- Published: 14 August 2012
- Written by Editor
DeeThree Announces Second Quarter Results and Increased 2012 Guidance on Continued Bakken and Belly River Drilling Success
NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR DISSEMINATION IN THE UNITED STATES
DeeThree Exploration Ltd. ("DeeThree" or the "Company") (DTX.TO) (DTHRF) is pleased to announce its financial and operational results for the three and six months ended June 30, 2012. DeeThree continued to deliver impressive financial and operating results during the three months ended June 30, 2012. Highlighting the strength of our oil targets in the Lethbridge Alberta Bakken and Brazeau Belly River properties, DeeThree increased its operating netback per barrel to $30.86 in the second quarter of 2012, being a 25% increase as compared to the first quarter of 2012.
OPERATIONAL UPDATE
Continued success in the Company's Alberta Bakken and Belly River oil resource plays has driven significant production increases early in the third quarter with the Company recently achieving a production rate of 5,000 boe/d, being equal to the Company's previously forecast 2012 exit rate. The Company is currently operating two drilling rigs on its Alberta Bakken property.
LETHBRIDGE BAKKEN
The Company continued to develop its Alberta Bakken area throughout the second quarter drilling 4 gross (4.0 net) wells. The Company's two most recently completed wells respectively tested at 808 boe/d over a nine day test and 630 boe/d over an eight day test. See table below.
The sixth location drilled this year was a 6.8 mile step out and is of unique significance as it is the first well drilled by DeeThree on the Crown lands that comprise part of its Bakken properties. This well is subject to the 5% Crown royalty rate holiday with this lower rate being anticipated to drive substantial netback and cash flow benefits for DeeThree. Based on the success of this well, DeeThree acquired an additional 22 sections of offsetting Crown land in the second quarter and DeeThree now has a total of 39 sections of Crown land believed to be highly prospective for Alberta Bakken potential in addition to its extensive freehold landholdings in the area.
The 2012 drilling program has successfully tested the upper Bakken formation over an eight mile east-west by three mile north-south fairway. The Company intends to further test the limits of the known Bakken oil pool throughout the second half of the year by drilling an additional 8 gross (8.0 net) Bakken wells. In order to accommodate anticipated additional production increases from its Alberta Bakken drilling program, the Company is currently installing an amine plant to handle CO2 volumes associated with Alberta Bakken solution gas. Additionally, the Company is designing and procuring equipment for a second 4,000 bbl/d expandable crude oil facility which is to be operational by year end.
The table below highlights results of our 2012 Bakken drilling program to date:
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Average End of
Test Test Current
Rate Rate IP 30 IP 60 IP 90 Rate Oil
Well (bbl/d (bbl/d (bbl/d (bbl/d (bbl/d (bbl/d Cumulative
Identification oil) (1) oil) (1) oil) oil) oil) oil) (bbls)
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Location #1 765
(4 day) 550 415 370 320 107 38,000
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Location #2 957
(6 day) 800 520 429 390 270 41,000
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Location #3 940
(10 day) 620 497 - - 308 20,000
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Location #4 960
(5 day) 650 442 - - 306 20,000
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Location #5 808
(9 day) 525 467 - - - 17,000
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Location #6 630
(8 day) 508 - - - - 6,000
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(1) Test rates are not necessarily indicative of long-term performance or of ultimate recovery.
BRAZEAU BELLY RIVER
DeeThree continued to have success on its Belly River light oil resource play during the second quarter with 3.0 gross (2.8 net) horizontal wells drilled. These wells targeted different sands than previously drilled in this multi-zone play. Two wells were drilled into the "upper" Belly River sands highlighted by an IP30 rate of 400 boe/d (76% oil and NGLs) on the first location and 222 boe/d (100% oil) on a five day test on its most recently completed well. The third well was drilled into a "lower" Belly River marine sand which tested at 512 boe/d (78% oil & NGLs) over an eight day test and has recently been brought on-stream. These results have confirmed the multi-zone potential of the hydrocarbon bearing Belly River package over DeeThree's significant land position at Brazeau. The success of these three wells has resulted in a substantial increase in DeeThree's drilling inventory and reserves at Brazeau as DeeThree's 2011 year-end reserve report did not attribute any reserves associated with the exploitation of these sands by horizontal drilling methods.
INCREASED 2012 GUIDANCE
The Company is well positioned to continue to deliver strong growth in its production, cash flow and reserves over the balance of 2012. Having already achieved its forecast 2012 year end production rate of 5,000 boe/d, the Board of Directors has approved another increase in the Company's 2012 capital expenditures budget from $82 million to $110 million.
DeeThree now anticipates to exit 2012 with a production rate of approximately 6,000 boe/d (76% oil and NGLs), up 20% from our previous guidance. Throughout the second half of 2012, DeeThree plans to deploy its capital primarily on its Lethbridge Alberta Bakken properties with plans to drill another 8 (8.0 net) wells prior to year end. This expanded budget is fully funded through cash flow and funds available from its credit facility. The Company expects to exit 2012 with net debt of approximately $60 - $65 million and debt to fourth quarter annualized cash flow of approximately 0.8:1.0 times.
2012 SECOND QUARTER FINANCIAL AND OPERATIONAL HIGHLIGHTS
We are pleased to provide the following highlights of our financial and operating results for the three and six months ended June 30, 2012.
-- Current field production is approximately 5,000 boe/d. Current
production consists of approximately 70 % oil and NGLs and 30 % natural
gas.
-- The Company achieved record production for the second quarter averaging
3,805 boe/d (62% oil and NGLs and 38% natural gas), an increase of 76%
over the same quarter of 2011 and a 25% increase over the first quarter
of 2012.
-- Increased oil and NGL production by 47% over the previous quarter to
2,357 bbls/d compared to 1,599 bbls/d.
-- Funds flow from operations grew to $9.9 million, representing a 106%
increase from the second quarter of 2011 and a 72% improvement from the
first quarter of 2012.
-- Funds from operations on a per share basis increased to $0.15, up 88%
from the same quarter last year and 67% from the first quarter of this
year.
-- Invested $30.0 million in capital expenditures which included the
drilling of 7 (6.8 net) wells, achieving 100% success rate.
-- Exited the quarter with total net debt of $50.8 million. This represents
a debt to annualized cash flow ratio of 1.3:1.
-- A 100% drilling success rate to date in 2012.
-- Increased 2012 exit production rate guidance by 1,000 boe/d to 6,000
boe/d due to strong results from the Company's drilling program to date.
HIGHLIGHTS: BY THE NUMBERS
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Three Months Ended June 30, Six Months Ended June 30,
2012 2011 Change 2012 2011 Change
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(000s, except
per share
amounts) ($) ($) (%) ($) ($) (%)
Financial
Oil and natural
gas revenues 18,437 9,465 95 32,714 11,434 186
Funds from
operations (1) 9,852 4,777 106 15,593 3,944 295
Per share -
basic 0.15 0.08 88 0.24 0.08 200
Per share -
diluted 0.14 0.08 75 0.22 0.08 175
Cash flow from
(used in)
operating
activities 14,696 2,299 539 18,760 (2,564) 832
Net income
(loss) 5,603 (899) 723 2,404 (2,890) 183
Per share -
basic 0.08 (0.01) 900 0.04 (0.06) 167
Per share -
diluted 0.08 (0.01) 900 0.03 (0.06) 150
Capital
expenditures
(2) 29,699 12,490 138 66,414 142,019 (53)
Working capital
(deficit) (3) (50,803) 17,871 (384) (50,803) 17,871 (384)
Shareholders'
equity 185,207 174,850 6 185,207 174,850 6
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(000s) (#) (#) (%) (#) (#) (%)
Share Data
At period-end 66,986 62,572 7 66,986 62,572 7
Weighted average
- basic 66,986 62,572 7 65,153 49,596 31
Weighted average
- diluted 70,161 62,572 12 69,484 49,596 40
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Operating(4)
Production
Natural gas
(mcf/d) 8,687 8,214 6 8,672 5,991 45
Crude oil
bbls/d) 2,091 609 243 1,704 341 400
NGLs (bbls/d) 266 189 41 274 104 163
Total (boe/d) 3,805 2,167 76 3,423 1,444 137
Average wellhead
prices
Natural gas
($/mcf) 2.06 3.85 (46) 2.11 3.82 (45)
Crude oil and
NGLs ($/bbl) 78.67 90.74 (13) 81.42 90.37 (10)
Total ($/boe) 53.25 47.99 11 52.51 43.74 20
Netbacks
Operating
netback
($/boe) 30.86 28.04 10 28.08 24.82 13
Funds flow
netback
($/boe) 28.36 24.18 17 24.94 15.06 66
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Gross (net)
wells drilled
Oil (#) 7 (6.8) 2 (2.0) 250 (240) 15 (13.9) 4 (4.0) 275 (248)
Standing (#) -- -- -- 2 (2.0) -- --
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Total (#) 7 (6.8) 2 (2.0) 250 (240) 17 (15.9) 4 (4.0) 325 (298)
Average working
interest (%) 97 100 (3) 94 100 (6)
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(1) Funds from operations and funds from operations per share are not
recognized measures under International Financial Reporting Standards
("IFRS"). Refer to the commentary in the Management's Discussion and
Analysis under the heading "Non-IFRS Measurements" for further
discussion.
(2) Total capital expenditures, including acquisitions and excluding non-
cash transactions. Refer to commentary in the Management's Discussion
and Analysis under the heading "Capital Expenditures and Acquisitions"
for further information.
(3) Current assets less current liabilities, excluding current derivative
financial instruments.
(4) For a description of the boe conversion ratio, refer to the commentary
in the Management's Discussion and Analysis under the heading "Other
Measurements".
Reader Advisory
Forward-Looking Statements. Certain statements contained in this press release may constitute forward-looking statements. These statements relate to future events or the DeeThree's future performance. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. DeeThree believes that the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this press release should not be unduly relied upon by investors. These statements speak only as of the date of this press release and are expressly qualified, in their entirety, by this cautionary statement.
In particular, this press release contains forward-looking statements, pertaining to the following: projections of market prices and costs, supply and demand for oil and natural gas, the quantity of reserves, oil and natural gas production levels, capital expenditure programs, treatment under governmental regulatory and taxation regimes, expectations regarding DeeThree's ability to raise capital and to continually add to reserves through acquisitions and development, and projections of market prices and costs.
With respect to forward-looking statements contained in this press release, DeeThree has made assumptions regarding, among other things: the legislative and regulatory environments of the jurisdictions where DeeThree carries on business or has operations, the impact of increasing competition, and DeeThree's ability to obtain additional financing on satisfactory terms.
DeeThree's actual results could differ materially from those anticipated in these forward-looking statements as a result of risk factors that may include, but are not limited to: volatility in the market prices for oil and natural gas; uncertainties associated with estimating reserves; uncertainties associated with DeeThree's ability to obtain additional financing on satisfactory terms; geological, technical, drilling and processing problems; liabilities and risks, including environmental liabilities and risks, inherent in oil and natural gas operations; incorrect assessments of the value of acquisitions; competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel.
This forward-looking information represents DeeThree's views as of the date of this document and such information should not be relied upon as representing its views as of any date subsequent to the date of this document. DeeThree has attempted to identify important factors that could cause actual results, performance or achievements to vary from those current expectations or estimates expressed or implied by the forward-looking information. However, there may be other factors that cause results, performance or achievements not to be as expected or estimated and that could cause actual results, performance or achievements to differ materially from current expectations. There can be no assurance that forward-looking information will prove to be accurate, as results and future events could differ materially from those expected or estimated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. . Except as required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements.
Non-IFRS Measurements. This news release contains the terms "funds from other operations" and "funds from operations per share", which should not be considered an alternative to or more meaningful than cash flow from operating activities as determined in accordance with IFRS or previous GAAP. These terms do not have any standardized meaning as prescribed by IFRS or previous GAAP. DeeThree's determination of funds from operations and funds from operations per share may not be comparable to that reported by other companies. Management uses funds from operations to analyze operating performance and leverage, and considers funds from operations to be a key measure as it demonstrates the Company's ability to generate cash necessary to fund future capital investments and to repay debt. Funds from operations is calculated using cash flow from operating activities as presented in the statement of cash flows before changes in non-cash working capital and settlement of retirement costs. DeeThree presents funds from operations per share whereby per share amounts are calculated using weighted average shares outstanding consistent with the calculation of earnings per share.
BOE Presentation. References herein to "boe" mean barrels of oil equivalent derived by converting gas to oil in the ratio of six thousand cubic feet (Mcf) of gas to one barrel (bbl) of oil. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl is based on an energy conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
This new release shall not constitute an offer to sell or the solicitation of an offer to buy any securities in any jurisdiction.
We seek Safe Harbor.
DeeThree Exploration Ltd.
Martin Cheyne
President and Chief Executive Officer
(403) 263-9130
