Crew Energy Inc. (TSX:CR) of Calgary, Alberta ("Crew" or the "Company") is
pleased to present its financial and operating results for the three month
period and year ended December 31, 2012.
Highlights
-- Funds from operations in the fourth quarter increased 20% over the prior
quarter to $47.1 million or $0.39 per share which was an 18% increase
over the prior quarter funds from operations per share;
-- Net income in 2012 was $21.5 million or $0.18 per share versus a loss of
$130.2 million in 2011;
-- 2012 production averaged 27,963 boe per day representing a 25% increase
over the 22,452 boe per day produced in 2011;
-- Fourth quarter production of 27,027 boe per day was 3% higher than the
26,281 boe per day in the prior quarter;
-- Initial drilling of the Mannville at Princess has been successful with
the first producing well having an optimized rate after six months of
production of 285 bbls per day of oil and the second more recent well
with a 30 day rate of 305 bbls per day of oil;
-- Completed a well at Kakwa, Alberta which tested at 10.5 mmcf per day
with 35 bbls/mmcf of free condensate at a flowing casing pressure of
3,560 psi;
-- Previously, Crew released 2012 reserves resulting in finding,
development and acquisition costs of $8.17 per boe leading to a recycle
ratio of 2.7x while increasing reserves per share by 11%;
-- Crew now owns 292 sections and has an option to purchase 81 sections of
land in northeast British Columbia on the Montney resource play; and
-- Crew strengthened its balance sheet in the fourth quarter reducing debt
by $81.3 million over the prior quarter.
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Three months Three months
Financial ended ended Year ended Year ended
($ thousands, except December 31, December 31, December 31, December 31,
per share amounts) 2012 2011 2012 2011
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Petroleum and natural
gas sales 102,473 142,063 417,763 388,166
Funds from operations
(note 1) 47,110 64,841 186,604 172,103
Per share - basic 0.39 0.54 1.54 1.69
- diluted 0.39 0.54 1.54 1.67
Net income (loss) 21,812 (148,529) 21,542 (130,162)
Per share - basic 0.18 (1.24) 0.18 (1.28)
- diluted 0.18 (1.24) 0.18 (1.28)
Capital expenditures 55,173 108,854 258,791 375,874
Property acquisitions
(net of dispositions) (86,395) (13,203) (96,557) (25,492)
Net capital
expenditures (31,222) 95,651 162,234 350,382
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As at As at
Capital Structure December 31, December 31,
($ thousands) 2012 2011
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Working capital
deficiency (note 2) 48,522 92,452
Bank loan 242,834 230,676
Net debt 291,356 323,128
Bank facility 400,000 430,000
Common Shares
Outstanding
(thousands) 121,620 119,993
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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, the transportation liability
charge and acquisition costs. 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 and assets
held for sale less accounts payable and accrued liabilities.
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Three months Three months
ended ended Year ended Year ended
December 31, December 31, December 31, December 31,
Operations 2012 2011 2012 2011
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Daily production
Conventional oil
(bbl/d) 5,258 6,784 5,792 5,737
Heavy oil (bbl/d) 5,644 6,145 5,765 3,221
Natural gas liquids
(bbl/d) 3,294 2,995 3,091 2,035
Natural gas (mcf/d) 76,983 84,657 79,889 68,756
Oil equivalent (boe/d
@ 6:1) 27,027 30,034 27,963 22,452
Average prices (note 1)
Conventional oil
($/bbl) 68.46 86.34 72.66 78.05
Heavy oil ($/bbl) 60.00 77.47 62.93 70.30
Natural gas liquids
($/bbl) 47.14 64.15 50.06 62.68
Natural gas ($/mcf) 3.38 3.43 2.54 3.81
Oil equivalent ($/boe) 41.21 51.41 40.82 47.37
Netback ($/boe)
Operating netback
(note 2) 22.14 26.03 21.35 23.61
G&A 1.83 1.70 1.79 1.72
Interest on bank debt 1.38 0.87 1.31 0.88
Funds from operations 18.93 23.46 18.25 21.01
Drilling Activity
Gross wells 24 37 112 158
Working interest wells 24.0 35.0 107.2 154.5
Success rate, net
wells 98% 97% 98% 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.
2012 OVERVIEW
Crew's fourth quarter was highlighted by the strengthening of the Company's
balance sheet through the sale of the Company's 23 sections of Montney lands in
the Kobes, British Columbia area for proceeds of $108 million. The sale included
the disposition of 625 boe per day of production and 11.9 mboe of proved plus
probable reserves. A portion of the proceeds, $22 million, were used to replace
the disposed Montney acreage with 56 net sections of Montney lands proximal to
the Company's operations in the Septimus/Groundbirch area. With these
transactions completed before year end, the Company ended 2012 with total net
debt of $291 million representing 1.55 times net debt to annualized fourth
quarter funds from operations.
The Company's fourth quarter funds from operations increased, as compared to the
third quarter of 2012, to $47.1 million or $0.39 per share. This increase
resulted from a 3% quarter over quarter production increase from successful
drilling at Lloydminster and Kakwa, Alberta. The increased production was
enhanced by a 13% quarter over quarter increase in operating netbacks driven by
increased pricing. The Company's price received (excluding hedging gains) for
its production increased 8% while total cash costs per boe including royalties,
operating costs, transportation, general and administrative and interest costs
were consistent with third quarter levels. The Company's net income increased to
$21.8 million during the quarter for total net income in 2012 of $21.5 million
primarily due to a gain of $70.8 million on the disposition of the Kobes
property.
Prices received for the Company's liquids production including conventional oil,
heavy oil and natural gas liquids were consistent with those received for third
quarter production as the price for West Texas Intermediate ("WTI") oil
denominated in Canadian dollars decreased 5% during the quarter compared to the
third 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 fourth
quarter the differential between WTI and WCS decreased to 21% from 24% in the
third quarter partially offsetting the decline in WTI pricing. Finally, the
Company's overall liquids pricing was positively impacted by a 5% increase in
the price for the Company's natural gas liquids production. This increase was
driven by an increase in prices received for condensate, ethane and propane.
Crew's revenue from natural gas continued to be positively impacted by pricing
that outperformed market 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 through the summer. This
resulted in a smaller than expected inventory build during the summer and drove
a positive market sentiment into the early winter heating season. The price for
natural gas delivered at the Canadian AECO hub during the fourth quarter
averaged $3.26 per mcf, an increase of 41% over the third quarter of 2012. The
average price received for Crew's natural gas sales during the fourth quarter
was $3.48 per mcf, a 39% increase over the third quarter.
The Company actively protects its cash flow by hedging a portion of its future
production. Crew currently has hedged approximately 38.8 mmcf per day of natural
gas for 2013 at a price of approximately $3.19 per mcf. The Company also has
hedges to protect from a significant decline in oil prices with an average of
5,500 barrels per day of WTI oil hedged at an average floor price of
approximately $92.00 per barrel for 2013. In addition, the Company currently has
hedges that fix the differential between WTI and WCS pricing on an average of
500 barrels per day for 2013 at a differential of $25 per barrel. Crew has also
begun building its hedge position to protect cash flow for 2014. The Company
currently has hedged approximately 11.7 mmcf per day of natural gas for 2014 at
a price of approximately $3.76 per mcf and 1,750 barrels per day of WTI oil
hedged at an average floor price of approximately $96.00 per barrel with
additional hedges fixing the differential between WTI and WCS pricing on an
average of 1,000 barrels per day for 2014 at an average differential of $22.75
per barrel.
OPERATIONS UPDATE
Septimus, British Columbia
In British Columbia, Crew drilled two (2.0 net) Montney horizontal wells in the
fourth quarter including one well at Kobes which was subsequently sold as part
of the Kobes disposition announced in December 2012. Total drilling activity for
the year was seven (7.0 net) wells targeting liquids rich natural gas in the
Montney formation. Production for the fourth quarter averaged approximately
6,400 boe per day as wells brought on in the third quarter of 2012 continued to
outperform historical type curves. Crew has announced the acquisition of
approximately 115 net sections of land that are adjacent or proximal to our
Septimus operating area. The Company plans to drill up to 11 (9.0 net) wells in
this area in 2013, commence the expansion of the pipeline infrastructure to the
west of Septimus, install the fourth compressor at the Crew operated Septimus
facility boosting processing capacity to 60 to 65 mmcf per day and install a
water handling and disposal system in the area that is expected to reduce
operating costs.
Tower, British Columbia
At Tower, the initial Montney oil well (Crew 33% working interest) completed in
the third quarter of 2011 was brought on continuous production at an average
rate (latest 60 days) of 310 boe per day consisting of 210 bbls per day of oil,
20 bbls per day of ngl and 490 mmcf per day of natural gas. Crew has included
capital in the 2013 program to drill two Montney oil wells at Tower and
currently has licensed eight (5.3 net) wells.
Deep Basin, Alberta
In the Deep Basin, Crew drilled one (1.0 net) Falher horizontal well at Kakwa
which tested at average production rates of 10.5 mmcf per day with 35 bbl/mmcf
free condensate at a flowing casing pressure of 3,560 psi at the end of an 11
day production test period. The well was brought on production at a restricted
rate due to capacity limitations at third party facilities. In total for the
year, Crew drilled nine (7.2 net) wells primarily targeting liquids rich natural
gas in the Cardium formation on Crew's Elmworth and Kakwa lands. In the fourth
quarter of 2012, production averaged approximately 4,800 boe per day with
Cardium horizontal well performance exceeding historical type curves allowing
the Company to exit the year producing approximately 6,000 boe per day.
Pekisko Play - Princess, Alberta
In the fourth quarter, Crew drilled 13 (13.0 net) wells for a total of 51 (51.0
net) wells for the year. In addition to the Company's ongoing Pekisko
development, Crew drilled two Mannville horizontal wells on Crown land which
were brought on production in 2012 with an optimized rate after six months of
production of 285 bbls of oil per day and the second more recent well with a 30
day rate of 305 bbls of oil per day. Crew has approximately 55 net sections of
Crown rights in the Princess area and is in the process of delineating the
extent of the Mannville potential on Company lands. Production at Princess for
the fourth quarter averaged approximately 5,900 boe per day consistent with the
third quarter as the combination of production from new wells and the early
impact from our waterflood projects have offset historical production declines
in the order of 35 to 40%. Current production at Princess is 6,000 to 6,500 boe
per day.
Pekisko Secondary Recovery
In the fourth quarter, Crew initiated waterflooding of the Pekisko "DD" pool
bringing the total to eight pools currently under waterflood. The original
Tilley Pekisko "K" and "N" pools have consistently exceeded expectations with
current oil production levels 254% and 176%, respectively, above pre-waterflood
levels (waterfloods initiated in January 2010 and July 2011, respectively). At
Alderson the Pekisko "M", "KK" and "HH" have been under waterflood since July
2012 and have shown positive initial response with gas oil ratio reductions of
up to 70% over pre-waterflood levels and some early flush oil production. At
West Tide Lake the Pekisko "CC" and "KK" pools have been under waterflood since
September 2012, and are showing indications of initial response through
reduction in the gas oil ratio on the order of 27% on a combined basis. In
aggregate, the eight pools under waterflood represent approximately 25% of the
currently developed Pekisko resource (approximately 16% of Crew's Pekisko land
base is currently developed).
Heavy Oil, Lloydminster, Saskatchewan
Crew drilled eight gross (8.0 net) wells in the Lloydminster area in the fourth
quarter of 2012 for a total of 44 gross (41.8 net) wells for the year. At
Neilburg, Crew began delineation of an undeveloped Colony sand prospect by
drilling two vertical wells. Both wells have exceeded our type curves with
optimized initial production rates of 85 and 65 bbls of oil per day based on a
30 day average. Crew has identified up to 18 additional locations on the lands.
At Wildmere, three horizontal wells were drilled targeting both the General
Petroleum and Lloydminster formations with initial production rates (60 day
average) of 90 bbls of oil per day on average. Crew will be pursuing additional
development on this play with three horizontal wells targeted for the first
quarter of 2013. Capital efficiencies for the fourth quarter capital program
were again consistent with the previous three quarters at $14,200/boe per day
(30 day initial production) with an average for the year of $15,600/boe per day.
Production for the fourth quarter of 2012 averaged approximately 5,800 boe per
day, an increase of 8% from the third quarter on the strength of the Company's
successful capital program in the area.
OUTLOOK
Crew is maintaining its forecasted average production of 27,500 to 28,500 boe
per day in 2013. The first quarter has been very active with the Company
operating up to six drilling rigs and expecting to drill 35 wells. Crew will
continue to invest in projects that provide near term funds flow with the
highest rates of return in addition to resource capture initiatives at a
reasonable cost. As a result, approximately 87% of the wells planned in 2013 are
targeting oil while acquisition targets have focused on scalable resource. The
Company has recognized a window of opportunity to consolidate a dominant Montney
land position in northeast British Columbia and has acted quickly and decisively
to secure this opportunity. Crew now owns 292 sections in the northeast British
Columbia Montney resource play and has an option to purchase another 81
sections. The Company believes the accumulation of these assets will prove to
add significant value over time.
Crew expects to spend approximately $70 million on exploration and development
activities in the first quarter out of an approved $219 million annual
exploration and development capital budget. With the recent acquisition of 59
sections of land in northeast British Columbia on the regional Montney resource
complex for $20 million, estimated net debt at the end of the first quarter is
currently forecast to be $340 to $350 million or 1.8 times annualized fourth
quarter 2012 funds from operations.
Crew's 2012 program was executed successfully with a finding, development and
acquisition cost of $8.17 per boe yielding a corporate recycle rate of 2.7
times. We were able to reduce our net debt by $31.8 million and increase
reserves by 11% per share over 2011. The Company will continue to be disciplined
in its capital allocation and capital spending with a focus on the efficient
execution of our capital program.
We would like to thank our employees, consultants and Board of Directors for
their hard work and dedication in contributing to Crew's success in 2012. On
behalf of our Crew, we would like to express our sincere appreciation for the
continued supported of our shareholders. We look forward to a very exciting year
and reporting our first quarter 2013 results in May.
Cautionary Statements
Forward-looking information and statements
This news release contains certain forward-looking information and statements
within the meaning of applicable securities laws. The use of any of the words
"expect", "anticipate", "continue", "estimate", "may", "will", "project",
"should", "believe", "plans", "intends" and similar expressions are intended to
identify forward-looking information or statements. In particular, but without
limiting the 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; year-end production; future oil
and natural gas prices and Crew's commodity risk management programs; future
liquidity and financial capacity; estimated first quarter net debt; future
results from operations and operating metrics; 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 including new
infrastructure; operating costs; the potential of the Montney resource play.
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; ability to improve upon historical recovery factors.
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".
A complete copy of the Company's consolidated financial statements and
Management's Discussion and Analysis for the years ended December 31, 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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