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Press release from CNW Group

Twin Butte Energy reports first quarter 2012 financial results

Monday, May 14, 2012

Twin Butte Energy reports first quarter 2012 financial results16:13 EDT Monday, May 14, 2012CALGARY, May 14, 2012 /CNW/ - Twin Butte Energy Ltd. ("Twin Butte" or the "Company") (TSX: TBE) is pleased to announce its financial and operational results for the three months ended March 31, 2012. Please note that the results for the three months ended March 31, 2012 only include the operations from the acquisition of Emerge Oil & Gas Ltd. ("Emerge") from January 10th onwards. Proforma results if these operations had been included for the complete quarter would have added 522 boe/d of production and additional funds flow of $1.5 million.Highlights of Twin Butte's highly successful first quarter of 2012 are as follows:Closed the strategic acquisition of Emerge Oil and Gas Inc. on January 9, 2012 creating an intermediate, high liquids weighted, heavy oil producer. The share for share exchange was valued at approximately $201 million. Post the acquisition, the Company has implemented a monthly dividend of $0.015 per share, the first of which was paid on February 15th.Recorded quarterly production of 13,228 boe per day, an increase of 74 percent over 2011. All quarterly operating and financial figures reflect 82 operating days of the Emerge assets and 91 days of the Twin Butte assets. The resulting lack of nine days of Emerge effectively reduced pro-forma quarterly production of 13,750 boe per day by 522 boe per day. As well approximately 171 boe per day of production was sold in the quarter. Current corporate production is approximately 13,900 boe per day.Increased quarterly liquids production weighting to 80 percent from 44.1 percent in Q1 2011.Generated record quarterly funds flow of $26.4 million, a 106 percent increase over Q1 2011. Including the 9 operating days of Emerge in the quarter, as well as one time Emerge transactions costs included in corporate G&A pro-forma funds flow for the quarter was $29.9 million or almost $120 million annualized. On a per share basis, funds flow increased by 42% year over year to $0.14 for the quarter.Executed a net capital program of $8.0million ($14.4 million of capital expenditures less $6.3 million of divestitures and excluding the $201 million acquisition of Emerge) which included the drilling of 32 gross (21.7 net) wells at a 100 percent success rate.Maintained a strong balance sheet with quarter end net debt of $126.5 million compared to a recently renewed credit facility of $205 million. Free funds flow (funds flow less dividend and capital) of $9.4 million for the quarter demonstrates Twin Butte's capital efficiency and the sustainability of the Company's dividend.Recently (post quarter end) closed a strategic 320 bbl per day heavy oil acquisition within the Company's core Lloydminster area. The acquisition includes over 20 net sections of prospective acreage with five recently shot three dimensional seismic surveys. Twin Butte anticipates drilling activity will commence on these lands in the third quarter of 2012.Certain selected financial and operations information for the three months ended March 31, 2012 and 2011 comparatives are outlined below and should be read in conjunction with Twin Butte's audited annual Consolidated Financial Statements and accompanying Management Discussion and Analysis ("MDA").  Full versions of the statements and accompanying notes along with the Company's Annual Information Form ("AIF") have been filed on SEDAR and also on the Company website.     Three months ended  March  31  20122011% ChangeFinancial ($ thousands, except per share amounts)   Petroleum and natural gas sales72,497 31,728128%Funds flow (1)26,400 12,857105%Per share basic & diluted0.14 0.1040%Cash dividends declared8,624 - Cash dividends declared per share0.045 - Net income (loss) 14,983 (2,262)562%Per share basic & diluted0.08 (0.02)503%Capital additions14,658 17,347-16%Capital dispositions(6,328)(11,500)-45%Net debt (2)126,467 80,67757%Operating   Average daily production   Crude oil (bbl per day)10,187 4,016154%Natural gas (Mcf per day)16,139 19,924-19%Natural gas liquids (bbl per day)351 27130%Barrels of oil equivalent (boe per day, 6:1)13,228 7,60874%    Average sales price   Crude oil ($ per bbl)86.57 62.4139%Natural gas ($ per Mcf)2.34 4.05-42%Natural gas liquids ($ per bbl)90.01 77.8816%Barrels of oil equivalent ($ per boe, 6:1)60.23 46.3430%    Operating netback ($ per boe) (3)   Petroleum and natural gas sales60.23 46.3430%Realized (loss) gain on derivative instruments2.10 1.2075%Royalties(14.52)(8.73)66%Operating expenses(18.62)(14.73)26%Transportation expenses(2.48)(1.87)33%Operating netback26.71 22.2120%Wells drilled    Gross32.0 37.0-14%Net21.7 27.5-21%Success (%)100964%    Common Shares   Shares outstanding, end of period191,682,653132,022,95045%Weighted average shares outstanding - diluted186,404,231130,555,11143%(1) Funds flow from operations and funds flow from operations netback are non-IFRS measures that represent the total and the average per boe, respectively, of cash provided by operating activities, before adjusting for changes in non-cash working capital items and expenditures on decommissioning liabilities. This includes one time transaction costs of $2 million.(2) Net debt is a non-IFRS measure representing the total of bank indebtedness, accounts payables and accrued liabilities, cash dividend payable, less accounts receivables, deposits and prepaids.(3) Operating netback is a non-GAAP measure calculated as the average per boe of the Company's oil and gas sales, realized gains on derivatives, less royalties, operating and transportation expenses.CorporateTwin Butte's first quarter financial and operating results demonstrate the Company's ability to pay a sustainable dividend while completing a disciplined efficient capital plan. Production has grown over the quarter after selling approximately 171 boe per day, while paying the dividend and under spending funds generated from operations. Our strategy of delivering shareholders long term returns comprised of both income and moderate production growth while maintaining conservative payout ratios is working and is anticipated to provide shareholders long term positive gains. Over the past three years the team at Twin Butte has successfully transitioned the Company from a conventional junior gas producer to a liquid weighted intermediate producer with a multi-year, low risk conventional heavy oil drilling inventory.Twin Butte's move to a dividend paying organization has been well received in the financial markets and Twin Butte believes the Company will be able to deliver attractive total returns to investors through a very sustainable dividend and moderate production per share growth for the foreseeable future.The Company paid its first three dividends of $0.015 per month per share on February 15, March 15, and April 16,2012, for shareholders of record on January 31, February 29, and March 31, 2012. On April 16th the Company confirmed the April dividend would be payable on May 15, 2012 for shareholders of record on April 30th, and today the Board of Directors have approved a $0.015 per share dividend payable for May through September of 2012.Financial  Consistent with the Company's expanded production base and increased liquids weighting, quarterly funds flow from operations reached a record $26.4 million in the quarter. As noted in the highlights section, readers should note that funds flow would have been closer to $30 million for the quarter had the Emerge combination occurred January 1st vs. January 9th and had one time transaction costs been capitalized. This level of funds flow should provide shareholders comfort that our yearly dividend of approximately $34 million and our original capital plan of $66 million is easily financeable within our funds flow.In addition, the Company's balance sheet remains very strong. Quarter-end net debt of $126.5 million represented 1.2 times first quarter annualized cash flow and less when you consider pro-forma numbers. The Company also recently received confirmation from its syndicate of bankers that its $205 million credit facility had been renewed post their review of our year end 2011 reserves and financial information.With recent volatility in both oil and gas reference prices as well as price differential from WTI to the WCS Canadian heavy index some shareholders have expressed concern with the sustainability of our dividend and capital plan. Twin Butte's 2012 cash flow forecast of $115 million is well protected with our hedging program. Approximately 84 percent of our current gas production is hedged at $4.21/GJ at AECO for the year. With spot summer gas prices anticipated to remain below $2.00 per mcf at our unhedged field locations we have shut in just over 100 boe per day of dry gas production largely in south eastern Alberta. The Company will monitor the economics of this production and restart production when conditions allow.Approximately 57 percent of our overall liquids production is hedged for the last three quarters of 2012 at a WTI equivalent of just over $100 Cdn per bbl. In additional the Company has in place WTI to WCS differential hedges that represent approximately 46 percent of current heavy oil production hedged at a WCS price of $82.00. These hedges in combination with current strip pricing and recent tightening of light to heavy differentials suggest Twin Butte's heavy and overall liquid wellhead price should be approximately $10 per Bbl above pricing estimated in our 2012 cash flow forecast. At the current annual dividend rate of $0.18 per share this cash flow forecast suggests an all-in (dividend and capital expenditure) payout ratio of approximately 87 percent of cash flow, one of the lowest of the dividend paying E&P companies.OperationsDuring the first quarter of 2012 Twin Butte drilled 32 gross (21.7 net) wells with a 100 percent success rate demonstrating the predictable and repeatable nature of the Company's drilling inventory which currently is estimated to be over 500 net conventional heavy oil wells. All wells were drilled within the Company's core heavy oil fairway and one hundred percent of Twin Butte's 2012 capital will be spent in this area representing approximately 90 net wells.At Frog Lake, the Company's most active area for the past two years, 20 gross (10 net) wells were drilled at a 100 percent success rate. The Company's focus in 2012 and beyond at Frog Lake will be on the Rex formation which has provided very consistent results for the past two years. It is anticipated a total of 75 gross (43 net) wells will be drilled on this property in 2012. A recent four section farm in arrangement and planned summer three dimensional seismic surveys at Frog Lake will continue to enhance the Company's drilling inventory allowing profitable growth to continue in the area for some time.A recent 320 bbl per day acquisition to the south west of Frog Lake has added over twenty 100 percent working interest sections of land partially covered with four, recently shot,  three dimensional seismic surveys. These lands complement our existing area lands and early evaluations indicate at least 20 drillable locations on the lands. Twin Butte intends to commence drilling the subject lands during the third quarter of this year.Additionally the Company has been and will remain active in the greater Lloydminster area at Earlie, Silverdale, and Primate. These areas account for the majority of the remainder of Twin Butte's conventional heavy oil drilling inventory. Although these areas have slightly different producing characteristics than Frog Lake, they offer the same predictability and drilling repeatability that Frog Lake has and will be developed with a combination of vertical and horizontal wells. First quarter 2012 drilling has seen 6 net wells drilled at Silverdale and 6 net wells drilled at Primate. Water disposal infrastructure was installed at Primate in the first quarter which has allowed production to be optimized which in combination with the successful drilling has led to significant production increases from the property.The Company's yearly capital plan of $66 million remains unchanged. Current Company production is 13,900 boe per day.OutlookTwin Butte is in an enviable position in that it has a strong balance sheet, a predictable production profile and a current inventory of over 500 net heavy oil drilling locations. These wells generate return on investment in the top 10 percentile of all plays in North America and the Company believes its current sizable drilling inventory has the ability to fuel the Company's dividend and moderate growth strategy for years to come.This will allow a sustained pace of repeatable development drilling and disciplined capital spending to maximize capital efficiencies, economic returns and minimize payout times, providing visible sustainability to Twin Butte's dividend and anticipated Company growth.Twin Butte anticipates future quarters will show similar levels of capital efficiency, dividend sustainability and a very disciplined approach as the Company progresses its business plan. We are confident that the combination of a sustainable dividend and moderate per share growth will continue to attract investor interest. Management remains committed to continually enhancing the Company's asset quality through a combination of organic growth and strategic acquisitions.About Twin ButteTwin Butte is a value oriented, intermediate producer with a significant and growing scalable and repeatable drilling inventory focused on large original oil in-place conventional heavy oil exploitation. With a stable low decline production base the Company is well positioned to live within cash flow while providing shareholders with a sustainable dividend and moderate per share production growth potential over the long term.Jim SaundersPresident and C.E.O.May 14, 2012Forward-Looking StatementsIn the interest of providing Twin Butte's shareholders and potential investors with information regarding Twin Butte and Buffalo, including management's assessment of the future plans and operations of Twin Butte, certain statements contained in this news release constitute forward-looking statements or information (collectively "forward-looking statements") within the meaning of applicable securities legislation.  Forward-looking statements are typically identified by words such as "anticipate", "continue", "estimate", "expect", "forecast", "may", "will", "project", "could", "plan", "intend", "should", "believe", "outlook", "potential", "target" and similar words suggesting future events or future performance. In particular but without limiting the foregoing, this news release contains forward-looking statements pertaining to the following: future dividend levels; the volumes and estimated value of Twin Butte's oil and natural gas reserves; the life of Twin Butte's reserves; the volume and product mix of Twin Butte's oil and natural gas production; future oil and natural gas prices; future operational activities; and future results from operations and operating metrics, including future production growth and net debt. In addition, statements relating to "reserves" are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and can be profitably produced in the future. With respect to forward-looking statements contained in this news release, we have made assumptions regarding, among other things: future capital expenditure levels; future oil and natural gas prices and differentials between light, medium and heavy oil prices; results from operations including future oil and natural gas production levels; future exchange rates and interest rates; our ability to obtain equipment in a timely manner to carry out development activities; our ability to market our oil and natural gas successfully to current and new customers; the impact of increasing competition; our ability to obtain financing on acceptable terms; and our ability to add production and reserves through our development and exploitation activities. Although Twin Butte believes that the expectations reflected in the forward looking statements contained in this news release, and the assumptions on which such forward-looking statements are made, are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned not to place undue reliance on forward-looking statements included in this news release, as there can be no assurance that the plans, intentions or expectations upon which the forward-looking statements are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur, which may cause Twin Butte's actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things, the following:  volatility in market prices for oil and natural gas; general economic conditions in Canada, the U.S. and globally; and the other factors described under "Risk Factors" in Twin Butte's most recently filed Annual Information Form available in Canada at www.sedar.com. Readers are cautioned that this list of risk factors should not be construed as exhaustive.The forward-looking statements contained in this news release speak only as of the date of this news release. Except as expressly required by applicable securities laws, Twin Butte does not undertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.Barrels of Oil EquivalentBarrels of oil equivalents (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl (barrel) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, as the value ratio between natural gas and crude oil based on the current prices of natural gas and crude oil is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indicated value.For further information: Twin Butte Energy Ltd. Jim Saunders President and Chief Executive Officer Tel: (403) 215-2040 Fax: (403) 215-2055 R. Alan Steele Vice President, Finance, Chief Financial Officer and Corporate Secretary Tel: (403) 215-2692 Fax: (403) 215-2055 Website:  www.twinbutteenergy.com