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Press release from Marketwire

NuVista Energy Ltd. Announces Third Quarter 2011 Results

Thursday, November 10, 2011

NuVista Energy Ltd. Announces Third Quarter 2011 Results19:23 EST Thursday, November 10, 2011CALGARY, ALBERTA--(Marketwire - Nov. 10, 2011) - NuVista Energy Ltd. ("NuVista") (TSX:NVA) is pleased to announce results for the three and nine months ended September 30, 2011 and provide an update on its 2011 and 2012 business plans. With natural gas prices expected to remain low for the near term, NuVista is prudently managing its business plan with a focus on oil and liquids-rich natural gas wells that can deliver strong near term economics while advancing our W5 Spirit River/Notikewin and Wapiti Montney liquids-rich natural gas plays with significant long term potential. NuVista is continuing a disciplined approach to managing capital allocation and leverage in order to maintain a sustainable business model that delivers both short and long term results.Significant highlights for the third quarter of 2011 include:Achieved funds from operations of $41.3 million for the three months ended September 30, 2011 compared to $42.5 million for the same period in 2010 and $41.0 million for the three months ended June 30, 2011; Achieved average production of 25,360 Boe/d for the three months ended September 30, 2011 compared to 25,488 Boe/d for the three months ended June 30, 2011; Increased oil and liquids production to 7,928 Bbls/d from 7,571 Bbls/d in the same period in 2010. Our oil and liquids production weighting increased to 31% in the quarter from 27% in the same period in 2010; Drilled 20 (16.6 net) wells resulting in 15 (11.6 net) oil wells, four (4.0 net) natural gas wells, and one (1.0 net) dry hole for an overall success rate of 95%; Increased our successful drilling activity in the W5 liquids-rich natural gas operating area after the favorable completion results of Notikewin and Spirit River wells completed earlier in 2011. New results in and subsequent to the third quarter are as follows: 13-36-45-9 W5M Spirit River Horizontal - test rate of 10.7 MMcf/d at a 9 Mpa surface flowing pressure. This well is now on production at a restricted rate of 3.7 MMcf/d; 13-24-45-9 W5M Spirit River Horizontal - test rate of 16.0 MMcf/d at a 9 Mpa surface flowing pressure. This well is expected to be brought on production in December 2011; 13-13-45-9 W5M Spirit River Horizontal – waiting on completion; The above wells build on the previously announced successful well at 4-36-45-9 W5M which tested at 12.4 MMcf/d and came on at a restricted rate of approximately 4.5 MMcf/d with no decline for the first six months. This well has already produced 0.8 bcf in this period; Drilled 14 (10.6 net) Birdbear oil wells in our West Central Saskatchewan operating area. Since this time last year, Birdbear oil production has increased from approximately 690 Bbls/d gross (525 net) to recent production levels of approximately 2,900 Bbls/d gross (2,200 net); Drilled one (1.0 net) oil well into a new heavy oil pool in W3/W4 with potential for approximately 15 development wells adding a second heavy oil play to our W3/W4 operating area; and Began the execution of our $70 million twelve month Wapiti Montney capital program. During the third quarter of 2011 production averaged 25,360 Boe/d, relatively unchanged from production of 25,488 Boe/d in the second quarter of 2011. Following spring break-up, we increased the level of drilling activity with one drilling rig active in each of our three key plays – W3/W4 heavy oil; W5 liquids-rich natural gas and W6 Wapiti Montney liquids-rich gas. Despite the constrained 2011 capital program due to the current natural gas environment, we have been able to maintain relatively flat production volumes.W3/W4 Heavy OilW3/W4 heavy oil opportunities continue to have the best economics in our opportunity inventory. These heavy oil wells typically have a payout period of less than six months and a recycle ratio of greater than 3x. The production rates from our Zoller Lake play have exceeded our Birdbear type curve resulting in very strong economics. During the third quarter of 2011, we continued to develop the Birdbear plays at Hallam, Zoller Lake and South Hallam with a disciplined and repeatable approach to our heavy oil inventory in West Central Saskatchewan and Eastern Alberta. Overall this quarter, we drilled 11 (8.3 net) development wells at Zoller Lake; two (1.5 net) development wells at Hallam; one (0.5 net) delineation well at South Hallam; and one (1.0 net) dry hole on an exploratory test of a new Birdbear pool. Another important achievement in the third quarter was the use of pad drilling and other repeatable efficiency techniques to achieve well cost savings of 10% - 20% which further enhance well economics. Subsequent to the end of the third quarter, we drilled three heavy oil development wells in W3/W4 that are waiting on completion and have a fourth well planned prior to year end. We will continue to develop the inventory of Birdbear and Lloydminster heavy oil wells in our planned active drilling program in 2012.W5 Liquids-Rich Natural GasFollowing our successful Notikewin and Spirit River wells completed in early 2011, NuVista began an active Spirit River drilling program at Alder Flats in the third quarter. The Spirit River and Notikewin channelized formations have a strong element of repeatability due to vertical well control. We have identified 15 to 20 well locations that are expected to have favorable economics in the current natural gas price environment. Success could lead to an inventory of up to 75 horizontal wells in this area. Several of the recently completed wells listed above have exceeded our economic type curve. In addition to the strong production rates, these wells have liquids yields of 20 to 40 Bbls/MMcf resulting in robust economics even in a low natural gas price environment. With the favorable results from this drilling program, we will be allocating more capital to the W5 area in 2012. W6 Wapiti Montney and FalherIn July 2011 we began a $70 million twelve month Wapiti Montney capital pilot program to de-risk and advance this play through to early development. This $70 million capital program includes drilling a total of five wells in the North and South Wapiti land blocks, and the construction of a compression/dehydration facility. The key focus of this $70 million program is to understand the scope of this play, confirm drilling and completion alternatives, recoverable reserves potential, and validate leases and licenses. As an early mover in the Wapiti Montney area, NuVista assembled a dominant land position of 155 net sections in this significant liquids-rich natural gas play. NuVista has benefited from increased industry drilling, land sale and acquisition activity in this general area and we continue to believe that this liquids-rich natural gas play has the potential to add substantial reserves, production and long term economic value for our shareholders, even in the current natural gas price environment. For the second half of 2011, approximately $30 million of capital spending has been allocated to the Wapiti Montney play with plans to drill two wells at our North Block, one well at our South Block and begin construction of a compressor/dehydration facility at our North Block. During the third quarter of 2011, we drilled our first well in the North Block and completed it with a 10 stage slickwater frac with 140 tonnes per stage. We are currently working on resolving flowback issues associated with the completion, in conjunction with third-party experts. NuVista has begun a relationship with third-party consultants with deep expertise in horizontal multi-stage facture completions and the Montney formation. Subsequent to the third quarter, we finished drilling a well in our South Block with all well objectives met, and are currently evaluating optimal completion alternatives. The rig is now moving to the North block to spud the third well in the program. The construction of the compression/dehydration facility jointly owned with an industry partner has begun. The decision to construct a joint facility will result in economies of scale, yielding significant capital and operating cost savings and facilitating the phasing of incremental capacity and capital.In addition to our Montney activity, subsequent to the end of the quarter we participated in a Falher horizontal well with a multi-stage fracture completion in the Wapiti area with excellent results. NuVista has a 51% working interest in this well, which tested 14.9 MMcf/d at 18 Mpa surface flowing pressure. NuVista is proceeding with the tie-in of this production and with compression expansion to increase capacity for this and potential future wells in the area. NuVista has identified several additional Falher opportunities and is planning further drilling activity in late 2011 and 2012 into this formation. Near Term Business StrategyWith the outlook for continued low natural gas prices over the near term, NuVista is carefully evaluating its business to ensure a sustainable model without jeopardizing its financial flexibility or longer term growth opportunities in the W5 Spirit River/Notikewin and Wapiti Montney areas. Our near term focus remains on delivering immediate results in a disciplined manner while advancing plays that have strong economics in the current natural gas price environment, and significant upside potential. Despite maintaining discipline with a prudent capital program in this environment, NuVista has been able to maintain production volumes relatively flat. By focusing on our highest return oil and liquids-rich natural gas projects, our drilling program has created good economic value. Key strategic funding levers and investment acceleration decisions will be determined during the second quarter of 2012 based on W5 Spirit River/Notikewin and W6 Wapiti liquids-rich drilling results. Additionally, a portfolio analysis and non-core divestiture program is underway to realize additional funds. Upon success, these funds will be made available for incremental investment.Organizational ChangesWe would like to take this opportunity to announce a reorganization of the executive team of NuVista. The positions of Vice President Engineering and Vice President Exploration will be consolidated into a new role called Vice President Development. All drilling and completion, and geological and geophysical capital authority previously vested in them will move to this new position. This move condenses and streamlines decision making lines and emphasizes the more focused nature of NuVista's business. All multi-disciplinary asset teams will report in to the Vice President Development. An external search will be conducted to fill this position.As a result of these changes, Kevin Christie, formerly VP Exploration, will be leaving NuVista. Kevin has been with NuVista for three and one-half years and during that time has contributed greatly to the leadership and technical acumen which has helped NuVista succeed in its various ventures. We thank Kevin for his dedication and wish he and his family the best in future endeavors.Dan McKinnon, formerly Vice President Engineering will move to take on the new role of Manager, Planning & Reserves. This is an area of great importance to planning our future, and is an area of personal strength of Dan's. Dan will be Acting Vice President, Development until the permanent Vice President Development is hired.Steve Dalman, formerly Vice President Business Development, will be leaving NuVista. Steve has been with NuVista since the company's inception in 2003. During this time he has overseen and executed countless acquisition opportunities which helped grow the company's size and opportunity base to what it is today. We thank Steve and wish him the best in his future ventures.Craig Burton will be appointed Vice President, Business Development & New Plays effective December 1, 2011. Craig has been with NuVista for over seven years and has for some time now been an active member of the Leadership Team in his capacity as Manager, Acquisitions in the Business Development group.2011 and 2012 Guidance Our capital budget for 2011 remains essentially unchanged at $160 million to $165 million. Capital spending for the fourth quarter is expected to be approximately $60 million and includes drilling approximately 20 wells. We are planning to focus this capital program on the Wapiti Montney, W5 Spirit River/Notikewin and Eastern Alberta heavy oil plays. Our guidance for 2011 average production volumes remains within our previous guidance range, and with third quarter actual production results and forecast fourth quarter production we are narrowing this range to 25,200 Boe/d to 25,600 Boe/d. In 2011, annual funds from operations are forecast to be approximately $155 million based on estimated fourth quarter production rates and 2011 average annual pricing assumptions of $3.70/Mcf for AECO natural gas and US$94.00 for WTI crude oil. This includes the impact of price risk management contracts currently in place. Our crude oil and liquids production weighting is expected to average 32% in 2011 compared to an average of 27% in 2010, reflecting our focus on higher netback crude oil and natural gas liquids. We will continue to prudently manage our financial flexibility and expect a twelve months trailing debt to funds from operations ratio of 2.1:1.For 2012, our Board has approved a first half capital budget range of $70 million to $80 million, approximately equal to cashflow. The objective of this capital program is to conduct an active drilling program prior to spring break-up to further evaluate the economics of our W6 Wapiti Montney and W5 liquids-rich plays and to continue heavy oil development drilling. Average production for the first half of 2012 is forecast at 24,500 Boe/d to 25,500 Boe/d. A capital spending increase will be considered in the second half of the year pending further success with our W5 Spirit River and W6 Wapiti Montney program. We have an inventory of quality drilling opportunities and are continuing to remain flexible to accelerate our capital program if natural gas prices improve or we are able to complete selected non-core asset dispositions. The focus of our natural gas drilling activity remains on repeatable liquids-rich plays that are economic in a $4.00/mcf natural gas price environment. With a talented and motivated workforce and a revised business strategy focused on discipline, execution and profitability, we look forward to updating you on the progress in creating shareholder value growth as we move into 2012.Corporate HighlightsThree months ended September 30, Nine months ended September 30, 2011201020112010Financial($ thousands, except per share)Oil and natural gas revenue88,70088,733272,656283,775Funds from operations(1)41,29042,509115,552134,373Per basic share0.410.481.191.52Per diluted share0.410.481.191.52Net earnings (loss)1,807(18,194)14,662(38,690)Per basic share0.02(0.21)0.15(0.44)Per diluted share0.02(0.21)0.15(0.44)Total assets1,543,7961,569,077Long-term debt, net of adjusted working capital(1)300,177446,931Net capital expenditures49,27079,629104,046196,515Weighted average common shares outstanding (thousands):Basic99,51388,62596,89888,501Diluted99,51388,62596,93188,501OperatingProductionNatural gas (MMcf/d)104.6124.0105.2124.7Natural gas liquids (Bbls/d)2,8852,8402,9953,062Oil (Bbls/d)5,0434,7315,1054,550Total oil equivalent (Boe/d)25,36028,24425,64028,403Average product prices(2)Natural gas ($/Mcf)3.914.343.954.70Natural gas liquids ($/Bbl)63.5348.9262.8351.05Oil ($/Bbl)70.5861.2072.0663.40Operating expensesNatural gas and natural gas liquids ($/Mcfe)1.611.141.711.17Oil ($/Bbl)13.6918.3714.7118.10Total oil equivalent ($/Boe)10.458.7711.148.78Operating netback ($/Boe)21.2320.0220.4520.86Funds from operations netback ($/Boe)(1)17.7016.3616.5017.33Share trading statisticsHigh10.5012.5110.5014.56Low5.5710.025.579.65Close5.7210.435.7210.43Average daily volume137,912198,325173,333273,142NOTES: Funds from operations, funds from operations per share, funds from operations netback, operating netback and adjusted working capital are not defined by GAAP in Canada and are referred to as non-GAAP measures. Funds from operations are based on cash flow from operating activities as per the statement of cash flows before changes in non-cash working capital and asset retirement expenditures. Funds from operations per share is calculated based on the weighted average number of common shares outstanding consistent with the calculation of net earnings (loss) per share. Funds from operations netback equals the total of revenues including realized commodity derivative gains/losses less royalties, transportation, operating, general and administrative, restricted stock units, interest expenses and cash taxes calculated on a Boe basis. Operating netback equals the total of revenues including realized commodity derivative gains/losses less royalties, transportation and operating expenses calculated on a Boe basis. Adjusted working capital excludes the current portions of the commodity derivative asset or liability. Total Boe is calculated by multiplying the daily production by the number of days in the period. For more details on non-GAAP measures, refer to NuVista's "Management's Discussion and Analysis". Product prices include realized gains/losses on commodity derivatives. CONSOLIDATED FINANCIAL STATEMENTS AND MD&AThird quarter 2011 interim consolidated financial statements and notes to the interim consolidated financial statements and Management's Discussion and Analysis for NuVista Energy Ltd. have been filed on SEDAR (www.sedar.com) under NuVista Energy Ltd. and can also be accessed on NuVista's website at www.nuvistaenergy.com.ADVISORY REGARDING OIL AND GAS INFORMATIONThis news release contains the terms barrels of oil equivalent ("Boe") and thousand cubic feet equivalent ("Mcfe"). Natural gas is converted to a Boe using six thousand cubic feet of gas to one barrel of oil. In certain circumstances natural gas liquid volumes have been converted to a Mcfe on the basis of one barrel of natural gas liquids to six thousand cubic feet of gas. Boes and Mcfes may be misleading, particularly if used in isolation. The foregoing conversion ratios are based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.ADVISORY REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS This press release contains forward-looking statements and forward-looking information (collectively, "forward-looking statements") within the meaning of applicable securities laws. The use of any of the words "will", "expects", "believe", "plans", "potential" and similar expressions are intended to identify forward-looking statements. More particularly and without limitation, this press release contains forward looking statements, including management's assessment of: NuVista's future strategy, plans, opportunities and operations; forecast production; production mix; drilling, development, completion and tie-in plans and results; NuVista's planned capital budget; targeted debt level; the timing, allocation and efficiency of NuVista's capital program and the results therefrom; plans regarding facility construction and/or expansions, the timing thereof and the results therefrom; the anticipated potential of NuVista's asset base; forecast funds from operations; the source of funding of capital expenditures; the objectives and focus of NuVista's capital program and the allocation thereof and results therefrom; NuVista's risk management strategy; expectations regarding future commodity prices and netbacks; and industry conditions. By their nature, forward-looking statements are based upon certain assumptions and are subject to numerous risks and uncertainties, some of which are beyond NuVista's control, including the impact of general economic conditions, industry conditions, current and future commodity prices, currency and interest rates, anticipated production rates, borrowing, operating and other costs and funds from operations, the timing, allocation and amount of capital expenditures and the results therefrom, anticipated reserves and the imprecision of reserve estimates, the performance of existing wells, the success obtained in drilling new wells, the sufficiency of budgeted capital expenditures in carrying out planned activities, competition from other industry participants, availability of qualified personnel or services and drilling and related equipment, stock market volatility, effects of regulation by governmental agencies including changes in environmental regulations, tax laws and royalties; the ability to access sufficient capital from internal sources and bank and equity markets; and including, without limitation, those risks considered under "Risk Factors" in our Annual Information Form. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. NuVista's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements, or if any of them do so, what benefits NuVista will derive therefrom. NuVista disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.FOR FURTHER INFORMATION PLEASE CONTACT: Jonathan WrightNuVista Energy Ltd.President and CEO(403) 538-8501ORRobert F. FroeseNuVista Energy Ltd.VP, Finance and CFO(403) 538-8530www.nuvistaenergy.com