CALGARY, Alberta, Nov. 12, 2018 (GLOBE NEWSWIRE) — NuVista Energy Ltd. (“NuVista” or the “Company”) (TSX:NVA) is pleased to announce results for the three and nine months ended September 30, 2018 and provide an update on its future business plans. NuVista experienced another robust quarter with continued development drilling success. Production and adjusted funds flow increased significantly, reaching record levels due to strong well and facility performance, and additional acquired volumes, despite planned outages.
NuVista is continuing to deliver as planned on our 2018 drilling program. We have kept our Bilbo and Elmworth facilities essentially full during the third quarter, and we continue to push them further. We have been making impactful progress in Gold Creek development as we now begin to prepare pads for the spring startup of the Wapiti SemCAMS gas plant. We possess a material position in the condensate-rich Wapiti Montney play, and we have significantly augmented that position during the third quarter with the previously announced acquisition in the Pipestone area (the “Acquired Assets”). We aim to deliver strong financial returns to shareholders today and over the long term. As our production has continued to increase at a measured pace, every area of our business is demonstrating improving efficiencies as planned.
These past months have certainly been volatile, with significant commodity price and product differential fluctuations. We continue to derive stability from our ongoing hedging program and also our natural gas sales diversification efforts. With our prudent focus on balance sheet strength, we maintain flexibility to adjust capital spending and pace of growth commensurate with the business environment while adhering to our long term value creation and profitability objectives.
Significant Operating Highlights
- Achieved a record in the third quarter of 2018 with production of 40,080 Boe/d including 32% condensate, above the top of our third quarter guidance range of 37,500 to 39,000 Boe/d. This is 11% above second quarter 2018 production and 36% above the third quarter of 2017. This result is due to strong recent well and facility performance as well as the partial contribution in the quarter from the Acquired Assets of approximately 2,950 Boe/d. These increases were partially offset by planned and unplanned outages at midstream facilities resulting in a reduction of 2,225 Boe/d for the quarter;
- Achieved adjusted funds flow of $72.6 million ($0.39/share, basic) for the third quarter, as compared to $69.5 million ($0.40/share, basic) for the prior quarter due to improved production, offset slightly by hedging losses, one-time acquisition transaction costs of $2.6 million, and (for the per share metrics only) the issuance of common shares for the Acquired Assets. This third quarter adjusted funds flow result represents a 75% increase compared to the third quarter of 2017, and an increase of 63% in adjusted funds flow per share versus the same period;
- Successfully executed an active third quarter capital program of $65.8 million, with rig-release of 7.0 (6.9 net) wells in our Wapiti Montney condensate rich resource play;
- Achieved a number of new well production milestones with improving results, as detailed below;
- Achieved third quarter operating costs of $9.82/Boe. This result is down 5% from the prior quarter, and down 4% from the third quarter of 2017, as we continue on our multi-year trend of reducing operating costs in our Montney play;
- Delivered G&A costs in line with our expectations at $1.18/Boe, a reduction of 14% from the prior quarter, and down 22% compared to the third quarter of 2017 due to increased efficiency and higher production levels; and
- Exited the third quarter of 2018 with net debt of $493 million, including credit facility borrowings of $278 million versus our facility limit of $450 million. The credit facility was increased from $310 million during the quarter upon closing of the transaction for the Acquired Assets. NuVista concluded the third quarter with a ratio of net debt to annualized current quarter funds from operations of 1.7 times. This metric is 1.5 times if one takes into account a pro forma view if the Acquired Assets had been contributing for the entire third quarter.
Production at Gold Creek averaged approximately 9,000 Boe/d with 30% condensate in Q3. These volumes will be directed to the new SemCAMS Wapiti gas plant upon startup. The latest two ERH wells have now passed the IP90 mark and are outperforming the previous average by two-fold, averaging 2,397 Boe/d per well at 32% condensate. Four additional wells have been drilled and are awaiting completion operations in Q1 2019 in advance of the Wapiti plant startup. Plant commissioning is still planned to commence during the first quarter of 2019, with incremental NuVista volumes from the four-well pad expected to contribute sometime in the second quarter depending on spring breakup conditions. The next four-well pad in Gold Creek is scheduled to spud early in the first quarter of 2019.
Elmworth production averaged approximately 10,000 Boe/d with 23% condensate in the third quarter. Drilling will commence late in the fourth quarter on a three-well pad that will offset the volumes from Gold Creek which will move out of the Elmworth compressor station to the new Wapiti plant at the end of the first quarter of 2019. The first two high fracture intensity (HiFi) completions have reached the IP365 mark and averaged 1,440 Boe/d over their first year which is 90% greater than the previous average including over double the first year condensate rate at 361 Bbl/d. This result continues to underpin the progression to a shallowing base decline and improved capital efficiency for the area.
Combined production at Gold Creek and Elmworth was impacted by an unscheduled 7 day outage at the SemCAMS K3 plant which reduced third quarter volumes by approximately 825 Boe/d. In November, total combined production from the two areas continues at over 20,000 Boe/d.
Bilbo production averaged approximately 17,700 Boe/d with 40% condensate for the quarter. Operations included the successful completion of a three-well pad and the drilling of a five-well pad which is currently being completed. A four-well pad, including two Lower Montney wells, is currently drilling and will be completed and brought on stream in the first quarter of 2019 in order to maintain production at full capacity. In addition, a successful gas-lift pilot project has been implemented in order to maximize rates for heritage producing wells with high liquids content. The project has seen early success and we expect it to contribute to the continued reduction in the base decline of the asset.
Production at Bilbo was restricted for 7 days due to a scheduled outage at the Keyera Simonette Plant, impacting the quarter by 1,400 Boe/d total.
The third quarter marked a significant turning point for NuVista’s Pipestone area as we kicked off the Pipestone South development and also completed a major acquisition at Pipestone North with the purchase of the Acquired Assets.
At NuVista’s pre-existing land block, Pipestone South, we announced the commencement of construction of our new Pipestone South compressor station after receiving approval from the Alberta Energy Regulator. The facility design has been upsized from the original 10,000 Boe/d to 15,000 Boe/d. The upsize is a result of augmented drilling inventory after continued positive drilling results by NuVista and competitors in the area within several of the Montney layers. NuVista has commenced construction of our first pad site. The first will be an 8-well cube development where we are planning on drilling up to four Montney layers. The compressor station and this first pad have been targeted to come on stream in mid fourth quarter 2019.
The completion of the acquisition at Pipestone North has gone smoothly, and the integration of the new staff and assets is proceeding well. Production from the Acquired Assets has met or exceeded expectations, contributing approximately 2,950 Boe/d in the third quarter (or approximately 10,800 Boe/d for 25 days after closing of the transaction for the Acquired Assets). Production volumes in Pipestone North have been kept flat for the time being, as we offset natural declines by bringing on wells that were temporarily shut-in to make room for the most recent pad. As noted in our November 1 press release, the first egress solution for Pipestone North has been secured and development drilling may commence as early as the fourth quarter of 2019. NuVista has signed flexible agreements with Veresen Midstream Limited Partnership (“VMLP”) and Pembina Pipeline (“Pembina”) for raw gas and liquids processing from Pipestone North, including the transportation to market of all sales products including natural gas, condensate, and C3+. Also included was a fractionation agreement for the C3+ at Pembina’s Redwater facility. The capacity is to be provided with flexible take-or-pay terms in two tranches of 50 MMcf/d raw gas separated by one year, the first commencing in late 2020. Half of the second tranche may be deferred from 2021 to 2022 at NuVista’s option. To further bolster balance sheet flexibility, NuVista has the option to have VMLP fund the planned Pipestone North compressor station, which NuVista will construct and operate. And finally, NuVista has entered into an agreement with a third party to deliver the sales gas associated with the first tranche of 50 MMcf/d raw to Chicago via Alliance Pipeline, further diversifying our natural gas sales exposure.
We continue to focus on first year capital efficiency, condensate proportion, recycle ratio, and striving for half-cycle payouts below one year as primary measures of economic well performance. Together with our pre-existing capacity, the preceding has advanced our firmly contracted processing and egress capacity to 90,000 Boe/d, a significant milestone on our planned journey to 110,000 Boe/d.
Commodity Price Risk Management Continues to Benefit NuVista
NuVista continues to benefit from the discipline of our strong hedging program during this period of volatile commodity prices. This has been a challenging summer for AECO, with spot natural gas prices under pressure due to temporary restrictions in pipeline and compressor station capacity on the Alberta NGTL system. We are pleased to report that there was virtually no impact to NuVista pricing as a result of these restrictions and price reductions. We currently possess hedges which in aggregate cover 66% of remaining 2018 projected liquids production at a floor WTI price of C$ 72.62/Bbl, and 58% of remaining 2018 projected gas production at a price of C$ 2.57/Mcf. Due to our fixed price hedges, basis hedges, and our export pipeline volumes, NuVista has less than 14% of our natural gas volumes exposed to spot AECO prices in the fourth quarter of 2018, and 32% in 2019. We have good diversification away from AECO dependence while maintaining winter gas price upside exposure through Nymex. We currently possess WTI hedges for 2019 on 50% of oil & condensate production at a floor price of C$ 80.48/Bbl while gas is hedged at 32% of expected production at a floor price of C$ 2.20/Mcf. All of these percentage figures relate to forecast production net of royalty volumes.
WCS Heavy oil differentials averaged at a US$ 22.25/Bbl discount to WTI in the third quarter of 2018 while Edmonton light sweet and condensate averaged a US$ 6.76/Bbl and US$ 2.68/Bbl discount to WTI respectively. Significant growth in heavy oil production continues in Western Canada. With fall refinery maintenance lowering demand, coupled with high local storage levels and a lack of new export pipeline capacity, there has been significant pressure on heavy oil prices heading into the fourth quarter of 2018. High levels of apportionment on local feeder pipelines and export pipelines have also led to a significant widening of differentials including light sweet and condensate differentials. Heavy oil differential futures have exceeded a US$ 40/Bbl discount to WTI going into late fourth quarter 2018. The light sweet discount has been over US$ 30/Bbl, and condensate has been in the US$ 10-20/Bbl range for the fourth quarter. The long term solution is new export pipeline capacity which will begin with the Enbridge Line 3 replacement project which is expected to be operational in the latter part of 2019. In the short term industry will need to ramp up volumes by rail to get additional volumes to market and may need to curb production volumes. This should lead to moderating differentials in the coming months for heavy oil and in turn for light oil and condensate. Condensate discounts may stay wider than normal for the next few months as industry adjusts, however longer term industry in Alberta continues to have a significant condensate supply shortfall relative to demand. As a result, significant volumes are expected to continue to be imported from the U.S.A. which should lead back to the condensate differential premiums which have typically been experienced.
2019 Guidance Provided and 2018 Guidance Reaffirmed
We are pleased to reaffirm our 2018 production guidance in the range of 38,750 to 40,000 Boe/d. This includes fourth quarter guidance unchanged at 46,000 to 48,500 Boe/d. 2018 adjusted funds flow is also reaffirmed in the range of $260 to $270 million based on current strip pricing1. Our 2018 capital plan remains unchanged in the range of $325 – $350 million.
Given the recent widening of commodity price differentials and a sentiment of capital market uncertainty, we have elected to maintain maximum flexibility in spending commitments for 2019 and beyond. While we have made commitments which allow us to pursue a pace of growth to over 90,000 boe/d in the next few years, we will continue to monitor the economic environment prior to pursuing that rapid pace. As such, we are moderating our 2019 production and capital guidance ranges and we will also maintain them within a broad band for the time being. 2019 capital expenditure expectations are reduced to the range of $300 to $400 million depending on commodity prices and the pace of growth ultimately selected for 2020. This level of reduced spending enables us to maintain maximum financial flexibility heading into 2019. As we move through the year, should commodity prices improve over what we are currently forecasting, we will consider reinstating our original growth plans.
The corresponding 2019 production is expected to be in the range of 52,000 to 56,000 Boe/d, approximately 37% higher than 2018. This forecast includes the impact of a planned outage at SemCAMS K3 plant in the first quarter of 2019. The resulting first quarter production guidance is approximately 43,500 to 46,000 Boe/d, including 4,000 Boe/d of planned downtime. Compared to our prior outlook for 2019, the foregoing represents a midpoint capital guidance reduction of 27% accompanied by a midpoint production guidance reduction of 3.5%.
Given top quality assets and a management team focused upon relentless improvement, NuVista will continue to optimize well results, improve margins, and grow our production profitably toward our long term goal of 110,000 Boe/d. We will do so at a pace which remains in tune with the economic environment and maximizes our return on every dollar invested. We would like to thank our staff, contractors, and suppliers for their continued dedication and delivery, and we thank our board of directors and our shareholders for their guidance and support as we build an ever more valuable future for NuVista.
Please note that our corporate presentation is being updated and will be available at www.nuvistaenergy.com on November 12, 2018. NuVista’s third quarter 2018 condensed interim financial statements and notes to the financial statements and management’s discussion and analysis will be filed on SEDAR (www.sedar.com) under NuVista Energy Ltd. on November 12, 2018 and can also be accessed on NuVista’s website.
1 Strip pricing assumptions for 4Q 2018: WTI $US68.00/Bbl, NYMEX Gas $US3.14/MMBTU, AECO gas $2.05/GJ, CAD:USD 1.3083 FX
|Three months ended September 30||Nine months ended September 30|
|($ thousands, except per share and $/Boe)||2018||2017||% Change||2018||2017||% Change|
|Petroleum and natural gas revenue||150,956||83,100||82||412,843||246,737||67|
|Adjusted funds flow (1) (2)||72,610||41,526||75||200,813||124,098||62|
|Per share – basic||0.39||0.24||63||1.12||0.72||56|
|Per share – diluted||0.38||0.24||58||1.12||0.71||58|
|Net earnings (loss)||3,467||(4,366||)||(179||)||32,159||59,718||(46||)|
|Per share – basic||0.02||(0.03||)||(167||)||0.18||0.35||(49||)|
|Per share – diluted||0.02||(0.03||)||(167||)||0.18||0.34||(47||)|
|Net debt (1) (2)||493,344||233,713||111|
|End of period basic common shares o/s||225,142||173,598||30|
|Natural gas (MMcf/d)||143.3||109.3||31||134.8||100.3||34|
|Condensate & oil (Bbls/d)||12,819||9,273||38||11,969||8,773||36|
|NGLs (Bbls/d) (3)||3,385||1,908||77||2,984||1,723||73|
|Condensate, oil & NGLs weighting||40||%||38||%||40||%||39||%|
|Condensate & oil weighting||32||%||32||%||32||%||32||%|
|Average selling prices (4) (5)|
|Natural gas ($/Mcf)||3.41||3.43||(1||)||3.43||3.62||(5||)|
|Condensate & oil ($/Bbl)||80.74||51.94||55||78.95||57.31||38|
|Petroleum and natural gas revenues||40.94||30.72||33||40.41||33.22||22|
|Realized gain (loss) on financial derivatives||(3.65||)||1.22||—||(2.71||)||0.61||—|
|Operating netback (2)||22.95||18.32||25||23.40||19.60||19|
|Corporate netback (2)||19.69||15.36||28||19.63||16.72||17|
|SHARE TRADING STATISTICS|
|Average daily volume||656,805||393,134||67||576,795||458,424||26|
(1) Refer to Note 14 “Capital Management” in NuVista’s financial statements and to the sections entitled “Adjusted funds flow” and “Liquidity and capital resources” contained in NuVista’s MD&A.
(2) See “Non-GAAP measurements”.
(3) Natural gas liquids (“NGLs”) include butane, propane and ethane.
(4) Product prices exclude realized gains/losses on financial derivatives.
(5) The average condensate and NGLs selling price is net of pipeline tariffs and fractionation fees.