Twin Butte Energy Ltd TBTEF

2014 first quarter financial and operating results & Update

[PUNJABI]

Twin Butte Energy Ltd.

Transmitted by CNW Group on : May 13, 2014 17:35

Twin Butte Energy announces 2014 first quarter financial and operating results and provides an operational update
CALGARY, May 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 March 31, 2014.
Highlights of Twin Butte's successful first quarter 2014 are as follows:

• Record average first quarter production of 22,529 boe/d which is up by 31% from first quarter 2013 while increasing the oil and liquids weighting to 91% from 87%.
• Record first quarter funds flow of $51.4 million, or $0.15 per share, which is up 58% from first quarter 2013.
• Completed an organic capital program of $37.9 million including the drilling of 34 gross (34 net) wells at a 94% success rate. Over 70% of the first quarter capital plan was focused on horizontal drilling activity with 60% of the plan focused at the Company's medium oil Provost property.
• Reinforced the sustainability of the dividend model by holding the total payout ratio for the quarter to 103%. Twin Butte has paid $96.7 million ($0.422 per share) in dividends since January 2012 and maintained a cumulative all-in payout ratio of 92% since that time.
• Certain selected financial and operational information for the three months ended March 31, 2014 and 2013 is outlined below and should be read in conjunction with Twin Butte's condensed interim financial statements for the three months ended March 31, 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 March 31
	2014	2013	% Change
Financial($ 000's, except per share amounts)
Petroleum and natural gas sales	149,200	69,660	114%
Funds flow (1)	51,384	32,423	58%
Per share basic	0.15	0.13	15%
Per share diluted	0.15	0.13	15%
Net income (loss)	(15,240)	(29,633)	49%
Per share basic	(0.04)	(0.12)	67%
Per share diluted	(0.04)	(0.12)	67%
Dividends declared	16,550	12,603	31%
Dividends declared, Post DRIP	14,897	11,350	31%
Capital expenditures(2)	37,890	19,625	93%
Net debt (3)	363,659	200,542	81%
Operating
Average daily production
Heavy crude oil (bbl per day)	12,682	13,890	-9%
Light & Medium crude oil (bbl per day)	7,614	783	872%
Natural gas (Mcf per day)	12,200	13,907	-12%
Natural gas liquids (bbl per day)	200	263	-24%
Barrels of oil equivalent (boe per day, 6:1)	22,529	17,254	31%
% Oil and NGLs	91%	87%	5%
Average sales price
Heavy crude oil ($ per bbl)	73.81	47.16	57%
Light & Medium crude oil ($ per bbl)	82.73	67.36	23%
Natural gas ($ per Mcf)	6.08	3.35	81%
Natural gas liquids ($ per bbl)	88.18	75.04	18%
Barrels of oil equivalent ($ per boe, 6:1)	73.58	44.86	64%
Operating netback ($ per boe) (4)
Petroleum and natural gas sales	73.58	44.86	64%
Cash (loss) gain on derivative instruments	(8.71)	11.26	-177%
Royalties	(12.41)	(9.14)	-36%
Operating expenses	(22.81)	(21.88)	-4%
Transportation expenses	(0.93)	(0.98)	5%
Operating netback	28.72	24.12	19%
Wells drilled
Gross	34.0	28.0	21%
Net	34.0	28.0	21%
Success (%)	94	89	6%
Common Shares
Shares outstanding, end of period	345,071,217	249,797,912	38%
Weighted average shares outstanding – diluted	344,452,929	250,435,239	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) Operating netback is a non-GAAP measure calculated as the average per boe of the Company's oil and gas sales plus realized gains on derivatives, less royalties, operating and transportation expenses. See also "Operating Netback" in the Reader Advisory below.
Corporate:
During the first quarter, Twin Butte completed the successful integration of its fourth quarter 2013 acquisition of Black Shire Energy Inc., which provides the Company with a significant medium oil presence in the Provost area. The subject acquisition progressed and strengthened the Company's business model of delivering a long term stable dividend with moderate production growth. Continued strong financial discipline combined with positive early drilling results at the Company's Provost operation will help support the Company's successful transition to a horizontal medium and heavy oil exploiter from its historical heavy oil vertical drilling business plan. Twin Butte's strategic shift from vertical to horizontal drilling activity began in 2013 and continues in 2014 with over 70% of first quarter's capital focused on horizontal activity. The Company anticipates that this strategic shift will accelerate for the balance of 2014, with substantially all of the remaining 2014 drilling weighted to horizontal activity. This shift is designed to significantly improve Twin Butte's corporate sustainability by increasing its corporate netback, decreasing its longer term corporate decline rate while adding a sizeable drilling inventory with capital efficiencies comparable to Twin Butte's historical vertical heavy oil drilling inventory.
Financial:
Twin Butte's record first 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 first quarter of 2014 the Company paid $16.5 million in dividends ($14.9 million post DRIP & SDP) which when combined with net $37.9 million in organic capital spending generated an all-in payout ratio of 103%. Over the past 2.25 years the Company has paid out $96.7 million in dividends, or $0.422 per share, and maintained a cumulative all-in payout ratio of 92%.
Funds flow in the first quarter increased significantly (58%) from 2013 reaching $51.4 million or $0.15 per share. Strengthening Canadian oil prices combined with a contraction in the differential between light and heavy oil prices lead to strong WCS (Western Canadian select heavy oil index) pricing in the quarter of $84.44 per bbl as compared to a fourth quarter 2013 average of $69.62 per bbl. Approximately 40% of the Company's heavy oil production was sold to rail car accessed markets in the first quarter, enhancing the Company's heavy oil pricing while providing additional marketing options.
Operating cost pressures on the Company's heavy oil continued through the first quarter of 2014 with power and propane costs increasing materially from the fourth quarter of 2013; however, both of these costs have shown improving trends more recently. The Company was pleased its Provost area operating costs were as budgeted in the first quarter of 2014 at approximately $18.00 per boe, partially as a result of power hedges designed to reduce some power cost variability.
Although differentials have significantly contracted in early 2014, Twin Butte anticipates continued volatility over the remainder of the year but longer term believes a WCS price in a range of $75 - $80 per bbl is reasonable. The Company's proactive hedging or risk management strategy has, and will continue to stabilize realized pricing, ensuring consistency of cash flow for the dividend and capital plan. For the remainder of 2014, the Company is well positioned with approximately 57% of its anticipated heavy oil production hedged at approximately $75.00 per bbl. The Company has commenced layering in hedges for 2015 at WTI prices of approximately $100 per bbl and WCS prices of approximately $77.00 per bbl.
During 2014, the Company will continue its program of non-core asset dispositions, having recently agreed to approximately $4.5 million in dispositions, which are expected to close in the second quarter of 2014. These dispositions will 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 anticipates renewing its current bank facility before the end of May at a revised total of $365 million which provides substantial liquidity above the Company's drawn position of approximately $259 million as at March 31, 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 first quarter.
Operations:
The Company's first quarter capital plan was primarily focused on horizontal well activity in its core medium oil area of Provost and its heavy oil area at Lloydminster. The $37.9 million capital program included the drilling of 34 gross wells (34 net) of which 18 were horizontal. Strategically, the Company will continue to shift to more horizontal drilling with substantially all of the remaining wells in 2014 anticipated to be horizontal. This is part of the Company's ongoing transition to a more predictable and more sustainable base production profile.
At Provost, the Company continued with its development drilling program commenced late in 2013 with 15 wells drilled in the first quarter of 2014 and four wells thus far in the second quarter. Early results have demonstrated performance higher than the type curve expectation of 70 boe per day for the first three month average. Based on the high productivity and high oil cuts on the drilled wells completed to date, the Company anticipates drilling more than 50 wells at Provost in 2014. Twin Butte and the previous operator, Black Shire Energy Inc., have drilled over 80 similar wells on the property since 2010 which have demonstrated the repeatable success and predictable decline rate on wells in the area. Ongoing well and facility optimization in the area has reduced the base decline of the areas legacy production to under 20% per year.
The Company's expanding operations in Provost have improved the Company's dividend sustainability since the Provost area's production is medium quality oil which, along with lower operating and royalty costs, will generate an operating netback premium of between $15 to $20 per bbl above the Company's Lloydminster heavy oil barrels.
Twin Butte remains active at its horizontal heavy oil development in Wildmere, Alberta. The Wildmere asset has seen approximately 40 horizontal wells drilled on the property over the past 1.5 years with a five well program completed in the second quarter. Upward of an additional 15 horizontal locations will be pursued on the property.
At Frog Lake, four horizontal wells were drilled in 2013, and they continue to perform on the Company's type curve. This performance will lead to additional horizontal drilling later in 2014 and onwards. The Company currently has an inventory of 40 horizontal wells in the area.
Average production for the first quarter of 2014 was 22,529 boe per day. This rate is slightly lower than Twin Butte's year end 2013 exit rate as difficult weather related operating conditions were experienced during January and February. With spring breakup conditions being encountered current production is approximately 21,600 boe per day with approximately 800 boe per day awaiting completion or shut in due to trucking restrictions.
2014 Revised Forecast
Although the transition away from vertical heavy oil well concentration is ongoing and is showing early success, Twin Butte continues to experience higher than anticipated production declines on a number of its higher productivity vertically drilled heavy oil wells. Ultimate recovery factors in these pools are still anticipated to be on forecast and consistent with other similar pools in the area. These higher declines are not being experienced on the Company's horizontally drilled heavy oil wells or the Company's Provost are a medium oil production. Because of this, the Company now anticipates that its yearend 2014 production will be approximately 22,500 boe per day and average production for 2014 will be approximately 22,000 boe per day, a six to eight percent reduction from earlier estimates, based on full year capital spending of $140.6 million. Assuming, for the remainder of 2014, WTI pricing of $97.00 per boe, a US$/Cdn$ exchange ratio of 1.09, and a WTI to WCS heavy differential of $(24.50) per boe, the Company anticipates that its 2014 annual cash flow will be approximately $201 million. The Company will continue to adjust capital spending to ensure total payout ratio (dividend and capital) on an annual basis, does not exceed 100% as it has done since the initiation of its dividend in January 2012. As the Company transitions to a higher percentage of medium versus heavy oil production, it anticipates this payout ratio may be decreased to the low 90% range which will permit a higher capital allocation, re-supporting organic growth.
Management Changes
As part of the long term growth plan for the Company, the following management changes have been made. The Company is pleased to announce that Rob Wollmann and David Middleton have joined the Company as President and Chief Operating Officer, respectively, replacing the individuals that formerly held these roles. Both are seasoned professionals with experience in most operating areas of western Canada and have management skills with larger dividend paying organizations having over 100,000 boe per day of production.
Rob Wollmann has 28 years of geotechnical and executive experience and a proven track record of identifying, capturing and developing light oil and natural gas plays across the Western Canadian Sedimentary Basin. Rob has been involved in the successful growth of several junior and intermediate sized producers and has been in an executive management role at a senior dividend paying producer with over 100,000 boe per day of production.
David Middleton is a professional engineer with 34 years of operational and executive experience in the western Canadian oil and gas industry. David's technical experience includes extensive operational and development field experience in conventional heavy oil, thermal heavy oil, conventional oil and gas including enhanced oil recovery. In addition, he brings executive skills in guiding intermediate and senior oil and gas companies through periods of sustained growth through organic development and acquisition.
James Saunders, Twin Butte's Chief Executive Officer, stated "Bruce Hall, the Company's former President and Chief Operating Officer and Bob Bowman, the Company's former Vice President of Operations, have been valuable contributors to Twin Butte's success for the past number of years and we thank them for their professionalism and commitment to our company and wish them all the best in their future endeavors."
Outlook
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 has been a leader of the junior to intermediate dividend energy companies in delivering strong capital efficiencies through disciplined capital focus. As the Company has grown, operating efficiencies and production predictability of certain of the Company's assets have faced challenges. As historically has been the case, Twin Butte will work diligently to overcome these challenges to ensure its business plan succeeds. The announced management changes provide the organization with enhanced bench strength to execute on its business plan.
Twin Butte will continue to match its capital plan to forecast cash flow less dividends. Recent positive movement in both oil pricing and the light to heavy oil differentials, combined with the Company's strong hedge position, allows Twin Butte to remain confident in the long term sustainability of the dividend.
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 current forecast continues to show a total 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 dividend sustainability and provide a platform for longer term moderate growth. 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 .