CALGARY, Nov. 13, 2014 /CNW/ – (TSX: TBE) – Twin Butte Energy Ltd. (“Twin Butte” or the “Company“) is pleased to provide it’s 2015 capital plan and report its financial and operational results for the three months ended September 30, 2014.
Highlights are as follows:
Certain selected financial and operational information for the three and nine months ended September 30, 2014 and 2013 is outlined below and should be read in conjunction with Twin Butte’s condensed interim financial statements for the three and nine months ended September 30, 2014 and 2013 and accompanying management’s discussion and analysis filed with the Canadian securities regulatory authorities which may be accessed through the SEDAR website (www.sedar.com) and also the Company’s website.
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Three months ended September 30 |
Nine months ended September 30 |
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|
2014 |
2013 |
% Change |
2014 |
2013 |
% Change |
|
|
Financial ($ 000’s, except per share amounts) |
||||||
|
Petroleum and natural gas sales |
143,088 |
115,709 |
24% |
444,854 |
281,959 |
58% |
|
Funds flow (1) |
53,699 |
34,899 |
54% |
153,603 |
100,380 |
53% |
|
Per share basic |
0.15 |
0.14 |
7% |
0.44 |
0.40 |
10% |
|
Per share diluted |
0.15 |
0.14 |
7% |
0.44 |
0.40 |
10% |
|
Net income (loss) |
34,805 |
8,111 |
329% |
26,746 |
(27,605) |
197% |
|
Per share basic |
0.10 |
0.03 |
233% |
0.08 |
(0.11) |
173% |
|
Per share diluted |
0.10 |
0.03 |
233% |
0.08 |
(0.11) |
173% |
|
Dividends declared |
16,761 |
12,079 |
39% |
49,910 |
36,709 |
36% |
|
Dividends declared, Post DRIP |
14,939 |
10,546 |
42% |
44,468 |
32,314 |
38% |
|
Capital expenditures(1) |
43,884 |
9,027 |
386% |
103,499 |
43,543 |
138% |
|
Net debt (1) |
355,918 |
179,012 |
99% |
355,918 |
179,012 |
99% |
|
Operating |
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Average daily production |
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|
Heavy crude oil (bbl per day) |
10,962 |
13,541 |
-19% |
11,660 |
13,800 |
-16% |
|
Light & Medium crude oil (bbl per day) |
7,780 |
501 |
1453% |
7,639 |
632 |
1109% |
|
Natural gas (Mcf per day) |
12,280 |
12,111 |
1% |
12,201 |
12,888 |
-5% |
|
Natural gas liquids (bbl per day) |
192 |
202 |
-5% |
201 |
205 |
-2% |
|
Barrels of oil equivalent (boe per day, 6:1) |
20,981 |
16,263 |
29% |
21,534 |
16,785 |
28% |
|
% Oil and NGLs |
90% |
88% |
3% |
91% |
87% |
4% |
|
Average sales price |
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|
Heavy crude oil ($ per bbl) |
77.90 |
85.95 |
-9% |
77.97 |
67.02 |
16% |
|
Light & Medium crude oil ($ per bbl) |
83.31 |
96.12 |
-13% |
85.23 |
79.76 |
7% |
|
Natural gas ($ per Mcf) |
3.40 |
2.51 |
35% |
4.45 |
3.23 |
38% |
|
Natural gas liquids ($ per bbl) |
59.10 |
75.46 |
-22% |
74.83 |
77.38 |
-3% |
|
Barrels of oil equivalent ($ per boe, 6:1) |
74.13 |
77.34 |
-4% |
75.67 |
61.53 |
23% |
|
Field netback ($ per boe) (1) |
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|
Petroleum and natural gas sales |
74.13 |
77.34 |
-4% |
75.67 |
61.53 |
23% |
|
Royalties |
(14.98) |
(17.51) |
-14% |
(14.24) |
(13.29) |
7% |
|
Operating expenses |
(20.01) |
(21.53) |
-7% |
(21.28) |
(22.12) |
-4% |
|
Transportation expenses |
(1.17) |
(1.30) |
-10% |
(1.09) |
(1.33) |
-18% |
|
Field netback (1) |
37.97 |
37.00 |
3% |
39.06 |
24.79 |
58% |
|
Wells drilled |
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|
Gross |
39.0 |
31.0 |
26% |
90.0 |
71.0 |
27% |
|
Net |
36.7 |
31.0 |
18% |
87.7 |
71.0 |
24% |
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Success (%) |
97 |
92 |
5% |
97 |
92 |
5% |
|
Common Shares |
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Shares outstanding, end of period |
349,923,736 |
252,059,154 |
39% |
349,923,736 |
252,059,154 |
39% |
|
Weighted average shares outstanding – diluted |
350,821,419 |
252,285,450 |
39% |
348,583,113 |
251,380,863 |
39% |
|
(1) Funds flow, Corporate acquisitions, Capital expenditures, Net debt and Field netback are non-GAAP measures. Refer to “Non-GAAP Measures” in the MD&A for further discussion and reconciliation to GAAP measures if applicable. |
Corporate:
During the third quarter, Twin Butte continued its ongoing transition to horizontal drilling on predictable production profile projects with a significant and growing medium oil presence in the Provost area. This transition has led to record funds flow for the corporation and has strengthened the Company’s business objective of delivering a long term stable dividend combined with moderate growth, by increasing the percentage of higher netback, more predictable decline oil barrels in the Company.
The third quarter saw the Company expand its horizontal drilling inventory through the initial drilling and production from two new horizontally drilled, multi-frac completion plays in Provost, while delivering industry leading capital efficiencies.
For the foreseeable future, Twin Butte anticipates that the majority of its capital program will be weighted to horizontal development with approximately 75% of its activity focused in Provost.
Sustainable Business Model:
As the Company’s asset base transitions, it is seeing the benefits even in a forecasted lower price environment for 2015. In 2015 the Provost area will provide approximately 78% of the corporate cash flow despite only averaging 50% of the production volumes. This area provides increased netbacks on a boe basis through a combination of higher revenues, lower operating costs, lower average royalty rates and a more predictable decline profile than our historic production base.
This transition will allow Twin Butte to sustain production levels for 2015 at approximately 21,500 boe per day while increasing cash flow by approximately 10% over 2014 levels and holding total payout at or below 100%. The early drilling results on the two new plays targeting the Sparky and Lithic are encouraging when matched with offset production. While results are early, Twin Butte feels its current land position could lead to over 150 new drilling locations with continued success. These are new plays that had no reserves or locations booked in last year’s reserve report.
On a long term basis Twin Butte is confident that the Company can continue to provide a sustainable dividend with moderate growth based on a disciplined capital program that will adjust to the cash flow variances that the commodity based industry brings.
Financial:
In the third quarter of 2014 the Company declared $16.8 million in dividends ($14.9 million post DRIP & SDP) which when combined with net $43.9 million in organic capital spending generated an all-in quarterly payout ratio of 110% or 96% on a year to date basis. Over the past 2.75 years the Company has declared $139.4 million in dividends, or $0.52 per share, and maintained a cumulative all-in payout ratio of 92.5%.
Funds flow in the third quarter increased significantly (54%) from 2013 reaching a record $53.7 million or $0.15 per share. This compares to a 29% increase in production volumes over the same periods, reinforcing the Company’s transition to an increased weighting of higher netback medium barrels. The percentage of light and medium oil production in the quarter compared to the third quarter of 2013 has increased materially to 37% from 3% and the company now anticipates this figure to approach 40% by year end.
Operating costs in the third quarter were $20.01 per boe, down from $20.94 in the second quarter and $22.81 per boe in the first quarter of 2014, as operating improvements are being realized. As the percentage of Provost area, lower operating cost volumes grow, this trend is expected to continue.
Although WTI pricing in US dollars decreased close to $6.00 per barrel from the second quarter, a weak Canadian dollar led to strong WCS (Western Canadian Select heavy oil index) pricing in the quarter of $84.40 per barrel. The Company continued to enhance its heavy oil pricing through rail car movement which currently represents approximately 40% of the Company’s heavy oil production.
The recent significant drop in current and forecast 2015 WTI pricing has created concerns in the financial marketplace. Although US dollar WTI pricing for 2015 is currently forecast to be just below $80.00 per barrel, the combined effect of current and forecasted narrow differentials on light to heavy oil in combination with a continued weak Canadian dollar has somewhat sheltered WCS pricing to forecast levels of approximately $68 per barrel for 2015. Consistent with the Company’s historic risk management strategy to reduce cash flow volatility and provide dividend protection, Twin Butte has approximately 60% of its estimated first half 2015 and 30% of its estimated second half 2015 oil production (approximately 45% of estimated annual oil production) hedged at extremely attractive levels of $80 per barrel of WCS. The pricing of these hedges reflect an approximate $6 per bbl improvement in pricing over Twin Butte’s 2014 hedge position and an approximate $12 per barrel premium to the current 2015 forward price curve.
Net debt at the end of the third quarter was marginally higher than the end of the second quarter at $355.9 million including the company’s $85 million convertible debenture translating to an annualized debt to cash flow ratio at approximately 1.65 times.
Operations:
The Company executed on a significant third quarter capital plan of net $43.9 million focused on horizontal well activity in its core medium oil area of Provost and its heavy oil property at Wildmere. The program included the drilling of 39 gross wells (36.7 net) at a success rate of 97 %. To the end of the third quarter the company has drilled 90 gross or 87.7 net wells, 69 (66.7 net) of which were horizontal.
At Provost, 26 horizontal wells were drilled in the third quarter of 2014 (46 horizontal wells year-to-date) with an additional 13 horizontals drilled thus far in the fourth quarter. With the Provost area anticipated to receive approximately 75 % of the company’s 2015 capital expenditures Twin Butte is pleased to report that expansion of the areas future drilling inventory is successfully happening with de-risking of both the Sparky and Lithic Channel projects during the second half of 2014.
The primary target play drilled to date at Provost has been the Dina and Cummings oil over water project. 2014 well results continue to be consistent with the wells drilled on the property since 2010 by Twin Butte and the previous operator, with first three month average production of 70 boe per day. During the third quarter, the Company’s program successfully targeted a combination of new pools, pool extensions and infill opportunities which continued to enhance the Company’s future drilling inventory on the play. With the repeatable success and a more predictable decline profile, the Dina/Cummings play will continue to be a focus for the company in 2015.
In the third quarter, Twin Butte drilled its first four Sparky horizontal oil wells with an additional two wells drilled to date in the fourth quarter. The first two wells drilled have been producing for in excess of two months with current average production of approximately 140 barrels per day per well. Completed well costs in the Sparky were under $1.3 million per well, reinforcing the Company’s execution capabilities. The Company has established a significant land base and potential drilling inventory for the Sparky play. Recently drilled offsetting competitor wells have demonstrated average initial productivity of 95 boe per day, based on this and Twin Buttes recent success the company will be expanding its focus in this play in 2015.
In addition the detailed mapping and seismic interpretation of the multiple, hydrocarbon charged Lithic channels which criss-cross Twin Butte’s acreage has identified numerous new drilling opportunities. Late in the third quarter the company drilled its first area Lithic well and has subsequently drilled two additional wells to further de-risk the Company’s land position, similar to what has been done in the Sparky. Production results from the initial Lithic wells will be available by year end.
The Company has been actively consolidating and expanding its Provost land position through swaps; crown land purchases, and farm in arrangements. Twin Butte’s significant land position in Provost and ownership and control of extensive infrastructure will provide a competitive edge to ensure the company meets and exceeds its area growth plans for the next number of years.
Overall, the Company anticipates drilling more than 70 wells at Provost in 2014.
The Company’s expanding operations in Provost are successfully driving a key component the company business plan. The transition from heavy oil focused production profile to a lighter medium weighted production profile has enhanced the Company’s dividend sustainability with higher netback barrels, as a result of higher realized pricing on the area’s medium quality oil, which along with lower operating and royalty costs, provides improved netbacks per boe. Field netbacks in Provost in the third quarter averaged approximately $52.00/boe compared to about $34.00/boe on the Company’s existing heavy oil operations.
Twin Butte continued its successful horizontal heavy oil development in Wildmere, Alberta with 8 horizontal wells drilled in the third quarter. The Wildmere asset has seen approximately 60 plus horizontal wells drilled on the property over the past 2 years. These wells are delivering field netbacks of approximately $50 per boe year-to-date. The Company is currently evaluating various secondary recovery schemes, which have been successfully deployed on the legacy vertically developed portions of the pool, to further enhance the economic return of this asset. Similar horizontal heavy oil opportunities have been identified on Twin Butte lands, primarily in the Lloydminster area, which the Company intends to develop over the next several quarters.
Average production for the third quarter of 2014 was 20,981 boe per day, essentially flat with the second quarter. The company is on track to show moderate growth in production in the fourth quarter of 2014 positioning the company for strong financial performance in 2015
Outlook
The Company’s expanding capital focus on medium oil in Provost is showing positive results. Higher revenue medium oil volumes are growing as a percentage of corporate production, and overall corporate operating costs and netbacks are improving. Although early, these are positive indications of where the Company’s strategic focus will lead.
The Company’s focus on maintaining corporate production while increasing production of our medium barrels up from current 38 % to the 45-55 % range over the next 12 months is forecast to increase corporate cash flow by approximately 10%.
Though the recent decline in North American oil pricing has created uncertainties, we believe longer term in an $US90 to $95 WTI barrel. Twin Butte’s hedging program provides cash flow certainty in this volatile pricing period. The Company’s 2015 budget is based upon an $US80 per barrel WTI price, 1.125 Cdn/US exchange rate, and a WTI to WCS differential of $US 18.50 per barrel, and incorporating the Company’s strong hedge position, is forecast to maintain production at 21,500 boe per day and grow cash flow 10% to $225 million for 2015. This cash flow growth is a result of the ongoing transition to medium barrels, where the plan is to increase from a current weighting of about 38% to 45-55% medium of total oil barrels in the next 12 months. The company will closely monitor capital spending and adjust both positively and negatively with potential volatility in oil prices but currently feels comfortable with a 2015 capital plan of $160 million. Based on current dividend of $0.192 per year, the Company anticipates an all in payout ratio of just below 100 % in 2015.
Since the initiation of its dividend policy in January 2012, Twin Butte’s long term business plan of providing shareholders with long term total returns comprised of both income and moderate growth is and will remain the Company’s focus. Twin Butte will continue to match its capital plan to forecast cash flow less dividends ensuring the dividends sustainability. Since January 2012 during volatile commodity and differential pricing as well as some challenging production performance Twin Butte as always maintained financial discipline to protect the company’s balance sheet and dividend. We have demonstrated corporate sustainability and we will continue to demonstrate corporate sustainability even in an industry-challenging $80 WTI oil environment.
While remaining strongly positioned with its low risk drilling inventory, the Company continues to review acquisition opportunities to further diversify and enhance the Company’s commodity and play types.
As noted earlier Twin Butte is confident with the current dividend level and therefore payment has been approved through to the end of the first quarter of 2015 by the Board of Directors. The Company’s current financial forecast continues to show a total annual payout ratio under 100 % for the year, consistent since the establishment of the dividend model in January 2012.
About Twin Butte:
Twin Butte Energy Ltd. is a dividend paying value oriented intermediate producer with a significant low risk, high rate of return, drilling inventory focused on predictable oil based play types. Twin Butte is well positioned to provide shareholders with a sustainable dividend with moderate growth potential over the long term. Twin Butte is committed to continually enhance its asset quality while focusing on the sustainability of its dividend. The common shares of Twin Butte are listed on the TSX under the symbol “TBE”.
[expand title=”Advisories & Contact”]Reader Advisory
Forward-Looking Statements
In the interest of providing Twin Butte’s shareholders and potential investors with information regarding Twin Butte, including management’s assessment of the future plans and operations of Twin Butte, certain statements contained in this news release constitute forward-looking statements or information (collectively “forward-looking statements”) within the meaning of applicable securities legislation. Forward-looking statements are typically identified by words such as “anticipate”, “continue”, “estimate”, “expect”, “forecast”, “may”, “will”, “project”, “could”, “plan”, “intend”, “should”, “believe”, “outlook”, “potential”, “target” and similar words suggesting future events or future performance. In particular but without limiting the foregoing, this news release contains forward-looking statements pertaining to the following: the amount of horizontal drilling activity planned for 2014; the Company’s planned strategic shift to drilling additional horizontal light oil wells in 2014 and the anticipated effect thereof on the Company’s production profile; the effects of the Company’s hedging program; ; the Company’s anticipated netbacks in 2014; anticipated total payout ratio; future dividend levels; funds flow and cash flow forecasts; the volume and product mix of Twin Butte’s oil and natural gas production; future oil and natural gas prices; future operational activities; future results from operations and operating metrics, including future production growth and other matters set forth under the heading “Outlook” herein, including estimated budget levels, production rates, cash flows and targeted pay-out ratio in respect of the payment of dividends.
With respect to forward-looking statements contained in this news release, Twin Butte has made assumptions regarding, among other things: future capital expenditure levels; future oil and natural gas prices and differentials between light, medium and heavy oil prices; results from operations including future oil and natural gas production levels; future exchange rates and interest rates; Twin Butte’s ability to obtain equipment in a timely manner to carry out development activities; its ability to market its oil and natural gas successfully to current and new customers; the impact of increasing competition; Twin Butte’s lenders will revise Twin Butte’s borrowing base to the levels described herein; anticipated success with the Company’s exploration and development programs; Twin Butte will not adjust its current monthly dividend; Twin Butte’s business strategy in respect of its planned light oil horizontal drilling program will remain the same; Twin Butte’s ability to obtain financing on acceptable terms; and Twin Butte’s ability to add production and reserves through its development and exploitation activities. Although Twin Butte believes that the expectations reflected in the forward looking statements contained in this news release, and the assumptions on which such forward-looking statements are made, are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned not to place undue reliance on forward-looking statements included in this news release, as there can be no assurance that the plans, intentions or expectations upon which the forward-looking statements are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur, which may cause Twin Butte’s actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things, the following: the risks associated with the oil and gas industry; commodity prices; risks associated with the review of Twin Butte’s credit facilities; operational risks in exploration; development and production; delays or changes in plans; risks associated with the uncertainty of reserve estimates; health and safety risks, and; the uncertainty of estimates and projections of production, costs and expenses; volatility in market prices for oil and natural gas; general economic conditions in Canada, the U.S. and globally; and the other factors described under “Risk Factors” in Twin Butte’s most recently filed Annual Information Form available in Canada at www.sedar.com.
The forward-looking statements contained in this news release speak only as of the date of this news release. Except as expressly required by applicable securities laws, Twin Butte does not undertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.
Barrels of Oil Equivalent
Barrels of oil equivalents (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl (barrel) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, as the value ratio between natural gas and crude oil based on the current prices of natural gas and crude oil is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indicated value.
Funds Flow from Operations
The reader is cautioned that this news release contains the term funds flow from operations, which is not a recognized measure under generally accepted accounting principles (“GAAP”) and is a measure that represents the total of cash provided by operating activities, before adjusting for changes in non-cash working capital items and expenditures on decommissioning liabilities. Management uses this measure in order to assist them in understanding Twin Butte’s liquidity and its ability to generate funds to finance its operations. The term funds flow from operations or funds flow should not be considered an alternative to, or more meaningful than, cash flow from operating activities as determined in accordance with GAAP as an indicator of the Company’s performance. Twin Butte’s method of calculating this measure may differ from other companies, and accordingly, may not be comparable to measures used by other companies.
Operating Netback/Field Netback
The reader is also cautioned that this news release contains the terms operating netback and field netback, both of which are not a recognized measure under GAAP. Field netback is calculated as a period’s sales of petroleum and natural gas, net of royalties less net production and operating expenses as divided by the period’s sales volumes. Operating netback is the field netback, adjusted for commodity hedging gains or losses. Management uses these measures to assist them in understanding Twin Butte’s profitability relative to current commodity prices and it provides an analysis tool to benchmark changes in operational performance against prior periods and to peers on a comparable basis. Readers are cautioned, however, that these measures should not be construed as an alternative to other terms such as net income determined in accordance with GAAP as a measure of performance. Twin Butte’s method of calculating these measures may differ from other companies, and accordingly, may not be comparable to measures used by other companies.
Net Debt
The reader is cautioned that this news release contains the term net debt, which is not a recognized measure under GAAP and is calculated as bank debt adjusted for working capital excluding mark-to-market derivative contracts. Working capital excluding mark-to-market derivative contracts is calculated as current assets less current liabilities both of which exclude derivative contracts. Management uses net debt to assist them in understanding Twin Butte’s liquidity at specific points in time. Mark-to-market derivative contracts are excluded from working capital, in addition to net debt, as management intends to hold each contract through to maturity of the contract’s term as opposed to liquidating each contract’s fair value or less. Twin Butte’s method of calculating this measure may differ from other companies, and accordingly, may not be comparable to measures used by other companies.
Payout Ratio and Total Payout Ratio
The reader is cautioned that this news release contains the terms payout ratio and total payout ratio which are not recognized measures under GAAP. Payout ratio is calculated as dividends paid and capital expenditures (excluding corporate acquisitions) as a percentage of funds flow from operations. Total Payout Ratio (net of DRIP and SDP) is the Payout ratio, adjusted for dividends paid or reinvested as stock. Twin Butte considers these to be key measures of performance as they demonstrate the Company’s ability to generate the cash flow necessary to fund dividends and capital investment and ultimately, satisfy corporate strategy. Twin Butte’s method of calculating these measures may differ from other companies, and accordingly, they may not be comparable to measures used by other companies.
Capital Expenditures
The reader is cautioned that this news release contains the term Capital Expenditures which is not a recognized measure under GAAP. Capital Expenditures is calculated as the sum of expenditures on property and equipment, expenditures on exploration and evaluation assets, proceeds on disposition of property and equipment and proceeds on disposition of exploration and evaluation assets, as per the Statement of Cash Flows. Twin Butte considers this term to be a key measure of performance as it indicates cash used in investing activities. Twin Butte’s method of calculating this measure may differ from other companies, and accordingly, they may not be comparable to measures used by other companies.
Future Oriented Financial Information
This news release, in particular the information in respect of anticipated cash flows, may contain Future Oriented Financial Information (“FOFI”) within the meaning of applicable securities laws. The FOFI has been prepared by management of the Company to provide an outlook of the Company’s activities and results and may not be appropriate for other purposes. The FOFI has been prepared based on a number of assumptions including the assumptions discussed under the heading “Forward-Looking Statements” and assumptions with respect to production rates and commodity prices. The actual results of operations of the Company and the resulting financial results may vary from the amounts set forth herein, and such variation may be material. The Company and its management believe that the FOFI has been prepared on a reasonable basis, reflecting management’s best estimates and judgments.
SOURCE Twin Butte Energy Ltd.