Q1 2013 Highlights:
Q1 2013 Financial and Operational Summary
The following summarizes the operating and financial results for the three-month period ended March 31, 2013 (Q1 2013). To properly reflect the disposition of Montana Refining Company, Inc. (the “Refinery”) and the Company’s conventional assets in the financial statements, the results attributable to the Refinery and conventional assets have been segregated from ongoing operations and separately disclosed as “Discontinued Operations”.
| FINANCIAL ($000 except per share amounts) | Q1 2013 | Q1 2012 | ||||||
| Revenue, net of royalties (continuing operations) | $101,320 | $107,747 | ||||||
| EBITDA (continuing operations) (1) | 10,682 | 12,419 | ||||||
| Net earnings (loss) (continuing operations) | (46,566) | (23,001) | ||||||
| Net earnings (loss) (discontinued operations) | – | 2,443 | ||||||
| Net earnings (loss) | (46,566) | (20,558) | ||||||
| Per share, basic and diluted | (0.10) | (0.05) | ||||||
| Capital expenditures – continuing operations | 20,251 | 11,856 | ||||||
| Cash on hand | 81,714 | 48,852 | ||||||
| Working capital | 76,957 | (5,059) | ||||||
| Long-term debt | 861,828 | 848,256 | ||||||
| Shareholders’ equity | 296,746 | 399,087 | ||||||
| OPERATIONAL | Q1 2013 | Q1 2012 | ||||||
| Average benchmark prices | ||||||||
| WTI (US$/bbl) | 94.37 | 102.94 | ||||||
| Heavy oil differential ($/bbl) | 32.33 | 21.41 | ||||||
| Western Canadian Select | 62.87 | 81.65 | ||||||
| Daily production volumes – Continuing Operations | ||||||||
| Bitumen (bbl/d) | 12,406 | 12,429 | ||||||
| Selected highlights ($/bbl) | ||||||||
| Dilbit sales | 71.12 | 74.17 | ||||||
| Diluent costs | 12.44 | 13.88 | ||||||
| Realized bitumen sales | 58.68 | 60.29 | ||||||
| Transportation and handling costs | 20.37 | 9.69 | ||||||
| 38.31 | 50.60 | |||||||
| Royalties | 2.29 | 2.86 | ||||||
| Net bitumen revenue | 36.02 | 47.74 | ||||||
| Production and operating expenses | 19.59 | 17.45 | ||||||
| Bitumen netback – per barrel (1) | 16.43 | 30.29 | ||||||
| (1) | A non-GAAP measure, which is defined in the Advisory section of the Company’s Management’s Discussion and Analysis for the periods ended March 31, 2013 and March 31, 2012 (“MD&A”). Bitumen netback is reconciled to net loss in the MD&A. |
The average Q1 2013 gross dilbit sales price for intra Alberta volumes was $58.32/bbl and$81.72/bbl for sales by rail outside of Alberta. Bitumen netbacks were approximately $4.00/bbl higher for sales by rail than sales to the intra Alberta market.
At March 31, 2013, the Company’s working capital surplus was $77 million, including $82 million of cash on hand. Long term debt, consisting solely of the Company’s outstanding second lien notes due in 2018 and 2019, totaled $862 million. Connacher has available bank credit lines of $95 millionless outstanding letters of credit totaling $2.3 million which were issued by the Company as atMarch 31, 2013. Based on covenant restrictions of the Facility, the maximum available bank credit line at the end of Q1 2013 is $82.7 million (net of existing letters of credit).
Under the note indenture for the Company’s existing Second Lien Senior Notes, the Company has a first lien debt basket that permits the Company to incur first lien debt of up to $170 million(inclusive of debt under the Facility). Subject to obtaining the required consents from the lenders under the Facility (or refinancing the Facility), this debt basket should provide the Company with the flexibility to incur a material amount of incremental debt if additional liquidity becomes necessary or desirable.
Total capital expenditures during the quarter were approximately $20 million, which amount was financed from operating cash flow and cash balances. Please refer to the MD&A for a more detailed discussion of Q1 2013 Financial and Operating results.
Production at Connacher’s Great Divide project for Q1 2013 averaged 12,406 bbl/day compared to 12,429 bbl/day for Q1 2012. Pod One production averaged 6,243 bbls/day and Algar averaged 6,163 bbl/day.
Cash flow from operating activities (continuing operations) was $9 million in Q1 2013 compared to$22 million in Q1 2012. The decline was primarily driven by lower benchmark pricing, wider differentials, and higher transportation and handling costs. When compared to Q1 2012, WCS was$18.78/bbl lower for Q1 2013. The higher transportation costs are due mainly to rail costs incurred to move more dilbit to higher value markets.
Connacher incurred a net loss of $46.6 million or $0.10 per share for Q1 2013, compared with a loss of $20.6 million or $0.05 per share for Q1 2012. The increased net loss is primarily due to unrealized foreign exchange impacts on the translation of the company’s U.S. dollar denominated debt, cash and cash equivalents, as the Canadian dollar decreased in value relative to the U.S. dollar. The recorded net loss in the first quarter was also impacted by the same factors affecting cash flow from operations.
Operations Update and Outlook
Based upon field estimates Great Divide production in the month of April 2013 was approximately 11,500 bbl/day. Production was impacted in April by pump installations at Pad 101N at Pod One. The changes are completed and the wells were back on line in early May.
The planned retrofit work on one of the steam generators at Algar began in late April and is expected to be completed and on line by the end of May. The impact on production is expected to be approximately 1,000 bbl/day for the second quarter.
In Q1 2013 railed volumes were at 55 per cent of total production and are on track to exceed our target of 60 per cent in Q2. Streamlining of the rail strategy will continue with a focus on reducing transportation costs.
The new well pair at Algar was tied in and began steaming in early April. Drilling of the four new well pairs at Pod One was completed by the end of April. The lateral sections of these wells encountered high quality reservoir. These wells are expected to be tied in and placed on steam injection in the third quarter. Drilling operations began at the end of April for the four infill wells at Pod One, which are anticipated to be completed and placed on steam injection during the third quarter as well. The DRU project, which is designed to reduce the amount and cost of diluent in our dilbit sales, should be operational by year-end.
Shareholders Meeting
The Annual and Special Meeting of Shareholders of the Company is scheduled to be held in Calgary at 4:00 P.M. on May 14, 2013 on the second level (Plus 15) conference room at 332 6th Avenue SW, Calgary, Alberta. At the Meeting, shareholders will be voting on the election of directors, appointment of auditors, confirmation of a by-law providing advance notice requirements for the nomination of directors, the approval of unallocated stock options under the Stock Option Plan, the replenishment of the common shares under the Share Award Incentive Plan and the extension of the Company’s Shareholder Rights Plan Agreement. A revised corporate presentation will be posted on the website after the meeting.
About Connacher
Connacher Oil and Gas Limited is a focused in situ oil sands developer, producer and marketer of bitumen. The Company’s principal assets are holdings in the Great Divide oil sands project in northern Alberta, south of Fort McMurray.
Forward Looking Information
This press release contains forward looking information including expectations for future well drilling activities, the timing for completing retrofit work on one of the steam generators at Algar and the expected impact thereof on Q2 production, the timing of placing new wells on steam injection, the timing of bringing the DRU project on line and the anticipated impact thereof, expectations regarding the Company’s ability to rely on the debt basket provided for under the Note Indenture related to the Company’s existing second lien senior notes, expectations regarding the amount of the Company’s bitumen to be marketed by rail in future periods and general operational and financial performance in future periods.
Forward looking information is based on management’s expectations regarding the Company’s future financial position, the Company’s future growth, results of operations and production, future commodity prices and foreign exchange rates, future capital and other expenditures (including the amount, nature and sources of funding thereof), plans for and results of drilling activity, environmental matters, business prospects and opportunities and future economic conditions. Forward looking information involves significant known and unknown risks and uncertainties, which could cause actual results to differ materially from those anticipated. These risks include, but are not limited to: the risks associated with the oil and gas industry (e.g., operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve and resource estimates, the uncertainty of geological interpretations, the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), risk of commodity price and foreign exchange rate fluctuations, risks associated with the impact of general economic conditions, risks and uncertainties associated with maintaining the necessary regulatory approvals and securing the financing to proceed with the operation and continued expansion of the Great Divide oil sands project.
In addition, reported average production levels may not be reflective of sustainable production rates and future production rates may differ materially from the production rates reflected in this press release due to, among other factors, difficulties or interruptions encountered during the production of bitumen.
Additional risks and uncertainties affecting Connacher and its business and affairs are described in further detail in Connacher’s Annual Information Form for the year ended December 31, 2012. Although Connacher believes that the expectations in such forward looking information are reasonable, there can be no assurance that such expectations shall prove to be correct. The forward looking information included in this press release is expressly qualified in its entirety by this cautionary statement. The forward looking information included herein is made as of the date of this press release and Connacher assumes no obligation to update or revise any forward looking information to reflect new events or circumstances, except as required by law.
SOURCE: Connacher Oil and Gas Limited
Chris Bloomer
Chief Executive Officer
Greg Pollard
Chief Financial Officer
Connacher Oil and Gas Limited
Phone: (403) 538-6201
Fax: (403) 538-6225
Suite 900 – 332 6th Avenue SW
Calgary, Alberta T2P 0B2
inquiries@connacheroil.com
www.connacheroil.com