HIGHLIGHTS
- On August 24, 2018, Ikkuma announced the proposed business combination with Pieridae Energy Limited including the formation of a new private corporation.
- A special meeting of shareholders with respect to the proposed business combination with Pieridae Energy Limited is scheduled to be held on December 17, 2018.
- Achieved average production for the nine months ended September 30, 2018 of 17,968 boe per day, an increase of 197% compared to 6,043 boe per day for the same period in 2017.
- Increased revenue for the nine months ended September 30, 2018 by 139% to $59.2 million compared to $24.8 million for the nine months ended September 30, 2017.
- In line with Ikkuma’s ongoing field optimization initiatives, net operating expenses per boe were reduced by 9% to $9.82/boe for the three months ended September 30, 2018 compared to $10.79/boe for the three months ended June 30, 2018.
- Decreased general and administrative expense per boe by 60% to $0.83/boe for the nine months ended September 30, 2018 as compared to $2.09/boe for the nine months ended September 30, 2017.
- On October 11, 2018, the Corporation announced that it closed a conveyance and sale agreement for the sale of a non-core dormant midstream facility for a total consideration of $2.0 million.
- On November 14, 2018, the Corporation announced that it obtained a $20.0 million senior secured term loan with Alberta Investment Management Corporation and terminated its amended and restated syndicated credit agreement with its banking syndicate.
(Expressed in thousands of Canadian dollars |
Three Months Ended |
Nine Months Ended |
||||||
2018 |
2017 |
2018 |
2017 |
|||||
OPERATIONS |
||||||||
Average daily production |
||||||||
Natural gas (mcf/d) |
101,338 |
33,208 |
104,822 |
35,220 |
||||
Light oil (bbl/d) |
160 |
52 |
199 |
53 |
||||
NGLs (bbl/d) |
314 |
120 |
299 |
121 |
||||
Total equivalent (boe/d) |
17,364 |
5,707 |
17,968 |
6,043 |
||||
Average prices |
||||||||
Natural gas ($/mcf) |
$ |
1.25 |
$ |
1.47 |
$ |
1.46 |
$ |
2.36 |
Light oil ($/bbl) |
84.24 |
53.26 |
76.15 |
57.21 |
||||
NGLs ($/bbl) |
59.03 |
30.05 |
56.45 |
33.40 |
||||
Operating netback |
||||||||
Revenue ($/boe) |
$ |
11.34 |
$ |
9.75 |
$ |
12.08 |
$ |
15.02 |
Realized gain on risk management contracts ($/boe) |
0.93 |
4.43 |
0.96 |
1.58 |
||||
Royalties ($/boe) |
(0.36) |
(0.38) |
(0.61) |
(0.33) |
||||
Net operating expenses ($/boe) |
(9.82) |
(9.42) |
(10.68) |
(8.60) |
||||
Transportation expenses ($/boe) |
(1.08) |
(1.67) |
(1.05) |
(1.91) |
||||
Operating netback (1) ($/boe) |
$ |
1.01 |
$ |
2.71 |
$ |
0.70 |
$ |
5.76 |
FINANCIAL |
||||||||
Petroleum and natural gas revenues (2) |
$ |
18,116 |
$ |
5,120 |
$ |
59,244 |
$ |
24,777 |
Cash provided by operating activities |
$ |
4,016 |
$ |
969 |
$ |
6,517 |
$ |
6,443 |
Per share – basic and diluted |
$ |
0.04 |
$ |
0.01 |
$ |
0.06 |
$ |
0.07 |
Funds flow from (used in) operations (1) |
$ |
(1,647) |
$ |
(1,212) |
$ |
(4,730) |
$ |
3,562 |
Per share – basic and diluted |
$ |
(0.02) |
$ |
(0.01) |
$ |
(0.04) |
$ |
0.04 |
Adjusted funds flow (1) |
$ |
(672) |
$ |
(576) |
$ |
(3,600) |
$ |
4,316 |
Per share – basic and diluted |
$ |
(0.01) |
$ |
(0.01) |
$ |
(0.03) |
$ |
0.05 |
Net loss and comprehensive loss |
$ |
(6,719) |
$ |
(3,394) |
$ |
(20,998) |
$ |
(1,828) |
Per share – basic and diluted |
$ |
(0.06) |
$ |
(0.03) |
$ |
(0.19) |
$ |
(0.02) |
Capital expenditures |
$ |
852 |
$ |
10,050 |
$ |
3,217 |
$ |
21,207 |
Property acquisitions |
$ |
– |
$ |
– |
$ |
2,711 |
$ |
– |
Net debt (1,3) |
$ |
68,613 |
$ |
40,912 |
$ |
68,613 |
$ |
40,912 |
Shares outstanding (‘000s) |
109,334,987 |
109,334,987 |
109,334,987 |
109,334,987 |
||||
Weighted average shares outstanding |
||||||||
basic and diluted (‘000s) |
109,334,987 |
97,959,230 |
109,334,987 |
95,495,864 |
||||
(1) Operating netback, funds flow from (used in) operations, adjusted funds flow, net operating expenses and net debt are non-IFRS measures. See “Non- IFRS Measures”. |
(2) Before royalties. |
(3) Net debt includes Bank debt (as hereinafter defined), Term debt (as hereinafter defined) and working capital deficiency (surplus), excluding fair value of risk management contracts. |
BUSINESS COMBINATION WITH PIERIDAE ENERGY LIMITED
On August 24, 2018, the Corporation announced the proposed business combination with Pieridae Energy Limited (“Pieridae”) whereby Pieridae will acquire all of the issued and outstanding shares of Ikkuma in exchange for 0.1926 of a common share of Pieridae for each Ikkuma common share. Additionally, Ikkuma shareholders will receive 0.1 of a share of a newly formed private corporation, Briko Energy Corp. (“Briko“) for each Ikkuma common share and 0.1 of a common share purchase warrant of Briko for each Ikkuma common share. Each whole common share purchase warrant will entitle the holder to acquire one common share of Briko at an exercise price of $1.10 per share at any time on or before 180 days following the closing of the proposed business combination with Pieridae. On October 26, 2018, the Corporation received the necessary approval from Alberta Energy Regulator with respect to the transfer of certain Cardium oil assets from Ikkuma to Briko that were not intended to be acquired by Pieridae in the proposed business combination.
SPECIAL MEETING OF IKKUMA SHAREHOLDERS
A Management Information Circular and Proxy Statement with respect to the proposed business combination with Pieridae has been mailed to Ikkuma shareholders with a special meeting of shareholders scheduled to be held on December 17, 2018.
FINANCIAL AND OPERATING RESULTS
Average production for the nine months ended September 30, 2018 was 17,968 boe per day, an increase of 197% compared to 6,043 boe per day for the same period in 2017. The increase was primarily due to production volumes related to the acquisition of assets located in the Alberta Foothills and British Columbia Deep Basin (the “Foothills Acquisition”), which closed on December 21, 2017. Due to the current low natural gas price environment, Ikkuma shut-in a portion of its gas production during the third quarter of 2018. Total production reported for the third quarter of 2018 of 17,364 boe/d was impacted by shut in gas production decisions that reduced production by approximately 2,000 boe/d.
Petroleum and natural gas revenues increased 139% to $59.2 million for the nine months ended September 30, 2018 compared to $24.8 million for the nine months ended September 30, 2017. The increase was primarily due to increased production volumes associated with the Foothills Acquisition.
Field optimization initiatives have been successful in reducing net operating costs per boe. Net operating expenses per boe decreased 9% to $9.82/boe for the three months ended September 30, 2018 compared to $10.79/boe for the three months ended June 30, 2018.
Operating netbacks for the nine months ended September 30, 2018 were $0.70 per boe compared to $5.76 per boe for same period in 2017. This decrease in operating netbacks was primarily due to a 38% reduction in realized natural gas prices.
With increased production, general and administrative expense per boe decreased by 60% to $0.83 per boe for the nine months ended September 30, 2018 compared to $2.09 per boe for the nine months ended September 30, 2017.
Adjusted funds flow for the nine months ended September 30, 2018 of negative $3.6 million included realized gains of $4.7 million associated with the Corporation’s risk management program. In comparison, adjusted funds flow for the nine months ended September 30, 2017 was $4.3 million and included $2.6 million of realized gains on risk management contracts.
Capital expenditures for the nine months ended September 30, 2018 were $3.2 million compared to $21.2 million for the nine months ended September 30, 2017.
Net debt, which includes the Corporation’s syndicated credit facility (the “Bank debt”), second lien senior secured term debt facility (“Term debt”) and working capital deficiency (excluding fair value of risk management contracts) was $68.6 million as at September 30, 2018 compared to $58.0 million as at December 31, 2017. Bank debt was $4.5 million as at September 30, 2018 compared to $10.4 million as at December 31, 2017.
PROPERTY DISPOSITION
On October 11, 2018, the Corporation announced that it closed a conveyance and sale agreement for the sale of a non-core dormant midstream facility in the Alberta foothills for a total consideration of $2.0 million. Proceeds from this property disposition were used to reduce Bank debt.
FINANCING
On November 14, 2018, Ikkuma completed a financing for a $20.0 million senior secured term loan with Alberta Investment Management Corporation (“AIMCo”). The term loan bears annual interest at 9.5% and matures on the earliest of the closing of the Corporation’s proposed business combination with Pieridae and March 31, 2022. Proceeds from the term loan were used to repay Bank debt and allowed the Corporation to proceed with its flow-through drilling program in the amount of $12.1 million to be spent by December 31, 2018.
As a result of completing the financing with AIMCo and repaying all outstanding Bank debt, the Corporation has terminated its amended and restated syndicated credit agreement with its banking syndicate.
ABOUT IKKUMA
Ikkuma Resources Corp. is a diversified growth-oriented public oil and gas company listed on the TSX Venture Exchange under the symbol “IKM”, with holdings in both conventional and unconventional projects in Western Canada. The Corporation is focussed in the Foothills Region of Western Canada with a team that has extensive experience in the area with the unique skills at successfully exploiting a complex and potentially prolific play type. Corporate information can be found at: www.ikkumarescorp.com.