CALGARY, Alberta, Aug. 08, 2019 (GLOBE NEWSWIRE) — Chinook Energy Inc. (“our”, “we”, or “us”) (TSX: CKE) is pleased to announce our operating and financial results for the three months ended June 30, 2019 (“Q219”). Our unaudited condensed consolidated financial statements and management’s discussion and analysis for the three and six months ended June 30, 2019 are available on our website (www.chinookenergyinc.com) and filed on SEDAR (www.sedar.com).
- Additional Q219 egress: We obtained additional egress during Q219 that limited our exposure to the BC Station 2 benchmark. This increased the ratio of our natural gas production sold at benchmarks other than Station 2 to 66% compared to 22% during the three months ended June 30, 2018 (“Q218”). These other benchmark prices included Chicago City Gate and Alliance Trading Pool, where we receive a premium to what we would have realized had we sold our natural gas production at spot Station 2 pricing.
- Preservation of shareholder value: As BC natural gas price weakness continues related to export capacity constraints, we voluntary restricted our production to preserve shareholders’ value.
- $2.0 million of annual cost savings: We signed a new Calgary office space lease commencing in June 2019.
- Additional $1.6 million of annual gathering revenues commencing in early 2020 : Construction continues by a third party who is on schedule to tie into our Aitken Creek Pipeline.
- New price risk contracts: We continue to layer in commodity price hedges and diversify our natural gas sales points with approximately 28% of forecast 2019 natural gas production currently hedged at Chicago or Station 2 pricing.
Q219 Operating and Financial Highlights
|Three months ended June 30
||Six months ended June 30
|Natural gas liquids (boe/d)||279||680||367||575|
|Natural gas (mcf/d)||8,457||22,253||11,904||18,053|
|Crude oil (bbl/d)||10||23||9||21|
|Average daily production (boe/d) (1)||1,698||4,413||2,360||3,605|
|Average natural gas liquids price ($/boe)||$||43.02||$||66.65||$||47.31||$||63.29|
|Average natural gas price ($/mcf)||$||1.38||$||1.40||$||1.84||$||1.87|
|Average oil price ($/bbl)||$||67.20||$||75.11||$||62.82||$||72.09|
|Operating Netback (2)|
|Average commodity pricing ($/boe)||$||14.33||$||17.75||$||16.89||$||19.90|
|Royalty expense ($/boe)||$||(0.22||)||$||(0.07||)||$||(0.11||)||$||(0.11||)|
|Realized (loss) gain on commodity price contracts ($/boe)||$||(0.89||)||$||0.17||$||(1.40||)||$||(0.35||)|
|Net production expense ($/boe) (2)||$||(17.26||)||$||(10.17||)||$||(13.44||)||$||(11.96||)|
|Operating netback ($/boe) (1) (2)||$||(4.04||)||$||7.68||$||1.94||$||7.48|
|Exploratory wells (net)||–||–||–||2.00|
|FINANCIAL ($ thousands, except per share amounts)|
|Petroleum & natural gas revenues, net of royalties||$||2,178||$||7,098||$||7,169||$||12,913|
|Cash (outflow) inflow from operating activities||$||(1,940||)||$||1,223||$||(2,097||)||$||(499||)|
|Adjusted funds (outflow) flow (2)||$||(1,708||)||$||1,836||$||(1,514||)||$||2,307|
|Per share – basic and diluted ($/share)||$||(0.01||)||$||0.01||$||(0.01||)||$||0.01|
|Per share – basic and diluted ($/share)||$||(0.10||)||$||(0.01||)||$||(0.11||)||$||(0.02||)|
|Development and exploration expenditures||$||–||$||180||$||–||$||2,677|
|Net debt (2)||$||5,207||$||2,654||$||5,207||$||2,654|
|Common Shares (thousands)|
|Weighted average during period|
|Basic & diluted||223,681||223,603||223,662||223,584|
|Outstanding at period end||223,682||223,605||223,682||223,605|
- Amounts may not be additive due to rounding.
- Adjusted funds flow, adjusted funds flow per share, net debt, 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”, “Operational Netback” and “Net Production Expense” in the Reader Advisory below for further information on such terms.
Since being repaired following a pipeline rupture near Prince George, BC, Enbridge has operated its Westcoast pipeline at reduced pressures which has negatively impacted the natural gas price at Station 2. 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 until this October. Although we responded by acquiring additional egress allowing us to realize a premium over Station 2 spot pricing, most transport services are currently fully contracted or are not economically favourable. We will continue to focus on capital preservation and optionality until we observe more constructive BC Station 2 benchmark pricing or are otherwise able to secure more favorable natural gas pricing which would serve to strengthen our balance sheet and facilitate future drilling activity.
We are not in compliance with one of our lender’s financial covenants: net debt to cash flow that allows a maximum ratio of three times due to a cash flow deficit over the previous 12 months for the reasons set forth below. Cash flows, as defined by our lender, approximate adjusted funds flow less provision expenditures and lease payments. Third party outages and our reaction to depressed BC Station 2 pricing through voluntary restricting our production combined to reduce our adjusted funds flow over this previous period. Because this financial covenant is calculated on a trailing 12 months basis, the effect of these previous production restrictions are punitive in its calculation over the next forecasted nine months and outweigh the effect from expected higher pricing. Our forecast may materially change if the BC Station 2 benchmark exceeds current strip pricing during the upcoming winter season resulting from the expected increase in BC take away capacity anticipated from the expansion of TCPL’s North Montney Pipeline combined with Westcoast’s pipeline returning to normal operating pressures.
Although our debt is drawn under a demand agreement resulting in all such draws always being classified as a current liability, the noncompliant net debt to cash flow financial covenant and recent decreases in forward BC natural gas strip pricing creates uncertainty as to the likelihood that our lender will provide us a waiver for the noncompliance with this financial covenant. We expect our lender to reduce the $10 million availability of our credit facility given recent decreases in forward natural gas benchmark pricing. While we continue discussions with our lender, the borrowing base redetermination and resolution of the financial covenant breach remain outstanding. These discussions include requesting that our lender provide us a waiver for the financial covenant breach and/or remove (modify) it from (within) the terms of our demand credit facility agreement. While these discussions are ongoing, we are evaluating other financing options that may inject additional liquidity including the disposition of natural gas assets, the sale/leaseback of midstream assets and other alternative sources of debt.
During the second quarter of 2019, we entered into the following commodity price contracts:
|Contractual Term||Notional Volumes||Index and Company’s Received Price|
|Natural gas swap|
|January 1, 2020 to March 31, 2020||2,000 GJ/d||Westcoast Station 2 CAD$1.785/GJ|
|Natural gas collars|
|January 1, 2020 to March 31, 2020||4,000 mmbtu/d||Chicago City Gate Monthly US$2.15/mmbtu to US$4.11/mmbtu|
Board of Director Resignation
P.Grant Wierzba resigned from our Board effective August 8, 2019. “We would like to thank Mr. Wierzba for the significant contribution he made to our Board since inception and wish him all the best” stated Jill Angevine, Chairman of Chinook.
We are uncertain about our ability to access sufficient capital to finance our future operations given the continued weakness in the BC natural gas price related to export capacity constraints. Consequently, our development program in 2019 will be minimal until such time as commodity prices improve to constructive levels. We also expect the following to occur during 2019 or early 2020:
- Production to return to unrestricted levels: We continued to restrict our production throughout July 2019 but forecast sufficient natural gas price improvements by this upcoming September or October for our production to return to unrestricted levels of approximately 4,000 boe/d. However, we continue to be hindered by third party outages including Enbridge’s McMahon processing facility that unexpectedly has shut-in all of our production since July 30th. This facility is expected to be operational the week of August 12th.
- $1.6 million of annualized gathering revenues: We continue to lever our existing assets and recently completed a transportation agreement for the partial use of our 12” Aitken Creek pipeline. The agreement will commence on the initial delivery of gas, anticipated to be early 2020, and will continue for a minimum period of two years. Minimum gathering charges will total approximately $1.6 million annually.
- New commodity price contracts: We intend to layer in additional commodity price risk contracts to guarantee the price we will receive on our future production.
- Borrowing base redetermination discussions with our lender: While these discussions are currently ongoing, we are evaluating other financing options including the disposition of natural gas assets, the sale/leaseback of midstream assets and other alternative sources of debt.
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.
For further information please contact:
President and Chief Executive Officer
Chinook Energy Inc.
Telephone: (403) 261-6883
Vice President, Finance and Chief Financial Officer
Chinook Energy Inc.
Telephone: (403) 261-6883
|Oil and Natural Gas Liquids||Natural Gas|
barrels per day
|thousand cubic feet
million cubic feet
|NGLs||Natural gas liquids||mcf/d
|thousand cubic feet per day
million cubic feet per day
million British Thermal Units
million British Thermal Units per day
|GJ/d||gigajoules per day|
|boe||barrel of oil equivalent on the basis of 6 mcf/1 boe for natural gas and 1 bbl/1 boe for crude oil and natural gas liquids (this conversion factor is an industry accepted norm and is not based on either energy content or current prices)|
Chicago City Gate
|barrel of oil equivalent per day
Market point for BC natural gas
Market point for eastern US natural gas