CALGARY, May 25, 2016 /CNW/ - Toro Oil & Gas Ltd.
(TSXV: TOO) ("Toro" or the "Company") announces its
financial and operating results for the three month period ended
March 31, 2016. Selected
financial and operational information is set out below and should
be read in conjunction with Toro's March 31,
2016 interim financial statements and the related
management's discussion and analysis, which are available for
review at www.sedar.com or the Company's website at
www.torooil.com.
First Quarter 2016 Financial and Operational
Highlights
- Averaged 873 boe/d in production during Q1 2016, of which 63%
represents oil and liquids compared to 561 boe/d of production in
Q1 2015 and 903 boe/d in Q4 2015. Toro achieved a production
per share growth of 49% as compared to Q1 2015;
- As a result of severely low commodity prices, Toro elected not
to perform any drilling or significant capital operations in the
first half 2016 in an effort to preserve capital. Toro did
however remain active in seeking opportunities to creatively add to
our asset and inventory base via ongoing efforts to pursue both
complementary tuck-in and larger strategic acquisitions;
- Significantly reduced operating costs, excluding
transportation, by 30% in Q1 2016 as compared to Q4 2015. Q1
2016 operating costs equated to $18.02 per boe, largely stemming from the removal
of rental production equipment, more efficient fluid handling
procedures and right-sizing field staff and equipment based on
current operations. Toro looks to improve per unit operating
cost efficiencies through further cost reduction and optimization
initiatives as well as through increased production from future
drilling programs;
- Reduced general and administrative ("G&A") expenses on a
per unit basis and prior to recoveries and capitalization, to
$10.70 per boe in Q1 2016, compared
to $12.94 per boe and $27.83 per boe for Q4 2015 and Q1 2015,
respectively. This represents a 17% and 62% decrease to the
corresponding periods. Toro has undertaken measured steps to
reduce this aspect of the Company's cost structure in an overall
effort to enhance its cash flow generating capabilities;
- Announced 2015 year-end reserves during the quarter which
highlighted a 106% increase in Proved Developed Producing ("PDP")
Reserves to 1.8 MMboe (67% liquids) and a 139% increase in Total
Proved plus Probable ("2P") reserves to 5.7 MMboe (72%
liquids). Toro's reserve report news release dated
March 3, 2016 also highlighted
industry competitive finding development & acquisition costs of
$16.08 per boe on a 2P basis.
Financial Results
(CAD$ thousands
unless otherwise specified)
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Three months ended
March 31,
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2016
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2015
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% Change
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Operational
Performance
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Production
Volumes
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Oil and NGLs
(bbls/d)
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554
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266
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108%
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Natural gas
(mcf/d)
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1,914
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1,772
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8%
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Oil equivalent
(boe/d)
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873
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561
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56%
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Financial
Performance
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Production revenue
(1)
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2,075
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1,724
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20%
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Net comprehensive
loss
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(1,869)
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(4,392)
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(57%)
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Per share - basic and
diluted
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(0.03)
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(0.08)
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(59%)
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Cash flow used in
operations(2)
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(416)
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(214)
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94%
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Per share - basic and
diluted
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(0.01)
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-
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nmf(4)
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Realized Sales
Prices
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Oil and NGLs
($/bbl)
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34.70
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51.97
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(33%)
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Natural Gas
($/mcf)
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1.87
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3.02
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(38%)
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Oil Equivalent
($/boe)
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26.12
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34.14
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(23%)
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Netback
($/boe)
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Realized sales
price
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26.12
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34.14
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(23%)
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Royalties
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(4.63)
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(4.70)
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(2%)
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Production
expenses
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(18.02)
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(19.27)
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(7%)
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Transportation
expenses
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(2.96)
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(2.55)
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16%
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Operating netback
($/boe) (2)
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0.51
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7.62
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(93%)
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General and
administrative
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(8.74)
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(26.93)
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(68%)
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Interest and other
income
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0.20
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0.82
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(76%)
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Cash netback
($/boe)
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(8.03)
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(18.49)
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(57%)
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Capital
expenditures
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Capital
expenditures
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434
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900
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(52%)
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Net acquisitions
(dispositions) (3)
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-
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2,459
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nmf(4)
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Total capital
expenditures
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434
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3,359
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(87%)
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Liquidity
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Net debt (surplus)
(2)
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7,062
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(4,236)
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nmf(4)
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Bank facility -
undrawn portion
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18,803
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25,000
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(25%)
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Weighted average
shares outstanding
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Basic
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56,926,832
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54,403,192
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5%
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Diluted
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56,926,832
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54,403,192
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5%
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(1)Production revenue is presented gross
of royalties
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(2)Cash
flow used in operations, operating netback and net debt (surplus)
are non-IFRS measures. See "Non-IFRS Measures".
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(3)Represents the cash expenditure
(proceeds) from the acquisition (sale) of assets, as
applicable.
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(4)No
meaningful figure.
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Operational and Corporate Update
During the first quarter of 2016, Toro continued to achieve
efficiencies in the cost structure of its operations. As
previously communicated, Toro utilized rental equipment rather than
more permanent and cost efficient capital items until such time
that reliable production data was obtained from Toro's 2015
drilling campaigns. Towards the end of the fourth quarter of
2015 and into the first quarter of 2016, most of the rental fleet
had been replaced with Toro owned capital equipment. These
expenditures were funded in part by cash on hand and utilization of
the existing credit facilities. Through these efforts,
material reductions in operating costs per unit were achieved
during the quarter with average operating costs for Q1 2016
equating to $18.02 per boe as
compared to $25.68 per boe for Q4
2015, representing a 30 per cent decrease. Toro continues to
review the entire cost structure of the business in a concerted
effort to enhance its cash flow generating capabilities during the
current volatile commodity price environment. Having now
conducted operations in the Viking fairly for over a year, future
drilling programs and the operating costs thereto, can be
incrementally absorbed into the existing cost structure with
marginal increases thereby providing torque to an investment in
Toro upon a sustained recovery of commodity prices and more
customary access to the capital markets.
Production for the quarter averaged 873 boe/d which represents a
56 per cent increase compared to Q1 2015 while only a three per
cent decrease from Q4 2015. Oil and liquids sales represented
approximately 63 per cent of the total sales mix. Production
performance from Viking wells primarily in the Hamilton Lake area
continued to improve as Toro solved some of the sand challenges
associated with a highly permeable reservoir, offset by natural
declines associated with Toro's broader production base.
Toro's 2015 drilling programs have now provided reliable production
results which the Company believes sets the stage favourably for
future drilling programs on its Viking acreage, estimated at over
600 future drilling locations. However, given the current
commodity price environment, subsequent to the end of the first
quarter Toro chose to temporarily shut-in uneconomic producing
wells which served to protect bottom line cash flow. In
total, this represented approximately 70 boe/d.
Also noteworthy is that Toro has accumulated approximately six
months of production data from its first and second phase 2015
drilling programs. The Company is pleased to report the
average normalized Hamilton Lake Viking production over this period
is consistent with the Hamilton Lake production type curve
assumption used by Toro's independent reserve evaluator, Sproule
Associates Limited. ("Sproule") This positive
development provides additional confidence to Toro in planning and
conducting future drilling programs which are anticipated to drive
superior economics in an appreciating commodity price
environment. Secondly, a high correlation to the Sproule type
curve further validates volume conclusions as assessed in the
December 31, 2015 Sproule reserve
report. Production type curves used by Sproule for Hamilton
Lake Viking locations exceed those type curves utilized by Sproule
in assessing Viking resource bases in Saskatchewan pertaining both to initial
production rates and estimated ultimate recovery. This
is largely a function of superior reservoir qualities. With
only 45 proven and probable undeveloped locations included in the
December 2015 Sproule report out of
the over 600 low and moderate risk locations estimated by Toro on
its Viking acreage holdings, Toro anticipates material reserve
additions in subsequent years upon successful execution of future
drilling programs which will, among other positive attributes,
enhance cash flows, increase reserve based lending assessments and
drive overall corporate valuation.
Liquidity Update
During the quarter and stemming from a combination of factors
including but not limited to, funding recent acquisitions and its
fourth quarter drilling and completion program, purchasing
production facility equipment as highlighted above and weak
commodity prices, Toro accessed its existing operating credit
facility which prior to that point remained essentially
undrawn. As at March 31, 2016,
approximately $6.2 million was drawn
under the operating facility. Although no formal decision has
been made by Toro's lender on the size of the operating credit
facility, as part of its ongoing semi-annual review Toro has been
advised verbally subsequent to the end of the quarter that the
$18 million development facility will
no longer be available to Toro. Toro was informed that this
decision is industry pervasive as opposed to specific to
Toro. Despite the ability to access this portion of the
overall facility previously, Toro did not once utilize the
development facility nor did Toro consider its use in the Company's
longer-term capital budgeting. With respect to the operating
facility, Toro's overall draw on this portion remains below the
previously approved $7 million
limit. However, Toro is proactively working with its lender
to ensure remaining amounts drawn, if any, would be in compliance
with soon to be established reduced levels based on revised lower
commodity pricing. Secondly, Toro's working capital covenant
under the current operating credit facility must be maintained at a
ratio of 1:1. As at March 31,
2016 Toro's ratio equated to 0.94:1 which is marginally
below the requirement. As part of the Company's ongoing
discussions with its lender, a waiver in respect of this quarter's
covenant has been requested. The Company anticipates to be in
compliance in future quarters as a result of one or more short term
solutions currently being considered. Toro considers the
extent of leverage in the Company at this point to be manageable
and intends to modify the capital structure to better build the
business in light of the current volatile commodity price
environment.
Corporate Strategy Update
Toro's corporate strategy has remained steadfast since
inception. Control of a high quality resource is fundamental
to weathering volatile commodity cycles. Further, during a
period of modest activity over the last six months, the Company's
concentration on cost mitigation and control has produced positive
results. With those key themes and/or initiatives in mind,
Toro intends to drive the business forward by executing on a four
point strategy as follows:
- Position the Company for positive cash flow netbacks through
continued cost reductions and a return to more constructive
commodity markets, which has already been experienced to some
extent during the initial stages of the second quarter of
2016;
- Conduct an anticipated second half 2016 drilling program,
contingent on a return and sustained recovery of commodity prices,
to bolster corporate production thereby providing further evidence
of a best in class Viking resource play;
- Implement a prudent hedging program to protect against
unanticipated future downturns of commodity prices to ensure the
sustainability of the business; and
- Scope the marketplace for opportunistic and strategic
acquisition targets to enhance the scale and cash flow of the
Company.
Other Corporate Matters
Toro also announces the issuance of approximately 551,000 common
shares of the Company to management, employees and directors in
satisfaction of cash entitlements otherwise due to such
individuals. In a continuing effort to reduce the cost
structure, Toro reduced its operating personnel subsequent to the
end of the quarter and as previously disclosed, all employees have
taken salary reductions, in the case of senior management up to 40
per cent. These measures were considered necessary to improve
the Company's G&A cost structure. Shares issued represent
a portion of the salary relinquished by management, employees and
directors. Shares issued will be subject to a four month hold
period and will increase management and director ownership of the
total outstanding shares to 23 per cent. The Company retained
its key technical and senior management team which based on present
activity levels allows Toro to remain fully operational and fulfill
all corporate responsibilities. This share issuance has been
conditionally approved by the TSX Venture Exchange.
About Toro Oil & Gas Ltd.
Toro is a junior oil and gas energy company listed on the TSX
Venture Exchange. Toro is focused on acquiring, developing
and exploiting large oil in place pools within the
Alberta-Saskatchewan Viking light oil fairway. Toro intends to grow
by way of organic development and strategic acquisitions while
maintaining strict financial discipline to maximize shareholder
return.
Abbreviations
bbls
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barrels
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bbls/d
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barrels per
day
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boe
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barrels of oil
equivalent
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boe/d
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barrels of oil
equivalent per day
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mcf
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thousand cubic
feet
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mcf/d
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thousand cubic feet
per day
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Forward-Looking Information
The reader is advised that some of the information contained
herein may constitute forward-looking information within the
meaning of National Instrument 51-102 and other relevant securities
legislation. Forward-looking information contained herein includes,
but is not limited to, anticipated future capital efficiencies, the
expected reduction in per unit operating costs, forecasted future
operating costs per unit, Toro's ability to maintain compliance
with covenants under its existing credit facilities, the continued
availability of Toro's existing credit facilities, future drilling
programs, future hedging programs and Toro's future liquidity and
funding sources. Such forward-looking information is based on
the Company's current expectations regarding its future business
and reflects management's current beliefs and assumptions based on
information currently available to them. Statements relating to
"reserves" are also deemed to be forward-looking statements, as
they involve the implied assessment, based on certain estimates and
assumptions, that the reserves described exist in the quantities
predicted or estimated and that the reserves can be profitably
produced in the future. Actual results may vary from
forward-looking information and readers are cautioned not to place
undue reliance on forward-looking information. The forward-looking
information contained in this press release is presented as of the
date hereof and the Company does not undertake any obligation to
release publicly any revisions to forward-looking information
contained herein to reflect events or circumstances that occur
after the date hereof or to reflect the occurrence of unanticipated
events, except as may be required under applicable securities
laws.
Forward-looking information involves significant known and
unknown risks and uncertainties. A number of factors could cause
actual results to differ materially from the results discussed in
the forward-looking information including risks associated with the
impact of general economic conditions, industry conditions,
governmental regulation, volatility of commodity prices, currency
fluctuations, imprecision of reserve and resource estimates,
environmental risks, competition from other industry participants,
the lack of availability of qualified personnel or management,
stock market volatility and the Company's ability to access
sufficient capital from internal and external sources. Additional
risks and uncertainties are described in the Company's Annual
Information Form dated March 31, 2016
which is filed under the Company's SEDAR profile at
www.sedar.com.
Non-IFRS Measures
This press release provides certain financial measures that
do not have a standardized meaning prescribed by IFRS. These
non-IFRS financial measures may not be comparable to similar
measures presented by other issuers. Cash flow from (used in)
operations, operating netback and net debt (surplus) are not
recognized measures under IFRS. Management believes that in
addition to net income (loss), cash flow from operations, operating
netback and net debt (surplus) are useful supplemental measures
that demonstrate the Company's ability to generate the cash
necessary to repay debt or fund future capital investment.
Investors are cautioned, however, that these measures should not be
construed as an alternative to net income (loss) determined in
accordance with IFRS as an indication of Toro's performance. Toro's
method of calculating these measures may differ from other
companies and accordingly, they may not be comparable to measures
used by other companies. Cash flow from (used in) operations is
calculated by adjusting net income (loss) for other income,
unrealized gains or losses on financial derivative instruments,
transaction costs, accretion, share based compensation, impairment
and depletion and depreciation. Operating netback is calculated
based on oil and gas revenue less royalties, production expenses
and transportation expenses. Net debt (surplus) is the total of
cash plus accounts receivable, prepaids and deposits, less accounts
payable plus bank debt.
51-101 Advisory
In conformity with 51-101, natural gas volumes have been
converted to barrels of oil equivalent ("boe") using a
conversion rate of six thousand cubic feet of natural gas to one
barrel of oil. In certain circumstances, natural gas liquid volumes
have been converted to a thousand cubic feet equivalent
("mcfe") on the basis of one barrel of natural gas liquids
to six thousand cubic feet of gas. Boes and mcfes may be
misleading, particularly if used in isolation. A conversion ratio
of one barrel to six thousand cubic feet of natural gas is based on
an energy equivalency conversion method primarily applicable at the
burner tip and does not represent a value equivalency at the
wellhead. Given that the value ratio based on the current price of
crude oil as compared to natural gas is significantly different
from the energy equivalency of 6:1, utilizing a conversion ratio on
a 6:1 basis may be misleading as an indication of value.
Estimates of reserves and future net revenue for individual
properties may not reflect the same confidence level as estimates
of reserves and future net revenue for all properties, due to the
effects of aggregation. Estimated values of reserves may or
may not represent the fair market value of the reserve
estimates.
NEITHER THE TSX VENTURE EXCHANGE NOR ITS REGULATION SERVICES
PROVIDER (AS THAT TERM IS DEFINED IN THE POLICIES OF THE TSX
VENTURE EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR
ACCURACY OF THIS RELEASE.
SOURCE Toro Oil & Gas Ltd