CALGARY, ALBERTA–(Marketwired – May 26, 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 unaudited interim financial statements and related management’s discussion and analysis (“MD&A”) for the three month period ended March 31, 2016.
Financial and Operating Highlights
|Three months ended March 31,|
|Oil and natural gas sales||$||7,284,889||$||10,854,042|
|Funds flow from operations (1)||23,012||3,051,539|
|Per share, basic||–||0.18|
|Per share, diluted||–||0.13|
|Per share, basic and diluted||(0.20||)||(0.12||)|
|Working capital deficit (end of period) (2)||11,077,120||4,102,872|
|Long-term contract obligation (end of period) (3)||14,061,935||14,418,416|
|Long-term bank debt (end of period)||41,839,415||40,774,076|
|Shareholders’ equity (end of period)||$||10,986,866||$||22,088,628|
|Shares outstanding (end of period)|
|Options outstanding (end of period)||3,488,500||2,751,000|
|Weighted-average basic and diluted shares outstanding||17,318,001||17,318,001|
|Class A share trading price|
|Natural gas (Mcf/d)||22,785||22,341|
|Natural gas liquids (NGL) (bbls/d)||744||689|
|Crude oil (bbls/d)||501||790|
|Canadian Light (Cdn$/bbl)||41.22||53.23|
|Average realized prices (5)|
|Natural gas (per Mcf)||1.97||2.87|
|NGL (per bbl)||25.40||33.25|
|Crude oil (per bbl)||32.35||42.51|
|Operating netback (per boe)(6)||3.67||8.96|
|Funds flow netback (per boe)(6)||$||0.05||$||6.52|
- For a description of Funds flow from operations, refer to the commentary in the MD&A under Funds flow from operations.
- Working capital deficit includes risk management contract assets and convertible Class B share liabilities of $Nil and $5,197,655, respectively (March 31, 2015 -$1,695,519 and $Nil, respectively). Excluding this, the working capital deficit would be $5,879,465 (March 31, 2015 – $5,798,391).
- Long-term contract obligation excludes current portion of $356,482 (March 31, 2015 – $310,731), which is included in working capital deficit.
- For a description of the boe conversion ratio, see “Reader Advisory”.
- Before hedging.
- For a description of Operating netback and Funds flow netback, refer to the commentary in the MD&A under Non-GAAP measures.
First Quarter 2016 Corporate Highlights
- Achieved average production of 5,043 boe per day for the quarter, 75 percent natural gas.
- Achieved sales of $7.3 million and funds flow from operations of $23,012 ($Nil per basic share).
- Minimized capital spending with total capital expenditures of $138,861.
- Incurred record-low operating costs of $10.56 per boe, achieving a 9 percent reduction from first quarter 2015 operating costs of $11.57 per boe.
The first quarter of 2016 saw the lowest average benchmark pricing for oil, natural gas and NGLs to date for Questfire. With our realized commodity prices at record lows in the first quarter we continued to aggressively focus on reducing all costs, minimizing capital spending and maintaining production. Operating costs for the quarter were $10.56 per boe, a reduction of 9 percent from a year earlier and a record low for the Corporation. No drilling occurred in the quarter and capital spending was less than $139,000. In order to further reduce our general and administrative costs, in February all of Questfire’s head office and field office staff went to a four-day workweek with a 20 percent salary reduction and a reduction in benefits. The resulting funds flow from operations of $23,012 was modest but a significant accomplishment considering many operators experienced negative funds flow from operations for the quarter. Additional reductions in the number of staff and field operators have also occurred and we expect our 2016 G&A costs to be down by approximately 10 percent year-over-year.
A bright spot for Questfire has been the production performance of our low-decline asset base. We produced 5,043 boe per day in the first quarter, a decline of only 3 percent from the first quarter of 2015. This is a very modest decline considering we drilled only one well in 2015. Our base production decline rate is now in the 10 percent per year range which is very low by industry standards and a significant advantage in the current low-commodity-price, low-cash-flow environment. We expect to continue to defer drilling projects until commodity prices improve and will continue to pursue lower-cost optimization, workovers and recompletion projects to help offset production declines. Subsequent to the quarter, Questfire shut-in approximately 400 boe per day of higher-operating-cost natural gas production until natural gas prices recover. This will help to further reduce our per-boe operating costs.
As previously announced, Questfire engaged a financial advisor and initiated a strategic review process in the first quarter of 2016. This was a proactive decision taken by Questfire in order to evaluate all options including asset sales and corporate transactions. At the time of this report we have closed the sale of two minor non-core properties for approximately $2 million. The process remains underway and may result in further asset sales prior to year-end.
In spite of the current low commodity prices, supply and demand fundamentals are at work and, we believe, will lead inevitably to a recovery in commodity prices. The overall supply of oil and natural gas in North America is declining due to record low drilling rig counts. The decline in U.S. shale gas production is now marked and unmistakeable, at the same time as exports of LNG become regular and are set to climb dramatically. Excess world oil supply has declined to a very thin margin of only 2 or 3 percent even as the OPEC countries continue to produce at near full capacity. Worldwide capital spending for oil and gas projects has been significantly reduced, which will delay new supply coming to market. At the same time, demand has responded as expected. At approximately 95 million barrels per day, the world’s oil consumption has never been higher and natural gas demand in North America is also at record high levels. At the time of this report, crude oil prices are very close to US$50 per bbl WTI, an increase of over 45 percent from the average price of US$33.45 per bbl in the first quarter.
In the meantime, we will continue to reduce costs, minimize capital spending with a focus on maximizing production and cash flow, while actively pursuing opportunities to sell assets and reduce debt. We are taking the necessary steps to get through this challenging commodity price environment and our longer-term goal of creating shareholder value has not changed.
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.