due to rounding
The estimated future net revenues are presented before deducting future estimated site restoration costs and are reduced for future abandonment costs and estimated future capital for future development associated with non-producing, undeveloped and probable additional reserves.
Summary of Net Present Values of Future Net Revenue ($000’s) Discounted Before Income Taxes
| Forecast Prices | December 31, 2011 | December 31, 2012 | % Change | |||||||||
| Reserves Category | 0 | % | 10 | % | 0 | % | 10 | % | 0 | % | 10 | % |
| Proved Producing | 190,726 | 122,559 | 117,173 | 75,639 | -39 | % | -38 | % | ||||
| Proved Non-Producing | 98,213 | 45,562 | 68,614 | 33,172 | -30 | % | -27 | % | ||||
| Total Proved | 288,939 | 168,121 | 185,787 | 108,811 | -36 | % | -35 | % | ||||
| Total Probable | 358,558 | 122,029 | 217,703 | 74,618 | -39 | % | -39 | % | ||||
| Total Proved + Probable | 647,497 | 290,150 | 403,490 | 183,429 | -38 | % | -37 | % | ||||
The forecast prices used in the GLJ Report were GLJ’s forecast prices as at January 1, 2013 as presented below. The January 1, 2013 forecast prices for natural gas reflect a substantial reduction from the January 1, 2012 forecast pricing.
| AECO (CDN$/GJ) | |||
| Year | Dec 31, 2011 Evaluation | Dec 31, 2012 Evaluation | % Difference Year over Year |
| 2013 | $4.13 | $3.38 | -18.2% |
| 2014 | $4.59 | $3.83 | -16.6% |
| 2015 2016 2017 |
$5.05 $5.51 $5.97 |
$4.28 $4.72 $4.95 |
-15.2% -14.3% -17.1% |
| WTI (US$/BBL) | |||
| 2013 | $100.00 | $90.00 | -10.0% |
| 2014 | $100.00 | $92.50 | -7.5% |
| 2015 2016 2017 |
$100.00 $100.00 $100.00 |
$95.00 $97.50 $97.50 |
-5.0% -2.5% -2.5% |
Land Valuation
Terra’s gross undeveloped land holdings decreased from 739,148 gross acres (608,079 net) as at December 31, 2011 to 641,584 gross acres (527,954 net) as at December 31, 2012, representing a decrease of 13% for both net and gross numbers. The decrease was largely attributable to dispositions by the Company during the year.
Below is a summary of the Company’s undeveloped land holdings, broken down by province:
| Province | December 31, 2012 | December 31, 2011 | ||||||
| Gross Acreage | Net Acreage | Gross Acreage | Net Acreage | |||||
| Alberta | 374,727 | 333,408 | 404,566 | 370,764 | ||||
| British Columbia | 266,533 | 194,546 | 334,338 | 237,314 | ||||
| Saskatchewan | 325 | GOR | 244 | GOR | ||||
| Totals | 641,584 | 527,954 | 739,148 | 608,079 | ||||
| Province | Undeveloped Land Values | % Change | |
| 2012 | 2011 | ||
| Alberta | $18,243,575 | $25,575,957 | -40% |
| British Columbia | $43,198,979 | $70,699,147 | -64% |
| Saskatchewan | $644 | $414 | 36% |
| Totals | $61,443,198 | $96,275,518 | -57% |
The undeveloped land holdings of the Company were evaluated as at December 31, 2012 by Seaton-Jordan. The value of Terra’s net undeveloped land holdings is estimated to be approximately $61.4 million as at December 31, 2012. This valuation represents a decrease of 57% over last year’s valuation of undeveloped land as prepared by Seaton-Jordan, reflecting both dispositions during the year, and recognition of current market conditions.
On February 28, 2013, the Company disposed of undeveloped land for proceeds of $20.0 million of which 33,296 gross acres (31,034 net) were included in the Seaton-Jordan evaluation. As a result of this sale, the Seaton-Jordan valuation would be reduced by approximately $13.5 million to $47.9 million.
Net Asset Value (NAV)
Terra’s NAV per share as at December 31, 2012 is calculated as follows:
| As at December 31($000’s) | 2012 | 2011 |
| P+P Reserves (NPV 10%) | $183,430 | $290,150 |
| Undeveloped Land (527,954 net acres)1 | $61,443 | $96,276 |
| Seismic at Book Value | $7,866 | $7,527 |
| Net Debt2 | ($77,247) | ($94,850) |
| Net Asset Value | $175,492 | $299,103 |
| Shares Outstanding | 101,663 | 101,784 |
| Basic NAV per Share | $1.73 | $2.94 |
| Option Value | $7,271 | $8,766 |
| Option Shares | 6,378 | 9,325 |
| Diluted Net Asset Value | $182,763 | $307,869 |
| Diluted Shares Outstanding | 108,041 | 111,109 |
| Fully Diluted NAV per Share | $1.69 | $2.77 |
| 1 | Based on December 31, 2011 and 2012 Seaton-Jordan reports |
| 2 | Net debt for 2012 exclusive of assets held for sale ($43,386) and risk management contracts |
It is estimated that the impact of the remaining Montney sale option will reduce the December 31, 2012 NAV by $0.21 cents from $1.69 to $1.48 on a fully diluted basis.
Terra is a junior oil and gas corporation engaged in the exploration for, and development and production of, natural gas and oil in Western Canada. Terra’s common shares trade on the Toronto Stock Exchange under the symbol ‘TT’.
Reader Advisory
All amounts in Canadian dollars unless otherwise specified.
Information Regarding Disclosure in Oil and Gas Reserves and Operational Information
A boe conversion ratio of six thousand cubic feet per barrel (6mcf/bbl) of natural gas to barrels of oil equivalence is based upon an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency for the individual products at the wellhead. Such disclosure of boe’s may be misleading, particularly if used in isolation. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1; utilizing a conversion of a 6:1 basis may be misleading as an indication of value.
In accordance with Canadian practice, production volumes are reported on a company gross basis, before deduction of Crown and other royalties, unless otherwise stated. Unless otherwise specified, all reserve volumes in this media release and all information derived there from are based on “working interest” using forecast prices and costs. “Working interest” reserves consist of “total company interest” reserves (as defined in National Instrument 51-101 adopted by the Canadian Securities Regulators) less Terra’s royalty interests in reserves. “Working interest” reserves are not a measure defined in NI 51-101 and do not have a standardized meaning under NI 51-101. Accordingly our “working interest” reserves may not be comparable to reserves presented or disclosed by other issuers. Our oil and gas reserves statement for the year ended December 31, 2012, which will include complete disclosure of our oil and gas reserves and other oil and gas information in accordance with NI 51-101, will be contained within our Annual Information Form which is available on our SEDAR profile at www.sedar.com. In relation to the disclosure of estimates in the operations update discussion, such estimates for individual properties may not reflect the same confidence level as estimates of reserves for all properties, due to the effects of aggregation.
In relation to the disclosure of NAV, the NAV table shows what is normally referred to as a “produce-out” NAV calculation under which the current value of the Company’s reserves would be produced at forecast future prices and costs and do not necessarily represent a “going concern” value of the Company. The value is a snapshot in time and is based on various assumptions including commodity prices and foreign exchange rates that vary over time. The future net revenues estimated by GLJ do not represent the fair market value of the reserves, nor should it be assumed that Terra’s internally estimated value of its undeveloped land holdings represent the fair market value of the lands.
Forward-Looking Statements
This media release may contain certain statements which constitute forward-looking statements or information (“forward-looking statements”), including statements regarding the Company NAV after exercise of the remaining Montney sale option. There is no assurance that the remaining Montney sale option will be exercised or the timing of exercise. Although Terra believes that the expectations reflected in our forward-looking statements are reasonable, our forward-looking statements have been based on expectations, factors and assumptions concerning future events which may prove to be inaccurate. Those expectations, factors and assumptions are based upon currently available information available to the Company. Such statements are subject to known and unknown risks, uncertainties and other factors that could influence actual results or events and cause actual results or events to differ materially from those stated, anticipated or implied in the forward-looking statements. As such, readers are cautioned not to place undue reliance on the forward-looking statements, as no assurance can be provided as to future results, levels of activity or achievements. The risks, uncertainties, material assumptions and other factors that could affect actual results are discussed in our Annual Information Form and other documents available at www.sedar.com. Furthermore, the forward-looking statements contained in this document are made as of the date of this document and, except as required by applicable law, Terra does not undertake any obligation to publicly update or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this document are expressly qualified by this cautionary statement.
Terra Energy Corp.
Bud Love
Vice President of Finance, & Chief Financial Officer
403.699.7777
Terra Energy Corp.
Berk Sumen
Manager, Corporate Affairs
403.264.7189
403.699.7777