CALGARY, Aug. 8, 2019 /CNW/ - (TSX: EGL): Eagle
Energy Inc. ("Eagle") today reports its financial and
operating results for the quarter ended June
30, 2019.
When reflecting on Eagle's second quarter, Wayne Wisniewski, President and Chief Executive
Officer, stated, "Eagle's field netback improved 36% and field
netback per boe improved 24% when compared to the first quarter of
2019. These improvements were a result of increased
production in the Dixonville area,
higher WTI pricing, narrower differentials on the Canadian
properties and decreased operating and transportation costs.
Ongoing steps were taken to reduce general and administrative
expenditures, with staff reductions of 44% since year-end 2018."
Mr. Wisniewski continued, "As stated in previous news releases,
we continue to work with our financial advisors to investigate,
evaluate and consider possible asset sales and restructuring
alternatives. During the quarter, Eagle sold a minor U.S.
royalty interest property for $2.2
million, net proceeds of which were used for general working
capital purposes. We continue to monitor 2019 capital
spending and look at ways to further reduce debt and general and
administrative costs."
Second Quarter 2019 Financial Results
Eagle's unaudited condensed consolidated interim financial
statements and accompanying notes for the three and six months
ended June 30, 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 June
30, 2019
- Closed the sale of minor U.S. royalty assets for proceeds of
$CA 2.2 million and used the proceeds for general working capital
purposes.
- Reduced long term debt by 21% (from $US
38.5 million to $US 30.4
million) from the second quarter of 2018 by using proceeds
from the 2018 third quarter Twining disposition.
- Increased total field netback by 36%, or 24% per barrels of oil
equivalent ("boe"), when compared to the first quarter of
2019.
- Increased revenue by 9% per boe and decreased operating and
transportation expenses by 14% per boe, when compared to the first
quarter of 2019.
- Hedged a combined 675 barrels of oil per day at an average WTI
price of $US 59.62 per barrel for the
period April to September 2019 to
mitigate the risk that fluctuating commodity prices have on
generating positive cash flows from operations.
- Entered into an additional hedge for 200 barrels of oil per day
at a WTI price of $US 60.03 per
barrel for the period of August to December
2019.
- Continued to curtail 2019 capital expenditures to preserve
maximum financial flexibility.
Ongoing Measures to address a Going Concern
Uncertainty
At June 30, 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 $37.3 million.
- Eagle had negative funds flow from operations for the three and
six months ended June 30, 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 June 30,
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.
- During the second quarter, Eagle recorded $1.0 million of finance expense related to the
default interest on the term loan balance for the period of
January 1 to June 30, 2019. Eagle is
currently in discussions with the lender regarding payment terms,
which could include a cash payment to the lender or adding the
amount of the unpaid interest to the outstanding amount of the
loan.
Notwithstanding the defaults, 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.
Field netback for the second quarter of 2019 was $1.0 million above first quarter 2019 levels.
Higher second quarter 2019 field netback was due to the
following:
- Increased overall sales volumes in Dixonville that have now been fully restored
to levels achieved prior to the 2018 selective well shut in
program.
- Higher WTI pricing and lower differentials on the Canadian
properties.
- Reduced field operating expenses.
Eagle has undertaken several cost-cutting measures to reduce
administrative and operating expenses, such as reducing the number
of its staff by 44% since year end 2018, 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 second quarter of
2019, due to lower pricing, increased finance expense and increased
administrative costs associated with severance and retention costs
caused Eagle to be in default of the consolidated fixed charge
coverage ratio covenant under the Loan Agreement. In
addition, when negative funds flow from operations from the second
and first quarters of 2019 were 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.
- On July 15, 2019, Eagle entered
into a fixed price financial swap on 200 barrels of oil per day for
the period of August 1 to December 31,
2019 at a WTI price of $US
60.03 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 44% and decreasing field contractors in the Dixonville area by 25% since year-end
2018.
- 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
|
|
|
Q2/2019
|
Q1/2019
|
Q4/2018
|
Q3/2018
|
Q2/2018
|
Q1/2018
|
Q4/2017
|
Q3/2017
|
($000's except for
boe/d and
per share amounts)
|
|
|
|
|
|
|
|
|
Sales volumes –
boe/d
|
1,664
|
1,542
|
1,852
|
1,958
|
2,262
|
2,974
|
3,804
|
3,749
|
|
|
|
|
|
|
|
|
|
Revenue, net of
royalties
|
6,573
|
5,822
|
5,577
|
9,010
|
10,228
|
12,461
|
14,725
|
12,459
|
per boe
|
43.40
|
41.95
|
32.73
|
50.01
|
49.69
|
46.57
|
42.08
|
36.12
|
|
|
|
|
|
|
|
|
|
Operating,
transportation and
marketing expenses
|
2,943
|
3,150
|
2,730
|
3,946
|
4,206
|
5,109
|
6,864
|
6,301
|
per boe
|
19.43
|
22.69
|
16.02
|
21.91
|
20.43
|
19.10
|
19.61
|
18.27
|
|
|
|
|
|
|
|
|
|
Field
netback(1)
|
3,630
|
2,672
|
2,847
|
5,064
|
6,022
|
7,352
|
7,861
|
6,158
|
per boe
|
23.97
|
19.26
|
16.71
|
28.10
|
29.26
|
27.47
|
22.47
|
17.85
|
|
|
|
|
|
|
|
|
|
Funds flow (used
in)
generated from operations
|
(508)
|
(433)
|
1,062
|
1,622(2)
|
1,932
|
1,718(3)
|
3,488
|
3,346
|
per boe
|
(3.35)
|
(3.11)
|
6.23
|
9.00
|
9.39
|
6.42
|
9.98
|
9.70
|
per share –
basic
|
(0.01)
|
(0.01)
|
0.02
|
0.04
|
0.04
|
0.04
|
0.08
|
0.08
|
per share –
diluted
|
(0.01)
|
(0.01)
|
0.02
|
0.04
|
0.04
|
0.04
|
0.08
|
0.07
|
|
|
|
|
|
|
|
|
|
Loss
|
(205)
|
(2,908)
|
(8,259)
|
(1,887)
|
(15,093)
|
(2,568)
|
(14,293)
|
(4,711)
|
per share –
basic
|
(0.00)
|
(0.07)
|
(0.19)
|
(0.04)
|
(0.34)
|
(0.06)
|
(0.34)
|
(0.11)
|
per share -
diluted
|
(0.00)
|
(0.07)
|
(0.19)
|
(0.04)
|
(0.34)
|
(0.06)
|
(0.34)
|
(0.11)
|
|
|
|
|
|
|
|
|
|
Current
assets
|
8,353
|
7,633
|
7,751
|
13,270
|
10,920
|
14,941
|
13,869
|
11,122
|
Current
liabilities
|
45,610
|
47,809
|
47,769
|
9,686
|
5,762
|
7,528
|
13,715
|
8,042
|
Total
assets
|
136,750
|
138,011
|
136,674
|
141,264
|
159,935
|
174,877
|
207,314
|
213,867
|
Total non-current
liabilities
|
22,529
|
21,083
|
16,658
|
51,886
|
62,427
|
70,870
|
94,312
|
92,367
|
Shareholders'
equity
|
68,611
|
69,119
|
72,247
|
79,692
|
81,709
|
96,479
|
99,287
|
113,458
|
Shares
issued
|
44,879
|
44,244
|
44,244
|
44,244
|
43,750
|
43,750
|
43,302
|
43,302
|
|
(1)
Field netback is a Non-IFRS financial measure.
|
(2) Includes
one-time disposition costs of $0.7 million relating to the Twining
disposition.
|
(3) Includes
one-time disposition costs of $3.4 million relating to the Salt
Flat disposition
|
For the three months ended June 30,
2019, sales volumes were higher than the previous quarter
due to increased production in the Dixonville area as a result of restoring
production after the selective well shut-in program late in the
fourth quarter of 2018. Production is down from previous
quarters in 2018 and 2017 primarily due to the effect of the
Salt Flat disposition in
February 2018 and the Twining
disposition in August 2018.
Second quarter 2019 field netback per boe basis increased 24%
from the first quarter of 2019 due to higher commodity prices and
narrower oil price differentials on Canadian production, as well as
lower operating costs.
Second quarter 2019 funds flow from operations decreased by 17%
from the first quarter of 2019 primarily due to the addition of a
5% default interest charge of $1.0
million on the outstanding debt that was recorded in the
second quarter of 2019 for the period of January 1 to June 30, 2019, which was offset by a
higher field netback. Administrative expenses remained consistent
with the first quarter of 2019 with $0.5
million of severance and retention costs in the second
quarter of 2019 and $0.8 million in
the first quarter of 2019. The second quarter of 2019
includes a realized risk management loss of $0.02 million ($nil in the first quarter of
2019).
Changes in earnings (loss) 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, or extraordinary items that factor into the
calculation of earnings (loss), and those that are required to be
fair valued at each quarter end. The second quarter of 2019
statement of earnings (loss) includes a $2.2
million gain on the disposition of a royalty interest asset
located in the United States that
is not included in funds flow from operations.
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 and are calculated as described under the heading
"Liquidity and Capital Resources" in the MD&A.
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 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;
- 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 the 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 ability to continue as a
going concern, 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 whether the lender exercises its right and remedies
under the Loan Agreement, 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.