TORONTO, ONTARIO--(Marketwired - March 25, 2015) - Candax Energy Inc. ("Candax" or the "Company") (TSX:CAX), a company focused on mature oil field development in Tunisia, today announced financial and operating results for the year ended December 31, 2014. The audited financial statements, notes and MD&A pertaining to the period are available on the System for Electronic Document Analysis and Retrieval ("SEDAR") at
www.sedar.com and by visiting
www.candax.com. All monetary figures reported herein are U.S. dollars unless otherwise stated.
Selected Operational & Financial Highlights
-- Production, net of royalties, increased in 2014 to an average of 502 bopd from 437 bopd in 2013 as a result of the successful remedial workover campaign on Ezzaouia, resulting in all 6 producing wells being fully operational and the continued success of the gas cycling program on El Bibane; -- Revenue for the year was $17.1 million compared to $16.5 million in 2013. The increase in revenue mainly reflects the increase of production (+15%). During 2014, three crude oil liftings took place, two of limited capacity after the leak in the oil storage tank. 190 thousand barrels have been sold at an average price of $90.1 per barrel for a production, net of royalty, of 183 thousand barrels; -- Lower oil prices have impacted field economic limits and total Proven plus Probable Net Reserves (2P) of oil declined by 22% from the previous year to 1.98 MMbbls; -- The Company reported a loss for the year ended December 31, 2014 of $6.9 million ($0.04 per common share) compared to a loss of $41.0 million ($0.04 per common share) for 2013. The 2014 loss includes costs related to the rental of the heated barge following the leak in the oil storage tank of $1.4 million, an impairment charge of $1.4 million on decommissioning obligation of non-producing fields, and write-down of material and supplies; -- As at December 31, 2014, Candax held cash and cash equivalents of $8.9 million; and -- As at December 31, 2014 Candax had total loans and borrowings of $40.6 million, with a current portion of loans and borrowings of $6.1 million, including the compressor under lease contract.
"The Company in 2014 has increased its production and has generated cash from its operating activities for a second consecutive year," said Pierre-Henri Boutant, CFO of Candax. "The fall of oil prices as well as the financial impact of the leak of the oil storage tank forced the Company to identify and examine any strategic and financial alternatives available to the Company," said Benoit Debray, Chairman and CEO of Candax.
Going Concern
During the year ended December 31, 2014, the Company had a net loss of $6.9 million, positive cash flow from its operations of $0.7 million, and positive working capital of $6.1 million. The positive working capital balance is mainly due to having a cash balance of $8.9 million despite a relatively low level of crude oil in inventory.
Historically, the Company has had operating losses exacerbated by impairment losses on oil and gas properties, but has been generating cash from its operating activities for two consecutive years. Nevertheless, for the year ended December 31, 2014, the cash generation was not sufficient to cover the Company's $2.9 million of capital expenditure and $0.7 million of debt reimbursement.
Management has prepared projected cash flow information for a period of 18 months ending June 30, 2016. Revenue has been estimated using Brent crude price assumptions of $60/bbl for 2015 and $70/bbl for 2016. The revenue from the Company's production is estimated to be $13.4 million resulting in a cash inflow generated by its operations of only $0.5 million. The operating cash outflows include $0.5 million of non-recurring costs to cover the rental of the heated barge for January and February 2015.
The Company will therefore fund its forecast capital and finance expenditures of $3.8 million and $1.9 million for 2015 and 2016, respectively, through its working capital. The capital expenditures include the exercise of the purchase option of the compressor for $1.6 million and some maintenance operations on the Ezzaouia surface facilities for $2.0 million from which $0.8 million relate to the oil storage tank repair.
Based on these forecasts, the Company will face cash funding requirements (theoretical negative cash balance) in September 2015 and March 2016 prior to the receipt of proceeds from its upcoming scheduled lifting. The Company is expecting to offset these shortfalls through pre-financing operations over its lifting or to reduce the quantity of oil lifted to advance lifting and thus anticipate the cash proceeds.
The projected cash flow of the Company only includes the principal repayment on January 31, 2015 of $0.5 million of its contractual obligation from its major shareholder debt service of $4.0 million. The Company has obtained from Geofinance NV (the lender) a waiver agreement not to seek any remedy under the Facility Agreement in respect of the $3.5 million amount until April 30, 2015.
Discussions are ongoing with the lender as Candax will not be in a position to repay the remaining $3.5 million of debt in full as at April 30, 2015 based on current business assumptions.
The Company's forecast is also highly sensitive to Brent crude price volatility and to the Company's production programs. A 10% change in one of these business assumptions will have a financial impact of $1.3 million on cash flow over the 18 month period.
These uncertainties cast significant doubt upon the Company's ability to continue as a going concern.
To address its financing obligations, the Company is actively working and discussions are ongoing on strategic and financial alternatives including but not limited to, the sale of the Company, some of its subsidiaries or all or a portion of its assets, a recapitalization, a joint venture or any combination thereof. The outcome of this matter cannot be predicted at this time.
Review of Key Operations
Candax holds 100% equity in the El Bibane field, 100% equity in the Robbana field and 45% equity in the Ezzaouia field with ETAP, the Tunisian state oil and gas company, as sole partner. The streamlining of ownership interests has allowed the Company to develop its fields according to its own vision of these assets' potential. El Bibane and Robbana are operated from Tunis by Ecumed, a 100% subsidiary of Candax. Ezzaouia is operated from Tunis by Maretap, a 50/50 joint venture between ETAP and Ecumed.
The Company's target is to maintain corporate costs at a minimum and to behave as a local company focused on the operational development of its assets. The Company is currently focusing on the development of its lower-risk assets in Tunisia to get a continuous increase in production. A process to identify, examine and potentially implement strategic and financial alternatives is underway as the Company aims to diversify its risks over its three producing assets.
The Company announced on February 13, 2015 that it has completed most of the Geology and Geophysics ("G&G") review of its Tunisian assets, which was initiated in 2012. Management has made a strategic decision to seek partners as the Company is unable to provide the necessary financing for the development of its assets. A documented and updated technical review of the remaining potential of Candax producing assets and exploration upside potential is available for interested potential partners.
The Company's revenue is exclusively generated through the export of produced crude transiting through the Zarzis terminal facilities. Following a leak detected on the main oil storage tank, Maretap was compelled to rent a heated storage barge since September 15, 2014 in order to maintain the Ezzaouia Field production and the partners' export capability during the repair of the tank.
As a consequence, the Company had to reschedule the lifting planning, which was revised as follows:
-- September 10, 2014 (119,481 Bbls, net Candax 66,480 Bbls) -- November 8, 2014 for a quantity of (72,574 Bbls, net Candax 42,271 Bbls) -- February 10, 2015 (73,602 Bbls, net Candax 36,002 Bbls)
Considering the high daily rental cost of the heated barge in conjunction with the decrease of the crude oil price, Maretap decided to release the heated storage barge after the February lifting. As a consequence Maretap and Ecumed have implemented a production reduction program, using internal storage facilities, until the full repair of the tank at the terminal which is expected for the end of March 2015. This curtailment program will impact the Company's net production by approximatively 10,000 barrels.
Outlook
Candax is focused on the reactivation of mature fields. The Company's team is supported by a Board of Directors with extensive industry experience and by active principal shareholders (Geofinance NV and the International Finance Corporation ("IFC")). Production levels for 2013 and 2014 have resulted in a stable cash flow which was sufficient to sustain operations, corporate costs and limited development of Tunisian assets in the context of a higher oil price than we are experiencing today.
Ezzaouia and Robbana represent mature fields with potential development and limited risks. These fields were generating a sustainable cash flow for a ten-year development case. Some of the developments turned uneconomical with the drop in oil price and have created additional uncertainties on short term liquidity and development of the Company.
The Company is undertaking cost-cutting plans in order to maintain its operating structure as an attractive operating platform for mature field exploitation.
The positive results of the gas-cycling pilot program at El Bibane encouraged the Company to increase the gas compression capacity at the onshore Central Processing Facilities ("CPF") and to contemplate a partial export of gas. Gas cycling is a low risk and profitable type of production, which is generating enough cash to cover future decommissioning liabilities, even with downgraded Brent assumptions. The Company has decided to exercise at end of March 2015, the purchase option of its compressor currently under leasing agreement.
Management is focusing on the potential gas value of its El Bibane field including but not limited to gas sales and gas storage. Pending a confirmed commercial opportunity, the gas has not been valued in the Company's 2014 certification report.
Year End Reserves
Candax also announced an update to its net reserves as at December 31, 2014.
Total Proven plus Probable Reserves (2P) of oil declined by 22% from the previous year to 1.98 MMbbls.
The net present value (NPV) of the future cash flows (escalated price forecast, before tax and discounted at 10%, "PV10") attributable to the 2P reserves is valued at $19.8 million (compared to $57.1 million in 2013). This 65% decrease comes from the decrease in oil price assumptions, the revised flowrate of the producing wells on Ezzaouia field, and to some additional maintenance Capex on the terminal used to process the Company's oil production.
Overall results were as follows:
-- 1P Reserves decreased 28% from 1.24 million Bbls to 0.89 million bbls -- 2P Reserves decreased 22% from 2.55 million Bbls to 1.98 million bbls -- 3P Reserves (Contingent Reserves) decreased 21% from 3.68 million bbls to 2.91 million Bbls
Field Results were as follows:
-- Ezzaouia 2P Reserves decreased from 1.39 million Bbls to 1.01 million Bbls -- Ezzaouia PV10 decreased from $42.9 million to $11.0 million -- Robbana 2P Reserves increased from 0.32 million Bbls to 0.34 million Bbls -- Robbana PV10 decreased from $7.1 million to $1.4 million -- El Bibane Reserves decreased from 0.84 million Bbls to 0.63 million Bbls -- El Bibane PV10 increased from $7.1 million to $7.3 million
The Company's December 31, 2014 independent engineering report was prepared by Gaffney Cline & Associates in accordance with NI 51-101 guidelines and additional disclosure on the reserves and valuations is included in Candax's annual information form which is available on SEDAR.