Northern Blizzard Resources Inc. Announces Fourth Quarter & Year-End 2016 Results and 2016 Year-End Reserves

CALGARY, March 10, 2017 /CNW/ – Northern Blizzard Resources Inc. (“Northern Blizzard” or the “Company”) (TSX: NBZ) announces its operating and financial results for the three months and year-ended December 31, 2016 and 2016 year-end reserves information.

Northern Blizzard’s financial statements, management’s discussion and analysis (“MD&A”) and annual information form (“AIF”) for the year ended December 31, 2016 are available on our website at www.northernblizzard.com and on SEDAR at www.sedar.com.

2016 HIGHLIGHTS & 2017 OUTLOOK

2016 Financial & Operating

• Production was 18,281 boe/d (98% oil) for the fourth quarter of 2016 and 18,407 boe/d for 2016.
• Funds from operations were $40.2 million ($0.32 per common share) for the fourth quarter of 2016 and $135.0 million ($1.11 per common share) for 2016.
• For the fourth quarter of 2016, production and operating expenses were $15.42/boe and general and administrative expenses were $2.76/boe.
• Northern Blizzard ended 2016 in a strong financial position with net debt of $252.3 million, including cash of $131.1 million and an undrawn credit facility of $285.0 million. Year-end net debt to 2016 funds from operations was 1.9x and capital expenditures and dividends were less than funds from operation resulting in a total payout ratio of 80%.
• Capital expenditures for 2016 totalled $51.8 million, which included the drilling of 60 (53.4 net) wells. Development in 2016 was focused primarily in the Cactus Lake, Winter and Coleville areas.
• During the fourth quarter of 2016, Northern Blizzard sold its Coleville and Smiley properties for total cash consideration of $73.3 million.
• In 2016, Cactus Lake (Northern Blizzard’s largest field), achieved field operating income of $68.1 million, free cash flow of $43.3 million and production grew by 11% compared to 2015.
• During the fourth quarter of 2016, Northern Blizzard initiated an issuer bid and discontinued its stock dividend program. Subsequent to year-end, the Company purchased 22.5 million common shares at $4.00 per common share for a total cost of $90.0 million. Northern Blizzard now has 101,005,757 common shares outstanding.

2016 Reserves

• Northern Blizzard has proved plus probable reserves of 127.7 MMboe at December 31, 2016. The reserves evaluation includes the following:
  • Positive technical revisions for the Cactus Lake field of 13.6 MMboe as a result of the ongoing success of the polymer flood project;
  • An extended timeline for the development of the Cactus Lake SAGD project which resulted in the reclassification of probable reserves of 13.4 MMboe; and
  • The disposition of the Coleville and Smiley properties (16.5 MMboe).

2016 F&D costs for Northern Blizzard’s assets with proved plus probable reserves at December 31, 2016 (i.e. normalized for the dispositions and the reclassification of the reserves associated with Cactus Lake SAGD) are $5.91/boe on a proved basis and $6.02/boe on a proved plus probable basis (see Reserves Performance Measures below).

Northern Blizzard has a net asset value of $12.74 per common share based on the proved plus probable reserves value at December 31, 2016 (NPV10 before tax) using the commodity price forecast in the reserve report, adjusted for net debt and the issuer bid.

Northern Blizzard has a low risk reserves portfolio, as proved developed reserves represent 68% of proved reserves and 40% of proved plus probable reserves; proved reserves represent 59% of proved plus probable reserves.

Northern Blizzard’s proved and proved plus probable reserves life indices are 11.3 years and 19.1 years, respectively (see Reserves Performance Measures below).

2017 Outlook

• Our guidance for 2017, based on a WTI price of US$55/bbl, includes production of 17,100 boe/d and funds from operations of $110.0 million ($125.0 million excluding hedging) or $1.09 per common share ($1.24 per common share excluding hedging).
• Capital expenditures are forecast to be $60.0 million in 2017, leaving $50.0 million of free cash flow to be returned to shareholders or used for other corporate purposes. The current dividend rate of $0.24 per common share is expected to use $25.1 million of this free cash flow.
• Year-to-date production in 2017 is approximately 17,300 boe/d.
• Northern Blizzard’s development program for 2017 includes drilling 66 gross wells. To date, 22 of 27 wells planned for Cactus Lake and 12 of 29 wells planned for Winter have been drilled.
• In 2017, operating costs are expected to be $15.40/boe, which is in line with Q4 2016, and general and administrative costs are expected to improve to $2.15/boe.
• Northern Blizzard currently has cash on hand of approximately $36.0 million.
• During 2016, Northern Blizzard sold two of its highest decline properties for total consideration of $73.3 million. In addition, over 65% of Cactus Lake is now under polymer flood. As a result of these actions and other decline rate mitigation activities, we now have a base decline rate of approximately 10%.
• The Cactus Lake property currently generates approximately 50% of corporate production and 70% of corporate field operating income. Cactus Lake operating costs are approximately $10.00/boe and based on a WTI price of US$55/bbl, field operating netback is expected to be $33.00/boe.

FINANCIAL AND OPERATING HIGHLIGHTS

RESERVES

Independent Reserves Evaluation

Northern Blizzard’s reserves were independently evaluated by Ryder Scott Company-Canada (“Ryder Scott”) as at December 31, 2016 in accordance with National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (“NI 51-101”).  The reserves evaluation was based on forecast pricing and foreign exchange rates as outlined in the notes to the table below entitled “Forecast Prices in 2016 Reserves Report”. Additional reserves disclosures are included in the Company’s AIF for the year ended December 31, 2016.

Summary of Reserves as at December 31, 2016^(1)(2)(3)

Summary of Net Present Values, Before Tax⁽¹⁾⁽²⁾

Future Development Costs

Reserve Performance Measures

The table below reconciles 2016 FD&A costs to F&D costs for the assets with proved plus probable reserves at December 31, 2016:

The table below provides a number of reserve performance metrics. Note that 2016 F&D costs and F&D recycle ratio calculations are based on assets with proved plus probable reserves at December 31, 2016 (i.e. normalized for the dispositions and the reclassification of the reserves associated with Cactus Lake SAGD).

Forecast Prices in 2016 Reserves Report

The following table summarizes the first five years of the forecast prices used by Ryder Scott in preparing Northern Blizzard’s estimated reserve volumes and net present values of future net revenues in the 2016 reserves report.

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. During the year ended December 31, 2016, Northern Blizzard realized $90.6 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.

A summary of Northern Blizzard’s current hedge position is provided in the table below.

DIVIDEND

Northern Blizzard currently pays a monthly cash dividend of $0.02 per share.

GUIDANCE

The discussion and table below provide a summary of Northern Blizzard’s operational guidance for 2016 with a comparison to results for the year ended December 31, 2016 and guidance for 2017.

Northern Blizzard’s production for the year ended December 31, 2016 was 18,407 boe/d compared to guidance of 19,000 boe/d. The variance was mainly due to lower than expected volumes at Plover Lake SAGD. In addition, the Company disposed of two properties in the fourth quarter of 2016, Coleville and Smiley, for total cash consideration of $73.3 million. The properties each produced approximately 600 boe/d.

Capital expenditures in 2016 were $51.8 million (versus guidance of $55.0 million), which included the drilling of 60 (53.4 net) wells (versus guidance of 46 (42.3 net) wells).

The average royalty rate for 2016 was higher than annual guidance. The difference was due to a lower proportion of total production than expected that benefited from royalty incentives.

Operating expenses of $15.91/boe for the year ended December 31, 2016 were below the annual guidance range of $17.15/boe due to cost saving measures implemented across all fields.

Corporate costs of $7.47/boe for 2016 were slightly below the annual guidance of $7.80/boe.

Funds from operations (including hedging) of $20.17/boe for 2016 were higher than the annual guidance of $19.41/boe due to higher oil prices and a lower cost structure than assumed in the guidance.

Production guidance for 2017 of 17,100 boe/d reflects the property dispositions discussed above.

ADVISORIES

BOE Conversion and Other Reserve Advisories

In this news release, natural gas has been converted to boe based on a conversion rate of six thousand cubic feet of natural gas to one barrel (6 mcf : 1 bbl), which represents an energy equivalency conversion method applicable at the burner tip and does not represent a value equivalency at the wellhead. While it is useful for comparative measures, it may not accurately reflect individual product values and may be misleading if used in isolation.

The estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties, due to the effects of aggregation.

This press release contains reserve replacement ratios, recycle ratios, F&D costs, FD&A costs, base decline rate and net asset value, which are all metrics commonly used in the oil and natural gas industry.  These terms do not have a standardized meaning and may not be comparable to similar measures presented by other companies, and therefore should not be used to make such comparisons.

Reserve replacement ratios for a given period are determined by taking the Company’s proved or proved plus probable reserve additions for that period divided by the Company’s production for the same period.

Recycle ratio is calculated as finding and development costs per barrel or finding, development and acquisition costs per barrel divided by cash flow netback per barrel.

F&D costs are calculated as the sum of exploration and development capital plus the change in future development costs for the period divided by the change in total reserves for the period. The aggregate of the exploration and development costs incurred in the most recent financial year and the change during the year in estimated future development costs generally will not reflect total F&D costs related to reserves additions for the year.

FD&A costs are calculated as the sum of total capital expenditures for the period inclusive of net acquisition costs and disposition proceeds plus the change in future development costs for the period divided by the change in total reserves for the period. The aggregate of the exploration, development and acquisition costs incurred in the most recent financial year and the change during the year in estimated future development costs generally will not reflect total FD&A costs related to reserves additions for the year.

Base decline rate relates oil wells drilled prior to 2016.

Net asset value is calculated as the value of the proved plus probable reserves (NPV10, before tax), adjusted for net debt at December 31, 2016 proforma the issuer bid divided by shares outstanding at December 31, 2016 proforma the issuer bid.

The Company uses these oil and gas metrics for its own performance measurements and to provide shareholders with measures to compare the Company’s operations over time. Readers are cautioned that the information provided by these metrics, or that can be derived from the metrics presented in this press release, should not be relied upon for investment or other purposes.

Forward-Looking Statements

This news release contains certain forward-looking statements and forward-looking information (collectively referred to as “forward-looking statements”) within the meaning of applicable Canadian securities laws. All statements other than statements of historical fact are forward-looking statements. Forward-looking statements contain words such as “anticipate”, “believe”, “plan”, “continuous”, “estimate”, “expect”, “may”, “will”, “project”, “should”, or similar words suggesting future outcomes.

In particular, this news release contains forward-looking statements pertaining to the following:

• Business plans and strategies;
• Capital expenditures for 2017;
• Methods and ability to finance operations, dividends, capital expenditure programs and working capital requirements;
• Expectations regarding improvements to Northern Blizzard’s cost structure in 2017;
• Anticipated oil and natural gas production levels in 2017;
• Future oil and natural gas prices;
• Additions to funds from operations arising from hedge positions;
• Future costs including operating, transportation and administrative costs and royalty rates;
• Base decline rate;
• Net asset value;
• 2017 payout ratio;
• 2017 funds from operations; and
• Payment of dividends.

In addition, statements relating to “reserves” are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and can be profitably produced in the future.

Undue reliance should not be placed on forward-looking statements, which are inherently uncertain, are based on estimates and assumptions, and are subject to known and unknown risks and uncertainties (both general and specific) that contribute to the possibility that the future events or circumstances contemplated by the forward-looking statements will not occur. There can be no assurance that the plans, intentions or expectations upon which forward-looking statements are based will be realized. Actual results will differ, and the difference may be material and adverse to the Company and its shareholders.

With respect to forward-looking statements contained in this news release, management has made assumptions regarding future production levels; future oil and natural gas prices; future operating costs; timing and amount of capital expenditures; the ability to obtain financing on acceptable terms; availability of skilled labour and drilling and related equipment; general economic and financial market conditions; continuation of existing tax and regulatory regimes; and the ability to market oil and natural gas successfully to current and new customers.  Although management considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect.

By their very nature, forward-looking statements involve inherent risks and uncertainties (both general and specific) and risks that the goals or figures contained in forward-looking statements will not be achieved. These factors include, but are not limited to, risks associated with fluctuations in market prices for crude oil, natural gas and diluent, general economic, market and business conditions, substantial capital requirements, uncertainties inherent in estimating quantities of reserves and resources, extent of, and cost of compliance with, government laws and regulations and the effect of changes in such laws and regulations from time to time, the need to obtain regulatory approvals on projects before development commences, environmental risks and hazards and the cost of compliance with environmental regulations, aboriginal claims, inherent risks and hazards with operations such as fire, explosion, blowouts, mechanical or pipe failure, cratering, oil spills, vandalism and other dangerous conditions, potential cost overruns, variations in foreign exchange rates, diluent supply shortages, competition for capital, equipment, new leases, pipeline capacity and skilled personnel, credit risks associated with counterparties, the failure of the Company or the holder of licenses, leases and permits to meet requirements of such licenses, leases and permits, reliance on third parties for pipelines and other infrastructure, changes in royalty regimes, failure to accurately estimate decommissioning costs, inaccurate estimates and assumptions by management, effectiveness of internal controls, the potential lack of available drilling equipment and other restrictions, failure to obtain or keep key personnel, title deficiencies with the Company’s assets, geo-political risks, risks that the Company does not have adequate insurance coverage, risk of litigation and risks arising from future acquisition activities. Additionally, the payment of dividends is dependent on the satisfaction of the applicable liquidity and solvency tests imposed by the Business Corporations Act (Alberta). The foregoing risks and other risks are described in more detail in the Company’s annual information form for the year ended December 31, 2016. Readers are cautioned that these factors and risks are difficult to predict and that the assumptions used in the preparation of such information, although considered reasonably accurate at the time of preparation, may prove to be incorrect. Accordingly, readers are cautioned that the actual results achieved may vary from the information provided herein and the variations could be material. Readers are also cautioned that the foregoing list of factors is not exhaustive. Consequently, there is no representation by the Company that actual results achieved will be the same in whole or in part as those set out in the forward-looking statements. Furthermore, the forward-looking statements contained in this news release are made as of the date hereof, and the Company does not undertake any obligation, except as required by applicable securities legislation, to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained herein are expressly qualified by this cautionary statement.

SOURCE Northern Blizzard Resources Inc.

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