Crew Energy Inc. ("Crew" or the "Company") (TSX:CR) of Calgary, Alberta is
pleased to present its operating and financial results for the three and six
month period ended June 30, 2013.
Highlights
-- Funds from operations were $48.1 million or $0.40 per share, a 43%
increase over the first quarter of 2013;
-- Second quarter production averaged 27,109 boe per day or 4% higher than
the 25,961 boe per day produced in the first quarter of 2013;
-- Reduced net debt by $23.2 million to $315.7 million or 1.6x annualized
second quarter funds from operations;
-- Reduced operating costs by 11% over the first quarter of 2013 to $10.76
per boe;
-- Recently completed three Septimus, British Columbia Montney wells which
were drilled during the second quarter in the new Montney "A" zone which
have seven day production tests of 7.6 mmcf per day and 205 bbls per day
of ngls, 6.5 mmcf per day and 182 bbls per day of ngls and 6.2 mmcf per
day and 170 bbls per day of ngls;
-- Subsequent to the quarter-end, closed the acquisition of 81 additional
Montney sections bringing Crew's aggregate holdings to 373 net sections
of Montney rights in northeast British Columbia and adding 15 TCFE of
Total Petroleum Initially in Place ("TPIIP") for a total of 91 TCFE of
TPIIP. The Company's July 9, 2013 press release has complete details of
the independently completed Montney Resource Evaluation;
-- Crew continues with its front-end engineering work to significantly
increase natural gas processing capacity in the Septimus area with plans
to increase its takeaway capacity from its present capacity of 45 mmcf
per day to up to 180 mmcf per day.
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Three Three
months months Six months Six months
Financial ended ended ended ended
($ thousands, except per June 30, June 30, June 30, June 30,
share amounts) 2013 2012 2013 2012
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Petroleum and natural gas
sales 110,793 99,946 202,060 223,021
Funds from operations (note
1) 48,087 52,027 82,275 100,084
Per share - basic 0.40 0.43 0.68 0.83
- diluted 0.40 0.43 0.68 0.83
Net income (loss) 2,007 24,107 (20,040) 17,677
Per share - basic 0.02 0.20 (0.16) 0.15
- diluted 0.02 0.20 (0.16) 0.15
Exploration and Development
expenditures 30,348 30,432 95,600 159,175
Property acquisitions (net
of dispositions) (5,717) (4,290) 8,946 (4,290)
Net capital expenditures 24,631 26,142 104,546 154,885
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As at As at
Capital Structure June 30, 2013 December 31, 2012
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($ thousands)
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Working capital deficiency (note 2) 27,991 48,522
Bank loan 287,687 242,834
Net debt 315,678 291,356
Current bank facility 430,000 400,000
Common Shares Outstanding (thousands) 121,635 121,620
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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 Three Six Six
months months months months
ended ended ended ended
June 30, June 30, June 30, June 30,
Operations 2013 2012 2013 2012
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Daily production (note 1)
Princess and other oil (bbl/d) 4,561 5,940 4,748 6,355
Lloydminster oil (bbl/d) 5,981 6,040 5,712 6,101
Natural gas liquids (bbl/d) 3,085 2,809 3,035 2,957
Natural gas (mcf/d) 80,893 80,419 78,259 83,237
Oil equivalent (boe/d @ 6:1) 27,109 28,192 26,538 29,286
Average prices (notes 1 & 2)
Princess and other oil ($/bbl) 74.85 70.41 69.43 76.11
Lloydminster oil ($/bbl) 67.50 58.95 59.50 65.05
Natural gas liquids ($/bbl) 52.16 56.27 53.27 54.58
Natural gas ($/mcf) 3.85 2.06 3.64 2.20
Oil equivalent ($/boe) 44.91 38.96 42.07 41.84
Netback ($/boe)
Revenue 44.91 38.96 42.07 41.84
Realized commodity hedging gain
(loss) (1.74) 5.94 (1.16) 3.12
Royalties (8.52) (8.86) (7.98) (10.05)
Operating costs (10.76) (11.32) (11.38) (11.75)
Transportation costs (1.26) (1.39) (1.26) (1.38)
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Operating netback (note 3) 22.63 23.33 20.29 21.78
G&A (1.93) (1.68) (1.96) (1.80)
Interest on bank debt (1.21) (1.37) (1.20) (1.21)
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Funds from operations 19.49 20.28 17.13 18.77
Drilling Activity
Gross wells 3 3 42 63
Working interest wells 3.0 1.6 39.8 59.4
Success rate, net wells 100% 100% 100% 97%
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Notes:
(1) Princess, Alberta oil (20 degrees to 26 degrees API oil) has
historically been classified as medium or conventional oil. Effective
December 31, 2012 Crew's reserves attributable to its Princess
property have been classified as heavy oil to accord with definitions
in the royalty regulations in Alberta. Princess and other oil
production and pricing are shown separately from Lloydminster heavy
oil volumes for clarity and comparison with historical
classification.
(2) Average prices are before deduction of transportation costs and do
not include hedging gains and losses.
(3) 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
During the second quarter, operations and drilling activity were reduced due to
spring break-up. The Company continued to follow its disciplined approach to
exploration and development, spending $30.3 million or 13% less than originally
budgeted. Drilling activity during the quarter included three (3.0 net) wells at
Septimus resulting in three natural gas wells. The Company completed three wells
at Septimus and three wells at Lloydminster and also recompleted 18 wells at
Lloydminster. In addition, during the quarter the Company exercised its option
to purchase 81 additional net sections of Montney acreage in northeastern
British Columbia for $35.2 million which closed in early July.
Unplanned third party facility outages in the Deep Basin area impacted second
quarter production by 650 boe per day while production increased 4% over the
first quarter of 2013 to average 27,109 boe per day. Production additions were
the result of the Company's successful first quarter drilling program at
Septimus, Princess and Lloydminster.
The June floods that caused major damage in southern Alberta resulted in
restricted access to downtown Calgary for the week following the flood,
including Crew's head office. The Company activated its business continuity plan
and all critical systems, communications and business functions continued at
remote or disaster recovery sites and therefore Crew's operations were minimally
affected by the floods.
FINANCIAL
The Company's second quarter funds from operations increased 43% over the first
quarter 2013 to $48.1 million or $0.40 per share. During the quarter, the
Company's revenue benefited from stronger oil prices, narrower West Texas
Intermediate ("WTI") to Western Canadian Select ("WCS") differentials and
increased natural gas prices. Crew also successfully decreased its operating,
transportation and general and administrative costs per boe by 9% as compared to
the prior quarter which enhanced its funds from operations netback. After
non-core property dispositions of $5.7 million, net capital expenditures were
$24.6 million which allowed the Company to decrease its net debt by 7% to $316
million.
Revenue was bolstered by stronger oil and gas prices during the second quarter.
Canadian dollar WTI averaged $96.43 per bbl for the second quarter, slightly up
from the $95.20 in the first quarter. More importantly for the Company, the
differential between WCS and WTI narrowed substantially during the quarter
resulting in a 22% quarter over quarter increase in Crew's WCS oil benchmark
price. Crew's Lloydminster heavy oil pricing was further enhanced in the second
quarter by seasonally reduced blending costs. During the second quarter, AECO
natural gas prices continued to benefit from an extended winter and decreased
storage levels. The AECO benchmark increased 11% over the first quarter to
average $3.59 per mcf.
The Company's hedging strategy is focused on partially protecting against
significant declines in commodity prices that would negatively impact the cash
flow needed to fund the Company's on-going capital program. Crew currently has
hedged approximately 49% of its forecasted 2013 natural gas production at a
price of approximately $3.22 per mcf. The Company also protects its liquids
production from a significant decline in WTI and WCS pricing. Crew has
approximately 43% of its forecasted 2013 liquids production protected against a
decline in WTI pricing with hedged prices fixed at a floor of approximately
$93.26 per barrel. The Company has hedged the differential between WTI and WCS
pricing on 4,200 barrels per day at a differential of $21.08 for the second
quarter of 2013, 5,329 barrels per day at $22.39 for the third quarter and 4,250
barrels per day at $22.67 for the fourth quarter. Crew has begun building its
hedge position to provide a base level of cash flow for 2014. The Company
currently has hedged approximately 16.6 mmcf per day of natural gas for 2014 at
a price of approximately $3.83 per mcf, 3,000 barrels per day of WTI oil hedged
at an average floor price of approximately $96.51 per barrel with additional
hedges fixing the differential between WTI and WCS pricing on an average of
1,000 barrels per day at a differential of $22.75 per barrel.
OPERATIONS UPDATE
Septimus/Tower, British Columbia
Septimus area production for the quarter averaged 7,480 boe per day, up 21% from
the first quarter and achieving yet another record for the area. Current
production is in the 7,500 to 8,000 boe per day range based on field estimates
with approximately 1,400 boe per day behind pipe as we are now running at the
current capacity of the Septimus gas plant. Installation of the fourth
compressor is on track for commissioning and start-up in the fourth quarter
which will increase our processing capacity from the current level of
approximately 45 mmcf per day to approximately 65 mmcf per day. Concurrent with
the plant expansion, Crew is installing a 22.5 kilometer 10" pipeline from the
western portion of the property to the gas plant. The Company anticipates
achieving full utilization of this capacity by the end of the first quarter
2014.
The Company has been proving additional zones within the Montney to be
productive. Crew drilled three (3.0 net) wells in the top of the Upper Montney
(Montney "A" zone) with excellent results. The three wells had seven day
production tests of 7.6 mmcf per day and 205 bbls per day of ngls, 6.5 mmcf per
day and 182 bbls per day of ngls and 6.2 mmcf per day and 170 bbls per day of
ngls. The Company has 29 unbooked locations in the Montney "A" on a 15 section
block at Septimus. As the completion technology continues to evolve at Septimus,
it has become apparent that a number of wells drilled early in the life of the
project were not optimally completed. Crew has undertaken one of the first
workovers in the area by successfully installing a frac port liner into an
existing Montney horizontal well competed in 2009 with a plug and perf
completion. The well was re-fractured and came on production at 2.2 mmcf per day
(428 boe per day), ten times greater than the well's average production rate, in
the first quarter of 2013 and four times greater than the peak initial
production of the well in December of 2009. The net workover cost was
approximately $1.5 million. The Company is in the process of identifying
additional candidates where this technique can be applied.
Deep Basin, Alberta
Deep Basin production in the second quarter was 5,410 boe per day as unplanned
third party plant outages and extended turnarounds experienced in the first
quarter continued into the second and early third quarter, impacting production
in the second quarter by approximately 650 boe per day. No new wells were
drilled in the quarter, and two Cardium horizontal well completions at Elmworth
originally planned for second quarter were not undertaken until early in the
third quarter due to spring road bans being extended into the third quarter.
Current production in the Deep Basin is 6,000 to 6,500 boe per day based on
field estimates with all third party facilities operating as of the first week
of August.
Princess, Alberta
Production for the second quarter averaged 5,500 boe per day with no new wells
drilled and no completions undertaken due to spring break-up, high rainfall and
approximately 150 boe per day of third party facility downtime. Two additional
waterfloods were initiated in the quarter bringing the total to 11 pools
currently on injection (approximately 40% of the developed Pekisko resource is
now under waterflood). Crew is currently drilling the first of two 100% working
interest wells targeting oil from the Mannville. Crew has 60 sections of Crown
mineral rights that are prospective for Mannville oil at Princess.
Lloydminster, Saskatchewan
Production for the Lloydminster area averaged 6,015 boe per day for the quarter
as the impact of spring break-up was not as significant as initially expected.
However, the spring conditions did limit rig activity as no new wells were
drilled, only three wells were completed and 18 wells recompleted. Current
production levels are between 6,000 and 6,500 boe per day based on field
estimates.
OUTLOOK
Crew is maintaining annual guidance to average 27,500 to 28,500 boe per day,
exploration and development capital budget at $219 million as well as exit
guidance of 29,000 to 30,000 boe per day as production is forecasted to steadily
increase through the remainder of the year. Funds from operations was markedly
improved over the first quarter as a result of higher production and higher
realized product prices. Funds from operations increased to $48.1 million or
$0.40 per share up 43% from $0.28 per share in the first quarter. Crew
maintained its capital discipline in the second quarter spending $30.3 million
on exploration and development activities, 13% less than budgeted while reducing
net debt by $22.5 million to 1.6 times annualized second quarter funds from
operations.
The Company's move to capture resource continued in northeastern British
Columbia by closing the third tranche of our Montney acquisition in July for
$35.2 million which added 15 TCFE of TPIIP to Crew's resource inventory. Crew
now has 91 TCFE of TPIIP resource in the Montney formation comprised of 44.6 TCF
of natural gas and 7.8 billion barrels of oil. We plan to continue to increase
production from the current 8,000 boe per day to an estimated 10,000 boe per day
in the first quarter of 2014 once the Septimus gas plant has been expanded to 65
mmcf per day of capacity. We will also advance the de-risking of our land base
through the planned drilling of five exploratory horizontal wells over the next
six months. Crew now has five drilling rigs running and expects to drill over 50
wells in the last half of 2013 as well as recompleting over 40 wells.
The Company will continue to divest of non-core assets to fund production growth
in its core areas as well as actively engage in asset swaps to further
concentrate our asset base. Crew's capital program will be funded by funds from
operations, long-term debt and minor asset dispositions.
Oil prices have continued to strengthen as the WTI/Brent and WTI/WCS
differentials have narrowed significantly over the first half of the year
resulting in much improved price realizations. This has been partially offset by
an approximate $0.50 per mcf reduction in realized natural gas prices. We are
currently forecasting realized oil prices to be approximately $6 per bbl higher
and natural gas prices to be $0.50 per mcf lower in the third quarter. When
combined with higher forecasted production, funds from operations is expected to
again be strong in the third quarter. Crew has a very active third quarter
planned which we look forward to reporting in November.
Our thoughts are with those who were affected by the floods in southern Alberta.
We would like to commend our staff and the people of southern Alberta for their
resolve and community spirit in helping in this time of need.
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 2013
forecast average and exit production and first quarter 2014 production estimates
at Septimus; future oil and natural gas prices and Crew's commodity risk
management programs; future liquidity and financial capacity; future results
from operations and operating metrics; anticipated reductions in operating
costs; 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; increased processing
capacity at Septimus; the total future capital associated with development of
reserves and resources; and methods of funding our capital program, including
possible non-core asset divestitures and asset swaps.
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. There are a number of assumptions associated with the potential of
resource volumes including the quality of the Montney reservoir, future drilling
programs, continued performance from existing wells and performance of new
wells, the growth of infrastructure, well density per section, and recovery
factors and discovery and development necessarily involves known and unknown
risks and uncertainties, including those identified in this press release.
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; the early stage of development of some areas in the
Evaluated Areas; the potential for variation in the quality of the Montney
formation; 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.
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.
Resource Estimates
This news release contains references to estimates of oil and gas classified as
Total Petroleum Initially In Place ("TPIIP") in the Montney region in
northeastern British Columbia which are not, and should not be confused with,
oil and gas reserves. Such estimates are based upon an independent resource
evaluation effective as at May 1, 2013, prepared in accordance with the Canadian
Oil and Gas Evaluation Handbook. Such estimates are subject to a number of
cautionary statements, assumptions, risks, positive and negative factors
relevant to the estimates and contingencies, the details of which were set forth
in Crew's previously disseminated press release dated July 9, 2013. Accordingly,
readers are referred to and encouraged to review the sections entitled "Montney
Resource Evaluation", "Definitions of Oil and Gas Resources and Reserves" and
"Information Regarding Disclosure on Oil and Gas Reserves, Resources and
Operational Information" in the July 9, 2013 press release for applicable
definitions, cautionary language, explanations and discussion of resources
estimated herein, all of which is incorporated herein by reference.
Crew is an oil and gas exploration and production company whose shares are
traded on The Toronto Stock Exchange under the trading symbol "CR".
Financial statements and Management's Discussion and Analysis for the three and
six month periods ended June 30, 2013 and 2012 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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