Spartan has had an active first quarter in the field, with five rigs operating in southeast Saskatchewan and an additional rig drilling on our Alexander property in Alberta. First quarter activity levels have been in line with budget, and we anticipate we will drill 26 (19.7 net) open hole, 11 (8.4 net) frac Midale, 12 (8.7 net) Ratcliffe wells and 3 (2.5 net) Detrital wells in the quarter. In addition, 0.8 net frac Midale wells, 1.0 net Torquay well and 1.8 net Viking wells that were drilled in 2017 were brought on production during the quarter. Spring break-up conditions have been favourable to date and we anticipate all wells drilled will be brought on production prior to the end of the quarter. At our Oungre property in southeast Saskatchewan, in addition to drilling 8.7 net Ratcliffe wells, we have completed the conversion of 10 vertical wells within the Oungre unit for water injection. Injection operations will commence prior to the end of the first quarter which will provide pressure support for our phase 1 unit drills in the second half of the year.
Spartan continues to believe that our current share price does not properly reflect the underlying value of our asset base, providing us with an opportunity to utilize our excess funds flow to deliver significant value to our shareholders through strategic share repurchases. Spartan’s Board of Directors has authorized the Company to purchase for cancellation up to 8,620,148 common shares (representing approximately 5% of our basic issued and outstanding shares), which is the maximum number permitted to be repurchased under our existing normal course issuer bid (“NCIB”). The Company intends to renew our NCIB for another 12 month period in August 2018 and, subject to regulatory approval, will consider repurchasing additional common shares during the remainder of the year. Share repurchases are expected to be funded largely out of excess funds flow, and all decisions to repurchase shares from time to time will be subject to prevailing market conditions, commodity prices and the Company’s share price.
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FURTHER INFORMATION
Richard (Rick) McHardy |
OR |
Tim Sweeney |
President and Chief Executive Officer |
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Manager, Business Development |
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Spartan Energy Corp.
Suite 3200, 500 Centre Street S.E.
Calgary, Alberta T2G 1A6 |
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Fax: 403.355.2779
Email: info@spartanenergy.ca |
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READER ADVISORY
BOE Disclosure. The term barrels of oil equivalent (“BOE”) may be misleading, particularly if used in isolation. A BOE conversion ratio of six thousand cubic feet per barrel (6mcf/bbl) of natural gas to barrels of oil equivalence is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All BOE conversions in the report are derived from converting gas to oil in the ratio mix of six thousand cubic feet of gas to one barrel of oil.
Forward Looking Statements. Certain information included in this press release constitutes forward-looking information under applicable securities legislation. Forward-looking information typically contains statements with words such as “anticipate”, “believe”, “expect”, “plan”, “intend”, “estimate”, “propose”, “project” or similar words suggesting future outcomes or statements regarding an outlook. Forward-looking information in this press release may include, but is not limited to, future share repurchases, a future normal course issuer bid, planned drilling and completion activities, well counts, future production levels and future production growth rates, future acquisition opportunities, capital spending levels, anticipated decline rates and our ability to deliver production growth and reserves growth and generate free cash flow.
The forward-looking statements contained in this press release are based on certain key expectations and assumptions made by Spartan, including expectations and assumptions concerning the success of future drilling, development and completion activities, the performance of existing wells, the performance of new wells, the availability and performance of facilities and pipelines, the geological characteristics of Spartan’s properties, the successful application of drilling, completion and seismic technology, prevailing weather and break-up conditions, commodity prices, royalty regimes and exchange rates, the application of regulatory and licensing requirements, the availability of capital, labour and services, prevailing market conditions, the creditworthiness of industry partners and our ability to acquire additional assets.
Although Spartan believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because Spartan can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, risks associated with the oil and gas industry in general (e.g., operational risks in development, exploration and production; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), constraint in the availability of services, commodity price and exchange rate fluctuations, adverse weather or break-up conditions and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures. These and other risks are set out in more detail in Spartan’s Annual Information Form for the year ended December 31, 2017.
The forward-looking information contained in this press release is made as of the date hereof and Spartan undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, unless required by applicable securities laws. The forward looking information contained in this press release is expressly qualified by this cautionary statement.
Non-IFRS Measures. Certain financial measures referred to in this press release, such as adjusted funds flow from operations, adjusted funds flow from operations per share, excess adjusted funds flow from operations, total development capital expenditures, net debt and net debt excluding finance lease obligations are not prescribed by IFRS. Adjusted funds flow from operations is calculated based on cash flows from operating activities before changes in non-cash working capital, transaction costs and decommissioning obligation expenditures incurred. Adjusted funds flow from operations per share is calculated using weighted average shares outstanding consistent with the calculation of net income (loss) per share. Excess adjusted funds flow from operations is calculated based on adjusted funds flow operations less total development capital expenditures. Spartan uses adjusted funds flow from operations to analyze operating performance and leverage, and considers adjusted funds flow from operations to be a key measure as it demonstrates the Company’s ability to generate cash necessary to fund future capital investments and repay debt. Spartan’s determination of adjusted funds flow from operations, on an absolute and per share basis, and excess adjusted funds flow from operations may not be comparable to that reported by other companies.
The following table reconciles adjusted funds flow from operations (a non-IFRS measure) to cash flow from operating activities, which is the most directly comparable measure calculated in accordance with IFRS:
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For the three months
ended December 31, |
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For the year
ended December 31, |
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($ thousands) |
2017 |
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2016 |
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%
change |
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2017 |
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2016 |
|
%
change |
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Adjusted funds flow from operations |
64,499 |
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32,958 |
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96 |
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200,730 |
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76,749 |
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162 |
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Transaction costs |
(75 |
) |
(378 |
) |
(80 |
) |
(448 |
) |
(1,109 |
) |
(60 |
) |
Settlement of decommissioning liabilities |
(694 |
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– |
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n/a |
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(822 |
) |
– |
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n/a |
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Changes in non-cash working capital |
(1,614 |
) |
7,176 |
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(122 |
) |
4,023 |
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(16,452 |
) |
(124 |
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Cash flow from operating activities |
62,116 |
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39,756 |
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56 |
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203,483 |
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59,188 |
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244 |
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The following table reconciles adjusted funds flow from operations (a non-IFRS measure) to excess adjusted funds flow from operations (a non-IFRS measure):
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For the three months
ended December 31, |
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For the year
ended December 31, |
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($ thousands) |
2017 |
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2016 |
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%
change |
2017 |
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2016 |
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%
change |
Adjusted funds flow from operations |
64,499 |
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32,958 |
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96 |
200,730 |
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76,749 |
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162 |
Total development capital expenditures |
(35,821 |
) |
(19,190 |
) |
87 |
(140,530 |
) |
(61,830 |
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127 |
Excess adjusted funds flow from operations |
28,678 |
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13,768 |
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108 |
60,200 |
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14,919 |
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304 |
Total development capital expenditures is calculated as total capital expenditures less land and seismic, waterflood capital and acquisitions.
The following table reconciles total development capital expenditures (a non-IFRS measure) to total capital expenditures, which is the most directly comparable measure calculated in accordance with IFRS:
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For the three months
ended December 31, |
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For the year
ended December 31, |
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($ thousands) |
2017 |
2016 |
%
change |
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2017 |
2016 |
%
change |
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Total development capital expenditures |
35,821 |
19,190 |
87 |
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140,530 |
61,830 |
127 |
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Land and seismic |
3,389 |
11,807 |
(71 |
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9,170 |
13,933 |
(34 |
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Waterflood capital |
1,113 |
– |
n/a |
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3,187 |
– |
n/a |
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Acquisitions |
15,419 |
691,023 |
(98 |
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27,385 |
778,946 |
(96 |
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Total capital expenditures |
55,742 |
722,020 |
(92 |
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180,272 |
854,709 |
(79 |
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Net debt is calculated as bank debt plus trade and other liabilities plus finance lease obligations less current assets. The following table reconciles net debt (a non-IFRS measure) to bank debt (an IFRS measure):
($ thousands) |
December 31, 2017 |
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December 31, 2016 |
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Net debt |
226,034 |
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245,685 |
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Trade and other liabilities |
(69,943 |
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(38,546 |
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Finance lease obligations |
(26,830 |
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(31,124 |
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Current assets |
51,407 |
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41,906 |
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Bank debt |
180,668 |
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217,921 |
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Spartan management considers net debt excluding finance lease obligations to be a meaningful measure of the Company’s leverage and liquidity. The following table reconciles net debt (a non-IFRS measure) to net debt excluding finance lease obligations (a non-IFRS measure):
($ thousands) |
December 31, 2017 |
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December 31, 2016 |
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Net debt |
226,034 |
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245,685 |
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Finance lease obligations |
(26,830 |
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(31,124 |
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Net debt excluding finance lease obligations |
199,204 |
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214,561 |
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This press release also contains other industry benchmarks and terms, including total market capitalization (defined as net debt plus total outstanding common shares multiplied by the period end market price per share), operating netbacks (calculated on a per unit basis as oil, gas and natural gas liquids revenues, plus/minus realized derivative contracts, less royalties and less operating and transportation costs), and corporate netbacks (calculated on a per unit basis as oil, gas and natural gas liquids revenues, plus/minus realized derivative contracts, less royalties, less operating and transportation costs, less general and administrative expenses and less interest expense), which are not recognized measures under IFRS. Management believes that in addition to net income (loss) and cash flow from (used in) operating activities, adjusted funds flow from operations, excess adjusted funds flow from operations, net debt, net debt excluding finance lease obligations, total market capitalization and operating and corporate netbacks are useful supplemental measures as they provide an indication of Spartan’s operating performance, leverage and liquidity. Investors should be cautioned, however, that these measures should not be construed as an alternative to both net income (loss) and cash flow from (used in) operating activities, which are determined in accordance with IFRS, as indicators of Spartan’s performance.
Oil and Gas Advisories
BOE Disclosure. The term barrels of oil equivalent (“BOE”) may be misleading, particularly if used in isolation. A BOE conversion ratio of six thousand cubic feet of natural gas to barrels of oil equivalence is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All BOE conversions in the report are derived from converting gas to oil in the ratio mix of six thousand cubic feet of gas to one barrel of oil.
Reserves Disclosure. All reserve references in this press release are “Company share reserves”. Company share reserves are the Company’s total working interest reserves before the deduction of any royalties and including any royalty interests of the Company.
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