“Eagle remains on track to post 2016 results at the upper end of our production guidance range, the lower end of our current operating cost guidance range, which was already reduced once in May, and as planned for our capital spend,” said Richard Clark, Chief Executive Officer.
Mr. Clark added, “During the third quarter of 2016, with Dixonville operatorship in our hands effective June 1st and operatorship of our remaining Twining properties on August 1st, we completed all of our planned field work, brought on previously shut-in production and realized improved operational efficiencies.”
“We forecast our 2016 year-end net debt to reduce to $59 million. This will afford Eagle over $10 million of headroom under our existing $70 million credit facility, which was just reaffirmed in early November, and will result in 84% being utilized at the end of 2016.”
“Over the past two years, Eagle has posted many accomplishments to ensure its survival through this challenging cycle. We sold our unconventional Permian property at the top of the market and redeployed our capital into long life, low decline and low abandonment cost conventional oil assets. We have secured operatorship of 95% of our total corporate production. Over the course of 2016, we expect to have paid down our net debt by 8%, grown our year-over-year 2016 average production by 13% and reduced our year-over-year operating costs by 18%, all during a time when few have thrived. We have made significant strides in identifying low risk development growth opportunities which position Eagle for future growth. We look forward to the release of our 2017 capital and operating budget in early December,” said Mr. Clark.
Eagle’s unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2016 and related management’s discussion and analysis have been filed with the securities regulators and are available online under Eagle’s issuer profile on SEDAR at www.sedar.com and on Eagle’s website at www.EagleEnergy.com.
This news release contains non-IFRS financial measures and statements that are forward-looking. Investors should read the sections titled “Non-IFRS Financial Measures” and “Note about Forward-Looking Statements” near the end of this news release. Figures within this news release are presented in Canadian dollars unless otherwise indicated.
Highlights for the Three Months ended September 30, 2016
- Achieved quarterly production of 4,085 barrels of oil equivalent per day (“boe/d“) and expects 2016 full year average production to be at the upper end of its stated guidance range.
- Reduced per boe operating costs (inclusive of transportation) by 10% from the prior year comparative quarter and 18% year-over-year, and expects 2016 monthly operating costs to be at the lower end of the current stated guidance range, a range which was already reduced in May 2016.
- Assumed operatorship of the Twining properties on August 1, 2016, thereby allowing Eagle to complete field work to optimize production and increase efficiencies on these properties.
- Further to Eagle’s assumption of operatorship of the Dixonville property in June, performed pipeline work that added approximately 275 boe/d of production gross to the field from ten previously shut-in wells.
- Generated quarterly funds flow from operations of $4.6 million leading towards expected 2016 year-end net debt being reduced to $59 million and expected resulting headroom of $11 million on its credit facility. Eagle’s $70 million credit facility was reaffirmed upon finalizing its mid-year borrowing base review on November 3, 2016.
This outlook section is intended to provide shareholders with information about Eagle’s expectations for capital expenditures, production and operating costs for 2016. Readers are cautioned that the information may not be appropriate for any other purpose. This information constitutes forward-looking information. Readers should note the assumptions, risks and discussions under “Note about Forward-Looking Statements” at the end of this news release.
Eagle’s 2016 capital budget, average production and operating cost guidance remains unchanged from what Eagle previously announced and is as follows:
|Capital Budget||$5.0 mm||(1)|
|Average Production||3,400 to 3,800 boe/d||(2)|
|Operating Costs per month||$2.0 to $2.4 mm||(3)|
|(1)||The 2016 capital budget of $CA 5.0 million consists of $US 3.0 million for Eagle’s operations in the United States and $0.8 million for Eagle’s operations in Canada. At an assumed $US 50.00 per barrel West Texas Intermediate (“WTI“) oil price, Eagle’s 2016 capital budget of $5.0 million and dividend of $0.005 per common share of Eagle per month ($0.06 per share annualized) results in a corporate payout ratio of 55%.|
|(2)||2016 average production is forecast to consist of 83% oil, 13% natural gas and 4% natural gas liquids (“NGLs“) and includes both working interest and royalty interest production.|
|(3)||Original 2016 monthly operating cost guidance of $2.2 to $2.6 million was reduced to $2.0 to $2.4 million in May 2016.|
Eagle’s Expected Funds Flow from Operations and Corporate Payout Ratio
For 2016, Eagle expects to be at the upper end of its stated average production guidance range and the lower end of its monthly operating cost guidance range. In addition, the reduction in Eagle’s monthly dividend to $0.005 (half a cent) per share, beginning with the June 2016 dividend, combined with updated commodity price and foreign exchange rate assumptions results in a change in Eagle’s expected 2016 funds flow from operations and corporate payout ratio from that disclosed on August 4, 2016 as follows:
|Funds Flow from Operations||$16.6 mm||(1,4)|
|Basic Payout Ratio||23%||(2)|
|Plus: Capital Expenditures||32%|
|Equals: Corporate Payout Ratio||55%||(3)|
|(1)||2016 funds flow from operations is expected to be approximately $CA 16.6 million (previously $CA 15.6 million) based on the following assumptions:|
|a.||average production of 3,800 boe/d (the upper end of the guidance range);|
|b.||pricing at $US 50.00 (previously $US 47.50) per barrel WTI oil, $CA 3.00 per Mcf AECO gas (previously $CA 2.47) and $US 17.50 per barrel of NGL (NGL price is calculated as 35% of the WTI price) for the remaining three months of 2016;|
|c.||differential to WTI is $US 3.10 discount per barrel in Salt Flat, $US 3.50 discount per barrel in Hardeman, $CA 16.17 discount per barrel in Dixonville and $CA 12.67 discount per barrel in Twining;|
|d.||average operating costs of $CA 2.2 million per month ($US 0.8 million per month for Eagle’s operations in the United States and $CA 1.1 million per month for Eagle’s operations in Canada), the mid-point of the current guidance range;|
|e.||foreign exchange rate of $US 1.00 equal to $CA 1.32 (previously $CA 1.30); and|
|f.||field netback (excluding hedges) of $16.77 per boe (previously $16.82).|
|(2)||Eagle calculates its Basic Payout Ratio as follows:|
|Shareholder Dividends||=||Basic Payout Ratio|
|Funds Flow from Operations|
|(3)||Eagle calculates its Corporate Payout Ratio as follows:|
|Capital Expenditures + Shareholder Dividends||=||Corporate Payout Ratio|
|Funds Flow from Operations|
|(4)||Field netback, basic payout ratio and corporate payout ratio are non-IFRS measures. See the section below titled “Non-IFRS Financial Measures”.|
The following tables show the sensitivity of Eagle’s expected 2016 funds flow from operations, corporate payout ratio and debt to trailing funds flow from operations ratio to changes in commodity prices and production:
|Sensitivity to Commodity Price||2016 Average WTI
(2016 Average Production 3,800 boe/d)
|$US 45.00 (FX 1.32)||$US 50.00 (FX 1.32)||$US 55.00 (FX 1.32)|
|Funds Flow from Operations ($CA)||$16.2 mm||$16.6 mm||$17.1 mm|
|Corporate Payout Ratio||57%||55%||53%|
|Debt to Trailing Funds Flow from Operations||3.6x||3.5x||3.4x|
|Sensitivity to Production||2016 Average Production (boe/d)
(WTI $US 50.00, FX 1.32)
|Funds Flow from Operations ($CA)||$16.0 mm||$16.6 mm||$17.3 mm|
|Corporate Payout Ratio||57%||55%||53%|
|Debt to Trailing Funds Flow from Operations||3.6x||3.5x||3.4x|
|Assumptions for the remaining three months of 2016:|
|(1)||Pricing assumptions noted above ($US 45.00, $US 50.00, $US 55.00) are for the remaining three months of 2016.|
|(2)||Current annualized dividends are assumed to be $0.06 per share per year ($212,000 per month).|
|(3)||Operating costs are assumed to be $2.2 million per month (mid-point of guidance range).|
|(4)||Differential to WTI held constant.|
|(5)||Foreign exchange rate is assumed to be $US 1.00 equal to $CA 1.32.|
|(6)||2016 average production is assumed to be 3,800 boe/d (the upper end of the guidance range).|
Summary of Quarterly Results
|($000’s except for boe/d and per share amounts)|
|Sales volumes – boe/d||4,085||4,147||3,854||3,783||3,607||3,034||2,995||1,929|
|Revenue, net of royalties||12,854||13,149||9,099||11,603||13,428||12,884||10,206||10,238|
|Funds flow from operations||4,582||5,148||2,167||5,147||7,332||10,532||7,727||5,670|
|per share – basic||0.11||0.12||0.05||0.15||0.21||0.30||0.22||0.16|
|per share – diluted||0.11||0.12||0.05||0.15||0.21||0.30||0.22||0.15|
|per share – basic||–||(0.23||)||(0.29||)||(0.67||)||(1.48||)||(0.19||)||0.16||(1.01||)|
|per share – diluted||–||(0.23||)||(0.29||)||(0.67||)||(1.48||)||(0.19||)||0.16||(1.13||)|
|Cash dividends paid||636||1,274||1,584||2,614||3,143||3,130||3,153||7,159|
|per issued share||0.005||0.03||0.04||0.07||0.09||0.09||0.09||0.21|
|Total non-current liabilities||31,690||32,397||96,317||92,616||91,316||52,012||60,835||57,547|
For the three months ended September 30, 2016, sales volumes were stable when compared to the previous quarter.
Funds flow from operations decreased in the third quarter of 2016 versus the second quarter of 2016 due to higher royalty rates on Canadian production and increased operating costs related to prior year non-operated facility charges, annually billed regulatory charges and operated property repairs. These increases were partially offset by higher realized commodity prices and lower general and administrative expenses. Realized oil prices remained fairly constant, while natural gas prices increased compared to the second quarter of 2016.
Earnings (loss) on a quarterly basis often does not move directionally or by the same amount as movements in funds flow from operations. This is primarily due to items of a non-cash nature that factor into the calculation of earnings (loss), and those that are required to be fair valued at each quarter end. Third quarter 2016 funds flow from operations decreased 11% from the second quarter 2016 while quarterly earnings increased in the third quarter primarily as rising forward commodity prices caused a mark-to-market risk management gain of $1.4 million in the third quarter, compared to a risk management loss of $7.0 million in the second quarter.
On November 3, 2016, Eagle finalized its semi-annual borrowing base redetermination with the borrowing base level of $CA 70 million and all other terms and conditions, including the May 27, 2017 maturity date, remaining unchanged. The next semi-annual borrowing base redetermination is scheduled to be finalized no later than May 27, 2017 and will be conducted based on the independent engineering report of Eagle effective December 31, 2016 and the lenders’ price forecasts then in effect.
At September 30, 2016, there were no covenant violations under or in connection with Eagle’s credit agreement (the “Credit Agreement“).
By the end of the third quarter, Eagle was 92% through its forecast 2016 capital budget of $5.0 million, expects its year-end 2016 net debt to be reduced to approximately $59 million from its third quarter 2016 ending level of $61.2 million and expects its year-end 2016 debt to trailing funds flow from operations ratio to be approximately 3.5x.
On May 31, 2016, Eagle finalized its semi-annual borrowing base redetermination which resulted in: (i) amendments being made to its Credit Agreement; (ii) a borrowing base level being set at $CA 70 million; and (iii) a maturity date of May 27, 2017 remaining unchanged. Security granted under the Credit Agreement remained unchanged and is by way of a first priority security interest on substantially all of the property and assets of Eagle Energy Inc. and Eagle Hydrocarbons Inc. (each a borrower under the Credit Agreement). A summary of the significant amendments made to the Credit Agreement effective May 31, 2016 is set forth in Eagle’s Management’s Discussion and Analysis and a redacted version of the entire Credit Agreement can be found under Eagle’s issuer profile on SEDAR at www.sedar.com.
Eagle pays monthly dividends to shareholders at the discretion of the Board of Directors. Effective with the dividend declared for February 29, 2016, Eagle reduced its monthly dividend to $0.01 (one cent) per share from $0.015 (one and a half cent) per share, concurrent with announcing a 51% reduction in its 2016 capital program, both of which were in response to the significant and ongoing uncertainty and volatility in commodity prices at that time. With that reduction, Eagle’s corporate payout ratio was expected to be at or below 100%, keeping Eagle on track to conduct business within cash flow. However, the May 31, 2016 Credit Agreement amendment contained a requirement of Eagle’s lenders to further reduce its dividend to not exceed half a cent per month. Eagle reduced its monthly dividend to $0.005 (half a cent) per share ($0.06 annualized) beginning with the June 2016 dividend payable on July 22, 2016.