CALGARY, Alberta, May 10, 2018 (GLOBE NEWSWIRE) — Crew Energy Inc. (TSX:CR) (“Crew” or the “Company”) is pleased to announce our operating and financial results for the three month period ended March 31, 2018. Our Financial Statements and Notes, as well as Management’s Discussion and Analysis (“MD&A”) for the three month period ended March 31, 2018 are available on Crew’s website and filed on SEDAR.
- Production Growth in Q1 2018: At 25,939 boe per day, average volumes were 12% higher than Q1 2017 reflecting Crew’s program focused on completion of condensate-rich wells at West Septimus in northeast British Columbia (“NE BC”).
- Increased Montney Condensate Production: Crew’s continued focus on condensate-rich opportunities at West Septimus resulted in Montney condensate production increasing 41% to average 2,699 bbls per day and other natural gas liquids increasing 24% to average 1,792 bbls per day relative to Q1 2017. Realized prices in Q1 2018 for condensate and other natural gas liquids were stronger relative to Q1 2017, averaging $73.82 per bbl and $24.81 per bbl, respectively.
- Robust Greater Septimus Netbacks Support Adjusted Funds Flow: Corporate operating netbacks averaged $14.70 per boe in Q1 2018, while Greater Septimus operating netbacks were 18% higher averaging $17.30 per boe. Adjusted Funds Flow (“AFF”) of $26.4 million ($0.17 per diluted share) was 5% lower than Q1 2017, with higher production and stronger condensate and other natural gas liquids pricing offset by lower realized natural gas and heavy oil pricing.
- Capital Activity Focused on Completion of Condensate-Rich Wells: Net capital expenditures totaled $23.9 million ($33.9 million before dispositions), directed to the completion of nine (7.7 net) previously-drilled wells at West Septimus and the recompletion of 11 (10.5 net) heavy oil wells in Lloydminster. Three of the nine West Septimus wells were brought on production during Q1 with the remaining six wells expected to be brought on in late Q2 or early Q3. The Company also completed the majority of the construction of 83 km of line pipe from the West Septimus facility through Groundbirch to the Saturn meter station.
- Balance Sheet Strength Maintained: Net debt declined $6.7 million from year end 2017 to $338.3 million, including $300 million of term debt that has no repayment required until 2024. Crew completed our annual bank review maintaining the borrowing base of our syndicated credit facility at $235 million supported by our strong 2017 proved developed producing reserve additions. The Company also closed a $10.0 million cash disposition of certain assets within the Lloydminster area comprised of 882 acres of land with no associated production.
FINANCIAL & OPERATING HIGHLIGHTS
($ thousands, except per share amounts)
Mar. 31, 2018
Mar. 31, 2017
|Petroleum and natural gas sales||59,427||57,298|
|Adjusted Funds Flow(1)||26,373||27,719|
|Per share – basic||0.18||0.19|
|Per share – basic||0.03||0.05|
|Exploration and Development expenditures||33,921||75,164|
|Property acquisitions (net of dispositions)||(10,007||)||(352||)|
|Net capital expenditures||23,914||74,812|
Mar. 31, 2018
Dec. 31, 2017
|Working capital (surplus) deficiency(2)||(3,324||)||29,143|
|Senior Unsecured Notes||294,121||293,862|
|Total Net Debt||338,326||344,982|
|Common Shares Outstanding (thousands)||149,346||149,328|
(1) Adjusted funds flow is calculated as cash provided by operating activities, adding the change in non-cash working capital, decommissioning obligation expenditures and accretion of deferred financing costs. Adjusted funds flow is used to analyze the Company’s operating performance and leverage. Adjusted funds flow does not have a standardized measure prescribed by International Financial Reporting Standards and therefore may not be comparable with the calculations of similar measures for other companies. See “Non-IFRS Measures” contained within Crew’s MD&A.
(2) Working capital (surplus) deficiency includes cash and cash equivalents plus accounts receivable less accounts payable and accrued liabilities.
Mar. 31, 2018
Mar. 31, 2017
|Light crude oil (bbl/d)||316||530|
|Heavy crude oil (bbl/d)||1,747||1,857|
|Other natural gas liquids (bbl/d)||1,792||1,448|
|Natural gas (mcf/d)||116,312||104,887|
|Total (boe/d @ 6:1)||25,939||23,231|
|Average prices (1)|
|Light crude oil ($/bbl)||68.20||59.74|
|Heavy crude oil ($/bbl)||36.09||42.93|
|Natural gas liquids ($/bbl)||24.81||22.06|
|Natural gas ($/mcf)||2.85||3.54|
|Oil equivalent ($/boe)||25.46||27.40|
(1) Average prices do not include gains and losses on financial instruments.
Mar. 31, 2018
Mar. 31, 2017
|Petroleum and natural gas sales||25.46||27.40|
|Realized commodity hedging loss||(0.93||)||(0.39||)|
|Marketing revenue (1)||0.29||–|
|Net operating costs||(6.29||)||(5.38||)|
|Operating netback (2)||14.70||17.16|
|Financing costs on long-term debt||(2.44||)||(2.41||)|
|Adjusted funds flow||11.30||13.25|
|Working interest wells||0.0||15.0|
|Success rate, net wells (%)||–||93||%|
(1) Marketing revenue was recognized from the monetization of forward physical sales contracts in the period.
(2) Operating netback equals petroleum and natural gas sales including realized hedging gains and losses on commodity contracts less royalties, operating costs and transportation costs calculated on a boe basis. Operating netback and adjusted funds flow netback do not have a standardized measure prescribed by International Financial Reporting Standards and therefore may not be comparable with the calculations of similar measures for other companies. See “Non IFRS Measures” within Crew’s MD&A.
Higher Production from West Septimus
- Q1 2018 production of 25,939 boe per day is a 12% increase over the first quarter of 2017 and 3% higher than the previous quarter and reflects continued strong results at West Septimus, with only three of the nine wells completed during Q1 2018 brought on stream through permanent facilities and two (1.6 net) wells that were flow-tested over an extended period.
- The Company continues to manage natural gas production given weak prices realized at delivery points in Canada. In particular, legacy dry gas production, processed and transported through third party facilities, has been limited during times when realized prices at Station II have fallen below $1.50 per GJ.
- Planned maintenance programs by all Canadian pipeline operators during Q2 2018 have impacted Canadian natural gas prices. As such, Crew has budgeted to leave six of the West Septimus wells completed during the first quarter shut-in through most of Q2. The Company currently plans to bring the wells on stream later in the year when prices are expected to recover.
Adjusted Funds Flow Exceeds Net Capital Expenditures
- Q1 2018 AFF totaled $26.4 million ($0.17 per diluted share), exceeding net capital expenditures during the period. AFF was 5% lower (6% on a diluted per share basis) relative to Q1 2017, and 23% lower on an absolute and per share basis compared to Q4 2017, as higher production volumes were offset by lower realized natural gas and heavy oil pricing.
- Petroleum and natural gas sales in Q1 2018 increased 4% over Q1 2017 as a result of higher production volumes, in particular higher condensate production, and improved pricing for light oil, condensate and other natural gas liquids prices. This was partially offset by lower heavy oil and natural gas prices and higher cash costs.
- Cash costs per boe have increased 1% over Q1 2017 as lower royalties and general and administrative costs were offset by an increase in operating costs. Operating costs have increased over the first and fourth quarter of 2017 with a full quarter of fixed costs associated with the expanded West Septimus facility realized in Q1 2018. The expanded West Septimus facility provides Crew with the processing capacity to increase corporate production by over 50% from current levels, including the handling of an additional 5,000 barrels per day of incremental liquids production.
Greater Septimus Netbacks Remain Robust
- Greater Septimus operating netbacks were $17.30 per boe in Q1 2018, 18% higher than Crew’s corporate operating netback of $14.70 per boe. Year over year netbacks at Greater Septimus reflect lower realized natural gas pricing and an increase in unit operating costs at the recently expanded West Septimus gas processing facility, offset by an increase in condensate production, higher prices for condensate and NGLs and lower royalties.
Strong Liquids Pricing Partially Offset Weak Natural Gas Prices
- Q1 2018 commodity prices averaged $25.46 per boe, a 7% decline over Q1 2017 and a 2% decline over the previous quarter.
- Realized total liquids prices increased 9% to $50.09 per boe compared to Q1 2017, a decrease of 7% over Q4 2017. Crew’s liquids pricing in the first quarter benefited from increased condensate production relative to other, lower valued liquids and stronger condensate pricing, offset by weaker pricing for the Company’s heavy oil sales. A stronger West Texas Intermediate (“WTI”) benchmark price, which increased 13% quarter over quarter and 16% compared to Q1 2017, benefited Crew’s light oil and condensate pricing. The WTI increase was supported by tightening world oil markets and geopolitical tensions that continue to build between several nations.
- Conversely, Canadian heavy oil prices represented by the Western Canadian Select benchmark were 11% lower quarter over quarter and 1% lower compared to Q1 2017. Canadian heavy oil prices were negatively impacted by limited export transportation options out of western Canada and high inventory levels caused by a major export pipeline outage in the fourth quarter of 2017.
- Realized natural gas prices decreased 19% to $2.85 per mcf compared to Q1 2017, while increasing 8% over Q4 2017. Natural gas prices year over year have been impacted by increasing natural gas production throughout North America. The oversupplied market situation has been amplified in Canada as bottlenecks in our natural gas pipeline system have limited the delivery of Canadian production to markets outside of western Canada. This has significantly widened the differential between western Canadian benchmark prices and those outside of this region. Crew’s diversified marketing portfolio, which had 42% exposure to Chicago City Gate prices in the first quarter, contributed to Crew outperforming the AECO 5A benchmark price by 37%.
Capital Expenditures Focused at West Septimus
- Q1 2018 exploration and development expenditures of $33.9 million ($23.9 million net of the impact of dispositions) included the completion of nine (7.7 net) liquids-rich wells in West Septimus, of which three were tied-in during the quarter.
- During the first quarter, Crew closed a $10.0 million cash disposition of certain assets in the Lloydminster area comprised of 882 acres of land, directing the proceeds to offset a portion of the first quarter capital program.
Balance Sheet Strength and Financial Flexibility Remain a Priority
- Balance sheet strength and ongoing financial flexibility were strengthened with net debt declining to $338.3 million, including $300 million of term debt with no financial covenants and no repayment required until 2024.
- Crew exited the period 20% drawn on our $235 million bank facility. The Company’s bank syndicate recently completed its annual review extending the facility for an additional one-year term and maintaining the borrowing base at $235 million, supported by our strong 2017 proved developed producing reserve additions.
TRANSPORTATION, MARKETING & HEDGING
- Natural Gas Pricing Exposure: Approximately 40% Chicago City Gate, 19% AECO, 16% Alliance ATP, 13% Dawn, 8% Malin and 4% Sumas through the second and third quarters of 2018.
- Crystalizing Value: During Q1 the Company elected to monetize the value inherent in our Dawn and Malin market exposure for Q2 and Q3 of 2018. As a result, the Company realized $0.7 million of marketing revenue in Q1 related to the monetization of 50% of Crew’s Q2 and Q3 Malin exposure. An additional amount of approximately $3.0 million of marketing revenue will be recognized over Q2 and Q3 related to the monetization of the remaining Malin and Crew’s Dawn exposure for those periods.
- New Natural Gas Sales Exposure: Commencing in Q4 2018, the Company will benefit from additional natural gas sales exposure that complements our long-standing market diversification strategy and offers access to further natural gas delivery points, including Nymex.
Natural Gas & Liquids Hedging
- Approximately 24% of budgeted 2018 natural gas volumes are hedged at an average of $2.50 per GJ or approximately $2.64 per mcf which increases to approximately $3.10 per mcf after adjusting for Crew’s heat conversion.
- Through 2018, 2,750 bbls per day of WTI are hedged at a minimum average price of C$72.57 per bbl, 500 bbls per day of Western Canadian Select for the second half of 2018 at an average price of C$57.90 per bbl and 400 bbls per day of OPIS Conway propane hedged at US$0.7863 per gallon or US$33.03 per bbl.
- The Company has started adding to our 2019 risk management program with 1,500 barrels per day of WTI hedged at an average price of C$72.88 per barrel. As a result of the weak forward pricing for natural gas, the Company has only hedged 2,500 mmbtu per day of Chicago City Gate gas at C$3.16 per mmbtu.
OPERATIONS & AREA OVERVIEW
NE BC Montney – Greater Septimus
- Three (3.0 net) wells were placed on production at rates that were disclosed in Crew’s February 8, 2018 press release. Six (4.7 net) new wells situated within the West Septimus core area were completed in the quarter with limited flow data. To facilitate water management, two of the six wells were flow tested for an extended period and produced at an average rate of 7.4 mmcf per day and 325 bbls per day of NGLs (55% condensate) after ten days of post-frac flow at an average flowing casing pressure of 2,258 psi over the last six hours of the test, equating to an average per well sales rate of 1,473 boe per day. Crew expects to have additional flow data from these wells in our Q2 2018 press release in August. The cost for the six wells averaged approximately $4.3 million per well.
- In the first quarter of 2018, Crew completed the majority of the construction of strategic line pipe infrastructure from the West Septimus facility through our Groundbirch acreage connecting into the existing TCPL Saturn meter station and expects the project to be finalized by the end of the third quarter. This will complete Crew’s goal of accessing all three major export pipelines in BC.
- Crew continuously evaluates the drilling and completion evolution in the ultra-condensate rich (“UCR”) Montney reservoirs across Western Canada and has developed a next generation plan for the development of this highly prospective area. Immediately after spring breakup we plan to begin drilling the next four well pad in the UCR area at lengths that are 30-50% longer and we intend to utilize a revised cased-hole plug and perf completion design which is expected to improve condensate recovery.
Greater Septimus Operational Statistics
|Production & Drilling||Q1
|Average daily production (boe/d)||20,467||20,193||18,154||15,558||17,440|
|Wells drilled (gross / net)||–||5 / 3.9||13 / 12.3||5 / 5.0||10 / 10.0|
|Wells completed (gross / net)||9 / 7.7||3 / 3.0||14 / 14.0||9 / 9.0||3 / 3.0|
($ per boe)
|Realized commodity hedge (loss) / gain||(1.01||)||1.74||2.97||0.77||(0.41||)|
(1) Operating netback equals petroleum and natural gas sales including realized hedging gains and losses on commodity contracts less royalties, operating costs and transportation costs calculated on a boe basis. Operating netback does not have a standardized measure prescribed by International Financial Reporting Standards and therefore may not be comparable with the calculations of similar measures for other companies. See “Non IFRS Measures” within Crew’s MD&A.
NE BC Montney – Tower
- Production in the Tower area averaged 1,065 boe per day in Q1 2018. Crew continues to evaluate the relative economics of Tower development as well as the encouraging early results from our peers in the Lower Montney.
- A strategic partner completed construction of a water handling facility at Tower during Q1 2018, and Crew is a priority customer. In light of reduced operating costs associated with improved water handling coupled with the strength in oil prices, Tower’s economics represent an attractive option for continued investment.
AB / SK Heavy Oil – Lloydminster
- Crew’s previously announced sales process in respect of our Lloydminster asset is ongoing, while netbacks in the area continue to improve as benchmark crude oil prices have increased and differentials have narrowed. During the first quarter, the Company divested of 882 acres of land at Lloydminster with no associated production and approximately $0.4 million of abandonment and reclamation obligations for cash proceeds of $10.0 million.
- Despite limited capital investment, average production in the area was 1,748 boe per day during the first quarter, representing a 3% decline over the previous quarter. Activities included the recompletion of 11 (10.5 net) oil wells for total capital cost of $0.5 million.
Execution of Fully Funded Budget Remains on Track
- Crew’s Q2 capital expenditures are expected to be approximately $12 to $15 million, reflecting reduced activity and restricted access typically associated with spring breakup. The capital expenditure budget has been maintained at $80 to 85 million (gross) or net $70 to 75 million after the impact of the Q1 disposition.
Annual Production on Budget with Second Quarter Forecast Reflecting Broader Market Conditions
- Pipeline restrictions in Canada continue to plague the industry and have resulted in lower benchmark prices. Several third-party pipeline maintenance activities are scheduled in Alberta and BC during Q2 2018, leading to interruptible export and storage service restrictions that are currently being reflected in very low Western Canadian natural gas prices for May and June.
- In light of weak pricing, Crew plans to shut-in volumes to preserve value. However, with our diversified marketing strategy, the Company maintains optionality to reduce exposure to markets that do not offer economic pricing and we will continue to closely monitor natural gas market dynamics and adjust production levels to generate optimal returns.
- Currently, Crew has six (4.7 net) completed wells and four (3.6 net) drilled uncompleted wells to bring on production when prices are supportive. In addition, following spring breakup, the Company will commence drilling a four well pad in the UCR area. Based on activity levels through spring break-up, the impact of shutting-in volumes and electing to defer producing the six wells completed in the first quarter, Q2 production is expected to average 22,000 to 23,000 boe per day, which is in-line with our original budget and supportive of Crew’s annual forecast average production of 23,500 to 24,500 boe per day.
We thank our employees, contractors and directors for their commitment and dedication through the current market conditions, and we thank all of our shareholders and bondholders for their continued support of Crew.