CALGARY, Aug. 13, 2014 /CNW/ - (TSX: TBE) - Twin Butte Energy Ltd. ("Twin Butte" or the "Company") is pleased to report its financial and operational results for the three months ended June 30, 2014.
Highlights of Twin Butte's successful second quarter 2014 are as follows:
- Average second quarter production of 21,109 boe/d (90% liquids), an increase of 25% from second quarter 2013 while liquids weighting increased to 90% from 87% over the same periods. Light and medium oil represented 36% of production in the quarter compared to 4% in the second quarter of 2013.
- Second quarter funds flow of $48.5 million, or $0.14 per share, an increase of 47% from second quarter 2013. Operating cost reductions and higher corporate netbacks from the first quarter of 2014 were achieved.
- Completed an organic net capital program of $21.7 million including the drilling of 17 gross (17 net) wells at a 100% success rate. With the exception of one service well, 100% of the second quarter capital plan was focused on horizontal drilling activity with 50% of the wells focused in the Company's medium oil Provost area.
- Reinforced the financial sustainability of the Company's dividend with the total payout ratio for the quarter and year to date being 75% and 89% respectively. Twin Butte has declared $122.7 million ($0.47 per share) in dividends since January 2012 and maintained a cumulative all-in payout ratio of 90% since that time.
- Expanded the Company's Provost area medium oil drilling inventory to more than three years
- Certain selected financial and operational information for the three and six months ended June 30, 2014 and 2013 is outlined below and should be read in conjunction with Twin Butte's condensed interim financial statements for the three and six months ended June 30, 2014 and 2013 and accompanying management's discussion and analysis filed with the Canadian securities regulatory authorities which may be accessed through the SEDAR website (www.sedar.com) and also the Company's website.
|
Three months ended June 30 |
Six months ended June 30 |
|
2014 |
2013 |
% Change |
2014 |
2013 |
% Change |
| Financial ($ 000's, except per share amounts) |
|
|
|
|
|
| Petroleum and natural gas sales |
152,566 |
96,590 |
58% |
301,766 |
166,250 |
82% |
| Funds flow (1) |
48,520 |
33,058 |
47% |
99,904 |
65,481 |
53% |
| Per share basic |
0.14 |
0.13 |
8% |
0.29 |
0.26 |
12% |
| Per share diluted |
0.14 |
0.13 |
8% |
0.29 |
0.26 |
12% |
| Net income (loss) |
7,181 |
(6,082) |
218% |
(8,059) |
(35,715) |
77% |
| Per share basic |
0.02 |
(0.02) |
200% |
(0.02) |
(0.14) |
86% |
| Per share diluted |
0.02 |
(0.02) |
200% |
(0.02) |
(0.14) |
86% |
| Dividends declared |
16,599 |
12,028 |
38% |
33,149 |
24,008 |
38% |
| Dividends declared, Post DRIP |
14,771 |
10,543 |
40% |
29,463 |
21,271 |
39% |
| Capital expenditures (2) |
21,724 |
14,871 |
46% |
59,615 |
34,496 |
73% |
| Net debt (3) |
352,198 |
193,750 |
82% |
352,198 |
193,750 |
82% |
| Operating |
|
|
|
|
|
|
| Average daily production |
|
|
|
|
|
|
| Heavy crude oil (bbl per day) |
11,354 |
13,974 |
-19% |
12,014 |
13,932 |
-14% |
| Light & Medium crude oil (bbl per day) |
7,523 |
614 |
1125% |
7,568 |
698 |
984% |
| Natural gas (Mcf per day) |
12,122 |
12,665 |
-4% |
12,161 |
13,282 |
-8% |
| Natural gas liquids (bbl per day) |
212 |
150 |
41% |
206 |
206 |
0% |
| Barrels of oil equivalent (boe per day, 6:1) |
21,109 |
16,849 |
25% |
21,815 |
17,050 |
28% |
| % Oil and NGLs |
90% |
87% |
3% |
91% |
87% |
4% |
| Average sales price |
|
|
|
|
|
|
| Heavy crude oil ($ per bbl) |
82.62 |
68.01 |
21% |
78.00 |
57.67 |
35% |
| Light & Medium crude oil ($ per bbl) |
89.73 |
82.06 |
9% |
86.23 |
73.86 |
17% |
| Natural gas ($ per Mcf) |
3.89 |
3.80 |
2% |
4.98 |
3.56 |
40% |
| Natural gas liquids ($ per bbl) |
76.76 |
84.35 |
-9% |
82.27 |
78.42 |
5% |
| Barrels of oil equivalent ($ per boe, 6:1) |
79.42 |
63.00 |
26% |
76.42 |
53.87 |
42% |
| Field netback ($ per boe) (4) |
|
|
|
|
|
|
| Petroleum and natural gas sales |
79.42 |
63.00 |
26% |
76.42 |
53.87 |
42% |
| Royalties |
(15.43) |
(13.39) |
15% |
(13.88) |
(11.25) |
23% |
| Operating expenses |
(20.94) |
(22.92) |
-9% |
(21.90) |
(22.40) |
-2% |
| Transportation expenses |
(1.18) |
(1.72) |
-31% |
(1.05) |
(1.34) |
-22% |
| Field netback |
41.87 |
24.97 |
68% |
39.59 |
18.88 |
110% |
| Wells drilled |
|
|
|
|
|
|
| Gross |
17.0 |
12.0 |
42% |
51.0 |
40.0 |
28% |
| Net |
17.0 |
12.0 |
42% |
51.0 |
40.0 |
28% |
| Success (%) |
100 |
100 |
0% |
96 |
93 |
3% |
| Common Shares |
|
|
|
|
|
|
| Shares outstanding, end of period |
346,261,772 |
250,916,313 |
38% |
346,261,772 |
250,916,313 |
38% |
| Weighted average shares outstanding - diluted |
347,994,331 |
251,895,637 |
38% |
345,419,756 |
250,965,960 |
38% |
(1) Funds flow is a non-GAAP measure that represents the total cash provided by operating activities, before adjusting for changes in non-cash working capital items and expenditures on decommissioning liabilities. See also "Funds Flow from Operations" in the Reader Advisory below.
(2) Capital expenditures is a non-GAAP measure calculated as the purchase or sale price of an asset, plus development capital expenditures added to PP&E. Corporate acquisitions are excluded from this measure.
(3) Net debt is a non-GAAP measure representing the total of bank indebtedness, accounts payables and accrued liabilities, cash dividend payable, less accounts receivables, deposits and prepaids. See also "Net Debt" in the Reader Advisory below.
(4) Field netback is a non-GAAP measure calculated as the average per boe of the Company's oil and gas sales, less royalties, operating and transportation expenses. See also "Field Netback" in the Reader Advisory below.
Corporate:
During the second quarter, Twin Butte accelerated its transition from largely a conventional target, vertical, heavy oil driller to a horizontal driller targeting more predictable production profile projects with a significant and growing medium oil presence in the Provostarea. This transition will strengthen the Company's business model of delivering a long term stable dividend combined with moderate production growth by increasing the percentage of higher netback, more predictable decline, oil barrels in the Company. For the balance of the year, Twin Butte anticipates that substantially allof the remaining drilling program will be weighted to horizontals with approximately 75% of its activity focused in Provost. This shift strengthens Twin Butte's corporate sustainability, with an increased corporate netback based on lower operating costs, lower royalties and an increased weighting to higher valued medium crude. The Company's growing horizontal drilling inventory which has capital efficiencies comparable to Twin Butte's historical vertical heavy oil drilling inventory, and is in formations with a more predictable decline profile, will ensure this positive transition continues in future quarters.
Financial:
Twin Butte's second quarter 2014 financial and operating results demonstrate the Company's ability to pay a sustainable dividend and maintain a strong balance sheet while completing a disciplined capital plan. In the second quarter of 2014 the Company declared $16.6 million in dividends ($14.8 million post DRIP & SDP) which when combined with net $21.7 million in organic capital spending generated an all-in payout ratio of 75%. Over the past 2.5 years the Company has declared $122.7 million in dividends, or $0.47 per share, and maintained a cumulative all-in payout ratio of 90%.
Funds flow in the second quarter increased significantly (47%) from 2013 reaching $48.5 million or $0.14 per share. This compares to a 25% increase in production volumes over the same periods reinforcing the Company's transition to an increased weighting of higher netback barrels. The percentage of light and medium oil production in the quarter compared to the second quarter of 2013 has increased materially to 36% from 4%.
Operating costs in the second quarter were $20.94 per boe, down from $22.81 per boe in the first quarter of 2014, as operating improvements are beginning to be realized, lower propane and power costs, and as the percentage of lower operating cost Provost area volumes grow. As volumes grow in Provost this trend is expected to continue.
Strong Canadian oil prices combined with a continued contraction in the differential between light and heavy oil prices led to strong WCS (Western Canadian select heavy oil index) pricing in the quarter of $90.74 per bbl as compared to a second quarter 2013 average of $77.91 per bbl. The Company will continue to enhance its heavy oil pricing through rail car movement which currently represents approximately 40% of the Company's heavy oil productions.
Heavy oil differentials significantly contracted in early 2014 and forward market pricing has recently shown reduced volatility for the remainder of 2014 and 2015. Higher than anticipated WTI oil prices combined with the weaker exchange rate for the Canadian dollar has led to much higher base oil pricing for 2014 to date and is expected to continue through year-end. This has driven higher increased opportunity costs or realized hedging losses than normal as the hedge program reduces the volatility but limits the Company's participation in the pricing upside or more importantly as a dividend payer, the impact of pricing downturns. Twin Butte had a higher than usual percentage of production hedged through 2014 as a result of inherited hedge positions from an acquisition last fall. Hedging will continue to be an important component of the business plan providing a mechanism to reduce volatility and provide downside price protection or dividend protection, with a proactive hedging or risk management strategy.
The Company sold approximately $4.7 million in non-core assets in the second quarter of 2014. These dispositions further focus the Company's asset base with proceeds being used to partially fund the Company's ongoing organic capital plans in its core operating areas in Provost and Lloydminster.
The Company renewed its current bank facility in the second quarter at $365 million which provides substantial liquidity above the Company's drawn position of approximately $259 million as at June 30, 2014. The Company also has outstanding $85 million principal amount of convertible debentures with a carrying value of $78 million at the end of the second quarter. Total net debt as at June 30, 2014 was $352.2 million, which was an $11.5 million reduction from the first quarter, while translating to an annualized debt to cash flow ratio at approximately 1.8 times.
Operations:
The Company's second quarter capital plan was focused on horizontal well activity in its core medium oil area of Provost and its heavy oil property at Wildmere. The $21.7 million capital program included the drilling of 17 gross wells (17 net) of which 16 were horizontal and one service well.
At Provost, 8 horizontal wells were drilled in the second quarter of 2014 (23 horizontal wells year-to-date) with an additional 13 horizontals drilled thus far in the third quarter. The target play drilled to date has been the Dina and Cummings oil over water project. 2014 well productivity has on average been consistent with the over 100 similar wells drilled on the property since 2010 by Twin Butte and the previous operator, with first three month average production of 70 boe per day. The Company is currently reviewing results of a full field reservoir simulation study on one its more successful horizontally drilled Provost pools. Early indications suggest drilling activity can be expanded on the initial pool, and likely replicated on other under-exploited pools in Provost that Twin Butte controls. The Company intends to validate via drilling, the model results later in 2014. With the repeatable success, a more predictable decline profile and the identified and expanding inventory, the Dina/Cummings play will continue to be a focus for the company for the foreseeable future.
As the Company's geological understanding at Provost grows, the potential of several other zones is becoming apparent. In the third quarter Twin Butte has drilled and fracture stimulated its first two Sparky oil wells with the wells both expected on stream imminently. Recently drilled offsetting competitor wells have demonstrated initial productivity of 95 boe per day, per well, and duplication of these results will generate capital efficiencies comparable with the current Dina and Cummings results. Based on current land holdings and geological mapping the Company has identified more than 100 similar potential drilling locations.
Mapping of the multiple, hydrocarbon charged, lithic channels which criss-cross the Company's acreage has identified numerous new drilling opportunities. Drilling is scheduled to begin on the lithic channel play in the second half of 2014 with results expected before year end.
Overall, the Company anticipates drilling more than 55 wells at Provost in 2014.
The Company's expanding operations in Provost are improving the Company's dividend sustainability with higher netback barrels, as a result of higher realized pricing on the area's medium quality oil, which along with lower operating and royalty costs, provides improved netbacks per boe. Field netbacks in Provost in the second quarter averaged approximately $56/boe compared to about $34/boe on the Company's existing heavy oil operations. The Company is focused on increasing production of our medium barrels up to the 45-50% range over the next 12 months, which has the potential to increase corporate cash flow by approximately 10% in a flat pricing and flat production scenario. As the Company's Provost production weighting increases, so will the area's cash flow generation capacity as a percentage of the overall Company.
Twin Butte continued its horizontal heavy oil development in Wildmere, Alberta with 8 horizontal wells drilled in the second quarter. The Wildmere asset has seen approximately 50 horizontal wells drilled on the property over the past 2 years with upward of an additional 15 horizontal locations planned for the remainder of the year. These wells are delivering field netbacks of approximately $50 per boe year-to-date. The Company is currently evaluating various secondary recovery schemes, which have been successfully deployed on the legacy vertically developed portions of the pool, to further enhance the economic return of this asset. Similar horizontal heavy oil opportunities have been identified on Twin Butte lands, primarily in the Lloydminster area, which the Company intends to develop over the next several quarters.
Average production for the second quarter of 2014 was 21,109 boe per day. With an active third quarter capital plan of approximately$50 million, drilling approximately 40 wells, the Company anticipates Corporate production will grow into the fourth quarter and believe the Company is on track to meet its 2014 exit production guidance of 22,500 boe per day.
Outlook
As noted in the Company's first quarter 2014 report the corporate transition from a vertical heavy oil to a horizontal medium and heavy oil driller has commenced and is ongoing. As with any strategic transition results do not happen overnight and measurement of success must be relative. The Company's expanding capital focus on medium oil in Provost is showing positive results. Higher revenue medium oil volumes are growing as a percentage of corporate production, and overall corporate operating costs and netbacks are improving. Although early, these are positive indications of where the Company's strategic focus will lead.
Since the initiation of its dividend policy in January 2012, Twin Butte's long term business plan of providing shareholders with long term total returns comprised of both income and moderate growth is and will remain the Company's focus. Twin Butte will continue to match its capital plan to forecast cash flow less dividends ensuring the dividends sustainability. Positive improvements in corporate netback and a growing inventory of strong capital efficiency horizontal drilling inventory in reservoirs with more predictable decline profiles allows Twin Butte to remain confident in the long term sustainability of the dividend. While remaining strongly positioned with its low risk drilling inventory, the Company continues to review acquisition opportunities to further diversify and enhance the Company's commodity and play types.
The Company remains comfortable with the current dividend level and the payment has been approved through to the end of the year by the Board of Directors. The Company's current financial forecast continues to show a total annual payout ratio under 100% for the year, consistent since the establishment of the dividend model in January 2012.
The point forward focus on horizontal drilling at Provost and Lloydminster will strengthen and enhance the Company's production predictability and dividend sustainability, while providing a platform for moderate growth over the longer term.