CALGARY, ALBERTA–(Marketwired – May 8, 2017) –
Financial and Operating Highlights
- Reported sales volumes for the first quarter of 2017 increased 11 percent to 25,133 Boe/d (38 percent liquids) as compared to 22,565 Boe/d (32 percent liquids) for the fourth quarter of 2016. The increase was attributed primarily to new well production coming on stream in the quarter;
- Average realized pricing, after hedges, increased by 13 percent to $35.97/Boe in the first quarter of 2017 from $31.92/Boe for the previous quarter. Year over year, average realized pricing, after hedges, also increased 48 percent from the first quarter of 2016;
- Funds flow from operations(1) increased 67 percent to $36.4 million for the first quarter of 2017 as compared to $21.8 million for the previous quarter. Year over year, funds flow from operations increased by 338 percent from $8.3 million in the first quarter of 2016.
- Trilogy drilled 9.0 net wells in the first quarter. Net capital expenditures totaled $41.0 million for the first quarter compared to $29.7 million for the fourth quarter of 2016;
- Net debt(1) decreased to $583.8 million as at March 31, 2017 from $588.6 million as at December 31, 2016;
- During the quarter, Trilogy accelerated the realization and receipt of natural gas derivative contract gains totaling $3.5 million USD ($4.6 million CDN).
- Subsequent to the quarter, Trilogy:
- Renewed its revolving credit facility agreement with its lenders whereby commitments under this facility were set at $300 million. The maturity date was extended to April 30, 2019;
- Announced that it had agreed to sell certain oil and gas properties in the Grande Prairie area for cash consideration of $50 million (before customary adjustments). The disposition is expected to close before the end of May 2017. Proceeds are expected to be used to repay amounts drawn under Trilogy’s revolving credit facility. Pro-forma capacity under Trilogy’s revolving credit facility as at March 31, 2017, after giving effect to the disposition, is expected to approximate $49 million;
- Entered into forward sales contracts for 30,000 MMBTU/d from May 2017 through to December 2017 at an average price of $3.39 USD/MMBTU.
|(1)||Refer to Non-GAAP measures|
Financial and Operating Highlights Table
(In thousand Canadian dollars except per share amounts and where stated otherwise)
|Three Months Ended|
|March 31,||December 31,|
|Petroleum and natural gas sales||76,089||61,834||23|
|Per share – diluted||0.29||0.17||67|
|Income (loss) before tax||10,874||(24,593||)||(144||)|
|Per share – diluted||0.09||(0.19||)||(144||)|
|Income (loss) after tax||7,694||(18,116||)||(142||)|
|Per share – diluted||0.06||(0.14||)||(143||)|
|Exploration, development, land, and facility||41,658||30,413||37|
|Acquisitions (dispositions) and other – net||(675||)||(725||)||(7||)|
|Net capital expenditures||40,983||29,688||38|
|Total shares outstanding (thousands)|
|– As at end of period (2)||126,106||126,101||–|
|Natural gas (MMcf/d)||93||93||–|
|Natural gas liquids (Boe/d)||1,207||682||77|
|Total production (Boe/d @ 6:1)||25,133||22,565||11|
|Liquids Composition (percentage)||38||32|
|Average prices after financial instruments|
|Natural gas ($/Mcf)||3.63||3.12||16|
|Crude Oil ($/Bbl)||62.69||66.24||(5||)|
|Natural gas liquids ($/Boe)||32.95||17.75||86|
|Average realized price ($/Boe)||35.97||31.92||13|
|Drilling activity (gross)|
|(1)||Funds flow from operations and net debt are non-GAAP terms. Please refer to the advisory on Non-GAAP measures below.|
|(2)||Excluding shares held in trust for the benefit of Trilogy’s officers and employees under the Company’s Share Incentive Plan. Includes Common Shares and Non-voting Shares. Refer to the notes to the Annual Audited Consolidated Financial Statements for additional information.|
Operations Update for the First Quarter 2017
Trilogy’s first quarter 2017 production was 25,133 Boe/d (38 percent oil and natural gas liquids), an increase of 11 percent from fourth quarter 2016 production of 22,565 Boe/d (32 percent oil and natural gas liquids). The increase in first quarter production reflects the impact of new horizontal Montney and Duvernay wells drilled and completed in the fourth quarter 2016 and first quarter 2017. Three wells drilled late in the fourth quarter of 2016 were fracture stimulated in January and on production in February 2017. Trilogy drilled 6 horizontal Montney oil wells during the first quarter, of which 3 were completed and on production in late March.
Funds flow from operations was $36.4 million and net capital expenditures were $41.0 million for the first quarter. Second quarter capital spending is estimated to be between $20-$25 million, depending on weather and ground conditions during the quarter.
Subsequent to the end of the first quarter, Trilogy announced that it has agreed to sell certain assets located in the Grande Prairie area of Alberta for cash consideration of $50 Million (before customary adjustments). The transaction is conditional upon the purchaser’s receipt of the Alberta Energy Regulator (“AER”) approvals for the transfer of the wells, pipelines and facilities. The assets being sold consist of approximately 44,427 net acres of mineral rights (including approximately 11,500 net acres of Montney/Doig mineral rights) in the Valhalla area along with current net production of approximately 1,100 Boe/d (16 percent oil and natural gas liquids) net to Trilogy, estimated Total Proved Developed Producing reserves of approximately 1,800 MBoe and Total Proved plus Probable reserves of approximately 5,500 MBoe, each as at December 31, 2016, net of Q1 2017 production.
The sale is effective May 1, 2017 and is expected to be completed before the end of May 2017, provided the purchaser receives the above mentioned AER approvals. Proceeds from the sale will be applied to reduce Trilogy’s indebtedness under its revolving credit facility.
Montney Oil Pool
The shift from hydrocarbon-based to water-based fracture stimulations in early 2016 reduced completion costs and allowed the Company to economically increase proppant volume and decrease stage spacing, thereby better distributing proppant along the length of the lateral wellbore. Trilogy varied sand volumes from 10 tonnes per stage in the Company’s original horizontal Montney oil wells to as much as 20 tonnes per stage in recent wells. At the same time, stage spacing was reduced from 75 meters per stage in the original wells to 50 to 65 meters in recent wells. In addition, completion pump rates have increased substantially, resulting in increased fracture complexity. All of these factors combined have contributed to higher initial well productivity as compared to the Company’s first generation Montney oil wells.
Trilogy has allocated approximately $60 million towards further development of its Montney oil pool in 2017. The majority of the capital will be allocated to drill 15 wells and complete 18 wells in the pool, incorporating the efficiencies from the Company’s 2016 Montney drilling and completion program. To date, 6 wells have been drilled in the first quarter with plans to drill at least 9 additional horizontal wells through the second half of 2017. Trilogy also intends to allocate capital to a water disposal project, an enhanced recovery gas reinjection pilot project and to the construction of pad sites and pipelines intended for future development of the pool.
The following table updates production results to April 30, 2017 for the 9 horizontal Montney oil wells that were drilled, completed and brought on production in 2016, the 3 wells that were drilled in 2016 and completed in the first quarter of 2017. The variable results reflect the evolution of completion techniques described above and the amount of time the wells have been on production.
|Average Oil Rate
|Average Gas Rate
|Number of Stages||Lateral Length
Presley Montney Gas Development
Trilogy’s 2017 budget provided approximately $30 million to develop 6 (6.0 net) wells in the Presley Montney liquids-rich gas pool. Trilogy drilled 3 (3.0 net) extended length horizontal wells (each approximately 2 miles in lateral length) into the pool in the first quarter and is currently drilling a 3-well pad (1 mile laterals) through the second quarter. One of the extended reach lateral wells was fracture stimulated in April and is expected to be on production in early May. The remaining 2 wells are expected to be completed in mid-May and on production in mid-June once break up is over. The 3-well pad currently being drilled is expected to be completed and tied in during the third quarter. Trilogy plans to continue to prepare drilling locations and evaluate infrastructure alternatives for the Montney gas pool as well as operated Duvernay production in the Presley area, so as to be prepared for full field development when commodity prices increase.
Trilogy did not have any Duvernay spending in the first quarter but is preparing to build on the success of the Company’s recent wells and will be monitoring industry drilling, completion and production results adjacent to its Duvernay acreage. The 2 horizontal Duvernay wells Trilogy drilled in 2016 were drilled and completed on single well pads at a cost of approximately $10.2 million per well. Trilogy expects to realize significant reduction in costs relative to previous Duvernay wells once multi-well pad development begins. The following table summarizes the production up to April 30, 2017 from the 2 Duvernay horizontal wells drilled in 2016.
|Average Oil/Cond Rate
|Average Gas Rate
Trilogy has allocated approximately $35 million towards Duvernay projects in the second half of 2017. The decision to execute this portion of the capital budget will be made later in the year.
Trilogy may consider monetizing a portion of its Duvernay acreage to help fund the development of the remaining Duvernay acreage. This could potentially include a joint venture arrangement, external sources of funding to accelerate the commercial development of some of this acreage or a sale of a portion of the Company’s Duvernay acreage. Trilogy has processing capacity in place to produce volumes from its Duvernay development plan for the initial two to three year development period; however, to produce Trilogy’s longer term Duvernay development plan, Trilogy will require access to additional operated and non-operated natural gas processing and NGL handling infrastructure.
Trilogy plans to execute a 2017 capital spending budget that is within anticipated 2017 funds flow from operations based on Trilogy’s 2017 production expectations and forecasted pricing for the year. The level of capital spending in the second half of the year will depend on commodity prices and will primarily impact the Duvernay projects later in 2017.
Given the encouraging production results to date, which is expected to offset the impact of the aforementioned Grande Prairie disposition, Trilogy continues to reaffirm its 2017 annual guidance as follows:
- Average production: 24,000 Boe/d (~35% oil and NGLs)
- Average operating costs: $8.50/Boe
- Capital expenditures: $130 Million
Trilogy’s financial and operating results for the first quarter of 2017, including Management’s Discussion and Analysis and the Company’s Unaudited Interim Consolidated Financial Statements and related Notes as at and for the quarter-ended March 31, 2017 can be obtained at http://media3.marketwire.com/docs/Q1-2017REPORT.pdf. These reports will also be made available through Trilogy’s website at www.trilogyenergy.com and SEDAR at www.sedar.com.
Trilogy is a petroleum and natural gas-focused Canadian energy corporation that actively develops, produces and sells natural gas, crude oil and natural gas liquids. Trilogy’s geographically concentrated assets are primarily, high working interest properties that provide abundant low-risk infill drilling opportunities and good access to infrastructure and processing facilities, many of which are operated and controlled by Trilogy. Trilogy’s common shares are listed on the Toronto Stock Exchange under the symbol “TET”.
Certain measures used in this document, including “adjusted EBITDA”, “consolidated debt”, “finding and development costs”, “funds flow from operations”, “operating income”, “net debt”, “operating netback”, “recycle ratio” and “senior debt” collectively the “Non GAAP measures” do not have any standardized meaning as prescribed by IFRS and previous GAAP and, therefore, are considered Non-GAAP measures. Non-GAAP measures are commonly used in the oil and gas industry and by Trilogy to provide Shareholders and potential investors with additional information regarding the Company’s liquidity and its ability to generate funds to finance its operations. However, given their lack of standardized meaning, such measurements are unlikely to be comparable to similar measures presented by other issuers.
“Adjusted EBITDA” refers to “Funds flow from operations” plus cash interest, tax expenses, certain other items (accrued cash remuneration costs for its employees – deducted from EBITDA when paid) that do not appear individually in the line items of the Company’s financial statements, in addition to pro-forma adjustments for properties acquired or disposed of in the period and the exclusion of revenues or losses of an extraordinary and non-recurring nature.
“Consolidated debt” generally includes all long-term debt plus any issued and undrawn letters of credit, less any cash held.
“Finding and development costs” refers to all capital expenditures and costs of acquisitions, excluding expenditures where the related assets were disposed of by the end of the year, and including changes in future development capital on a total proved or total proved plus probable basis. “Finding and development costs per Barrel of oil equivalent” (“F&D $/Boe”) is calculated by dividing finding and development costs by the current year’s reserve extensions, discoveries and revisions on a total proved or total proved plus probable reserve basis. Management uses finding and development costs as a measure to assess the performance of the Company’s resources required to locate and extract new hydrocarbon reservoirs.
“Funds flow from operations” refers to the cash flow from operating activities before net changes in operating working capital as shown in the consolidated statements of cash flows. Management utilizes funds flow from operations as a key measure to assess the ability of the Company to finance dividends, operating activities, capital expenditures and debt repayments.
“Operating income” is equal to petroleum and natural gas sales before financial instruments and bad debt expenses minus royalties, operating charges, and transportation costs. Management uses this metric to measure the discrete operating results of its oil and gas properties.
“Operating netback” refers to operating income plus realized financial instrument gains and losses and other income minus actual decommissioning, restoration, and remediation costs incurred. Operating netback provides management with a more fulsome metric on its oil and gas properties considering strategic decisions (for example, hedging programs) and associated full life cycle charges.
“Net debt” is calculated as current liabilities minus current assets excluding assets and liabilities held for sale therein plus long-term debt. Management utilizes net debt as a key measure to assess the liquidity of the Company.
“Recycle ratio” is equal to “Operating netback” on a production barrel of oil equivalent for the year divided by “F&D $/Boe” (computed on a total proved or total proved plus probable reserve basis as applicable). Management uses this metric to measure the profitability of the Company in turning a barrel of reserves into a barrel of production.
“Senior debt” is generally defined as “Consolidated debt” but excluding any indebtedness under the Senior Unsecured Notes.
Investors are cautioned that the Non-GAAP measures should not be considered in isolation or construed as alternatives to their most directly comparable measure calculated in accordance with IFRS, as set forth above, or other measures of financial performance calculated in accordance with IFRS.