Our operational and financial highlights for the three months ended March 31, 2016 are noted below and should be read in conjunction with our condensed consolidated financial statements for the three months ended March 31, 2016 and 2015 and related management’s discussion and analysis which have been posted on the SEDAR website (www.sedar.com) and our website (www.chinookenergyinc.com).
First Quarter 2016 Financial and Operating Highlights
|Three months ended March 31||2016||2015|
|Crude oil (bbl/d)||817||1,485|
|Natural gas liquids (boe/d)||733||682|
|Natural gas (mcf/d)||25,215||33,007|
|Average daily production (boe/d)||5,753||7,668|
|Average oil price ($/bbl)||$||35.41||$||49.03|
|Average natural gas liquids price ($/boe)||$||27.65||$||36.47|
|Average natural gas price ($/mcf)||$||1.43||$||2.65|
|Average commodity pricing ($/boe)||$||14.82||$||24.15|
|Net production expenses ($/boe) (1)||$||(15.12||)||$||(17.04||)|
|G&A expense ($/boe)||$||(3.61||)||$||(4.00||)|
|Netback ($/boe) (1)||$||(4.90||)||$||1.04|
|Wells Drilled (net)|
|Total natural gas wells drilled (net)||–||2.75|
|Three months ended March 31||2016||2015|
|FINANCIAL ($ thousands, except per share amounts)|
|Petroleum & natural gas revenues, net of royalties||$||7,244||$||15,240|
|(Outflow) funds from operations (1)||$||(2,890||)||$||1,220|
|Per share – basic and diluted ($/share)||$||(0.01||)||$||0.01|
|Net (loss) income||$||(12,775||)||$||8,189|
|Per share – basic and diluted ($/share)||$||(0.06||)||$||0.04|
|Net debt (surplus) (1)||$||(20,180||)||$||(48,596||)|
|Common Shares (thousands)|
|Weighted average during period|
|Outstanding at period end||215,350||215,083|
|(1) (Outflow) funds from operations, (Outflow) funds from operations per share, net debt (surplus), netback, and net production expense are non-GAAP measures. These terms do not have any standardized meanings as prescribed by IFRS and, therefore, may not be comparable with the calculations of similar measures presented by other companies. See headings entitled “Funds (outflow) from Operations”, “Net Debt (Surplus)”, “Netback” and “Net Production Expense” in the Reader Advisory below for further information on such terms.|
Highlights for the three months ended March 31, 2016
- We ended the first quarter of 2016 with a strong balance sheet including a working capital surplus of $20.2 million (including cash of $24.4 million) and remained undrawn on our $50.0 million reserve-based revolving credit facility. We expect to remain undrawn on this credit facility through 2016.
- We continued to implement cost saving initiatives as a result of the decrease in commodity prices. We decreased our overall G&A expenditures by 32% compared to the same quarter of 2015. Net production expenses were $15.12 per boe in the first quarter, a decrease of over 11% from the same quarter of 2015.
- We brought on-stream an additional three (2.75 net) wells at our Birley/Umbach area upon the commissioning of our facility expansion in mid-February. Currently we have production from five wells (4.25 net) in this area and have the capacity to add the volumes from a sixth well (0.75 net).
- March’s net sales volumes from our Birley/Umbach area increased to 2,600 boe/d (13,000 mcf/d natural gas and 450 boe/d liquids). This increase combined with other well reactivations caused the first quarter volumes to be 1,825 boe/d higher than the fourth quarter of 2015, despite third party plant restrictions.
First Quarter 2016 Financial Results
Once again this quarter, the overall driver of our financial results was the impact of falling commodity prices. These lower prices drove decreases in our production volumes through the voluntary shut-in of wells and impacted our decreased revenues during the first quarter of 2016.
Production in the first quarter of 2016 averaged 5,753 boe/d, down 25% from the same period in 2015; however this represented a 47% increase over the fourth quarter of 2015 production of 3,928 boe/d. The decrease from the first quarter of 2015 is attributed to property dispositions, voluntary shut-ins and ongoing pipeline services restrictions. A brief period of increased access to pipeline capacity and modestly improved natural gas pricing at Station 2 in British Columbia to $1.77/GJ, in addition to the completion of our Birley compressor expansion, resulted in increased production during the first quarter compared to the fourth quarter of 2015. However, as a result of continued depressed pricing at Station 2 that fell to $0.89/GJ during March, by the end of the first quarter, we temporarily shut-in approximately 1,100 boe/d of production volumes which were not tied to firm processing or transportation commitments, in addition to the 1,500 boe/d of production we had shut-in prior to the first quarter in response to lower commodity prices. Consequently, our average production in April was approximately 4,800 boe/d.
Our first quarter petroleum and natural gas revenues were down approximately 53% from the same period of 2015 as a result of lower realized weighted average commodity prices and lower volumes. Crude oil prices continued to decrease throughout 2015 as a result of an oversupply in the crude oil market. An increase in natural gas supply, ongoing pipeline service restrictions and reduced system capacity in northeastern British Columbia contributed to volatile natural gas price fluctuations.
Our first quarter net production expense (operating costs) decreased by almost 33% to $7.9 million from $11.8 million in the first quarter of 2015. In addition to our on-going review of our cost structure, production costs have decreased as a result of our 2015 property dispositions, the voluntary shut-in of relatively higher operating costs/lower netback wells and the impact of the temporary and voluntary shut-in of natural gas production due to lower commodity prices in British Columbia.
Our netback for the first quarter decreased significantly compared to the same quarter of 2015. This decrease was caused by lower commodity benchmark prices, despite a decrease in our overall and per boe royalties, net production expense and G&A expense.
We reported a funds outflow from operations of $2.9 million during the first quarter of 2016, a decrease compared to funds from operations of $1.2 million in the same quarter of 2015. This outflow mostly resulted from lower petroleum and natural gas revenues which were approximately one-half compared to the same quarter of 2015 due to significantly lower realized commodity prices and to a lesser extent sales volumes.
First Quarter 2016 Operational Results
Amid continued depressed commodity prices, we remain focused on cost savings and strategic management. During the first quarter of 2016, our capital expenditures were focused on our first phase expansion of the compression facility in our Birley/Umbach area, which began operations during the quarter and our ongoing abandonment projects. The Birley/Umbach expansion has increased the facility’s capacity by 25 mmcf/d, resulting in a total throughput capacity of 29 mmcf/d. In conjunction with the commissioning of the Birley/Umbach facility expansion we were able to commence production from an additional three (2.75 net) wells in our Birley/Umbach area, bringing the total wells on production in this area to five wells (4.25 net).
In response to continued depressed commodity prices, we have continued to focus on reducing our costs including the ongoing review and re-bid of third party contracts and agreements, the shut-in of wells and the optimization of field staff.
Northern Alberta Wildfires
To date our production volumes have not been affected by the May 2016 wildfires in northeastern Alberta in the Fort McMurray area. However, AECO pricing has been significantly affected due to a decrease in intra-Alberta demand resulting from these wildfires.
Our strategy for the balance of 2016 will remain focused on cost reductions, prudent capital spending and continued rationalization of our non-core assets. We are moving towards a pure Montney play focused company with several Montney projects in various stages of development, of which Birley/Umbach is our top priority.
With commodity prices expected to remain low for the remainder of the year, we are reducing our total 2016 capital program to $10.1 million, focused on maintenance of our ongoing operations and abandonment program.
About Chinook Energy Inc.
Chinook is a Calgary-based public oil and natural gas exploration and development company with multi-zone conventional production and resource plays in western Canada.