CALGARY, ALBERTA–(Marketwired – May 2, 2013) –Bonavista Energy Corporation (“Bonavista”) (BNP.TO) is pleased to report to shareholders its condensed consolidated interim financial and operating results for the three months ended March 31, 2013. The unaudited financial statements and notes, as well as management’s discussion and analysis, are available on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at http://www.sedar.com and on Bonavista’s website at www.bonavistaenergy.com.
|ended March 31,||%|
|($ thousands, except per share)|
|Funds from operations(1)||110,008||104,635||5||%|
|Per share(1) (2)||0.57||0.63||(10||%)|
|Net income (loss)||(3,219||)||43,723||(107||%)|
|Adjusted net income(5)||16,614||40,966||(59||%)|
|Long-term debt, net of working capital||1,065,159||1,151,453||(7||%)|
|Long-term debt, net of adjusted working capital(6)||1,046,540||1,146,417||(9||%)|
|Exploration and development||115,802||153,807||(25||%)|
|Acquisitions, net of dispositions||35,968||(58,221||)||162||%|
|Weighted average outstanding equivalent shares: (thousands)(4)|
|(boe conversion – 6:1 basis)|
|Natural gas (mmcf/day)||273||251||9||%|
|Natural gas liquids (bbls/day)||14,746||14,623||1||%|
|Total oil equivalent (boe/day)||72,333||70,202||3||%|
|Natural gas ($/mcf)||3.26||2.38||37||%|
|Natural gas liquids ($/bbl)||48.65||50.62||(4||%)|
|Operating expenses ($/boe)||9.16||9.39||(2||%)|
|General and administrative expenses ($/boe)||1.09||0.96||14||%|
|Cash costs ($/boe)(9)||13.25||13.46||(2||%)|
|Operating netback ($/boe)(10)||19.49||18.94||3||%|
|(1)||Management uses funds from operations to analyze operating performance, dividend coverage and leverage. Funds from operations as presented does not have any standardized meaning prescribed by IFRS and therefore it may not be comparable with the calculations of similar measures for other entities. Funds from operations as presented is not intended to represent operating cash flow or operating profits for the period nor should it be viewed as an alternative to cash flow from operating activities, net income or other measures of financial performance calculated in accordance with IFRS. All references to funds from operations throughout this report are based on cash flow from operating activities before changes in non-cash working capital, decommissioning expenditures and interest expense. Funds from operations per share is calculated based on the weighted average number of shares outstanding consistent with the calculation of net income per share.|
|(2)||Basic funds from operations per share calculations include exchangeable shares which are convertible into common shares on certain terms and conditions.|
|(3)||Dividends declared includes both cash dividends and common shares issued pursuant to Bonavista’s dividend reinvestment plan (DRIP) and Bonavista’s stock dividend program (SDP). For the three months ended March 31, 2013 approximately 1.3 million common shares were issued under the DRIP and SDP with an approximate value of $17.3 million.|
|(4)||Basic net income per share calculations include exchangeable shares which are convertible into common shares on certain terms and conditions.|
|(5)||Amounts have been adjusted to exclude unrealized gains and losses on financial instrument commodity contracts.|
|(6)||Amounts have been adjusted to exclude associated assets or liabilities from financial instrument commodity contracts.|
|(7)||Oil includes light, medium and heavy oil.|
|(8)||Product prices include realized gains and losses on financial instrument commodity contracts.|
|(9)||Cash costs equal the total of operating, transportation, general and administrative, and financing expenses.|
|(10)||Operating netback equals production revenues including realized gains and losses on financial instrument commodity contracts, less royalties, operating and transportation expenses, calculated on a boe basis.|
|Three months ended|
|Share Trading Statistics||March 31,
|December 31, 2012||September 30, 2012||June 30,
|($ per share, except volume)|
|Average Daily Volume – Shares||676,012||626,743||596,502||720,519|
MESSAGE TO SHAREHOLDERS
After navigating through a challenging natural gas price environment in 2012, Bonavista successfully delivered on its commitment to create long term shareholder value in the first quarter of 2013 with an active exploration and development program complemented with attractive acquisition and divestiture activity.
Bonavista remains committed to a business plan that provides a sustainable balance of both growth and income to our shareholders. On January 9, 2013 Bonavista announced its decision to rebalance the growth and income components of our business plan with an adjustment in our monthly dividend from $0.12 per share to $0.07 per share. This dividend adjustment provides Bonavista with added flexibility to pursue our strategy focused on sustainability, capital agility, asset concentration and development efficiency.
Since announcing the dividend reduction there has been a material improvement in natural gas prices. This price improvement has created an opportunity to remain active with our commodity hedging program which has been designed to maintain a healthy balance sheet as we deliver on our growth and income objectives in the coming years.
Our intentions throughout 2013 will be to:
- Execute an exploration and development program focused on low risk, repeatable drilling opportunities;
- Continue with an acquisition and divestiture program designed to high grade and concentrate our asset portfolio in the most prospective, multi-zone areas of the Western Canadian Sedimentary Basin;
- Maintain flexibility with our capital program to pursue the highest return opportunities;
- Focus on restoring sustainability and balance sheet strength; and
- Continue to profitably grow our production base.
Specific accomplishments for Bonavista in the first quarter of 2013 include:
- Increased production volumes to 72,333 boe per day representing a 3% increase over the 70,202 boe per day of production in the first quarter of 2012. Bonavista was able to achieve these growth rates in the first quarter of 2013 despite being impacted by a loss of approximately 850 boe per day in unscheduled third party facility downtime;
- Executed a successful exploration and development program, investing $115.8 million, drilling 31 gross (26.5 net) wells with an overall 100% success rate;
- Continued to concentrate our asset portfolio completing an active acquisition and divestiture program, divesting of $42.3 million of non-core assets and reinvesting $78.2 million primarily in our deep basin core region to enhance the concentration of our asset portfolio;
- Improved our operating netback to $19.49 per boe representing a 3% increase over the same period in 2012. This improvement was achieved despite a 12% reduction in oil production and demonstrates our efforts over the past year to increase the quality of our asset portfolio;
- Managed our exposure to commodity price fluctuations resulting in approximately 50% of our forecasted natural gas production (net of royalties) hedged at an average floor price of $3.01 per mcf and 38% of our forecasted oil and liquids production (net of royalties) hedged at an average floor price of $87.27 per bbl for 2013. Furthermore, we have extended our hedging activity into 2014 and 2015;
- Generated funds from operations of $110.0 million ($0.57 per share) for the three months ended March 31, 2013; and
- Since 2003, when Bonavista introduced an income component to our total shareholder return, Bonavista has delivered cumulative dividends of over $2.4 billion or $26.40 per common share.
First Quarter 2013 Acquisition and Divestiture Highlights
Consistent with our goal to increase asset quality and concentration, Bonavista has been an active acquirer in the Deep Basin over the past several years. Complementing our 2012 acquisition of 6,700 boe per day in this area, Bonavista closed a second acquisition on January 9, 2013 for $72.5 million, adding 2,450 boe per day of production, further enhancing our land position and our control of synergistic facility infrastructure. The geographic alignment of this asset with our existing operations, coupled with our operating philosophy will result in a 25% reduction in the operating expenses of this property over the next six months. Furthermore, growth and capital efficiencies within the Deep Basin will be improved through increased economies of scale.
In addition, Bonavista divested of 760 boe per day of non-core assets for $42.3 million in the first quarter of 2013. Collectively, acquisitions totaling $78.2 million offset by divestitures of $42.3 million has resulted in a net acquisition and divestiture capital activity of $36.0 million in the first quarter of 2013.
Bonavista will continue to rationalize non-strategic assets in 2013 which will further enhance the concentration of our asset base and allow capital deployment into the most efficient areas of operation.
First Quarter 2013 Operational Highlights
West Central Alberta Core Area
Hoadley Glauconite Liquids Rich Natural Gas:
Bonavista drilled twelve horizontal wells in the first quarter focused on maximizing facility utilization across the play resulting in optimal operating efficiencies. Eight of these wells were completed and brought on production with initial production results consistent with type curve expectations. Completion operations on the remaining four wells are currently underway with production tie-in expected in the second quarter.
Bonavista’s Hoadley Glauconite play generates single well economics that rank in the top decile of all North American natural gas plays, having an estimated 3.4:1 recycle ratio and a 50% internal rate of return at current commodity prices. With recent improvements in natural gas prices, we will increase our drilling activity by 25% over last year with plans to drill 42 wells. The Glauconite formation remains a key growth platform because of its predictable results, attractive natural gas liquids yield, low operating costs and strong capital efficiencies.
Cardium Light Oil:
Bonavista completed another active Cardium program in the first quarter drilling 11 horizontal wells focused on our proven productive trends. Seven horizontal wells were drilled at Willesden Green area, four of which were completed in the quarter with production rates consistent with type curve expectations. Completion operations on the remaining three Willesden Green wells are underway and will be on production within the month of May. Bonavista also drilled four wells in the Harmattan field to confirm our understanding of the production capability of our land in this area. All four Harmattan wells were successfully completed at the end of the quarter and initial testing indicates positive results.
Our first quarter Cardium program incorporated the use of pad drilling and emerging drilling technology which significantly reduced drilling costs by approximately $200,000 per well. Bonavista will continue to find ways to improve our capital efficiencies within this play to enhance the economics of our drilling inventory of 140 locations.
With 97 horizontal wells drilled over the past four years, Bonavista has been successful in maintaining a disciplined and efficient development approach with the Cardium program. Bonavista’s current Cardium production is approximately 4,500 boe per day illustrating 30% year over year growth and representing approximately 35% of total corporate oil volumes.
At current commodity prices, Bonavista’s Cardium development program offers an estimated recycle ratio of 2.8:1 and a 45% internal rate of return. Bonavista plans to drill approximately 20 horizontal wells in 2013.
Ellerslie Liquids Rich Natural Gas:
Throughout the first quarter, Bonavista focused on increasing pipeline and compression capacity to accommodate future development of the Ellerslie play in west central Alberta. Bonavista continues to observe the results of our 2012 drilling program and remains encouraged by the horizontal production performance of this play. Our last horizontal well drilled in the fourth quarter of 2012 continues to perform above type curve expectations, in spite of completing only four stages in the horizontal leg. These results support our interpretation of the size and capability of this liquid rich natural gas resource and illustrate the benefits from horizontal drilling and multi stage fracture technology in reducing geological risk and improving development economics.
Currently, our type curve well generates an estimated recycle ratio of 2.8:1 and an internal rate of return of 40% owing to a liquids yield of greater than 100 bbls per mmcf. These economics will continue to improve with additional production performance and further horizontal development.
Bonavista’s drilling inventory in this play is growing with our confidence in our ability to access the resource economically. We plan further delineation of this resource in 2013 by drilling 6 to 8 horizontal wells.
Deep Basin Core Area
Bonavista drilled six horizontal wells in the first quarter of 2013, consisting of three Bluesky wells, one Rock Creek well and two Wilrich natural gas wells. Current gross production from this program is estimated at 2,600 boe per day illustrating a robust production profile in line with type curve expectations. Since entering this area in 2010, Bonavista’s activities have expanded from an initial focus on low risk opportunities in the Bluesky and Rock Creek formations to include an emerging, prolific Wilrich natural gas play.
Current production in the Deep Basin area has grown to approximately 14,500 boe per day. We currently have access to approximately 210,000 net acres of land to develop, operate over 230 mmcf per day of licensed natural gas processing capacity and have grown our drilling inventory to approximately 185 horizontal locations.
Bonavista plans to drill 15 to 20 horizontal wells in 2013 in our Deep Basin area focused on continued improvement in both capital and operational efficiencies. We anticipate reducing operating expenses to approximately $5.50 per boe in 2013, down nearly 40% from $9.00 per boe in early 2010.
Additional Emerging Opportunities
Bonavista continues to observe the production results of its 2012 drilling program in two emerging development opportunities. These are the Viking oil development at Provost in eastern Alberta and the liquids rich Montney natural gas development at Blueberry in northeast British Columbia. Production results in the Viking formation at Provost continue to meet expectations, such that Bonavista intends to drill 15 to 20 Viking oil wells in the second half of 2013. Bonavista will further delineate its liquids rich Montney acreage at Blueberry with up to two horizontal wells planned in the second half of 2013. Industry activity in the Montney formation offsetting our land base has significantly accelerated in conjunction with increased visibility to west coast LNG export initiatives. Bonavista intends to observe the results of this activity and prudently validate the scale of this opportunity situated on its 55 net section land base.
In addition to the Montney and Viking formations, our technical teams continue to evaluate numerous resource opportunities with a focus on light oil and liquids rich natural gas formations.
Strengths of Bonavista Energy Corporation
Beginning in 1997, with an initial restructuring to create a high growth junior exploration company, throughout the energy trust phase between July 2003 and December 2010, and now operating as a dividend paying corporation, Bonavista remains committed to the same strategies that have resulted in our success over the past 15 years. We have steadily improved the quality and maintained a high level of investment activity on our asset base, increasing production by approximately 100% since converting to an energy trust in July 2003 and a further 10% since converting back to a corporation at the end of 2010. These results stem from the operational, technical and financial expertise of our people with their entrepreneurial approach to generating low risk, highly profitable projects within the Western Canadian Sedimentary Basin. Our experienced technical teams have a solid understanding of our assets as they exercise the discipline and commitment required to deliver long-term value to our shareholders. We actively participate in undeveloped land acquisitions, property purchases and farm-in opportunities, which have all enhanced the quality and quantity of our extensive drilling inventory. These activities have led to low cost reserve additions, and a predictable production base that continues to grow at a healthy pace. Our production base is currently 63% weighted towards natural gas and is geographically focused within select, multi-zone regions primarily in Alberta and British Columbia. The low cost structure of our asset base ensures positive operating netbacks in most operating environments. Furthermore, our assets are predominantly operated by Bonavista, providing control over the pace of operations and optimum influence over our operating and capital cost efficiencies.
Our team brings a successful track record of executing low to medium risk development programs, including both asset and corporate acquisitions, along with sound financial management. Our Board of Directors and management team possess extensive experience in the oil and natural gas business. They have successfully guided our organization through many different economic cycles utilizing a proven strategy consisting of disciplined cost controls and prudent financial management. Directors, management and employees also own approximately 13% of the equity of Bonavista, resulting in the alignment of interests with all shareholders.
As we progress beyond the first quarter of 2013, Bonavista remains committed to a strategy built on maximizing total shareholder return through a balance of growth and income. This strategy includes the pursuit of low risk, repeatable drilling opportunities, coupled with an active acquisition and divestiture program to concentrate our asset base in the areas where our capital efficiency is optimal and growth prospects are abundant. Currently, the outlook for natural gas prices has improved considerably due to reduced natural gas focused drilling activity and the arrival of a late winter which reduced US natural gas storage levels below the five year historical average. Furthermore, while global crude oil prices continue to be influenced by bearish economic and supply factors, Canadian oil price differentials have narrowed with the recent transportation and debottlenecking initiatives. Collectively these commodity price improvements, our capital expenditure discipline, our improved flexibility due to the recent dividend reduction and our active hedging program, have all enhanced Bonavista’s financial strength and our ability to capitalize on the numerous opportunities in front of us. As always, Bonavista intends to remain nimble throughout 2013 while focusing on our core strengths that have proven to add shareholder value over the past 15 years.
Bonavista’s 2013 capital budget will remain within the range of $420 and $430 million, with a program to drill between 120 and 125 wells within our core areas. This capital program is expected to result in 2013 production volumes of between 73,500 and 74,500 boe per day representing an approximate 7% gain over 2012. While we are encouraged by the number of acquisition opportunities in the market, we will remain disciplined in our approach and seek to capitalize only on those that provide a synergistic advantage similar to those recently completed.
We would like to thank our employees for their commitment to Bonavista’s proven operating strategies and our shareholders for their support as we pursue an objective to generate profitable returns similar to our historical track record. We remain confident that our strategies are appropriate for today’s environment and that our asset base is well positioned to maximize total return for our shareholders. Our team is very committed to this vision.
FORWARD LOOKING INFORMATION
Corporate information provided herein contains forward-looking information. The reader is cautioned that assumptions used in the preparation of such information, particularly those pertaining to cash dividends, production volumes, commodity prices, operating costs and drilling results, which are considered reasonable by Bonavista at the time of preparation, may be proven to be incorrect. Actual results achieved during the forecast period will vary from the information provided herein and the variations may be material. There is no representation by Bonavista that actual results achieved during the forecast period will be the same in whole or in part as those forecast.
Bonavista is a mid-sized energy corporation committed to maintaining its emphasis on operating high quality oil and natural gas properties, providing moderate growth and delivering consistent dividends to its shareholders and ensuring financial strength and sustainability.
Jason E. Skehar
President & CEO
Glenn A. Hamilton
Senior Vice President & CFO
Bonavista Energy Corporation
1500, 525 – 8th Avenue SW
Calgary, AB T2P 1G1