TSX: BXE
CALGARY, March 11 /CNW/ - (TSX: BXE) Bellatrix Exploration Ltd. ("Bellatrix" or the "Company") announces its financial and operating results for the year ended December 31, 2009. Effective November 1, 2009 Bellatrix Exploration Ltd. became the successor to True Energy Trust ("True" or the "Trust") as a result of a Plan of Arrangement (the "Arrangement") approved by the Trust's securityholders at a special meeting held on October 28, 2009. As a result of the Arrangement, the Trust was dissolved, and the Company assumed all of the liabilities and acquired all of the assets of the Trust. Information herein with respect to Bellatrix includes information in respect of the Trust prior to completion of the Reorganization to the extent applicable unless the context otherwise requires. In addition, references to "common shares" and "shares", "Share Option Plan", and "options" should be read as references to "Units", "Unit Rights Incentive Plan", and "rights" respectively, for periods prior to November 1, 2009.
Forward-Looking Statements
This press release contains forward-looking statements. Please refer to our disclaimer on forward-looking statements set forth at the beginning of the management's discussion and analysis attached to this press release.
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HIGHLIGHTS
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Years ended December 31,
2009 2008
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FINANCIAL (unaudited)
(CDN
00s except share and per share amounts)
Revenue (before royalties and risk management(1)) 109,014 265,385
Cash flow from operating activities 30,671 78,784
Per basic share
.39 $1.00
Per diluted share
.39
.99
Funds flow from operations(2) 36,025 77,893
Per basic share
.46
.99
Per diluted share(5)
.46
.98
Net loss (126,620) (19,590)
Per basic share $(1.61) $(0.25)
Per diluted share(5) $(1.61) $(0.25)
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Exploration and development 15,844 36,699
Corporate and property acquisitions 643 6,303
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Capital expenditures - cash 16,487 43,002
Property dispositions - cash (92,921) (44,340)
Other - non-cash (492) 3,710
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Total capital expenditures - net (76,926) 2,372
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Long-term debt 27,902 132,388
Convertible debentures(3) 81,684 81,124
Working capital (excess) deficiency (2,317) 1,492
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Total net debt(3) 107,269 215,004
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Pro-forma total net debt subsequent
to equity financing(6) 64,578 N/A
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Total assets 440,970 736,117
Shareholders' equity 281,351 404,461
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OPERATING Years ended December 31,
2009 2008
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Daily sales volumes
Crude oil, condensate and NGLs (bbls/d) 2,877 4,333
Natural gas (mcf/d) 33,295 45,202
Total oil equivalent (boe/d) 8,426 11,867
Average prices
Crude oil, condensate and NGLs ($/bbl) 49.65 76.75
Crude oil, condensate and NGLs
(including risk management(1)) ($/bbl) 49.62 64.24
Natural gas ($/mcf) 4.50 8.50
Natural gas (including risk
management (1)) ($/mcf) 5.96 8.00
Total oil equivalent ($/boe) 34.72 60.42
Total oil equivalent
(including risk management(1)) ($/boe) 40.49 53.92
Statistics
Operating netback(4) ($/boe) 13.11 30.91
Operating netback(4)
(including risk management(1)) ($/boe) 18.88 24.41
Transportation ($/boe) 1.26 1.62
Production expenses ($/boe) 14.64 15.33
General & administrative ($/boe) 3.33 3.61
Royalties as a % of sales after
transportation 17% 21%
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COMMON SHARES
Common shares outstanding 78,809,039 78,496,581
Share options outstanding 4,213,733 2,700,500
Trust units issuable for exchangeable shares - 300,433
Shares issuable for convertible debentures(7) 5,305,250 5,390,625
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Diluted common shares outstanding 88,328,022 86,888,139
Diluted weighted average shares(5) 78,548,800 78,985,481
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SHARE TRADING STATISTICS
(CDN$, except volumes) based on
intra-day trading
High 2.75 4.69
Low 0.48 1.17
Close 2.65 1.20
Average daily volume 235,339 270,458
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(1) The Company has entered into various commodity price risk management
contracts which are considered to be economic hedges. Per unit
metrics after risk management includes only the realized portion of
gains or losses on commodity contracts.
The Company does not apply hedge accounting to these contracts. As
such, these contracts are revalued to fair value at the end of each
reporting date. This results in recognition of unrealized gains or
losses over the term of these contracts which is reflected each
reporting period until these contracts are settled, at which time
realized gains or losses are recorded. These unrealized gains or
losses on commodity contracts are not included for purposes of per
share metrics calculations disclosed.
(2) The highlights section contains the term "funds flow from
operations" which should not be considered an alternative to, or more
meaningful than cash flow from operating activities as determined in
accordance with Canadian generally accepted accounting principles
("GAAP") as an indicator of the Company's performance. Therefore
reference to diluted funds flow from operations or funds flow from
operations per share may not be comparable with the calculation of
similar measures for other entities. Management uses funds flow from
operations to analyze operating performance and leverage and
considers funds flow from operations to be a key measure as it
demonstrates the Company's ability to generate the cash necessary to
fund future capital investments and to repay debt. The reconciliation
between cash flow from operating activities and funds flow from
operations can be found in the Management Discussion and Analysis
("MD&A"). Funds flow from operations per share is calculated using
the weighted average number of common shares for the period.
(3) Net debt and total net debt are considered non-GAAP terms. The
Company's calculation of net debt includes the net working capital
deficiency (excess) before short-term commodity contract assets and
liabilities and short-term future income tax assets and liabilities.
Total net debt also includes the liability component of convertible
debentures and excludes asset retirement obligations and the future
income tax assets and liabilities. A reconciliation between total
liabilities under GAAP and total net debt as calculated by the
Company is found in the MD&A.
(4) Operating netbacks are calculated by subtracting royalties,
transportation, and operating costs from revenues.
(5) In computing weighted average diluted earnings per share for the year
ended December 31, 2009 a total of 4,213,733 (2008: 2,700,500) share
options, nil (2008: 300,433) exchangeable shares and 5,305,250 (2008:
5,390,625) common shares issuable on conversion of convertible
debentures were excluded from the calculation for the years ended
December 31, 2009 and 2008 as they were not dilutive.
To calculate weighted average diluted funds flow from operations for
the year ended December 31, 2009, a total of nil (2008: 300,433)
exchangeable shares were added to the denominator. Under this
calculation, a total of 4,213,733 (2008: 2,700,500) share options and
5,305,250 (2008: 5,390,625) shares issuable on conversion of
convertible debentures were excluded from the calculation for the
years ended December 31, 2009 and 2008 as they were not dilutive.
(6) Pro-forma total net debt subsequent to equity issuance is calculated
as total net debt as at December 31, 2009 less net proceeds of
$42.7 million, after underwriter fees and before other closing costs
(7) Shares issuable for convertible debentures are calculated as the
$84.88 million principal amount of the convertible debentures divided
by the conversion price of $16.00 per share.
REPORT TO SHAREHOLDERS
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Bellatrix's corporate thrust in 2009 was to improve the Company's balance sheet by reducing total outstanding debt and streamlining its operating cost structure. The Company reorganized its senior management, bringing in successful full cycle exploration and production optimization specialists, to provide significant experience and expertise to Bellatrix.
During 2009, the Company maintained a controlled capital budget program of approximately $16.5 million, from $43.0 million in 2008. Bellatrix implemented optimization and maintenance programs in order to arrest production declines with minimal capital spending, and achieved 100% success rate in its 2009 drilling program. The Company focused on increasing financial flexibility by strategically disposing of petroleum and natural gas properties for net proceeds of $92.9 million. The proceeds from the dispositions were used to pay down indebtedness. Bellatrix decreased G&A to $10.2 million in 2009 from $15.7 million established in 2008 a 35% reduction. Operating costs were reduced to $45.0 million in 2009 from $66.5 million in 2008 representing a decrease of 32%. 2009 Operating costs were negatively impacted by costs relating to prior periods of $2.6 million or
.85/boe. Bellatrix continues to tighten its cost structure in the current economically challenging climate with forecasted reductions of approximately 22% to total operating expenses in 2010.
Following securityholder and regulatory approval, on November 1, 2009, the Company was converted (the "Reorganization") from an open-ended, unincorporated investment trust into a growth oriented, public exploration and production company. Strategically, the Reorganization re-positioned the Company, allowing Bellatrix to move forward with a corporate organic growth model and a flexible balance sheet.
On January 28, 2010 Bellatrix completed an equity issuance of 13.64 million common shares on a bought deal basis at a price of $3.30 per share for gross proceeds of $45.0 million (net proceeds of $42.7 million after underwriter fees and before other closing costs). The net proceeds from this financing were used to temporarily reduce outstanding indebtedness, thereby freeing up borrowing capacity that may be redrawn to fund Bellatrix's ongoing capital expenditure program and for general purposes.
MARKET AND SHARE TRADING STATS
Bellatrix's share price has increased significantly from $1.30 on January 2, 2009 to a closing price of $4.15 on February 22, 2010, representing a 219% increase. In comparison, the S&P/TSX producers index, AECO spot price and WTI spot price increased (decreased) by 28%, (23%), and 73%, respectively.
RESERVES AND PRODUCTION
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Highlights from Bellatrix's December 31, 2009 reserves include:
- Total proved plus probable company interest reserves, including all
royalties receivable but before deducting royalty burdens, as
evaluated by GLJ Petroleum Consultants Ltd. ("GLJ") at December 31,
2009 were 25,872 mboe (gas converted 6:1).
- Omitting properties subject to disposition in 2009, proved and
probable company interest reserve additions in 2009 replaced 99% of
production.
- Bellatrix's net asset value, based on GLJ reserve report evaluation
(before income taxes) at a 10% discount rate, equates to $3.76 per
share as at December 31, 2009. Bellatrix's net asset value excludes
$400 million in available tax pools that would add an additional
value of
.25 per share.
- Bellatrix's reserves life index has extended to 6.5 years for proved
reserves and 9.6 years for proved plus probable.
- Bellatrix established a recycle ratio, after commodity price risk
management and excluding future development costs, of 3.14 on a
proved basis and 2.71 on a proved and probable basis.
- The Company recorded all-in annual Finding, Development and
Acquisition ("FD&A") cost of $6.97 per barrel of oil equivalent
("boe") in 2009 including future development capital ("FDC") for the
proved and probable reserves category. This is a 81% reduction from
the $36.06 per boe FD&A cost realized in 2008.
- The Company recorded all-in annual FD&A cost of $6.01 per boe in 2009
before consideration FDC for proved reserves category. This is a 67%
reduction from the $18.24 per boe FD&A cost realized in 2008.
Including FDC, the FD&A cost was $9.50 per boe. The three year
average FD&A cost is $16.07 per boe for the proved category before
FDC; including FDC, the three year average FD&A cost is $17.06 per
boe.
- Based on the reserves information and other data as at December 31,
2009, the Company has performed ceiling test calculations in
accordance with the requirements of CICA AcG 16 "Oil and Gas
Accounting - Full Cost." No ceiling test impairment of oil and gas
properties was identified for accounting purposes as at December 31,
2009.
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For additional information please refer to the reserves news release dated February 22, 2010 (posted on wwww.sedar.com).
The Company has experienced several years of positive revisions to the reserve base as its assets continue to mature and expects this trend to continue. Additionally, reserves expected from the Company's developing Cardium and Notikewin resource plays remain largely unassigned due to the nascent development of the play and the horizontal drilling and completion technologies involved. Specifically, the reserve evaluation includes only one (net) undeveloped Notikewin horizontal gas location at Ferrier and two (net) undeveloped Cardium horizontal oil locations at Pembina. Focusing on the Cardium oil play, the Company is in the process of developing and proving reserves across 133 gross (81 net) sections of land, at an average 61% working interest. The Company is also in the process of developing and proving reserves across 142 gross (74 net) sections of land in the Notikewin natural gas play, at an average 52% working interest.
At December 31, 2009 the Company's proved and probable company interest reserves, using forecast prices and costs, were 25,872 mboe, a decrease of 34% compared to 39,488 mboe at December 31, 2008. Property dispositions accounted for 12,858 mboe or 94 % of the decrease. By commodity type, natural gas makes up 72%, light oil and natural gas liquids 21% and heavy oil 7% of total reserves. At December 31, 2009, the Company's total proved company interest reserves were 16,573 mboe, a decrease of 29% compared to 23,453 mboe at December 31, 2008; property dispositions accounted for 6,464 mboe or 94% of the decrease.
2009 sales volumes averaged 8,426 boe/d compared to 10,750 boe/d that was sold in the fourth quarter of 2008. The reduction in average sales volume is due to natural production declines, minimal capital spending in 2009 and the impact of dispositions totaling approximately 3,600 boe/d for the third and fourth quarter of 2009. Fourth quarter 2009 sales volumes averaged 6,572 boe/d.
As stated in the press release dated January 29, 2010 Bellatrix has announced a $75 million capital expenditures budget for 2010. Based on the timing of proposed expenditures, downtime for anticipated plant turnarounds and normal production declines, execution of the 2010 budget is anticipated to provide 2010 average daily production of approximately 8,500 boe/d and an exit rate of approximately 10,000 boe/d. The 2010 capital budget is expected to be directed primarily towards horizontal drilling and completions activities in the Cardium and Notikewin resource plays.
As part of the 2010 capital expenditures budget the Corporation anticipates drilling 44 gross wells (31.6 net wells) primarily in the Pembina and Ferrier areas of Alberta, for an approximate cost of $57.0 million. In addition, the Corporation anticipates spending approximately $4.0 million on land and seismic acquisitions, $6.25 million on well site equipping and field facilities,
.75 million on geological and geophysical expenditures, $3.0 million on optimization and recompletions and $4.0 million on non-operated joint venture billings.
DRILLING
The Company maintained a controlled capital program in 2009, focusing on maintaining its production base through optimization and maintenance programs in the first half of the year and drilling in the second half of 2009. Exploration and development capital expenditures after drilling incentive credits but excluding acquisitions and dispositions were $15.8 million in 2009. During the fourth quarter of 2009, Bellatrix spent $9.6 million on capital projects, excluding corporate and asset acquisitions and dispositions, compared to $11.0 million in 2008. In 2009, Bellatrix drilled or participated in 18 (11.68 net) wells including 12 gross (7.62 net) natural gas wells, and 4 gross (3.5 net) oil wells and 2 gross (0.56 net) awaiting completion.
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FINANCIAL
- Total net proceeds from property dispositions completed in 2009 were
$92.9 million which was used to pay down debt.
- Bellatrix's total net debt including the liability component of its
convertible debentures, excluding unrealized commodity contract
assets and liabilities, future income tax assets and liabilities and
asset retirement obligations, as at December 31, 2009 was
$107.3 million. The convertible debentures have a maturity date of
June 2011.
- As at December 31, 2009, Bellatrix had approximately $27.9 million
drawn on its extendible, revolving bank credit facility leaving
approximately $57.1 million available.
- Bellatrix has approximately $400 million in tax pools available for
deduction against future income.
- Funds flow from operations for the 2009 year was $36.0 million on
gross sales of $109.0 million compared to funds flow from operations
for the 2008 year of $77.9 million on gross sales of $265.4 million.
- Funds flow from operations for the 2009 fourth quarter was
$7.7 million on gross sales of $24.0 million compared to funds flow
from operations for the 2008 fourth quarter of $5.9 million on gross
sales of $41.1 million.
- The net loss for the 2009 year was $126.6 compared to a net loss of
$19.6 million in the 2008 year. The increase in the net loss from
2008 to 2009 is primarily due to a $114.2 million non-cash accounting
loss recorded in the second quarter of 2009 on the sale of the
majority of the Company's Saskatchewan petroleum and natural gas
properties. Lower overall commodity prices in conjunction with
decreased production also contributed to a higher net loss.
- The net loss for the 2009 fourth quarter was $8.2 million compared
to a net loss of $9.5 million in the 2008 fourth quarter. The net
loss from 2008 fourth quarter compared to the 2009 fourth quarter is
primarily reflective of non-cash amounts including lower charges for
depletion, depreciation and accretion, offset by lower unrealized
gains on commodity risk management contracts and future income tax
recoveries for the 2009 period.
LIQUIDITY
In an effort to cope with the global financial crisis experienced in 2009,
the Company took the following steps in order to increase liquidity:
- Operated within cash flow by targeting reductions in G&A, operating
costs and staffing levels in early 2009.
- Maintained a controlled capital program; 2009 capital expenditures
totaled $16.5 million, net of drilling and royalty credits.
- Successfully disposed of petroleum and natural gas properties in
Penhold, the majority of the Company's properties in Saskatchewan and
royalty interests for total net proceeds of approximately
$92.9 million.
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The above measures have allowed Bellatrix to reduce total net debt by approximately $107.7 million since fiscal 2008. Bellatrix's total net debt includes the liability portion of the convertible debentures and excludes unrealized commodity contract assets and liabilities, future income tax assets and liabilities and asset retirement obligations.
As an added layer of protection of its cash flows, the Company's 2010 commodity price risk management contracts provide price protection on approximately 54% of its estimated natural gas production for 2010 that is forward sold for an average of CDN$5.972/GJ ($6.56/mcf). In addition, the Company has a price ceiling in place for 2010 on 5,000 GJ/d or 14% of its estimated natural gas production for 2010 at an average price of CDN$8.05/GJ ($8.85/mcf). These percentages of price protection and the conversion from $/GJ to $/mcf are based upon on an estimated 2010 average corporate natural gas production of 32 MMcf/d and 39 MJ/m3 average heat content, respectively. In addition, 500 bbl/d of oil for 2010 is protected by way of a costless collar of CDN$75.00 x CDN$101.15. Bellatrix maintains an active commodity price risk management program focused on maintaining sufficient cash flow to fund its operations.
2010 OUTLOOK
Bellatrix is now well positioned with approximately 258,500 net acres of undeveloped land, with in excess of 475 exploitation drilling opportunities identified representing over 6 years of drilling inventory coupled with a dramatically improved balance sheet. The Company possesses 200 drilling locations in the exciting Cardium oil horizontal play and 50 Notikewin horizontal drilling locations in West Central Alberta. Execution is now the action phrase at Bellatrix which will translate into sustainable growth utilizing the drill bit.
To date in the first quarter of 2010 the Company has drilled or is drilling a total of 13 gross (7.86 net) wells.
On the Cardium play in West Central Alberta the Company drilled 7 gross (5.46 net) wells. Two wells have been completed and placed on production in mid February, the first 100% well demonstrated an initial production rate of 375 boe/d, the second 100% well has encountered fluid compatibility problems reducing outflow to 100 boe/d initially. A workover program to resolve the fluid issues is being drafted. Another 100% WI well was completed and is currently recovering load fluid. Three Cardium (1.46 net) wells are scheduled for fracture stimulations this week. The Company is currently drilling the seventh and final 100% WI well at West Pembina which is currently scheduled for completion prior to month end.
The Company has drilled a 100% WI Notikewin horizontal in Ferrier and placed the well on production February 26, 2010 at 3.5 mmcfd with approximately 35 bbls of liquids per mmcf. A second 85% WI Notikewin horizontal is currently drilling in the Ferrier Area. The completion timing will be dependant on road restrictions as spring approaches.
In addition to this activity, Bellatrix participated in drilling 4 gross (0.55net) non-operated McLaren oil wells in the Lindberg area.
Production for the week ending March 5, 2010 averaged 8,000 boe/d. The Company had experienced some delays in the first quarter of 2010 as a result of equipment constraints on the completion side of our business. As a result of the timing delays, the Company averaged 7,000 boe/d in January; production from Bellatrix's new drilling operations was brought on later in February.
The new management team and staff of Bellatrix are experienced in providing stakeholders with growth created by organically generated full cycle exploration. Post January 2010 financing, Bellatrix is undrawn on its bank line and when combined with the commodity price protection already in place for 2010 the Company is well positioned to maintain an aggressive capital program even if weaker product pricing prevails in the shoulder months this year. 2010 should be a very exciting year.
A conference call to discuss Bellatrix's annual financial and reserves results will be held on March 11, 2010 at 2:30 pm MDT/4:30 pm EDT. To participate, please call toll-free 1-888-231-8191 or 647-427-7450. The conference call will also be recorded and available by calling 1-800-642-1687 or 416-849-0833 and entering passcode 57037282 followed by the pound sign.
Bellatrix's annual general meeting is scheduled for 2:00 pm on May 26, 2010 in the Tivoli/Strand Meeting Room at the Metropolitan Conference Centre in Calgary.
Bellatrix is a company dedicated to "the pursuit of sustainable growth" for its stakeholders.
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Raymond G. Smith, P. Eng.
President and CEO
March 11, 2010
MANAGEMENT'S DISCUSSION AND ANALYSIS
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March 11, 2010 - The following Management's Discussion and Analysis of financial results as provided by the management of Bellatrix Exploration Ltd. ("Bellatrix" or the "Company") should be read in conjunction with the audited consolidated financial statements of the Company for the years ended December 31, 2009 and 2008. This commentary is based on information available to, and is dated as of, March 11, 2010. The financial data presented is in accordance with Canadian generally accepted accounting principles ("GAAP") in Canadian dollars, except where indicated otherwise.
CONVERSION: The term barrels of oil equivalent ("boe") may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of natural gas to one barrel of oil equivalent (6 mcf/bbl) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All boe conversions in this report are derived from converting gas to oil in the ratio of six thousand cubic feet of gas to one barrel of oil.
NON-GAAP MEASURES: This Management's Discussion and Analysis contains the term "funds flow from operations" which should not be considered an alternative to, or more meaningful than "cash flow from operating activities" as determined in accordance with Canadian GAAP as an indicator of the Company's performance. Therefore reference to funds flow from operations or funds flow from operations per share may not be comparable with the calculation of similar measures for other entities. Management uses funds flow from operations to analyze operating performance and leverage and considers funds flow from operations to be a key measure as it demonstrates the Company's ability to generate the cash necessary to fund future capital investments and to repay debt. The reconciliation between cash flow from operating activities and funds flow from operations can be found in the Management's Discussion and Analysis. Funds flow from operations per share is calculated using the weighted average number of shares for the period.
This Management's Discussion and Analysis also contains other terms such as total net debt and operating netbacks, which are not recognized measures under Canadian GAAP. Total net debt is calculated as long-term debt plus the liability component of the convertible debentures and the net working capital deficiency (excess) before short-term commodity contract assets and liabilities and short-term future income tax assets and liabilities. Operating netbacks are calculated by subtracting royalties, transportation, and operating expenses from revenues. Management believes these measures are useful supplemental measures of firstly, the total amount of current and long-term debt and secondly, the amount of revenues received after transportation, royalties and operating expenses. Readers are cautioned, however, that these measures should not be construed as an alternative to other terms such as current and long-term debt or net income determined in accordance with GAAP as measures of performance. Bellatrix's method of calculating these measures may differ from other entities, and accordingly, may not be comparable to measures used by other trusts or companies.
Additional information relating to the Company, including the Bellatrix's Annual Information Form, is available on SEDAR at www.sedar.com.
FORWARD LOOKING STATEMENTS: Certain information contained herein may contain forward looking statements including management's assessment of future plans and operations, drilling plans and the timing thereof, commodity price risk management strategies, expected 2010 average production and exit rate, updating of ceiling test calculations, expectation that the Company will not pay dividends, use of proceeds from equity financing, plans and timing related to the adoption of IFRS and the effects thereof, elections anticipated to be made under IFRS, anticipated liquidity of the Company and various matters that may impact such liquidity, expected operating expenses and general and administrative expenses, expected levels of revenues in 2010 compared to 2009, 2010 capital expenditures and the nature of capital expenditures and the timing and method of financing thereof and use of proceeds from recent financing, may constitute forward-looking statements under applicable securities laws and necessarily involve risks including, without limitation, 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 estimates, environmental risks, competition from other producers, inability to retain drilling rigs and other services, incorrect assessment of the value of acquisitions, failure to realize the anticipated benefits of acquisitions, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources. The recovery and reserve estimates of Bellatrix's reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Events or circumstances may cause actual results to differ materially from those predicted, as a result of the risk factors set out and other known and unknown risks, uncertainties, and other factors, many of which are beyond the control of Bellatrix. In addition, forward-looking statements or information are based on a number of factors and assumptions which have been used to develop such statements and information but which may prove to be incorrect. In addition, forward-looking statements or information are based on a number of factors and assumptions which have been used to develop such statements and information in order to provide shareholders with a more complete perspective on Bellatrix's future operations. Such information may prove to be incorrect and readers are cautioned that the information may not be appropriate for other purposes. Although the Company believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements because the Company can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified herein, assumptions have been made regarding, among other things: the impact of increasing competition; the general stability of the economic and political environment in which the Company operates; the timely receipt of any required regulatory approvals; the ability of the Company to obtain qualified staff, equipment and services in a timely and cost efficient manner; drilling results; the ability of the operator of the projects which the Company has an interest in to operate the field in a safe, efficient and effective manner; the ability of the Company to obtain financing on acceptable terms; field production rates and decline rates; the ability to replace and expand oil and natural gas reserves through acquisition, development of exploration; the timing and costs of pipeline, storage and facility construction and expansion and the ability of the Company to secure adequate product transportation; future commodity gas prices; currency, exchange and interest rates; the regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which the Company operates; and the ability of the Company to successfully market its oil and natural gas products. Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions which have been used. As a consequence, actual results may differ materially from those anticipated in the forward-looking statements. Additional information on these and other factors that could effect Bellatrix'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), at Bellatrix's website (www.bellatrixexploration.com). Furthermore, the forward-looking statements contained herein are made as at the date hereof and Bellatrix does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.
The reader is further cautioned that the preparation of financial statements in accordance with GAAP requires management to make certain judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses. Estimating reserves is also critical to several accounting estimates and requires judgments and decisions based upon available geological, geophysical, engineering and economic data. These estimates may change, having either a negative or positive effect on net earnings as further information becomes available, and as the economic environment changes.
Overview and Description of the Business
Bellatrix is a Western Canadian based growth oriented oil and gas company engaged in the exploration for, and the acquisition, development and production of oil and natural gas reserves in the provinces of Alberta, British Columbia and Saskatchewan. The Company resulted from a reorganization (the "Reorganization") effective November 1, 2009 pursuant to a plan of arrangement (the "Arrangement") involving, among others, True Energy Trust (the "Trust" or "True"), Bellatrix Exploration Ltd. ("Bellatrix" or the "Company") and securityholders of the Trust.
Pursuant to the Reorganization, the Trust was restructured from an open-ended, unincorporated investment trust to Bellatrix Exploration Ltd., a publicly traded corporation. Unitholders of the Trust received an equal number of common shares of Bellatrix which holds the assets and liabilities previously held, directly or indirectly, by the Trust. Exchangeable shares of the Trust were exchanged for common shares of Bellatrix at the current exchange ratio in effect on the effective date. The outstanding convertible debentures of the Trust were assumed by Bellatrix as a result of the Arrangement and are now convertible into common shares of the Company, rather than trust units of the Trust, at a conversion price of $16.00 per share. All outstanding incentive unit rights to acquire Trust units of True became share options to acquire an equal number of common shares of Bellatrix on the same terms and conditions including as to exercise price, vesting and expiry dates. Strategically, the Arrangement re-positioned the company, allowing Bellatrix to move forward with a corporate organic growth model and strong balance sheet.
Pursuant to the Arrangement, the Unitholders' Capital of the Trust Units as of the effective date of November 1, 2009 was reduced by the amount of the deficit of the Trust on October 31, 2009 of $666.8 million.
The Reorganization has been accounted for on a continuity of interest basis and accordingly, the consolidated financial statements for periods prior to the effective date of the Reorganization will reflect the financial position, results of operations and cash flows as if the Company had always carried on the business formerly carried on by the Trust. Information herein with respect to Bellatrix includes information in respect of the Trust prior to completion of the Reorganization to the extent applicable unless the context otherwise requires. In addition, references to "common shares" and "shares", "Share Option Plan", and "options" should be read as references to "Units", "Unit Rights Incentive Plan", and "rights" respectively, for periods prior to November 1, 2009.
Bellatrix's common shares and convertible debentures are listed on the Toronto Stock Exchange under the symbols BXE and BXE.DB, respectively.
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Fourth Quarter 2009
HIGHLIGHTS
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Three months ended
(CDN
00s except share and December 31,
per share amounts) 2009 2008
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FINANCIAL (unaudited)
Revenue (before royalties and risk
management(3)) 24,004 41,053
Cash flow from operating activities 2,743 11,643
Per basic share
.03
.15
Per diluted share
.03
.15
Funds flow from operations(1) 7,681 5,865
Per basic share
.10
.07
Per diluted share(2)
.10
.07
Net loss (8,216) (9,534)
Per basic share $(0.10) $(0.12)
Per diluted share(2) $(0.10) $(0.12)
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Exploration and development 9,606 11,009
Corporate and property acquisitions 264 5,454
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Capital expenditures - cash 9,870 16,463
Property dispositions - cash 56 10
Other - non-cash 551 6,567
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Total capital expenditures - net 10,477 23,040
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OPERATING
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Daily sales volumes
Crude oil, condensate and NGLs (bbls/d) 1,642 4,347
Natural gas (mcf/d) 29,580 38,418
Total oil equivalent (boe/d) 6,572 10,750
Average prices
Crude oil, condensate and NGLs ($/bbl) 59.05 38.97
Crude oil, condensate and NGLs
(including risk management(3)) ($/bbl) 58.85 37.33
Natural gas ($/mcf) 5.33 6.98
Natural gas (including risk
management(3)) ($/mcf) 6.72 7.27
Total oil equivalent ($/boe) 44.93 41.07
Total oil equivalent
(including risk management(3)) ($/boe) 42.22 48.55
Statistics
Operating netback(4) ($/boe) 15.36 12.31
Operating netback(4)
(including risk management(3)) ($/boe) 21.57 12.68
Transportation ($/boe) 1.17 1.21
Production expenses ($/boe) 16.65 18.11
General & administrative ($/boe) 3.43 4.13
Royalties as a % of sales
after transportation 15% 23%
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(1) The highlights section contains the term "funds flow from
operations" which should not be considered an alternative to, or more
meaningful than cash flow from operating activities as determined in
accordance with Canadian GAAP as an indicator of the Company's
performance. Therefore reference to diluted funds flow from
operations or funds flow from operations per share may not be
comparable with the calculation of similar measures for other
entities. Management uses funds flow from operations to analyze
operating performance and leverage and considers funds flow from
operations to be a key measure as it demonstrates the Company's
ability to generate the cash necessary to fund future capital
investments and to repay debt. The reconciliation between cash flow
from operating activities and funds flow from operations can be found
as below. Funds flow from operations per share is calculated using
the weighted average number of common shares for the period.
(2) In computing weighted average diluted earnings per share for the
three months ended December 31, 2009 a total of 4,213,733 (2008:
2,700,500) share options, nil (2008: 300,433) exchangeable shares and
5,305,250 (2008: 5,390,625) common shares issuable on conversion of
convertible debentures were excluded from the calculation for the
three months ended December 31, 2009 and 2008 as they were not
dilutive.
To calculate weighted average diluted funds flow from operations for
the year ended December 31, 2009, a total of nil (2008:300,433)
exchangeable shares were added to the denominator. Under this
calculation, a total of 4,213,733 (2008: 2,700,500) share options and
5,305,250 (2008: 5,390,625) shares issuable on conversion of
convertible debentures were excluded from the calculation for the
three months ended December 31, 2009 and 2008 as they were not
dilutive.
(3) The Company has entered into various commodity price risk management
contracts which are considered to be economic hedges. Per unit
metrics after risk management includes only the realized portion of
gains or losses on commodity contracts.
The Company does not apply hedge accounting to these contracts. As
such, these contracts are revalued to fair value at the end of each
reporting date. This results in recognition of unrealized gains or
losses over the term of these contracts which is reflected each
reporting period until these contracts are settled, at which time
realized gains or losses are recorded. These unrealized gains or
losses on commodity contracts are not included for purposes of per
share metrics calculations disclosed.
(4) Operating netbacks are calculated by subtracting royalties,
transportation, and operating costs from revenues.
>>
As detailed previously in this Management's Discussion and Analysis, funds flow from operations is a term that does not have any standardized meaning under GAAP. Funds flow from operations is calculated as cash flow from operating activities before asset retirement costs incurred and changes in non-cash working capital incurred.
<<
Reconciliation of Cash Flow from Operating Activities to Funds Flow from
Operations
-------------------------------------------------------------------------
Three months ended December 31,
(
00s, except per unit amounts) 2009 2008
-------------------------------------------------------------------------
Cash flow from operating activities 2,743 11,643
Asset retirement costs incurred 241 998
Change in non-cash working capital 4,697 (6,776)
-------------------------------------------------------------------------
Funds flow from operations 7,681 5,865
-------------------------------------------------------------------------
>>
Funds flow from operations during the fourth quarter of 2009 was $7.7 million, an increase of 31% compared to $5.9 million for the fourth quarter of 2008 despite the lower sales volumes in 2009. This was reflective of higher operating netbacks as a result of reduced royalty and production expenses, lower general and administration costs and a decline in interest expense due to the significant reduction in long term debt. Cash flow from operating activities during the fourth quarter of 2009 was $2.7 million, compared to $11.6 million for the fourth quarter of 2009. This decrease was further reflective of a net use of cash for changes in working capital in the 2009 period compared to a corresponding increase in cash from changes in working capital in the 2008 period. Overall commodity prices for the fourth quarter of 2009 increased significantly from that seen throughout the first half of 2009. By comparison, in the last quarter of 2009, Bellatrix had a net loss of $8.2 million compared to a net loss of $9.5 million in the fourth quarter of 2008. The net loss from 2008 fourth quarter compared to the 2009 fourth quarter is primarily reflective of non-cash amounts including lower charges for depletion, depreciation and accretion, offset by lower unrealized gains on commodity risk management contracts and future income tax recoveries for the 2009 period.
Sales volumes for the three months ended December 31, 2009 averaged 6,572 boe/d, down 39% from the 10,750 boe/d sold in the fourth quarter of 2008. Fourth quarter 2009 sales volumes were lower than the same period in 2008 primarily due to property dispositions totaling approximately 3,600 boe/d for the third and fourth quarter, natural production declines, and minimal capital spending throughout the first three quarters of the year.
Natural gas sales averaged 29.6 Mmcf/d during the last quarter of 2009, compared to 38.4 Mmcf/d in the fourth quarter of 2008. The Company's natural gas sales reduction was attributed to dispositions closed in the year and natural production declines. The weighting toward natural gas averaged 75% in the fourth quarter, compared to 60% in the corresponding period of 2008 as the majority of the properties disposed of in 2009 primarily produced oil. Crude oil, condensate and NGL sales volumes averaged 1,642 bbls/d in the fourth quarter of 2009 compared to 4,347 bbls/d during the same period of 2008.
During the fourth quarter of 2009, Bellatrix experienced an overall decrease of 5% in commodity prices, based on a decrease in natural gas prices, offset by increases in crude oil, condensate and NGL pricing, as compared to the same period in 2008. The average daily and monthly AECO indices for natural gas during this quarter were 33% and 38%, respectively, lower than in the same period in 2008. For the three months ending December 31, 2009, Bellatrix received an average natural gas price, before transportation and commodity price risk management contracts, of $5.33/Mcf, 24% lower than $6.98/Mcf in the same period in 2008 and 37% higher than $3.89/Mcf in the third quarter of 2009. For heavy crude oil, Bellatrix received an average price before transportation of $62.79/bbl during the fourth quarter of 2009, 72% higher than $36.52/bbl in the same period in 2008 and 7% higher than $58.89/bbl in the third quarter of 2009. In comparison, the average reference price for Hardisty Heavy crude in the fourth quarter of 2009 was 58% higher than the average 2008 price in the same period. For light oil, condensate and NGLs, Bellatrix received an average price of $57.33/bbl before transportation and commodity price risk management contracts during the last quarter of 2009, 25% higher than the average price of $45.96/bbl received in the same period of 2008, compared to a 20% increase in the Edmonton par reference price. The average price for light oil, condensate and NGLs for Bellatrix was 2% higher than the $56.23/bbl for the third quarter of 2009. During the fourth quarter of 2009, revenue before other income and commodity price risk management contracts of $23.4 million was 42% lower than the corresponding 2008 period.
In the fourth quarter of 2009, average sales volumes decreased 12% from the third quarter 2009 average volumes of 7,432 boe/d. Bellatrix's production and operations were impacted by the disposition of the majority of the Company's Saskatchewan properties which closed in the third quarter of 2009.
During the fourth quarter of 2009, Bellatrix spent $9.6 million on capital projects, excluding corporate and asset acquisitions and dispositions, compared to $11.0 million in 2008. In the fourth quarter of 2009, Bellatrix drilled or participated in 12 (9.50 net) wells including 5.75 net natural gas wells, and 3.5 net oil wells and 0.25 awaiting completion. Fourth quarter drilling was focused on the Notikewin and Cardium resource plays.
In the fourth quarter of 2009, the Company paid $3.4 million in royalties, compared to $9.0 million in the same period in 2008. As a percentage of pre-commodity price risk management sales (after transportation costs), royalties were 15% in the fourth quarter of 2009 compared to 23% in the same period in 2008. In this same period of 2009, operating costs totaled $10.1 million, compared to $17.9 million recorded in the same period of 2008. During the fourth quarter of 2009, operating costs averaged $16.65/boe, down from the $18.11/boe incurred during the fourth quarter of 2008. The decrease was due to the disposition of properties with higher production costs and the Company's efforts to streamline production activities. This decrease was partially offset by $2.1 million ($3.47/boe) of costs recorded in the 2009 fourth quarter but related to prior periods. Fuel gas costs associated with steam generation at the Kerrobert facility contributed $1.57/boe in the fourth quarter of 2008, whereas these costs were absent in the fourth quarter of 2009 as the property was part of the Saskatchewan disposition that closed in the third quarter. In comparison, operating costs for the third quarter of 2009 averaged $13.29/boe. During the fourth quarter of 2009, company field operating netbacks increased by 25% to $15.36/boe compared to 2008, driven primarily by decreased operating and royalty charges. In comparison, the company field operating netback for the third quarter of 2009 was $16.24/boe. Field operating netbacks for natural gas before commodity price risk management contracts during the fourth quarter of 2009 of $2.35/Mcf were the same as 2008 netbacks, however, were reflective of lower royalties and production costs, offset by lower commodity prices and higher transportation costs. In comparison, the field operating netback for natural gas for the third quarter of 2009 was $1.68/Mcf. Field operating netbacks before commodity price risk management contracts for crude oil, condensate and NGLs during the fourth quarter of 2009 averaged $19.08/bbl, up from $9.68/bbl during the fourth quarter of 2008, primarily as a result of a significant increase in the overall commodity price received, offset by higher royalty and production expenses. In comparison, the field operating netback for crude oil, condensate and NGLs for the third quarter of 2009 was $30.38/bbl.
In the fourth quarter of 2009, general and administrative expenses, net of capitalized G&A and recoveries, were $2.1 million, compared to $4.1 million in the comparable 2008 period reflecting a reduction of the number of salaried personnel on staff and other efforts to reduce costs.
Depletion, depreciation and accretion expense for the fourth quarter of 2009 was $16.4 million, compared to $29.4 million in 2008, which reflects reduced carrying costs in 2009, combined with lower production volumes in fourth quarter 2009 versus 2008.
2009 Annual Financial and Operational Results
Dispositions
The Company's focus in 2009 has been on the restructuring and strengthening of its balance sheet. The Company had two minor dispositions in the second quarter and successfully completed the divestiture of the majority of its petroleum and natural gas properties in Saskatchewan in the third quarter. Total net proceeds from all dispositions during 2009 were $92.9 million (2008: $44.3 million). Net proceeds from the dispositions were used to reduce the Company's bank indebtedness; these strategic accomplishments have allowed the Company to progress forward with substantially improved financial flexibility.
On June 30, 2009, Bellatrix sold 145 boe/d, including 0.63 mmcf/d of natural gas, in the Penhold Area of Central Alberta for $4.7 million, after purchase adjustments and closing costs. In addition, in June 2009, Bellatrix completed a disposition of certain royalty interests for approximately $3.7 million, after purchase adjustments and closing costs. The proceeds from these two dispositions were used to reduce Bellatrix's bank indebtedness.
On July 30, 2009, the Company successfully completed the divestiture of a majority of its oil and natural gas assets in Saskatchewan for net proceeds of $85 million (the "Saskatchewan Divestiture"). The Saskatchewan Divestiture excludes the Saskatchewan properties of Mantario and Cypress. Bellatrix's interests to the base Belly River in three sections in the Ferrier area of West Central Alberta were also included in the divestiture package. The disposition was accounted for under the guidance of Accounting Guideline 16 - "Oil and Gas Accounting - Full Cost". Under full cost accounting, if crediting the proceeds from disposition to costs results in a change of 20 percent or more to the DD&A rate then a gain or loss should be recognized. When a gain or loss is to be recognized the total net book value of capitalized costs should be allocated between the properties sold and the properties retained. The assets sold were an allocation of the Company's historical full cost pool based on a pro-rata ratio of future cash flows of proved reserves associated with the assets sold, discounted at 10%, as compared to all oil and gas assets as of June 30, 2009. In the second quarter of 2009, the Company recorded a $114.2 million non-cash loss on the assets sold being the excess of the allocated net book value to these assets, compared to the total estimated net proceeds, after purchase adjustments and estimated closing costs.
The 2009 dispositions reduced sales volumes by approximately 3,600 boe/d for the third and fourth quarters.
Sales Volumes
Sales volumes for the year ended December 31, 2009 averaged 8,426 boe/d compared to 11,867 boe/d for the same period in 2008, representing a 29% decrease.
In addition to natural production decline and reduced 2009 capital spending, year over year production volumes were impacted by dispositions totalling approximately 3,600 boe/d for the third and fourth quarter of 2009 as a result of dispositions closed during the year.
<<
Sales Volumes
-------------------------------------------------------------------------
Years ended December 31,
2009 2008
-------------------------------------------------------------------------
Natural gas (mcf/d) 33,295 45,202
-------------------------------------------------------------------------
Heavy oil (bbls/d) 1,770 2,897
Light oil and condensate (bbls/d) 753 999
NGLs (bbls/d) 354 437
-------------------------------------------------------------------------
Total crude oil and NGLs (bbls/d) 2,877 4,333
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Total boe/d (6:1) 8,426 11,867
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>
During the 2009 year, Bellatrix had a 100% success rate in its drilling program that consisted of 18 wells (11.68 net) in the Pembina, Willesden Green, Mantario and Irvine areas. The program resulted in 7.62 net gas wells, 3.5 net oil wells and 0.56 wells awaiting completion. Of the above 18 wells, 5 gross wells in the Willesden Green area were farmed out with Bellatrix retaining a 24% average working interest with no payout account.
By comparison, the Company drilled or participated in 38 (17.1 net) working interest wells in 2008. 4.2 net wells were dry and abandoned.
For the year ended December 31, 2009, the weighting towards natural gas sales averaged 66% compared to 63% for the 2008 year. Heavy oil sales made up 21% of total production for the 2009 year compared to 24% in 2008.
Sales of natural gas averaged 33.3 Mmcf/d for 2009, compared to 45.2 Mmcf/d in 2008, a decrease of 26%. Crude oil and NGL sales for 2009 decreased 34% averaging 2,877 bbls/d compared to 2008 average sales of 4,333 bbls/d.
2010 production volumes are anticipated to average approximately 8,500 boe/d and an exit rate of approximately 10,000 boe/d. The forecast of 2010 production volumes is based upon a number of assumptions, including downtime for anticipated plant turnarounds and normal production declines and the execution of the current planned capital budget of $75.0 million.
<<
Commodity Prices
Average Commodity Prices
-------------------------------------------------------------------------
Years ended December 31,
2009 2008 % Change
-------------------------------------------------------------------------
Exchange rate (US$/Cdn$) 0.8757 0.9372 (7)
Natural gas:
NYMEX (US$/mmbtu) 4.16 8.89 (52)
AECO daily index (CDN$/Mcf) 3.95 8.13 (51)
AECO monthly index (CDN$/Mcf) 4.14 8.12 (49)
Bellatrix's average price ($/mcf) 4.50 8.50 (47)
Bellatrix's average price (including
risk management(1)) ($/mcf) 5.96 8.00 (25)
Crude oil:
WTI (US$/bbl) 62.09 99.73 (38)
Edmonton par - light oil ($/bbl) 66.20 102.85 (36)
Bow River - medium/heavy oil ($/bbl) 59.71 83.85 (29)
Hardisty Heavy - heavy oil ($/bbl) 55.59 76.32 (27)
Bellatrix's average prices ($/bbl)
Light crude oil, condensate,
and NGLs 50.53 88.42 (43)
Heavy crude oil 49.10 70.96 (31)
Total crude oil and NGLs 49.65 76.75 (35)
Total crude oil and NGLs
(including risk management(1)) 49.62