Sonde will be hosting a conference call on Tuesday, May 7, 2013 at 2:00 p.m. MDT to provide a report on the first quarter 2013 results and an update on current activities. Mr. Jack Schanck, President and CEO will host the call. All interested parties may join the call by dialing 416-340-2216 or 866-226-1792. Please dial-in 15 minutes prior to the call to secure a line. The conference call will be archived for replay on the Sonde website within 48 hours of this conference call.
Joint Oil Approval of the Farm-Out to Viking
Sonde has received approval from Joint Oil’s Board of Directors to farm-out 66.67% of its potential Zarat Field Exploitation Area and 50% of the remainder of its interest in the Joint Oil Block to Viking. In order to receive Joint Oil approval, certain terms of the farm-out agreement described in our December 27, 2012 press release, financial statements and annual information form are required to be amended. The amendments to the farm-out agreement are summarized below. Joint Oil’s approval of the assignment to Viking is subject to approval of the definitive form of Assignment Agreement and format of the Bank Guarantee (discussed below). Completion of the assignment will require the execution of the definitive amendment to the farm-out agreement with Viking and closing of the farm-out. Viking has agreed to the conditions.
The amendments to the original farm-out agreement are as follows:
Sonde and Viking are in the process of completing the necessary documentation to effect amendments to the farm-out agreement, and this documentation is anticipated to be executed prior to the deadline of June 7, 2013 under the terms of the original farm-out agreement.
Jack Schanck, President and CEO said, “Sonde is very pleased to have received the approval of Joint Oil’s Board of Directors to the Viking farm-out. We are delighted to have the Viking Energy Group as our partner in the Joint Oil Block and are very excited to move to the next stage of the development of the Joint Oil Block. We look to this joint venture as a long-term relationship and commitment to our partner Joint Oil and its shareholders.”
Western Canada Strategic Alternatives Process
On January 9, 2013, Sonde announced that it had retained FirstEnergy Capital Corp. (“FirstEnergy”) to initiate a process to explore and evaluate potential strategic alternatives to enhance shareholder value with regard to Sonde’s Western Canadian production and exploratory acreage. As financial advisor to the Board of Directors of Sonde, FirstEnergy is assisting in the process of analyzing and evaluating prospects and options available to the Company, which may include, among other alternatives, a sale of all or a material portion of the Western Canadian assets of the Company, a strategic investment in Sonde’s undeveloped acreage, a joint venture, or a merger or other business combination involving Sonde.
The Board has established a Special Committee comprised of independent directors to oversee the strategic review process. Various prospects and options are currently being evaluated by the Special Committee. There can be no assurance that the process will result in any transaction or, if a transaction results, the timing of such transaction.
2013 Western Canada Drilling Program
No wells were drilled during the three months ended March 31, 2013 due to the strategic alternatives process discussed above. Sonde performed 14 net workovers and recompletions during the three months ended March 31, 2013.
First Quarter Financial and Operational Review
| 2013 | 2012 | % | 2012 | % | |||||||
| Q1 | Q4 | Change | Q1 | Change | |||||||
| Financial | |||||||||||
| Petroleum & natural gas sales(1) | 6,607 | 6,792 | (3 | ) | 6,986 | (5 | ) | ||||
| Net (loss) income | (5,412 | ) | (3,870 | ) | (40 | ) | 55,456 | (110 | ) | ||
| Net (loss) income per share – basic and diluted | (0.09 | ) | (0.06 | ) | (50 | ) | 0.89 | (110 | ) | ||
| Funds (used for) from operations (2) | (472 | ) | 123 | (484 | ) | (667 | ) | 29 | |||
| Funds (used for) from operations per share(2) | (0.01 | ) | 0.01 | — | (0.01 | ) | — | ||||
| Capital expenditures | 2,025 | 4,232 | (52 | ) | 10,801 | (81 | ) | ||||
| Working capital surplus | 15,063 | 17,187 | (12 | ) | 42,914 | (65 | ) | ||||
| Average shares outstanding | 62,301 | 62,301 | — | 62,301 | — | ||||||
| Production | |||||||||||
| Natural gas (mcf/d) | 7,934 | 8,940 | (11 | ) | 11,553 | (31 | ) | ||||
| Crude oil (bbl/d) | 549 | 572 | (4 | ) | 565 | (3 | ) | ||||
| Natural gas liquids (bbl/d) | 188 | 189 | (1 | ) | 255 | (26 | ) | ||||
| Total (boe/d) | 2,059 | 2,251 | (9 | ) | 2,746 | (25 | ) | ||||
| Pricing | |||||||||||
| Natural gas ($/mcf) | 3.30 | 3.50 | (6 | ) | 2.20 | 50 | |||||
| Crude oil ($/bbl) | 79.58 | 72.69 | 9 | 89.54 | (11 | ) | |||||
| Natural gas liquids ($/bbl) | 57.03 | 56.35 | 1 | 62.08 | (8 | ) | |||||
| Average sales price ($/boe) | 39.12 | 37.14 | 5 | 33.47 | 17 | ||||||
| (1) | Petroleum and natural gas sales and realized gains on financial instruments net of royalties and transportation. |
| (2) | Non-IFRS measure reconciled in our MD&A filed on http://www.sedar.com/ |
For the three months ended March 31, 2013, funds used for operations was $0.5 million compared to funds used for operations of $0.7 million for the same period in 2012. This was primarily the result of a 14% reduction in petroleum and natural gas revenue, consistent operating expense and a 24% increase in well workover expense incurred to address normal wear and tear on older wells.
For the three months ended March 31, 2013, production averaged 2,059 boe/d, compared to 2,251 boe/d for the three months ended December 31, 2012. The three month decrease in production during the period ended March 31, 2013 is due to natural decline and significant third-party natural gas processing plant outages in Central Alberta.
The success of the Company’s ongoing operations are dependent upon a number of factors, including but not limited to, the price of energy commodity products, the Company’s ability to manage price volatility, increasing production and related cash flows, controlling costs, availability of experienced service industry personnel and equipment, capital spending allocations, the ability to attract equity investment, the results of Sonde’s Western Canada strategic alternatives process, hiring and retaining qualified personnel and managing political and government risk, particularly with respect to its interests in North Africa.
Sonde Resources Corp. is a Calgary, Alberta, Canada based energy company engaged in the exploration and production of oil and natural gas. Its operations are located in Western Canada, and offshore North Africa. See Sonde’s website at www.sonderesources.com to review further detail on Sonde’s operations.
Non-IFRS Measures – This document contains references to funds from (used for) operations and funds from (used for) operations per share, which are not defined under IFRS as issued by the International Accounting Standards Board and are therefore non-IFRS financial measures that do not have any standardized meaning prescribed by IFRS and are, therefore, unlikely to be and its comparable to similar measures presented by other issuers. Management of the Company believes funds from (used for) operations and funds from (used for) operations per share are relevant indicators of the Company’s financial performance, ability to fund future capital expenditures. Funds from (used for) operations should not be considered an alternative to or more meaningful than cash flow from operating activities, as determined in accordance with IFRS, as an indicator of the Company’s performance. In our MD&A, a reconciliation has been prepared of funds from (used for) operations to cash (used in) provided by operating activities, the most comparable measure calculated in accordance with IFRS.
Boe Presentation – Production information is commonly reported in units of barrel of oil equivalent (“boe”). For purposes of computing such units, natural gas is converted to equivalent barrels of oil using a conversion factor of six thousand cubic feet to one barrel of oil. This conversion ratio of 6 mcf:1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Such disclosure of boe’s may be misleading, particularly if used in isolation. Additionally, 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 misleading as an indication of value. Readers should be aware that historical results are not necessarily indicative of future performance. Natural gas production is expressed in thousand cubic feet (“mcf”).Oil and natural gas liquids are expressed in barrels (“bbl”).
Forward Looking Information – This news release contains “forward-looking information” within the meaning of applicable Canadian securities laws and “forward looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These statements include, among others, the amended terms of the farm-out agreement with Viking, the anticipated timing for executing documentation to effect the amended terms of the farm-out, the potential outcomes of the Company’s planned Western Canada strategic review process, proposed exploration and development activities and sources of liquidity. There can be no assurances that the Western Canada strategic review process will result in a transaction on terms and conditions acceptable to Sonde or at all.
Such forward-looking information or statements are based on a number of risks, uncertainties and assumptions which may cause actual results or other expectations to differ materially from those anticipated and which may prove to be incorrect. Assumptions have been made regarding, among other things, market and operating conditions, management’s expectations regarding future growth, plans for and results of exploration and development activities, availability of capital, future commodity prices and differentials, and capital and other expenditures.
Actual results could differ materially due to a number of factors, including, without limitation, changes in market conditions, operational risks in development, exploration and production; commodity price volatility; the uncertainty of reserve estimates; risks and uncertainties involving geology of oil and gas deposits; the uncertainty of estimates and projections in relation to production; volatility in the capital markets and changes in the availability of capital generally; risks in conducting foreign operations, including political and fiscal instability and the possibility of civil unrest or military action; changes in government policies or laws; risk that government approvals may be delayed or withheld; and commercial risks relating to the closing of the Viking farm-out. Additional assumptions and risks relating to the Company and its business and affairs, including assumptions and risks relating to the estimation of reserves, are set out in detail in the Company’s AIF, available on SEDAR at www.sedar.com, and the Corporation’s annual report on Form 40-F on file with the U.S. Securities and Exchange Commission.
Although management believes that the expectations reflected in the forward-looking information or forward-looking statements are reasonable, prospective investors should not place undue reliance on forward-looking information or forward-looking statements because Sonde can provide no assurance those expectations will prove to be correct. Sonde bases its forward-looking statements and forward-looking information on information currently available and do not assume any obligation to update them unless required by law.