Crew Energy Inc. (TSX:CR) of Calgary, Alberta is pleased to present
its operating and financial results for the three and six month
periods ended June 30, 2012.
Highlights
-- Funds from operations increased 80% over the second quarter of 2011 to
$52.0 million while increasing 8% over the first quarter of 2012;
-- Funds from operations per share increased 30% to $0.43 per share over
the second quarter of 2011 and increased 8% over the first quarter of
2012;
-- Second quarter production increased 72% over the same period of 2011 and
was 7% lower than the first quarter as the Company shut-in uneconomic
natural gas production;
-- Production per share increased 22% over the second quarter of 2011;
-- The Company's two Princess Pekisko waterfloods have continued to show
positive results with production now increasing 110% from the "N" pool
and increasing 80% from the "K" pool;
-- Drilled and completed the Company's first operated Montney oil well at
Tower, British Columbia with first month production of 318 boe per day
of which 200 bbls were oil and liquids;
-- Operating costs of $11.32 per boe were 7% lower than the first quarter;
-- A $25.8 million reduction in net debt during the second quarter led to a
decrease of 14% in second quarter debt to annualized funds from
operations to 1.8 times.
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Three Three Six Six
months months months months
Financial ended ended ended ended
($ thousands, except per share June 30, June 30, June 30, June 30,
amounts) 2012 2011 2012 2011
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Petroleum and natural gas sales 99,946 70,236 223,021 131,384
Funds from operations (note 1) 52,027 28,891 100,084 53,002
Per share - basic 0.43 0.34 0.83 0.63
- diluted 0.43 0.33 0.83 0.62
Net income 24,107 16,261 17,677 6,135
Per share - basic 0.20 0.19 0.15 0.07
- diluted 0.20 0.19 0.15 0.07
Capital expenditures 30,432 53,185 159,175 128,350
Property acquisitions (net of
dispositions) (4,290) (12,650) (4,290) (12,289)
Net capital expenditures 26,142 40,535 154,885 116,061
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Capital Structure($ thousands) As at
As at December 31,
June 30, 2012 2011
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Working capital deficiency (note 2) 12,094 92,452
Bank loan 360,710 230,676
Net debt 372,804 323,128
Current bank facility 430,000 430,000
Common Shares Outstanding (thousands) 120,830 119,993
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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,
decommissioning obligation 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 International Financial Reporting
Standards 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 Three Six Six
months months months months
ended ended ended ended
June 30, June 30, June 30, June 30,
2012 2011 2012 2011
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Daily production
Conventional oil (bbl/d) 5,940 5,458 6,355 5,625
Heavy oil (bbl/d) 6,040 - 6,101 -
Natural gas liquids (bbl/d) 2,809 1,369 2,957 1,250
Natural gas (mcf/d) 80,419 57,698 83,237 54,919
Oil equivalent (boe/d @ 6:1) 28,192 16,443 29,286 16,028
Average prices (note 1)
Conventional oil ($/bbl) 70.41 82.50 76.11 75.93
Heavy oil ($/bbl) 58.95 - 65.05 -
Natural gas liquids ($/bbl) 56.27 63.74 54.58 61.93
Natural gas ($/mcf) 2.06 4.06 2.20 4.03
Oil equivalent ($/boe) 38.96 46.94 41.84 45.29
Netback ($/boe)
Operating netback (note 2) 23.33 22.03 21.78 21.15
G&A 1.68 1.89 1.80 1.94
Interest on bank debt 1.37 0.82 1.21 0.94
Funds from operations 20.28 19.32 18.77 18.27
Drilling Activity
Gross wells 3 15 63 55
Working interest wells 1.6 15.0 59.4 54.3
Success rate, net wells 100% 100% 97% 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 International Financial Reporting
Standards and therefore may not be comparable with the calculations of
similar measures for other companies.
Overview
Second quarter operations and drilling activity levels were
reduced due to spring break-up. Operations for the second quarter
of 2012 included the drilling of three (1.6 net) wells resulting in
one oil well at Lloydminster, one (0.3 net) natural gas well in
Kakwa, Alberta and one (0.3 net) oil well at Tower, British
Columbia.
Production during the quarter averaged 28,192 boe per day (52%
liquids) which was 7% below the first quarter of 2012 due to the
shut-in of 1,200 boe per day of uneconomic natural gas production,
the inability to truck clean oil from single well batteries in
Alberta and Saskatchewan and an eight week outage at a third party
facility resulting in the curtailment of 700 boe per day of natural
gas and associated liquids throughout the quarter.
Financial
Crew's second quarter financial results were highlighted by a
strengthening of the Company's financial position as a result of
stronger cash flow and lower capital spending. Quarterly cash flow
was bolstered by realized risk management gains which offset lower
commodity prices. The Company's second quarter commodity pricing
continued to weaken as compared to the first quarter of 2012.
During the quarter, prices received for the Company's natural gas
production dropped 12% to $2.06 per mcf compared to the average
price received in the first quarter of $2.34 per mcf.
The Company's conventional and heavy oil prices also experienced
decreases, tracking world oil prices as they declined through the
second quarter as concerns over Asian growth and the European debt
crisis weighed on the market. The average West Texas Intermediate
("WTI") price decreased 8% during the quarter to average $94 per
bbl compared to $103 per bbl in the first quarter of 2012. Crew's
crude pricing was also impacted by the widening of the differential
between WTI pricing and Canadian crude pricing during the quarter.
The differential between WTI and the Company's benchmark Western
Canadian Select ("WCS") widened from 21% in the first quarter to
24% in the second quarter. During the quarter, Crew's average price
received for conventional oil decreased 13% to average $70.41 per
bbl and the price received for the Company's heavy oil decreased
17% to $58.95 per bbl as a result of the widening
differentials.
Crew significantly curtailed its capital expenditures during the
second quarter as activity levels were reduced during spring
break-up. The Company spent $30.4 million primarily on completions,
well optimization, tie-ins and recompletions of existing wells.
Crew also completed certain non-core asset dispositions of
primarily undeveloped land in central Alberta for net proceeds of
approximately $4.2 million. During the quarter, Crew's net debt
decreased to $372.8 million on a $430 million bank facility as the
Company's funds from operations exceeded net capital expenditures
by approximately $26 million.
The Company continues to actively protect its cash flow by
hedging a portion of its future production against volatile
commodity prices. Crew currently has hedged approximately 23.3 mmcf
per day of natural gas for the period July through December 2012 at
a price of approximately $2.00 per mcf and has an additional 21.0
mmcf per day of natural gas hedged for 2013 with an average floor
price of $3.18 per mcf. The Company also holds hedges against a
significant decline in oil prices with an average of 6,500 barrels
per day of WTI oil hedged at an average floor price of $94.04 per
barrel for the period July through December 2012 and 3,500 barrels
per day of WTI oil hedged at an average floor price of $91.11 per
barrel for 2013. In addition, the Company currently holds hedges
that fix the differential between WTI and WCS pricing on an average
of 2,000 barrels a day at a differential of $15.63 per barrel.
During the second quarter, the Company monetized certain 2013 WTI
oil hedges resulting in realized hedging gains of $12.1
million.
OPERATIONS UPDATE
Pekisko Play, Princess, Alberta
Activity at Princess focused on the completion and tie-in of our
Q1 drilling program. By the end of the second quarter, a total of
15 wells had been brought on production with the remainder to be
completed and tested in the third and fourth quarter. Four vertical
wells drilled in the first quarter outside existing pool boundaries
confirmed the extension of the Pekisko oil trends and further
supports our long term inventory of drilling locations. Production
averaged 6,850 boe per day for the quarter with production impacted
by spring breakup as well as a turnaround at our West Tide Lake
facility.
Our Tilley waterfloods continue to show positive response with
the Pekisko "N" pool production rate 110% above and the Pekisko "K"
pool production rate 80% above pre-waterflood conditions. Crew has
initiated injection into three new Alderson waterfloods, and
expects to have two West Tide Lake waterfloods on injection in the
third quarter and one additional Alderson waterflood in the fourth
quarter for a total of six new waterfloods in 2012. Crew plans to
drill an additional eight (7.5 net) wells at Princess for the
remainder of 2012 to further delineate our large undeveloped land
base (86% of 460 net sections are undeveloped).
Heavy Oil, Lloydminster, Saskatchewan
At the end of the second quarter, Crew started the second phase
of the Company's 2012 drilling program and drilled one (1.0 net)
oil well in the second quarter. The Company plans to drill an
additional 10 to 15 wells and continue with the successful
recompletion program targeting secondary hydrocarbon zones within
existing wellbores. These workovers have very strong economics as
capital costs range from $50,000 to $100,000 with results
comparable to the drilling, completion and equipping of a new well
at a cost of approximately $500,000.
Tower, British Columbia
Crew drilled one (0.33 net) Montney oil well at Tower in the
second quarter. Given this well's proximity to the Company's
existing infrastructure in the area, Crew was able to bring the
well on production immediately following the initial completion.
Gross field estimated production for the initial 30 days averaged
318 boe per day comprised of 161 bbls per day 46 API oil, 39 bbls
per day of natural gas liquids and 710 mcf per day of natural gas.
Crew's first non-operated well at Tower has received the necessary
surface land approvals and is expected to be on production in the
third quarter. Crew is proceeding with necessary approvals to drill
up to eight (6.0 net) additional wells, the timing of which will be
determined based on the performance of the first two wells and
capital availability.
Septimus/Kobes, British Columbia
At Septimus, Crew diverted a total of 14 wells from the western
edge of the Septimus field into the newly acquired six inch
Septimus/Tower pipeline which is now connected to the Septimus gas
plant. Gathering system pressures were reduced by approximately
1,400 kPa resulting in a three mmcf per day increase in production
(27 bbls/mmcf liquids). Crew also has two (2.0 net) Montney
horizontal wells drilled in the first quarter for which completions
were deferred given the weakness in natural gas prices. The Company
is expected to proceed with the completion and tie-in of these
wells in the third or fourth quarter. At Kobes, the Company is
planning to drill one well late in the year to continue our entire
23 net section land block for an additional ten years.
2012 Guidance
Crew is maintaining its guidance to average production of 28,000
to 29,000 boe per day for 2012. Priority has been given to debt
reduction, oil investments and retention of the Company's liquids
rich natural gas resource assets. By managing capital expenditures
and certain monetization programs, Crew expects to exit the year
with approximately $350 to $360 million of net debt while
maintaining net capital spending at approximately $225 million.
This program is expected to increase average annual production by
approximately 6,000 boe per day (25%) year over year and position
Crew to continue its growth through 2013 and beyond. With improving
natural gas prices, the Company's 3,500 boe per day of shut-in and
deferred production is expected to be placed on production
assisting in achieving this goal in 2013. Crew has been actively
hedging oil and gas production volumes for 2013 which has
historically been used to underpin funds from operations in order
to maintain a base capital program.
Outlook
Since the Company was founded in 2003, Crew's strategy has been
to explore for and develop large oil and gas in place reservoirs
where technology can be applied to improve recoveries with a goal
to grow the Company's production, funds from operations and
reserves on a per share basis. Crew's staff has successfully
managed through many commodity cycles and is well prepared and
confident in our ability to continue to do the same in the current
environment. Capital preservation and balance sheet strength become
paramount in a low or volatile commodity price cycle and the $25.8
million of debt reduction in the second quarter is a testament to
our resolve to accomplish these goals. As in past commodity price
cycles, the current volatile environment has created both
challenges and opportunities. Crew will continue to invest in the
highest return and most capital efficient projects while retaining
the upside for our shareholders on a significant resource of oil,
natural gas and natural gas liquids. We look forward to reporting
our progress on the 2012 business plan in the third quarter
report.
Financial statements and Management's Discussion and Analysis
for the three and six month periods ended June 30, 2012 and 2011
will be filed on SEDAR at www.sedar.com and are available on the
Company's website at www.crewenergy.com.
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" "forecast" and similar expressions are intended to
identify forward-looking information or statements. In particular,
but without limiting the foregoing, 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; production estimates including 2012 forecast average
production; plans to place on production previously shut-in
production; future oil and natural gas prices and Crew's commodity
risk management programs; future liquidity and financial capacity;
projected debt levels including forecast 2012 year end net debt;
future results from operations and operating metrics; management's
expectations in regards to waterfloods at Princess; 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 and the timing thereof; the number of wells to be
drilled, completed and tied-in and the timing thereof; the amount
and timing of capital projects; operating costs; the total future
capital associated with development of reserves and resources; and
methods of funding our capital program.
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;
the ability of Crew to successfully market its oil and natural gas
products. Included herein is an estimate of Crew's year-end net
debt based on assumptions as to cash flow, capital spending in 2012
and the other assumptions utilized in arriving at Crew's 2012
capital budget. To the extent such estimate constitutes a financial
outlook, it is included herein to provide readers with an
understanding of estimated capital expenditures and the effect
thereof on debt levels and readers are cautioned that the
information may not be appropriate for other purposes.
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 adequate 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. Given that the value ratio based on
the current price of crude oil as compared to natural gas is
significantly different than the energy equivalency of 6:1,
utilizing a 6:1 conversion basis may be misleading as an indication
of value.
Test Results and Initial Production Rates
A pressure transient analysis or well-test interpretation has
not been carried out and thus certain of the test results provided
herein should be considered to be preliminary until such analysis
or interpretation has been completed. Test results and initial
production rates disclosed herein may not necessarily be indicative
of long term performance or of ultimate recovery.
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 and Management's Discussion and Analysis
for the three and six month periods ended June 30, 2012 and 2011
will be filed on SEDAR at www.sedar.com and are available on the
Company's website at www.crewenergy.com.
Contacts: Crew Energy Inc. Dale Shwed President and C.E.O. (403)
231-8850dale.shwed@crewenergy.com Crew Energy Inc. John Leach
Senior Vice President and C.F.O. (403)
231-8859john.leach@crewenergy.com Crew Energy Inc. Rob Morgan
Senior Vice President and C.O.O. (403)
513-9628rob.morgan@crewenergy.com www.crewenergy.com
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