Press release from Marketwire
Arcan Delivers Record First Quarter 2012; Announces Management Changes
Monday, May 28, 2012
Arcan Delivers Record First Quarter 2012; Announces Management Changes08:00 EDT Monday, May 28, 2012CALGARY, ALBERTA--(Marketwire - May 28, 2012) - Arcan Resources Ltd. (TSX VENTURE:ARN) ("Arcan" or the "Corporation") is pleased to announce its financial and operating results for the three month period ended March 31, 2012. Revenue, funds from operations and per-share operating income all doubled from the first quarter of 2011, on the strength of a 91 per cent increase in production.As well, Arcan announced changes to the Corporation's management team. Ed Gilmet has stepped down from his dual role as the Corporation's President and Chief Executive Officer in favour of acting solely as its CEO. Doug Penner, former Executive Vice President and Chief Financial Officer of Arcan, becomes President and a director of the Corporation. Graeme Ryder, formerly Vice President, Finance and Controller, becomes Chief Financial Officer, in addition to his continued role as Vice President, Finance. While Executive Vice President Andy Fisher remains in his management position, he will be stepping down from his role as a director. "2012 is an inflection year for Arcan, and Doug's appointment as President positions us for the future," said Arcan's Chief Executive Officer Ed Gilmet. "Having advanced our core Ethel asset from two townships of undeveloped land only a year ago into a strongly producing region with full infrastructure and waterflood in place, we are now shifting as planned to a program of sustainable growth, strengthening our balance sheet and focusing on cost reduction.""I am excited about implementing Arcan's next stage of development", stated President Doug Penner. "Having expanded rapidly in our first nine years of operation, we are maturing as a company, ensuring that our continued growth also delivers value for our shareholders over time. We are focused on reducing down-time, operating costs and G&A expenses as we work to bring our capital spending more in line with our cash flow. We are also looking at all of our assets strategically, and we will consider divesting non-core assets as opportunities arise." FINANCIAL AND OPERATING SUMMARY:($000s except per share amounts)Three Months Ended March 31,20122011% changeFinancial highlightsPetroleum and natural gas revenue37,93218,306107%Pumping and stimulation services revenue2,802--Funds from operations(1)18,4459,59592%Per share basic and diluted(1) (3) ($)0.190.1173%Loss(2,586)(2,560)1%Per share basic and diluted(3) ($)(0.03)(0.03)-Capital expenditures - petroleum & natural gas properties106,07644,160140%Net debt at end of period(4)128,72776,37969%Three Months Ended March 31,20122011% changeOperating highlightsProduction:Oil and NGL (bbls per day)4,7832,390100%Natural gas (thousand cubic feet ("Mcf") per day)553968(43%)Total (barrels of oil equivalent ("BOE") per day)(2) (6:1)4,8752,55191%Average realized price (excluding hedges):Oil and NGL ($ per bbl)86.7983.334%Natural gas ($ per Mcf)3.124.42(29%)Netback (excluding hedges) ($ per BOE)Oil, natural gas and NGL sales85.5179.747%Royalties(13.63)(16.65)(18%)Operating expenses(15.95)(19.46)(18%)Pumping and stimulation services0.78--Operating netback56.7143.6330%Realized economic hedging losses - cash(2.37)(0.13)nmG&A expenses(5.40)(1.43)278%Interest expense(6.87)(3.47)98%Corporate netback42.0738.609%Common shares (000s)Common shares outstanding, end of period97,78588,10011%Weighted average basic and diluted shares outstanding(3)97,77388,07211%Notes: (1)The reader is referred to the section "Non-IFRS Measurements".(2)The reader is referred to the section "Legal Advisories".(3)Basic and diluted weighted average shares are the same in 2012 and 2011 as the Corporation incurred a loss in these periods.(4)Net debt and working capital is calculated by subtracting the Corporation's current liabilities and bank debt from its current assets. This amount excludes convertible debentures maturing in 2016 and 2018.FINANCIAL REVIEW:Funds from operations increased 92 percent to $18.4 million during the first quarter of 2012 from the same period in 2011. This is a direct result of the additional volumes from the horizontal wells that Arcan drilled in the Swan Hills area. Arcan reduced operating costs by 18 percent in the first quarter of 2012 as compared to the first quarter of 2011 and by 28 percent from $22.18 per BOE in the fourth quarter of 2011. A key factor in the decrease was a reduction in oil trucking costs. Subsequent to the first quarter, Arcan's bank line increased to $200 million from $120 million, providing Arcanwith additional financial flexibility to execute its 2012 capital program. At the end of the first quarter the Corporation had a net debt position of $128.7 million. The Corporation also has $171.3 million outstanding under its two series of convertible unsecured subordinated debentures that mature in 2016 and 2018. Arcan spent $106.1 million of capital on its properties during the three months ended March 31, 2012, up from $44.2 million for the three months ended March 31, 2011. During the quarter the Corporation invested heavily in drilling, building waterflood-related infrastructure and equipping and tying in wells. Another key expenditure is the ongoing construction of the pipeline through Ethel to Deer Mountain that is expected to be on-stream in June 2012. General and administrative ("G&A") expenses for the first quarter decreased 60 percent to $5.40 per BOE from $13.64 per BOE in the fourth quarter of 2011. Reducing G&A expenses remains a management priority. Arcan expects expenses to grow marginally going forward as the Corporation continues to increase activity levels; however, per BOE numbers are anticipated to decline as production volumes increase. OPERATIONS REVIEW:Arcan achieved a 100 percent success rate drilling in the first quarter of 2012. The Corporation completed and brought on-stream 13 wells during the quarter. Production increased 91 percent to 4,875 BOE per day from 2,551 BOE per day, over the comparable quarter. The most noteworthy drilling success was the Virginia Hills 13-32-64-13W5 Beaverhill Lake horizontal well. The well flowed at a rate of 1,773 BOE per day averaged over the first seven days and 1,226 BOE per day averaged over a 21-day production period, with maximum day rates above 1,900 BOE per day. This well has been shut-in for equipping since mid-April and is expected to be back on production by the end of May. Arcan's focus on its long life Swan Hills asset drove the increase in light oil production weighting to 98 percent in the first quarter. Natural gas production for the quarter continued to subside due to normal declines, as well as uneconomic gas prices that drove the shut-in of gas wells in the McLeod and Hamburg areas and redeployment of capital towards oil production. OUTLOOK: Arcan holds a multi-year inventory of low-risk drilling opportunities targeting light sweet oil plays. The Corporation is planning further drilling and application of the waterflood process to de-risk specific core properties. Arcan plans to execute on its strategy to grow production organically by drilling in the Swan Hills area, creating value for shareholders through increasing reserves, cash flow and production on a per share basis. The Corporation currently plans to bring up to a total of 30 wells on-stream in 2012 and anticipates that production for the year will average 6,000 to 6,500 BOE per day. As part of this plan, Arcan recently received approval for waterflood expansion at Ethel and is seeing the expected waterflood response from water injection operations in the Deer Mountain Unit #2. Arcan has now implemented or is nearing approval for waterflood programs in three separate project areas: Deer Mountain Unit #2, the Morse Unit and the Ethel Unit.In line with its strategic direction, Arcan plans to spend capital within its existing cash flow stream for the second half of the year and to further reduce operating costs as the benefits of completed infrastructure investments are realized. Notably, the completion and operation of the pipeline in June 2012 is expected to significantly decrease associated trucking costs. In addition, reducing general and administrative costs remains a key area of focus for management. FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS:Arcan has filed its unaudited condensed interim consolidated financial statements and the accompanying management's discussion and analysis for the three month period ended March 31, 2012, with the Canadian securities regulatory authorities. These filings are available for review at www.sedar.com or www.arcanres.com.UPCOMING CONFERENCE PRESENTATION: Arcan is scheduled to present at the Stifel Nicolaus Energy Conference taking place in Montréal, Québec at the Hotel Omni Mont-Royal on June 7 and 8, 2012. Investors are invited to listen to the live webcast at 9:05 a.m. EDT via http://www.veracast.com/webcasts/stifel/energy2012/41102112.cfm. An archive of the webcast will be available for a 30 day period following the conference.ANNUAL AND SPECIAL MEETING: Arcan has set its annual and special meeting to be held at 3:00 p.m. (Calgary time) on Thursday, June 21, 2012. The event will take place in the McMurray Room of the Calgary Petroleum Club at 319 - 5th Avenue SW, Calgary, Alberta. About Arcan Resources Ltd. Arcan Resources Ltd. is an Alberta, Canada corporation that is principally engaged in the exploration, development and acquisition of petroleum and natural gas located in Canada's Western Sedimentary Basin. Legal AdvisoriesAdditional information about the Corporation, including the Corporation's annual information form for the year ended December 31, 2011, is available under Arcan's profile on SEDAR at www.sedar.com .BOEs may be misleading, particularly if used in isolation. The calculation of BOEs is based on a conversion ratio of six Mcf of natural gas to one bbl of oil based on an energy equivalency conversion primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, given that the value ratio based on the current price of oil as compared to natural gas is significantly different from the energy equivalent of six to one, utilizing a BOE conversion ratio of 6 Mcf: 1 bbl would be misleading as an indication of value. Non-IFRS MeasurementsArcan's financial statements have been prepared in accordance with IFRS. Readers are cautioned that this press release contains the term "funds from operations", which should not be considered an alternative to, or more meaningful than, "cash provided by operating activities" or "net earnings" as determined in accordance with IFRS as an indicator of Arcan's performance. Arcan also presents "funds from operations per share", whereby funds from operations are divided by the basic and diluted weighted average number of common shares of Arcan outstanding to determine per share amounts. Operating and corporate netbacks are also presented. Operating netbacks represent Arcan's revenue, less royalties and operating expenses, and corporate netbacks represent Arcan's operating netback, less realized economic hedging losses, general and administrative ("G&A") and interest expense, in order to determine the amount of funds generated by production. Operating and corporate netbacks have been presented on a per BOE basis, as well. The measures referenced above do not have any standardized meaning prescribed by IFRS and therefore are unlikely to be comparable to similar measures presented by other companies. Management believes that funds from operations and operating and corporate netbacks are useful supplemental measures as they provide an indication of the ability of Arcan to fund future growth through capital investment and/or repay debt. These measures have been described and presented in this press release in order to provide shareholders and potential investors with additional information regarding Arcan's liquidity and its ability to generate funds to finance its operations. Arcan's method of calculating funds from operations may differ from other companies, and as such, may not be comparable. Arcan determines funds from operations as cash flow from operating activities before changes in non-cash working capital as follows:Funds from OperationsThree Months Ended($000's)March 31, 2012March 31, 2011Cash flow from operating activities (per IFRS)17,0268,889Change in non-cash working capital1,419706Funds from operations18,4459,595Forward-Looking Information and StatementsThis press 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", "guidance", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends", "possible" and similar expressions are intended to identify forward-looking information or statements. In particular, but without limiting the foregoing, this press release contains forward-looking information and statements pertaining to, among other things, the following: Arcan's plans to shift to a program of sustainable growth, strengthening its balance sheet and focusing on cost reduction; Arcan's plans to bring its capital spending more in line with its cash flow; Arcan's expectation that it will consider divesting non-core assets as opportunities arise; Arcan's plan to ensure that continued growth also delivers value for shareholders over time; Arcan's expectation that the pipeline through Ethel to Deer Mountain will be on-stream in June 2012; Arcan's expectations that expenses will grow marginally going forward as the Corporation continues to increase activity levels and its expectation that BOE numbers will decline as production volumes increase; the Corporation's plans respecting further drilling and application of waterflood processes to de-risk specific core properties; Arcan's plans to execute on its strategy to grow production organically by drilling in the Swan Hills area, creating value for shareholders through increasing reserves, cash flow and production on a per share basis; the Corporation's current plans to bring up to a total of 30 wells on-stream in 2012 and its anticipation that average production for the year will average 6,000 to 6,500 BEO per day; Arcan's plans to operate within its existing cash flow stream for the second half of the year and to further reduce operating costs; and Arcan's expectation that the completion and operation of the pipeline in June 2012 will significantly decrease associated trucking costs.The forward-looking information and statements contained in this press release reflect several material factors and expectations and assumptions of Arcan including, without limitation: that Arcan will continue to conduct its operations in a manner consistent with past operations; the accuracy of current horizontal production data, historical well production and waterflood results; the general continuance of current or, where applicable, assumed industry conditions; continuity of reservoir conditions across Arcan's Swan Hills land base; the continued availability of cash flow and/or debt and equity sources to fund Arcan's capital and operating requirements as needed; Arcan's 2012 capital budget and strategic business plans; the continuance of existing and, in certain circumstances, proposed tax and royalty regimes; the accuracy of the estimates of Arcan's reserve volumes; the accuracy of current horizontal production data; and certain commodity price and other cost assumptions. Arcan believes the material factors, expectations and assumptions reflected in the forward-looking information and statements are reasonable at this time but no assurance can be given that these factors, expectations and assumptions will prove to be correct. The forward-looking information and statements included in this press release are not guarantees of future performance and should not be unduly relied upon. Such information and statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information or statements including, without limitation: for reasons currently unanticipated, Arcan's production rates may not increase in the manner currently expected; the application and modification of horizontal, multi-stage fracture technologies including the application of additional fracture stimulation stages may not have the impact currently anticipated by Arcan; Arcan's capital spending and operational plans for 2012 as well as its plans to reduce operating expenses may not be completed in the timelines anticipated or in the manner anticipated and the execution of such plans and reductions may not have the results currently anticipated by Arcan; enhanced recovery operations at additional sites on Arcan's properties may not have the impact on production currently anticipated by Arcan; the completion of the pipeline may not have the effect on operating expenses currently anticipated or at all; currently unforeseen issues may arise in the integration of the business and operations of Arcan and StimSol and the acquisition of StimSol may not positively impact Arcan's business and operations in the manner anticipated; changes in commodity prices; unanticipated operating results or production declines; shareholder value may not be maximized in the manner suggested by Arcan or at all; changes in tax or environmental laws or royalty rates; increased debt levels or debt service requirements; inaccurate estimation of Arcan's oil and gas reserves volumes; limited, unfavourable or no access to debt or equity capital markets; for reasons currently unforeseen, the current drilling locations identified by Arcan may prove to be unsuitable or unavailable and drilling on the locations identified may not occur; increased costs and expenses; the impact of competitors; reliance on industry partners; should any one of a number of issues arise, Arcan may find it necessary to alter its current business strategy and/or capital expenditure program; and certain other risks detailed from time to time in Arcan's public disclosure documents including, without limitation, those risks identified in this press release, and in Arcan's annual information form for the year ended December 31, 2011, copies of which are available on Arcan's SEDAR profile at www.sedar.com .The forward-looking information and statements contained in this press release speak only as of the date of this press release, and Arcan does not assume any obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable laws.FOR FURTHER INFORMATION PLEASE CONTACT: Ed GilmetArcan Resources Ltd.Chief Executive Officer(403) email@example.comORDouglas PennerArcan Resources Ltd.President(403) firstname.lastname@example.orgORSuite 2500, 308 - 4th Avenue S.W.Arcan Resources Ltd.Calgary, AB T2P 0H7www.arcanres.comNeither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.