CALGARY, Dec. 18, 2014 /CNW/ – Twin Butte Energy Ltd. (“Twin Butte”) (TSX: TBE)
The industry has seen a significant drop in oil pricing over the last 7 weeks, which even with Twin Butte’s strong hedge position could negatively impact the Company’s cash flow for 2015. To ensure the viability of the Company’s business plan and to position for potential business opportunities a market downturn may bring, a reduction in both the 2015 capital plan and the dividend is being implemented.
The Company’s Board of Directors has approved a $40 million (22%) reduction in the 2015 capital budget and a 37.5% reduction to the monthly dividend. Beginning with the January 2015 dividend payable in February 2015, the modified dividend will be $0.01 per share ($0.12 per share annualized). Twin Butte will also be suspending both the DRIP and SDP plans at the same time. These changes will reduce the Company’s annual cash outlay by $58.7 million while also reducing the issuance of approximately $6.8 million worth of equity from the suspension of the DRIP and SDP plans.
Twin Butte’s long term business plan of providing shareholders with total returns comprised of both income and moderate growth is and will remain the Company’s focus. Twin Butte has always committed to maintain a payout ratio of 100% or less, matching its capital plan and dividends to anticipated cash flow, which provides long term corporate sustainability. Since converting to a dividend paying corporation in January 2012, Twin Butte has been financially disciplined to protect the company’s balance sheet and provided financial flexibility, having demonstrated this through maintaining a total payout ratio of 92.5%.
In November as part of Twin Butte’s press release announcing third quarter 2014 financial results, the Company set its 2015 capital plan at $160 million. This plan was predicated on the assumption that commodity prices would average $US 80 WTI for calendar 2015. Because of the unpredicted decline in oil prices since that time, Twin Butte’s amended plans are now based on a budgeted $US 60 WTI per bbl in 2015.
Therefore Twin Butte now anticipates a capital program of $120 million ($40 million reduction) in 2015. Under the reduced capital plan, the Company’s focus on increasing production from the higher value, more predictable decline, medium barrel Provost area assets will accelerate, ensuring corporate netbacks are maximized even under the current low commodity prices.
The first half 2015 capital plan ($55 million) will focus on following up successful second half 2014 Sparky, Dina-Cummings and Lithic channel drilling results. The program includes the drilling of 26 total wells (21 at Provost, 5 on Heavy oil asset) and the construction of 3 new facilities at Provost to enhance oil processing and water handling capacity, and decrease long term decline. These investments will position the company to accelerate activity and increase production when commodity prices improve.
The Company’s current hedge position for 2015 is providing significant protection for 2015 cash flow with 11,750 bbls per day hedged for the first half at over $80 WCS (based on WTI of approximately $100 per bbl) and 6,000 bbls per day for the second half of 2015 at $79.67 WCS.
At a $60 WTI price, approximately 1000 bbls per day of Twin Butte’s historic higher operating cost heavy oil production will not generate positive cash flow and is selectively being shut-in during this period of low oil prices.
Based on anticipated 2015 average production of 19,100 boe per day, the Company anticipates a cash flow of $170 million leading to an all-in payout ratio of 95%. This cash flow is based on the $US 60 WTI, a WTI to WCS differential of $US $17.00, and a 0.855 CDN/US dollar exchange rate. The Company will continually monitor industry conditions and should conditions dictate, make further adjustments to the Company’s capital plan.
Twin Butte has recently completed a review of the Company’s asset lending base with its syndicate of lenders who have reconfirmed its current $365 million facility until its next review date in May 2015. Twin Butte anticipates its year end 2014 net debt will be approximately $360 million comprised of its $85 million convertible debenture and approximately $280 million of its term facility. This provides the Company with approximately $85 million of liquidity on the bank facility.
Although Twin Butte remains optimistic on the recovery of oil prices the capital and dividend changes being instituted will ensure the protection of the Company’s balance sheet and business plan, providing maximum financial flexibility. Should oil prices increase above these budget levels the Company will initially apply free cash flow to reduce bank debt and subsequently allocate to a higher capital plan or dividend increase.
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 capital program planned for 2015; dividends planned for 2015; anticipated average production in 2015; cash flow in 2015; total payout ratio in 2015; the Company’s planned strategic shift to drilling additional horizontal medium oil wells in 2015 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 2015; 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, 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; anticipated success with the Company’s exploration and development programs; Twin Butte’s business strategy in respect of its planned medium 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 and current liabilities excludes the current portion of debt. 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.
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.