CALGARY, ALBERTA–(Marketwired – Nov. 13, 2013) – Delphi Energy Corp. (TSX:DEE) (“Delphi” or the “Company”) is pleased to announce its financial and operational results for the quarter ended September 30, 2013 and provide an update on its Montney development program at East Bigstone.
Third Quarter 2013 Highlights
- Produced an average of 8,797 barrels of oil equivalent per day (“boe/d”) during the three months ended September 30, 2013, a seven percent increase over the comparative quarter of 2012 and a 15 percent increase over the second quarter of 2013;
- Increased the Company’s field condensate production 174 percent to 705 bbls/d and natural gas liquids (“NGL”) production 21 percent to 1,294 bbls/d for the three months ended September 30, 2013 compared to the third quarter of 2012. The combined corporate field condensate and NGL yield increased 49 percent to 52 barrels per million cubic feet (“bbls/mmcf”);
- Increased production from the Bigstone Montney project for the three months ended September 30, 2013 to 3,528 boe/d, a 77 percent increase over the comparative quarter of 2012. The Bigstone Montney project contributed 40 percent of the Company’s production during the third quarter of 2013 compared to 24 percent during the comparative quarter of 2012;
- Increased the combined Montney field condensate and NGL yield 52 percent to 95 bbls/mmcf for the three months ended September 30, 2013, compared to 63 bbls/mmcf during the third quarter of 2012. Field and plant condensate yield was 56 bbls/mmcf or 59 percent of the total 95 bbls/mmcf;
- Increased funds from operations to $10.0 million, a 27 percent increase over the comparative quarter of 2012 and a 19 percent increase over the second quarter of 2013. Corporate cash netbacks increased 19 percent over the comparative quarter of 2012;
- Recorded net earnings of $1.2 million for the three months ended September 30, 2013 versus a net loss of $9.2 million in the comparative quarter of 2012;
- Drilled one net Montney well in East Bigstone which has been completed and tied-in during the fourth quarter of 2013. Drilling times for the Company’s Montney wells have decreased 35 percent and drilling costs have been reduced by 25 percent. The most recent well at 15-30 was drilled to a total depth of 5,834 metres with a record horizontal lateral length of 3,014 metres drilled across two sections in 30 days and set a record low Montney well cost for Delphi of $4.85 million;
- Completed drilling operations of the Duvernay vertical stratigraphic (“strat”) test well with a subsequent Montney horizontal whipstock as part of a farm-in agreement to earn additional Montney and Nordegg petroleum and natural gas rights; and
- Increased the Company’s Montney land position by 13 percent to a current total of 107 net (122 gross) sections through an industry farm-in and recent Crown land sale activity.
|Three Months Ended September 30||0BNine Months Ended September 30|
|Production||2013||2012||1B% Change||2013||2012||2B% Change|
|Crude oil (bbls/d)||330||573||(42||)||320||796||(60||)|
|Field condensate (bbls/d)||705||257||174||601||229||162|
|Natural gas liquids (bbls/d)||1,294||1,069||21||1,200||1,117||7|
|Total crude oil and natural gas liquids||2,329||1,899||23||2,121||2,142||(1||)|
|Natural gas (mcf/d)||38,807||38,148||2||35,209||38,910||(10||)|
|Financial Highlights ($ thousands except per unit amounts)|
|Three Months Ended September 30||Nine Months Ended September 30|
|2013||2012||% Change||2013||2012||% Change|
|Petroleum and natural gas sales||25,666||20,878||23||70,971||66,896||6|
|Realized sales price per boe||32.94||29.25||13||32.89||29.65||11|
|Funds from operations||9,972||7,881||27||27,763||26,036||7|
|Per share – Basic||0.07||0.06||–||0.18||0.20||(10||)|
|Per share – Diluted||0.06||0.06||–||0.18||0.20||(10||)|
|Net earnings (loss)||1,208||(9,190||)||–||4,473||(28,636||)||–|
|Per share – Basic||0.01||(0.07||)||–||0.03||(0.22||)||–|
|Per share – Diluted||0.01||(0.07||)||–||0.03||(0.22||)||–|
|Disposition of properties||(42||)||(23,045||)||(100||)||(3,319||)||(34,619||)||(90||)|
|Net capital invested||12,973||(15,529||)||–||41,013||37,571||9|
|Acquisition of undeveloped properties||–||–||–||13,664||–||–|
|Total capital invested||12,973||(15,529||)||–||54,677||37,571||46|
|September 30, 2013||December 31, 2012||3B% Change|
|Debt plus working capital deficiency (1)||121,670||92,815||31|
|Shares outstanding (000’s)|
(1) excludes the fair value of financial instruments.
MESSAGE TO SHAREHOLDERS
Delphi continues to successfully grow its Montney production, reserves and undeveloped land position at Bigstone. The Company now holds 122 gross sections of land where continued refinement of completion techniques and reduction in drilling and completion costs are delivering a step change to the economics of the project.
The value of Delphi’s Montney project continues to be validated with each new well drilled and brought on production. The wells, fracture stimulated with the slickwater hybrid completion, continue to exceed the Company’s expectations. Given the performance of these new wells, a midyear reserves evaluation was completed by GLJ Petroleum Consultants Ltd (“GLJ”) with an effective date of June 30, 2013 and press released on September 3, 2013. The Montney reserves growth in all categories resulted in a 49 percent increase in the Company’s proved plus probable net asset value to $3.21 per share. The midyear reserves report included 20 gross (17 net) proved plus probable undeveloped locations of the approximately 100 extended-reach development locations (equal to 200 locations with conventional one mile horizontal lateral lengths) currently identified by Delphi’s technical staff.
Production volumes for the three months ended September 30, 2013 averaged 8,797 boe/d, a 15 percent increase over the second quarter of 2013. Although no new production was brought on-stream during the third quarter, corporate production growth during the third quarter was driven by the strong performance of the 10-27 Montney horizontal well brought on production in March and the 16-23 Montney horizontal well brought on production in June. An additional Montney horizontal well at 15-24 was drilled during the third quarter and brought on-stream in late October.
The Company’s production portfolio for the third quarter of 2013 was weighted three percent to crude oil, eight percent to field condensate, 15 percent to natural gas liquids and 74 percent to natural gas. This compares to a production portfolio for the comparative quarter of 2012 weighted seven percent to crude oil, three percent to field condensate, 13 percent to natural gas liquids and 77 percent to natural gas. For the third quarter of 2013, Delphi’s field condensate production increased 174 percent to 705 bbls/d and NGL production increased 21 percent to 1,294 bbls/d compared to the third quarter of 2012.
Funds from operations in the third quarter of 2013 were $10.0 million or $0.07 per basic and $0.06 per diluted share, compared to $7.9 million or $0.06 per basic and diluted share in the comparative quarter of 2012. The increase in funds from operations is primarily due to an increase in field condensate and NGL production, partially offset by a decrease in crude oil production, an improvement in commodity prices and lower royalties with higher operating and transportation costs.
The liquids-rich nature of the Montney production continues to strengthen the Company’s cash generating capability, with Montney operating netbacks 61 percent greater than the netback generated from the Company’s legacy producing assets during the third quarter of 2013. With the growth Delphi has achieved in Montney production, opportunities are being pursued to further increase the Montney operating netbacks through lower operating and transportation costs and improved marketing arrangements yielding better NGL and condensate pricing.
Net capital expenditures during the third quarter were $13.0 million, which primarily included the drilling of one Montney horizontal well and the drilling of a Duvernay “strat” test and Montney whipstock, pursuant to the terms of a previously announced industry farm-in arrangement. Net capital expenditures for the nine months ended September 30, 2013 were $54.7 million and include the strategic acquisition of undeveloped properties for additional Montney rights in the Bigstone area for $13.7 million.
During the quarter, the Company entered into a financing agreement for $20.0 million with a Canadian energy and resource lender. The funding was fully drawn by the end of the quarter with the proceeds being used to repay a portion of the bank debt with the Company’s senior lenders. The debt is secured by the Company’s assets and subordinate to the Company’s senior credit facility, matures on December 31, 2014 and is extendible at the option of Delphi for an additional six months. The subordinated debt has an annual coupon rate of 8.5 percent with interest payable monthly.
As at September 30, 2013, the Company had total debt of $121.7 million on total credit facilities of $160.0 million. On an annualized third quarter funds from operations basis, Delphi’s total debt to funds from operations ratio was 3.1:1, an 11 percent decrease from the second quarter of 2013. Total debt includes subordinated and bank debt plus working capital deficiency excluding the fair value of financial instruments.
Bigstone Montney Program
Delphi has now successfully drilled, completed and brought on production seven Montney horizontal wells at East Bigstone. The most recent four wells were stimulated utilizing slickwater hybrid frac techniques rather than the smaller conventional gelled oil frac designs used on the first three wells. The first well completed with the new frac technique was drilled across one section and stimulated with 20 stages to limit operational risk with the subsequent three wells drilled with extended reach laterals and completed using 30 stage slickwater hybrid fracture stimulations.
The first three Montney wells at East Bigstone in 2013, stimulated with the new slickwater hybrid fracturing technique, continue to exceed the Company’s expectations. The 10-27 well has produced approximately 245,000 boe, (109 bbls/mmcf sales of total NGL’s, 67 percent of which is field condensate) at an average rate of 1,364 boe/d over the first 180 days of production. The 16-23 well has produced approximately 168,000 boe (90 bbls/mmcf sales of total NGL’s, 60 percent of which is field condensate) at an average rate of 1,395 boe/d over the first 120 days of production. At payout, the 16-23 and 10-27 wells are forecast to still be producing approximately 500 to 700 boe/d each, contributing significant free cash flow for the continued development of the Bigstone Montney project.
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The fourth and most recent well to be stimulated with 30 stages using the slickwater hybrid fracturing technique at 15-24-60-23W5 was brought on production in late October through the Company’s 100 percent owned Montney compression and dehydration facility. Over the first 15 days of production, the well averaged 5.1 mmcf/d raw (4.6 mmcf/d sales) with total NGL production of 152 bbls/mmcf sales for a total of 1,452 boe/d. Field condensate production was 116 bbls/mmcf sales (76 percent of the total NGL production) over this time period. Delphi is encouraged with the strong initial total NGL yields that compare to the richest Montney wells the Company has drilled to date. Consistent with Delphi’s existing Montney production in Bigstone, the field condensate liquid yields are expected to stabilize over the next three to four months.
Completion operations have commenced at the Company’s 15- 30-60-23W5 horizontal Montney well. The 15-30 well was drilled to a Company record horizontal lateral length of 3,014 metres in a record 30 days. Delphi looks forward to reporting on these results and expects the well to be on production in December.
Drilling operations continue in East Bigstone with 3 gross (2.7 net) additional wells planned to be drilled prior to break-up in 2014.
The Company has concluded drilling operations on the South Bigstone strat test and 11-17-59-22W5 horizontal Montney well as part of the previously announced industry farm-in, whereby Delphi will earn a 75 percent working interest in 32.5 sections of Montney lands. The 11-17 Montney well with a surface located at 5-8-59-22W5M will be completed, equipped and pipeline connected in 2014.
The Company expects net capital spending for the fourth quarter of 2013 to be approximately $25.0 million for a total 2013 net capital program of approximately $80.0 million with production for the year to average approximately 8,100 to 8,300 boe/d. Total debt at year end is expected to be approximately $136.0 million. Delphi expects AECO natural gas prices to average approximately Cdn. $3.10 per mcf and Edmonton light oil prices to average approximately Cdn. $94.00 per barrel for the year resulting in cash flow for 2013 of approximately $38.0 to $40.0 million. For the remainder of 2013, the Company has approximately 69 percent of its natural gas production hedged at an average price of $3.44 per mcf and approximately 37 percent of its crude oil and condensate production hedged at a floor price of Cdn $94.00 per barrel.
For 2014, corporate production is forecast to grow 20 percent compared to 2013, predominantly from a Montney focused capital program with its superior netbacks, resulting in expected cash flow growth of 49 percent. Delphi is estimating production to average 9,500 to 10,000 boe/d on a net capital program of $67 to $72 million, drilling a total of seven Montney horizontal wells at Bigstone. The Company is again looking at supplementing its 2014 capital program through third party participation for $15.0 to $20.0 million. Total debt at year end 2014 is expected to be between $145.0 and $150.0 million. Total debt to funds flow ratios are forecast to drop to 2.2 times in the fourth quarter of 2014 and reach a targeted 1.5 times in 2015. Delphi expects AECO natural gas prices to average approximately Cdn. $3.50 per mcf and Edmonton light oil prices to average approximately Cdn. $91.50 per barrel resulting in cash flow for 2014 of approximately $55.0 to $60.0 million. Currently, the Company has approximately 50 percent of its natural gas production hedged at an average price of $3.59 per mcf for 2014 and approximately 27 percent of its crude oil and condensate production hedged at a floor price of Cdn $96.03 per barrel for the first half of 2014.
Delphi continues to grow its Montney production, reserves and undeveloped land position at Bigstone. The Company expects to have a total of ten Montney horizontal wells on production by the end of the winter drilling season, with seven of those having been completed with the refined drilling and completion techniques yielding a step change in the economics of the Montney play in the Bigstone area.
Delphi’s 5-year growth plan contemplates production growth to 20,000 boe/d by 2017, with targeted annual production per share growth of 25 percent and annual cash flow per share growth of 45 percent. Capital spending over the next five years to achieve that result under the plan is projected to be $560 million, funded 90 percent from cash flow to drill 50 Montney horizontal wells and fund the expansion of Delphi’s 100 percent owned facility. The contemplated 50 well drilling program represents less than half of the current development drilling inventory on approximately 50 percent of Delphi’s current Montney undeveloped land holdings. The Company now has a current project inventory that will provide economic growth beyond a 10-year horizon. Over this time period, the Company’s balance sheet is forecast to continually strengthen, with internally generated cash flow funding the majority of the capital expenditures on a go forward basis.
During the third quarter, the Company increased its Montney land position by ten gross sections through an industry farm-in and more recently added another four gross sections through Crown land sales, increasing the Montney land position to 122 gross sections. The Company continues to pursue additional consolidation opportunities in the Bigstone/Fir area leveraging off of its control of critical infrastructure and advanced understanding of the Montney play in the area.
The production profile of the new wells, with lower initial declines and greater condensate yields resulting in materially greater present value of the reserves and significantly reduced payout times, continues to have a favourable impact on the Company’s cash generating capability and underlying asset value.
Delphi continues to explore additional options to further accelerate its Montney drilling program, through additional non-core asset dispositions and joint venture relationships and alternate non-dilutive financing structures.
On behalf of the Board of Directors and all the employees of Delphi, we would like to thank our shareholders for their continued support.
CONFERENCE CALL AND WEBCAST
A conference call and webcast to review Q3, 2013 results is scheduled for 9:00 a.m. Mountain Time (11:00 a.m. Eastern Time) on Thursday, November 14, 2013. The conference call number is 1-800-769-8320 or 416-340-9432. A brief presentation by David Reid, President and CEO and Brian Kohlhammer, Senior VP Finance & CFO, will be followed by a question and answer period. The conference call will also be broadcast live on the internet and may be accessed through the Delphi Energy website at www.delphienergy.ca
A taped rebroadcast will be available until 6:00 p.m. Mountain Time, Thursday, November 21, 2013. To access the rebroadcast, dial 1-800-408-3053 or 905-694-9451. The passcode is 1797104. It will also be available on Delphi’s website. Delphi’s third quarter 2013 financial statements and management’s discussion and analysis are available on Delphi’s website at www.delphienergy.ca and SEDAR at www.sedar.com
Delphi Energy is a Calgary-based company that explores, develops and produces oil and natural gas in Western Canada. The Company is managed by a proven technical team. Delphi trades on the Toronto Stock Exchange under the symbol DEE.
Forward-Looking Statements. This management discussion and analysis contains forward-looking statements and forward-looking information within the meaning of applicable securities laws. The use of any of the words “expect”, “anticipate”, “continue”, “estimate”, may”, “will”, “should”, believe”, “intends”, “forecast”, “plans”, “guidance” and similar expressions are intended to identify forward-looking statements or information.
More particularly and without limitation, this management discussion and analysis contains forward looking statements and information relating to the Company’s risk management program, petroleum and natural gas production, future funds from operations, capital programs, commodity prices, costs and debt levels. The forward-looking statements and information are based on certain key expectations and assumptions made by Delphi, including expectations and assumptions relating to prevailing commodity prices and exchange rates, applicable royalty rates and tax laws, future well production rates, the performance of existing wells, the success of drilling new wells, the capital availability to undertake planned activities and the availability and cost of labour and services.
Although the Company believes that the expectations reflected in such forward-looking statements and information are reasonable, it can give no assurance that such expectations will prove to be correct. Since forward-looking statements and information address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, the risks associated with the oil and gas industry in general such as 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 estimates and projections relating to production rates, costs and expenses, commodity price and exchange rate fluctuations, marketing and transportation, environmental risks, competition, the ability to access sufficient capital from internal and external sources and changes in tax, royalty and environmental legislation. Additional information on these and other factors that could affect the Company’s operations or financial results are included in reports on file with the applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com) The forward-looking statements and information contained in this press release are made as of the date hereof for the purpose of providing the readers with the Company’s expectations for the coming year. The forward-looking statements and information may not be appropriate for other purposes. Delphi undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.
Basis of Presentation. For the purpose of reporting production information, reserves and calculating unit prices and costs, natural gas volumes have been converted to a barrel of oil equivalent (boe) using six thousand cubic feet equal to one barrel. A boe conversion ratio of 6:1 is based upon an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. This conversion conforms with the Canadian Securities Administrators’ National Instrument 51-101 when boes are disclosed. Boes may be misleading, particularly if used in isolation.
As per CSA Staff Notice 51-327 initial production test results should be considered preliminary data and such data is not necessarily indicative of long-term performance or of ultimate recovery.
Non-IFRS Measures. The release contains the terms “funds from operations”, “funds from operations per share”, “net debt”, “operating netbacks” “cash netbacks” and “netbacks” which are not recognized measures under IFRS. The Company uses these measures to help evaluate its performance. Management considers netbacks an important measure as it demonstrates its profitability relative to current commodity prices. Management uses funds from operations to analyze performance and considers it a key measure as it demonstrates the Company’s ability to generate the cash necessary to fund future capital investments and to repay debt. Funds from operations is a non-IFRS measure and has been defined by the Company as cash flow from operating activities before accretion on long-term debt, decommissioning expenditures and changes in non-cash working capital. The Company also presents funds from operations per share whereby amounts per share are calculated using weighted average shares outstanding consistent with the calculation of earnings per share. Delphi’s determination of funds from operations may not be comparable to that reported by other companies nor should it be viewed as an alternative to cash flow from operating activities, net earnings or other measures of financial performance calculated in accordance with IFRS. The Company has defined net debt as the sum of long term debt plus/minus working capital excluding the current portion of the fair value of financial instruments. Net debt is used by management to monitor remaining availability under its credit facilities. Operating netbacks have been defined as revenue less royalties, transportation and operating costs. Cash netbacks have been defined as operating netbacks less interest and general and administrative costs. Netbacks are generally discussed and presented on a per boe basis.
David J. Reid
President & CEO
Delphi Energy Corp.
Brian P. Kohlhammer
Senior VP Finance & CFO
Delphi Energy Corp.
300, 500 – 4 Avenue S.W.
Calgary, Alberta T2P 2V6
(403) 265-6207 (FAX)