Arsenal is pleased to release its 2015 Q1 financial and operational results. Cash flow for the first quarter totaled $15.8 million or $0.88 per share, a 28% increase from 2014 Q1. The Board of Directors has declared a quarterly dividend of $0.02 per common share. The dividend is payable on May 29, 2015 to shareholders of record at the close of business on May 15, 2015. The ex-dividend date is May 27, 2015.
Full financial details are contained in the financial statements and MD&A filed on SEDAR and on the
|SUMMARY OF FINANCIAL RESULTS|
|Three Months Ended March 31|
|(000’S Cdn. $ except per share amounts)||2015||2014|
|Oil and gas revenue||13,866||27,606|
|Funds from operations||15,760||11,053|
|Per share – basic||0.88||0.69|
|Per share – diluted||0.87||0.69|
|Net income (loss)||(466||)||1,028|
|Per share – basic||(0.03||)||0.06|
|Per share – diluted||(0.03||)||0.06|
|Net wells drilled|
|Common share trading range|
|Average daily volume||26,758||24,201|
|Shares outstanding – end of period||17,897||16,090|
Funds from operations for Q1 2015 totaled $15.8 million or $0.88 per share versus $11.1 million or $0.69 per share for Q1 2014. The increase in cash flow is attributable to the crystallization of Arsenal’s crude hedge book in January for a realized net gain on risk management contracts of $13.1 million.
Compared to Q1 2014, the average price received for oil and gas sales decreased from $74.66 per boe to $37.85 per boe. Royalties increased from 20% to 26% due to a onetime prior period adjustment of $0.7 million for 2014 Alberta mineral taxes. Operating costs, compared to Q1 2014, decreased by $4.92 per boe to $16.37 per boe. The resulting Q1 2015 operating netback was $11.74 per boe versus $38.71 per boe in Q1 2014.
Net debt at quarter end was $57.2 million compared to $74.3 million at Q1 quarter end in 2014.
|SUMMARY OF OPERATIONAL RESULTS|
|Three Months Ended March 31|
|(000’S Cdn. $ except per share amounts)||2015||2014|
|Heavy oil (bbl/d)||40||46|
|Medium oil and NGL’s (bbl/d)||1,698||1,635|
|Light oil and NGLs (bbl/d)||1,392||1,298|
|Natural gas (mcf/d)||5,648||6,776|
|Oil equivalent (boe/d @ 6:1)||4,071||4,108|
|Realized commodity prices ($Cdn.)|
|Heavy oil (bbl)||42.20||71.70|
|Medium oil and NGL’s (bbl)||41.16||86.09|
|Light oil and NGLs (bbl)||49.31||96.60|
|Natural gas (mcf)||2.46||5.51|
|Oil equivalent (boe @ 6:1)||37.85||74.66|
|Netback ($ per boe)|
|Operating netback per boe||11.74||38.71|
|General and administrative||(3.01||)||(2.67||)|
|Realized gain (loss) on risk management contracts||35.84||(4.18||)|
|Other (FX and current tax)||(0.08||)||(0.17||)|
|Fund from operations per Boe||43.02||29.89|
Average production of 4,071 boe/d during the first quarter was essentially flat when compared to the first quarter of 2014. Arsenal’s Q1 2015 production mix was 34% light oil, 43% medium and heavy oil, and 23% natural gas.
In response to very low oil prices, in early January Arsenal reduced its 2015 capital budget and postponed tie ins and operated drilling to the third and fourth quarters when forward strip prices are anticipated to be higher. The Company spent $6.7 million on capital in Q1, a decline of 45% relative to Q1 2014. Spending was targeted on facility work at Princess, Alberta and on non-operated Bakken drilling in North Dakota. In addition, the Company spent $1.7 million on seismic, primarily in the Princess area.
At Princess, Alberta, the equip/tie-in of three wells has been postponed until Q3 when crude prices are anticipated to be higher. The production capability of the three wells is estimated at 400 boe/d in total. During the quarter, Arsenal shot 57 square kilometers of proprietary 3D seismic. The data has been integrated into Arsenal’s mapping. The Company has a current inventory of 13 Detrital locations and 5 Glauconite locations at Princess.
During Q1, Arsenal participated in new drill operations on 6 gross (0.89 net) Bakken/ThreeForks horizontal wells in Lindahl, North Dakota. Well costs in North Dakota have dropped by 20% to approximately $6.5 million US. At those costs, the Lindahl Bakken/ThreeForks Bakken type wells average 24% rates of return at forward strip pricing. It is anticipated that all wells will be completed and placed on production by the end of the third quarter. Bakken wells at Lindahl typically produce at an average rate of 630 boe/d for the first month and 260 boe/d for the first year. Arsenal has an inventory of 35 gross (6.5 net) Bakken/ThreeForks locations.
Oil prices have staged a modest recovery over the past 2 or 3 months. Operating margins that averaged $11.74 per boe in Q1 are estimated at $17.19 per boe for Q2. At WTI prices in the mid $60s (US), Arsenal’s development portfolio delivers acceptable rates of return. The Company plans to drill one Viking exploration well at Provost, Alberta and 5 Detrital wells at Princess, Alberta starting in Q3.
Arsenal’s 2015 capital program has been reduced from $31.5 million to $23.5 million. Part of the reduction results from changes in project scope and part results from a reduction in service costs. Volume forecast for 2015 is unchanged at 4,100 boe/d. Cash flow for 2015 is now estimated at $33.0 million and total debt at yearend is estimated at $55.3 million. Due to lower oil prices it is anticipated that Arsenal’s loan facility will be reduced from $90 million to approximately $70 million during its current review.
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Forward Looking Statements
This release contains forward-looking statements and forward-looking information within the meaning of applicable Canadian securities laws. These statements relate to future events or the Company’s future performance and are based upon the Company’s internal assumptions and expectations. All statements other than statements of present or historical fact are forward-looking statements. Forward-looking statements are often, but not always, identified by the use of any of the words “expect”, “anticipate”, “continue”, “estimate”, “may”, “will”, “should”, “believe”, “intends”, “forecast”, “plans”, “guidance”, “budget” and similar expressions.
More particularly and without limitation, this release contains forward-looking statements and information relating to petroleum and natural gas production estimates and weighting, projected crude oil and natural gas prices, future exchange rates, expectations as to royalty rates, expectations as to transportation and operating costs, expectations as to general and administrative costs and interest expense, expectations as to capital expenditures and net debt, planned capital spending, future liquidity and Arsenal’s ability to fund ongoing capital requirements through operating cash flows and its credit facilities, supply and demand fundamentals for oil and gas commodities, timing and success of development and exploitation activities, cash availability for the financing of capital expenditures, access to third-party infrastructure, treatment under governmental regulatory regimes and tax laws and future environmental regulations.
The forward-looking statements and information contained in this release are based on certain key expectations and assumptions made by Arsenal. The following are certain material assumptions on which the forward -looking statements and information contained in this release are based: the stability of the global and national economic environment, the stability of and commercial acceptability of tax, royalty and regulatory regimes applicable to Arsenal, exploitation and development activities being consistent with management’s expectations, production levels of Arsenal being consistent with management’s expectations, the absence of significant project delays, the stability of oil and gas prices, the absence of significant fluctuations in foreign exchange rates and interest rates, the stability of costs of oil and gas development and production in Western Canada, including operating costs, the timing and size of development plans and capital expenditures, availability of third party infrastructure for transportation, processing or marketing of oil and natural gas volumes, prices and availability of oilfield services and equipment being consistent with management’s expectations, the availability of, and competition for, among ot her things, pipeline capacity, skilled personnel and drilling and related services and equipment, results of development and exploitation activities that are consistent with management’s expectations, weather affecting Arsenal’s ability to develop and produce as expected, contracted parties providing goods and services on the agreed timeframes, Arsenal’s ability to manage environmental risks and hazards and the cost of complying with environmental regulations, the accuracy of operating cost estimates, the accurate estimation of oil and gas reserves, future exploitation, development and production results and Arsenal’s ability to market oil and natural gas successfully to current and new customers. Additionally, estimates as to expected average annual production rates assume that no unexpected outages occur in the infrastructure that the Company relies on to produce its wells, that existing wells continue to meet production expectations and any future wells scheduled to come on in the coming year meet timing and production expectations.
Commodity prices used in the determination of forecast revenues are based upon general economic conditions, commodity supply and demand forecasts and publicly available price forecasts. The Company continually monitors its forecast assumptions to ensure the stakeholders are informed of material variances from previously communicated expectations.
Financial outlook information contained in this release about prospective results of operations, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on management’s assessment of the relevant information currently available. Readers are cautioned that such financial outlook information contained in this release should not be used for purposes other than for which it is disclosed.
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 and such forward-looking statements should not be unduly relied upon. Since forward-looking statements and information address future events and conditions, by their very nature they involve inherent known and unknown risks and uncertainties. Arsenal’s actual results, performance or achievements 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 Arsenal will derive therefrom. Should one or more of these risks or uncertainties materialize, or should assumptions underlying forward – looking statements prove incorrect, actual results may vary 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 from others for scarce resources, the ability to access sufficient capital from internal and external sources, changes in governmental regulation of the oil and gas industry 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 the Company’s most recent Annual Information Form and other reports on file with the applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com).
Readers are cautioned that the foregoing list of factors is not exhaustive. Furthermore, the forward -looking statements contained in this release are made as of the date of this release 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. Arsenal 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. The forward-looking statements contained in this release are expressly qualified in their entirety by this cautionary statement.
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.
Non-IFRS Measures. This release contains the terms “funds from operations”, and “net debt” which are not recognized measures under IFRS. The Company uses these measures to help evaluate its performance. 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, exploration and evaluation expenses, decommissioning expenditures and changes in non -cash working capital from operating activities. The Company may 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. Arsenal’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. Net debt includes borrowings under the Company’s credit facility plus or minus the Company’s working capital. Net debt excludes long term decommissioning obligations and risk management contracts (whether an asset or an obligation and whether classified as short or long term). Net debt is used by management to monitor remaining availability under its credit facilities.
Arsenal Energy Inc.
Tony van Winkoop
President and Chief Executive Officer
Arsenal Energy Inc.
J. Paul Lawrence
Vice President, Finance and CFO
Arsenal Energy Inc.
1900, 639 – 5th Avenue S.W.
Calgary, Alberta, T2P 0M9