- Published: 14 August 2014
- Written by Editor
Twin Butte Energy announces 2014 second quarter financial and operating results
CALGARY, Aug. 13, 2014 - (TSX:TBE.TO - News) - Twin Butte Energy Ltd. ("Twin Butte" or the "Company") is pleased to report its financial and operational results for the three months ended June 30, 2014.
Highlights of Twin Butte's successful second quarter 2014 are as follows:
- Average second quarter production of 21,109 boe/d (90% liquids), an increase of 25% from second quarter 2013 while liquids weighting increased to 90% from 87% over the same periods. Light and medium oil represented 36% of production in the quarter compared to 4% in the second quarter of 2013.
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Second quarter funds flow of $48.5 million, or $0.14 per share, an increase of 47% from second quarter 2013. Operating cost reductions and higher corporate netbacks from the first quarter of 2014 were achieved.
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Completed an organic net capital program of $21.7 million including the drilling of 17 gross (17 net) wells at a 100% success rate. With the exception of one service well, 100% of the second quarter capital plan was focused on horizontal drilling activity with 50% of the wells focused in the Company's medium oil Provost area.
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Reinforced the financial sustainability of the Company's dividend with the total payout ratio for the quarter and year to date being 75% and 89% respectively. Twin Butte has declared $122.7 million ($0.47 per share) in dividends since January 2012 and maintained a cumulative all-in payout ratio of 90% since that time.
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Expanded the Company's Provost area medium oil drilling inventory to more than three years
- Certain selected financial and operational information for the three and six months ended June 30, 2014 and 2013 is outlined below and should be read in conjunction with Twin Butte's condensed interim financial statements for the three and six months ended June 30, 2014 and 2013 and accompanying management's discussion and analysis filed with the Canadian securities regulatory authorities which may be accessed through the SEDAR website (www.sedar.com) and also the Company's website.
| Three months ended June 30 | Six months ended June 30 | |||||
| 2014 | 2013 | % Change | 2014 | 2013 | % Change | |
| Financial ($ 000's, except per share amounts) | ||||||
| Petroleum and natural gas sales | 152,566 | 96,590 | 58% | 301,766 | 166,250 | 82% |
| Funds flow (1) | 48,520 | 33,058 | 47% | 99,904 | 65,481 | 53% |
| Per share basic | 0.14 | 0.13 | 8% | 0.29 | 0.26 | 12% |
| Per share diluted | 0.14 | 0.13 | 8% | 0.29 | 0.26 | 12% |
| Net income (loss) | 7,181 | (6,082) | 218% | (8,059) | (35,715) | 77% |
| Per share basic | 0.02 | (0.02) | 200% | (0.02) | (0.14) | 86% |
| Per share diluted | 0.02 | (0.02) | 200% | (0.02) | (0.14) | 86% |
| Dividends declared | 16,599 | 12,028 | 38% | 33,149 | 24,008 | 38% |
| Dividends declared, Post DRIP | 14,771 | 10,543 | 40% | 29,463 | 21,271 | 39% |
| Capital expenditures (2) | 21,724 | 14,871 | 46% | 59,615 | 34,496 | 73% |
| Net debt (3) | 352,198 | 193,750 | 82% | 352,198 | 193,750 | 82% |
| Operating | ||||||
| Average daily production | ||||||
| Heavy crude oil (bbl per day) | 11,354 | 13,974 | -19% | 12,014 | 13,932 | -14% |
| Light & Medium crude oil (bbl per day) | 7,523 | 614 | 1125% | 7,568 | 698 | 984% |
| Natural gas (Mcf per day) | 12,122 | 12,665 | -4% | 12,161 | 13,282 | -8% |
| Natural gas liquids (bbl per day) | 212 | 150 | 41% | 206 | 206 | 0% |
| Barrels of oil equivalent (boe per day, 6:1) | 21,109 | 16,849 | 25% | 21,815 | 17,050 | 28% |
| % Oil and NGLs | 90% | 87% | 3% | 91% | 87% | 4% |
| Average sales price | ||||||
| Heavy crude oil ($ per bbl) | 82.62 | 68.01 | 21% | 78.00 | 57.67 | 35% |
| Light & Medium crude oil ($ per bbl) | 89.73 | 82.06 | 9% | 86.23 | 73.86 | 17% |
| Natural gas ($ per Mcf) | 3.89 | 3.80 | 2% | 4.98 | 3.56 | 40% |
| Natural gas liquids ($ per bbl) | 76.76 | 84.35 | -9% | 82.27 | 78.42 | 5% |
| Barrels of oil equivalent ($ per boe, 6:1) | 79.42 | 63.00 | 26% | 76.42 | 53.87 | 42% |
| Field netback ($ per boe) (4) | ||||||
| Petroleum and natural gas sales | 79.42 | 63.00 | 26% | 76.42 | 53.87 | 42% |
| Royalties | (15.43) | (13.39) | 15% | (13.88) | (11.25) | 23% |
| Operating expenses | (20.94) | (22.92) | -9% | (21.90) | (22.40) | -2% |
| Transportation expenses | (1.18) | (1.72) | -31% | (1.05) | (1.34) | -22% |
| Field netback | 41.87 | 24.97 | 68% | 39.59 | 18.88 | 110% |
| Wells drilled | ||||||
| Gross | 17.0 | 12.0 | 42% | 51.0 | 40.0 | 28% |
| Net | 17.0 | 12.0 | 42% | 51.0 | 40.0 | 28% |
| Success (%) | 100 | 100 | 0% | 96 | 93 | 3% |
| Common Shares | ||||||
| Shares outstanding, end of period | 346,261,772 | 250,916,313 | 38% | 346,261,772 | 250,916,313 | 38% |
| Weighted average shares outstanding - diluted | 347,994,331 | 251,895,637 | 38% | 345,419,756 | 250,965,960 | 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) Field netback is a non-GAAP measure calculated as the average per boe of the Company's oil and gas sales, less royalties, operating and transportation expenses. See also "Field Netback" in the Reader Advisory below.
Corporate:
During the second quarter, Twin Butte accelerated its transition from largely a conventional target, vertical, heavy oil driller to a horizontal driller targeting more predictable production profile projects with a significant and growing medium oil presence in the Provost area. This transition will strengthen the Company's business model of delivering a long term stable dividend combined with moderate production growth by increasing the percentage of higher netback, more predictable decline, oil barrels in the Company. For the balance of the year, Twin Butte anticipates that substantially all of the remaining drilling program will be weighted to horizontals with approximately 75% of its activity focused in Provost. This shift strengthens Twin Butte's corporate sustainability, with an increased corporate netback based on lower operating costs, lower royalties and an increased weighting to higher valued medium crude. The Company's growing horizontal drilling inventory which has capital efficiencies comparable to Twin Butte's historical vertical heavy oil drilling inventory, and is in formations with a more predictable decline profile, will ensure this positive transition continues in future quarters.
Financial:
Twin Butte's second 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 second quarter of 2014 the Company declared $16.6 million in dividends ($14.8 million post DRIP & SDP) which when combined with net $21.7 million in organic capital spending generated an all-in payout ratio of 75%. Over the past 2.5 years the Company has declared $122.7 million in dividends, or $0.47 per share, and maintained a cumulative all-in payout ratio of 90%.
Funds flow in the second quarter increased significantly (47%) from 2013 reaching $48.5 million or $0.14 per share. This compares to a 25% increase in production volumes over the same periods reinforcing the Company's transition to an increased weighting of higher netback barrels. The percentage of light and medium oil production in the quarter compared to the second quarter of 2013 has increased materially to 36% from 4%.
Operating costs in the second quarter were $20.94 per boe, down from $22.81 per boe in the first quarter of 2014, as operating improvements are beginning to be realized, lower propane and power costs, and as the percentage of lower operating cost Provost area volumes grow. As volumes grow in Provost this trend is expected to continue.
Strong Canadian oil prices combined with a continued contraction in the differential between light and heavy oil prices led to strong WCS (Western Canadian select heavy oil index) pricing in the quarter of $90.74 per bbl as compared to a second quarter 2013 average of $77.91 per bbl. The Company will continue to enhance its heavy oil pricing through rail car movement which currently represents approximately 40% of the Company's heavy oil productions.
Heavy oil differentials significantly contracted in early 2014 and forward market pricing has recently shown reduced volatility for the remainder of 2014 and 2015. Higher than anticipated WTI oil prices combined with the weaker exchange rate for the Canadian dollar has led to much higher base oil pricing for 2014 to date and is expected to continue through year-end. This has driven higher increased opportunity costs or realized hedging losses than normal as the hedge program reduces the volatility but limits the Company's participation in the pricing upside or more importantly as a dividend payer, the impact of pricing downturns. Twin Butte had a higher than usual percentage of production hedged through 2014 as a result of inherited hedge positions from an acquisition last fall. Hedging will continue to be an important component of the business plan providing a mechanism to reduce volatility and provide downside price protection or dividend protection, with a proactive hedging or risk management strategy.
The Company sold approximately $4.7 million in non-core assets in the second quarter of 2014. These dispositions 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 renewed its current bank facility in the second quarter at $365 million which provides substantial liquidity above the Company's drawn position of approximately $259 million as at June 30, 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 second quarter. Total net debt as at June 30, 2014 was $352.2 million, which was an $11.5 million reduction from the first quarter, while translating to an annualized debt to cash flow ratio at approximately 1.8 times.
Operations:
The Company's second quarter capital plan was focused on horizontal well activity in its core medium oil area of Provost and its heavy oil property at Wildmere. The $21.7 million capital program included the drilling of 17 gross wells (17 net) of which 16 were horizontal and one service well.
At Provost, 8 horizontal wells were drilled in the second quarter of 2014 (23 horizontal wells year-to-date) with an additional 13 horizontals drilled thus far in the third quarter. The target play drilled to date has been the Dina and Cummings oil over water project. 2014 well productivity has on average been consistent with the over 100 similar wells drilled on the property since 2010 by Twin Butte and the previous operator, with first three month average production of 70 boe per day. The Company is currently reviewing results of a full field reservoir simulation study on one its more successful horizontally drilled Provost pools. Early indications suggest drilling activity can be expanded on the initial pool, and likely replicated on other under-exploited pools in Provost that Twin Butte controls. The Company intends to validate via drilling, the model results later in 2014. With the repeatable success, a more predictable decline profile and the identified and expanding inventory, the Dina/Cummings play will continue to be a focus for the company for the foreseeable future.
As the Company's geological understanding at Provost grows, the potential of several other zones is becoming apparent. In the third quarter Twin Butte has drilled and fracture stimulated its first two Sparky oil wells with the wells both expected on stream imminently. Recently drilled offsetting competitor wells have demonstrated initial productivity of 95 boe per day, per well, and duplication of these results will generate capital efficiencies comparable with the current Dina and Cummings results. Based on current land holdings and geological mapping the Company has identified more than 100 similar potential drilling locations.
Mapping of the multiple, hydrocarbon charged, lithic channels which criss-cross the Company's acreage has identified numerous new drilling opportunities. Drilling is scheduled to begin on the lithic channel play in the second half of 2014 with results expected before year end.
Overall, the Company anticipates drilling more than 55 wells at Provost in 2014.
The Company's expanding operations in Provost are improving the Company's dividend sustainability with higher netback barrels, as a result of higher realized pricing on the area's medium quality oil, which along with lower operating and royalty costs, provides improved netbacks per boe. Field netbacks in Provost in the second quarter averaged approximately $56/boe compared to about $34/boe on the Company's existing heavy oil operations. The Company is focused on increasing production of our medium barrels up to the 45-50% range over the next 12 months, which has the potential to increase corporate cash flow by approximately 10% in a flat pricing and flat production scenario. As the Company's Provost production weighting increases, so will the area's cash flow generation capacity as a percentage of the overall Company.
Twin Butte continued its horizontal heavy oil development in Wildmere, Alberta with 8 horizontal wells drilled in the second quarter. The Wildmere asset has seen approximately 50 horizontal wells drilled on the property over the past 2 years with upward of an additional 15 horizontal locations planned for the remainder of the year. These wells are delivering field netbacks of approximately $50 per boe year-to-date. The Company is currently evaluating various secondary recovery schemes, which have been successfully deployed on the legacy vertically developed portions of the pool, to further enhance the economic return of this asset. Similar horizontal heavy oil opportunities have been identified on Twin Butte lands, primarily in the Lloydminster area, which the Company intends to develop over the next several quarters.
Average production for the second quarter of 2014 was 21,109 boe per day. With an active third quarter capital plan of approximately $50 million, drilling approximately 40 wells, the Company anticipates Corporate production will grow into the fourth quarter and believe the Company is on track to meet its 2014 exit production guidance of 22,500 boe per day.
Outlook
As noted in the Company's first quarter 2014 report the corporate transition from a vertical heavy oil to a horizontal medium and heavy oil driller has commenced and is ongoing. As with any strategic transition results do not happen overnight and measurement of success must be relative. The Company's expanding capital focus on medium oil in Provost is showing positive results. Higher revenue medium oil volumes are growing as a percentage of corporate production, and overall corporate operating costs and netbacks are improving. Although early, these are positive indications of where the Company's strategic focus will lead.
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 will continue to match its capital plan to forecast cash flow less dividends ensuring the dividends sustainability. Positive improvements in corporate netback and a growing inventory of strong capital efficiency horizontal drilling inventory in reservoirs with more predictable decline profiles allows Twin Butte to remain confident in the long term sustainability of the dividend. 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.
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 Company's current financial forecast continues to show a total annual 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 production predictability and dividend sustainability, while providing a platform for moderate growth over the longer term.
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 predictable oil based play types. Twin Butte is well positioned to provide shareholders with a sustainable dividend with moderate growth potential over the 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".
Reader Advisory
Forward-Looking Statements
In the interest of providing Twin Butte's shareholders and potential investors with information regarding Twin Butte, including management's assessment of the future plans and operations of Twin Butte, certain statements contained in this news release constitute forward-looking statements or information (collectively "forward-looking statements") within the meaning of applicable securities legislation. Forward-looking statements are typically identified by words such as "anticipate", "continue", "estimate", "expect", "forecast", "may", "will", "project", "could", "plan", "intend", "should", "believe", "outlook", "potential", "target" and similar words suggesting future events or future performance. In particular but without limiting the foregoing, this news release contains forward-looking statements pertaining to the following: the amount of horizontal drilling activity planned for 2014; the Company's planned strategic shift to drilling additional horizontal light oil wells in 2014 and the anticipated effect thereof on the Company's production profile; the effects of the Company's hedging program; the Company's anticipated netbacks in 2014; anticipated total payout ratio; future dividend levels; funds flow and cash flow forecasts; the volume and product mix of Twin Butte's oil and natural gas production; future oil and natural gas prices; future operational activities; future results from operations and operating metrics, including future production growth and other matters set forth under the heading "Outlook" herein, including estimated budget levels, production rates, cash flows and targeted pay-out ratio in respect of the payment of dividends.
With respect to forward-looking statements contained in this news release, Twin Butte has made assumptions regarding, among other things: future capital expenditure levels; future oil and natural gas prices and differentials between light, medium and heavy oil prices; results from operations including future oil and natural gas production levels; future exchange rates and interest rates; Twin Butte's ability to obtain equipment in a timely manner to carry out development activities; its ability to market its oil and natural gas successfully to current and new customers; the impact of increasing competition; Twin Butte's lenders will revise Twin Butte's borrowing base to the levels described herein; anticipated success with the Company's exploration and development programs; Twin Butte will not adjust its current monthly dividend; Twin Butte's business strategy in respect of its planned light oil horizontal drilling program will remain the same; Twin Butte's ability to obtain financing on acceptable terms; and Twin Butte's ability to add production and reserves through its development and exploitation activities. Although Twin Butte believes that the expectations reflected in the forward looking statements contained in this news release, and the assumptions on which such forward-looking statements are made, are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned not to place undue reliance on forward-looking statements included in this news release, as there can be no assurance that the plans, intentions or expectations upon which the forward-looking statements are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur, which may cause Twin Butte's actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things, the following: the risks associated with the oil and gas industry; commodity prices; risks associated with the review of Twin Butte's credit facilities; operational risks in exploration; development and production; delays or changes in plans; risks associated with the uncertainty of reserve estimates; health and safety risks, and; the uncertainty of estimates and projections of production, costs and expenses; volatility in market prices for oil and natural gas; general economic conditions in Canada, the U.S. and globally; and the other factors described under "Risk Factors" in Twin Butte's most recently filed Annual Information Form available in Canada at www.sedar.com.
The forward-looking statements contained in this news release speak only as of the date of this news release. Except as expressly required by applicable securities laws, Twin Butte does not undertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.
Barrels of Oil Equivalent
Barrels of oil equivalents (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl (barrel) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, as the value ratio between natural gas and crude oil based on the current prices of natural gas and crude oil is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indicated value.
Funds Flow from Operations
The reader is cautioned that this news release contains the term funds flow from operations, which is not a recognized measure under generally accepted accounting principles ("GAAP") and is a measure that represents the total of cash provided by operating activities, before adjusting for changes in non-cash working capital items and expenditures on decommissioning liabilities. Management uses this measure in order to assist them in understanding Twin Butte's liquidity and its ability to generate funds to finance its operations. The term funds flow from operations or funds flow should not be considered an alternative to, or more meaningful than, cash flow from operating activities as determined in accordance with GAAP as an indicator of the Company's performance. Twin Butte's method of calculating this measure may differ from other companies, and accordingly, may not be comparable to measures used by other companies.
Operating Netback/Field Netback
The reader is also cautioned that this news release contains the terms operating netback and field netback, both of which are not a recognized measure under GAAP. Field netback is calculated as a period's sales of petroleum and natural gas, net of royalties less net production and operating expenses as divided by the period's sales volumes. Operating netback is the field netback, adjusted for commodity hedging gains or losses. Management uses these measures to assist them in understanding Twin Butte's profitability relative to current commodity prices and it provides an analysis tool to benchmark changes in operational performance against prior periods and to peers on a comparable basis. Readers are cautioned, however, that these measures should not be construed as an alternative to other terms such as net income determined in accordance with GAAP as a measure of performance. Twin Butte's method of calculating these measures may differ from other companies, and accordingly, may not be comparable to measures used by other companies.
Net Debt
The reader is cautioned that this news release contains the term net debt, which is not a recognized measure under GAAP and is calculated as bank debt adjusted for working capital excluding mark-to-market derivative contracts. Working capital excluding mark-to-market derivative contracts is calculated as current assets less current liabilities both of which exclude derivative contracts and current liabilities excludes the current portion of debt. Management uses net debt to assist them in understanding Twin Butte's liquidity at specific points in time. Mark-to-market derivative contracts are excluded from working capital, in addition to net debt, as management intends to hold each contract through to maturity of the contract's term as opposed to liquidating each contract's fair value or less. Twin Butte's method of calculating this measure may differ from other companies, and accordingly, may not be comparable to measures used by other companies.
Payout Ratio and Total Payout Ratio
The reader is cautioned that this news release contains the terms payout ratio and total payout ratio which are not recognized measures under GAAP. Payout ratio is calculated as dividends paid and capital expenditures (excluding corporate acquisitions) as a percentage of funds flow from operations. Total Payout Ratio (net of DRIP and SDP) is the Payout ratio, adjusted for dividends paid or reinvested as stock. Twin Butte considers these to be key measures of performance as they demonstrate the Company's ability to generate the cash flow necessary to fund dividends and capital investment and ultimately, satisfy corporate strategy. Twin Butte's method of calculating these measures may differ from other companies, and accordingly, they may not be comparable to measures used by other companies.
Future Oriented Financial Information
This news release, in particular the information in respect of anticipated cash flows, may contain Future Oriented Financial Information ("FOFI") within the meaning of applicable securities laws. The FOFI has been prepared by management of the Company to provide an outlook of the Company's activities and results and may not be appropriate for other purposes. The FOFI has been prepared based on a number of assumptions including the assumptions discussed under the heading "Forward-Looking Statements" and assumptions with respect to production rates and commodity prices. The actual results of operations of the Company and the resulting financial results may vary from the amounts set forth herein, and such variation may be material. The Company and its management believe that the FOFI has been prepared on a reasonable basis, reflecting management's best estimates and judgments.
SOURCE Twin Butte Energy Ltd.
Contact:
Twin Butte Energy Ltd.
Jim Saunders
Chief Executive Officer
Rob Wollmann
President
R. Alan Steele
Vice President Finance, Chief Financial Officer
and Corporate Secretary
Tel: (403) 215-2045
Website: www.twinbutteenergy.com
