CALGARY, AB–(Marketwired – April 07, 2016) – Marquee Energy Ltd. (“Marquee” or the “Company”) (TSX VENTURE: MQL) announces its fourth quarter operational results and financial results for the three and twelve months ended December 31, 2015. The Company’s financial statements and Management’s Discussion and Analysis (“MD&A”) for the three months and twelve months ended December 31, 2015 are available on SEDAR at www.sedar.com and on Marquee’s website at www.marquee-energy.com.
2015 OPERATING AND FINANCIAL HIGHLIGHTS
The Company’s operational and financial highlights for the year and quarter ending December 31, 2015 include:
- Continued consolidation efforts at Michichi with the completion of a $16.3 million strategic acquisition and a $12.7 million strategic acquisition;
- Completed the sale of a production volume royalty on its Lloydminster property for proceeds of $20 Million;
- Completed an infrastructure-based facility agreement for proceeds of $15 million;
- Reduced net debt year-over-year by 20% to $50.3 million from $63.1 million in 2014;
- Company recorded a 2015 impairment charge of $6.2 million on its heavy oil and non-core assets, while maintaining a significant surplus at its core Michichi asset;
- Fourth quarter 2015 funds flow from operations were $2.5 million or $0.02 per share and contributed to full year 2015 funds flow from operations of $18.4 million or $0.15 per share;
- Fourth quarter production volumes increased 5% over the third quarter, averaging 4,924 boe per day. Annual average production for 2015 increased 4% over 2014 to 5,068 boe per day;
- Achieved G&A expenses of $2.30 per boe and $3.34 per boe for the three months and year ended December 31, 2015, respectively, representing a decrease of 31% and 10%, respectively, over the comparable 2014 periods;
- Realized $4.64 per boe of gains on derivatives through the Company’s hedging program during the fourth quarter. Annual average netbacks were $14.47 per boe;
- Annual capital expenditures of $18.5 million reflecting $11.1 million related to the drilling, completion and tie in of 6 successful wells: 5 horizontal wells at Michichi and 1 vertical well at Lloydminster, $3.9 million in facility costs, $2.5 million in land and seismic, and $1.0 million in fixed assets;
- The 5 well 2015 drilling program at Michichi achieved results above expectations and expanded the Banff play northward and southward; and
- Raised $1,694,980 in proceeds through the issuance of 2,824,967 common shares issued on a Canadian Exploration Expense (“CEE”) flow-through basis at a price of $0.60 per flow-through share representing a 58% premium to the trading price of Marquee’s common shares before the announcement of the financing.
FINANCIAL AND OPERATIONAL HIGHLIGHTS
|Three months ended
|Financial (000’s except per share and per boe amounts)|
|Oil and natural gas sales (1)||$||12,153||$||20,697||$||55,137||$||89,645|
|Funds flow from operations (2)||$||2,471||$||10,830||$||18,402||$||37,312|
|Per share – basic and diluted||$||0.02||$||0.09||$||0.15||$||0.34|
|Net income (loss)||$||(26,701||)||$||2,295||$||(53,419||)||$||(12,810||)|
|Per share – basic and diluted||$||(0.22||)||$||0.02||$||(0.44||)||$||(0.12||)|
|Proceeds on dispositions||$||–||$||–||$||(38,653||)||$||(15,728||)|
|Net debt (2)||$||50,279||$||63,130||$||50,279||$||63,130|
|Weighted average basic and diluted shares outstanding||120,617,040||120,338,002||120,410,342||110,492,215|
|Net wells drilled||–||8.0||6.0||22.0|
|Daily sales volumes|
|Oil (bbls per day)||1,691||1,658||1,646||1,425|
|Heavy Oil (bbls per day)||461||580||598||537|
|NGL’s (bbls per day)||176||150||185||195|
|Natural Gas (mcf per day)||15,578||16,923||15,831||16,203|
|Total (boe per day)||4,924||5,209||5,068||4,858|
|% Oil and NGL’s||47||%||46||%||48||%||44||%|
|Average realized prices|
|Light Oil ($/bbl)||$||42.76||$||71.79||$||46.60||$||84.71|
|Heavy Oil ($/bbl)||$||29.35||$||61.73||$||38.26||$||72.54|
|Natural Gas ($/mcf)||$||2.60||$||3.73||$||2.84||$||4.62|
|Operating and transportation costs ($/boe)||$||(18.64||)||$||(16.86||)||$||(16.74||)||$||(17.26||)|
|Operating netbacks prior to hedging (2)||$||4.78||$||22.69||$||9.50||$||27.58|
|Realized hedging gain (loss) ($/boe)||$||4.64||$||3.16||$||4.97||$||(0.91||)|
|Operating netbacks ($/boe) (2)||$||9.42||$||25.85||$||14.47||$||26.67|
|(1) Before royalties|
|(2) Defined under the Non-GAAP Measures section of this press release|
2015 YEAR END RESERVES
Marquee’s year end reserves for 2015 are based on the Sproule & Associates Limited (“Sproule”) independent evaluation of the Company’s reserves dated effective December 31, 2015, which has been prepared in accordance with NI 51-101 and the Canadian Oil and Gas Evaluation Handbook (“COGE Handbook”). Additional reserves information required under NI 51-101 will be included in Marquee’s Annual Information Form to be filed on SEDAR.
Sproule is using a price forecast of US$45 WTI and US$60 WTI for light oil for 2016 and 2017, respectively, and $2.13 per GJ and $2.80 per GJ for AECO natural gas in 2016 and 2017, respectively.
RESERVE REPORT HIGHLIGHTS
- Increased total proved (“1P”) reserves by 19% to 15.3 mmboe (54% oil and NGLs), and proved plus probable (“2P”) reserves by 13% to 22.6 mmboe (56% oil and NGLs);
- Marquee’s 2015 capital program added 1P reserves at a cost of $13.82 per boe, including future development capital (“FDC”);
- Finding, development and acquisition costs, including the increase in FDC, are $9.45 per boe on a 1P basis and $3.99 per boe on a 2P basis;
- 1P reserves comprise 68% of the 2P reserves as at December 31, 2015; and
- Michichi represents 92% of Marquee’s 2P before tax NPV10.
Summary of Reserves
As at December 31, 2015(1)
|Gross Company Reserves (2)|
|Description||Light Crude Oil (Mbbl)||Heavy Crude Oil (Mbbl)||Conventional Natural Gas (MMcf)||Natural Gas Liquids (Mbbl)||Total (Mboe)|
|Total proved plus probable||10,058||1,730||60,036||758||22,552|
Based on Sproule December 31, 2015 forecast prices
Gross Company reserves are the Company’s total working interest share before the deduction of royalties
Summary of Before Tax Net Present Values
As at December 31, 2015(1)
|Before Tax Net Present Value of Future Revenue ($M)|
|Total proved plus probable||$421,211||$307,337||$258,738||$232,251||$209,520|
|Per Basic Share||$3.42||$2.49||$2.10||$1.89||$1.70|
Based on Sproule December 31, 2015 forecast prices
Reconciliation of Reserves
|2015 Reserves Reconciliation|
|Description (mboe)||December 31, 2014||Acquired (Sold)||Production||Additions, revisions||December 31, 2015|
|Proved plus probable||20,016||5,127||(1,855)||(736)||22,552|
Finding, Development and Acquisition Costs
Marquee incurred capital expenditures of $18.5 million in 2015 (2014 – $59.6 million; 2013 – $33.3 million), of which $16.0 million (2014 – $51.4 million; 2013 – 28.1 million) was spent on exploration and development and $2.5 million (2014- $8.2 million; 2013 – $5.2 million) was spent on land and seismic. Costs related to reserve acquisitions in 2015 are $27.0 million (2014 – $11.8 million; 2013 – $34.8 million), and includes the announced purchase price of acquisitions including any estimated working capital deficit or surplus rather than the amounts allocated to property, plant and equipment for accounting purposes. The following table summarizes Marquee’s Finding, Development and Acquisition costs including changes in Future Development Costs:
|Including the Change in Future Development Costs(1)|
|Description||2015||2014||2013||3 Year Weighted Average|
|Total proved ($/boe)|
|FDC(4)||$113 Million||$74 Million||$91 million|
|Proved plus probable ($/boe)|
|FDC(4)||$166 million||$152 million||$133 million|
Future development costs excludes capitalized administration costs
The change in FDC (reduction in drilling costs) and the change in 2P reserves (Probable Reserves moved into the Proven category) are both negative, generating a 2P F&D number with no comparative value
2 year average shown
See the “Additional Advisories” section of this press release for information pertaining to these oil and gas metrics
2015 YEAR END MICHIHI BANFF RESOURCE ASSESSMENT UPDATE
The resource evaluation was prepared by Sproule in accordance with NI 51-101 and the Canadian Oil and Gas Evaluation Handbook (“COGEH”) and includes the lands held by Marquee as of December 31, 2015 in the Michichi area of Alberta that have development potential for the presence of hydrocarbons within the Detrital and Banff zones (the “Sproule Resource Assessment”).
All resource data disclosed herein is as set forth in the Sproule Resource Assessment and reflects only Marquee’s working interest share of such resources for the acreage covered by the Sproule Resource Assessment (“Study Area”).
The following table summarizes the results of the Sproule Resource Assessment of Marquee’s Michichi assets as of December 31, 2015.
|Category||(Mbbl) Discovered Petroleum Initially In Place||Ultimate Reserves*||Risked Contingent Resources|
|Oil (Mbbl)||Oil (Mbbl)||Sales Gas (MMcf)||Natural Gas Liquids (Mbbl)|
|Best Estimate (2C)||370,864||12,130||13,073||38,436||811|
- Contingent resources are those quantities of petroleum estimated to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies.
- Contingent resources have been risked for chance of commerciality. A 10 percent chance of development risk factor has been applied.
- Contingent resources have been sub-classified as Development Pending.
- There is no certainty that it will be commercially viable to produce any portion of the resources.
- Numbers may not add due to rounding.
- The resource estimates are economic using the Sproule price forecast at December 31, 2015. Economics were run based on a development schedule beginning in 2020 with ~26 net wells per year (2 rigs, $1.7 MM per well), and values were discounted back to December 31, 2015.
- Ultimate Reserves includes produced oil volumes and remaining oil reserves, as reported in the December 31, 2015 reserves report.
Contingencies associated with contingent resource volumes include only commercial factors; there are no technical contingencies. Specific to this project, the key non-technical contingencies are the following:
- Productivity of reservoir in areas with no tests or production;
- Corporate commitment to develop these assets in a timely fashion;
- Access to infrastructure required to deliver increasing volumes to market;
- Topographical/surface restrictions limiting access; and
- Economic conditions, including prices, capital costs, and operating costs.
Contingent resource volumes and the net present values have been risked with a chance of development based on the likelihood that the contingencies identified in the previous section will be resolved. A risk factor of 10% was applied.
Resource Classification and Categorization
The resources were classified in accordance with the Canadian Oil and Gas Evaluation Handbook (COGEH) definitions presented that are consistent with NI 51-101 and used by Sproule.
Petroleum Initially In Place on Company-interest lands were classified as discovered accumulations based on geologic interpretation using existing well data.
The reported DPIIP presented in the above table is a best estimate using deterministic methods. The DPIIP includes lands which have reserves assigned in the previous report titled “Evaluation of the P&NG Reserves of Marquee Energy Ltd. (As of December 31, 2015),” dated April 6, 2016 (“Reserves Report”).
Contingent volumes in this evaluation have been sub classified as development pending, based on historic activity levels and the Company’s commitment to developing this project.
Significant positive factors relevant to the estimates include:
- Significant well control and offsetting production;
- Repeated commercial success of horizontal wells across a greater areal extent of the Marquee’s holdings;
- Production data verifying the sustainability of economic production rates from horizontal wells in the Banff Sand, Banff Carbonate, and Detrital formations;
- Corporate commitment to develop the asset over a reasonable time frame; and
- Facilities access enabling full development of the Banff Sand, Banff Carbonate, and Detrital formations on Company-interest lands.
Significant negative factors include:
- Distance from existing economic production;
- Potential for certain areas to not be economic with current operating and capital expenditures and product pricing;
- A substantial amount of capital will be required to develop the resource; and
- Potential for low commodity prices which could impact the economics of development.
Development of the contingent resources is based on the development plan provided by Marquee. First commercial production of the contingent resources is expected to occur in 2020. The development for the Michichi area consists of drilling 28 wells in 2020, 32 wells in 2021, 30 wells in 2022, 32 wells per year from 2023 through 2027, and 14 wells in 2028. The contingent resource development schedule has been timed to begin in 2020, when the reserve inventory has been exhausted. The Company has indicated that the wells will be developed using horizontal multi-stage frac technology, and will be drilled on 160 acre spacing. The development plan is at an advanced stage and represents a continuation of the existing development program in these zones which currently have reserves attributed to them. Therefore, the level of development of the project is categorized as at the development study stage. In aggregate, the development pending contingent resources are considered economically viable using the best case scenario. Hydrocarbons produced in this area are expected to be processed by third party facilities and/or existing facilities operated by the Company. Third party and existing facilities are expected to have the capacity to accommodate the forecasted contingent resources. The Company estimates costs to drill, complete, and tie-in each well as $1.7 million.
Marquee has been focused for the past year on protecting its balance sheet while pursuing strategic opportunities for the long term benefit of its shareholders. In response to low commodity prices the Company reduced its capital budget for 2015. The Company’s 5 well drilling program at Michichi achieved results above expectations and served to expand the Banff play northward and southward. Through increased efficiencies and reduced service costs the well costs on the core Michichi play fell from almost $3.0 million in 2013 to approximately $1.7 million by the end of 2015.
Marquee is transitioning from consolidation to the development phase of its long life light oil play at Michichi. The Company has established a drilling inventory in excess of 300 locations validated by an independent contingent resource assessment performed by Sproule. Through its operated land and infrastructure position, Marquee is able to control the pace and development of Michichi while continuing to lower both capital and operating costs.
In 2015 the Company focused on optimization and rationalization of operations and infrastructure. The corporate approach to continuous improvement identified opportunities through which Marquee could reduce overall field costs through comprehensive contracting processes and optimized operations. Savings have been achieved in labor, trucking, chemical, power and maintenance costs. The Company is projecting operating cost savings for 2016 of $6.7 million as compared to 2015. All aspects of the Company’s operations will continue to be reviewed and optimized to further reduce operating costs and improve netbacks.
We also continue to actively manage Marquee’s general and administrative (“G&A”) budget. Savings in G&A expenses have been achieved in areas such as head office staff count, changes to employee benefits, reduction of corporate memberships, renegotiation of software licenses and technology contracts, a reduction of bank standby fees, and suspension of corporate sponsored functions. The Company has also re-negotiated its current office lease in order to take advantage of significantly lower priced office space in the current downtown office leasing market. The marked improvements in these costs can clearly be seen in Marquee’s G&A expenses for the fourth quarter of 2015.
With the current uncertainty in oil and natural gas prices, Marquee believes the most prudent course of action is to limit capital spending to free corporate cashflow. The Company currently expects to spend between $3.5 and $5.0 million on capital costs in 2016. The Company evaluates its production on a regular basis and when warranted will shut-in non-economic wells to minimize losses. As such Marquee expects to average approximately 4,000 boed in 2016 dependent on the impact of prevailing commodity prices.
The Company continues to pursue opportunities to monetize non-core assets as a means to further reduce indebtedness. Through this focus on sustainability Marquee will be well positioned, when prices improve, to realize the value that has been delineated in Michichi. Our strengths at Michichi include large oil in place, extensive drilling inventory, strong economics at current oil prices, ownership and control of infrastructure, high working interest ownership and an improving cost structure.
The directors and management of Marquee will continue to monitor changes to commodity pricing and the current economic environment, as it affects both the Company’s business and that of its suppliers. Any changes in capital spending will be dependent on projected cash flow and market conditions and are reviewed quarterly by the Board of Directors. The Company has a hedging program in place to provide a base level of revenue surety to protect its viability and any capital spending plans.
The management and board would like to thank our employees for their commitment and dedication to continuous improvement in trying times. The fruits of their labors are clear in the Company’s operating and financial results. Marquee would also like to thank all of our shareholders for their continued support.
Annual General Meeting of Shareholders
The Company’s Annual General Meeting of Shareholders is scheduled for 2:00 PM on Wednesday May 25, 2016 in the Altius Building, Second Floor, 500 4th Avenue SW, Calgary, AB.
Marquee Energy Ltd. is a Calgary based, junior energy company focused on high rate of return oil development and production. Marquee is committed to growing the company through exploitation of existing opportunities and continued consolidation within its core area at Michichi. The Company’s shares are traded on the Toronto Stock Exchange under the trading symbol “MQL” and on the OTCQX marketplace under the symbol “MQLXF”. An updated presentation and additional information about Marquee may be found on its website www.marquee-energy.com and in its continuous disclosure documents filed with Canadian securities regulators on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com.