CALGARY, May 11, 2016 /CNW/ – Northern Blizzard Resources Inc. (“Northern Blizzard” or the “Company”) (TSX: NBZ) announces ts operating and financial results for the three months ended March 31, 2016. Northern Blizzard’s financial statements and management’s discussion and analysis (“MD&A”) for the three months ended March 31, 2016 are available on our website at www.northernblizzard.com and on SEDAR at www.sedar.com.
FINANCIAL AND OPERATING HIGHLIGHTS
Three months ended |
|||||
March 31, 2016 |
December 31, 2015 |
March 31, 2015 |
|||
Financial ($000s,except as otherwise noted) |
|||||
Oil and natural gas sales |
56,660 |
79,846 |
106,039 |
||
Funds from operations(1) |
26,792 |
8,175 |
60,060 |
||
Per share – diluted |
0.23 |
0.07 |
0.56 |
||
Net income (loss) |
10,120 |
(14,105) |
(43,907) |
||
Per share – basic |
0.09 |
(0.13) |
(0.42) |
||
Per share – diluted |
0.09 |
(0.13) |
(0.42) |
||
Net debt(1) |
360,621 |
400,508 |
406,382 |
||
Dividends declared |
13,758 |
13,436 |
25,140 |
||
Per share |
0.120 |
0.120 |
0.240 |
||
Capital expenditures |
6,922 |
18,417 |
22,439 |
||
Weighted average shares outstanding (000s) |
|||||
Basic |
114,208 |
111,597 |
104,405 |
||
Diluted |
117,995 |
115,381 |
106,468 |
||
Shares outstanding at period end (000s) |
115,475 |
112,747 |
105,459 |
||
Operating |
|||||
Average daily production |
|||||
Heavy oil (bbl/d) |
18,255 |
17,776 |
19,848 |
||
Light oil (bbl/d) |
706 |
598 |
1,556 |
||
Natural gas (mcf/d) |
2,562 |
4,148 |
6,388 |
||
Total (boe/d) |
19,388 |
19,065 |
22,469 |
||
Average realized price |
|||||
Heavy oil ($/bbl)(2) |
21.83 |
33.15 |
39.92 |
||
Light oil ($/bbl) |
35.43 |
48.55 |
47.18 |
||
Oil ($/bbl) |
22.33 |
33.64 |
40.45 |
||
Natural gas ($/mcf) |
1.72 |
2.27 |
2.77 |
||
Combined ($/boe) |
22.07 |
32.91 |
39.32 |
||
Netbacks ($/boe) |
|||||
Average realized price |
22.07 |
32.91 |
39.32 |
||
Royalties |
(1.77) |
(3.41) |
(4.29) |
||
Production and operating expenses |
(14.66) |
(16.56) |
(16.21) |
||
Transportation expenses |
(1.37) |
(1.94) |
(1.98) |
||
Operating netback(1) |
4.27 |
11.00 |
16.84 |
||
Realized gains on financial derivative contracts |
20.87 |
0.27 |
17.92 |
||
General and administrative expenses |
(4.43) |
(3.03) |
(2.59) |
||
Cash finance costs |
(4.40) |
(4.42) |
(4.19) |
||
Other |
(0.79) |
0.82 |
1.74 |
||
Funds from operations(1) |
15.52 |
4.64 |
29.72 |
Notes:
(1) |
Funds from operations, net debt and operating netback do not have any standardized meaning prescribed by International Financial Reporting Standards. See “Non-IFRS Financial Measures” and “Additional IFRS Measures” in the MD&A for the three months ended March 31, 2016 and 2015. |
(2) |
Average realized heavy oil prices are net of blending expenses and include the impact of physical delivery contracts (when applicable). |
WELL POSITIONED FOR LONG-TERM SUSTAINABILITY
Northern Blizzard has good liquidity, a well-structured balance sheet, supportive shareholders and high quality, low decline assets that position the Company for long-term sustainability.
Northern Blizzard’s strength is demonstrated by:
- Significant financial flexibility with only $5.9 million drawn on our $475 million credit facility.
- Bonds that mature in 2022 of US$276.3 million with no maintenance covenants.
- A strong hedge position that is expected to add over $100.0 million (over $15.00/boe) to estimated 2016 funds from operations.
- Rigorous cost controls that resulted in a 10% year-over-year reduction in operating costs per barrel and a reduction in drilling costs of 25 – 30%.
- Long-life low-risk reserves and production with an estimated corporate decline rate of 15%.
- Over 70% of production has a positive operating netback at a WTI price of US$30/bbl.
HIGHLIGHTS
- First quarter 2016 production was 19,388 boe/d (98% oil), an 8% decrease compared to the same period in 2015. Increased production volumes at Cactus Lake from the polymer flood and the 2015 development program was offset by natural declines on existing corporate production and lower volumes from Plover Lake SAGD. Annual 2016 guidance of 19,000 boe/d remains unchanged.
- Funds from operations were $26.8 million ($0.23 per common share) for the first quarter of 2016 compared to $60.1 million in the same period in 2015. The decrease was primarily due to lower oil prices.
- Operating costs for the first quarter of 2016 were $14.66 per boe, a decrease of 10% from the first quarter of 2015 as Northern Blizzard benefited from cost saving measures implemented across all fields.
- Cost controls included a reduction of personnel during the first quarter of 2016 that resulted in one-time costs of $1.3 million recorded to G&A. After adjusting for the one-time costs, total G&A costs decreased by 5% compared to the first quarter of 2015.
- Northern Blizzard realized gains on physical delivery and financial derivative contracts of $35.4 million during the first quarter of 2016.
- Capital expenditures for the first quarter of 2016 totalled $6.9 million. Development during the quarter was focused primarily in the Cactus Lake, Coleville and Winter areas.
- Northern Blizzard declared dividends totalling $13.8 million ($0.12 per common share) in the first quarter of 2016. Shareholders elected to receive stock dividends valued at $10.2 million and cash dividends of $3.6 million.
- Northern Blizzard’s total payout ratio was 39% for the first quarter of 2016. Total payout ratio is calculated as cash dividends paid plus capital expenditures divided by funds from operations. Assuming all of the dividends were paid in cash, the total payout ratio for Q1 2016 would have been 77%.
- Northern Blizzard completed the quarter in a strong financial position with net debt of $360.6 million and only $5.9 million drawn on its credit facility. Net debt to trailing four quarters funds from operations was 2.7x.
- Northern Blizzard has a comprehensive hedging program in place to protect prices on crude oil volumes and maintain the Company’s strong financial position. The Company has WTI hedges in place of 11,500 bbl/d for the balance of 2016, which represents over 60% of anticipated 2016 production, at an average price of C$79.50/bbl, 10,000 bbl/d in 2017 at an average price of C$66.19/bbl and 6,000 bbl/d in 2018 at an average price of C$60.64/bbl. (see Risk Management)
OPERATIONS REVIEW
Capital spending during the first quarter of 2016 was $6.9 million. This included polymer powder, well workovers and conversions and the drilling of one water disposal well. We currently have no additional drilling in our 2016 budget as year-to-date oil prices do not support economic returns to justify investing capital.
We continue to focus on managing assets to lower base decline rates and reducing cost structures to the lowest sustainable levels. In this regard, we have been very successful. Operating costs for the first quarter of 2016 were below $15.00 per boe, as we continue to benefit from the rigorous cost controls initiated in late 2014. G&A costs for the first quarter of 2016 reflected salary roll backs and the difficult decision to reduce the number of personnel, which resulted in one-time severance costs.
Over 70% of our assets have a positive operating netback at a WTI price of US$30/bbl. This includes Cactus Lake, Court, Winter and Coleville Viking assets, where average operating costs are below $12.50/boe and average royalty rates are approximately 8%. These assets are the core of our asset base and continue to provide excellent economic returns even at lower oil prices. In these core areas, Northern Blizzard has over 1,000 drilling locations with anticipated rates of return greater than 30% at WTI prices of US$40–$45/bbl.
At our Plover Lake SAGD project, production has been lower than anticipated. We have completed a detailed review of our project and of analogs. Based on our review, Northern Blizzard has completed a series of facility improvements and downhole workovers. We have re-established steam injection capacity to 6,000 cold water equivalent (“CWE”) barrels per day and have been increasing the amount of steam injected into the reservoir. Currently, field steam injection is over 5,000 CWE barrels per day and should reach maximum steam injection of just under 6,000 CWE barrels per day within 60 days. Oil production is expected to follow the increased steam injection.
RISK MANAGEMENT
Northern Blizzard has a comprehensive hedging program in place to protect prices on crude oil volumes and maintain the Company’s strong financial position. A summary of Northern Blizzard’s current hedge position is provided in the table below.
(C$)(1,2) |
2016 |
2017 |
2018 |
|
WTI |
||||
Hedged volumes (bbl/d) |
11,500 |
10,000 |
6,000 |
|
Average price ($/bbl) |
79.50 |
66.19 |
60.64 |
|
WTI / WCS differential |
||||
Hedged volumes (bbl/d) |
11,500 |
8,000 |
– |
|
Average price ($/bbl) |
(18.87) |
(18.28) |
– |
|
Notes:
(1) |
Contracts denominated in US dollars have been converted to Canadian dollars at CAD/USD strip prices as of May 9, 2016. |
(2) |
The prices and volumes in this table represent averages for several contracts over the respective periods presented. The average price of a group of contracts is for indicative purposes only and does not have the same settlement profile as the individual contract. Details of the risk management contracts are disclosed in the notes to the Company’s condensed consolidated interim financial statements. |
During the first quarter of 2016, Northern Blizzard realized $35.4 million in gains on physical delivery and financial derivative contracts. The gains realized were mainly on Canadian dollar WTI contracts due to lower than hedged oil prices.
FINANCIAL LIQUIDITY
At March 31, 2016, Northern Blizzard had $5.9 million drawn on our $475 million credit facility, $358.8 million of senior unsecured notes outstanding (principal amount) and a working capital surplus of $4.0 million.
Northern Blizzard has a stock dividend program that enables shareholders to receive dividends in the form of common shares. The Company’s significant shareholders, that hold approximately 70% of the outstanding shares, have indicated that they will continue to receive stock dividends.
Northern Blizzard’s capital expenditure forecast for 2016 is $40.0 million. Northern Blizzard anticipates that funds from operations, together with the revolving credit facility, will be sufficient to finance current operations, cash dividends, planned capital expenditures and working capital requirements.
Northern Blizzard’s credit facility has two financial covenants that are calculated quarterly. The calculation for each financial covenant is based on specific definitions and cannot be calculated by referring to Northern Blizzard’s consolidated financial statements. At March 31, 2016, the Company was in compliance with the financial covenants.
Covenant description |
Covenant |
Position at March 31, 2016 |
Senior debt to EBITDA ratio |
Less than 3.0 |
0.1 |
Interest coverage ratio |
Greater than 2.5 |
5.2 |
DIVIDEND
Northern Blizzard currently pays a monthly dividend of $0.04 per share. Northern Blizzard has a Stock Dividend Program (“SDP”) and shareholders holding approximately 74% of the Company’s outstanding shares currently participate in the SDP.
The SDP allows shareholders to elect to receive their dividends in the form of common shares in lieu of receiving a cash dividend on the dividend payment date. Participation in the SDP is optional; additional information can be found on Northern Blizzard’s website at www.northernblizzard.com or by contacting your financial institution or investment advisor. The availability of the SDP and its terms and conditions are subject to the discretion of Northern Blizzard’s Board of Directors.
GUIDANCE
Northern Blizzard’s guidance is based on annual estimates released on February 12, 2016. We note there are variations between the actual results for the first quarter of 2016 and the annual estimates mainly due to the nature of operations over the course of a year. Northern Blizzard expects actual 2016 results to be close to guidance at the end of the year.