HIGHLIGHTS
Highlights for the three months ended March 31, 2013 were as follows:
Selected financial and operational information for the three months ended March 31, 2013 is provided as follows:
| Three months ended March 31, | ||||
| 2013 | 2012 | % Change | ||
| Financial ($000’s except per share amounts) | ||||
| Petroleum and natural gas sales | $ 2,917 | $ 2,889 | 1% | |
| Funds flow from operations (1) | 1,204 | 1,461 | (18%) | |
| Per share | 0.03 | 0.04 | (25%) | |
| Comprehensive income (loss) | (159) | 509 | n/a | |
| Per share | (0.00) | 0.01 | n/a | |
| Capital expenditures (2) | 2,118 | 2,278 | (7%) | |
| Working capital deficit – excluding bank | ||||
| debt and commodity contracts, end of period (3) | $ 2,620 | $ 1,857 | 41% | |
| Bank debt, end of period | 3,200 | – | n/a | |
| Total assets, end of period | $ 31,832 | 29,588 | 8% | |
| Common Shares outstanding end of period: | ||||
| Class A Shares | 34,481 | 34,481 | -% | |
| Class B Shares | 1,080 | 1,080 | -% | |
| Options to acquire Class A Shares | 2,473 | 2,110 | 17% | |
| Operations | ||||
| Production | ||||
| Crude oil and natural gas liquids (bbl/d) | 597 | 402 | 49% | |
| Natural gas (mcf/d) | 159 | 188 | (15%) | |
| Total (boe/d) | 624 | 434 | 44% | |
| Oil and liquids as percent of total | 96% | 93% | 3% | |
| Three months ended March 31, | ||||
| 2013 | 2012 | % Change | ||
| Average Selling Price | ||||
| Crude oil and ngls (per bbl) | $ 53.40 | $ 77.91 | (31%) | |
| Natural gas (per mcf) | 3.31 | 2.19 | 51% | |
| Total (per boe) | 51.97 | 73.23 | (29%) | |
| Operating netback (per boe at 6:1) (4) | ||||
| Price | $ 51.97 | $ 73.23 | (29%) | |
| Royalties | (7.99) | (15.48) | (48%) | |
| Production expense | (17.59) | (17.48) | 1% | |
| Transportation expense | (1.51) | (2.13) | (29%) | |
| Operating netback ($/boe) | $ 24.88 | $ 38.14 | (34%) | |
| (1) Management uses funds flow from operations and funds flow from operations per share to analyze operating performance, leverage and liquidity. Funds flow from operations and funds flow from operations per share as presented do not have any standardized meaning prescribed under Generally Accepted Accounting Principles (“GAAP”) and therefore may not be comparable with the calculation of similar measures by other entities. |
| (2) Capital expenditures include cash exploration and evaluation expenditure plus cash property, plant and equipment net of dispositions and exclude asset retirement obligations and capitalized share-based payments. |
| (3) Working capital is a non-GAAP measure that includes trade and other accounts receivable, prepaid expenses, and trade and other accounts payables. |
| (4) Management considers operating netbacks as an important measure as it demonstrates profitability relative to current commodity prices. Operating netbacks do not have a standardized meaning prescribed by GAAP and therefore may not be comparable with the calculation of similar measures by other entities. |
Operational Review and Update
As previously disclosed in our press release dated April 24, 2013, Hawk drilled three (2.0 net) vertical oil wells at Silverdale and one (1.0 net) vertical oil well at Dulwich, all in western Saskatchewan during the first quarter of 2013. Two (1.0 net) of the wells at Silverdale and the one (1.0 net) well at Dulwich were on production prior to March 31, 2013. The other one (1.0 net) well drilled at Silverdale is expected to be completed and placed on production in June. Hawk is expected to commence a three (2.7 net) well vertical drilling program at Silverdale and Aberfeldy in western Saskatchewan in the middle of June, pending regulatory approvals and rig availability.
Financial
Hawk achieved funds flow from operations in the first quarter of 2013 of approximately $1.2 million compared to $1.5 million for the first quarter of 2012 due to a large decrease in realized oil prices in the first quarter of 2013. Average Western Canadian Select (“WCS”) prices for the first quarter of 2013 were $62.95 per bbl compared to $81.62 per bbl in the first quarter of 2012, a 23% decline, while the differential between WCS and West Texas Intermediate crude oil (“Differential”) widened to approximately $31.50 per bbl in the first quarter of 2013 compared to approximately $21.50for the first quarter of 2012. Despite the challenging price environment, Hawk was able to increase its revenue by 1 percent in the first quarter of 2013 compared to 2012 as a result of increased oil production. The Differential for the second quarter of 2013 has narrowed and Hawk expects to realize increased oil prices over those of the first quarter of 2013.
Hawk generated an operating netback of $24.88 per boe for the first quarter of 2013 which is 35 percent lower than operating netbacks for the first quarter of 2012 of $38.14 per boe due to a $21.26 per boe decrease in realized pricing in 2013. This was offset slightly by a decrease in the royalty expense in the first quarter of 2013 while production expenses per boe in the first quarter of 2013 increased slightly to $17.59 per boe from $17.48 per boe in the first quarter of 2012. Production expenses have increased compared to the fourth quarter of 2012 due to increased work-over costs in the first quarter of 2013 as well as increased road maintenance and snow removal costs associated with the difficult winter conditions experienced in Alberta and Saskatchewan in the first quarter of 2013.
At March 31, 2013, Hawk had $3.2 million drawn on its existing $12 million credit facility, with the next review date to occur on or before June 1, 2013. The Corporation continues to maintain a solid balance sheet with net debt and working capital deficit of approximately $5.8 million at March 31, 2013 which equates to a net debt to annual funds flow from operations of 1.2:1.
Outlook
The Corporation has set a $10 million capital budget for 2013 that will focus on development opportunities in western Saskatchewan and east central Alberta targeting light and heavy crude oil both through horizontal and vertical drilling. Although the Corporation has recorded four consecutive quarters of production increases, Hawk is expecting its second quarter production to be slightly lower than the 624 boe/d recorded in the first quarter of 2013. Wet road and well site conditions limited the Corporation’s ability to service some wells and to empty storage tanks during the second quarter, however warm, dry conditions so far in May have brought an earlier than expected end to spring break up conditions. Hawk currently has all its wells on production with current production at approximately 625 boe/d. For the remainder of 2013, Hawk expects to drill six (5.5 net) vertical wells and two (2.0 net) horizontal wells in its core area of western Saskatchewan and east central Alberta.
Annual General Meeting
Hawk’s annual general meeting of shareholders will be held on Tuesday, June 11, 2013 at 3:00 pm at the offices of McCarthy Tetrault LLP, Suite 3300, 421-7th Avenue SW, Calgary, AB.
Updated Corporate Presentation
An updated corporate presentation is available for viewing on the Corporation’s website at www.hawkexploration.caunder Investor Info – Presentation.
Hawk is an emerging exploration company engaged in the exploration, development and production of conventional crude oil and natural gas in western Canada and is based in Calgary, Alberta. The Class A Shares and Class B Shares of Hawk trade on the TSX Venture Exchange under the trading symbols of HWK.A and HWK.B, respectively.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as the term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Certain statements contained in this press release constitute forward-looking statements. All forward-looking statements are based on the Corporation’s beliefs and assumptions based on information available at the time the assumption was made. The use of any of the words “anticipate”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “should”, “believe” and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Hawk believes the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct. Such forward-looking statements included in this press release should not be unduly relied upon. These statements speak only as of the date of this press release.
In particular, but without limiting the forgoing, this press release contains forward-looking statements pertaining to the following: the performance characteristics of Hawk’s oil and natural gas properties; business strategies and plans; projections of market prices and cost; supply and demand for oil and natural gas; planned development of the Corporation’s oil and natural gas properties; capital expenditure programs for the remainder of 2013; the timing of and nature of capital expenditure program for 2013; the length and severity of 2013 spring breakup conditions and the impact on second quarter 2013 production and operating activities; and the expected sources of funding for the capital expenditure program.
The material factors and assumptions used to develop these forward looking statements include, but are not limited to: the ability of the Corporation to engage drilling contractors, to obtain and transport equipment, services, supplies and personnel in a timely manner and at an acceptable cost to carry out its activities and plans; the ability of the Corporation to market its oil and natural gas and to transport its oil and natural gas to market; the timely receipt of regulatory approvals and the terms and conditions of such approval; the ability of the Corporation to obtain drilling success consistent with expectations; and the ability of the Corporation to obtain capital to finance its exploration, development and operations.
Actual results could differ materially from those anticipated in these forward-looking statements as a result of the risk factors including, without limitation: volatility in market prices for oil and natural gas; liabilities inherent in oil and natural gas operations; uncertainties associated with estimating oil and natural gas reserves; competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel; incorrect assessments of the value of acquisitions and exploration and development programs; geological, technical, drilling and processing problems; changes in tax laws and incentive programs relating to the oil and natural gas industry; failure to realize the anticipated benefits of acquisitions; general business and market conditions; and certain other risks detailed from time to time in Hawk’s public disclosure documents (including, without limitation, the other factors discussed under “Risk Factors” in the Corporation’s most recently filed Annual Information Form).
Statements relating to “reserves” or “resources” are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions that the resources and reserves described can be profitably produced in the future. Readers are cautioned that the foregoing lists of factors are not exhaustive. The forward-looking statements contained in this press release are expressly qualified by this cautionary statement. Except as required under applicable securities laws, Hawk does not undertake any obligation to publicly update or revise any forward-looking statements.
Barrels of oil equivalent (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet (mcf) of natural gas to one barrel (bbl) of oil is based on an energy conversion method primarily applicable at the burner tip and is not intended to represent a value equivalency at the wellhead. All boe conversions in this press release are derived by converting natural gas to oil in the ratio of six thousand cubic feet of natural gas to one barrel of oil. Certain financial amounts are presented on a per boe basis, such measurements may not be consistent with those used by other companies.
SOURCE: Hawk Exploration Ltd.
For further information:
Steve Fitzmaurice
President, CEO and Chairman
Tel: (403) 264-0191 Ext 225
Email: steve@hawkexploration.ca
Dennis Jamieson
Chief Financial Officer
Tel: (403) 264-0191 Ext 234
Email: dennis@hawkexploration.ca