Chinook Energy Inc. Announces Its First Quarter Financial and Operational Results
CALGARY, ALBERTA–(Marketwired – May 14, 2013) – Chinook Energy Inc. (“Chinook” or the “Company”) (TSX:CKE) today announced its first quarter financial and operational results and provided an operational update.
The Company has filed its unaudited consolidated financial statements for the three months ended March 31, 2013 and 2012 and related management’s discussion and analysis (“MD&A”) on the SEDAR website (www.sedar.com) and Chinook’s website (www.chinookenergyinc.com).
During the first quarter of 2013 (“Q1”) Chinook Energy Inc. (“Chinook” or the “Company”) significantly increased its activity level in Canada with several oil focused drilling programs and initiated its 2013 program to resume drilling on the Bir Ben Tartar (“BBT”) Concession in Tunisia.
Q1 2013 HIGHLIGHTS
- Reduced net debt by 28% year-over-year and 11% from year end 2012.
- Net earnings were $4.5 million compared to a net loss of $17.1 million in the first quarter of 2012.
- Cash flow from operations in the first quarter increased 12% to $0.10 per share from $0.09 per share in 2012. Inventoried Q1 Tunisian oil production was sold in early second quarter, which pro forma increases cash flow to $0.13 per share.
- Canadian drilling and completion operations resulted in initial production rates of 1,050 barrels of net oil production per day and 1.5 million cubic feet of net natural gas per day or 1,300 net boe per day in total.
FIRST QUARTER 2013 FINANCIAL AND OPERATING RESULTS
Q1 production averaged 10,860 barrels of oil equivalent per day (“boed”) down approximately 7% from fourth quarter 2012 production of 11,636 boed and down approximately 20% year-over-year from 13,596 boed in the first quarter of 2012. Production volumes were weighted 58% towards natural gas which received an average price of $3.72 per thousand cubic feet, up over 60 percent year-over-year from an average price of $2.27 per thousand cubic feet in the first quarter of 2012. Oil production represented 33% of production and received an average price of $95.03 per barrel. Production declines in the quarter were attributed to the disposition of approximately 330 barrels of oil equivalent per day in Canada along with normal declines from several high rate horizontal wells at the BBT Concession that were brought onstream in the second half of 2012 which, due to timing delays, were not offset with new drilling in Q1.
Sales volumes lagged production in Q1 and averaged 10,006 boed with 88,000 barrels of oil (978 barrels of oil per day) held as inventory in Tunisia at the end of Q1. This inventoried production was sold in April at a realized price of approximately US$100.81 per barrel.
Cash flow from sales volumes was $21.5 million, or $27.9 million pro forma the April sale of inventoried Q1 oil production. Chinook’s continued focus toward higher netback international and domestic oil opportunities along with a long anticipated, and much appreciated, recovery in North American natural gas prices increased Q1 pro forma cash flow by 45% year-over-year, notwithstanding the aforementioned 20% year-over-year production decline.
The year-over-year corporate netback increased by 22% to $22.56 per boe from $18.45 per boe in first quarter 2012, and pro forma the April sale of inventoried Q1 oil production, the corporate netback would have increased by 46% to $27.00 per boe from the first quarter 2012. A 10% improvement in operating costs in the Canadian operations contributed to an increase in the Canadian operating netback from $11.82 per boe in first quarter 2012 to $16.76 per boe in Q1 2013. Year-over-year production expenses have remained relatively flat in Tunisia with Q1 2013 production and operating expenses of $26.38 per boe compared to $25.54 per boe in the first quarter 2012. The pro forma Q1 2013 net Tunisian production and operating expense would have been $25.69 per boe which would have generated a Q1 2013 Tunisian operating netback of $77.05 per boe.
Chinook continues to strengthen its balance sheet and has once again reduced net debt by 11% in Q1 to $64.4 million from $72.4 million at year end 2012 and down 28% year-over-year from $89.2 million at the end of first quarter 2012. A disciplined capital program coupled with strategic non-core dispositions has given the Company a respectable net debt to annualized Q1 pro forma cash flow ratio of approximately 0.6 times.
Capital expenditures were up 7% from first quarter 2012 and totaled $25.0 million, of which $17.2 million was spent in Canada and $7.8 million in Tunisia. Drilling and completion expenditures totaled $14.6 million, with $10.6 million spent in Canada and $4.0 million spent in Tunisia.
|Three Months ended
|Natural gas liquids (bbl/d)||1,005||1,202|
|Natural gas (mcf/d)||37,736||51,445|
|Average daily production (boe/d)||10,860||13,596|
|Average oil price ($/bbl)||$||95.03||$||101.06|
|Average natural gas liquids price ($/bbl)||$||58.85||$||70.66|
|Average natural gas price ($/mcf)||$||3.72||$||2.27|
|Corporate Netbacks (1)|
|Average commodity pricing ($/boe)||$||45.70||$||43.35|
|Net production expenses ($/boe) (1)||$||(16.52||)||$||(17.65||)|
|Cash G&A ($/boe) (1)||$||(2.83||)||$||(3.03||)|
|Corporate netbacks ($/boe) (1)||$||22.56||$||18.45|
|Wells Drilled (net)|
|Total wells drilled (net)||3.61||4.26|
|Three months ended
|FINANCIAL ($ thousands, except per share amounts)|
|Petroleum and natural gas revenues, net of royalties||$||37,740||$||48,509|
|Cash flow (1)||$||21,518||$||19,174|
|Per share – basic and diluted ($/share)||$||0.10||$||0.09|
|Net income (loss)||$||4,500||$||(17,091||)|
|Per share – basic and diluted ($/share)||$||0.02||$||(0.08||)|
|Net debt (1)||$||64,440||$||89,182|
|Common Shares (thousands)|
|Weighted average during period|
|– basic and diluted||214,188||214,188|
|Outstanding at period end||214,188||214,188|
|(1)||Cash flow, net debt, corporate netback, net production expense and cash G&A are non-IFRS 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 “Cash Flow from Operations”, “Net Debt”, “Corporate Netback”, “Net Production Expense” and “Cash G&A” in the Reader Advisory below for further information on such terms.|
Q1 ACTIVITY AND OPERATIONAL UPDATE
Operations in the first quarter were almost exclusively focused on Dunvegan and Montney oil opportunities within the Company’s Kaybob and greater Grande Prairie areas. Management is very encouraged with the initial production results to date of approximately 1,300 boed to the Company with an approximate oil weighting of 80%. Depressed natural gas prices in 2012 accelerated the Company’s technical focus on oil opportunities, and although it may never seem to occur fast enough in a soft market, the execution and shift into more profitable oil exploration and development opportunities has created an exciting Canadian growth platform. Coupled with a continued improvement in natural gas prices, Chinook now believes it has the ability to commodity switch between oil and natural gas opportunities within its portfolio of drilling opportunities.
At Kaybob, Chinook brought two (0.75 net) Montney horizontal wells on production in April 2013 which were drilled in 2012 and 2013. Initial production rates are encouraging, however on production time has been limited due to third party facility outages. Chinook has identified an additional 12 to 24 drilling locations on 37.5% to 75% working interest lands.
In Chinook’s Grande Prairie core area, the Company participated in drilling two (0.75 net) horizontal oil wells at Karr which were completed and brought on production in 2013. The Company now has a total of five (1.86 net) horizontal Dunvegan wells in this new area with excellent production rates to date totaling over 500 net boe per day in mid-April 2013. Chinook continues to add to its undeveloped land inventory in the Karr area and has identified an additional 30 (11.20 net) drilling locations.
In late 2012, Chinook announced the acquisition of several Dunvegan oil pools in its Grande Prairie area with net production of approximately 280 boe per day. Since closing the acquisition, Chinook has drilled three (1.5 net) horizontal Dunvegan wells, conducted one (1.0 net) workover and acquired an additional 1,120 net acres of highly prospective offset lands. Chinook is pleased to have almost doubled production in the first quarter of ownership by adding 230 boe per day of net production with a 90% oil weighting. Chinook has identified over 30 additional horizontal drilling locations and preliminary optimization and waterflood analysis has been initiated.
A horizontal Dunvegan well (0.37 net) drilled at Wapiti in 2012 was brought on production in Q1 2013 and averaged 190 boe per day (70 boe per day net) in its first two months of production. The Company has identified an additional 25 gross drilling locations at Wapiti.
In addition to the foregoing activity, Chinook is pursuing opportunities on Company-held lands with significant offsetting industry activity for Montney oil at Karr and Gold Creek and liquids-rich Montney natural gas at Birley/Umbach in NE British Columbia.
In Q1, activity was focused primarily on the BBT Concession which included a multi-stage fracture stimulation on the TT10 horizontal well (0.86 net). The well was stimulated and brought on production in the quarter at an initial 20 day average rate of approximately 600 barrels of oil per day with an average water cut of 44%, prompting the Company to temporarily shut-in the well with plans to install an artificial lift on the well. It is anticipated that the well will be brought back on production in the second quarter.
Lease construction for the TT12 horizontal well was completed in the first quarter and the well was subsequently spud on April 7, 2013 and is currently awaiting completion scheduled for mid-May 2013. During the balance of 2013, the Foradex 14 Rig will be used to drill an additional five (4.3 net) wells on the BBT Concession and a vertical exploration well at El Bell located on the Sud Remada Permit. The resumption of continuous drilling at the BBT Concession in Q2 is expected to increase production volumes from the concession, on which a well has not been drilled since December 2012. Q1 average gross production from the BBT Concession was approximately 3,120 barrels of oil per day (1,680 net).
Facilities and equipment expenditures in the first quarter included the civil lease construction of the BBT production facility and procuring long lead items such as pipe for the gathering system, tanks and separators.
Following the former partner’s election in March 2013 not to proceed with immediate field development at the Cosmos Concession and thereby terminate their optional right to earn an interest in the Cosmos Concession, the Company approved a capital plan that includes shooting a 275 km(2)3-D seismic survey which will provide modern data over the entire Cosmos development area including 14 exploration prospects. This work commenced in May 2013 and management expects it should lead to drilling an appraisal well on the concession in the first half of 2014.
Chinook’s budgeted production for 2013 remains at 9,500-10,200 barrels of oil equivalent per day with a 40% oil weighting. Cash flow for 2013 is expected to be $95-$100 million on a $102-$107 million capital program split approximately 60% and 40% between Tunisia and Canada. Year-end net debt is expected to be $60-$65 million on combined credit facilities of $161.5 million.
During the last two years, Chinook has actively pursued and implemented multiple strategic initiatives focused on improving its ability to deliver profitable growth for its shareholders and improve its balance sheet to ultimately strengthen its valuation. Although the formal process involving the marketed sale of Canadian non-core assets has been completed, Chinook will continue to evaluate all options and opportunities to unlock value from the various components of its existing asset portfolio over the remainder of 2013. In addition to focusing on organic growth in the Company’s core areas of Grande Prairie and Tunisia, efforts to bolster value will include the assessment of acquisitions in Chinook’s core operating areas, dispositions of non-core assets, prospective business combinations or the split of the Company’s domestic and international businesses.
2013 is shaping up to be an exciting and pivotal year at Chinook and the Company is looking forward to providing updated results throughout the year.
About Chinook Energy Inc.
Chinook is a Calgary-based public oil and gas exploration and development company that combines high quality natural gas-weighted assets in Western Canada with an exciting high growth oil business onshore and offshore Tunisia in North Africa.
In the interest of providing shareholders and potential investors with information regarding Chinook, including management’s assessment of the future plans and operations of Chinook, certain statements contained in this news release constitute forward-looking statements or information (collectively “forward-looking statements”) within the meaning of applicable securities legislation. Forward-looking statements are typically identified by words such as “anticipate”, “continue”, “estimate”, “expect”, “forecast”, “may”, “will”, “project”, “could”, “plan”, “intend”, “should”, “believe”, “outlook”, “potential”, “target” and similar words suggesting future events or future performance. In addition, statements relating to “reserves” are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and can be profitably produced in the future. In particular, this news release contains, without limitation, forward-looking statements pertaining to: the Company’s belief that is has the ability to commodity switch between oil and natural gas opportunities within its Canadian portfolio of drilling opportunities; the volume and product mix of Chinook’s oil and natural gas production on certain newly drilled wells, and the anticipated production volumes therefrom; the anticipated timing of the TT10 well being brought back on production; the timing of the scheduled completion of the TT12 horizontal well; the number of additional wells to be drilled and the timing thereof on the BBT Concession and the Sud Remada permit, and in the case of the BBT Concession, the expected increase in production volumes resulting therefrom; plans for shooting a seismic survey on the Cosmos Concession; future results from operations and operating metrics; and future development, exploration, acquisition and development activities (including drilling plans) and the timing thereof and related production expectations; as well as management’s future expectations regarding production, cash flow, capital expenditures, net debt and credit facilities set out under the heading “Outlook”.
With respect to the forward-looking statements contained in this news release, Chinook has made assumptions regarding, among other things: that Chinook will continue to conduct its operations in a manner consistent with past operations, the ability of Chinook to continue to operate in Tunisia with limited logistical security and operational issues, future capital expenditure levels, future oil and natural gas prices, future oil and natural gas production levels, Chinook’s ability to obtain equipment in a timely manner to carry out development activities, the impact of increasing competition, the ability of Chinook to add production and reserves through development and exploitation activities, the results of seismic and other appraisal activities (including waterflood modeling and seismic data gathering); certain commodity price and other cost assumptions, the continued availability of adequate debt and equity financing and cash flow to fund its planned expenditures. Although Chinook believes that the expectations reflected in the forward-looking statements contained in this news release, and the assumptions on which such forward-looking statements are made, are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned not to place undue reliance on forward-looking statements included in this news release, as there can be no assurance that the plans, intentions or expectations upon which the forward-looking statements are based will occur.
By their nature, forward- looking statements involve numerous assumptions, known and unknown risks and uncertainties that contribute to the possibility that predictions, forecasts, projections and other forward-looking statements will not occur, which may cause Chinook’s actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, without limitation, political and security risk associated with Chinook’s Tunisian operations, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve and resource estimates, the continued impact of shut-in production, environmental risks, competition from other producers, inability to retain drilling rigs and other services, capital expenditure costs, including drilling, completion and facilities costs, unexpected decline rates in wells, delays in projects and/or operations resulting from surface conditions, wells not performing as expected, delays resulting from or inability to obtain the required regulatory approvals and ability to access sufficient capital from internal and external sources. As a consequence, actual results may differ materially from those anticipated in the forward-looking statements. Readers are cautioned that the forgoing list of factors is not exhaustive. Additional information on these and other factors that could affect Chinook’s operations and financial results are included in Chinook’s annual information form for the year ended December 31, 2012 and other documents on file with Canadian securities regulatory authorities which may be accessed through the SEDAR website (www.sedar.com) and at Chinook’s website (www.chinookenergyinc.com). Furthermore, the forward-looking statements contained in this news release are made as at the date of this news release and Chinook does not undertake any obligation to update publicly or to revise any of the forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.
Barrels of Oil Equivalent
Barrels of oil equivalent (boe) is calculated using the conversion factor of 6 mcf (thousand cubic feet) of natural gas being equivalent to one barrel of oil. Boes may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf:1 bbl (barrel) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.
The reader is cautioned that this news release contains the term corporate netback, which is not a recognized measure under IFRS and is calculated as a period’s sales of petroleum and natural gas, net of royalties less net production and operating expenses and cash G&A as divided by the period’s sales volumes. Management uses this measure to assist them in understanding Chinook’s profitability relative to current commodity prices and it provides an analysis tool to benchmark changes in operational performance against prior periods and to peers on a comparable basis. Readers are cautioned, however, that this measure should not be construed as an alternative to other terms such as net income determined in accordance with IFRS as a measure of performance. Chinook’s method of calculating this measure may differ from other companies, and accordingly, it may not be comparable to measures used by other companies.
The reader is cautioned that this news release contains the term operating netback, which is not a recognized measure under IFRS and is calculated as a period’s sales of petroleum and natural gas, net of royalties less net production and operating expenses as divided by the period’s sales volumes. Management uses this measure to assist them in understanding Chinook’s profitability relative to current commodity prices and provides an analysis tool to benchmark changes in operational performance against prior periods and to peers on a comparable basis. Chinook’s method of calculating this measure may differ from other companies, and accordingly, it may not be comparable to measures used by other companies.
Net Production Expense
The reader is cautioned that this news release contains the term net production expense, which is not a recognized measure under IFRS and is calculated as production and operating expense less processing and gathering income. Management uses net production expense to determine the current periods’ cash cost of operating expenses. Chinook’s method of calculating this measure may differ from other companies, and accordingly, it may not be comparable to measures used by other companies.
The reader is cautioned that this news release contains the term cash G&A, which is not a recognized measure under IFRS and is calculated as G&A less stock-based compensation and the amortization of the deferred lease liability.
Cash Flow from Operations
The reader is cautioned that this news release contains the term cash flow from operations, which is not a recognized measure under IFRS and is calculated from cash flow from continuing operations adjusted for changes in non-cash working capital. Management believes that cash flow is a key measure to assess the ability of Chinook to finance capital expenditures and debt repayments. Readers are cautioned, however, that this measure should not be construed as an alternative to other terms such as cash flow from operating activities, net income or other measures of financial performance calculated in accordance with IFRS. Chinook’s method of calculating this measure may differ from other companies, and accordingly, it may not be comparable to measures used by other companies.
The reader is cautioned that this news release contains the term net debt, which is not a recognized measure under IFRS and is calculated as bank debt adjusted for working capital excluding mark-to-market derivative contracts. Working capital excluding mark-to-market derivative contracts is calculated as current assets less current liabilities both of which exclude derivative contracts and current liabilities excludes the current portion of debt. Management uses net debt to assist them in understanding Chinook’s liquidity at specific points in time. Mark-to-market derivative contracts are excluded from working capital, in addition to net debt, as management intends to hold each contract through to maturity of the contract’s term as opposed to liquidating each contract’s fair value or less.
Future Oriented Financial Information
This news release, in particular the information in respect of anticipated cash flows, may contain Future Oriented Financial Information (“FOFI”) within the meaning of applicable securities laws. The FOFI has been prepared by management of the Company to provide an outlook of the Company’s activities and results and may not be appropriate for other purposes. The FOFI has been prepared based on a number of assumptions including the assumptions discussed under the heading “Forward-Looking Statements” and assumptions with respect to production rates and commodity prices. The actual results of operations of the Company and the resulting financial results may vary from the amounts set forth herein, and such variation may be material. The Company and its management believe that the FOFI has been prepared on a reasonable basis, reflecting management’s best estimates and judgments.