|Three months ended||Nine months ended|
|September 30,||September 30,|
|Financial ($000, except as otherwise indicated) (1)|
|Sales excluding realized hedging||$||41,591||$||32,874||$||113,965||$||104,517|
|per share (2)||$||0.89||$||0.70||$||2.43||$||2.23|
|Funds from operations||$||17,959||$||14,360||$||49,455||$||44,781|
|per share (2)||$||0.38||$||0.31||$||1.05||$||0.96|
|Net income and comprehensive income||$||4,658||$||1,473||$||10,694||$||13,198|
|per share (2)||$||0.10||$||0.03||$||0.23||$||0.28|
|Expenditures on property, plant and equipment||$||13,373||$||8,822||$||29,828||$||32,728|
|Working capital deficit||$||9,651||$||5,784||$||9,651||$||5,784|
|Shares outstanding at end of period (000)||46,928||46,837||46,928||46,837|
|Basic weighted average shares (000)||46,923||46,831||46,885||46,796|
|Crude oil (bbls/d)||4,122||3,938||4,227||4,126|
|Natural gas (mcf/d)||7,357||9,144||7,478||9,076|
|Total boe/d @ 6:1||5,859||6,013||6,000||6,211|
|Average prices (excluding hedging)|
|Crude oil ($/bbl)||$||98.49||$||77.20||$||86.57||$||79.73|
|Natural gas ($/mcf)||$||2.58||$||2.52||$||3.21||$||2.28|
|Operating netback ($/boe)|
|Petroleum and natural gas sales||$||77.16||$||59.43||$||69.58||$||61.42|
|(1)||Boe, funds from operations, payout ratio and working capital deficit do not have a standardized meaning under GAAP.
Refer to “Non-GAAP Measures, Definitions and Abbreviations” in this press release.
|(2)||Based on basic weighted average shares outstanding.|
Message to Shareholders
- Funds from operations increased by 25% in the third quarter of 2013 to $18.0 million from $14.4 million received in the third quarter of 2012.
- On a per share basis, funds from operations for the third quarter of 2013 was $0.38 per share versus $0.31 per share in Q3 2012, an increase of 25%.
- The increase in funds from operations is attributable to higher crude oil production and strengthening pricing for Canadian oil sales.
- The payout ratio for the first nine months of 2013 was 103% versus 120% in the first nine months of 2012.
- Preservation of a sustainable payout ratio is the cornerstone of our business strategy which is based on the maintenance of a solid balance sheet while funding our dividend payments and capital expenditure programs primarily with funds from operations.
|Three months ended||Nine months ended|
|September 30,||September 30,|
|($000)||2013||2012||% change||2013||2012||% change|
|Cash provided by operating activities||$||19,833||$||11,226||77||%||$||50,784||$||43,239||17||%|
|Changes in non-cash working capital||(406)||4,240||(110)||%||2,745||4,517||(39)||%|
|Interest on bank indebtedness||(1,481)||(1,328)||12||%||(4,187)||(3,601)||16||%|
|Expenditures on decommissioning liability||13||222||(94)||%||113||626||(82)||%|
|Funds from operations||$||17,959||$||14,360||25||%||$||49,455||$||44,781||10||%|
|Capital expenditures (1)||13,373||8,822||52||%||29,828||32,728||(9)||%|
|Total funds outflow||$||20,412||$||15,848||29||%||$||50,928||$||53,788||(5)||%|
|Payout ratio (2)||114%||110%||103%||120%|
|(1) Capital expenditures includes expenditures on property, plant and equipment and expenditures on exploration and evaluation assets.|
|(2) Payout ratio is calculated as cash dividends declared and capital expenditures divided by funds from operations.|
- Crude oil production increased by 5% in the third quarter of 2013 to 4,122 bbls/d from 3,938 bbls/d in Q3 2012.
- Extreme spring break-up conditions persisted well into the third quarter of 2013 causing delays in our capital program. As a result, Longview went four straight months (May through August 2013) without being able to add any new production volumes.
- In spite of these delays in executing our 2013 drilling program, our crude oil production volumes remained relatively stable when compared to levels reported in Q2 and Q1 of 2013. Natural gas liquids and natural gas production volumes also remained at stable rates demonstrating the high quality, low decline nature of our existing production base.
- Crude oil revenue, which comprised 90% of total revenue in the third quarter of 2013, increased by 34% to $37.3 million from $28.0 million in Q3 2012.
- The WTI/Canadian oil price differential narrowed in the third quarter of 2013 to $5.27/bbl as compared to $6.37/bbl in 2012.
- The price of WTI increased significantly in the third quarter of 2013 averaging US$105.77/bbl versus US$92.19/bbl last year.
- Operating netbacks increased by 54% from $28.29/bbl in Q3 2012 to $43.62/bbl in the third quarter of 2013.
- Operating costs were held constant with prior year levels as ongoing cost reduction efforts are offsetting inflationary pressures seen throughout the Western Canadian sedimentary basin.
- Royalty expenses increased due to higher sales whereas royalties as a percentage of sales decreased due to lower rates associated with new production additions.
- A total of six gross (5.6 net) wells were drilled during the third quarter of 2013 resulting in five gross (4.8 net) oil wells. At Northgate, Saskatchewan the Corporation drilled two gross (two net) wells targeting the Mississippian Midale formation. The initial well produced at a rate of 246 boe/d during the initial 30 days of production, comprised of 204 bbls/d of 41O API light oil and 250 mcf/d of natural gas. The second well has been on-stream for 14 days with production averaging 437 boe/d comprised of 316 bbls/d of 41O API light oil and 725 mcf/d of natural gas. A third well was drilled in early October and will be on-stream by mid-November. Longview has identified up to nine gross (nine net) additional locations on this project.
- On a year to date basis our capital expenditures program has resulted in total production additions of 1,578 boe/d comprised of 1,395 bbls/d of light oil and 1,100 mcf/d of natural gas.
- This represents a capital efficiency of $18,900 per boe/d with light oil volumes comprising 88% of total production additions.
Commodity Hedging Program
- Longview’s hedging program for calendar 2013 and 2014 includes crude oil hedges of 1,000 bbls/d at $90.29/bbl for January to December 2013 and 1,000 bbls/d at $93.00/bbl for February to December 2013 as well as 2,000 bbls/d at $94.84/bbl for January to December 2014.
- The Corporation will continue to hedge a portion of its production in the future in order to provide stability to cash flow in order to fund our dividend payments and capital expenditure program.
- Longview’s business strategy is based on providing shareholders with attractive long term returns that combine both income and moderate growth by exploiting our assets in a financially disciplined manner and by acquiring additional long-life oil and gas assets of a similar nature. Longview has a base decline rate of approximately 19% which allows the Corporation to maintain production with a modest level of capital expenditures, as demonstrated during 2013 and 2012.
- Our capital program is designed to maintain production at 2012 levels while maintaining a sustainable payout ratio. Our planned capital program for the fourth quarter of 2013 is $7.0 million and will be focused on further development of the Midale formation in Southeast Saskatchewan where we have an extensive land base, high working interests and existing infrastructure. In addition, we plan on continuing to advance our waterflood projects in Alberta through further enhancement of injection facilities in preparation for future in-fill drilling programs.
- We are currently working on our 2014 operating and capital budget and plan on releasing an update to our shareholders in mid-December.
Director and Management Update
- The Board of Directors of Longview announces that Mr. Kelly Drader has been appointed to the board of the Corporation. The board also announces that Mr. Andy Mah and Mr. Neil Bokenfohr have submitted their resignations as officers of Longview and will focus all of their energy on the ongoing management of Advantage Oil & Gas Ltd. (“Advantage”).
- The management team of Longview will now consist of the following individuals:
- Kelly Drader, President and Chief Executive Officer – Co-founder of Advantage in 2001 with over 27 years experience in the oil & gas industry. Prior thereto, Senior Vice President with the EnerPlus Group of Companies.
- Pat Cairns, Senior Vice President – Co-founder of Advantage in 2001 with over 30 years experience in reservoir and operations engineering. Prior thereto, Vice President, Evaluations with the EnerPlus Group of Companies.
- Lionel Derochie, Vice President, Operations – Over 30 years experience in reservoir engineering, production and enhanced oil recovery operations management. Has been with Advantage for 7 years. Prior thereto, with Amoco Canada for 20 years focusing on reservoir management and acting project manager for a variety of enhanced oil recovery projects throughout Western Canada.
- Craig Blackwood, Chief Financial Officer – Has been with Advantage for 9 years. Prior thereto, Controller with Calpine Canada Natural Gas Company.
Interim Financial Statements and MD&A
- This press release should be read in conjunction with Longview’s unaudited interim financial statements for the three and nine months ended September 30, 2013 together with the notes thereto, and Management’s Discussion and Analysis for the three and nine months ended September 30, 2013 which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and posted on our website at www.longviewoil.com and filed under our profile on SEDAR at www.sedar.com.
Certain information regarding Longview set forth in this press release, including management’s assessment of the Corporation’s future plans and operations, contains forward-looking statements that involve substantial known and unknown risks and uncertainties. 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. Such statements represent Longview’s internal projections, estimates or beliefs concerning, among other things, an outlook on the estimated amounts and timing of capital expenditures or other expectations, beliefs, plans, objectives, assumptions, intentions or statements about future events or performance. These statements are only predictions and actual events or results may differ materially. Although Longview believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance or achievement since such expectations are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies. Many factors could cause Longview’s actual results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, Longview.
In particular, forward-looking statements included in this press release include, but are not limited to, statements with respect to Longview’s business strategy; the Corporation’s hedging program and its plans to hedge a portion of its production in the future; the Corporation’s capital program for the fourth quarter of 2013; the Corporation’s anticipated drilling, development and recompletion activities; the Corporation’s plans to advance its waterflood projects in Alberta; and anticipated timing of providing shareholders with an update on the Corporation’s 2014 operating and capital budget. In addition, statements relating to “reserves” are deemed to be forward looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described can be profitably produced in the future.
These forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond the Corporation’s control, including the impact of general economic conditions; volatility in market prices for crude oil and natural gas; industry conditions; volatility of commodity prices; currency fluctuation; imprecision of reserve estimates; liabilities inherent in crude oil and natural gas operations; environmental risks; incorrect assessments of the value of acquisitions and exploration and development programs; competition from other producers; the lack of availability of qualified personnel or management; changes in tax laws, royalty regimes and incentive programs relating to the oil and gas industry; changes to legislation and regulations and how they are interpreted and enforced; hazards such as fire, explosion, blowouts, cratering, and spills, each of which could result in substantial damage to wells, production facilities, other property and the environment or in personal injury; unexpected drilling results; changes or fluctuations in production levels; delays in anticipated timing of drilling and completion of wells; stock market volatility; ability to access sufficient capital from internal and external sources and the other risks considered under “Risk Factors” in Longview’s Annual Information Form, which is available on www.sedar.com and www.longviewoil.com.
With respect to forward-looking statements contained in this press release, Longview has made assumptions regarding: current commodity prices and royalty regimes; availability of skilled labour; timing and amount of capital expenditures; future exchange rates; the price of oil and natural gas; the impact of increasing competition; conditions in general economic and financial markets; availability of drilling and related equipment; effects of regulation by governmental agencies; royalty rates; future operating costs; that the Corporation will have sufficient cash flow, debt or equity sources or other financial resources required to fund its capital and operating expenditures and requirements as needed; that the Corporation’s conduct and results of operations will be consistent with its expectations; that the Corporation will have the ability to develop the Corporation’s properties in the manner currently contemplated; current or, where applicable, proposed assumed industry conditions, laws and regulations will continue in effect or as anticipated; and the estimates of the Corporation’s production and reserves volumes and the assumptions related thereto (including commodity prices and development costs) are accurate in all material respects.
Management has included the above summary of assumptions and risks related to forward-looking information provided in this press release in order to provide shareholders with a more complete perspective on Longview’s future operations and such information may not be appropriate for other purposes. Longview’s actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits that the Corporation will derive there from. Readers are cautioned that the foregoing lists of factors are not exhaustive. These forward-looking statements are made as of the date of this press release and the Corporation disclaims any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or results or otherwise, other than as required by applicable securities laws.
Any references in this news release to test rates or initial production rates (“IP”), including IP rates of 30 days or less, are useful in confirming the presence of hydrocarbons, however, such rates are not necessarily indicative of long-term performance or ultimate recovery and such rates are not determinative of the rates at which such wells will continue production and decline thereafter. Additionally, such rates may also include recovered “load oil” fluids used in well completion stimulation. While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production for the Corporation.
Non-GAAP Measures, Definitions and Abbreviations
The Corporation discloses several financial measures in this press release that do not have any standardized meaning prescribed by International Financial Reporting Standards (“IFRS” or “GAAP”), such as funds from operations and payout ratio. Management believes that these financial measures are useful supplemental information to analyze operating performance and provide an indication of the results generated by the Corporation’s principal business activities. Longview’s method of calculating these measures may differ from other companies, and accordingly, they may not be comparable to similar measures used by other companies. Please see the Corporation’s most recent management’s discussion and analysis, which is available on www.sedar.com for additional information about these financial measures.
“Boe” may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of natural gas to one barrel of oil equivalent (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. 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 on a 6:1 basis may be misleading as an indication of value.
“Funds from operations” represents cash provided by operating activities, adjusted for expenditures on decommissioning liability, changes in non-cash working capital and interest on bank indebtedness.
“Payout ratio” is calculated as cash dividends declared and capital expenditures divided by funds from operations.
“Working capital deficit” includes trade and other receivables, prepaid expenses and deposits, trade and other accrued liabilities and due to parent.
The following abbreviations used in this press release have the meanings set forth below:
|bbls||barrels||mcf||thousand cubic feet|
|bbls/d||barrels per day||mcf/d||thousand cubic feet per day|
|boe||barrels of oil equivalent, on the basis of 1 bbl of oil for 6 mcf of natural gas|
|boe/d||barrels of oil equivalent per day|
SOURCE Longview Oil Corp.
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