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.
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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