Chinook Energy Announces Second Quarter 2012 Financial and Operating Results
CALGARY, ALBERTA-(Marketwire - Aug. 15, 2012) - Chinook Energy Inc. (“Chinook”) (TSX:CKE) is pleased to report its second quarter (“Q2”) financial and operating results for the three months ended June 30, 2012. A complete copy of the Company’s financial statements along with management’s discussion and analysis will be filed on SEDAR and will also be available on the Company’s website at www.chinookenergyinc.com.
The majority of our Q2 capital program was in Tunisia as we continue our accelerated development of the Bir Ben Tartar (“BBT”) production concession and as spring break up conditions in Western Canada provided limited access to any field operations.
Q2 2012 FINANCIAL AND OPERATING RESULTS
Q2 production averaged 11,548 barrels of oil equivalent per day (boe/d) down approximately 15% from first quarter 2012 (“Q1”) production of 13,596 boe/d and down approximately 18% year-over-year from 14,196 boe/d in the second quarter of 2011. Corporate production contribution from Tunisia was 1,596 boe/d, or 14% of total corporate production in Q2, up from 12% in Q1 and from 6% of total corporate production year-over-year. Production declines in Q2 are attributed in large part to weather related road bans, material facility turnarounds and third party outages which adversely impacted average production in the second quarter by 950 boe/d along with the full quarter impact of voluntary natural gas shut-ins in the latter half of Q1 of approximately 450 boe/d, and the disposition of several properties with total production of approximately 190 boe/d which closed early in Q2.
Production volumes in Q2 were weighted 63% towards natural gas where our average price received was $2.08 per thousand cubic feet ($1.74 per thousand cubic feet for western Canadian natural gas and $16.57 per thousand cubic feet for Tunisian natural gas), down 8% from Q1 price of $2.27 per thousand cubic feet and down 48% year-over- year from an average price of $4.00 per thousand cubic feet in the second quarter 2011. Twenty-eight percent of Q2 volumes were oil weighted and received an average price of $89.11 per barrel ($81.14 per barrel for western Canadian crude oil production and $111.72 per barrel for Tunisian crude oil production).
Q2 sales volumes averaged 10,738 boe/d, with the 810 boe/d difference between our production and sales volumes resulting from a build in Tunisian inventory. Tunisian production continues to reaffirm its significance to Chinook representing only 7% of sales volumes yet contributing 48% of our $9.83 million cash flow in Q2. If the inventory build could have been sold in the quarter produced, assuming an average Brent price of US$102.77 per barrel, Tunisian production would have contributed 68% of $16.1 million Q2 pro-forma cash flow.
Our continued focus to seek ways to improve our operating cost structure in Canada has resulted in various process changes and cost-saving initiatives that have seen operating costs in Canada fall by $2.81 per barrel of oil equivalent, or 15% from Q1, and $3.35 per barrel of oil equivalent, or 17%, from the fourth quarter of 2011.
Q2 capital expenditures in the field totaled $12.0 million, of which $8.1 million was spent in Tunisia and $3.9 million in Canada. Capital expenditures were down 28% from the second quarter of 2011. As part of our ongoing non-core asset disposition program, we completed approximately $17.0 million in dispositions of approximately 190 boe/d in Q2 bringing our first half 2012 total to $71.8 million, with associated production of approximately 1,037 boe/d or approximately $70,000 per flowing barrel of oil equivalent. Net debt at June 30, 2012 was $77.1 million, down approximately 14% from Q1 and down 43% from December 31, 2011 net debt of $134.9 million. As a result of our continued debt reduction through 2011 and 2012, our balance sheet remains strong and our net debt to annualized first half 2012 cash flow is approximately 1.3 times, not including the cash flow associated with the inventoried production in the quarter, which, if estimated at $6 million would reduce net debt to annualized first half 2012 cash flow to 1.0 times. The annual borrowing base review of our syndicated revolving credit facility was completed during the quarter and the borrowing base has been determined to be $115 million. The decrease is due in large part to a material reduction in the gas price forecast used and the sale of approximately $165 million of borrowing base assets in 2011 and 2012.
|Financial and Operating Highlights|
|Three months ended||Six months ended|
|June 30||June 30|
|Natural gas liquids (bbl/d)||1,122||1,329||1,162||1,509|
|Natural gas (mcf/d)||43,387||56,834||47,417||56,381|
|Average daily production (boe/d)||11,548||14,196||12,573||14,421|
|Average oil price ($/bbl)||$||89.11||$||97.71||$||96.49||$||89.58|
|Average natural gas liquids price ($/bbl)||$||55.46||$||67.03||$||63.32||$||62.63|
|Average natural gas price ($/mcf)||$||2.08||$||4.00||$||2.18||$||3.92|
|Corporate Netbacks (1)|
|Average commodity pricing ($/boe)||$||33.97||$||44.74||$||39.22||$||43.27|
|Net production expenses ($/boe) (1)||$||(14.46||)||$||(16.96||)||$||(16.24||)||$||(15.19||)|
|Cash G&A ($/boe) (1)||$||(3.74||)||$||(1.85||)||$||(3.35||)||$||(2.14||)|
|Corporate Netbacks ($/boe) (1)||$||12.48||$||18.36||$||15.82||$||18.09|
|FINANCIAL ($ thousands, except per share amounts)|
|Petroleum and natural gas revenue, net of royalties||$||29,979||$||47,204||$||78,488||$||91,569|
|Cash flow (1)||$||9,830||$||17,799||$||29,004||$||38,940|
|Per share - basic and diluted||$||0.05||$||0.08||$||0.14||$||0.18|
|Per share - basic and diluted||$||(0.12||)||$||(0.01||)||$||(0.20||)||$||(0.01||)|
|Net debt (1)||$||77,092||$||165,771||$||77,092||$||165,771|
|Common Shares (thousands)|
|Weighted average during period|
|- basic and diluted||214,188||214,188||214,188||214,188|
|Outstanding at period end||214,188||214,188||214,188||214,188|
|(1)||Cash flow, net debt, corporate netback, net production expense and cash G&A do not have standardized meanings as prescribed by IFRS and, therefore, may not be comparable with the calculations of similar measures presented by other companies.|
Q2 ACTIVITY AND OPERATIONAL UPDATE
We reached another technical milestone on the BBT Concession in Q2 with the drilling of our first horizontal well at TT16 which was spud on May 20, 2012. Completion operations on the TT16 well commenced on July 8, 2012 with an 8-stage Packers Plus multi-stage fracture stimulation along an 810 meter horizontal section of the well. The TT16 well is the first multi-stage hydraulically fractured horizontal well in Tunisia, the largest completed to date on the African continent, and a successful application of North American drilling and completion technology into a new jurisdiction. Flow testing of the well continues with a current rate over the last four days of approximately 775 barrels of oil per day (bbls/d) at a water cut of 13%, and a GOR of 1,150 scf/bbl. We had previously reported an IP 10 of approximately 897 bbls/d which is a multiple of the initial productivity of the well rate of the three most representative vertical wells of between 2.1 and 6.4 times. Subsequent to Q2, we spudded our second horizontal well on July 7, 2012 at TT13 and we are currently drilling the horizontal section with completion operations to commence early in September after the end of Ramadan.
Our drilling program at BBT will likely see us drill a total of four horizontal wells through 2012 using the Foradex Rig 14. Procuring a second drilling rig capable of better handling completion operations will be a priority that enables us to increase the pace of development and materially reduce costs into 2013. The TT structure covers over 13,750 acres and at one well per quarter section, we have potentially 85 future locations.
On our Tunisian offshore projects, the Hammamet Offshore permit partners (Chinook holds 35% and is the operator) have elected to take the block into the first renewal phase which involves a three year extension of a 924,174 acre block and a one well commitment. At Cosmos (Chinook holds 40% and is the operator), we have awarded the FEED engineering contracts and are still on track for a final investment decision late this year and planned first oil in mid 2014.
The security situation remains very stable and on the political front there are some early signs of leadership and increased influence on some of the regional economic development and labor related issues that have had the strongest impact on business interruptions. Our most effective strategy in dealing with these issues is a strong local presence as an employer and a responsible corporate partner in the communities proximal to our operations. Although our relationship with various stakeholders affected by our operations continues to evolve, regular open dialogue and a willingness to consider and accommodate new solutions to old issues has seen us avoid any shut downs during the operationally active quarter. On a national front, Tunisia recently signed a multilateral agreement on fiscal cooperation and strengthened its links with the Organisation of Economic Co-operation and Development (“OECD”) reinforcing Tunisia’s commitment to adhering to the principles of the OECD as a means to generate effective and meaningful growth while maintaining full transparency. The OECD has a long-standing relationship with Tunisia, particularly within the framework of the OECD-MENA Initiative on Governance on Investment for Development. We view this as another positive indication of Tunisia’s commitment to foreign investment as means to achieve energy self-sufficiency.
Due to spring break up conditions in the field we did not conduct any significant drilling and completion operations in Q2. We are continuing to focus on the Dunvegan plays at Karr and Wapiti in our Grande Prairie district where we have equipped and tied-in one horizontal Dunvegan well (37.5% net) which came on production at an initial rate of 450 boe/d (25% oil and 15% NGL) early in the third quarter and have a second cased well waiting on completion that should be on production early in the fall. We have also added to our acreage position at Karr. We are pleased with the results of the Dunvegan program to date and anticipate expanding our capital program on the play.
Activity for the remainder of 2012 is expected to include drilling a minimum of four gross (1.5 net) Dunvegan horizontal wells at Karr, two (0.75 net) Dunvegan horizontal well completions at Wapiti and three (2.0 net) Frobisher horizontal oil wells at Winmore, Saskatchewan. Depending on the initial production data from our Montney oil discovery at Kaybob, we will commence follow up drilling either late in the fourth quarter or early next year.
Notwithstanding a conservative capital program for our Canadian operations in 2012, we have great opportunity to deliver material growth and value in our Peace River Arch and Grande Prairie undeveloped lands. We have identified both development and exploration projects on numerous plays and prospects that are drill ready or are being advanced for drilling in 2013. Oil focused development opportunities include the horizontal development at Karr and Wapiti (Dunvegan), Kaybob (Montney), Elmworth (Doe Creek), Gordondale (Halfway), Spirit River (Doe Creek), Lochend (Cardium), Gilby (Viking) and Winmore (Frobisher). These opportunities are all currently Chinook producing properties with large oil in place reserves that may benefit from horizontal well development through a combination of increased recovery factors, rate acceleration, pool extensions and reserve additions. Our oil focused exploration opportunities include Kaybob (Duvernay/Nordegg), Willesden Green (Second White Specks), Knopcik (Charlie Lake), Boundary Lake (Charlie Lake) and Red Creek (Doig).
Based on approval and operational delays on our Tunisia program along with our intention to shut-in additional natural gas production of approximately 300-600 boe/d in Q3, we are revising our average production forecast for the year from 12,750-13,250 boe/d to 12,000-12,250 boe/d. Our capital expenditures will be reduced from $110- $120 million to an estimated $100 million and our cash flow forecast is $75 to $80 million. Our revised estimate of year end debt is $90 million, or approximately 1.1-1.2 times our 2012 cash flow estimate.
About Chinook Energy Inc.
Chinook is a Calgary-based public oil and gas exploration and development company that combines multi-zone conventional production with resource plays 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 involved 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 volumes and estimated value of Chinook’s oil and natural gas reserves; the volume and product mix of Chinook’s oil and natural gas production; future expectations of oil and natural gas prices; future results from operations and operating metrics; and future exploration, development, exploration, and disposition activities (including drilling plans) and related production expectations as well as management’s expectations with respect to revised 2012 capital expenditures, cash flow, year end net debt, and average production set out under the heading “Revised Guidance”.
With respect to the forward-looking statements contained in this news release, Chinook has made assumptions regarding, among other things: 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 exploration and development activities, the impact of increasing competition, the ability of Chinook to add production and reserves through development and exploitation activities, 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 risks 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 effect Chinook’s operations and financial results are included in reports on file with Canadian securities regulatory authorities and 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. Boe 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 also cautioned that this news release contains the term corporate netback, which is not a recognized measure under GAAP 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 analytical tool to benchmark changes in operational performance against prior periods and . 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 GAAP as a measure of performance. Chinook’s method of calculating this measure may differ from other companies, and accordingly, they may not be comparable to measures used by other companies.
Cash flow from operations
The reader is also cautioned that this news release contains the term cash flow from operations, which is not a recognized measure under GAAP and is calculated as 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 GAAP. Chinook’s method of calculating this measure may differ from other companies, and accordingly, they may not be comparable to measures used by other companies.