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07 Nov 2012 00:05 ET
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Marketwire Canada
Fairborne Energy Ltd. ("Fairborne" or the "Company") (TSX:FEL) is pleased to provide this summary of its financial and operating results for the third quarter of 2012. A complete copy of the Company's consolidated interim financial statements for the three and nine months ended September 30, 2012, along with management's discussion and analysis in respect thereof will be filed on SEDAR and is available on the Company's website at www.fairborne-energy.com.
Highlights
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
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2012 2011 2012 2011
Financial ($thousands,
except per share amounts)
Petroleum and natural gas
revenue 25,506 53,350 95,542 156,323
Funds generated from
operations (1) 10,619 31,504 41,579 88,578
Per share - basic $ 0.11 $ 0.31 $ 0.41 $ 0.87
Per share - diluted $ 0.11 $ 0.31 $ 0.41 $ 0.86
Cash flow from operations
(including changes in 6,355 34,089 36,783 83,287
working capital) (1)
Per share - basic $ 0.06 $ 0.33 $ 0.36 $ 0.81
Per share - diluted $ 0.06 $ 0.33 $ 0.36 $ 0.80
Profit (loss) (2) (121,840) 1,323 (173,801) 34,625
Per share - basic $ (0.19) $ 0.01 $ (1.69) $ 0.34
Per share - diluted $ (0.19) $ 0.01 $ (1.69) $ 0.33
Exploration and
development expenditures 9,698 45,191 55,214 142,886
Proceeds from the sale of
petroleum and natural gas (474) - 89,653 141,380
properties
Working capital deficit
(excluding convertible 9,521 21,257 9,521 21,257
debentures) (3)
Convertible debentures - 99,353 - 99,353
Bank indebtedness 185,336 125,196 185,336 125,196
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Total debt, including
working capital 194,857 245,806 194,857 245,806
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Operations
Average production
Natural gas (Mcf per day) 68,416 72,303 71,894 67,040
Crude oil (bbls per day) 873 2,262 1,330 2,419
Natural gas liquids (bbls
per day) 799 845 877 876
Sulphur (tonnes per day)
(4) 27 48 27 57
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Total (BOE per day) 13,102 15,206 14,216 14,525
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Average sales price (5)
Natural gas ($ per Mcf) 2.28 4.27 2.20 4.36
Crude oil ($ per bbl) 87.19 85.96 93.91 86.99
Natural gas liquids ($
per bbl) 58.40 65.89 63.52 60.97
Sulphur ($ per tonne) 125.38 138.02 123.65 119.35
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Netback per BOE ($ per
BOE)
Petroleum and natural gas
sales (5) 21.72 37.35 24.18 38.94
Other income (0.06) - 0.24 -
Royalties (1.92) (2.98) (2.15) (4.05)
Operating expenses (6.80) (8.33) (7.52) (8.85)
Transportation (0.98) (1.19) (1.06) (1.10)
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Operating netback 11.96 24.85 13.69 24.94
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Wells drilled (gross) 2 15 14 40
Undeveloped land (net
acres) 132,273 225,997 132,273 225,997
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(1) The calculation of funds generated from operations and cash flow from
operations for the three months ended September 30, 2012 excludes $2.3
million (2011 - $3.1 million) of interest expense which is classified as
finance expense. Similarly, for the nine months ended September 30,
2012, $7.6 million (2011 - $8.7 million) of interest expense is
classified as finance expense.
(2) Included in the net loss is an after tax impairment loss of $115.4
million for the three months ended September 30, 2012 and $149.8 million
for the nine months ended September 30, 2012 (2011 - nil).
(3) Excluding assets held for sale and associated liabilities.
(4) A BOE conversion ratio has been calculated using a conversion rate of
one tonne of sulphur to one barrel.
(5) Excludes the change in fair value of derivatives.
Third Quarter Highlights
-- Third quarter 2012 production of 13,102 BOE per day was reduced by
approximately 1,450 BOE per day as a result of second quarter property
dispositions and the continued shut in of higher operating cost
production on the Company's Wild River property;
-- Operating costs of $6.80 per BOE for the third quarter were 18% lower
than the prior year, reflecting operational efficiencies achieved at the
Company-built Marlboro gas plant and the disposition of above-average
operating cost properties;
-- Operating netback of $11.96 per BOE reflected low natural gas prices and
the disposition of higher netback crude oil properties in the second
quarter;
-- Funds generated from operations before interest expense, of $10.6
million ($8.3 million after interest expense) were realized on $25.5
million of third quarter revenue;
-- Capital spending of $9.7 million was funded entirely from funds
generated from operations;
-- Third quarter drilling of two (2.0 net) wells included one (1.0 net)
liquids rich natural gas well on the Company's core Harlech property,
which came on production October 1, 2012;
-- Bank debt of $185.3 million at September 30, 2012 was initially paid off
with gross proceeds of $189 million received on October 1, 2012 from
strategic property dispositions;
-- A non-cash impairment loss of $154.3 million ($115.4 million after tax)
was recognized on the reclassification of properties disposed of October
1, 2012 as part of the Company's strategic reorganization.
Strategic Review
Fairborne concluded its review of strategic alternatives with one property disposition completed in the second quarter of 2012 including 800 BOE per day for proceeds of $90 million and two additional property dispositions which closed October 1, 2012 with combined production of approximately 8,700 BOE per day for gross proceeds of $189 million. Upon completion of these transactions, the Company has the following characteristics:
-- An undrawn lending facility of $80 million;
-- A working capital deficit of approximately $10 to $13 million, largely
resulting from deal costs and corporate restructuring costs;
-- Production of 4,500 BOE per day (20% light oil and condensate, 5% NGLs),
an increase in total liquids percentage of almost 100% as compared to Q3
production;
-- A stable corporate production base with an overall decline rate of 20%;
-- 312 (201 net) sections of land in the greater Harlech area;
-- 23.0 MMBOE of proven plus probable reserves at October 1, 2012 (based on
the GLJ Petroleum Consultants Ltd. ("GLJ") reserve evaluation effective
December 31, 2011, post all dispositions since then and mechanically
updated to remove production from January 1, 2012 to October 1, 2012);
-- An Economic Contingent Resource, as evaluated by GLJ for the Cardium
Formation (best estimate), of 131 MMBOE attributable to the Company's
working interest;
-- A focused strategy to convert these Economic Resources to reserves while
limiting capital expenditures to cash flow over the near term to
maintain a strong balance sheet;
-- In addition to the Cardium, a large inventory of undrilled prospects in
the Viking, Notikewin, Wilrich and Gething;
-- Expected exit production for 2012 of 5,000 BOE per day representing
growth of 11% from the start of the fourth quarter.
With the closing of the strategic review transactions, the Company also undertook a series of cost reduction initiatives in order to realign its cost structure commensurate with its reduced overall size. This will result in an overall cash G&A cost of approximately $3.75 per BOE for 2013 which is expected to decrease in the future as production grows. Cost reduction steps included staff reductions, pay reductions, office space consolidation and other scalable reductions based on the Company's smaller size, all of which reduced total cash G&A by approximately 50%.
Operations Update
Moving forward as a deep basin focused growth company, Fairborne will continue the delineation, development and exploitation of its large land base in the greater Harlech area. During the third quarter, the Company drilled one (1.0 net) multi zone liquids rich gas well at Harlech. The well was brought on production on October 1, 2012, has produced for over 30 days with no decline and is currently producing 1,000 Mcf per day of raw gas with 160 bbls of liquids per MMcf of gas, 75% of which is condensate. Fairborne has an inventory of 55 of these wells which offer compelling economics and an operating netback at current commodity prices of approximately $36.00 per BOE.
Fourth Quarter 2012
Fourth quarter 2012 drilling activities will include three (1.6 net) wells on the Company's core Harlech property; two Cardium horizontal wells and one Wilrich horizontal well. At the start of the fourth quarter, the Company also purchased an additional eight (2.7 net) sections of land within its core Harlech operating area all of which contains Cardium and Wilrich potential. Fourth quarter capital expenditures are budgeted at $11.2 million.
The Company has completed the drilling of its third Cardium horizontal well, in the Harlech area (76% WI). The 1-9-44-15W5 well, located two miles southwest of the Company's first two Cardium horizontal wells, reached target depth in mid-October and a 15 stage packer system has been run in the well. Completion operations are planned for early November.
The Company's two existing Cardium horizontals have continued to perform as expected and are summarized below:
CUMULATIVE
INITIAL CUMULATIVE PRODUCTION
HORIZONTAL PRODUCTION IP PRODUCTION LIQUIDS
LENGTH NUMBER ("IP") 30 DAYS GAS (66% C5+)
(METRES) OF FRACS (BOE/DAY) (BOE/DAY) (MMCF) (MBOE)
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Well 1 800 10 400 330 204 11.6
Well 2 1,200 20 1,000 880 466 24.2
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Both wells have maintained a liquids yield of 50 barrels per million cubic feet of gas (of which 35 barrels is condensate) throughout their production history to date, consistent with early reservoir models which predict consistent yields based on the reservoir characteristics of the Cardium in the Harlech area.
Outlook
Completing the strategic review process, closing the property dispositions and initially eliminating outstanding bank debt, Fairborne is now able to concentrate on growth as a deep basin focused company with a strong balance sheet.
The Board of Directors has approved Fairborne's capital budget for the first half of 2013 at $13 million. First half activities will focus on the delineation and development of the Company's core Harlech property with a drilling program that includes one (0.8 net) horizontal well targeting the Cardium resource, and two (1.1 net) multi-zone vertical wells.
The first half of 2013 capital budget is expected to be financed from cash flow, based on the following key assumptions:
-- average production of 5,000 to 5,300 BOE per day;
-- royalties between 10% and 12%;
-- operating costs of $9.75 to $10.50 per BOE;
-- G&A expenses of $3.75 per BOE; and
-- Net debt of approximately $16 million at the end of the second quarter
2013.
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