CALGARY, May 9, 2019 /CNW/ - (TSX: EGL): Eagle
Energy Inc. ("Eagle") today reports its financial and
operating results for the quarter ended March 31, 2019.
As a reminder, Eagle's annual meeting will be held on
June 18, 2019 at 9:00 a.m. at Altius Centre, 2nd Floor,
500 - 4 Avenue SW, Calgary for
shareholders of record on May 7,
2019.
When reflecting on Eagle's first quarter, Wayne Wisniewski, President and Chief Executive
Officer, stated, "We are fortunate in that WTI has increased and
Canadian oil differentials have narrowed during the first quarter.
This has lifted us from the lows of December 2018, when depressed WTI prices and
historically high Canadian oil differentials resulted in our
Dixonville field revenue being
just over four dollars per barrel.
Eagle saw a 15% netback per boe improvement from the fourth
quarter of 2018 and we have restored Dixonville production levels to increase field
level cash flow. We continue to evaluate exposure to market
risks from fluctuations in commodity prices and have entered into
hedging contracts to reduce the risk that commodity prices pose to
our corporate cash flow."
Mr. Wisniewski continued, "We continue to work with our
financial advisors to investigate, evaluate and consider possible
asset sales and restructuring alternatives, have curtailed 2019
capital spending and continue to look at ways to further reduce
debt, general and administrative costs and finance costs."
First Quarter 2019 Financial Results
Eagle's unaudited condensed consolidated interim financial
statements and accompanying notes for the three months ended
March 31, 2019 and related
management's discussion and analysis ("MD&A") have been
filed with the securities regulators and are available online under
Eagle's issuer profile at www.sedar.com and on Eagle's website at
www.EagleEnergy.com.
This news release contains non-IFRS financial measures and
statements that are forward-looking. Investors should read
"Non-IFRS Financial Measures" and "Note about Forward-looking
Statements" near the end of this news release. Figures within
this news release are presented in Canadian dollars unless
otherwise indicated.
Review of the Three Months ended March
31, 2019
- Reduced long term debt by 21% (from $US
38.5 million to $US 30.4
million) from the first quarter of 2018 using proceeds from
the 2018 third quarter Twining area disposition.
- Reduced finance expense by 32% from the first quarter of 2018
(excluding costs associated with the disposition).
- Increased field netback per boe by 15% when compared to the
fourth quarter of 2018 when Alberta oil price differentials were
historically wide.
- Continued to reduce expenses by trimming corporate office staff
by 20% and decreasing field contractors in the Dixonville area by 25%.
- Hedged a combined 675 barrels of oil per day at an average WTI
price of $US 59.62 per barrel for the
April through September 2019 period
to mitigate the risk that fluctuating commodity prices have on
generating positive cash flows from operations.
- Curtailed 2019 capital expenditures to preserve maximum
financial flexibility.
Ongoing Measures to address a Going Concern
Uncertainty
At March 31, 2019, the following
circumstances cause material uncertainties that may cast
significant doubt regarding Eagle's ability to continue as a going
concern:
- Eagle had a working capital deficiency of $40.2 million.
- Eagle had negative funds flow from operations for the three
months ended March 31, 2019.
- Eagle's estimate of future cash flows from operating activities
over the next twelve months is not sufficient to repay the loan
principal which is classified as a current liability.
- Eagle was in default of two of its four financial covenants
under the four-year secured term loan from its U.S.-based lender
(the "Loan Agreement") at March 31,
2019. Violation of any financial covenant constitutes an
immediate event of default under the Loan Agreement. As a result,
Eagle's debt continues to be classified as a current liability.
- There is no assurance that Eagle will not be in violation of
one or more financial covenants in future quarters.
Notwithstanding the default, the lender has not, as of the date
hereof, exercised any of its available remedies. However,
there can be no assurance that it will not do so in the
future.
Funds flow from operations for the first quarter of 2019 was
$1.5 million below fourth quarter
2018 levels despite lower quarter-over-quarter administrative and
finance expenses. Lower first quarter 2019 funds flow from
operations was due to the following:
- Lower overall sales volumes. Dixonville production was not yet fully
restored after the well shut-in program was implemented in the
fourth quarter of 2018 in response to low commodity prices. In
addition, North Texas production
was reduced when a significant well was temporarily shut in for
repairs.
- Higher field operating expenses. This was as a result of both
the additional field expenses at Dixonville to restore shut-in production and
the additional costs to repair the well in North Texas.
- One-time charges. A total of $0.8
million related to one-time severance and retention costs
went through first quarter 2019 general and administrative
expenses.
- A realized hedging gain in the fourth quarter of 2018. Fourth
quarter 2018 funds flow from operations included a $1.3 million realized risk management gain from
commodity hedging, while there was no comparable amount during the
first quarter of 2019 because Eagle had no 2019 commodity hedges in
effect until April 2019.
Eagle has undertaken several cost-cutting measures to reduce
administrative and operating expenses, such as reducing its staff
headcount, reducing its number of contractors, negotiating better
pricing with contractors and listing its Calgary and Houston office space for sublease. Eagle
continues to evaluate exposure to market risks from fluctuations in
commodity prices and has entered into risk management contracts to
reduce commodity price risks. Eagle has curtailed capital
spending for 2019. Eagle also continues to work with its
financial advisors to investigate, evaluate and consider possible
asset sales and restructuring alternatives.
Negative funds flow from operations in the first quarter of 2019
due to lower production and higher operating costs caused Eagle to
be in default of the Consolidated Fixed Charge Coverage Ratio
covenant under the Loan Agreement. In addition, when first
quarter 2019 negative funds flow from operations was combined with
low WTI oil prices and historically wide Alberta oil price differentials during the
fourth quarter of 2018, Eagle was also in default of the
Consolidated Leverage Ratio covenant, which is a trailing four
quarters based calculation.
Eagle's ability to meet its ongoing financial liabilities,
including liabilities relating to the Loan Agreement, and to
continue as a going concern, is dependent upon the ongoing support
from its lender and its ability to fund the repayment of its debt
by generating positive cash flows from operations, securing funding
from additional debt or equity financing, disposing of assets or
making other arrangements. There is no certainty that such
initiatives will be successful.
During 2019, Eagle has undertaken the following:
- On March 12, 2019, Eagle entered
into a fixed price financial swap on 450 barrels of oil per day for
the period of April 1 to September 30,
2019 at a WTI price of $US
57.81 per barrel in order to mitigate the risk that
fluctuating commodity prices have on generating positive cash flows
from operations.
- On April 8, 2019, Eagle entered
into a fixed price financial swap on 225 barrels of oil per day for
the period of April 1 to September 30,
2019 at a WTI price of $US
63.23 per barrel in order to mitigate the risk that
fluctuating commodity prices has on generating positive cash flows
from operations.
- Continued to reduce expenses by trimming corporate office staff
by 20% and decreasing field contractors in the Dixonville area by 25%.
- Given the improvement in commodity prices since the end of
2018, Eagle's ongoing work with its financial advisors in
investigating, evaluating and considering possible asset sales and
restructuring alternatives, Eagle made the decision to forego
entering into another forbearance agreement (upon the January 31, 2019 expiry of the initial
forbearance agreement) with its lender. Eagle felt this afforded it
the maximum flexibility to manage its business and avoided
incurring additional fees and conditions associated with a
forbearance agreement.
Summary of Quarterly Results
|
|
|
|
|
|
|
|
|
|
Q1/2019
|
Q4/2018
|
Q3/2018
|
Q2/2018
|
Q1/2018
|
Q4/2017
|
Q3/2017
|
Q2/2017
|
($000's except for
boe/d and
per share amounts)
|
|
|
|
|
|
|
|
|
Sales volumes –
boe/d
|
1,542
|
1,852
|
1,958
|
2,262
|
2,974
|
3,804
|
3,749
|
3,966
|
|
|
|
|
|
|
|
|
|
Revenue, net of
royalties
|
5,822
|
5,577
|
9,010
|
10,228
|
12,461
|
14,725
|
12,459
|
14,167
|
per boe
|
41.95
|
32.73
|
50.01
|
49.69
|
46.57
|
42.08
|
36.12
|
39.25
|
|
|
|
|
|
|
|
|
|
Operating,
transportation and
marketing expenses
|
3,150
|
2,730
|
3,946
|
4,206
|
5,109
|
6,864
|
6,301
|
5,885
|
per boe
|
22.69
|
16.02
|
21.91
|
20.43
|
19.10
|
19.61
|
18.27
|
16.31
|
|
|
|
|
|
|
|
|
|
Field
netback
|
2,672
|
2,847
|
5,064
|
6,022
|
7,352
|
7,861
|
6,158
|
8,282
|
per boe
|
19.25
|
16.71
|
28.10
|
29.26
|
27.47
|
22.47
|
17.85
|
22.94
|
|
|
|
|
|
|
|
|
|
Funds flow from
operations
|
(433)
|
1,062
|
1,622(2)
|
1,932
|
1,718(3)
|
3,488
|
3,346
|
4,272
|
per boe
|
(3.12)
|
6.23
|
9.00
|
9.39
|
6.42
|
9.98
|
9.70
|
11.84
|
per share –
basic
|
(0.01)
|
0.02
|
0.04
|
0.04
|
0.04
|
0.08
|
0.08
|
0.10
|
per share –
diluted
|
(0.01)
|
0.02
|
0.04
|
0.04
|
0.04
|
0.08
|
0.07
|
0.10
|
|
|
|
|
|
|
|
|
|
(Loss)
earnings
|
(2,908)
|
(8,259)
|
(1,887)
|
(15,093)
|
(2,568)
|
(14,293)
|
(4,711)
|
675
|
per share –
basic
|
(0.07)
|
(0.19)
|
(0.04)
|
(0.34)
|
(0.06)
|
(0.34)
|
(0.11)
|
0.02
|
per share -
diluted
|
(0.07)
|
(0.19)
|
(0.04)
|
(0.34)
|
(0.06)
|
(0.34)
|
(0.11)
|
0.02
|
|
|
|
|
|
|
|
|
|
Current
assets
|
7,633
|
7,751
|
13,270
|
10,920
|
14,941
|
13,869
|
11,122
|
11,847
|
Current
liabilities
|
47,809
|
47,769
|
9,686
|
5,762
|
7,528
|
13,715
|
8,042
|
6,599
|
Total
assets
|
138,011
|
136,674
|
141,264
|
159,935
|
174,877
|
207,314
|
213,867
|
222,155
|
Total non-current
liabilities
|
21,083
|
16,658
|
51,886
|
62,427
|
70,870
|
94,312
|
92,367
|
97,086
|
Shareholders'
equity
|
69,119
|
72,247
|
79,692
|
81,709
|
96,479
|
99,287
|
113,458
|
118,470
|
Shares
issued
|
44,244
|
44,244
|
44,244
|
43,750
|
43,750
|
43,302
|
43,302
|
42,857
|
For the three months ended March 31,
2019, sales volumes were lower than the previous quarter due
to the selective well shut in program in Dixonville and a significant well in
North Texas being shut-in for
repairs for a portion of the quarter. Production is down from
previous quarters due to the sale of Salt
Flat in February 2018 and
Twining in August 2018.
First quarter 2019 field netback per boe increased 15% from the
fourth quarter of 2018. This increase was due to significantly
improved pricing on Canadian production being partially offset by
higher per boe operating expenses resulting from a North Texas well repair and costs incurred to
restore Dixonville production to
the level it was at prior to the selective well shut in program
that was implemented in response to low fourth quarter 2018 oil
prices.
First quarter 2019 funds flow from operations was negative, and
$1.5 million below the fourth quarter
of 2018. This was primarily due to a $1.3
million risk management gain realized in the fourth quarter
of 2018. In addition, lower 2019 first quarter funds flow was due
to lower overall sales volumes (Dixonville production was not yet fully
restored after the well shut-in program in response to low
commodity prices and North Texas
production was reduced when a significant well was temporarily shut
in for repairs), higher operating expenses (as a result of both the
additional field expenses at Dixonville to restore shut-in production and
the additional costs to repair the well in North Texas) and one-time charges of
$0.8 million related to severance and
retention costs. Despite a 17% decrease in volumes and higher total
operating costs when compared to the fourth quarter of 2018, first
quarter 2019 total field netback only decreased by 6% due to higher
realized pricing on Canadian properties.
Changes in (loss) earnings from one quarter to the next often do
not move directionally or by the same amount as quarterly changes
in funds flow from operations. This is due to items of a
non-cash nature that factor into the calculation of (loss)
earnings, and those that are required to be fair valued at each
quarter end. First quarter 2019 funds flow from operations
was 141% less than the fourth quarter of 2018, yet first quarter
2019 net income was only 65% less than the fourth quarter of 2018.
This was primarily due to a $5.3
million non-cash impairment expense relating to the
Dixonville oil and gas properties
that was recognized in the fourth quarter of 2018.
Non-IFRS Financial Measures
Statements throughout this news release make reference to the
terms "field netback", "Consolidated Leverage Ratio" and
"Consolidated Fixed Charge Ratio", which are non-IFRS financial
measures that do not have a standardized meaning prescribed by IFRS
and may not be comparable to similar measures presented by other
issuers.
"Field netback" is calculated by subtracting royalties,
operating expenses, and transportation and marketing expenses from
revenues. This method of calculating field netback is in
accordance with the standards set out in the Canadian Oil and Gas
Evaluation Handbook maintained by the Society of Petroleum
Evaluation Engineers (Calgary Chapter). Management believes
that field netback provides useful information to investors and
management because such a measure reflects the quality of
production and the level of profitability.
The terms "Consolidated Leverage Ratio" and "Consolidated Fixed
Charge Ratio" are used for purposes of covenant calculations in the
Loan Agreement. Refer to the section titled "Loan Agreement"
in Eagle's MD&A for a description of how these covenants are
calculated.
Note about Forward-Looking Statements
Certain of the statements made and information contained in this
news release are forward-looking statements and forward-looking
information (collectively referred to as "forward-looking
statements") within the meaning of Canadian securities
laws. All statements other than statements of historic fact
are forward-looking statements. Eagle cautions investors that
important factors could cause Eagle's actual results to differ
materially from those projected, or set out, in any forward-looking
statements included in this news release.
In particular, and without limitation, this news release
contains forward-looking statements pertaining to the
following:
- Eagle's intentions to continue to work with financial advisors
to investigate, evaluate and consider possible asset sales and
restructuring alternatives, curtailing of 2019 capital spending and
continuing to look at ways to further reduce debt, general and
administrative costs and finance costs;
- Eagle's expectations regarding its ability to meet its ongoing
financial liabilities, including liabilities relating to the Loan
Agreement, and to continue as a going concern being dependent upon
the ongoing support from its lender and its ability to fund the
repayment of its debt by generating positive cash flows from
operations, securing funding from additional debt or equity
financing, disposing of assets or making other arrangements;
- Eagle's intentions to reduce debt and corporate costs,
including interest costs;
- Eagle's hedging program;
- Eagle's expectation that its future cash flows from operating
activities over the next 12 months is not sufficient to repay the
loan principal; and
- the possibility of Eagle's lender exercising its remedies under
the Loan Agreement in the future.
With respect to forward-looking statements contained in this
news release, assumptions have been made regarding, among other
things:
- future crude oil, NGL and natural gas prices, differentials and
weighting;
- future foreign exchange and interest rates;
- future production levels;
- future capital expenditures and the ability of Eagle to obtain
financing on acceptable terms;
- future production estimates;
- projected operating costs, which are estimated based on
historical information and anticipated changes in the cost of
equipment and services, among other things; and
- ongoing support of Eagle by its lender.
Eagle's actual results could differ materially from those
anticipated in these forward-looking statements as a result of the
risk factors set forth below and those in Eagle's annual
information form dated March 21,
2019:
- the exercise by Eagle's lender of its rights and remedies under
the Loan Agreement as a result of Eagle not being in compliance
with all of the covenants under the Loan Agreement;
- volatility of prices and differentials for crude oil, NGLs and
natural gas;
- commodity supply and demand;
- fluctuations in foreign exchange and interest rates;
- inherent risks and changes in costs associated with the
development of petroleum properties;
- ultimate recoverability of reserves;
- timing, results and costs of drilling and production
activities;
- availability and terms of financing and capital; and
- new regulations and legislation that apply to the operations of
Eagle and its subsidiaries.
As a result of these risks, actual performance and financial
results in 2019 may differ materially from any projections of
future performance or results expressed or implied by these
forward‐looking statements. Eagle's production rates,
operating and general and administrative costs, field netbacks,
drilling program, capital budget, reserves and potential
transactions are subject to change in light of ongoing results,
prevailing economic circumstances, obtaining regulatory approvals,
commodity prices, exchange rates, financing terms, and industry
conditions and regulations. New factors emerge from time to
time, and it is not possible for management to predict all of these
factors or to assess, in advance, the impact of each such factor on
Eagle's business, or the extent to which any factor, or combination
of factors, may cause actual results to differ materially from
those contained in any forward-looking statement.
Undue reliance should not be placed on forward-looking
statements, which are inherently uncertain, are based on estimates
and assumptions, and are subject to known and unknown risks and
uncertainties (both general and specific) that contribute to the
possibility that the future events or circumstances contemplated by
the forward-looking statements will not occur. Although
management believes that the expectations conveyed by the
forward-looking statements are reasonable based on information
available to it on the date the forward-looking statements were
made, there can be no assurance that the plans, intentions or
expectations upon which forward-looking statements are based will
in fact be realized. Actual results will differ, and the
difference may be material and adverse to Eagle and its
shareholders. These statements speak only as of the date
of this news release and may not be appropriate for other
purposes. Eagle does not undertake any obligation, except as
required by applicable securities legislation, to update publicly
or to revise any of the included forward-looking statements,
whether as a result of new information, future events or
otherwise.
Note Regarding Barrel of Oil Equivalency
This news release contains disclosure expressed as "boe" or
"boe/d". All oil and natural gas equivalency volumes have
been derived using the conversion ratio of six thousand cubic feet
("Mcf") of natural gas to one barrel ("bbl") of oil.
Equivalency measures may be misleading, particularly if used in
isolation. A conversion ratio of 6 Mcf:1 bbl is based on an
energy equivalency conversion method primarily applicable at the
burner tip and does not represent a value equivalency at the well
head. In addition, given that the value ratio based on the
current price of oil as compared to natural gas is significantly
different from the energy equivalent of six to one, utilizing a boe
conversion ratio of 6 Mcf:1 bbl would be misleading as an
indication of value.
About Eagle Energy Inc.
Eagle is an oil and gas corporation with shares listed for
trading on the Toronto Stock Exchange under the symbol "EGL".
All material information about Eagle may be found on its website
at www.EagleEnergy.com or under Eagle's issuer profile at
www.sedar.com.
SOURCE Eagle Energy Inc.