CALGARY, Aug. 9 /PRNewswire-FirstCall/ -- (CNE.UN - TSX; CNE -
NYSE) - Canetic Resources Trust ("Canetic" or the "Trust"), is
pleased to announce its operating and financial results for the
three and six months ended June 30, 2007. "Throughout the second
quarter of 2007 we remained focused on the development and
exploitation of our asset base with the continuation of our
ambitious capital expenditure program," said J. Paul Charron,
President and Chief Executive Officer of Canetic. "In our view, the
underlying long-term fundamentals for the oil and natural gas
sector appear strong and we continue to believe that Canetic's
diverse property portfolio, balanced production profile, extensive
inventory of development opportunities, and consistent hedging
strategy leave Canetic well positioned to compete effectively in
today's environment and provide our unitholders with a reliable
source of income." HIGHLIGHTS - Canetic posted its third
consecutive quarter of strong production results at 77,765 barrels
of oil equivalent per day, in-line with previous guidance.
Incremental production volumes associated with the Samson
acquisition as well as production additions from drilling and
optimization activity during the first quarter resulted in an
average daily production increase of approximately 11 percent in
the three and six months ended June 30, 2007 versus the comparable
periods of 2006. - Over the first six months of 2007, Canetic
remained very active in the exploitation of its asset base.
Expenditures for development activities in the six month period
totalled $237.2 million as compared to $152.8 million for the same
period in 2006. A total of 124 gross (69.2 net) wells were drilled
during the first six months of 2007 with a success rate of 96
percent. - During the second quarter of 2007, Canetic generated
funds flow from operations of $192.0 million, slightly higher than
the first quarter 2007 and a four percent increase compared to the
second quarter 2006. Funds flow from operations were $382.4 million
for the six months ended June 30, 2007, an increase of one percent
from $379.8 million in the comparable period of 2006. Over the past
four quarters, Canetic has generated funds flow from operations
totalling $752.8 million. - Canetic declared cash distributions of
$129.6 million during the second quarter of 2007 representing $0.19
per unit per month or $0.57 per unit. Our payout ratio for the
quarter, defined as cash distributions to unitholders divided by
funds flow from operations, approximated 67 percent. FINANCIAL AND
OPERATING SUMMARY Three Months Ended June 30 Six Months Ended June
30
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($millions except % % per unit amounts) 2007 2006(1) change 2007
2006(1) change
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FINANCIAL Gross revenue 372.4 341.2 9% 738.6 691.6 7% Funds flow
from operations(2) 192.0 185.1 4% 382.4 379.8 1% Per unit - basic
0.84 0.92 -9% 1.69 1.89 -11% Per unit - diluted 0.84 0.89 -6% 1.67
1.84 -8% Net earnings (loss) (301.8) 82.9 -464% (308.7) 142.1 -317%
Per unit - basic (1.33) 0.41 -424% (1.36) 0.71 -292% Per unit -
diluted (1.33) 0.40 -433% (1.36) 0.69 -297% Cash distributions
declared 129.6 139.5 -7% 258.8 278.1 -7% Per unit 0.570 0.690 -17%
1.140 1.380 -17% Payout ratio(2) 67% 75% -11% 68% 73% -7%
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Capital expenditures Net development expenditures 89.2 85.8 4%
237.2 152.8 55% Net capital expenditures 50.2 104.6 -52% 202.2
171.7 18% Total assets 5,664.1 4,899.6 16% 5,664.1 4,899.6 16%
Long-term debt 1,342.7 893.8 50% 1,342.7 893.8 50% Net debt
(excluding financial derivatives)(2) 1,378.0 926.6 49% 1,378.0
926.6 49% Unitholders' equity 2,968.1 3,247.5 -9% 2,968.1 3,247.5
-9%
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Weighted average trust units outstanding (000s)(1) 227,352 201,998
13% 226,912 201,370 13% Trust units outstanding at period end
(000s)(1) 227,750 202,535 12% 227,750 202,535 12%
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OPERATING Production(2) Natural gas (mmcf/d) 211.0 166.0 27% 215.6
171.0 26% Crude oil (bbl/d) 35,928 37,348 -4% 36,173 37,486 -4%
Natural gas liquids (bbl/d) 6,664 5,043 32% 6,789 5,401 26% Crude
oil and NGLs (bbl/d) 42,592 42,391 0% 42,962 42,887 0% Barrel of
oil equivalent (boe/d) @ 6:1 77,765 70,061 11% 78,890 71,392 11%
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Average prices(2) Natural gas ($/mcf) 7.72 5.97 29% 7.68 7.49 3%
Natural gas ($/mcf) (including financial instruments) 8.01 6.80 18%
7.94 7.99 -1% Crude oil ($/bbl) 59.95 67.29 -11% 58.59 60.82 -4%
Crude oil ($/bbl) (including financial instruments) 58.42 61.97 -6%
57.68 56.53 2% Natural gas liquids ($/bbl) 46.85 48.90 -4% 44.96
47.82 -6%
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Total ($/boe) 52.62 53.52 -2% 51.73 53.52 -3% Total ($/boe)
(including financial instruments) 52.70 52.63 0% 52.03 52.46 -1%
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Drilling activity (gross) Natural gas 5 34 - 51 95 - Oil 16 29 - 61
67 - Other 5 2 - 7 4 - Dry and abandoned 1 3 - 5 5 -
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Total gross wells 27 68 - 124 171 -
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Total net wells 10.3 28.5 - 69.2 81.9 -
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Success rate (%) 96% 96% - 96% 97% -
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(1) The merger of Acclaim Energy Trust ("Acclaim") and StarPoint
Energy Trust ("StarPoint") was accounted for as a purchase of
StarPoint by Acclaim. Accordingly, the financial and operating
results of StarPoint have been included from the date of
acquisition, January 5, 2006. All disclosures of units and per unit
amounts of Acclaim up to the merger on January 5, 2006 have been
restated using the exchange ratio of 0.8333 of a Canetic unit for
each Acclaim unit. (2) Please refer to the Advisory section
regarding forward-looking statements of this news release for
definitions of Non-GAAP terms and frequently recurring terms and
abbreviations. The payout ratio is calculated as cash distributions
divided by funds flow from operations. Note: All references are to
Canadian dollars unless otherwise indicated. Natural gas volumes
recorded in thousand cubic feet ("mcf") or million cubic feet
("mmcf") are converted to barrels of oil equivalent ("boe") using
the ratio of six (6) thousand cubic feet to one (1) barrel of oil
("bbl"). BOEs may be misleading, particularly if used in isolation.
A BOE conversion ratio of six (6) mcf: one (1) bbl is based on an
energy equivalent conversion method primarily applicable at the
burner tip and does not represent a value equivalent at the
wellhead. PRESIDENT'S MESSAGE Canetic continued to perform well
during the second quarter 2007 maintaining strong production
volumes in-line with guidance. Through the second quarter, Canetic
remained focused on the exploitation of our broad inventory of
development opportunities and the tie-in of volumes related to our
successful fourth quarter 2006 and first quarter 2007 drilling
programs. Sustained strong operational and production performance
largely offset delays in planned capital activities enabling
Canetic to produce another solid quarter and achieve our objective
of maintaining production levels relatively flat. This objective
was achieved despite the impact of expanded turnaround activity,
extended spring break-up conditions, and the sale of assets and
related production of approximately 1,000 boe per day in Northeast
Alberta (the "Northeast Alberta Asset Sale"). While drilling
activities during the quarter were lower than originally
anticipated, as a result of the challenging weather conditions, we
continued to see strong results from our optimization activities
and successfully tied-in volumes previously behind pipe. Moving
forward, we continue to execute on the extensive development
opportunities offered by our diversified asset base and pursue
opportunities to optimize production efficiencies and minimize
operating costs in the face of continued upward pressure on field
service costs including fuel, power, labour, trucking and other
related mechanical services. To support our efforts to provide
unitholders with a reliable source of income, we maintain an active
commodity price risk management program which we believe has been
effective in helping to mitigate the impact of adverse fluctuations
in commodity prices over time. In general, we look to hedge
approximately 40 to 50 percent of overall production volumes during
any given period. However, as we entered 2007, we grew increasingly
concerned about the surplus of natural gas in storage and elected
to put in place additional downside price protection on natural gas
volumes for the summer months. The market has subsequently
experienced a significant downturn in natural gas prices due to
current natural gas inventories reaching their highest level ever
for this time of year. Accordingly, we expect to benefit during the
third quarter from our increased natural gas hedge position which
now provides downside price protection with an average floor price
of approximately $6.96 per Gigajoule ("Gj") on nearly 60 percent of
budgeted natural gas production volumes to the end of October.
Should the downturn in natural gas prices persist through the early
winter months, Canetic will continue to have a significant level of
downside price protection with more than 40 percent of budgeted
natural gas production hedged through to the end of March 2008 with
an average floor price of approximately $7.03 per Gj. In addition
to increasing our hedging coverage, we have also chosen to postpone
certain previously planned natural gas related capital activities
while we await a recovery in the market price for the commodity. To
help offset the loss of related natural gas volumes we have
increased the level of drilling and exploitation activity in areas
prone to conventional light oil production to take advantage of
recent strength in crude oil prices. Despite the challenges posed
by the current natural gas pricing environment, continued cost
escalation and the rapid appreciation of the Canadian to U.S.
dollar exchange rate, which adversely impacts our oil related
revenues, we continue to believe Canetic remains well positioned to
compete in today's environment and provide our unitholders with a
reliable source of income. FINANCIAL AND OPERATING RESULTS
Production volumes averaged 78,890 boe per day for the six months
ended June 30, 2007, an increase of 11 percent over the 71,392 boe
per day reported for the same period in 2006. The 11 percent
increase in average production resulted primarily from the Samson
acquisition which closed on August 31, 2006. During the second
quarter, production averaged 77,765 boe per day as compared to
70,061 boe per day recorded during the second quarter 2006.
Relative to the first quarter 2007, production volumes were
slightly lower due to the sale of approximately 1,000 boe per day
of production related to the Northeast Alberta Asset Sale, expanded
plant turnaround activity, natural gas production declines and an
extended spring break-up due to wetter than normal weather.
Petroleum and natural gas revenue totalled $738.6 million for the
six months ended June 30, 2007, up seven percent from $691.6
million reported for the same period in 2006. Gross revenue
increased nine percent during the second quarter 2007 to $372.4
million compared to $341.2 million for the same period in 2006. The
increase is mainly due to higher production volumes and natural gas
prices over the same period a year earlier. Funds flow from
operations for the six months ended June 30, 2007, totalled $382.4
million or $1.67 per diluted unit, relatively unchanged from the
$379.8 million, or $1.84 per diluted unit during the same period in
2006. Funds flow from operations totalled $192.0 million or $0.84
per diluted unit for the three months ended June 30, 2007,
representing a four percent increase from $185.1 million, or $0.89
per diluted unit for the same period in 2006. Canetic declared cash
distributions of $129.6 million during the second quarter 2007
representing $0.19 per unit per month or $0.57 per unit. Our payout
ratio for the quarter, defined as cash distributions to unitholders
divided by funds flow from operations, approximated 67 percent.
Canetic recorded a net loss of $308.7 million or $1.36 per diluted
unit for the six months ended June 30, 2007 compared to net
earnings of $142.1 million or $0.69 per diluted unit for the same
period in 2006. The net loss includes a second quarter loss of
$301.8 million or $1.33 per diluted unit, as compared to net
earnings of $82.9 million or $0.40 per diluted unit in the second
quarter 2006. As a result of the enactment of Bill C-52 (Budget
Implementation Act, 2007) (see "Canadian Tax Legislation Affecting
Income Trusts" for more information), the Trust has recognized
additional future income tax expense and corresponding future
income tax liability of $330 million during the second quarter.
This represents the incremental future income taxes on differences
between the accounting and tax basis of assets and liabilities
currently held at the trust level, which are expected to remain at
the time the Distribution Tax becomes effective. Prior to this
legislation, future income taxes were only recognized on timing
differences arising in corporate subsidiaries which were not
considered to be flow-through entities for tax purposes. While this
accounting adjustment has a significant impact on earnings for the
period, this is a non-cash expense which has no immediate impact on
cash flow from operations. In the absence of the charge to reflect
enactment of the SIFT Rules, net earnings for the quarter and first
half of 2007 would have been $28.2 million and $21.3 million,
respectively. The price of West Texas Intermediate ("WTI") crude
averaged US$61.64 per bbl during the first six months of 2007, down
eight percent from the average price of US$67.14 per bbl for the
same period in 2006. During the second quarter, WTI crude averaged
US$65.02 per bbl compared to US$70.70 per bbl for the same period
in 2006. For the six months ended June 30, 2007, we received an
average oil price of $58.59 per bbl as compared to $60.82 per bbl
for the comparable period in 2006. Our average oil price of $59.95
per bbl during the second quarter represents a decrease of 11
percent from an average of $67.29 per bbl reported during the same
period in 2006. The AECO Monthly Index gas price averaged $7.37 per
mcf in the second quarter of 2007, up 18 percent from $6.27 per mcf
received in the second quarter of 2006. Year to date, the AECO
Monthly Index price has averaged $7.42 per mcf, down five percent
from the $7.78 per mcf received for the same period in 2006. Our
average natural gas price was $7.68 per mcf for the six months
ended June 30, 2007 as compared to $7.49 per mcf during the same
period in 2006. Our average natural gas price for the quarter was
$7.72 per mcf which represents a 29 percent increase from the
second quarter in 2006. REVIEW OF OPERATIONS Canetic's record of
strong operational and production performance continued in the
second quarter of 2007. Operational highlights during the second
quarter include: - The commissioning and sale of gas from our
Clarke Lake facility. Canetic brought two wells on-stream in the
second quarter at a combined rate in excess of five mmcf per day.
The time from drilling to on-stream for this prospect was less than
five months and represents a highly successful program for Canetic.
- A successful optimization and production management program
focused on identifying and implementing efficient production
addition opportunities in our South Central, Border Plains,
Southern and Rocky business units. This program helped to largely
offset the impact of delayed capital activities arising from
adverse weather conditions which extended spring break-up through
much of the second quarter. - The continued tie-in of production
into our new Willesden Green Gas Processing Facility, and
installation of the infrastructure that will support our future
development programs. This significant investment for Canetic is an
important commitment to one of our core operating areas, and
reflects the importance we place on managing our own assets and
production and minimizing our cost structure wherever possible.
During the second quarter, Canetic drilled only six operated wells
(5.5 net) due to an extended spring break-up and weather related
delays. These wells targeted medium to light crude. Four of the
operated wells were drilled in the Southern business unit
(Southeast Alberta and Southwest Saskatchewan) with the remaining
two wells drilled in the Williston Basin business unit (Southeast
Saskatchewan and North Dakota). All wells were cased and are
currently undergoing completion and tie-in. Drilling activity has
resumed during the third quarter 2007 and we plan for the drilling
of approximately 30 - 40 operated wells over the remainder of the
year, depending on well type and depth. To date, 12 operated wells
have been drilled during the third quarter 2007. In-line with
guidance, second quarter production remained relatively flat at
77,765 boe per day, despite volume impacts of approximately 1,600
boe per day in aggregate due to property sales, expanded
turnarounds and extended spring break-up conditions. Effective
April 30, 2007, Canetic closed the Northeast Alberta Asset Sale
involving approximately 1,000 boe per day of non-core production,
primarily natural gas, in Northeast Alberta. The impact on second
quarter production of this sale was approximately 600 boe per day.
Wet weather and an extended spring break-up during the second
quarter 2007 led to prolonged road bans and regulatory and lease
access restrictions as well as delays in the execution of various
repair and maintenance and well completion projects. Expanded
turnaround activity and unplanned third party facility outages also
had significant impacts on production volumes through the quarter.
In total, we estimate approximately 1,000 boe per day of production
was lost as a result of turnarounds and facility outages, weather,
and extended spring break-up related restrictions. We anticipate
continued turnaround activity in the third quarter with a scheduled
outage in the Kaybob South and Simonette fields (impact of
approximately 1,500 to 1,800 boe per day to Canetic through July),
as well as a scheduled outage by Canetic at our Gilby 5-5 facility
in September (impact of approximately 1,500 boe per day for
approximately three weeks). In addition, we are planning an outage
at our Pouce Coupe battery and gas handling facilities in
September, and may take advantage of the softness in natural gas
prices to complete a number of smaller turnarounds prior to the
winter heating season. These turnarounds are all for preventative
maintenance purposes in accordance with good operating practices.
As anticipated, operating costs in the second quarter were impacted
by annual charges for surface rentals and property taxes. Canetic
pays and books these costs in the second quarter, and to a lesser
extent in the third quarter of the year. Canetic also continued to
see cost pressures on field service costs through the first half of
2007 in areas such as power, labour and third party processing
charges. While the industry as a whole has seen an escalation in
average cost structures, Canetic remains diligent and active in the
pursuit of opportunities to reduce our cost structure wherever
possible. Due to strengthening crude prices, Canetic will focus
most of our attention during the second half of 2007 on our large
inventory of oil prospects. Areas of activity for the remainder of
the year will be in Williston Basin, Southeastern Alberta, and East
Central Alberta targeting medium to light crude. Another region of
activity will include the Hoadley area in Central Alberta on the
acquired Samson acreage. Limited capital will be spent developing
natural gas opportunities until Canetic sees strengthening in the
natural gas market. CAPITAL EXPENDITURES Three Months Ended June 30
Six Months Ended June 30
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Capital Expenditures ($000s) 2007 2006 2007 2006
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Land 2,187 5,015 3,946 7,797 Geological and geophysical 2,010 600
2,150 1,733 Drilling and completion 59,874 63,636 163,553 118,084
Production equipment and facilities 25,103 16,525 67,598 25,176
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Net development expenditures 89,174 85,776 237,247 152,790
StarPoint acquisition - - - 2,511,746 Minor property acquisitions
917 23,869 1,836 23,869 Minor property dispositions (46,470)
(5,000) (49,427) (5,000)
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Net capital expenditures 43,621 104,645 189,656 2,683,405 Office
1,849 2,710 4,948 3,063 Asset retirement obligation change in
estimate 223 547 1,493 1,472 Capitalized compensation 4,535 4,095
6,097 6,654
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Total capital expenditures 50,228 111,997 202,194 2,694,594
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During the six months ended June 30, 2007, expenditures for
development activities totalled $237.2 million as compared to
$152.8 million for the same period in 2006. A total of 124 gross
(69.2 net) wells were drilled during the period, including 51 gross
(27.3 net) natural gas wells and 61 gross (39.2 net) oil wells, 7
gross (1.1 net) service wells and 5 gross (1.6 net) dry and
abandoned wells. Of the total wells drilled, 51 gross (47.0 net)
were operated by Canetic, resulting in 37 gross (34.7 net) oil
wells, 13 gross (11.3 net) natural gas wells, and 1 gross (1.0 net)
dry and abandoned. Canetic has altered the profile of our operated
program in 2007 over 2006, as we are targeting deeper, more
prolific, and consequently higher cost targets in Southern Alberta
in addition to our Slave Point development in Clarke Lake. 2006 was
characterized by large shallow programs in Willesden Green and our
high non-operated working interest in Big Bend Wyoming. During the
second quarter, development expenditures totalled $89.2 million as
compared to $85.8 million for the same period in 2006. Included in
drilling and completion costs of $59.9 million are $38.3 million of
optimization and workover costs incurred during the three month
period to maximize production efficiencies and mitigate production
declines. Canetic also completed net property dispositions
totalling $46.5 million. Proceeds from the dispositions were
initially utilized to reduce bank indebtedness, but subsequently
utilized to fund a portion of the 2007 capital expenditure program.
COMMODITY PRICE RISK MANAGEMENT The prices we receive for our
petroleum and natural gas can fluctuate significantly due to supply
and demand fundamentals which are influenced by weather patterns,
the economic environment or political uncertainty. Our commodity
price risk management program is designed to provide price
protection on a portion of our future production in the event of an
adverse commodity price movement. Canetic actively hedges up to 50
percent of our production using financial instruments that provide
a hard floor price, but retains whenever possible, some opportunity
to participate in favourable price movements. This practice is
designed to allow us to generate stable cash flow for distributions
and achieve positive economic returns on capital development and
acquisition activities. In general, we target hedge positions that
provide coverage for approximately 40 to 50 percent of overall
production volumes during any given period. During the second
quarter of 2007, we recorded a realized financial derivative gain
of $0.6 million as compared to a loss of $5.6 million for the same
period in 2006. The following commodity commitments have been put
in place for 2007 and beyond: Annual Commodity Contracts Average
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Natural Gas Q3 2007 Q4 2007 2008
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Fixed Price Volume (Gj/d) 50,000 20,000 - Fixed Price Average
($/Gj) $ 7.32 $ 7.51 - Collars Volume (Gj/d) 80,000 86,667 22,500
Collar Floors ($/Gj) $ 6.74 $ 6.92 $ 7.00 Collar Caps ($/Gj) $ 9.62
$ 10.74 $ 11.23
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Total Volume Hedged (Gj/d) 130,000 106,667 22,500
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Crude Oil Q3 2007 Q4 2007 2008
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CDN Denominated Fixed Price Volumes (bbl/d) 8,000 8,000 250 CDN
Denominated Fixed Price Average ($CDN/bbl) $ 67.26 $ 67.26 $ 72.20
U.S. Denominated Fixed Price Volume (bbl/d) 1,500 1,500 - U.S.
Denominated Fixed Price Average ($US/bbl) $ 48.11 $ 48.11 - Collars
Volume (bbl/d) 6,000 6,000 10,000 Collar Floors ($US/bbl) $ 58.00 $
58.00 $ 64.00 Collar Caps ($US/bbl) $ 80.76 $ 80.76 $ 81.67
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Total Volume Hedged (bbl/d) 15,500 15,500 10,250
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CANADIAN TAX LEGISLATION AFFECTING INCOME TRUSTS Bill C-52 (Budget
Implementation Act, 2007), which incorporated the Specified
Investment Flow-Through Rules (the "SIFT Rules") received Royal
Assent and became law on June 22, 2007. Under the SIFT Rules,
certain of our distributions that would have otherwise been
deductible by the Trust for tax purposes will be subject to a
special tax at a rate of 31.5 percent (the "Distribution Tax"). As
expected, the Distribution Tax will not apply to the Trust until
January 1, 2011 provided, in the interim period, the Trust operates
within the SIFT Rules and adheres to the "normal growth" and "undue
expansion" guidelines recently published by the Department of
Finance. The intent of these rules is to impose tax on income
trusts in a similar manner and at rates comparable to existing
Canadian public corporations and to treat distributions as
dividends in the hands of unitholders. Under the SIFT Rules,
distributions to individual Canadian resident unitholders will be
treated as dividends from a taxable Canadian corporation and will
be eligible for a dividend tax credit. Distributions to
corporations resident in Canada will be eligible for full deduction
as tax free inter-corporate dividends and potentially subject to a
33 1/3 percent refundable tax. Tax-deferred accounts will continue
to pay no tax on distributions. Non-resident unitholders will be
taxed on distributions at the non-resident withholding tax rate for
dividends which potentially may be recovered as a foreign tax
credit. Distributions representing a return of capital will
continue to be an adjustment to a unitholder's adjusted cost base
of trust units. Effectively, under the SIFT Rules, the Trust's
taxable income will be subject to the Distribution Tax and any
taxes payable as a result will directly reduce cash flow available
for distribution to unitholders. The impact of the Distribution Tax
on funds flow from operations, and hence its impact on the level of
cash distributions to unitholders, after January 1, 2011, will be
mitigated to the extent the Trust has tax pools available to
shelter income from the Distribution Tax. Currently, the Trust has
approximately $1.6 billion of tax pools that may be used to offset
future taxes. In the period leading to 2011, our objective will be
to preserve and maximize tax pools that will be available to reduce
or defer the incidence of cash taxes in 2011 and subsequent years.
Given our current tax pool position and our expectations for growth
of these pools leading to 2011, we currently anticipate our
effective tax rate will be significantly less than the 31.5 percent
statutory rate in 2011 and subsequent years. Estimated Income Tax
Pools ($000s) June 30, 2007
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Undepreciated capital costs 554,311 Canadian oil and gas property
expense 505,787 Canadian exploration expense 23,820 Canadian
development expense 344,543 Non-capital losses 144,386 Other 38,653
-------------------------------------------------------------------------
Total estimated income tax pools 1,611,500
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The long-term effect of the SIFT Rules on the Trust has yet to be
fully determined. We continue to evaluate alternative structures
and business strategies, and await further clarity from the
Government with respect to the rules and tax consequences
surrounding conversion from the existing trust model. At the
present time, we perceive considerable value in the four year tax
exemption to the end of 2010 and do not see a compelling reason to
make significant changes to our legal structure in the near term.
In the interim, we are considering our strategic response to the
new tax regime in order to mitigate the effect on our unitholders.
Regardless of the future environment, we will continue to operate
as we always have, with prudent management of our resources,
adaptability and a relentless commitment to our unitholders. Please
refer to the sections of Canetic's Management's Discussion and
Analysis ("MD&A"), dated June 30, 2007, entitled "Federal
Income Tax Changes" and "Income Taxes" for a more complete
discussion of the potential impacts and changes anticipated to
result from implementation of the SIFT Rules and related
Distribution Tax. OUTLOOK As we look forward to the second half of
2007, Canetic will continue to focus on the exploitation and
development of our significant asset base. Drilling activity has
resumed during the third quarter 2007 and we plan for the drilling
of approximately 30 - 40 operated wells over the remainder of the
year, depending on well type and depth. The diversity of our asset
base will allow us to focus our operated program on crude oil
related opportunities and defer certain natural gas projects while
we await a recovery in natural gas prices. Production efficiencies
associated with our capital program remain strong relative to
industry averages in the Western Canadian Sedimentary Basin and
additional drilling and optimization opportunities have been
identified. Our robust inventory of opportunities has led us to
further increase planned capital expenditures to an estimated $400
million by year end. This is a further $25 million increase above
the increase announced following the end of the first quarter
resulting in a total increase year-to-date of $50 million over our
original budget of $350 million announced in December of 2006.
Despite the additional capital expenditures, we expect our total
well count to be lower in 2007 than 2006, reflecting the deeper and
more prolific wells that we have been drilling as of late. Although
Canetic continues to experience increasing operating costs on a
unit-of-production basis, we maintain our commitment to managing
operational efficiencies and optimizing field netbacks in all areas
where we do business. Due to continued cost pressures, particularly
in the areas of labour, fuel, power, processing fees and property
taxes, we are increasing our previous estimate for full year
operating costs to $10.00 - $11.00 per boe. As we experience higher
field costs throughout our asset base, considerable effort is being
made to optimize operational efficiencies and minimize operating
costs on a unit-of-production basis, including the divestiture of
assets that have a higher cost base. Despite the temporary decline
in production volumes experienced during the second quarter of 2007
and the disposition of approximately 1,000 boe per day of
production associated with the Northeast Alberta Asset Sale, which
was not accounted for in our previous production guidance, we
believe the strength of our development program will enable us to
maintain our previous production guidance of 76,500 to 80,000 boe
per day for the full year 2007. Given expected commodity prices,
this production target is anticipated to result in a payout ratio
of 65 to 70 percent of funds flow from operations at current
distribution levels of $0.19 per unit per month. The balance of
funds flow from operations will be utilized to fund a majority of
our 2007 capital expenditure program. We remain excited about the
future prospects of Canetic. Our continuing strategy has always
been to build a significant asset base and a team of people that
could generate long-term value for our unitholders. We believe that
we have created an entity that is well positioned for the
long-term, with significant asset depth and diversity, extensive
development opportunities and a quality team of people to exploit
those opportunities. Our current focus is to exploit our assets and
extract the inherent value for our unitholders, and find new and
innovative ways to bring incremental value and opportunity to our
portfolio and position the Trust to excel in today's continually
changing environment. In addition, given the implementation of the
new SIFT Rules, we will continue to review alternative business
strategies and structures to ensure we are well positioned for
2011. This includes the evaluation of unconventional oil and
natural gas opportunities, U.S. and international acquisition
opportunities, and further consolidation opportunities in the oil
and gas trust sector, which we expect to materialize over the next
couple of years. We look forward to reporting our progress.
(signed) (signed) Jack C. Lee J. Paul Charron Chairman President
& Chief Executive Officer August 9, 2007 Canetic's complete
second quarter 2007 unaudited Financial Statements and Notes and
Management's Discussion and Analysis ("MD&A") are available on
Canetic's website at http://www.canetictrust.com/ or on SEDAR at
http://www.sedar.com/ or on EDGAR at http://www.sec.gov/. All
references are to Canadian dollars unless otherwise indicated.
Natural gas volumes recorded in thousand cubic feet ("mcf") or
million cubic feet ("mmcf") are converted to barrels of oil
equivalent ("boe") using the ratio of six (6) thousand cubic feet
to one (1) barrel of oil ("bbl"). BOEs may be misleading,
particularly if used in isolation. A BOE conversion ratio of six
(6) mcf: one (1) bbl is based on an energy equivalent conversion
method primarily applicable at the burner tip and does not
represent a value equivalent at the wellhead. ADVISORY Certain
statements contained in this news release constitute
forward-looking statements or information (collectively
"forward-looking statements") within the meaning of applicable
securities law. These statements relate to future events or future
performances. All statements other than statements of historical
fact may be forward-looking statements. Statements relating to
"reserves" or "resources" are deemed to be forward-looking
statements as they involve the implied assessment, based on certain
estimates and assumptions, that the reserves and resources
described can be profitably produced in the future. The use of any
of the words "anticipate", "continue", "estimate", "expect", "may",
"will", "project", "could", "should", "believe", "intend",
"propose", "budget", and similar expressions are intended to
identify forward-looking statements. These statements involve known
and unknown risks, uncertainties and other factors that may cause
actual results or events to differ materially from those
anticipated in such forward-looking statements. We believe the
expectations reflected in the forward-looking statements are
reasonable, but no assurance can be given that these expectations
will prove to be correct and such forward-looking statements are
not guarantees of future performance and should not be unduly
relied upon. These statements speak only as of the date of this
news release. In particular, this news release contains or
references documents containing forward-looking statements
pertaining to the following: business strategies; production
volumes; reserves volumes; operating and other costs and expenses;
commodity prices; future cash distribution levels and taxability;
payout ratios; capital spending including timing, allocation and
amounts of capital expenditures and the sources of funding thereof;
sources of funding operations and distributions and the sufficiency
thereof; estimates of funds flow from operations; royalty rates;
interest rates; asset retirement obligations; hedging and other
risk management programs; debt levels, future tax treatment of
income trusts such as the Trust and unitholders; income tax pools,
and liquidity and financial capacity. The forward-looking
statements contained in this news release and referenced documents
are based on a number of expectations and assumptions that may
prove to be incorrect. In addition to other assumptions identified
in this news release and referenced documents, assumptions have
been made regarding, among other things: that the Trust will
continue to conduct its operations in a manner consistent with past
operations; the continuance of existing (and in certain
circumstances, proposed) tax and royalty regimes; the general
continuance of current industry conditions; the accuracy of the
estimates of the Trust's reserves volumes; the ability of Canetic
to obtain equipment, services and supplies in a timely manner to
carry out our activities; the ability of Canetic to market oil and
natural gas successfully; the timely receipt of required regulatory
approvals; the ability of Canetic to obtain financing on acceptable
terms; currency, exchange and interest rates; future oil and gas
prices; and future cost assumptions. No assurance can be given that
these factors, expectations and assumptions will prove to be
correct. The actual results could differ materially from those
anticipated in these forward-looking statements as a result of the
risk factors set forth below and elsewhere in this news release and
referenced documents: volatility in market prices for oil and
natural gas; risks and liabilities inherent in oil and natural gas
including operations, exploration, development, exploitation,
production, marketing and transportation risks; uncertainties
associated with estimating oil and natural gas reserves;
competition for, among other things, capital, acquisitions of
reserves, undeveloped lands, and skilled personnel; incorrect
assessments of the value of acquisitions; geological, technical,
drilling and processing problems; risks and uncertainties involving
geology of oil and gas deposits; unanticipated operating results or
production declines; fluctuations in foreign exchange, currency or
interest rates, and stock market volatility; changes in laws and
regulations including but not limited to those pertaining to income
tax, environmental and regulatory matters; failure to realize the
anticipated benefits of acquisitions; health, safety and
environmental risks; and the other factors described in Canetic's
public filings from time to time (including under "Risk Factors" in
our Annual Information Form) available in Canada at
http://www.sedar.com/ and in the United States at
http://www.sec.gov/. Readers are cautioned that this list of risk
factors should not be construed as exhaustive. The forward-looking
statements contained in this news release and referenced documents
are expressly qualified by the following cautionary statement:
Canetic undertakes no obligation to publicly update or revise any
forward-looking statements except as expressly required by
applicable securities law. NON-GAAP MEASURES This news release and
referenced documents refer to certain financial measures that are
not determined in accordance with GAAP. These measures as presented
do not have any standardized meaning prescribed by GAAP and
therefore may not be comparable with calculations of similar
measures for other companies or trusts. Management uses funds flow
from operations, which we define as net earnings plus non-cash
items before deducting changes in non-cash working capital and
asset retirement costs incurred to analyze operating performance
and leverage. "Funds flow from operations" should not be construed
as an alternative to net earnings, cash flow from operating
activities or other measures of financial performance calculated in
accordance with GAAP. Funds flow from operations cannot be assured
and our future distributions may vary. Readers should refer to the
"Funds Flow From Operations" section of Canetic's second quarter
2007 MD&A for a reconciliation of funds flow from operations to
net earnings. We use the term net debt, which we define as
long-term debt and working capital, to analyze liquidity and
capital resources. Readers should refer to the "Liquidity and
Capital Resources" section of Canetic's second quarter 2007
MD&A for a reconciliation of net debt. We use the term payout
ratio, which we define as cash distributions to unitholders divided
by funds flow from operations, to analyze financial and operating
performance. Readers should refer to the "Cash Distributions"
section of Canetic's second quarter 2007 MD&A for the
calculation of payout ratio. We use the terms operating and cash
netbacks to analyze margin and funds flow on each boe of
production. Operating and cash netbacks should not be viewed as an
alternative to cash flow from operating activities, net earnings
per trust unit or other measures of financial performance
calculated in accordance with GAAP. Readers should refer to the
"Netbacks" section of Canetic's second quarter 2007 MD&A for a
reconciliation of operating and cash netbacks. We use the term
total capitalization, which we define as net debt including
convertible debentures plus unitholders' equity, to analyze
leverage. Total capitalization is not intended to represent the
total funds from equity and debt received by the Trust. Readers
should refer to the "Liquidity and Capital Resources" section of
Canetic's second quarter 2007 MD&A for a reconciliation of
total capitalization. Management believes that, in conjunction with
results presented in accordance with GAAP, these measures assist in
providing a more complete understanding of certain aspects of the
Trust's results of operations and financial performance. Readers
are cautioned however, that these measures should not be construed
as an alternative to measures determined in accordance with GAAP as
an indication of our performance. ADDITIONAL INFORMATION Additional
information regarding the Trust and its business operations,
including the Trust's Annual Information Form for the year ended
December 31, 2006, is available on the Trust's SEDAR company
profile at http://www.sedar.com/ or the EDGAR company profile at
http://www.sec.gov/. Canetic is one of Canada's largest oil and gas
royalty trusts. Canetic trust units and debentures are listed on
the Toronto Stock Exchange under the symbols CNE.UN, CNE.DB.A,
CNE.DB.B, CNE.DB.C, CNE.DB.D, and CNE.DB.E and the trust units are
listed on the New York Stock Exchange under the symbol CNE. For
further information or to receive a complete copy of Canetic's
second quarter operating and financial results, including the
MD&A and Financial Statements free of charge, please visit our
website at http://www.canetictrust.com/ or contact Canetic investor
relations by email at: or toll free telephone at 1-877-539-6300.
CONSOLIDATED BALANCE SHEETS ($CDN thousands) unaudited June 30,
2007 December 31, 2006
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ASSETS Current Assets Accounts receivable $ 233,591 $ 261,498
Prepaid expenses and deposits 32,588 34,647 Financial derivative
asset 27,841 -
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294,020 296,145 Property, plant and equipment, net of amortization
4,447,624 4,597,654 Goodwill 922,024 922,024 Deferred financing
charges, net of amortization - 8,996 Financial derivative asset 452
6,157
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Total assets $ 5,664,120 $ 5,830,976
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LIABILITIES AND UNITHOLDERS' EQUITY Current Liabilities Accounts
payable and accrued liabilities $ 245,226 $ 260,206 Income taxes
payable 11,632 10,979 Distributions payable 43,231 51,933
Convertible debentures 1,309 1,697 Financial derivative liability
21,730 1,124
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323,128 325,939 Bank debt 1,342,738 1,289,678 Convertible
debentures, net of deferred transaction costs 250,550 258,959 Other
long-term liabilities 7,621 7,272 Financial derivative liability 44
- Future income taxes 577,894 250,339 Asset retirement obligations
194,042 191,874
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2,696,017 2,324,061 UNITHOLDERS' EQUITY Capital 4,253,140 4,224,470
Convertible debentures 6,584 6,584 Deficit (1,291,621) (724,139)
-------------------------------------------------------------------------
2,968,103 3,506,915
-------------------------------------------------------------------------
Total liabilities and unitholders' equity $ 5,664,120 $ 5,830,976
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS, COMPREHENSIVE INCOME AND
DEFICIT
-------------------------------------------------------------------------
Three Months Ended June 30 Six Months Ended June 30
-------------------------------------------------------------------------
($CDN thousands except per unit amounts) unaudited 2007 2006 2007
2006
-------------------------------------------------------------------------
REVENUE Petroleum and natural gas sales $ 372,385 $ 341,205 $
738,594 $ 691,551 Royalty expense (67,506) (65,095) (134,289)
(132,219)
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304,879 276,110 604,305 559,332
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EXPENSES Operating 73,551 57,837 142,603 114,447 Transportation
4,749 4,292 11,907 8,736 General and administrative 16,535 21,364
28,505 35,163 Interest on bank debt 15,824 11,103 31,713 20,289
Interest on convertible debentures 4,523 1,456 9,421 2,116
Depletion, depreciation and amortization 175,784 149,972 352,224
300,490 Accretion of asset retirement obligations 3,876 2,457 7,739
4,908 (Gain) loss on financial derivatives (47,473) 3,274 (5,768)
6,369
-------------------------------------------------------------------------
247,369 251,755 578,344 492,518
-------------------------------------------------------------------------
Earnings before taxes 57,510 24,355 25,961 66,814 Current income
taxes (recovery) 559 (284) 2,447 (272) Capital taxes 2,426 1,340
4,627 4,054 Future income tax expense (recovery) 356,323 (59,576)
327,555 (79,038)
-------------------------------------------------------------------------
NET(LOSS) EARNINGS AND COMPREHENSIVE (LOSS) INCOME (301,798) 82,875
(308,668) 142,070 Deficit, beginning of period (860,197) (443,151)
(724,139) (363,712) Distributions declared (129,626) (139,567)
(258,814) (278,201)
-------------------------------------------------------------------------
Deficit, end of period $(1,291,621) $ (499,843) $(1,291,621) $
(499,843)
-------------------------------------------------------------------------
Net (loss) earnings per unit Basic $ (1.33) $ 0.41 $ (1.36) $ 0.71
Diluted $ (1.33) $ 0.40 $ (1.36) $ 0.69 Weighted average units
outstanding Basic 227,352 201,998 226,912 201,370 Diluted 227,352
207,142 226,912 206,894
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CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------
Three Months Ended June 30 Six Months Ended June 30
-------------------------------------------------------------------------
($CDN thousands) unaudited 2007 2006 2007 2006
-------------------------------------------------------------------------
OPERATING ACTIVITIES Net (loss) earnings $ (301,798) $ 82,875 $
(308,668) $ 142,070 Adjustments for: Unit-based compensation 4,594
11,697 4,441 18,670 Depletion, depreciation and amortization
175,784 149,972 352,224 300,490 Accretion of asset retirement
obligations 3,876 2,457 7,739 4,908 Unrealized (gain) loss on
financial derivatives (46,898) (2,372) (1,482) (7,306) Future
income tax expense (recovery) 356,323 (59,576) 327,555 (79,038)
Accretion of deferred transaction costs 163 - 603 - Asset
retirement costs incurred (3,677) (2,468) (7,064) (5,924) Changes
in non-cash operating working capital 3,282 33,021 7,770 (50,752)
-------------------------------------------------------------------------
191,649 215,606 383,118 323,118
-------------------------------------------------------------------------
FINANCING ACTIVITIES Proceeds from (repayment of) bank debt (5,972)
59,975 53,061 150,523 Proceeds from issuance of units, net of issue
costs 10,076 12,011 21,378 16,350 Distributions to unitholders
(129,626) (139,236) (258,814) (272,115)
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(125,522) (67,250) (184,375) (105,242)
-------------------------------------------------------------------------
INVESTING ACTIVITIES Acquisition of petroleum and natural gas
properties (917) (23,869) (1,836) (23,869) Disposition of petroleum
and natural gas properties 46,470 - 49,427 - Corporate
acquisitions, net of cash - (36,000) - (36,000) Capital
expenditures (111,680) (88,487) (246,334) (158,007)
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(66,127) (148,356) (198,743) (217,876)
-------------------------------------------------------------------------
CASH BEGINNING AND END OF PERIOD $ - $ - $ - $ -
-------------------------------------------------------------------------
The Trust paid the following cash amounts: Interest paid $ 22,289 $
13,453 $ 45,019 $ 26,895 Income and capital taxes paid $ 5,509 $
4,029 $ 12,911 $ 10,475
-------------------------------------------------------------------------
DATASOURCE: Canetic Resources Trust CONTACT: Investor Relations,
(403) 539-6300, Toll Free - 1-877-539-6300, ,
http://www.canetictrust.com/
Copyright