Michael Binnion, President and Chief Executive Officer, commented, “We responded quickly to the impacts of the COVID-19 pandemic and the ensuing global shutdown during the second quarter. To weather the collapse in oil prices, we cut spending and reduced overheads and operating costs wherever possible. The capital savings and the imminent credit facility renewal have strengthened our financial liquidity. With cost reductions of approximately $3/bbl, we can now operate at a lower breakeven price.”
He added, “The crisis has also created an unexpected opportunity to move our Clean Tech Energy project forward. As securing local supply chains and developing projects to restart the economic recovery and create jobs have become top priorities in Quebec, interest in our project is growing. Late in the quarter, we resumed discussions with stakeholders including farmers, local municipalities and First Nations on their participation and support. We have been very pleased with the recent progress and hope to conclude several participation agreements later this year.”
- Reengaging with stakeholders to build social acceptability for Clean Tech Energy in Quebec
- Credit facilities will be renewed at $20 million
- Collapse in oil prices responsible for adjusted funds flow from operations of $0.2 million with average daily production of 2,058 boe/d
Consistent with prior periods, Kakwa continued to account for over three quarters of corporate production. During the second quarter, daily production averaged 2,058 boe/d (2019: 2,035 boe/d). While production remained largely flat over the last year, depressed oil prices severely impacted financial results. Petroleum and natural gas sales declined to $3.4 million in the quarter from $8 million last year and $7 million last quarter with realized prices averaging just over $21/bbl compared to $66/bbl last year and $49/bbl in the first quarter. Despite cost reductions, the lower prices contributed to adjusted funds flow from operations of $0.2 million for the quarter (2019: $2.7 million). The Company anticipates this should improve over the second half of the year assuming oil prices continue to stabilize.
The lower prices also contributed to a net loss of $2.7 million for the quarter (2019: $2.1 million) and $116.6 million (2019: $3.0 million) for the first half of the year. The year to date loss reflects the impairment expense of $113 million incurred in the first quarter largely because of the lower future oil prices. Capital expenditures in the quarter were $0.5 million (2019: $7.5 million) and $3.4 million year to date (2019: $10.4 million).
The Company also reported on the pending renewal of its credit facility with a Canadian chartered bank. Following the review conducted in the second quarter, the facilities will be renewed at $20 million. The renewal will become effective upon the execution of an amending agreement which the Company anticipates will be completed in late August 2020. The renewed facilities will consist of a revolving operating demand loan of $17 million and an uncommitted demand non-conforming revolving facility for $3 million. Any borrowing under the facilities, except letters of credit are subject to the Bank’s prime rate and applicable basis point margin. The effective interest rate on the facility for the first half of 2020 was 3.58% (2019: 4.45%). As at June 30, 2020, $19.3 million was drawn on the facility and the Company held unrestricted cash and term deposits of $12.8 million. Including amounts drawn under the facility, the Company had a net working capital deficit of $9.3 million (2019: $0.8 million).
The term “adjusted funds flow from operations” and “working capital deficit” are non-IFRS measures. Please see the reconciliation elsewhere in this press release.
Questerre is an energy technology and innovation company. It is leveraging its expertise gained through early exposure to low permeability reservoirs to acquire significant high-quality resources. We believe we can successfully transition our energy portfolio. With new clean technologies and innovation to responsibly produce and use energy, we can sustain both human progress and our natural environment.
Questerre is a believer that the future success of the oil and gas industry depends on a balance of economics, environment, and society. We are committed to being transparent and are respectful that the public must be part of making the important choices for our energy future.
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