Crew Energy Inc. (TSX:CR) of Calgary, Alberta is pleased to present its
operating and financial results for the three month period ended March 31, 2009.
Highlights
- First quarter production averaged a record 15,022 boe per day, an increase of
42% over the first quarter of 2008;
- Completed the sale of 130 boe per day for $10.7 million in the first quarter
and subsequent to quarter end, entered into an agreement to sell an additional
540 boe per day of production for $22.5 million;
- On May 7, 2009, announced a $43.4 million equity financing to be completed
during the second quarter;
- Upon the closing of the disposition and equity transactions, net debt is
expected to be reduced by $63 million;
- Significantly increased the Company's 2009 hedging position underpinning 2009
funds flow;
- Subsequent to quarter end, extended the Company's current bank facility to
June 14, 2010 with a confirmed borrowing base of $270 million;
- Reduced operating costs at Princess, Alberta by 33% from $16.50 per boe to
$11.00 per boe;
- Added ten (WI-100%) sections of land surrounding a Crew Montney exploration
discovery to increase the Company's Montney land position to 184 net sections
and received regulatory approval to commence construction of the Septimus,
British Columbia 25 mmcf per day gas processing facility.
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Financial
($ thousands, except Three months ended Three months ended
per share amounts) Mar. 31, 2009 Mar. 31, 2008
----------------------------------------------------------------------------
Petroleum and natural gas sales 46,342 51,389
Funds from operations (note 1) 16,521 29,038
Per share - basic 0.23 0.54
- diluted 0.23 0.54
Net income (loss) (9,018) 941
Per share - basic (0.13) 0.02
- diluted (0.13) 0.02
Exploration and development investment 23,678 49,102
Property acquisitions (net of dispositions) (10,690) 8,646
Net capital expenditures 12,988 57,748
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Capital Structure At at As at
($ thousands) Mar. 31, 2009 Dec. 31, 2008
----------------------------------------------------------------------------
Working capital deficiency (note 2) 12,656 31,822
Bank loan 239,690 223,628
Net debt 252,346 255,450
Bank facility 270,000 285,000
Common Shares Outstanding (thousands) 71,084 71,084
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Notes:
(1) Funds from operations is calculated as cash provided by operating
activities, adding the change in non-cash working capital, asset
retirement expenditures and the transportation liability charge. Funds
from operations is used to analyze the Company's operating performance
and leverage. Funds from operations does not have a standardized measure
prescribed by Canadian Generally Accepted Accounting Principles and
therefore may not be comparable with the calculations of similar
measures for other companies.
(2) Working capital deficiency includes only accounts receivable less
accounts payable and accrued liabilities.
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Operations
Three months ended Three months ended
Mar. 31, 2009 Mar. 31, 2008
----------------------------------------------------------------------------
Daily production
Natural gas (mcf/d) 59,539 51,707
Oil (bbl/d) 3,714 1,612
Natural gas liquids (bbl/d) 1,385 384
Oil equivalent (boe/d @ 6:1) 15,022 10,614
Per million diluted shares 211 197
Average prices (note 1)
Natural gas ($/mcf) 5.09 8.19
Oil ($/bbl) 43.34 96.40
Natural gas liquids ($/bbl) 36.02 64.59
Oil equivalent ($/boe) 34.28 53.20
Operating expenses
Natural gas ($/mcf) 1.71 1.18
Oil ($/bbl) 10.69 8.69
Natural gas liquids ($/bbl) 8.60 5.67
Oil equivalent ($/boe @ 6:1) 10.21 6.91
Netback
Operating netback ($/boe) (note 2) 14.58 33.06
Realized losses on financial instruments 0.12 -
G&A ($/boe) 1.13 1.08
Interest and other ($/boe) 1.10 1.92
Funds from operations ($/boe) 12.23 30.06
Drilling Activity
Gross wells 7 12
Working interest wells 1.8 9.8
Success rate, net wells 92% 100%
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Notes:
(1) Average prices are before deduction of transportation costs and do not
include hedging gains and losses.
(2) Operating netback equals petroleum and natural gas sales including
realized hedging gains and losses on commodity contracts less royalties,
operating costs and transportation costs calculated on a boe basis.
Operating netback and funds from operations netback do not have a
standardized measure prescribed by Canadian Generally Accepted
Accounting Principles and therefore may not be comparable with the
calculations of similar measures for other companies.
Overview
The first quarter of 2009 was less active for Crew than previous years as a
result of declining commodity prices, the initiation of Alberta's New Royalty
Framework and tight equity and credit markets brought on by the global
recession. Crew drilled 7 (1.8 net) wells resulting in a 92% success rate.
Included in the first quarter program were two exploration wells resulting in
one (1.0 net) cased gas well and one (0.15 net) dry and abandoned well. Crew
also participated in five (0.65 net) coal bed methane wells at Wimborne,
Alberta. Approximately $7 million was spent in the first quarter on equipment
purchases for Crew's proposed 25 mmcf per day Septimus, British Columbia gas
plant. The gas plant has cleared all regulatory hurdles and construction is
expected to commence when surface conditions permit with commissioning expected
to occur in late third quarter or early fourth quarter. The Company also
completed a 28 square mile three dimensional seismic program at Portage, British
Columbia and spent $2.8 million acquiring land offsetting a significant vertical
Montney formation discovery in northeast British Columbia.
First quarter commodity prices were significantly lower year over year. Crew's
wellhead natural gas price averaged $5.09 per mcf which was 38% lower than the
first quarter of 2008 price of $8.19 per mcf. Crew's oil price was down 55% from
$96.40 per bbl in the first quarter of 2008 to $43.34 per bbl in the same period
of 2009. This decline in commodity prices had a significant impact on Crew's
funds flow from operations and net loss and played a large factor in the
Company's low activity level. The Company entered into commodity hedges during
the first quarter which will aid in reducing the potential impact of weak
commodity pricing for the remainder of 2009.
On May 7, 2009, the Company announced that it had entered into a bought deal
equity financing agreeing to issue 7,000,000 Common Shares at $6.20 per share
for aggregate gross proceeds of $43.4 million. Proceeds of the offering will
initially be used to pay down the Company's bank debt and then will be used to
fund a portion of the Company's future capital program. Closing of the offering
is expected to occur in late May and is subject to satisfaction of customary
conditions including all necessary regulatory approvals.
In order to provide additional balance sheet flexibility, during the first
quarter, the Company closed the sale of 130 boe per day of low working interest
assets in Saskatchewan for $10.7 million. In addition, the Company has signed a
purchase and sale agreement for the sale of non-core central Alberta assets with
current production of 540 boe per day for gross proceeds of $22.5 million. This
sale is expected to close during the second quarter of 2009.
Risk Management Activity
With the current economic recession fully established, hedging has become more
important in protecting corporate funds from operations from volatile commodity
prices. Crew now has over 40% of the Company's non-royalty natural gas volumes
hedged at an average floor price of $6.13 per gigajoule ("gj") from April
through October 2009, in order to protect its capital program and balance sheet
through the current commodity price downturn. These hedges include 5,000 gj per
day collared with an average floor of $6.55 per gj and an average ceiling of
$8.40 per gj for calendar 2009. Crew has also acquired natural gas puts on
15,000 gj per day at $6.00 per gj for the period April 1, 2009 through October
31, 2009. These puts were paid for with the sale of natural gas calls on 15,000
gj per day at an average price of $7.83 per gj for the period January 1, 2010
through December 31, 2010.
Looking forward to 2010, Crew has entered into fixed price gas contracts for
5,000 gj per day at an average $6.10 per gj for calendar 2010. The Company has
also hedged oil production for 2010 with a fixed price contract for 250 bbl per
day at $78.50 CDN WTI per bbl and a collar on 500 bbl per day with a floor of
$72 WTI CDN per bbl and a ceiling of $88 CDN WTI per bbl. Crew will continue to
engage in a base level of hedging activity to protect future capital programs
and maintain financial flexibility.
Currently all of Crew's production is sold in Canadian markets and denominated
in Canadian dollars. Canadian commodities trade independently of US commodities;
however, prices in Canada are closely correlated with prices in the US and are
impacted by fluctuations in the exchange rate between the Canadian and US
dollar. When the Canadian dollar strengthens in relation to the US dollar we
generally experience a decrease in Canadian commodity prices in comparison to US
commodity prices. As a result, Crew has fixed the exchange rate on US $4 million
per month at 1.2400 for the period February 2009 through December 2009.
As a result of the current economic downturn and the decrease in central banks'
prime lending rates, the interest rates charged on banker's acceptances are at
levels not seen in decades. In order to reduce the risk of a future increase in
the interest rate charged on banker's acceptances, the Company has entered into
contracts fixing the rate on $100 million of banker's acceptances for the period
beginning in February 2009 to February 2011 at a rate of 1.10% plus the
applicable stamping fee charged by the Company's bank syndicate.
OPERATIONS UPDATE
During the first quarter, the Company drilled seven (1.8 net) wells resulting in
six (1.65 net) gas wells and one (0.15 net) dry and abandoned well. In addition,
Crew tied in ten (10 net) oil wells and 11 (3.0 net) gas wells. Nine of the gas
well tie-ins were low working interest coal bed methane wells in the Wimborne
area of central Alberta.
Crew currently plans to continue to regulate capital expenditures to approximate
funds flow from operations in this low commodity price environment. The primary
focus for the Company will be to continue with its cost control program on the
assets acquired in August 2008 to bring those properties in line with Crew's
traditionally low operating cost structure, optimize production operations at
its Pekisko oil play at Princess, Alberta and complete the construction and
commissioning of the Septimus gas processing facility.
Montney Play, Northeast British Columbia
Crew controls 184 net sections on the Montney play in northeast British
Columbia. The Company has now drilled or re-completed 12 wells targeting the
Montney and drilled one cased exploration well in the first quarter. Crew
continues to concentrate its development drilling efforts in the Septimus area
where it is experiencing increasingly better results as drilling and completion
techniques improve. The Company is currently producing at a restricted rate of
seven mmcf per day from the Montney at Septimus and has an estimated seven to
eight mmcf per day of additional productive capacity. All regulatory approvals
have been acquired to begin the construction of the Septimus gas plant. This 25
mmcf per day facility is expected to be commissioned late in the third quarter
or early in the fourth quarter resulting in a 250% increase in takeaway capacity
and a substantial reduction in area operating costs. To optimize productive
capacity at Septimus, Crew plans on drilling three to five wells in the third
and fourth quarter of 2009. With road and pipeline infrastructure established at
Septimus, capital cost efficiencies are expected to improve, further enhancing
the economics of this play.
Pekisko Play, Princess Alberta
Crew tied in ten (10 net) wells in this area in the first quarter bringing area
production up to 3,500 boe per day representing a 45% increase from the 2,400
boe per day rate when the acquisition of Gentry Resources Ltd. closed in August
2008.
Drilling results have exceeded expectations at Princess. This is exhibited by
one of the Company's horizontal wells which continues to produce 330 to 350 bbls
per day of oil and has produced over 52,000 bbls of oil since mid October 2008
while maintaining high fluid levels. A number of wells with high fluid levels
require additional water disposal capacity before pump efficiencies can be
maximized. Crew is in the process of increasing the fluid handling capacity as
part of the Company's optimization program.
Field level cost control initiatives have resulted in area operating costs
declining from $16.50 per boe in August 2008 to an estimated $11 per boe in
March of 2009. Crew has identified other operating cost reduction opportunities
which will be implemented over the next three quarters.
Outlook
Crew has significantly strengthened its financial flexibility and remains
committed to maintain or reduce debt levels by spending within funds from
operations and disposing of non-core assets in order to focus its capital on the
Company's resource plays. The 2009 capital expenditure budget remains at $80
million and is currently planned to be funded by funds from operations. With a
long term view in mind, Crew will continue its focus on the natural gas resource
in the Montney formation at Septimus, British Columbia and the oil resource in
the Pekisko formation at Princess, Alberta. The Company plans to take advantage
of this period of low activity levels by building the Septimus gas plant with
expectations of lower capital outlays as a result of the industry slowdown. When
the plant becomes operational, it is expected to add $7 to $8 per boe to Crew's
Septimus netbacks as a result of the elimination of third party transportation
and processing fees on the Company's Septimus production.
Crew forecasts to average approximately 14,100 boe per day in 2009 down from
14,500 boe per day as a result of the previously discussed dispositions of 670
boe per day. This average production rate also assumes three plant turnarounds
in the second quarter affecting approximately 1,200 boe per day of Crew
production primarily associated with a planned three week turnaround of the Fort
Nelson, British Columbia natural gas processing facility.
Crew will continue to monitor commodity pricing, interest rates and foreign
exchange rates and plans to continue to enter into derivative contracts in an
attempt to ensure base levels of funds from operations to fund its future
capital programs.
We have experienced unprecedented volatility in commodity prices and equity and
credit markets over the past twelve months. Our Board of Directors, management
and staff have experienced many positive and negative cycles and we are well
prepared and motivated to manage Crew through these uncertain times. The plan
for 2009 remains to:
- Maintain or reduce debt levels by spending within funds flow and/or disposing
of additional non core assets.
- Complete the recently announced equity financing.
- Improve operating efficiencies to lower costs and improve netbacks.
- Actively pursue additional risk management initiatives to protect future
capital programs and Crew's balance sheet.
- Continue to exhibit steady reserve and production growth.
- Continue to capture additional resource opportunities.
- Preserve the value and future growth prospects of Crew.
- Position the Company to exit this recession in a position of strength.
I would like to thank our shareholders for their patience and their continued
support. We strongly believe in the quality of our staff and assets to provide
superior returns to our shareholders and look forward to reporting our progress
in the second quarter report.
Management's Discussion and Analysis
ADVISORIES
Management's discussion and analysis ("MD&A") is the Company's explanation of
its financial performance for the period covered by the financial statements
along with an analysis of the Company's financial position. Comments relate to
and should be read in conjunction with the unaudited consolidated financial
statements of the Company for the three month periods ended March 31, 2009 and
2008 and the audited consolidated financial statements and Management Discussion
and Analysis for the year ended December 31, 2008. The consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles ("GAAP") in Canada and all figures provided herein and in the
December 31, 2008 consolidated financial statements are reported in Canadian
dollars.
Forward Looking Statements
This MD&A contains forward-looking statements. Management's assessment of future
plans and operations, capital expenditures, methods of financing capital
expenditures and the ability to fund financial liabilities, expected commodity
prices and the impact on Crew, future operating costs, future transportation
costs, expected change in royalty rates, expected closing of an equity financing
and the timing thereof, interest rates and the timing of and impact of adoption
of IFRS and other accounting policies may constitute forward-looking statements
under applicable securities laws and necessarily involve risks including,
without limitation, risks associated with oil and gas exploration, development,
exploitation, production, marketing and transportation, loss of markets,
volatility of commodity prices, currency fluctuations, imprecision of reserve
estimates, environmental risks, competition from other producers, inability to
retain drilling rigs and other services, incorrect assessment of the value of
acquisitions, failure to realize the anticipated benefits of acquisitions, the
inability to fully realize the benefits of the acquisitions, delays resulting
from or inability to obtain required regulatory approvals and ability to access
sufficient capital from internal and external sources. As a consequence, the
Company's actual results may differ materially from those expressed in, or
implied by, the forward looking statements.
Forward looking statements or information are based on a number of factors and
assumptions which have been used to develop such statements and information but
which may prove to be incorrect. Although Crew believes that the expectations
reflected in such forward-looking statements or information are reasonable,
undue reliance should not be placed on forward looking statements because the
Company can give no assurance that such expectations will prove to be correct.
In addition to other factors and assumptions which may be identified in this
document and other documents filed by the Company, assumptions have been made
regarding, among other things: the impact of increasing competition; the general
stability of the economic and political environment in which Crew operates; the
ability of the Company to obtain qualified staff, equipment and services in a
timely and cost efficient manner; drilling results; the ability of the operator
of the projects which the Company has an interest in to operate the field in a
safe, efficient and effective manner; Crew's ability to obtain financing on
acceptable terms; field production rates and decline rates; the ability to
reduce operating costs; the ability to replace and expand oil and natural gas
reserves through acquisition, development or exploration; the timing and costs
of pipeline, storage and facility construction and expansion; the ability of the
Company to secure adequate product transportation; future oil and natural gas
prices; currency, exchange and interest rates; the regulatory framework
regarding royalties, taxes and environmental matters in the jurisdictions in
which the Company operates; and Crew's ability to successfully market its oil
and natural gas products. Readers are cautioned that the foregoing list of
factors is not exhaustive. Additional information on these and other factors
that could affect the Company's operations and financial results are included in
reports on file with Canadian securities regulatory authorities and may be
accessed through the SEDAR website (www.sedar.com) or at the Company's website
(www.crewenergy.com). Furthermore, the forward looking statements contained in
this document are made as at the date of this document and the Company does not
undertake any obligation to update publicly or to revise any of the included
forward looking statements, whether as a result of new information, future
events or otherwise, except as may be required by applicable securities laws.
Conversions
The oil and gas industry commonly expresses production volumes and reserves on a
"barrel of oil equivalent" basis ("boe") whereby natural gas volumes are
converted at the ratio of six thousand cubic feet to one barrel of oil. The
intention is to sum oil and natural gas measurement units into one basis for
improved analysis of results and comparisons with other industry participants.
Throughout this MD&A, Crew has used the 6:1 boe measure which is the approximate
energy equivalency of the two commodities at the burner tip. Boe does not
represent a value equivalency at the plant gate which is where Crew sells its
production volumes and therefore may be a misleading measure if used in
isolation.
Non-GAAP Measures
One of the benchmarks Crew uses to evaluate its performance is funds from
operations. Funds from operations is a measure not defined in GAAP that is
commonly used in the oil and gas industry. It represents cash provided by
operating activities before changes in non-cash working capital, asset
retirement expenditures and the transportation liability charge. The Company
considers it a key measure as it demonstrates the ability of the business to
generate the cash flow necessary to fund future growth through capital
investment and to repay debt. Funds from operations should not be considered as
an alternative to, or more meaningful than cash flow provided by operating
activities as determined in accordance with GAAP as an indicator of the
Company's performance. Crew's determination of funds from operations may not be
comparable to that reported by other companies. Crew also presents funds from
operations per share whereby per share amounts are calculated using weighted
average shares outstanding consistent with the calculation of income per share.
The following table reconciles Crew's cash provided by operating activity to
funds from operations:
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($ thousands) Three months ended Three months ended
Mar. 31, 2009 Mar. 31, 2008
----------------------------------------------------------------------------
Cash provided by operating activities 19,506 29,540
Asset retirement expenditures 101 308
Transportation liability charge 328 329
Change in non-cash working capital (3,414) (1,139)
----------------------------------------------------------------------------
Funds from operations 16,521 29,038
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Management uses certain industry benchmarks such as operating netback to analyze
financial and operating performance. This benchmark as presented does not have
any standardized meaning prescribed by Canadian GAAP and therefore may not be
comparable with the calculation of similar measures for other entities.
Operating netback equals total petroleum and natural gas sales including
realized gains and losses on commodity contracts less royalties, operating costs
and transportation calculated on a boe basis. Management considers operating
netbacks an important measure to evaluate its performance as it demonstrates its
profitability relative to current commodity prices.
RESULTS OF OPERATIONS
Production
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Three months ended Three months ended
March 31, 2009 March 31, 2008
Oil Ngl Nat. gas Total Oil Ngl Nat. gas Total
(bbl/d)(bbl/d) (mcf/d)(boe/d) (bbl/d) (bbl/d) (mcf/d)(boe/d)
----------------------------------------------------------------------------
Plains Core 3,491 970 40,287 11,175 228 1,215 36,123 7,464
North Core 223 415 19,252 3,847 156 397 15,584 3,150
----------------------------------------------------------------------------
Total 3,714 1,385 59,539 15,022 384 1,612 51,707 10,614
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First quarter 2009 production increased over the first quarter of 2008 as a
result of a successful drilling program that added new production in the
Septimus, British Columbia area and oil production in the Princess, Alberta
area. Production in the first quarter was also impacted by the production
acquired through the August 22, 2008 acquisition of Gentry Resources Inc.
("Gentry") which included 4,100 boe per day comprised of liquids production of
approximately 1,900 bbl per day and natural gas production of approximately 13
mmcf per day at the date of acquisition. The impact of these additions was
partially offset by high declines on new wells in the Pine Creek, Alberta area.
Revenue
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Three months ended Three months ended
Mar. 31, 2009 Mar. 31, 2008
----------------------------------------------------------------------------
Revenue ($ thousands)
Natural gas 27,270 38,543
Oil 14,485 3,372
Natural gas liquids 4,489 9,474
Sulphur 98 -
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Total 46,342 51,389
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Crew average prices
Natural gas ($/mcf) 5.09 8.19
Oil ($/bbl) 43.34 96.40
Natural gas liquids ($/bbl) 36.02 64.59
Oil equivalent ($/boe) 34.28 53.20
Benchmark pricing
Natural Gas - AECO C daily index (Cdn $/mcf) 4.99 8.09
Oil - Bow River Crude Oil (Cdn $/bbl) 53.46 87.93
Oil and ngl - Light Sweet @ Edmonton
(Cdn $/bbl) 49.53 97.61
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Crew's first quarter 2009 revenue decreased 10% over the first quarter 2008 due
to the 36% decrease in average commodity prices partially offset by a 42%
increase in the Company's production.
Both the Company's average natural gas price and the Company's benchmark natural
gas price decreased 38% in the first quarter of 2009 compared to the first
quarter of 2008. In the first quarter of 2009, the Company's oil production was
mainly medium grade oil from the Princess area, acquired as part of the August
2008 Gentry acquisition, compared to light oil produced in northeast British
Columbia and central Alberta in the first quarter of 2008. Princess oil
production is approximately 26 degree API that is delivered into the Bow River
pipeline system. The Company's oil price decreased 55% in the first quarter of
2009 compared with the same period in 2008 as a result of the significant
decline in oil prices and to a lesser extent by the change in quality of Crew's
oil production. The Company's ngl price decreased 44% in 2009 compared to a 49%
decrease in the benchmark light sweet at Edmonton. A decrease in lower valued
ethane production in the Ferrier, Alberta area accounts for the disproportionate
decrease in ngl prices.
Royalties
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----------------------------------------------------------------------------
($ thousands, except per boe) Three months ended Three months ended
Mar. 31, 2009 Mar. 31, 2008
----------------------------------------------------------------------------
Royalties 10,680 10,621
Per boe 7.90 11.00
Percentage of revenue 23.0% 20.7%
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Royalties as a percentage of revenue increased in the quarter compared to the
same quarter of 2008 due to higher royalty rates on the freehold royalty assets
acquired in the Gentry corporate acquisition in August 2008. The Company's
royalties as a percentage of revenue was slightly higher than the forecasted
range of 21% to 22% due to higher than forecasted proportionate revenues from
the Company's freehold production in the Princess, Alberta area. In the current
price environment, freehold production from Princess attracts a higher royalty
rate than the Company's crown production. Corporately, Crew has revised its
forecasted annual royalties as a percentage of revenue to average 22% to 23% for
2009 for this reason.
Financial Instruments
Commodities
The Company enters into derivative and physical risk management contracts in
order to reduce volatility in financial results, to protect acquisition
economics and to ensure a certain level of cash flow to fund planned capital
projects. Crew's strategy focuses on the use of puts, costless collars, swaps
and fixed price contracts to limit exposure to downturns in commodity prices
while allowing for participation in commodity price increases. The Company's
financial derivative trading activities are conducted pursuant to the Company's
Risk Management Policy approved by the Board of Directors.
As at March 31, 2009, the Company held financial instrument contracts and direct
sales agreements as follows:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Subject of Notional
Contract Quantity Term Reference
----------------------------------------------------------------------------
AECO C
Natural Gas 2,500 gj/day January 1, 2009 - December 31, 2009 Monthly Index
AECO C
Natural Gas 2,500 gj/day January 1, 2009 - December 31, 2009 Monthly Index
less $0.09
AECO C
Natural Gas 15,000 gj/day April 1, 2009 - October 31, 2009 Monthly Index
AECO C
Natural Gas 5,000 gj/day January 1, 2010 - December 31, 2010 Monthly Index
AECO C
Natural Gas 10,000 gj/day January 1, 2010 - December 31, 2010 Monthly Index
AECO C
Natural Gas 2,500 gj/day January 1, 2010 - December 31, 2010 Monthly Index
Oil 250 bbl/day January 1, 2010 - December 31, 2010 CDN$ WTI
----------------------------------------------------------------------------
Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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----------------------------------------------------------------------------
Realized
Subject of Option Gain (Loss) Fair Value
Contract Strike Price Traded ($000s) ($000s)
----------------------------------------------------------------------------
Natural Gas $ 6.60 - $ 8.50 Collar 283 1,671
Natural Gas $ 6.50 - $ 8.30 Collar 433 1,711
Natural Gas $ 6.00 Put 6,396
Natural Gas $ 8.00 Call (690)
Natural Gas $ 7.75 Call (1,724)
Natural Gas $ 6.20 Swap 113
Oil $ 78.50 Swap 1
----------------------------------------------------------------------------
Total 716 7,478
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Subsequent to March 31, 2009, the Company has entered into the following
financial derivative contracts:
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----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Subject of Notional Strike Option
Contract Quantity Term Reference Price Traded
----------------------------------------------------------------------------
Gas 2,500 gj/day November 1, 2009 - AECO C $6.00 Swap
December 31, 2010 Monthly Index
Oil 500 bbl/day January 1, 2010 - $72.00 -
December 31, 2010 CDN$ WTI $88.00 Collar
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----------------------------------------------------------------------------
Foreign currency
Although all of the Company's petroleum and natural gas sales are conducted in
Canada and are denominated in Canadian dollars, Canadian commodity prices are
influenced by fluctuations in the Canadian to U.S. dollar exchange rate. At
March 31, 2009, the Company had the following foreign currency contracts in
place:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Subject of Notional
Contract Quantity Term Reference
----------------------------------------------------------------------------
USD / CAD $ US $2M / February 1, 2009 - December 31, 2009 CAD/USD
exchange Month
USD / CAD $ US $2M / February 1, 2009 - December 31, 2009 CAD/USD
exchange Month
----------------------------------------------------------------------------
Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Realized
Subject of Strike Option Gain (Loss) Fair Value
Contract Price Traded ($000s) ($000s)
----------------------------------------------------------------------------
USD / CAD $
exchange 1.22 Swap (139) (695)
USD / CAD $
exchange 1.26 Swap 23 (19)
----------------------------------------------------------------------------
Total (116) (714)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Interest rate
The Company is exposed to interest rate fluctuations on its bank debt which
bears a floating rate of interest. As shown below, at March 31, 2009, Crew had
contracts in place fixing the rate on $100 million of its bank debt borrowed as
banker's acceptances for a period of 24 months at a rate of 1.10%. The Company
pays an additional stamping fee and margins on banker's acceptances as outlined
in note 3 of the financial statements.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Subject of Notional
Contract Quantity Term Reference
----------------------------------------------------------------------------
BA Rate $50M / year February 10, 2009 - February 10, 2011 BA-CDOR
BA Rate $50M / year February 12, 2009 - February 12, 2011 BA-CDOR
----------------------------------------------------------------------------
Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Realized
Subject of Strike Option Gain (Loss) Fair Value
Contract Price Traded ($000s) ($000s)
----------------------------------------------------------------------------
BA Rate 1.10% Swap (23) (375)
BA Rate 1.10% Swap (24) (264)
----------------------------------------------------------------------------
Total (47) (639)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating Costs
----------------------------------------------------------------------------
----------------------------------------------------------------------------
($ thousands, except per boe) Three months ended Three months ended
Mar. 31, 2009 Mar. 31, 2008
----------------------------------------------------------------------------
Operating costs 13,810 6,673
Per boe 10.21 6.91
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In the first quarter of 2009, the Company's operating costs per unit increased
over the same period in 2008 due to the addition of higher cost production from
the Gentry acquisition. Operating costs for the Gentry properties were estimated
at $16.50 per boe at closing but through cost cutting initiatives have decreased
to approximately $12.50 per boe in the first quarter of 2009. Higher than
expected prior period equalizations and adjustments to prior period estimates
have increased the Company's per boe costs in the first quarter of 2009 above
the Company's forecasted level. The Company continues to forecast operating
costs to range from $9.50 to $10.00 per boe for 2009.
Transportation Costs
----------------------------------------------------------------------------
----------------------------------------------------------------------------
($ thousands, except per boe) Three months ended Three months ended
Mar. 31, 2009 Mar. 31, 2008
----------------------------------------------------------------------------
Transportation costs 2,868 2,071
Per boe 2.12 2.14
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In 2009, the Company's transportation costs per unit were consistent with 2008
levels. Increased production in Septimus, British Columbia which has higher gas
transportation costs per unit was offset by increased oil production at
Princess, Alberta which has a lower clean oil trucking cost per unit.
Operating Netbacks
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended Three months ended
March 31, 2009 March 31, 2008
Oil Ngl Nat. gas Total Oil Ngl Nat. gas Total
($/bbl)($/bbl) ($/mcf)($/boe) ($/bbl) ($/bbl) ($/mcf)($/boe)
----------------------------------------------------------------------------
Revenue 43.34 36.02 5.09 34.28 96.40 64.59 8.19 53.20
Realized
commodity
hedging gain
(loss) - - 0.13 0.53 - - (0.02) (0.09)
Royalties (10.59)(12.17) (1.25) (7.90) (12.47) (17.82) (1.61)(11.00)
Operating
costs (10.69) (8.60) (1.71)(10.21) (8.69) (5.67) (1.18) (6.91)
Transportation
costs (1.57) (0.01) (0.44) (2.12) (3.09) (0.03) (0.42) (2.14)
----------------------------------------------------------------------------
Operating
netbacks 20.49 15.24 1.82 14.58 72.15 41.07 4.96 33.06
----------------------------------------------------------------------------
----------------------------------------------------------------------------
General and Administrative Costs
----------------------------------------------------------------------------
----------------------------------------------------------------------------
($ thousands, except per boe) Three months ended Three months ended
Mar. 31, 2009 Mar. 31, 2008
----------------------------------------------------------------------------
Gross costs 3,480 2,634
Operator's recoveries (424) (548)
Capitalized costs (1,528) (1,043)
----------------------------------------------------------------------------
General and administrative expenses 1,528 1,043
Per boe $1.13 1.08
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Increased general and administrative costs before recoveries and capitalization
were mainly the result of increased staff levels to accommodate the Company's
larger operations in the first quarter of 2009 compared to 2008. Net general and
administrative costs per boe increased in 2009 compared to the same period in
2008 due to a decrease in capital expenditures and a subsequent decrease in
capital recoveries. The Company expects general and administrative expenses to
average between $1.00 and $1.10 per boe for the year with higher amounts
incurred in the first half of the year due to the payment of annual costs
associated with regulatory filings.
Interest
----------------------------------------------------------------------------
----------------------------------------------------------------------------
($ thousands, except per boe) Three months ended Three months ended
Mar. 31, 2009 Mar. 31, 2008
----------------------------------------------------------------------------
Interest expense 1,488 1,855
Average debt level 234,298 105,466
Effective interest rate 2.6% 7.1%
Per boe 1.10 1.92
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In 2009, despite higher average debt levels, lower effective interest rates
decreased the Company's interest expense for the period. In the latter part of
2009, the Company will have increased margins applied to its bank facility which
will negatively affect Crew's interest expense and effective interest rate;
however, lower prime interest rates and interest rates on banker's acceptances
along with the Company's disclosed interest rate swap contract will partially
offset this increase.
Stock-Based Compensation
----------------------------------------------------------------------------
----------------------------------------------------------------------------
($ thousands) Three months ended Three months ended
Mar. 31, 2009 Mar. 31, 2008
----------------------------------------------------------------------------
Gross costs 1,758 1,708
Capitalized costs (879) (854)
----------------------------------------------------------------------------
Total stock-based compensation 879 854
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Company's stock-based compensation expense has remained consistent in 2009
compared with 2008 as an increase in options outstanding has been offset by a
decrease in the fair value of the stock options issued.
Depletion, Depreciation and Accretion
----------------------------------------------------------------------------
----------------------------------------------------------------------------
($ thousands, except per boe) Three months ended Three months ended
Mar. 31, 2009 Mar. 31, 2008
----------------------------------------------------------------------------
Depletion, depreciation and accretion 34,971 22,640
Per boe 25.87 23.44
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Per unit depletion has increased in the first quarter of 2009 due to additional
accretion associated with the added Gentry assets in August 2008 and increased
depletion associated with the addition of the Gentry assets at their fair market
value at the acquisition date, which was higher than historic Company carrying
values for proved reserves.
Future Income Taxes
The provision for future income taxes was a recovery of $5.4 million in the
first quarter of 2009 compared to a recovery of $0.6 million in the same period
of 2008. The decrease in future taxes was a result of a higher pre-tax loss
along with a corporate rate reduction in British Columbia from 11 percent to
10.5 percent in 2010 and a further reduction to 10 percent in 2011.
Cash and Funds from Operations and Net Income (loss)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
($ thousands, except Three months ended Three months ended
per share amounts) Mar. 31, 2009 Mar. 31, 2008
----------------------------------------------------------------------------
Cash provided by operating activities 19,506 29,540
Funds from operations 16,521 29,038
Per share - basic 0.23 0.54
- diluted 0.23 0.54
Net income (loss) (9,018) 941
Per share - basic (0.13) 0.02
- diluted (0.13) 0.02
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The first quarter 2009 decrease in cash provided by operations and funds from
operations was the result of decreased commodity pricing and higher operating
costs for the quarter. The first quarter 2009 net loss resulted from the
decreased commodity prices and higher operating and depletion costs partially
offset by a $4.9 million unrealized gain on financial instruments.
Capital Expenditures, Acquisitions and Dispositions
During the first quarter, the Company drilled a total of seven (1.8 net) wells
resulting in six (1.6 net) natural gas wells and one (0.2 net) dry and abandoned
well. In addition, the Company also added to its inventory of undeveloped land
in northeastern British Columbia. Crew continued to add to its infrastructure,
procuring equipment for its Septimus facility in northeastern British Columbia
and equipping and pipeline connecting numerous wells in the Princess, Alberta
area. In the first quarter of 2009, the Company closed a disposition of non-core
properties of approximately 130 boe per day in Saskatchewan for net proceeds of
$10.7 million. In addition, the Company has signed a purchase and sale agreement
for the sale of non-core central Alberta assets with current production of 540
boe per day for gross proceeds of $22.5 million. This sale is expected to close
during the second quarter of 2009.
Total net capital expenditures for the first quarter of 2009 were $13.0 million
compared to $57.7 million for the same period in 2008. The expenditures are
detailed below:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
($ thousands) Three months ended Three months ended
March 31, 2009 March 31, 2008
----------------------------------------------------------------------------
Land 3,150 17,864
Seismic 1,773 1,122
Drilling and completions 5,654 22,656
Facilities, equipment and pipelines 11,456 6,347
Other 1,645 1,113
----------------------------------------------------------------------------
Total exploration and development 23,678 49,102
Property acquisitions (dispositions) (10,690) 8,646
----------------------------------------------------------------------------
Total 12,988 57,748
----------------------------------------------------------------------------
----------------------------------------------------------------------------
As a result of the current economic environment, the Company plans to adjust its
capital expenditure program to remain within funds from operations. As at March
31, 2009, budgeted capital expenditures are estimated at $80 million.
Liquidity and Capital Resources
Capital Funding
On May 11, 2009, the Company completed the extension of its credit facility with
a syndicate of banks (the "Syndicate"). The credit facility has been amended to
a revolving line of credit of $255 million and an operating line of credit of
$15 million (the "Facility"). The Facility revolves for a 364 day period and
will be subject to its next 364 day extension by June 14, 2010. If not extended,
the Facility will cease to revolve, the margins there under will increase by
0.50 percent and all outstanding balances under the Facility will become
repayable in one year. The available lending limits of the Facility are reviewed
semi-annually and are based on the Syndicate's interpretation of the Company's
reserves and future commodity prices. There can be no assurance that the amount
of the available Facility will not be adjusted at the next scheduled review on
or before October 31, 2009. At March 31, 2009, the Company had drawings of
$239.7 million on the Facility and had issued letters of credit totaling $5.4
million of which $5.0 million expires by September 30, 2009.
On May 7, 2009, the Company announced that it had entered into a bought deal
sale of 7,000,000 Common Shares of the Company at a price of $6.20 per share for
aggregate gross proceeds of $43.4 million. Proceeds of the offering will
initially be used to pay down drawings on the Company's Facility and then will
be used to fund a portion of the Company's future capital program. Closing of
the offering is expected to occur in late May, 2009 and is subject to
satisfaction of customary conditions including the necessary regulatory
approvals.
The Company will continue to fund its on-going operations from a combination of
cash flow, debt, asset dispositions and equity financings as needed. As the
majority of our on-going capital expenditure program is directed to the further
growth of reserves and production volumes, Crew is readily able to adjust its
budgeted capital expenditures should the need arise.
Working Capital
The capital intensive nature of Crew's activities generally results in the
Company carrying a working capital deficit. However, the Company maintains
sufficient unused bank credit lines to satisfy such working capital
deficiencies. At March 31, 2009, the Company's working capital deficiency
totaled $12.7 million which, when combined with the drawings on its bank line,
represented 93% of its current bank facility.
Share Capital
As at May 11, 2009, Crew had 71,083,668 Common Shares and 5,934,000 options to
acquire Common Shares of the Company issued and outstanding.
Capital Structure
The Company considers its capital structure to include working capital, bank
debt, and shareholders' equity. Crew's primary capital management objective is
to maintain a strong balance sheet in order to continue to fund the future
growth of the Company. Crew monitors its capital structure and makes adjustments
on an on-going basis in order to maintain the flexibility needed to achieve the
Company's long-term objectives. To manage the capital structure the Company may
adjust capital spending, hedge future revenue and costs, issue new equity, issue
new debt or repay existing debt through asset sales.
The Company monitors debt levels based on the ratio of net debt to annualized
funds from operations. The ratio represents the time period it would take to pay
off the debt if no further capital expenditures were incurred and if funds from
operations remained constant. This ratio is calculated as net debt, defined as
outstanding bank debt and net working capital, divided by annualized funds from
operations for the most recent quarter.
The Company monitors this ratio and endeavours to maintain it at or below 2.0 to
1.0. This ratio may increase at certain times as a result of acquisitions or low
commodity prices. As shown below, as at March 31, 2009, the Company's ratio of
net debt to annualized funds from operations was 3.82 to 1 (December 31, 2008 -
2.15 to 1). This amount has risen above the preferred range of the Company as a
result of the decrease in commodity prices experienced over the past nine
months.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
($ thousands, except ratio) March 31, 2009
----------------------------------------------------------------------------
Net debt 252,346
Funds from operations 16,521
Annualized 66,084
Net debt to annualized funds from operations ratio 3.82
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In order to restore the Company's financial flexibility Crew has adjusted its
capital spending program to remain within funds from operations until commodity
prices recover. The Company has added commodity, interest rate and foreign
exchange hedging for 2009 and 2010 to provide support for its funds from
operations and assist in funding its capital expenditure program. In addition,
on May 7, 2009, the Company announced that it had entered into a bought deal
equity financing for aggregate gross proceeds of $43.4 million. The Company may
also consider the sale of certain non-core assets and will consider other forms
of financing to improve the Company's financial position if cash flow will not
adequately fund the programs planned to achieve the Company's long term
objectives.
Contractual Obligations
Throughout the course of its ongoing business, the Company enters into various
contractual obligations such as credit agreements, purchase of services, royalty
agreements, operating agreements, processing agreements, right of way agreements
and lease obligations for office space and automotive equipment. All such
contractual obligations reflect market conditions prevailing at the time of
contract and none are with related parties. The Company believes it has adequate
sources of capital to fund all contractual obligations as they come due. The
following table lists the Company's obligations with a fixed term.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
($ thousands) Total 2009 2010 2011
----------------------------------------------------------------------------
Bank Loan (note 1) 239,690 - - 239,690
Operating Leases 2,474 742 990 742
Capital commitments 10,200 4,200 6,000 -
Firm transportation
agreements (note 2) 19,040 5,250 7,152 6,638
----------------------------------------------------------------------------
Total 271,404 10,192 14,142 247,070
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Note 1 - Based on the existing terms of the Company's bank facility the
first possible repayment date may come in 2011. However, it is
expected that the revolving bank facility will be extended and no
repayment will be required in the near term.
Note 2 - The firm transportation commitments were acquired as part of the
Company's May, 2007 private company acquisition and represent firm
service commitments for transportation and processing of natural
gas in British Columbia.
Guidance
Crew has significantly strengthened its financial flexibility and remains
committed to maintain or reduce debt levels by spending within funds from
operations and disposing of non-core assets in order to focus its capital on the
Company's resource plays. The 2009 capital expenditure budget remains at $80
million and is currently planned to be funded by funds from operations. With a
long term view in mind, Crew will continue its focus on the natural gas resource
in the Montney formation at Septimus, British Columbia and the oil resource in
the Pekisko formation at Princess, Alberta. The Company plans to take advantage
of this period of low activity levels by building the Septimus gas plant with
expectations of lower capital outlays as a result of the industry slow down.
When the plant becomes operational, it is expected to add $7 to $8 per boe to
Crew's Septimus netbacks as a result of the elimination of third party
transportation and processing fees on the Company's Septimus production.
Crew forecasts to average approximately 14,100 boe per day in 2009 down from
14,500 boe per day as a result of the previously discussed dispositions of 670
boe per day. This average production rate also assumes three plant turnarounds
in the second quarter affecting approximately 1,200 boe per day of Crew
production primarily associated with a planned three week turnaround of the Fort
Nelson, British Columbia natural gas processing facility.
Additional Disclosures
Quarterly Analysis
The following table summarizes Crew's key quarterly financial results for
the past eight financial quarters:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
($ thousands, Mar. Dec. Sept. June Mar. Dec. Sept. June
except per 31 31 30 30 31 31 30 30
share amounts) 2009 2008 2008 2008 2008 2007 2007 2007
----------------------------------------------------------------------------
Total daily
production
(boe/d) 15,022 14,869 11,505 9,445 10,614 9,641 9,268 8,967
Average
wellhead price
($/boe) 34.28 42.99 61.74 70.18 53.20 43.90 39.16 47.43
Petroleum and
natural gas
sales 46,342 58,806 65,345 60,316 51,389 38,942 33,390 38,703
Cash provided
by operations 19,506 25,700 36,208 31,908 29,540 11,882 23,035 24,467
Funds from
operations 16,521 29,646 35,004 34,102 29,038 22,390 21,171 20,885
Per share
- basic 0.23 0.42 0.54 0.60 0.54 0.43 0.45 0.46
- diluted 0.23 0.42 0.54 0.58 0.54 0.43 0.44 0.46
Net income
(loss) (9,018) (74,853) 15,178 5,415 941 6,889 (449) 1,351
Per share
- basic (0.13) (1.05) 0.24 0.09 0.02 0.13 (0.01) 0.03
- diluted (0.13) (1.05) 0.23 0.09 0.02 0.13 (0.01) 0.03
Crew's petroleum and natural gas sales, cash and funds from operations and net
income are all impacted by production levels and volatile commodity pricing.
From 2007 to 2009, despite increasing production, these performance measures
have fluctuated as a result of volatile oil and natural gas prices combined with
the escalating cost of operations.
Significant factors and trends that have impacted the Company's results during
the above periods include:
- Revenue is directly impacted by the Company's ability to replace existing
declining production and add incremental production through its on-going capital
expenditure program.
- Revenue and royalties are significantly impacted by underlying commodity
prices. The Company utilizes a limited amount of derivative contracts and
forward sales contracts to reduce the exposure to commodity price fluctuations.
- In the fourth quarter of 2008 and the first quarter of 2009, revenue was
significantly negatively affected by a dramatic decrease in oil and natural gas
prices.
- Production in the second quarter of 2008 was impacted by a scheduled third
party facility shutdown which disrupted approximately 1,400 boe per day of
production for three weeks in June. Production in the second quarter was also
impacted by several other non-scheduled facility outages.
- In August, 2008, the Company acquired Gentry Resources Inc. with approximately
4,100 boe per day of production at closing. The increased revenue received from
this added production was partially offset by the higher cost structure of these
assets compared to Crew's historic costs.
- Production in the third and fourth quarter of 2007 was reduced by significant
facility outages at Sierra in northeastern British Columbia and Edson and
Ferrier, Alberta.
- Throughout 2007 and 2008, the Company's operating costs, general and
administrative costs and capital expenditures have been subject to inflationary
pressures brought on by increasing demand for services and supplies within the
Canadian oil and gas industry.
- During the quarter ended September 30, 2007 the Company's funds from
operations and net income were positively impacted by the one time receipt of
Alberta deep well royalty holiday credits and 2006 Alberta gas cost allowance
adjustments totalling $4.0 million.
- In the fourth quarter of 2008, Crew performed an impairment test on its
goodwill and determined that its carrying value exceeded its fair value and
therefore an impairment charge of $69.1 million was required.
- During the first three quarters of 2008 and the first quarter of 2009, the
Company experienced volatility in its net income as a result of unrealized gains
and losses on commodity derivative contracts held for risk management purposes.
- In the fourth quarter of 2007, the first quarter of 2008 and the first quarter
of 2009, Crew had a future income tax recovery which positively affected income
due to Canadian provincial and federal government tax rate reductions.
New Accounting Pronouncements
International Financial Reporting Standards ("IFRS")
In February 2008, the CICA Accounting Standards Board ("AcSB") confirmed the
changeover to IFRS from Canadian GAAP will be required for publicly accountable
enterprises for interim and annual financial statements effective for fiscal
years beginning on or after January 1, 2011, including comparatives for 2010.
Crew's financial statements up to and including the December 31, 2010 financial
statements will continue to be reported in accordance with Canadian GAAP as it
exists on each reporting date. Financial statements for the quarter ended March
31, 2011, including comparative amounts, will be prepared on an IFRS basis.
In order to transition to IFRS, Management has established a project team and
formed an executive steering committee. A transition plan has been developed to
convert the financial statements to IFRS. The transition effort is proceeding as
planned. Training has been provided to key employees and the Company continues
to monitor the effect of the transition on information systems, internal
controls over financial reporting and disclosure controls and procedures.
External advisors have been retained and will assist management with the project
on an as needed basis. Staff training programs will continue in 2009 and be
ongoing as the project unfolds. Analysis of differences between IFRS and Crew's
current accounting policies continues, and the impact of various alternatives is
being assessed. Changes in accounting policy are likely and may materially
impact the financial statements. Due to anticipated changes in IFRS prior to the
conversion date, the final impact of the conversion on Crew's financial
statements cannot be measured.
Disclosure Controls and Procedures and Internal Controls over Financial Reporting
The Company's Chief Executive Officer ("CEO") and Chief Financial Officer
("CFO") have designed, or caused to be designed under their supervision,
disclosure controls and procedures to provide reasonable assurance that: (i)
material information relating to the Company is made known to the Company's CEO
and CFO by others, particularly during the period in which the annual filings
are being prepared; and (ii) information required to be disclosed by the Company
in its annual filings, interim filings or other reports filed or submitted by it
under securities legislation is recorded, processed, summarized and reported
within the time period specified in securities legislation.
Crew's CEO and CFO have designed, or caused to be designed under their
supervision, internal controls over financial reporting to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles. The Company is required to disclose herein any
change in the Company's internal control over financial reporting that occurred
during the period beginning on January 1, 2009 and ended on March 31, 2009 that
has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting. No material changes in the
Company's internal control over financial reporting were identified during such
period, that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.
It should be noted that a control system, including the Company's disclosure and
internal controls and procedures, no matter how well conceived, can provide only
reasonable, but not absolute, assurance that the objectives of the control
system will be met and it should not be expected that the disclosure and
internal controls and procedures will prevent all errors or fraud.
Dated as of May 11, 2009
Cautionary Statements
Forward-looking information and statements
This news release contains certain forward-looking information and statements
within the meaning of applicable securities laws. The use of any of the words
"expect", "anticipate", "continue", "estimate", "may", "will", "project",
"should", "believe", "plans", "intends" and similar expressions are intended to
identify forward-looking information or statements. In particular, but without
limiting the forgoing, this news release contains forward-looking information
and statements pertaining to the following: the volume and product mix of Crew's
oil and gas production; future oil and natural gas prices and Crew's commodity
risk management programs; future liquidity and financial capacity; expected
closing of an equity financing and the timing thereof; future results from
operations and operating metrics; future costs, expenses and royalty rates;
future interest costs; the exchange rate between the $US and $Cdn; future
development, exploration, acquisition and development activities and related
capital expenditures; the number of wells to be drilled and completed; the
amount and timing of capital projects; operating costs; the total future capital
associated with development of reserves and resources; and forecast reductions
in operating expenses.
Forward-looking statements or information are based on a number of material
factors, expectations or assumptions of Crew which have been used to develop
such statements and information but which may prove to be incorrect. Although
Crew believes that the expectations reflected in such forward-looking statements
or information are reasonable, undue reliance should not be placed on
forward-looking statements because Crew can give no assurance that such
expectations will prove to be correct. In addition to other factors and
assumptions which may be identified herein, assumptions have been made
regarding, among other things: the impact of increasing competition; the general
stability of the economic and political environment in which Crew operates; the
timely receipt of any required regulatory approvals; the ability of Crew to
obtain qualified staff, equipment and services in a timely and cost efficient
manner; drilling results; the ability of the operator of the projects in which
Crew has an interest in to operate the field in a safe, efficient and effective
manner; the ability of Crew to obtain financing on acceptable terms; field
production rates and decline rates; the ability to replace and expand oil and
natural gas reserves through acquisition, development and exploration; the
timing and cost of pipeline, storage and facility construction and expansion and
the ability of Crew to secure adequate product transportation; future commodity
prices; currency, exchange and interest rates; regulatory framework regarding
royalties, taxes and environmental matters in the jurisdictions in which Crew
operates; and the ability of Crew to successfully market its oil and natural gas
products.
The forward-looking information and statements included in this news release are
not guarantees of future performance and should not be unduly relied upon. Such
information and statements; including the assumptions made in respect thereof,
involve known and unknown risks, uncertainties and other factors that may cause
actual results or events to defer materially from those anticipated in such
forward-looking information or statements including, without limitation: changes
in commodity prices; changes in the demand for or supply of Crew's products;
unanticipated operating results or production declines; changes in tax or
environmental laws, royalty rates or other regulatory matters; changes in
development plans of Crew or by third party operators of Crew's properties,
increased debt levels or debt service requirements; inaccurate estimation of
Crew's oil and gas reserve and resource volumes; limited, unfavourable or a lack
of access to capital markets; increased costs; a lack of inadequate insurance
coverage; the impact of competitors; and certain other risks detailed from
time-to-time in Crew's public disclosure documents, (including, without
limitation, those risks identified in this news release and Crew's Annual
Information Form).
The forward-looking information and statements contained in this news release
speak only as of the date of this news release, and Crew does not assume any
obligation to publicly update or revise any of the included forward-looking
statements or information, whether as a result of new information, future events
or otherwise, except as may be required by applicable securities laws.
BOE equivalent
Barrel of oil equivalents or BOEs may be misleading, particularly if used in
isolation. A BOE 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 wellhead.
Crew is an oil and gas exploration and production company whose shares are
traded on The Toronto Stock Exchange under the trading symbol "CR".
Financial statements for the three month periods ended March 31, 2009 and 2008
are attached.
CREW ENERGY INC.
Consolidated Balance Sheets (unaudited) (thousands)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
March 31, December 31,
2009 2008
----------------------------------------------------------------------------
Assets
Current Assets:
Accounts receivable $ 31,853 $ 42,800
Fair value of financial instruments (note 7) 6,125 1,255
Future income taxes - 15
----------------------------------------------------------------------------
37,978 44,070
Property, plant and equipment (note 2) 981,192 1,001,440
----------------------------------------------------------------------------
$ 1,019,170 $ 1,045,510
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $ 44,509 $ 74,622
Future income taxes 1,215 -
Current portion of other long-term obligations
(note 4) 1,313 1,313
----------------------------------------------------------------------------
47,037 75,935
Bank loan (note 3) 239,690 223,628
Other long-term obligations (note 4) 1,118 1,446
Asset retirement obligations (note 5) 35,397 34,941
Future income taxes 109,920 116,292
Shareholders' Equity
Share capital (note 6) 575,191 575,191
Contributed surplus (note 6) 18,114 16,356
Retained earnings (deficit) (7,297) 1,721
----------------------------------------------------------------------------
586,008 593,268
Commitments (note 10)
Subsequent event (note 11)
----------------------------------------------------------------------------
$ 1,019,170 $ 1,045,510
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
CREW ENERGY INC.
Consolidated Statements of Operations, Comprehensive Income (Loss) and
Retained Earnings (Deficit)
(unaudited)
(thousands, except per share amounts)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Three
months months
ended ended
March 31, March 31,
2009 2008
----------------------------------------------------------------------------
Revenue
Petroleum and natural gas sales $ 46,342 $ 51,389
Royalties (10,680) (10,621)
Realized gain (loss) on financial instruments
(note 7) 553 (88)
Unrealized gain (loss) on financial instruments
(note 7) 4,870 (5,166)
----------------------------------------------------------------------------
41,085 35,514
Expenses
Operating 13,810 6,673
Transportation 2,868 2,071
Interest 1,488 1,855
General and administrative 1,528 1,043
Stock-based compensation 879 854
Depletion, depreciation and accretion 34,971 22,640
----------------------------------------------------------------------------
55,544 35,136
----------------------------------------------------------------------------
Income (loss) before income taxes (14,459) 378
Future income tax reduction (5,441) (563)
----------------------------------------------------------------------------
Net income (loss) and comprehensive income
(loss) (9,018) 941
Retained earnings, beginning of period 1,721 55,040
----------------------------------------------------------------------------
Retained earnings (deficit), end of period $ (7,297) $ 55,981
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income (loss) per share (note 6(e))
Basic $ (0.13) $ 0.02
Diluted $ (0.13) $ 0.02
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
CREW ENERGY INC.
Consolidated Statements of Cash Flows
(unaudited)
(thousands)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Three
months months
ended ended
March 31, March 31,
2009 2008
----------------------------------------------------------------------------
Cash provided by (used in):
Operating activities:
Net income (loss) $ (9,018) $ 941
Items not involving cash:
Depletion, depreciation and accretion 34,971 22,640
Stock-based compensation 879 854
Future income tax reduction (5,441) (563)
Unrealized (gain) loss on financial instruments (4,870) 5,166
Transportation liability charge (note 4) (328) (329)
Asset retirement expenditures (101) (308)
Change in non-cash working capital (note 9) 3,414 1,139
----------------------------------------------------------------------------
19,506 29,540
Financing activities:
Increase in bank loan 16,062 29,115
Issue of common shares - 665
Share issue costs - (14)
----------------------------------------------------------------------------
16,062 29,766
Investing activities:
Exploration and development (23,678) (49,102)
Property (acquisitions) dispositions 10,690 (8,646)
Change in non-cash working capital (note 9) (22,580) (1,558)
----------------------------------------------------------------------------
(35,568) (59,306)
----------------------------------------------------------------------------
Change in cash and cash equivalents -- --
Cash and cash equivalents, beginning of period -- --
----------------------------------------------------------------------------
Cash and cash equivalents, end of period $ -- $ --
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
CREW ENERGY INC.
Notes to Consolidated Financial Statements
For the three months ended March 31, 2009 and 2008
(Unaudited)
(Tabular amounts in thousands)
1. Significant accounting policies:
The interim consolidated financial statements of Crew Energy Inc. ("Crew" or the
"Company") have been prepared by management in accordance with accounting
principles generally accepted in Canada. The interim consolidated financial
statements have been prepared following the same accounting policies and methods
of computation as the consolidated financial statements for the year ended
December 31, 2008. The disclosure which follows is incremental to the disclosure
included with the December 31, 2008 consolidated financial statements. These
interim consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto for the year ended
December 31, 2008.
Certain comparative amounts have been reclassified to conform to current period
presentation.
2. Property, plant and equipment:
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Accumulated
depletion and Net book
March 31, 2009 Cost depreciation value
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Petroleum and natural gas
properties and equipment $ 1,263,887 $ 282,695 $ 981,192
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Accumulated
depletion and Net book
December 31, 2008 Cost depreciation value
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Petroleum and natural gas
properties and equipment $ 1,249,859 $ 248,419 $ 1,001,440
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The cost of unproved properties at March 31, 2009 of $168,779,000 (2008 -
$54,883,000) was excluded from the depletion calculation. Estimated future
development costs associated with the development of the Company's proved
reserves of $106,968,000 (2008 - $28,594,000) have been included in the
depletion calculation and estimated salvage values of $38,640,000 (2008 -
$24,771,000) have been excluded from the depletion calculation.
The following corporate expenses related to exploration and development
activities were capitalized.
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Three months Year ended
ended December 31,
March 31, 2009 2008
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General and administrative expense $ 1,528 $ 4,169
Stock-based compensation expense, including
future income taxes 1,178 4,485
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$ 2,706 $ 8,654
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3. Bank loan:
The Company's bank facility was extended on May 11, 2009 and adjusted to a
revolving line of credit of $255 million and an operating line of credit of $15
million (the "Facility"). The Facility revolves for a 364 day period and will be
subject to its next 364 day extension by June 14, 2010. If not extended, the
Facility will cease to revolve, the margins there under will increase by 0.50
percent and all outstanding advances there under will become repayable in one
year. The available lending limits of the Facility are reviewed semi-annually
and are based on the bank syndicate's interpretation of the Company's reserves
and future commodity prices. There can be no assurance that the amount of the
available Facility will not be adjusted at the next scheduled review on or
before October 31, 2009. The facility is secured by a first floating charge
debenture over the Company's consolidated assets.
Advances under the Facility are available by way of prime rate loans with
interest rates of between 1.75 percent and 3.5 percent over the bank's prime
lending rate and bankers' acceptances and LIBOR loans which are subject to
stamping fees and margins ranging from 2.75 percent to 4.5 percent depending
upon the debt to EBITDA ratio of the Company calculated at the Company's
previous quarter end. The Company's facility will be subject to an additional
0.50 percent increase in these fees and margins at any time drawings on the
facility exceed $250 million. Standby fees are charged on the undrawn facility
at rates ranging from 0.70 percent to 1.2 percent depending upon the debt to
EBITDA ratio.
As at March 31, 2009, the Company's applicable pricing included a 0.10 percent
margin on prime lending and a 1.10 percent stamping fee and margin on Bankers'
Acceptances and LIBOR loans along with a 0.20 percent per annum standby fee on
the portion of the facility that is not drawn. Borrowing margins and fees are
reviewed annually as part of the bank syndicate's annual renewal. At March 31,
2009, the Company had issued letters of credit totaling $5.4 million. The
effective interest rate on the Company's borrowings under its bank facility for
the period ended March 31, 2009 was 2.6% (2008 - 5.7%).
4. Other long-term obligations:
As part of the May, 2007 private company acquisition, the Company acquired
several firm transportation agreements. These agreements had a fair value at the
time of the acquisition of a $4.9 million liability. This amount was accounted
for as part of the acquisition cost and will be charged as a reduction to
transportation expenses over the life of the contracts as they are incurred. The
last of these contracts expires in October 2011. The charge for the three months
ended March 31, 2009 was $0.3 million (2008 - $0.3 million).
5. Asset retirement obligations:
Total future asset retirement obligations were determined by management and were
based on Crew's net ownership interest, the estimated future costs to reclaim
and abandon the wells and facilities and the estimated timing of when the costs
will be incurred. Crew estimated the net present value of its total asset
retirement obligation as at March 31, 2009 to be $35,397,000 (December 31, 2008
- $34,941,000) based on a total future liability of $67,180,000 (December 31,
2008 - $67,588,000). These payments are expected to be made over the next 30
years. An 8% to 10% (2008 - 8% to 10%) credit adjusted risk free discount rate
and 2% (2008 - 2%) inflation rate were used to calculate the present value of
the asset retirement obligation.
The following table reconciles Crew's asset retirement obligations:
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Three months
ended Year ended
March 31, December 31,
2009 2008
----------------------------------------------------------------------------
Carrying amount, beginning of period $ 34,941 $ 18,668
Liabilities incurred 31 1,228
Liabilities acquired (disposed) (169) 13,927
Accretion expense 695 1,893
Liabilities settled (101) (775)
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Carrying amount, end of period $ 35,397 $ 34,941
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6. Share capital:
(a) Authorized:
Unlimited number of Common Shares
(b) Common Shares issued:
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Number of
shares Amount
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Common shares, December 31, 2008 and March 31,
2009 71,084 $ 575,191
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(c) Contributed Surplus:
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----------------------------------------------------------------------------
Amount
----------------------------------------------------------------------------
Contributed surplus, December 31, 2008 $ 16,356
Stock-based compensation 1,758
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Contributed surplus, March 31, 2009 $ 18,114
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(d) Stock-based compensation:
The Company measures compensation costs associated with stock-based compensation
using the fair market value method under which the cost is recognized over the
vesting period of the underlying security. The fair value of each stock option
is determined at each grant date using the Black-Scholes model with the
following weighted average assumptions used for options granted during the three
month period ended March 31, 2009: risk free interest rate 1.55% (2008 - 4.17%),
expected life 4 years (2008 - 4 years), volatility 52% (2008 - 45%), and an
expected dividend of nil (2008 - nil). The Company has not incorporated an
estimated forfeiture rate for stock options that will not vest rather the
Company accounts for actual forfeitures as they occur.
During the first three months of 2009, the Company recorded $1,758,000, (2008 -
$1,708,000) of stock-based compensation expense related to the stock options, of
which $879,000 (2008 - $854,000) was capitalized in accordance with the
Company's full cost accounting policy. As stock-based compensation is
non-deductible for income tax purposes, a future income tax liability of
$299,000 (2008 - $300,000) associated with the current year's capitalized
stock-based compensation has been recorded.
(i) Stock options
The average fair value of the stock options granted during the three months
ended March 31, 2009, as calculated by the Black-Scholes method, was $2.03 per
option (2008 - $2.99).
----------------------------------------------------------------------------
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Weighted
Number of Price average
Options Range exercise price
----------------------------------------------------------------------------
Balance December 31, 2008 4,276 $ 3.50 to $18.70 $ 9.76
Granted 1,658 $ 2.78 to $ 5.30 $ 4.88
----------------------------------------------------------------------------
Balance March 31, 2009 5,934 $ 2.78 to $18.70 $ 8.39
Exercisable 1,491 $ 7.23 to $12.72 $ 9.21
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(e) Per share amounts:
Per share amounts have been calculated on the weighted average number of shares
outstanding. The weighted average shares outstanding for the three month period
ended March 31, 2009 was 71,084,000 (March 31, 2008 - 53,627,000).
In computing diluted per share amounts for the three month period ended March
31, 2009, no (March 31, 2008 - 163,000) shares were added to the weighted
average number of Common Shares outstanding for the dilution added by the stock
options. There were 5,934,000 (March 31, 2008 - 2,455,000) stock options that
were not included in the diluted earnings per share calculation because they
were anti-dilutive.
7. Financial Instruments:
(a) Credit risk:
Credit risk is the risk of financial loss to the Company if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the Company's receivables from
petroleum and natural gas marketers and joint venture partners.
The carrying amount of accounts receivable and the fair value of financial
instruments represent the maximum credit exposure. As at March 31, 2009 the
Company's receivables consisted of $16.0 (2008 - $18.4) million of receivables
from petroleum and natural gas marketers of which the majority has subsequently
been collected, $7.4 (2008 - $12.4) million from joint venture partners of which
$1.3 million has subsequently been collected, and $8.5 (2008 - $12.0) million of
Crown deposits, prepaids and other accounts receivable. The Company does not
have an allowance for doubtful accounts as at March 31, 2009 and did not provide
for any doubtful accounts nor was it required to write-off any receivables
during the period ended March 31, 2009. The Company does not consider any
receivables to be past due.
(b) Liquidity risk:
Accounts payable and financial instruments have contractual maturities of less
than one year. The Company maintains a revolving credit facility, as outlined in
note 3, that is reviewed semi-annually by the lenders and has a contractual
maturity in 2011. The Company maintains and monitors a certain level of cash
flow which is used to partially finance operating and capital expenditures. The
Company does not pay dividends.
(c) Market risk:
Market risk is the risk that changes in market conditions, such as commodity
prices, interest rates, and foreign exchange rates, will affect the Company's
net income or the value of financial instruments. The objective of market risk
management is to manage and control market risk exposures within acceptable
limits, while maximizing the Company's returns.
The Company utilizes both financial derivatives and physical delivery sales
contracts to manage market risks. All such transactions are conducted in
accordance with the Company's risk management policy that has been approved by
the Board of Directors.
(i) Commodity price risk
The Company has attempted to mitigate a portion of the commodity price risk
through the use of various financial derivative and physical delivery sales
contracts as outlined below. The Company's policy is to enter into commodity
price contracts when considered appropriate to a maximum of 50% of forecasted
production volumes for a period of not more than two years.
Derivatives are recorded on the balance sheet at fair value at each reporting
period with the change in fair value being recognized as an unrealized gain or
loss on the consolidated statement of operations, comprehensive income and
retained earnings.
(ii) Foreign currency exchange rate risk
The Company has attempted to mitigate a portion of its foreign exchange
fluctuation risk through the use of financial derivatives as outlined below.
(iii) Interest rate risk
Interest rate risk is the risk that future cash flows will fluctuate as a result
of changes in market interest rates. The Company is exposed to interest rate
fluctuations on its bank debt which bears a floating rate of interest. For the
three months ended March 31, 2009, a 1.0 percent change to the effective
interest rate would have a $0.4 million (2008 - $0.2 million) impact on net
income. The sensitivity for 2009 is higher as compared to 2008 because of an
increase in average outstanding bank debt in 2009 compared to 2008.
The Company has attempted to mitigate the impact of future fluctuations in
interest rates on its outstanding debt by entering into contracts fixing the
base interest rate on $100 million of banker's acceptance borrowings as outlined
below. These rates will be, under the Company's recently amended banking
Facility, subject to additional stamping fees ranging from 2.75 per cent to 4.50
per cent depending upon the debt to EBITDA ratio calculated at the Company's
previous quarter end.
The Company's contracts in place as of March 31, 2009 are as follows:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Subject of Notional Strike
Contract Quantity Term Reference Price
----------------------------------------------------------------------------
Natural 2,500 January 1, 2009 - AECO C $ 6.60 -
Gas gj/day December 31, 2009 Monthly $ 8.50
Index
AECO C
Natural 2,500 January 1, 2009 - Monthly $ 6.50 -
Gas gj/day December 31, 2009 Index less $ 8.30
$0.09
Natural 15,000 April 1, 2009 - AECO C
Gas gj/day October 31, 2009 Monthly $ 6.00
Index
Natural 5,000 January 1, 2010 - AECO C
Gas gj/day December 31, 2010 Monthly $ 8.00
Index
Natural 10,000 January 1, 2010 - AECO C
Gas gj/day December 31, 2010 Monthly $ 7.75
Index
Natural 2,500 January 1, 2010 - AECO C
Gas gj/day December 31, 2010 Monthly $ 6.20
Index
250 January 1, 2010 -
Oil CDN$ WTI $ 78.50
bbl/day December 31, 2010
----------------------------------------------------------------------------
Total commodity contracts
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Realized
Gain
Subject of Option (Loss) Fair Value
Contract Traded ($000s) ($000s)
----------------------------------------------------------------------------
Natural Gas Collar 283 1,671
Natural Gas Collar 433 1,711
Natural Gas Put 6,396
Natural Gas Call (690)
Natural Gas Call (1,724)
Natural Gas Swap 113
Oil Swap 1
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Total commodity contracts 716 7,478
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Subject of Notional Strike
Contract Quantity Term Reference Price
----------------------------------------------------------------------------
USD /
CAD $ US $2M / February 1, 2009 - CAD/USD 1.22
exchange Month December 31, 2009
USD /
CAD $ US $2M / February 1, 2009 - CAD/USD 1.26
exchange Month December 31, 2009
----------------------------------------------------------------------------
Total foreign exchange contracts
BA Rate $50M / February 10, 2009 - BA - 1.10%
year February 10, 2011 CDOR
BA Rate $50M / February 12, 2009 - BA - 1.10%
year February 12, 2011 CDOR
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Total interest rate contracts
----------------------------------------------------------------------------
Total financial instruments
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----------------------------------------------------------------------------
Realized
Gain
Subject of Option (Loss) Fair Value
Contract Traded ($000s) ($000s)
----------------------------------------------------------------------------
USD / CAD $ exchange Swap (139) (695)
USD / CAD $ exchange Swap 23 (19)
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Total foreign exchange contracts (116) (714)
BA Rate Swap (23) (375)
BA Rate Swap (24) (264)
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Total interest rate contracts (47) (639)
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Total financial instruments 553 6,125
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As at March 31, 2009, a $0.10 change to the price per thousand cubic feet of
natural gas on the contracts outlined above would have a nil impact on net
income.
As at March 31, 2009, a $1.00 per barrel change to the price on the oil contract
outlined above would have a $0.1 million impact on net income.
As at March 31, 2009, a $0.01 change to the exchange rate on the foreign
exchange contracts would have a $0.3 million impact on net income.
As at March 31, 2009, a 0.1% change to the interest rate on the interest rate
contracts would have a $0.1 million impact on net income.
Subsequent to March 31, 2009, the Company entered into the following financial
derivative contracts:
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Subject
of Notional Option
Contract Quantity Term Reference Strike Price Traded
----------------------------------------------------------------------------
Gas 2,500 November 1, 2009 - AECO C Monthly $6.00 Swap
gj/day December 31, 2010 Index
Oil 500 January 1, 2010 - CDN$ WTI $72.00 - $88.00 Collar
bbl/day December 31, 2010
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Fair value of financial instruments
The Company's financial instruments as at March 31, 2009 and 2008 include
accounts receivable, derivative contracts, accounts payable and accrued
liabilities, and bank debt. The fair value of accounts receivable and accounts
payable and accrued liabilities approximate their carrying amounts due to their
short-terms to maturity.
The fair value of derivative contracts is determined by discounting the
difference between the contracted price and published forward price curves as at
the balance sheet date, using the remaining contracted notional volumes.
Bank debt bears interest at a floating market rate and accordingly the fair
market value approximates the carrying value.
8. Capital management:
The Company considers its capital structure to include working capital, bank
debt, and shareholders' equity. Crew's primary capital management objective is
to maintain a strong balance sheet in order to continue to fund the future
growth of the Company. Crew monitors its capital structure and makes
adjustments on an on-going basis in order to maintain the flexibility needed to
achieve the Company's long-term objectives. To manage the capital structure the
Company may adjust capital spending, hedge future revenue and costs, issue new
equity, issue new debt or repay existing debt through asset sales.
The Company monitors debt levels based on the ratio of net debt to annualized
funds from operations. The ratio represents the time period it would take to pay
off the debt if no further capital expenditures were incurred and if funds from
operations remained constant. This ratio is calculated as net debt, defined as
outstanding bank debt and net working capital, divided by annualized funds from
operations for the most recent quarter.
The Company monitors this ratio and endeavours to maintain it at or below 2.0 to
1.0 in a normalized commodity price environment. This ratio may increase at
certain times as a result of acquisitions or low commodity prices. As shown
below, as at March 31, 2009, the Company's ratio of net debt to annualized funds
from operations was 3.82 to 1 (December 31, 2008 - 2.15 to 1). This amount has
risen above the preferred range of the Company as a result of the decrease in
commodity prices experienced over the past nine months.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
March 31, December 31,
2009 2008
----------------------------------------------------------------------------
Net debt:
Accounts receivable $ 31,853 $ 42,800
Accounts payable and accrued liabilities (44,509) (74,622)
----------------------------------------------------------------------------
Working capital deficiency $ (12,656) $ (31,822)
Bank loan (239,690) (223,628)
----------------------------------------------------------------------------
Net debt $ (252,346) $ (255,450)
Annualized funds from operations:
Cash provided by operating activities $ 19,506 $ 25,700
Asset retirement expenditures 101 152
Transportation liability charge 328 328
Change in non-cash working capital (3,414) 3,466
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Funds from operations 16,521 29,646
Annualized $ 66,084 $ 118,584
Net debt to annualized funds from operations 3.82 2.15
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In order to restore the Company's financial flexibility Crew has adjusted its
capital spending program to remain within funds from operations until commodity
prices recover. The Company has added commodity, interest rate and foreign
exchange hedging for 2009 and 2010 to provide support for its funds from
operations and assist in funding its capital expenditure program. In addition,
on May 7, 2009, the Company announced that it had entered into a bought deal
equity financing for aggregate gross proceeds of $43.4 million. The Company may
also consider the sale of certain non-core assets and will consider other forms
of financing to improve the Company's financial position if cash flow will not
adequately fund the programs planned to achieve the Company's long term
objectives.
There has been no change in the Company's approach to capital management during
the period ended March 31, 2009.
9. Supplemental cash flow information:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
March 31, March 31,
2009 2008
----------------------------------------------------------------------------
Changes in non-cash working capital:
Accounts receivable $ 10,947 $ (6,334)
Accounts payable and accrued liabilities (30,113) 5,915
----------------------------------------------------------------------------
$ (19,166) $ (419)
----------------------------------------------------------------------------
Operating activities $ 3,414 $ 1,139
Investing activities (22,580) (1,558)
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$ (19,166) $ (419)
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The Company made the following cash outlays in respect of interest expense:
----------------------------------------------------------------------------
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March 31, March 31,
2009 2008
----------------------------------------------------------------------------
Interest $ 1,731 $ 1,752
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10. Commitments:
The Company has the following fixed term commitments related to its on-going
business:
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Total 2009 2010 2011
----------------------------------------------------------------------------
Operating Leases $ 2,474 $ 742 $ 990 $ 742
Capital commitments 10,200 4,200 6,000 -
Firm transportation agreements 19,040 5,250 7,152 6,638
----------------------------------------------------------------------------
Total $ 31,714 $ 10,192 $ 14,142 $ 7,380
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The firm transportation commitments were acquired as part of the Company's May
2007 private company acquisition and represent firm service commitments for
transportation and processing of natural gas in British Columbia.
11. Subsequent event:
On May 7, 2009, the Company announced that it had entered into a bought deal
sale of 7,000,000 Common Shares of the Company at a price of $6.20 per share for
aggregate gross proceeds of $43.4 million. Closing of the offering is expected
to occur in late May, 2009 and is subject to satisfaction of customary
conditions including all necessary regulatory approvals.
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