Crew Energy Inc. (TSX:CR) of Calgary, Alberta is pleased to present its
operating and financial results for the three and nine month periods ended
September 30, 2012.
Highlights
-- Funds from operations were $39.4 million or $0.33 per share in the third
quarter of 2012;
-- Third quarter production of 26,281 boe per day was 4% lower than the
27,510 boe per day produced in the same period of 2011 with
approximately 1,100 boe per day of production shut-in during the first
quarter and a further 2,500 boe per day of behind pipe production from
deferred completions;
-- Cash costs per boe including royalties, operating and transportation
costs and general and administrative costs decreased $1.33 per boe or 6%
over the second quarter of 2012;
-- Crew now has four waterfloods at Princess exhibiting positive results.
The two original waterfloods have increased production by 170% from the
"K" pool and 110% from the "N" pool. The Pekisko "M" pool and the
Pekisko "HH" pool have seen a reduction in gas oil ratios of over 70%
and oil production increases of 158% and 38%, respectively, over pre-
waterflood levels;
-- Capital efficiencies at Princess continue to improve with results from
the first quarter 2012 drilling program of $19,000 per producing boe.
Recent drilling has been successful with three Pekisko wells testing at
750, 453 and 190 bbls of oil per day;
-- The Company's first horizontal Mannville oil well at Princess is now
producing 350 bbls per day of oil;
-- At Septimus, Crew completed two wells with initial seven day production
rates of 5.9 mmcf per day with 170 bbls per day of liquids and 4.3 mmcf
per day with 125 bbls per day of liquids. The Company also optimized
completion practices which has resulted in cost reductions of $1.6
million per well increasing the rate of return from 30% to 50%;
-- During the quarter, Crew purchased 17,800 net acres of prospective
acreage in the Princess and Lloydminster oil areas all of which have
multi-zone oil potential.
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Three months Three months Nine months Nine months
Financial ended ended ended ended
($ thousands, except September September September September
per share amounts) 30, 2012 30, 2011 30, 2012 30, 2011
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Petroleum and natural
gas sales 92,269 114,719 315,290 246,103
Funds from operations
(note 1) 39,410 54,260 139,494 107,262
Per share - basic 0.33 0.45 1.16 1.12
- diluted 0.33 0.45 1.15 1.10
Net income (loss) (17,947) 12,232 (270) 18,367
Per share - basic (0.15) 0.10 (0.00) 0.19
- diluted (0.15) 0.10 (0.00) 0.19
Capital expenditures 44,443 138,671 203,618 267,021
Property acquisitions
(net of dispositions) (5,872) - (10,162) (12,289)
Net capital
expenditures 38,571 138,671 193,456 254,732
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As at As at
Capital Structure September December 31,
($ thousands) 30, 2012 2011
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Working capital deficiency (note 2) 41,844 92,452
Bank loan 330,858 230,676
Net debt 372,702 323,128
Current bank facility 430,000 430,000
Common Shares Outstanding (thousands) 120,832 119,993
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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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Three months Three months Nine months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
Operations 2012 2011 2012 2011
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Daily production
Conventional oil
(bbl/d) 5,210 4,910 5,971 5,384
Heavy oil
(bbl/d) 5,223 6,633 5,806 2,235
Natural gas
liquids (bbl/d) 3,153 2,621 3,023 1,712
Natural gas
(mcf/d) 76,169 80,078 80,865 63,398
Oil equivalent
(boe/d @ 6:1) 26,281 27,510 28,277 19,897
Average prices
(note 1)
Conventional oil
($/bbl) 68.58 71.36 73.90 74.53
Heavy oil
($/bbl) 61.20 63.66 63.89 63.66
Natural gas
liquids ($/bbl) 44.73 61.69 51.13 61.81
Natural gas
($/mcf) 2.43 3.90 2.27 3.98
Oil equivalent
($/boe) 38.16 45.33 40.69 45.31
Netback ($/boe)
Operating
netback (note
2) 19.53 23.75 21.08 22.36
G&A 1.76 1.50 1.78 1.73
Interest on bank
debt 1.48 0.81 1.29 0.88
Funds from
operations 16.29 21.44 18.01 19.75
Drilling Activity
Gross wells 26 66 89 121
Working interest
wells 24.0 65.2 83.4 119.5
Success rate,
net wells 100% 98% 99% 99%
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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
Crew remained committed to capital discipline during the third quarter as
activity levels remained well below those of the same period of 2011. The
Company spent $44.4 million during the quarter which included the drilling of 26
(24.0 net) oil wells, completing 25 (24.5 net) wells at Princess, Lloydminster
and Septimus and recompleting 20 (19.3 net) wells exclusively in the Company's
oil focused areas of Princess and Lloydminster. This was a significant decline
from the third quarter 2011 activity which saw the Company drill 66 wells and
spend over $138 million. During the quarter, Crew also completed certain
non-core asset dispositions of lands in central Alberta for net proceeds of
approximately $5.9 million.
Production for the third quarter of 2012 decreased 4%, as compared with the same
period in 2011, to average 26,281 boe per day due to shut-in and deferred
natural gas production as well as production declines. During the third quarter,
the Company also implemented three waterfloods at Princess and one at Low Lake
in Saskatchewan bringing the total number of waterfloods in operation to eight.
FINANCIAL
The third quarter continued the trend of market volatility that was experienced
over the first half of 2012. Economic uncertainty resulting from the European
debt crisis, lower forecasted growth in China and uncertainty surrounding the
U.S. economy have created uncertainty in both the equity and commodity markets
resulting in dramatic price movements. During this period, Crew remained focused
on maintaining financial strength through capital discipline and cost reduction.
During the quarter, the Company executed a successful capital program which
approximated cash flow, reduced operating costs and added to our hedge positions
for both 2012 and 2013.
The Company's third quarter funds from operations declined, as compared to the
second quarter, to $39.4 million or $0.33 per share as lower production resulted
from reduced capital spending and funds from operations was further challenged
by lower overall commodity prices and lower hedging gains. The Company's revenue
per boe, including hedging gains, decreased to average $39.69 per boe in the
third quarter compared to $44.90 in the second quarter. This decrease resulted
mainly from a reduction in the hedging gains realized during the quarter as the
second quarter hedging gain was bolstered by a one-time $12.1 million gain on
the monetization of certain 2013 related contracts.
The Company's price received (excluding hedging gains) for its production
decreased 2% while total cash costs per boe including royalties, operating
costs, transportation and general and administrative costs decreased 6% during
the third quarter of 2012 as compared with the prior quarter. This reduction in
costs was led by a decrease in royalties in the Princess area and increased gas
cost allowance credits combined with continuing operating cost efficiencies.
Prices received for the Company's liquids production including conventional oil,
heavy oil and natural gas liquids decreased 5% over the second quarter as the
price for West Texas Intermediate ("WTI") oil decreased 3% during the quarter
compared to the second quarter of 2012. The prices received for the Company's
conventional and heavy oil sales correlate closely to the price of Western
Canadian Select ("WCS"), which traditionally trades at a discount to WTI. During
the third quarter the differential between WTI and WCS remained at 24%,
consistent with the previous quarter. The largest reduction in the Company's
liquids pricing was experienced in the prices received for natural gas liquids.
A glut of ethane and propane in North America resulted in a sharp decline in the
prices received for these products which make up approximately 40% of Crew
natural gas liquids production. This combined with lower prices received for
condensate contributed to a 21% reduction in the prices Crew received for its
natural gas liquids.
Crew's revenue from natural gas was positively impacted by pricing that
outperformed the market's expectation as above average temperatures experienced
in the highly populated eastern regions of Canada and the U.S. resulted in above
average power generation demand for natural gas. The price for natural gas
delivered at the Canadian AECO hub during the third quarter averaged $2.32 per
mcf, an increase of 20% over the second quarter of 2012. The average price
received for Crew's natural gas sales during the third quarter averaged $2.43
per mcf, an 18% increase over the second quarter.
The Company continues to actively protect its cash flow by hedging a portion of
its future production. Crew currently has hedged approximately 23.3 mmcf per day
of natural gas for the period of October through December 2012 at a price of
approximately $2.00 per mcf and has an additional 30.0 mmcf per day of natural
gas hedged for 2013 with an average floor price of $3.19 per mcf. The Company
also has hedges to protect from 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 October through December 2012 and 3,750 barrels
per day of WTI oil hedged at an average floor price of $91.71 per barrel for
2013. In addition, the Company currently has hedges that fix the differential
between WTI and WCS pricing on an average of 5,000 barrels per day for the
period September to December 2012 at a differential of $15.88 per barrel.
OPERATIONS UPDATE
Pekisko Play, Princess, Alberta
At Princess, activity levels for the majority of the third quarter were focused
on optimizing existing wells and implementing our waterflood schemes. Production
for the quarter averaged 6,000 boe per day as no new wells were brought on
production and a number of single well batteries were impacted by wet weather.
Two additional waterfloods were implemented in the Alderson and West Tide Lake
areas during the quarter bringing the total to seven waterfloods that are now on
injection. Of particular note, the Pekisko "M" pool and the Pekisko "HH" pool
which started injection in June 2012, have seen a reduction in the gas oil ratio
of 78% and 71%, respectively, and an oil production increase of 158% and 38%,
respectively, over pre-waterflood levels. One additional waterflood is expected
to be ready for injection by the middle of the fourth quarter which had
previously been planned for 2013. Late in the third quarter, Crew initiated its
fall drilling program resulting in the drilling of seven (7.0 net) vertical
wells and two (2.0 net) horizontal wells. Given the positive results of our
first quarter drilling program which saw the Company spend $29.5 million of
capital to generate a 30 day initial production rate of 1,550 boe per day for a
capital efficiency of $19,000/boe per day, and the continuing strong performance
of our two existing Tilley waterfloods (production increase of 170% and 110%
respectively from pre-waterflood levels), Crew plans to drill an additional 15
wells in the fourth quarter.
Heavy Oil, Lloydminster, Saskatchewan
At Lloydminster, Crew drilled 15 (14.5 net) vertical wells and two (0.5 net)
horizontal wells and also recompleted 16 wells. Capital efficiencies for the
first three quarters have averaged $15,500/boe per day demonstrating the robust
economics of this multi-zone heavy oil play. In the fourth quarter, the Company
is planning to drill an additional nine wells including three horizontal wells.
Since acquiring this asset in July 2011, Crew has focused primarily on drilling
and recompletion opportunities. As an initial step in pursuing the enhanced
recovery potential on our heavy oil asset base, Crew initiated a pressure
maintenance scheme in the Waseca formation at Low Lake. The Waseca has been a
prolific producing formation in the area and the pressure maintenance scheme is
expected to improve the ultimate recovery from this reservoir.
Tower, British Columbia
The tie-in of the initial non-operated Tower discovery well (0.33 net) was
completed in the quarter and the operator is currently modifying surface
facilities to accommodate the expected production levels. The well tested at 610
boe per day (342 bbls of oil and liquids and 1.7 mmcf per day of natural gas)
after a 23 day flow test. The production results from this well combined with
the second Tower well (Q3 average 174 boe per day; 60% liquids) will be used to
determine the most appropriate completion technique for Montney oil at Tower and
to assess timing for Crew's development. Crew has been active at Tower acquiring
the necessary access and approvals to drill up to nine (6.3 net) wells.
Septimus/Kobes, British Columbia
With strengthening natural gas prices and a substantial 2013 hedge program in
place, Crew has increased capital activity levels on its Montney lands. At
Septimus, during the third quarter, Crew completed two first quarter drilled
Montney horizontal wells which had been previously deferred due to weak natural
gas prices. As Crew's completion practices continue to be optimized, the Company
is seeing evidence of increased well performance and reduced costs. The two
wells had gross initial seven day production rates of 5.9 mmcf per day and 4.3
mmcf per day with 30 bbls/mmcf of liquids and are currently producing 4.9 mmcf
per day and 3.9 mmcf per day after 57 days indicating a much lower decline rate
than historically observed. Completion costs were down 29% from historical
levels at $2.1 million per well as a result of improved infrastructure and
completion efficiencies. Crew has accelerated the drilling of a land retention
horizontal well at Kobes to take advantage of some attractive drilling rig day
rates and will also accelerate the drilling of one to two Septimus wells from
our 2013 plan in the fourth quarter of 2012.
2012 GUIDANCE
Crew forecasts production to average between 28,000 and 29,000 boe per day in
2012 which is consistent with previous guidance. Crew has remained disciplined
in its capital allocation and capital expenditures. When natural gas prices
dramatically declined, the Company reduced its capital expenditure budget and
has dedicated the majority of capital to its oil plays while spending less than
funds from operations over the last six months. Average 2012 production is
forecasted to grow by 6,000 boe per day or 25% year over year compared with
2011. Improved natural gas prices have allowed the Company to place some shut-in
or deferred production onstream and Crew now has approximately 1,100 boe per day
of natural gas production shut-in awaiting higher natural gas prices. Fourth
quarter drilling momentum is expected to be carried over into 2013 resulting in
a forecast exit 2012 production rate of over 28,000 boe per day.
Demand for services continues to be soft leading to equipment availability and
cost efficiencies. A number of projects that were originally planned for the
first quarter of 2013 have now been expedited into the fourth quarter of 2012.
The Company expects to spend approximately $55 million in the fourth quarter
with year-end debt estimated at $380 million or 2.1 times estimated trailing
funds from operations.
OUTLOOK
Crew is committed to its strategy of investing in the highest return and the
most capital efficient projects with a long term goal of consistent per share
growth. Since Crew was founded in 2003, we have grown our reserves and
production per share 28% and 13%, respectively, on a compounded annual basis.
Our primary goal is to maintain our capital discipline focusing on capital
allocation to specific assets providing our shareholders with oil production
growth from our Princess and Lloydminster producing areas while realizing the
significant upside in our resource base in the Montney and the Deep Basin. The
Company plans to continue to hedge the commodities and foreign exchange to
ensure a base level of cash flow to fund our capital programs. We look forward
to reporting our 2013 guidance in early January and our 2012 results in March
2013.
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 and exit 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
nine month periods ended September 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.
FOR FURTHER INFORMATION PLEASE CONTACT:
Crew Energy Inc.
Dale Shwed
President and C.E.O.
(403) 231-8850
dale.shwed@crewenergy.com
Crew Energy Inc.
John Leach
Senior Vice President and C.F.O.
(403) 231-8859
john.leach@crewenergy.com
Crew Energy Inc.
Rob Morgan
Senior Vice President and C.O.O.
(403) 513-9628
rob.morgan@crewenergy.com
www.crewenergy.com
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