T.ROI JUST ANNOUNCE POSITIVE EARNINGS NOW! 112 CC 24-Nov-99 at 18:38:00 18:50
Reserve Royalty Corporation Positive Earnings in Turnaround
Quarter
Symbol: ROI
Industry: OIL
Subject: ERN
NEWS RELEASE TRANSMITTED BY CANADIAN CORPORATE NEWS
FOR: RESERVE ROYALTY CORPORATION
TSE SYMBOL: ROI
NOVEMBER 24, 1999
Reserve Royalty Corporation Positive Earnings in Turnaround
Quarter
CALGARY, ALBERTA--Reserve Royalty Corporation (TSE:ROI) is pleased to
announce the financial results for its Third Quarter.
Highlights for 1999 are the completion of conversion activities associated
with our acquisition of late 1997, and restoration of financial strength
and balance when comparing assets and debt. Staff and management are now
focused on growth activities buoyed by strong commodity prices and high
levels of drilling activity being undertaken on our royalty lands.
Financing
Reserve Royalty has worked diligently in 1999 to restore financial strength
to the Company and restructure the bank debt. During the first nine months
of 1999 bank debt had been reduced from $100.2 million to the $44.2 million
outstanding at September 30, 1999. Upon closing the new bank credit
facility in early December, the Company will have long term bank debt below
$39 million and positive working capital of approximately $5 million.
During the third quarter of this year the Company evaluated a potential
merger opportunity which was hoped to be a catalyst for the new growth in
Reserve Royalty. Those discussions have not resulted in an agreement and
are not being pursued as the Board of Directors believes the company has
sufficient strength and other opportunities to catalyze growth which would
be less dilutive at this time.
Results
The results of operations for the nine months ended September 30, 1999
continue to reflect the transition period for Reserve Royalty. During this
period there has been a substantial conversion of the working interest
properties into cash and new royalties, increases in royalty volumes, and a
reduction in the burdens of interest and general & administrative expenses.
The results for the third quarter of 1999 represent the first full quarter
of results as a royalty company after the major disposition of working
interests in May 1999. These results reflect higher commodity prices,
lower interest expenses, and lower general & administrative expenses. The
Company reports a profit in the third quarter of 1999 reflective of the
successful turnaround.
Funds from operations for the nine months to September 30, 1999 were $6.1
million versus $15.4 for the same period in 1998. On a per share basis
this represents $0.06, compared with $0.16 for the first nine months of
1998. Funds from operations for the third quarter of 1999 were $2.6
million compared with $1.4 million for the second quarter of 1999.
The production profile shifted significantly during the first nine months
of 1999 as a result of the conversion process. With the reduction in
working interest volumes, resource revenue from oil & gas properties, after
deducting royalties and production expenses, was $14.2 million versus
$23.2 million for the same period in 1998. Average royalty production for
the nine months to September 30, 1999 was 1,575 BOE per day with a netback
of $20.94 per BOE, and working interest production was 1,554 BOE per day
with a netback of $12.14 per BOE. Average royalty production during the
third quarter of 1999 was 1,620 BOE per day with a netback of $23.85 per
BOE, and working interest production was 370 BOE per day with a netback of
$14.45 per BOE. These results for the third quarter of 1999 reflect the
91% increase in light crude oil prices from US$12.45 per barrel WTI in
January 1999 to US$23.79 per barrel WTI September.
Interest and financing expenses for the third quarter of 1999 were $0.9
million compared to $1.6 million for the first quarter of 1999 and $1.1
million for the second quarter of 1999. The reduced burden of interest
expense correlates with the reduction in debt. Administration expenses on
a monthly basis have been reduced by 42% from January to September 1999.
This reduction reflects the elimination of most of the working interest
production which required proportionately more resources to manage.
Administrative expenses reported for the second and third quarters of 1999
included $181,000 and $168,000 respectfully for staffing and restructuring
expenses associated with the conversion of the working interests.
Reserve Royalty reports a loss for the nine months ended September 30, 1999
of $2.8 million, compared with a loss of $2.9 million for the first nine
months of 1998. Earnings for the third quarter of 1999 were $0.01 per
share compared with a loss of $0.02 per share for the third quarter of
1998.
Debt was principally retired through proceeds from the disposal of oil &
natural gas properties of $51.9 million during the first nine months of
1999. During this same period, capital expenditures were $2.7 million
related to the working interest properties. The Company created
substantial new royalties on the working interest properties and
undeveloped lands turned over to industry partners. As Reserve Royalty
moves forward cashflow will be reinvested into the creation of new
royalties through financing transactions, or through the acquisition of
existing royalties being offered within the industry.
Year 2000 Compliance (Y2K)
The Company has addressed the Y2K computer issue, being the ability of
computers and imbedded processing chips to property function during the
change from 1999 to 2000. The Company is satisfied that its internal
systems and those of its direct service providers are Y2K compliant. The
conversion of properties to royalties has substantially reduced the amount
of directly operated field equipment subject to this potential problem.
The Company has not obtained unqualified opinions from the operators of the
properties producing hydrocarbons that existing systems and field equipment
is compliant, nor has the Company obtained unqualified opinions from the
major transporters and buyers of production that their systems are Y2K
compliant. However, the majority of the Company's production is operated
by public companies that have disclosed to their shareholders that they are
compliant. The Company has completed its upgrade program associated with
Y2K compliance, but is unable to assess potential costs for systems
operated by others. The potential impact of non-compliant applications by
others operating royalty production could range from inconvenience, such as
the delay in receipt of revenue, to complete shut-down of production for an
indeterminate period of time. The Company is unable to economically insure
against potential losses. However, the Company's production base is
diversified across numerous operators, producing areas, wells, and
facilities.
Outlook
Reserve Royalty has regained financial strength and the ability to invest
cashflow into new royalties at a time when the oil & gas industry is very
receptive to this type of financing. The Company will focus on royalty
transactions which provide superior returns to our shareholders.
The Company has a significant asset base of proven reserves of a 12 year
reserve life, royalties on over 4 million acres of undeveloped land, 2.5
million acres of which is in Western Canada, and working capital of $5
million. With higher commodity prices from mid 1999, the oil & gas
industry is actively drilling our undeveloped lands and expanding current
production areas. To the end of October, 62 wells had been drilled on our
lands, another 50 to 60 wells are licensed for fourth quarter drilling, and
our major royalty partners have been successful in bringing on additional
production from existing producing areas. These drilling and exploitation
programs will continue to add to our royalty volumes and reserve values.
/T/
CONSOLIDATED BALANCE SHEETS
------------------------------------------------------------------------
(Unaudited - thousands) 30 Sept. 31 Dec.
1999 1998
------------------------------------------------------------------------
Assets
Current
Cash $ 83 $ 200
Marketable securities, at the lower of cost
or market (market $2,748; 1998 - $1,831) 1,367 1,831
Accounts receivable 4,773 11,940
Inventory, prepaid expenses and deposits 663 1,444
Note receivable - 700
------------------------------------------------------------------------
6,886 16,115
Petroleum and natural gas properties 151,954 212,693
------------------------------------------------------------------------
$158,840 $228,808
------------------------------------------------------------------------
------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current
Accounts payable and accrued liabilities $ 3,336 $ 10,155
Current portion of long-term debt 18,346 38,866
------------------------------------------------------------------------
21,682 49,021
Long-term debt 25,828 61,314
Hedging contracts assumed on acquisition - 1,710
Future site restoration provision 452 3,090
------------------------------------------------------------------------
47,962 115,135
------------------------------------------------------------------------
Shareholders' equity
Share capital 212,558 212,558
Deficit (101,680) (98,885)
------------------------------------------------------------------------
110,878 113,673
------------------------------------------------------------------------
$158,840 $228,808
------------------------------------------------------------------------
------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS & RETAINED EARNINGS (DEFICIT)
------------------------------------------------------------------------
------------------------------------------------------------------------
(Unaudited - thousands, except per share amounts)
Three Months ended Nine Months ended
Sept. 30 Sept. 30
1999 1998 1999 1998
------------------------------------------------------------------------
Resource revenue $ 4,196 $ 8,559 $16,329 $ 32,502
Investment, gas marketing and
hedging income (loss) 16 (1,076) (1,806) (530)
------------------------------------------------------------------------
4,212 7,483 14,523 31,972
Expenses
Administration (759) (978) (2,669) (2,995)
Interest and financing (908) (1,709) (3,621) (4,840)
Production (259) (1,835) (2,052) (6,570)
Royalties 102 (669) (121) (2,699)
Depletion, depreciation and
amortization (2,106) (4,370) (8,926) (17,027)
------------------------------------------------------------------------
Earnings (loss) before income
taxes 282 (2,078) (2,866) (2,159)
------------------------------------------------------------------------
Provision for income taxes
Current 257 (260) 71 (597)
Deferred - 757 - (173)
------------------------------------------------------------------------
257 497 71 (770)
------------------------------------------------------------------------
Earnings (loss) for the period 539 (1,581) (2,795) (2,929)
Retained earnings (deficit),
beginning of period (102,219) 7,354 (98,885) 8,702
------------------------------------------------------------------------
Retained earnings (deficit),
end of period $(101,680) $ 5,773 $(101,680) $ 5,773
------------------------------------------------------------------------
------------------------------------------------------------------------
Earnings (loss) per common share,
basic and fully diluted $ 0.01 $ (0.02)$ (0.03) $ (0.03)
------------------------------------------------------------------------
Weighted average number of
common shares outstanding 102,252 95,933 102,252 95,943
------------------------------------------------------------------------
------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
------------------------------------------------------------------------
------------------------------------------------------------------------
(Unaudited - thousands, except per share amounts)
Three Months ended Nine Months ended
Sept. 30 Sept. 30
1999 1998 1999 1998
------------------------------------------------------------------------
Net inflow (outflow) of cash related
to the following activities:
Operations
Earnings (loss) for the period $ 539 $(1,581) $(2,795) $(2,929)
Writedown of marketable
securities - 1,100 - 1,100
Depletion, depreciation and
amortization 2,106 4,370 8,926 17,027
Deferred income taxes - (757) - 173
------------------------------------------------------------------------
Funds from operations 2,645 3,132 6,131 15,371
Net change in non-cash working
capital items (1,254) 5,463 2,293 (10,691)
------------------------------------------------------------------------
Cash provided by operating
activities 1,391 8,595 8,424 4,680
------------------------------------------------------------------------
Financing
Issue of common shares, net of
issue costs - 84 - 194
Long-term debt (5,920) (41,220) (35,486) (42,265)
Current portion of long-term
debt 4,883 35,960 (20,520) 35,960
Payment on hedging contracts
assumed on acquisition - (207) (1,710) (583)
------------------------------------------------------------------------
Cash provided by financing
activities (1,037) (5,383) (57,716) (6,694)
------------------------------------------------------------------------
Investments
Petroleum and natural gas
properties (508) (2,917) (2,704) (13,611)
Proceeds on disposal of petroleum
and natural gas properties 30 (389) 51,879 15,617
------------------------------------------------------------------------
Cash provided by (used in)
investing activities (478) (3,306) 49,175 2,006
Decrease in cash during the period (124) (94) (117) (8)
Cash, beginning of period 207 98 200 12
------------------------------------------------------------------------
Cash, end of period $ 83 $ 4 $ 83 $ 4
------------------------------------------------------------------------
------------------------------------------------------------------------
Funds from operations per common share:
Basic $ 0.03 $ 0.03 $ 0.06 $ 0.16
Fully diluted $ 0.03 $ 0.03 $ 0.06 $ 0.15
------------------------------------------------------------------------
------------------------------------------------------------------------
/T/
Reserve Royalty Corporation is an innovative financial company which
creates gross overriding royalties in the oil & gas industry through
off-balance-sheet financing for industry partners and by the re-deployment
of oil and gas assets acquired by the company in corporate transactions.
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FOR FURTHER INFORMATION PLEASE CONTACT:
Reserve Royalty Corporation
Fiona Read
President & CEO
(403) 266-3542
or
Reserve Royalty Corporation
William Ostlund
Vice President & CFO
(403) 266-3542
INDUSTRY: OIL
SUBJECT: ERN
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