Financial and Operating Highlights
- Reported sales volumes for the first quarter of 2016 were lower at 22,786 Boe/d as compared to 24,171 Boe/d for the fourth quarter of 2015. Natural production declines, the shut-in of uneconomic production and an increased number of suspended wells that require servicing contributed to reduced production. Asset dispositions and the expiry of Trilogy’s NGL Recovery Agreement with Aux Sable Canada LP in fourth quarter of 2015 also contributed to the decrease in production and liquids composition;
- Net capital expenditures totaled $22.3 million as compared to $47.7 million for the first quarter of 2015, as Trilogy executed on a strategic portion of its 2016 spending plans. 6 wells (5.5 net) were drilled in the quarter as compared to 13 wells (7.2 net) wells drilled in first quarter of 2015;
- Operating expenditures decreased to $16.9 million ($8.17/Boe) in the quarter from $18.0 million ($8.11/Boe) in the fourth quarter of 2015 on the lower production and reduced well workover and maintenance costs;
- Funds flow from operations (1) decreased to $8.3 million as compared to $19.5 million for the fourth quarter of 2015, primarily on lower commodity prices and higher short-term firm service transportation charges, partially offset by realized financial instrument gains on oil contracts and reduced interest charges;
- Net debt (1) increased to $564.4 million for the first quarter of 2016 from $544.2 million at the end of 2015.
(1) Refer to Non-GAAP measures in this release and MD&A
|Financial and Operating Highlights Table|
|(In thousand Canadian dollars except per share amounts and where stated otherwise)|
|Three Months Ended|
|March 31,||December 31,||Change %|
|Petroleum and natural gas sales||45,527||56,730||(20||)|
|Per share – diluted||0.07||0.15||(57||)|
|Income (Loss) before tax||(36,785||)||(17,646||)||108|
|Per share – diluted||(0.29||)||(0.14||)||109|
|Loss after tax||(27,544||)||(19,248||)||43|
|Per share – diluted||(0.22||)||(0.15||)||43|
|Exploration, development, land, and facility||22,264||5,599||298|
|Acquisitions (dispositions) and other – net||73||(111,492||)||(100||)|
|Net capital expenditures||22,337||(105,893||)||(121||)|
|Total shares outstanding (thousands)|
|– As at end of period (2)||126,024||126,024||–|
|Natural gas (MMcf/d)||96||98||(2||)|
|Natural gas liquids (Boe/d)||2,601||3,175||(18||)|
|Total production (Boe/d @ 6:1)||22,786||24,171||(6||)|
|Liquids Composition (percentage)||30||32||–|
|Average prices before financial instruments|
|Natural gas ($/Mcf)||2.70||2.81||(4||)|
|Crude Oil ($/Bbl)||37.25||48.21||(23||)|
|Natural gas liquids ($/Boe)||33.32||36.59||(9||)|
|Average realized price||21.96||25.51||(14||)|
|Drilling activity (gross)|
|(1)||Funds flow from operations and net debt are non-GAAP terms. Please refer to the advisory on Non-GAAP measures below.|
|(2)||Excluding shares held in trust for the benefit of Trilogy’s officers and employees under the Company’s Share Incentive Plan. Includes Common Shares and Non-voting Shares. Refer to the notes to the interim consolidated financial statements for additional information.|
Operations Update for the First Quarter 2016
Trilogy’s 2016 first quarter production was 22,786 Boe/d, a decrease of 6 percent from 2015 fourth quarter production of 24,171 Boe/d. The decrease in production reflects natural declines and the sale of certain producing Duvernay assets as well as the November 30, 2015 expiry of the Company’s natural gas liquids recovery agreement with Aux Sable Canada LP. During the quarter, Trilogy drilled 6 (5.5 net) wells, with four (3.5 net) wells completed and ready for production at the end of the quarter. Of the completed wells, two Montney oil wells were brought on stream in May, while the two recently completed Montney gas wells will remain shut in until commodity prices for natural gas improve. The rapid decline in the commodity price for natural gas has resulted in Trilogy shutting in approximately 1,500 Boe/d of production from higher operating cost production and lean natural gas wells considered uneconomic at current natural gas prices. Trilogy will continue to monitor commodity prices and operating netbacks to ensure that its wells are producing profitably.
During the quarter, Trilogy drilled two 100 percent working interest Duvernay wells on lands that were to expire in the current year. The first well was drilled at 9-30 -63-17W5 on a ten section expiring acreage block. The well was drilled to intermediate casing point for approximately $1.5 million before operations were suspended due to break up. The horizontal lateral will be drilled to a bottom hole location at 12-21-63-17W5 in August and is expected to have a lateral length of approximately 2,400 meters at a cost of approximately $2 million. The second well was drilled from a surface location at 7-8-61-19W5 to a bottom hole location at 102/16-17-61-19W5 with a 2,255 meter lateral for a cost of approximately $4.3 million to manage a two section expiry. The well is expected to be completed in the second half of the year; however, it may be deferred if the expiration date on lands are extended or until a second well is drilled from the same surface pad. Trilogy will continue to evaluate options to accelerate the development of its Duvernay land position in the Kaybob area. Management believes the details announced in April 2016 for the Modern Royalty Framework have provided sufficient certainty for renewed investment in the Duvernay and will support additional development of the lands in the future.
During the quarter, Trilogy also drilled and completed two Montney oil wells and two Montney gas wells using drilling techniques that were adopted in drilling the Duvernay wells. Each of the Montney oil wells were undertaken with total costs of $2.9 million as compared to historical costs of $4.1 million, for a 30 percent reduction. The Montney gas wells were drilled with extended reach laterals and completed and tied in for a total cost of $5.1 million each, which is a cost reduction of 25 percent from previously drilled long reach laterals wells in the area. These cost reductions were the result of improvements in the technology used in drilling and completion design for the wells, in addition to a reduction in service costs. Trilogy expects to take advantage of these costs reductions and plans to drill three additional Montney oil wells in the third quarter.
First quarter capital spending totaled $22.3 million, compared to funds flow over the same period of $8.3 million, resulting in net debt increasing to $564.4 million at the end of the quarter. Trilogy executed on a strategic portion of its 2016 spending plans and will manage capital spending throughout the balance of the year to operate within expected annual funds flow while maintaining net debt flat at 2015 year-end levels.
Trilogy is extremely pleased with the cost reductions achieved over the past year and believes they will ensure that it remains profitable and competitive in the current low commodity prices. The Company has been able to reduce operating costs from $9.32/Boe in the first quarter of 2015 to $8.17/Boe in the most recent quarter despite a decrease in production over that time. General and administrative costs have been reduced throughout the Company as employees and contractors have all shared in reducing costs and controlling expenditures. Significant savings have also been achieved in our capital spending program by re-engineering previous processes and applying new technology to reduce drilling days and completions costs. These reduced costs are expected to provide improved economics in our key plays once drilling resumes on a larger scale as commodity prices trend higher.
Trilogy has continued to develop its technical expertise in large, unconventional liquids -rich gas and oil resource plays in the Montney and Duvernay formations. The Company believes it has accumulated a large inventory of high quality projects that should provide the opportunity to profitably grow annual production and replace produced reserves, in the long term.
In the current natural gas and crude oil commodity price environment, Trilogy expects to manage its balance sheet through continued production of profitable wells, asset rationalization and disciplined capital spending. As a growth – oriented corporation, Trilogy must remain flexible in order to respond to changes in commodity prices and royalty structures and believes it can manage its asset base prudently through the year as its production declines from the prior year. Trilogy is confident in its high quality assets and the proven expertise of its employees and will operate with a strategy to create long term value for its shareholders.
Managing corporate spending, production and growth expectations during this period of commodity price volatility has proved to be challenging. However, the Company believes it has shown its ability to manage its business to weather the storm. Capital allocation through the balance of the year will be a function of commodity price forecasts through 2017 and will leverage off the capital efficiencies realized in the first quarter wells. Production, capital and operational guidance will be provided when there is greater certainty as to future commodity prices.