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.
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