Our operational and financial highlights for the three and nine months ended September 30, 2018 are noted below and should be read in conjunction with our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2018 and 2017 and our related management’s discussion and analysis which have been posted on the SEDAR website (www.sedar.com) and our website (www.chinookenergyinc.com).
Third Quarter of 2018 Financial and Operating Highlights
|Three months ended
||Nine months ended
|Natural gas liquids (boe/d)||707||405||620||442|
|Natural gas (mcf/d)||24,454||14,109||20,210||17,051|
|Crude oil (bbl/d)||24||19||22||22|
|Average daily production (boe/d) (1)||4,807||2,776||4,010||3,306|
|Average natural gas liquids price ($/boe)||$||63.73||$||42.07||$||63.46||$||46.22|
|Average natural gas price ($/mcf)||$||1.54||$||1.20||$||1.74||$||2.31|
|Average oil price ($/bbl)||$||71.35||$||51.49||$||71.82||$||57.52|
|Average commodity pricing ($/boe)||$||17.59||$||12.61||$||18.97||$||18.49|
|Royalty recovery (expense) ($/boe)||$||–||$||0.52||$||(0.07||)||$||0.09|
|Realized (loss) gain on commodity price contracts ($/boe)||$||(0.17||)||$||6.54||$||(0.28||)||$||2.70|
|Net production expense ($/boe) (2)||$||(9.74||)||$||(12.32||)||$||(11.06||)||$||(11.77||)|
|Operating Netback ($/boe) (1) (2)||$||7.68||$||7.35||$||7.56||$||9.51|
|Exploratory wells (net)||–||–||2.00||–|
|Natural gas wells (net)||–||–||–||3.63|
|Three months ended
||Nine months ended
|FINANCIAL ($ thousands, except per share amounts)|
|Petroleum & natural gas revenues, net of royalties||$||7,778||$||3,351||$||20,691||$||16,772|
|Adjusted funds flow (2)||$||2,285||$||647||$||4,592||$||3,878|
|Per share – basic and diluted ($/share)||$||0.01||$||–||$||0.02||$||0.02|
|Cash inflow (outflow) from operating activities||$||1,132||$||(1,352||)||$||633||$||3,483|
|Net (loss) income||$||(1,944||)||$||(3,923||)||$||(6,513||)||$||4,246|
|Per share – basic and diluted ($/share)||$||(0.01||)||$||(0.02||)||$||(0.03||)||$||0.02|
|Net (debt) surplus (2)||$||(713||)||$||3,616||$||(713||)||$||3,616|
|Common Shares (thousands)|
|Weighted average during period|
|Outstanding at period end||223,605||217,115||223,605||217,115|
- Amounts may not be additive due to rounding.
- Adjusted funds flow, adjusted funds flow per share, net (debt) surplus, operating netback and net production expense are non-GAAP measures. These terms do not have any standardized meanings as prescribed by IFRS and, therefore, may not be comparable with the calculations of similar measures presented by other companies. See headings entitled “Adjusted Funds Flow”, “Net (Debt) Surplus”, “Operational Netback” and “Net Production Expense” in the Reader Advisory below for further information on such terms.
Highlights for the three months ended September 30, 2018
- During the third quarter of 2018 (“third quarter”) corporate production increased by 73%, or 2,031 boe/d, compared to the same quarter of 2017 and increased 9% relative to the 4,413 boe/d reported in the 2018 second quarter.
- Adjusted funds flow for the third quarter of $2.3 million resulted from both higher production volumes and average commodity pricing.
- Net production expenses decreased by 21%, or $2.58/boe (to $9.74/boe), in the third quarter compared to same quarter of 2017. Specifically, our third quarter production expenses averaged $7.68/boe in our Birley/Umbach area.
- General and administrative expenses of $2.12/boe for the third quarter represented a decrease of $0.24 million, or 20%, compared to the same quarter of 2017 and reflected the impact of ongoing reductions in staffing, employee benefits and information system costs.
- Net debt at September 30, 2018 was reduced to $0.7 million, from $2.7 million at June 30, 2018.
We believe that our capital program during the past few years which saw us drill and complete 13 (11.23 net) wells on our Birley/Umbach property as well as complete our Birley facility expansion to 50 mmcf/d puts us in an excellent position to accelerate activity when commodity prices recover. With over 550 locations on our Birley/Umbach property and only 13 drilled to date, we have confirmed the resources are there and our objective is to extract them efficiently and profitably. Our additional delineation work in the first quarter has expanded the boundaries of the Montney resource in the area. Although we are encouraged with our results to date, we remain cautious on making further significant capital expenditures until such time as commodity prices improve to a more constructive level.
Unfortunately, Enbridge’s recent (October 9, 2018) pipeline rupture near Prince George, BC has negatively impacted the natural gas price at Station 2 (which traded at negative $1.245/gj on November 7, 2018). Enbridge subsequently issued a notice that this Westcoast pipeline has been repaired and returned to service in early November, albeit at a reduced operating pressure of 80%. This reduced service is likely to have a continued negative impact on Station 2 gas prices for the duration of the restriction, understood to be for the entire winter gas season. Although we continue to explore additional egress options, most transport services are currently fully contracted or are not economically viable. As such, we have currently voluntarily restricted our natural gas production to match firm gas sales markets (Chicago City Gate via Alliance) allowing us to produce approximately 1,900 boe/day. We will continue to monitor this situation and the related remediation by Enbridge. Prior to the pipeline rupture, commodity prices in 2018 have been higher than our internal forecasts, and should this pricing return to pre-pipeline rupture levels, they would serve to strengthen our balance sheet and facilitate future drilling activity.
We continue to prudently manage our production volumes and will continue to monitor commodity prices throughout the year and shut-in production where warranted. As a result of recent voluntary shut-ins our 2018 October production volumes were approximately 2,200 boe/day, down from 5,112 boe/day in September.
2018 Guidance Update
In our August 9, 2018 news release we provided guidance for the second half and full year 2018. The production and net debt guidance numbers provided in this news release will not be met as they are negatively impacted by the recent Enbridge pipeline outage. Given the uncertainty of the impact on winter BC Station 2 pricing, we are unable to provide updated guidance at this time.
Please see our related management’s discussion and analysis for the three and nine months ended September 30, 2018 and 2017 for details of our operational and financial results.
About Chinook Energy Inc.
Chinook is a Calgary-based public oil and natural gas exploration and development company which is focused on realizing per share growth from its large contiguous Montney liquids-rich natural gas position at Birley/Umbach, British Columbia.