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.
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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