Delphi Energy Corp. (“Delphi” or the “Company”) is pleased to
announce its financial and operational results for the quarter
ended September 30, 2017.
A photo accompanying this announcement is available at
http://www.globenewswire.com/NewsRoom/AttachmentNg/a18f72e7-0a6f-446d-b086-224cc2bd70ea
Third Quarter 2017 Highlights
- Drilled four successful delineation wells and one successful
in-fill well in the Company’s Bigstone Montney property, as part of
a five gross (3.3 net) well drilling program;
- Produced 9,313 barrels of oil equivalent per day (“boe/d”), a
13 percent increase over the comparative quarter in
2016;
- Realized a natural gas price of $3.93 per thousand cubic feet
(“mcf”) compared to an AECO price of $1.46 per mcf as a result of
selling approximately 90 percent of Delphi’s natural gas in the
Chicago market utilizing full-path transportation service on
Alliance and a hedging gain of $0.44 per mcf;
- Commenced expansion of the Company’s water disposal facility to
eliminate or significantly reduce third-party water disposal
fees;
- Reduced operating costs to $8.42 per barrel of oil equivalent
(“boe”), a 34 percent reduction compared to the second quarter of
2017;
- Secured a dedicated condensate delivery point to reduce wait
times, decrease trucking distances and reduce condensate trucking
rates of approximately 40 percent; and
- Maintained a strong financial position with only $18.5 million
(including outstanding letters of credit) drawn on its $80 million
senior secured credit facility with a syndicate of Canadian
banks.
| FINANCIAL HIGHLIGHTS |
|
|
|
|
|
|
|
Three months ended September 30 |
Nine months ended September 30 |
|
|
2017 |
|
2016 |
|
% Change |
2017 |
|
2016 |
|
% Change |
|
Financial |
|
|
|
|
|
|
| ($
thousands, except per share) |
|
|
|
|
|
|
| Oil
and natural gas revenues |
25,107 |
|
20,331 |
|
24 |
|
70,940 |
|
48,589 |
|
46 |
|
|
Adjusted funds from operations(1) |
7,865 |
|
9,403 |
|
(16 |
) |
23,049 |
|
21,745 |
|
6 |
|
|
Per share – basic and diluted(1) |
0.04 |
|
0.06 |
|
(33 |
) |
0.14 |
|
0.14 |
|
- |
|
| Net
earnings (loss) |
(3,741 |
) |
(2,274 |
) |
65 |
|
9,189 |
|
(15,653 |
) |
- |
|
|
Per share – basic and diluted |
(0.02 |
) |
(0.01 |
) |
100 |
|
0.05 |
|
(0.10 |
) |
- |
|
| Net
debt(1) |
105,909 |
|
124,393 |
|
(15 |
) |
105,909 |
|
124,393 |
|
(15 |
) |
|
Capital expenditures, net of dispositions |
22,798 |
|
15,364 |
|
48 |
|
75,659 |
|
27,253 |
|
178 |
|
|
|
|
|
|
|
|
|
|
Weighted average shares (000s) |
|
|
|
|
|
|
|
Basic |
185,383 |
|
155,510 |
|
19 |
|
169,026 |
|
155,510 |
|
9 |
|
|
Diluted |
185,383 |
|
155,510 |
|
19 |
|
170,002 |
|
155,510 |
|
9 |
|
| OPERATIONAL HIGHLIGHTS |
|
|
|
|
|
|
|
Three months ended September 30 |
Nine months ended September 30 |
|
|
2017 |
|
2016 |
|
% Change |
2017 |
|
2016 |
|
% Change |
|
Operating |
|
|
|
|
|
|
| (boe
conversion – 6:1 basis) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production: |
|
|
|
|
|
|
| Field
condensate (bbls/d) |
2,012 |
|
1,667 |
|
21 |
|
1,831 |
|
1,478 |
|
24 |
|
|
Natural gas liquids (bbls/d) |
1,367 |
|
1,251 |
|
9 |
|
1,229 |
|
1,203 |
|
2 |
|
|
Natural gas (mcf/d) |
35,603 |
|
31,923 |
|
12 |
|
29,652 |
|
28,799 |
|
3 |
|
|
Total (Boe/d) |
9,313 |
|
8,239 |
|
13 |
|
8,002 |
|
7,481 |
|
7 |
|
|
|
|
|
|
|
|
|
|
Average realized sales prices, before financial instruments |
|
|
|
|
|
|
|
Field condensate ($/bbl) |
51.08 |
|
49.78 |
|
3 |
|
56.93 |
|
46.05 |
|
24 |
|
|
Natural gas liquids ($/bbl) |
33.11 |
|
19.42 |
|
70 |
|
31.12 |
|
17.55 |
|
77 |
|
|
Natural gas ($/mcf) |
3.49 |
|
3.60 |
|
(3 |
) |
3.93 |
|
3.05 |
|
29 |
|
|
|
|
|
|
|
|
|
|
Netbacks ($/boe) |
|
|
|
|
|
|
| Crude
oil and natural gas revenues |
29.30 |
|
26.81 |
|
9 |
|
32.47 |
|
23.71 |
|
37 |
|
|
Marketing income |
- |
|
- |
|
- |
|
0.47 |
|
- |
|
- |
|
|
Realized gain (loss) on financial instruments |
2.31 |
|
4.84 |
|
(52 |
) |
0.90 |
|
7.65 |
|
(88 |
) |
|
Revenue, after realized financial instruments |
31.61 |
|
31.65 |
|
- |
|
33.84 |
|
31.36 |
|
8 |
|
|
Royalties |
(2.26 |
) |
(3.14 |
) |
(28 |
) |
(2.39 |
) |
(2.69 |
) |
(11 |
) |
|
Operating expense |
(8.42 |
) |
(5.77 |
) |
46 |
|
(9.51 |
) |
(7.10 |
) |
34 |
|
|
Transportation expense |
(7.33 |
) |
(5.43 |
) |
35 |
|
(6.41 |
) |
(5.84 |
) |
10 |
|
|
Operating netback(1) |
13.60 |
|
17.31 |
|
(21 |
) |
15.53 |
|
15.73 |
|
(1 |
) |
|
General and administrative expenses |
(1.33 |
) |
(1.69 |
) |
(21 |
) |
(1.89 |
) |
(2.09 |
) |
(10 |
) |
| Paid
out restricted share units |
- |
|
(0.13 |
) |
- |
|
- |
|
(0.14 |
) |
- |
|
|
Interest |
(3.09 |
) |
(3.08 |
) |
- |
|
(3.10 |
) |
(2.89 |
) |
7 |
|
|
Cash netback (1) |
9.18 |
|
12.41 |
|
(26 |
) |
10.54 |
|
10.61 |
|
(1 |
) |
(1) Refer to non-GAPP measures
MESSAGE TO SHAREHOLDERS
Delphi continued to successfully execute its
2017 capital program in the third quarter with an emphasis on
delineation drilling. The Company drilled four successful
delineation wells as part of a five gross (3.3 net) well program
thereby de-risking a significant portion of the Company’s 167.5
sections of Montney lands. Including the 13 gross (8.4 net)
wells drilled in the nine months of 2017, Delphi is on track to
drill a total of 17 gross wells and complete 15 gross wells in
2017.
Production in the quarter averaged 9,313 boe/d
representing an increase of 13 percent over the comparative period
in 2016 though production was negatively impacted by weather
related delays in drilling and completion operations and temporary
production curtailments principally due to offset well fracturing
operations by other industry operators.
Delphi continues to benefit from its full-path
transportation service on Alliance and sold approximately 90
percent of its natural gas into the Chicago market in the third
quarter of 2017, realizing an average price $3.93 per mcf including
a hedging gain of $0.44 per mcf, compared to an AECO price of $1.46
per mcf.
The record level of development activity
undertaken by the Company on its Bigstone Montney asset in 2017,
along with cost reduction initiatives commenced in the year,
attractive natural gas marketing arrangements and a strong hedge
book are expected to position the Company for continued growth and
attractive returns on capital in 2018.
Summary of Results
Delphi continued an active development program
at its Bigstone Montney property in the third quarter of 2017
drilling five gross (3.3 net) wells, performing completion
operations on two gross (1.3 net) wells and undertaking various
infrastructure upgrade and expansion projects.
Capital expenditures in the third quarter were
$22.8 million of which $15.1 million was for drilling and
completion operations and $5.8 million was for facilities.
The relatively high portion of spending on facilities principally
relates to expansion of the 5-8 compression and dehydration
facility, expansion of the 16-34 water disposal facility and
procurement of equipment for the 7-11 amine project. These
projects are expected to facilitate production growth and reduce
operating costs relating to existing production.
Production volumes in the third quarter of 2017
averaged 9,313 boe/d, a 13 percent increase over the comparative
quarter in 2016. Underlying the overall production growth was
the growth in field condensate of 21 percent over the comparative
period in 2016. Third quarter production was negatively
impacted by weather related delays in drilling and completion
operations and by temporarily curtailed production averaging 600
boe/d, more than half of which was to mitigate the impact of offset
well fracturing operations from adjacent industry activity.
Delphi’s realized prices before hedging gains in
the third quarter were $3.49 per mcf for natural gas, $51.08 per
barrel (“bbl”) for condensate and $33.11 per bbl for natural gas
liquids. Hedging gains increased the realized price of
natural gas by $0.44 per mcf and the realized price of field
condensate by $2.81 per bbl. Delphi’s natural gas exposure remains
well hedged through 2018 and into 2019. The Company remains
constructive on long term condensate pricing, but has recently
reduced its exposure to spot pricing through 2018.
|
Commodity Hedges |
Q4 2017 |
Q1 2018 |
Q2 2018 |
Q3 2018 |
Q4 2018 |
2019 |
|
Natural gas (mcf/d) |
21.7 |
17.7 |
17.5 |
17.5 |
15.8 |
7.2 |
|
Average hedge price ($/mcf) |
4.11 |
3.91 |
3.91 |
3.91 |
3.88 |
3.90 |
| |
|
Crude oil (bbls/d) |
1,100 |
1,100 |
1,000 |
600 |
600 |
300 |
|
Average hedge price ($/bbl) |
66.37 |
67.85 |
68.15 |
70.35 |
70.35 |
70.00 |
| * Based on
average 2017 production of 33.5 mmcf/d of natural gas and 2,150
bbls/d of field condensate. |
The Company generated revenue of $25.1 million
in the third quarter, a 24 percent increase over the comparative
period in 2016, and adjusted funds from operations of $7.9 million,
a 16 percent decrease from the comparative period in 2016.
The decrease in adjusted funds from operations is principally due
to higher operating and transportation costs. Delphi has
undertaken various initiatives to reduce costs and improve
operating netbacks.
With a significantly higher level of activity in
the first nine months of 2017, 13 gross wells (8.4 net) versus
three gross wells (2.4 net) in the first nine months of 2016,
Delphi experienced higher operating and transportation costs on a
boe basis as the Company worked through issues related to the
trucking and disposal of frac load water and the trucking of
additional condensate, both of which were exacerbated by higher
industry activity levels in the Bigstone area affecting access to
third party water disposal facilities and condensate
terminals. Delphi has undertaken various initiatives, such as
expanding its water disposal facility, contracting a dedicated
delivery point for condensate, and re-contracting trucking
arrangements for condensate, in order to reduce these costs.
The benefit of these initiatives has started to be realized in the
third quarter of 2017. Operating costs in the third quarter of 2017
were reduced by 34 percent compared to the second quarter of 2017,
on a boe basis. Further reductions in operating costs due to
the completion of the 7-11 amine sweetening project are expected in
the second quarter of 2018. This project will reduce
third-party processing costs as it allows the Company to divert
approximately 17 million cubic feet per day (“mmcf/d’) gross (11
mmcf/d net) of raw natural gas to the under-utilized Bigstone West
Gas Plant in which it owns a 25 percent working interest.
As at December 31, 2017 Delphi had $18.5 million
(including outstanding letters of credit) drawn on its $80 million
senior secured credit facility with a syndication of Canadian
chartered banks. The Company expects to have its semi-annual review
completed by November 30, 2017.
Operations Update
Subsequent to the operations update provided on
October 25, Delphi has finished fracturing operations at the
16-12-60-24W5 (“16-12”) and 13-7-60-23W5 (“13-7”) wells, the
western most Montney wells the Company has drilled and completed
with slickwater fracs to date. Both wells were completed with
the Company’s fourth generation frac design over 40 stages. The
wells were drilled to test two separate Montney layers in a reduced
spacing “wine rack” configuration. While completion operations are
still ongoing at the 13-7 well, the western-most well at 16-12 was
flowed on clean-up for 4.4 days, recovering approximately 25
percent of the initial load frac water. Over the last
24-hours prior to running production tubing, the well flowed on
clean-up at an average rate of 4.2 mmcf/d of raw natural gas and
697 bbls/d of 42 degree API field condensate (191 bbls/mmcf of
sales gas). Total sales production rate for 16-12 over this
24-hour period was approximately 1,471 boe/d (59 percent liquids),
including an estimated plant natural gas liquids yield of 46
bbls/mmcf of sales gas. The preliminary flow back results are
consistent with the Company’s model of overall well productivity,
increased condensate yields and decreasing H2S content on the
Company’s western lands. Decreasing H2S content to 0.02
percent H2S at 16-12 to zero H2S at the 9-4 Montney well further
west, from 0.8 percent on the eastern edge of the Company’s lands
significantly enhances the value of the western lands as a result
of lower sweet natural gas processing costs. Following
successful delineation and testing of the 16-12 well, Delphi has
licensed and began lease construction for a horizontal Montney well
more than two miles west of the 16-12 well. The Company
expects to spud this well in the first quarter of 2018 and utilize
its fifth generation frac design to complete the well.
Drilling operations have concluded at the
Company’s 14th and 15th wells of the 2017 capital program at
14-15-60-23W5 and 15-19-59-23 (“15-19”). Completion
operations are expected to commence prior to the end of the year on
both wells where the Company will employ its fifth generation frac
design. 15-19 marks another step-out drill in the 2017
program supporting Delphi’s effort in delineating the Montney play
at Bigstone. The final two wells of the 2017 program will
spud during the month of November with completion operations
commencing in the first quarter of 2018.
Outlook
Delphi will continue its drilling program
through to spring breakup in 2018 utilizing its current two rigs
under contract, resulting in the drilling of up to five wells and
the completion and tie-in of five to six wells in the first half of
2018. The full year 2018 capital program will be finalized
and guidance will be released in the first quarter of 2018, giving
the Company adequate time to evaluate the ongoing delineation
drilling program.
Average production in 2017 is now expected to be
in the range of 8,600 to 8,900 boe/d with adjusted funds from
operations of $35 to $38 million. Total capital spending in
the year is expected to be in the range of $105 to $110 million,
slightly lower than planned, resulting in bank debt and working
capital deficiency at the end of the year of $37 to $42
million.
On behalf of the Board of Directors and all the
employees of Delphi, we would like to thank our shareholders for
their continued support.
CONFERENCE CALL AND WEBCAST
A conference call and webcast to review third
quarter 2017 results is scheduled for 9:00 a.m. Mountain Time
(11:00 a.m. Eastern Time) on Thursday, November 9, 2017. The
conference call number is 1-844-358-8760. A brief presentation by
David J. Reid, President and CEO and Mark D. Behrman, CFO, will be
followed by a question and answer period. The conference call
will also be broadcast live on the internet and may be accessed
through Delphi’s website at www.delphienergy.ca or by entering
https://edge.media-server.com/m6/p/pw3mwudu in your web browser. A
rebroadcast will also be available on Delphi’s website or at
https://edge.media-server.com/m6/p/pw3mwudu on your web
browser.
About Delphi Energy Corp.
Delphi Energy Corp. is an industry-leading
producer of liquids-rich natural gas. The Company has
achieved top decile results through the development of our high
quality Montney property, uniquely positioned in the Deep Basin of
Bigstone, in northwest Alberta. Delphi continues to outperform key
industry players by improving operational efficiencies and growing
our dominant Bigstone land position in this world-class play.
Delphi is headquartered in Calgary, Alberta and trades on the
Toronto Stock Exchange under the symbol DEE.
FOR FURTHER INFORMATION PLEASE
CONTACT:
DELPHI ENERGY CORP.2300 - 333 –
7th Avenue S.W.Calgary, AlbertaT2P 2Z1Telephone: (403)
265-6171 Facsimile: (403) 265-6207Email:
info@delphienergy.ca Website:
www.delphienergy.ca
DAVID J.
REID
MARK D.
BEHRMAN
President &
CEO
CFO
Forward-Looking
Statements. This news release contains
forward-looking statements and forward-looking information within
the meaning of applicable Canadian securities laws. These
statements relate to future events or the Company’s future
performance and are based upon the Company’s internal assumptions
and expectations. All statements other than statements of
present or historical fact are forward-looking statements.
Forward-looking statements are often, but not always, identified by
the use of any of the words “expect”, “anticipate”, “continue”,
“estimate”, “may”, “will”, “should”, “believe”, "intends”,
“forecast”, “plans”, “guidance”, “budget” and similar
expressions.
More particularly and without limitation, this
release contains forward-looking statements and information
relating to petroleum and natural gas production estimates and
weighting, projected crude oil and natural gas prices, future
exchange rates, expectations as to royalty rates, expectations as
to transportation and operating costs, expectations as to general
and administrative costs and interest expense, expectations as to
capital expenditures and net debt, planned capital spending, future
liquidity and Delphi’s ability to fund ongoing capital requirements
through operating cash flows and its credit facilities, supply and
demand fundamentals for oil and gas commodities, timing and success
of development and exploitation activities, cash availability for
the financing of capital expenditures, access to third-party
infrastructure, treatment under governmental regulatory regimes and
tax laws and future environmental regulations.
Furthermore, statements relating to “reserves”
are deemed to be forward-looking statements as they involve the
implied assessment, based on certain estimates and assumptions that
the reserves described can be profitable in the future.
The forward-looking statements and information
contained in this release are based on certain key expectations and
assumptions made by Delphi. The following are certain
material assumptions on which the forward-looking statements and
information contained in this release are based: the stability of
the global and national economic environment, the stability of and
commercial acceptability of tax, royalty and regulatory regimes
applicable to Delphi, exploitation and development activities being
consistent with management’s expectations, production levels of
Delphi being consistent with management’s expectations, the absence
of significant project delays, the stability of oil and gas prices,
the absence of significant fluctuations in foreign exchange rates
and interest rates, the stability of costs of oil and gas
development and production in Western Canada, including operating
costs, the timing and size of development plans and capital
expenditures, availability of third party infrastructure for
transportation, processing or marketing of oil and natural gas
volumes, prices and availability of oilfield services and equipment
being consistent with management’s expectations, the availability
of, and competition for, among other things, pipeline capacity,
skilled personnel and drilling and related services and equipment,
results of development and exploitation activities that are
consistent with management’s expectations, weather affecting
Delphi’s ability to develop and produce as expected, contracted
parties providing goods and services on the agreed timeframes,
Delphi’s ability to manage environmental risks and hazards and the
cost of complying with environmental regulations, the accuracy of
operating cost estimates, the accurate estimation of oil and gas
reserves, future exploitation, development and production results
and Delphi’s ability to market oil and natural gas successfully to
current and new customers. Additionally, estimates as to expected
average annual production rates assume that no unexpected outages
occur in the infrastructure that the Company relies on to produce
its wells, that existing wells continue to meet production
expectations and any future wells scheduled to come on in the
coming year meet timing and production expectations.
Commodity prices used in the determination of
forecast revenues are based upon general economic conditions,
commodity supply and demand forecasts and publicly available price
forecasts. The Company continually monitors its forecast
assumptions to ensure the stakeholders are informed of material
variances from previously communicated expectations.
Financial outlook information contained in this
release about prospective results of operations, financial position
or cash flows is based on assumptions about future events,
including economic conditions and proposed courses of action, based
on management’s assessment of the relevant information currently
available. Readers are cautioned that such financial outlook
information contained in this release should not be used for
purposes other than for which it is disclosed.
Although the Company believes that the
expectations reflected in such forward-looking statements and
information are reasonable, it can give no assurance that such
expectations will prove to be correct and such forward-looking
statements should not be unduly relied upon. Since forward-looking
statements and information address future events and conditions, by
their very nature they involve inherent known and unknown risks and
uncertainties. Delphi’s actual results, performance or
achievements could differ materially from those expressed in, or
implied by, these forward-looking statements and, accordingly, no
assurance can be given that any of the events anticipated by the
forward-looking statements will transpire or occur, or if any of
them do so, what benefits Delphi will derive therefrom. Should one
or more of these risks or uncertainties materialize, or should
assumptions underlying forward-looking statements prove incorrect,
actual results may vary materially from those currently anticipated
due to a number of factors and risks. These include, but are
not limited to, the risks associated with the oil and gas industry
in general such as operational risks in development, exploration
and production, delays or changes in plans with respect to
exploration or development projects or capital expenditures, the
uncertainty of estimates and projections relating to production
rates, costs and expenses, commodity price and exchange rate
fluctuations, marketing and transportation, environmental risks,
competition from others for scarce resources, the ability to access
sufficient capital from internal and external sources, changes in
governmental regulation of the oil and gas industry and changes in
tax, royalty and environmental legislation. Additional
information on these and other factors that could affect the
Company’s operations or financial results are included in the
Company’s most recent Annual Information Form and other reports on
file with the applicable securities regulatory authorities and may
be accessed through the SEDAR website (www.sedar.com).
Readers are cautioned that the foregoing list of
factors is not exhaustive. Furthermore, the forward-looking
statements contained in this release are made as of the date of
this release for the purpose of providing the readers with the
Company’s expectations for the coming year. The
forward-looking statements and information may not be appropriate
for other purposes. Delphi undertakes no obligation to update
publicly or revise any forward-looking statements or information,
whether as a result of new information, future events or otherwise,
unless so required by applicable securities laws. The
forward-looking statements contained in this release are expressly
qualified in their entirety by this cautionary statement.
Basis of Presentation.
For the purpose of reporting production
information, reserves and calculating unit prices and costs,
natural gas volumes have been converted to a barrel of oil
equivalent (boe) using six thousand cubic feet equal to one
barrel. A boe conversion ratio of 6:1 is based upon an energy
equivalency conversion method primarily applicable at the burner
tip and does not represent a value equivalency at the
wellhead. This conversion conforms to the Canadian Securities
Administrators’ National Instrument 51-101 when boes are
disclosed. Boes may be misleading, particularly if used in
isolation.
As per CSA Staff Notice 51-327 initial test
results and initial production performance should be considered
preliminary data and such data is not necessarily indicative of
long-term performance or of ultimate recovery. “IP” is an
abbreviation for “Initial Production” and represents average
production rates over the indicated time period in producing
days.
Non-GAAP Measures. The
release contains the terms “adjusted funds from operations”,
“adjusted funds from operations per share”, “net debt”, “net debt
to adjusted funds from operations ratio”, “operating netbacks”
“cash netbacks” and “netbacks” which are not recognized measures
under GAAP. The Company uses these measures to help evaluate
its performance. Management considers netbacks an important
measure as it demonstrates its profitability relative to current
commodity prices and costs of production. Management uses adjusted
funds from operations to analyze performance and considers it a key
measure as it demonstrates the Company’s ability to generate the
cash necessary to fund future capital investments, abandonment
obligations and to repay debt. Adjusted funds from operations is a
non-GAAP measure and has been defined by the Company as cash flow
from operating activities before accretion on long term and
subordinated debt, decommissioning expenditures and changes in
non-cash working capital from operating activities. The Company
also presents adjusted funds from operations per share whereby
amounts per share are calculated using weighted average shares
outstanding consistent with the calculation of earnings per share.
Delphi’s determination of adjusted funds from operations may not be
comparable to that reported by other companies nor should it be
viewed as an alternative to cash flow from operating activities,
net earnings or other measures of financial performance calculated
in accordance with GAAP. The Company has defined net debt as
the sum of bank debt and senior secured notes plus/minus working
capital excluding the current portion of the fair value of
financial instruments. Net debt is used by management to monitor
remaining availability under its credit facilities. Operating
netbacks have been defined as revenue plus marketing income less
royalties, transportation and operating costs. Cash netbacks
have been defined as operating netbacks less interest on bank debt
and senior secured notes, general and administrative costs and cash
costs related to the Company’s restricted share units.
Netbacks are generally discussed and presented on a per boe
basis.