Q2, Dividend slashed another 70% Press release from CNW Group
Twin Butte Energy Announces Second Quarter Financial Results, Continued Progress on Transition to Higher Value Asset Base and Dividend Reduction
Wednesday, August 12, 2015
Twin Butte Energy Announces Second Quarter Financial Results, Continued Progress on Transition to Higher Value Asset Base and Dividend Reduction
17:08 EDT Wednesday, August 12, 2015
CALGARY, Aug. 12, 2015 /CNW/ - (TSX: TBE) – Twin Butte Energy Ltd. ("Twin Butte" or the "Company") is pleased to report its financial and operational results for the three and six months ended June 30, 2015.
Highlights of Twin Butte's successful second quarter 2015 are as follows:
- Generated record funds flow of $57 million ($0.16/share).
- Continued the transition to a medium gravity, oil-focused producer with medium barrels accounting for 52% of oil production in the second quarter.
- Production of 17,351 boe per day as budgeted.
- Reduced per boe operating and transportation costs by 13% to $19.21 as compared to Q2 2014 costs of $22.12 per boe.
- Reduced net debt by $26.2 million to $307.7 million from March 31, 2015, providing a debt to cash flow ratio of 1.3 times on an annualized basis. Net debt has been reduced by $45.6 million year to date.
- Completed a capital program of $17.0 million, including the drilling of 6 gross (6 net) wells.
- Declared $10.5 million in second quarter dividends.
- Maintained financial discipline by managing total payout to 48% in response to low oil prices.
- Expanded land positions in both the Provost medium oil and Lloydminster horizontal heavy oil fairways.
Twin Butte's long term strategy of profitably developing medium and heavy oil and monetizing a portion of resulting cash flow through a dividend remains intact. Over the past year the Company has made material strides in lowering operating costs, lowering royalties, decreasing per well capital costs and enhancing the quality of future inventory, all of which are key to long term profitability and sustainability of the business model. Consistent with our strategy and reinforced during this period of low oil prices Twin Butte will continue to prudently manage its balance sheet, to preserve long term upside, and continue to selectively invest in projects profitable at current strip prices.
Dividend:
The Board of Directors of the Company after considering many factors including the continued weakness in oil prices, and the potential for lower than expected prices to exist for a longer period of time, has approved a reduction to the monthly dividend to $0.003 per share effective with the August dividend payable on September 15, 2015. This dividend reduction from $0.12 to $0.036 per share on an annual basis will help ensure improved balance sheet and capital program flexibility during this low price period in the commodity cycle.
Certain selected financial and operational information for the three and six months ended June 30, 2015 and 2014 is outlined below and should be read in conjunction with Twin Butte's condensed interim financial statements for the three and six months ended June 30, 2015 and 2014 and accompanying management discussion and analysis filed with the Canadian securities regulatory authorities which may be accessed through the SEDAR website (www.sedar.com) and also on the Company's website.
| | Three months ended June 30 | Six months ended June 30 |
| | 2015 | 2014 | % Change | 2015 | 2014 | % Change |
| Financial ($ 000's, except per share amounts) | | | | | |
| Petroleum and natural gas sales | 77,318 | 152,566 | -49% | 139,031 | 301,766 | -54% |
| Funds flow (1) | 56,982 | 48,520 | 17% | 112,349 | 99,904 | 12% |
| Per share basic | 0.16 | 0.14 | 14% | 0.32 | 0.29 | 10% |
| Per share diluted | 0.16 | 0.14 | 14% | 0.32 | 0.29 | 10% |
| Net income (loss) | (23,290) | 7,181 | n/a | (45,737) | (8,059) | -468% |
| Per share basic | (0.07) | 0.02 | n/a | (0.13) | (0.02) | -550% |
| Per share diluted | (0.07) | 0.02 | n/a | (0.13) | (0.02) | -550% |
| Dividends declared | 10,514 | 16,599 | -37% | 21,212 | 33,149 | -36% |
| Dividends declared, Post DRIP | 10,514 | 14,632 | -28% | 20,669 | 29,529 | -30% |
| Capital expenditures(1) | 17,012 | 21,724 | -22% | 42,054 | 59,615 | -29% |
| Net debt (1) | 307,672 | 352,198 | -13% | 307,672 | 352,198 | -13% |
| Operating | | | | | | |
| Average daily production | | | | | | |
| Light & Medium crude oil (bbl per day) | 7,882 | 7,523 | 5% | 8,180 | 7,568 | 8% |
| Heavy crude oil (bbl per day) | 7,312 | 11,354 | -36% | 7,893 | 12,014 | -34% |
| Natural gas (Mcf per day) | 12,189 | 12,122 | 1% | 12,165 | 12,161 | 0% |
| Natural gas liquids (bbl per day) | 125 | 212 | -41% | 149 | 206 | -28% |
| Barrels of oil equivalent (boe per day, 6:1) | 17,351 | 21,109 | -18% | 18,250 | 21,815 | -16% |
| % Oil and NGLs | 88% | 90% | -2% | 89% | 91% | -2% |
| Average sales price | | | | | | |
| Light & Medium crude oil ($ per bbl) | 55.70 | 89.73 | -38% | 48.07 | 86.23 | -44% |
| Heavy crude oil ($ per bbl) | 50.84 | 82.62 | -38% | 42.53 | 78.00 | -45% |
| Natural gas ($ per Mcf) | 2.57 | 3.89 | -34% | 2.64 | 4.98 | -47% |
| Natural gas liquids ($ per bbl) | 60.69 | 76.76 | -21% | 47.44 | 82.27 | -42% |
| Barrels of oil equivalent ($ per boe, 6:1) | 48.97 | 79.42 | -38% | 42.09 | 76.42 | -45% |
| Field netback ($ per boe) (1) | | | | | | |
| Petroleum and natural gas sales | 48.97 | 79.42 | -38% | 42.09 | 76.42 | -45% |
| Royalties | (4.99) | (15.43) | -68% | (4.63) | (13.88) | -67% |
| Operating expenses | (18.40) | (20.94) | -12% | (18.65) | (21.90) | -15% |
| Transportation expenses | (0.81) | (1.18) | -31% | (0.89) | (1.05) | -15% |
| Field netback (1) | 24.77 | 41.87 | -41% | 17.92 | 39.59 | -55% |
| Cash gain (loss) on financial derivatives | 16.05 | (12.02) | n/a | 20.62 | (10.32) | n/a |
| Operating netback (1) | 40.82 | 29.85 | 37% | 38.54 | 29.27 | 32% |
| Wells drilled | | | | | | |
| Gross | 6.0 | 17.0 | -65% | 23.0 | 51.0 | -55% |
| Net | 6.0 | 17.0 | -65% | 23.0 | 51.0 | -55% |
| Success (%) | 100 | 100 | 0% | 96 | 96 | 0% |
| Common Shares | | | | | | |
| Shares outstanding, end of period | 353,474,198 | 346,261,772 | 2% | 353,474,198 | 346,261,772 | 2% |
| Weighted average shares outstanding – diluted | 353,347,120 | 347,994,331 | 2% | 353,164,462 | 345,419,756 | 2% |
| (1) Funds flow, Corporate acquisitions, Capital expenditures, Net debt and Field netback are non-GAAP measures. Refer to "Reader Advisory" in this press release or the MD&A for the three and six months ended June 30, 2015 for further discussion and reconciliation to GAAP measures if applicable. |
Corporate:
In the second quarter Twin Butte continued to make progress on all of our 2015 priorities. Of paramount importance net debt and operating costs were reduced further. The transition to a higher value asset base, one that is more predictable with higher netbacks, accelerated, and was augmented with additional prospective lands captured at Provost and in key Lloydminster horizontal areas.
Financial:
Twin Butte's second quarter 2015 financial and operating results saw the Company continue to demonstrate disciplined spending while reducing net debt by $26.2 million to $307.7 million providing a 1.3 times debt to cash flow ratio on an annualized basis. The Company declared $10.5 million in dividends which when combined with net organic capital spending of $17 million, generated an all-in payout ratio of 48%.
Despite average realized commodity prices dropping 38% year over year, funds flow for the second quarter 2015 was a record for the Company at $57 million ($0.16/share) or an increase of 17% from Q2 2014. Twin Butte's strong 2015 hedge book, combined with significantly lower royalties, due both to the price drop and the continued transition to a horizontal medium and heavy oil asset base, and significantly lower operating costs all contributed to this result.
Twin Butte's commodity hedging strategy, in place over the last several years to minimize cash flow volatility, provided $25.3 million of realized gains in the second quarter, delivering the cash flow support it was designed to in a low commodity price environment. The Company has favorable hedge coverage through the second half of 2015 with approximately 6,000 bbls/d hedged at ~$80/bbl WCS Cdn (~$100/bbl WTI Cdn). In 2016 the Company has 1,000 bbls/d hedged at $65/bbl WCS Cdn along with 3,500 bbls/d of WCS:WTI differential hedged at ~$18.50/bbl Cdn.
Operations:
The Company's Q2 2015 net capital investment program of $17.0 million was focused on horizontal development in its medium oil Provost and heavy oil Lloydminster areas. The capital program included the drilling of 6 gross wells (6 net), startup of the Rosenheim North (Provost) oil and water handling facility, and procurement of materials and construction of the Sounding Lake Sparky oil battery (Provost).
Q2 production was on budget at 17,351 boepd with current production of 16,500-17,000 boepd on track with annual guidance.
Provost – Medium oil
In the second quarter Provost field netbacks, as defined as revenue minus royalties minus operating and transportation costs, increased to $32.21 per boe from $19.64 per boe in Q1 as higher commodity prices and lower operating and transportation costs improved margins. Netbacks on horizontal activity reached $39.12 per boe in the quarter.
Drilling activity resumed at Provost in late Q2 with initial production results in-line with expectations. The development program targets a combination of Dina/Cummings oil over water prospects, along with short (700m) and long (1400m) horizontal multistage frac Sparky and Lithic channel wells. Confidence in the depth and quality of the Provost area inventory continues to grow.
Per well drill, complete and equip capital costs have decreased significantly. Dina/Cummings perforated monobores which in 2014 cost ~$900k are now under $800k, Sparky multistage frac horizontals have dropped from ~$1.4 million to under $800k (700m length) due to reduced drilling times, more efficient completions and lower service costs. Land consolidation continues at Provost through crown land sales, small select property acquisitions and farm-ins.
Operating costs in Provost continue to trend lower and are expected to benefit long term from recently drilled horizontal water disposal wells which have both higher injectivity than historical vertical injectors and do not require expensive surface pumping.
Lloydminster - Heavy
In the second quarter, Lloydminster field netbacks increased to $23.07 per boe from $6.72 per boe in Q1 as, similar to Provost, higher commodity prices and lower operating and transportation costs improved margins. Netbacks on horizontal wells reached $37.24 per boe in the quarter.
Significant progress continues to be made on Lloydminster area operating and transportation costs. Relative to Q2 last year, area costs have dropped $4.24 per boe (16%) from $26.21 to $21.97 per boe due to a combination of shutting in high cost barrels, targeted capital investments, improved operational practices, increased horizontal production and rate reductions in goods and services. Cost savings are expected to continue as the Company's transitions its heavy asset base away from scattered vertical production to more concentrated horizontal development.
Per well drill, complete and equip capital costs continue to decrease with the drill, complete and equip costs of single lateral horizontals in the heavy area now estimated at ~$800k compared to $1.25 million a year ago. Cost savings are related to quicker drill times, removal of slotted liners in the horizontal section and service cost reductions.
Multilateral drilling, though in its infancy in the Lloydminster area, continues to show significant promise in further reducing per lateral costs. In combination with lower capital costs adding this technology to the Company's tool kit has significantly increased the potential inventory on existing Twin Butte lands.
Longer term waterflood projects at both Wildmere and Freemont are expected to reduce overall heavy oil decline rates. These projects are currently scheduled for implementation in early 2016.
Outlook
Q2 2015 has seen Twin Butte continue to make significant progress along the transition path to a lower cost, more predictable, conventional medium and heavy oil producer. No material changes are anticipated for the balance of the 2015 capital budget or 2015 guidance.
With lower debt, operating costs, per well capital costs, and a lower more sustainable long term dividend, along with increased confidence in the Provost and Lloydminster inventory, the Company is better positioned to sustain production while maintaining less than a 100% total payout ratio over the long term. Provost and Lloydminster horizontal development programs continue to exceed Twin Butte's minimum internal economic hurdles for new development of a 2:1 recycle ratio on invested capital with payouts under 1.5 years at WCS prices below $55 per barrel.
Internal planning for 2016 is well underway with budget price assumptions ranging from $45 to $65 per barrel WTI ($US). The Company will remain disciplined, adjusting its capital program to maintain less than 100% total payout and investing only in projects that meet the minimum recycle and payout economic hurdles. If prices retreat further, development activity will be significantly reduced and excluding maintenance capital, free cash flow will be directed to further debt reduction.
Priorities in an oil price recovery will be first to expand the capital program, second to reduce debt or consider raising the dividend.
Maximizing long term asset value and financial discipline continue as the key principles the Company operates under during this challenging oil price environment.
About Twin Butte:
Twin Butte Energy Ltd. is a dividend paying value oriented intermediate producer with a significant low risk, high rate of return drilling inventory focused on large original oil and gas in place play types. With a stable low decline production base, Twin Butte is well positioned to provide shareholders with a dividend and growth potential over both the short and long term. Twin Butte is committed to continually enhance its asset quality while focusing on the sustainability of its dividend. The common shares of Twin Butte are listed on the TSX under the symbol "TBE".