CALGARY, ALBERTA–(Marketwired – April 27, 2016) – Questfire Energy Corp. (the “Corporation” or “Questfire”) (TSX VENTURE:Q.A)(TSX VENTURE:Q.B) is pleased to announce that it has filed on SEDAR its audited financial statements, related management’s discussion and analysis (“MD&A”) and Annual Information Form (AIF) for the year ended December 31, 2015. Included in the AIF are the Corporation’s reserves data and other oil and gas information as of December 31, 2015 as prepared by GLJ Petroleum Consultants Ltd. (GLJ), the Corporation’s independent reserves evaluator. The evaluation was prepared in accordance with National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities.
Financial and Operating Highlights
|Three months ended
|Oil and natural gas sales||$||9,405,900||$||15,918,460||$||40,717,011||$||71,619,004|
|Funds flow from operations||2,627,473||5,210,979||11,543,473||23,113,274|
|Per share, basic||0.15||0.30||0.67||1.51|
|Per share, diluted||0.11||0.24||0.48||0.83|
|Per share, basic||(0.07||)||0.09||(0.60||)||1.62|
|Per share, diluted||(0.07||)||0.08||(0.60||)||0.92|
|Working capital deficit (end of year) (1)||9,653,400||4,787,471|
|Long-term contract obligation (end of year) (2)||14,155,697||14,500,145|
|Long-term bank debt (end of year)||41,406,473||39,000,000|
|Shareholders’ equity (end of year)||$||14,251,344||$||23,913,511|
|Shares outstanding (end of year)|
|Options outstanding (end of year)||3,566,000||2,676,000|
|Weighted-average basic shares outstanding||17,318,001||17,318,001||17,318,001||15,267,001|
|Weighted-average diluted shares outstanding||17,318,001||21,549,892||17,318,001||28,452,243|
|Class A share trading price|
|Natural gas (Mcf/d)||23,245||24,868||21,741||23,585|
|Natural gas liquids (NGL) (bbls/d)||674||712||647||674|
|Crude oil (bbls/d)||512||644||606||498|
|Canadian Light (Cdn$/bbl)||52.55||75.11||57.45||94.18|
|Average realized prices (4)|
|Natural gas (per Mcf)||2.57||3.74||2.78||4.65|
|NGL (per bbl)||31.74||51.38||34.24||65.52|
|Crude oil (per bbl)||41.02||67.23||47.89||85.06|
|Operating netback (per boe)(5)||6.89||13.78||8.48||17.63|
|Funds flow netback (per boe)||$||5.64||$||10.30||$||6.49||$||12.41|
|(1)||Working capital deficit includes risk management contract assets and convertible Class B share liabilities of $Nil and $5,086,857, respectively (December 31, 2014 – $2,366,210 and $Nil, respectively). Excluding this, the working capital deficit would be $4,566,543 (December 31, 2014 – $7,153,681).|
|(2)||Long-term contract obligation excludes current portion of $344,448 (December 31, 2014 – $300,242), which is included in working capital deficit.|
|(3)||For a description of the boe conversion ratio, see “Reader Advisory”.|
|(5)||For a description of Operating netback and Funds flow netback, refer to the commentary in the MD&A under Non-GAAP measures.|
2015 Corporate Highlights
- Achieved average production of 4,877 boe per day for the year, 74 percent natural gas. Production was down by approximately 4 percent from 2014 due to an estimated average of 344 boe per day of production restrictions on the Nova Gas Transmission Ltd. (NGTL) system throughout 2015.
- Achieved sales of $40.7 million and funds flow from operations of $11.5 million ($0.67 per basic share).
- Exercised capital spending discipline with total capital expenditures of $5.0 million, well within funds flow of $11.5 million.
- Drilled and completed the Corporation’s first horizontal multi-stage fractured Falher gas well in the Morningside area of central Alberta.
- Incurred full-year operating costs of $11.79 per boe, achieving a 19.5 percent reduction from 2014 operating costs of $14.64 per boe.
- General and Administrative (G&A) costs were $5.1 million or $2.86 per boe, a reduction of 15 percent from 2014 G&A costs of $6.0 million or $3.23 per boe.
- At year-end, corporate working interest reserves were 15.15 million boe proved developed producing (PDP), 19.86 million boe total proved (TP) and 31.45 million boe proved plus probable (2P). Based on annualized fourth quarter 2015 average production of 5,060 boe per day, the Corporation’s reserve life index (RLI) at year-end 2015 was 17.0 years for 2P reserves, 10.8 years for TP reserves and 8.2 years for PDP reserves.
- Incurred all-in finding and development (F&D) costs of $4.90 per boe for PDP, $3.78 per boe for TP and $10.85 per boe for 2P reserve additions, including all future development capital (FDC) and technical revisions. Based on the 2015 operating netback of $8.48 per boe, Questfire’s recycle ratios are 1.73 for PDP, 2.24 for TP and 0.78 for 2P reserve additions.
Two-thousand fifteen was an extremely challenging year for the oil and gas industry, with the term “lower for longer” joining the popular lexicon to describe what appears to be happening with commodity prices. The hoped-for improvement of oil and natural gas prices did not materialize in 2015 for a number of reasons, including a much warmer than average winter across North America. Natural gas prices plummeted to near 20-year lows and oil prices dropped into the low US$30’s per bbl WTI range by the end of 2015. Forward hedging options became limited in 2015 as the forward strip prices declined quickly and sharply for both natural gas and oil.
Questfire, accordingly, adopted cautious positioning in 2015. We concentrated our efforts on reducing all costs, minimizing capital spending and maintaining production, taking full advantage of our very low-decline production base. Operating costs and G&A costs were reduced by a significant 20 percent and 15 percent, respectively, from 2014 levels and continue to decline into 2016. In February of this year we implemented an across-the-board salary reduction of 20 percent which, given that approximately half of our G&A costs are staff salaries, facilitates a further 10 percent reduction in our go-forward G&A costs.
Capital spending of $5.0 million included mandatory and maintenance capital such as the replacement and repair of flood-damaged pipelines at Lookout Butte for approximately $1.0 million and the drilling of one net horizontal multi-stage fractured Falher gas well in the Morningside area of central Alberta for $2.5 million. Without the NGTL production restrictions of approximately 344 boe per day our production would have averaged approximately 5,200 boe per day for the year, which would have been up slightly year-over-year. Considering this included drilling only one well and compared to the 5,103 boe per day average production for 2014, the low-decline nature of Questfire’s production base is clearly illustrated.
Although our capital spending in 2015 was limited, the Questfire team focused their efforts on creating value. Drilling comprised one, 100 percent working interest, high-impact horizontal gas well located at 1-11-42-28W4M in the Morningside field. The 1-11 well came on-production in mid-October 2015 at approximately 300 boe per day of liquids-rich natural gas and has proved up a further 9 gross (7.9 net) horizontal drilling locations on the play, contributing a significant portion of our booked reserve additions for 2015. A second significant project involved reservoir limits testing and a reservoir simulation study conducted on the Elkton G pool at Carstairs. This has established the potential for a gas cycling light oil enhanced oil recovery (EOR) project in this 70 percent working interest, operated pool. At year-end approximately 1.3 MMboe of net incremental probable oil reserves were booked by GLJ Petroleum Consultants Ltd. for this project. Also of significant value is the Corporation’s drilling inventory, which includes over 380 net locations as of year-end 2015, the majority of which are high working interest and operated.
Questfire continued to add reserves efficiently in 2015 with F&D costs, shown in the highlights above, that will likely be in the top-performing decile for the industry. It is important to note that since Questfire’s inception in 2010 only $10.7 million of equity has been raised by the Corporation. In five years the Questfire team managed to turn this limited amount of capital into a 5,000+ boe per day, low-decline production base with over 380 net drilling prospects, which has generated over $65 million in field operating income (oil and natural gas sales less royalties, production and operating, and transportation expenses) since 2013. At year-end 2015 our all-in finding, development and acquisition (FD&A) costs since inception, including all FDC, have been $5.97 per boe for PDP reserves, $5.83 per boe for TP reserves and $5.63 per boe for 2P reserves. These metrics place Questfire in the most efficient decile of western Canada’s oil and gas industry and again demonstrate that the Questfire team are able value creators.
In December, due to lower commodity price forecasts, our bank lines were reduced from $55 million to $45 million. While our year-end debt of $41.4 million is within this new limit, it does not afford Questfire the flexibility to spend capital incremental to its cash flow. At year-end the Questfire management team recognized the potential for “lower for longer” commodity prices which are largely causing the significant headwinds facing the Canadian oil and gas industry. These headwinds also include a lack of markets for our production due to competition from the United States, reduced availability of debt financing from Canadian banks, investor uncertainty, and reduced equity investment available. The latter issues are largely due to adverse provincial and federal government policies such as the Alberta royalty review, new carbon taxes, grandiose yet vague climate change policies, increases in general taxation, increasing delays in project approvals, lengthened timelines for LNG and oil export projects, and a general lack of support for the industry.
Fortunately, in spite of these many headwinds, Questfire continues to have options. Our base production decline is low, our cost structure has been reduced significantly and will continue to decline, our drilling inventory of over 380 net locations is an all-time high, with the majority being high-working-interest and operated, our year-end F&D costs are expected to show top-decile industry performance and our experienced management team is committed with a high ownership. We have identified a number of enhanced oil opportunities and we have a significant royalty income stream and mid-stream type assets such as the third-party fee-generating Crystal Lake pipeline system. Because of these many options, the management team and Board of Directors agreed that proactively engaging an experienced financial advisor would be the best and quickest course of action to evaluate all options with the goal of maximizing shareholder value. Accordingly, subsequent to year-end, Macquarie Capital Markets Canada Ltd. was engaged as a financial advisor and a Strategic Alternatives process was announced in early March. This process was launched proactively by Questfire to efficiently evaluate the many available options. This ongoing process is under the control of Questfire and may include but is not limited to a strategic financing, merger or other business combination, sale of the Corporation or a portion of the Corporation’s assets, or any combination thereof.
As with all of our activities throughout 2015 and, indeed, with everything we have done since Questfire’s founding, the goal of this process is to maximize value. Going forward the Questfire team will continue to work on reducing all costs, spend within funds flow and pursue all options to create value for the Corporation’s shareholders.
Questfire Energy Corp. is an Alberta-based company formed to participate in oil and gas exploration, development and acquisitions focusing in the W4 and W5 regions of Alberta. The Corporation’s shares trade on the TSX Venture exchange under the symbols Q.A and Q.B. The Corporation currently has 17,318,001 Class A shares and 550,440 Class B shares outstanding.