The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Press release from Marketwire

Sure Energy Announces Third Quarter 2012 Financial and Operating Results

Wednesday, November 07, 2012

Sure Energy Announces Third Quarter 2012 Financial and Operating Results09:00 EST Wednesday, November 07, 2012CALGARY, ALBERTA--(Marketwire - Nov. 7, 2012) -Sure Energy Inc. (TSX:SHR) ("Sure Energy" or the "Company") today announced its financial and operating results for the quarter ended September 30, 2012.The Company's MD&A and Financial Statements and Notes and AIF can be viewed or downloaded at www.sureenergyinc.com or www.sedar.com. During the third quarter of 2012, Sure Energy accomplished the following:Bank line increased by $3 million to $40 million; $35 million revolving operating demand loan and $5 million development demand loan. Oil production increased by 232 barrels per day (50 percent) for the first nine months of 2012 compared to the same period in 2011. Oil production increased by 249 barrels per day (59 percent) for the third quarter 2012 compared to the third quarter of 2011. Operating netback increased from $26.59/BOE to $29.65/BOE quarter over quarter. Funds flow from operations increased 25 percent from $2.3 million to $2.9 million quarter over quarter. Drilled a successful follow-up to the Hatton discovery well.Three Months Ended September 30,Nine Months Ended September 30,HIGHLIGHTS2012201120122011($000 except share and per share amounts)FinancialPetroleum and Natural Gas Revenues5,8094,97218,25716,457Funds Flow from Operations (1)2,9072,7598,4568,709Per Share, Basic and Diluted0.050.060.140.18Income (loss)(779)(293)(5,301)687Per Share, Basic and Diluted(0.01)(0.01)(0.09)0.01Capital Expenditures5,7299,98717,21630,162Total Assets84,05577,941Net Debt(1)30,55536,342Shareholders' Equity45,69934,412Common Shares OutstandingBasic60,580,63048,548,630Diluted66,312,46452,644,464Fully Diluted with Performance Rights and Warrants71,642,46457,974,464Weighted Average Common Shares OutstandingBasic and Diluted60,580,63048,548,63060,573,73946,849,464Share TradingHigh0.721.791.501.99Low0.561.200.561.20Close0.621.300.621.30Trading Volume1,654,9922,426,8667,216,7229,911,582Three Months Ended September 30Nine Months Ended September 30,HIGHLIGHTS2012201120122011OperationsProductionNatural Gas (Mcf/d)3,1783,5233,0763,712Oil (bbls/d)627421643460Heavy Oil (bbls/d)43-49-NGLs (bbls/d)38494048BOE/d1,2371,0571,2451,127% Oil and NGL's57445945Average Selling PriceNatural Gas ($/Mcf)2.423.832.214.05Oil ($/bbl)80.7688.7883.8491.22Heavy Oil ($/bbl)69.43-71.24-NGLs ($/bbl)48.9465.1560.4068.31BOE ($/BOE)51.0351.1453.5453.50Operating Netback ($/BOE) (1)29.6531.8529.7134.42Funds Flow Netback ($/BOE) (1)25.5528.3824.7828.30Please refer to Management's Discussion and Analysis for a definition of Non-GAAP measures.OPERATIONAL REVIEWDrillingExpenditures for the period were as follows:Three Months Ended September 30,Nine Months Ended September 30,Capital Program Summary2012201120122011($000s)Land2963321,4461,435Geological and geophysical1745395Drilling1,5694,2608,9836,408Completions1,4983,3876,6574,563Recompletions and workovers153624563934Production equipment and facilities2,0451,4535,9154,289Capitalized salaries122185714556Drilling credits-(115)-60Asset acquisition (disposition)-(214)(9,132)11,138Other assets-185325,7009,93415,20429,510Non-cash itemsGain on sale--1,858-Decommissioning obligation296451541,244Expiry of undeveloped land-(592)-(592)5,7299,98717,21630,162Drilling activity for the three months is summarized as follows:Three Months Ended September 30, 2012GasOilDry and AbandonedTotalGrossNetGrossNetGrossNetGrossNetExploration--------Development--33.0--33.0Total--33.0--33.0Nine Months Ended September 30, 2012GasOilDry and AbandonedTotalGrossNetGrossNetGrossNetGrossNetExploration--------Development--1712.8--1712.8Total--1712.8--1712.8Areas of ActivityPlains (Redwater)Sure Energy produced 454 BOE/d from its main core area at Redwater in the third quarter of 2012, 413 barrels per day of which was oil (91 percent). Six gross (2.4 net) wells which were drilled in the first and second quarters were brought on production towards the end of the third quarter and therefore had minimal impact on the quarter production numbers.The Company began drilling at Redwater in the Fall of 2010 and has built its base production in the area from 50 BOE/d to 450 BOE/d (91 percent light oil). The Company is exploiting the Viking formation in the area by drilling horizontal wells which are fracture stimulated numerous times along their length. These types of wells exhibit a harmonic production profile; they decline rapidly in the first 12 to 18 months but decline much more gradually after that. Most of Sure Energy's production is maturing into the lower decline profile giving a more stable production base in the area. The Company estimates that at current decline rates it would need to drill three wells per year to keep the production flat.The Company recognizes 69 gross (58.4 net) drillable locations immediately adjacent to producing wells based on detailed net pay mapping and 650 - 700 metre lateral length single leg horizontals. The property generated $51.49 per BOE operating netback in the third quarter which equates to an operating netback of $2.2 million. This annualized would total $8.8 million which would approximately support a 6 well (net) program in the area. Based on the Company's inventory and utilizing operating cash flow from the area the Company therefore has a 10 year drilling program which will add gradual growth to the property.Hatton (SW Saskatchewan)Sure Energy produced 43 BOE/d of heavy oil from its Hatton property in the third quarter. This was almost entirely from the pool discovery well which came on production in November of 2011. This well, which initially came on production at 75 BOE/d has produced 17,900 barrels of oil in just under a year and is producing at a very steady oil rate (40 - 45 barrels of oil per day) and water cut. The Company drilled one immediate offset development well and one exploration well in the third quarter at Hatton. The exploration well which was evaluating the potential for a separate pool on trend to the south was a dry-hole. The development well averaged 138 BOE/d for the first 40 days on production (field estimate) and is currently producing at 75 barrels of oil per day. This production is conventional, cold flow heavy oil so is inexpensive to drill and exploit. Drill, case and complete costs are around $650,000 per well. The Company expanded its land position in the third quarter to 12,000 acres (19 sections), in the area, all of which is 100 percent working interest.In the third quarter the Company realized $32.40 operating netback in the area. The project produces heavy oil which is sold to a non-indexed, blended stream that receives a price which is approximately $2.60 per barrel lower than the pre-blended WCS price. The Company does not need to pay any additional blending costs which leads to netbacks that are significantly higher than WCS after blending. The pool exhibits a high water cut which is often the case with similar Mannville heavy oil pools to the north and management of the water in an economic manner is the key to the success of the play. With further drilling success and increased volumes the drilling of a water disposal well will become a priority.Pools of this type are commonly exploited by drilling two wells per legal subdivision (32 wells per section). The Company has identified a potential inventory of 15 development locations on the immediate pool. The geological model and comparison to analogous pools suggests there is likely additional pools on the sand bar trend.SE SaskatchewanThe Company produced 156 BOE/d from its Queensdale property in the third quarter. In the third quarter a salt water disposal well drilled earlier in the year began operation and dramatically reduced the operating and transportation costs in the area from 34.94 /BOE to $8.60/BOE. The Company realized a $68.42/BOE operating netback in the quarter which equates to operational cash flow of $983,000. Sure Energy drilled one horizontal well in the quarter which came on production on August 15th and boosted production to its current level of 180 - 200 BOE/d.Although this particular pool at Queensdale appears to be fully exploited the Company has identified the potential for a pool of similar size on a proprietary 3D seismic program on the northern part of its 100 percent owned acreage. A vertical exploration well is planned for 2013 to evaluate this prospect.Virginia HillsThe Company produced 141 BOE/d in the Virginia Hills area in the third quarter. This is down from 225 BOE/d in the second quarter due to the Company selling its Beaverhill Lake assets in the area at the end of the second quarter for $9 million. The Company established a position here in early 2011 to evaluate the potential of the regional Viking, which is on trend and geologically similar to the Viking at Redwater. The regional Viking at Virginia Hills is oil bearing but has never been exploited horizontally. It is 1,500 meters deep, and horizontal wells will cost $2.5 million. The Company owns 9.5 sections of approximately 50 percent working interest land and three sections of 100 percent working interest land in the core area of the play.Other PropertiesThe Company produced 443 BOE/d from its properties in the Peace River Arch, Southern Plains (Chinook), Tweedie and West Central Alberta in the quarter. Most of this production is gas.ProductionProduction for the period by major property is as follows: Three Months Ended September 30, 2012GasOilHeavy OilNGLsTotalMcf/dBbls/dBbls/dBbls/dBOE/dHatton--43-43Peace River9848-11183Plains245413--454Saskatchewan-156--156Southern Plains4632--79Tweedie600---100Virginia Hills52344-9141West Central3634-1881Total3,17862743381,237 Nine Months Ended September 30, 2012GasOilHeavy OilNGLsTotalMcf/dBbls/dBbls/dBbls/dBOE/dHatton--49-49Peace River7779-9148Plains262410--454Saskatchewan-122--122Southern Plains476--383Tweedie624---104Virginia Hills55297-10199West Central3855-1886Total3,07664349401,245OUTLOOKThe Company is continuing its transition to an oil producer. It is showing at least fifty percent growth in its oil volumes over the first nine months and third quarter comparative periods from 2011. Another step in this direction is the success at Hatton. Sure Energy owns 100 percent working interest and fully controls this play, which has the potential to add significant reserves and production growth by drilling low cost wells. The Company will drill two offset delineation wells in late November to verify its geological and geophysical models for the prospect and if these prove successful will shoot a proprietary 3D seismic program to both detail the current pool and delineate any pool extension or separate new pools. The geological analogues suggest that the pool could be much larger than the currently identified area and also that there could be additional pools on the trend yet to be discovered. These extensions and additions will be discernible on 3D seismic which the Company plans to shoot late in 2012. The original well has exhibited a low decline rate over the past year and if the production profiles of the other wells are similar the Company should be able to grow its corporate production base by only reinvesting cash flow.At Redwater, as the horizontal well production profiles mature, growth on the production base is becoming achievable with fewer wells. The 6 (2.4 net) third party operated wells that came on production in the third quarter of 2012 will add to the production profile in the fourth quarter of 2012 as our partner optimizes its facilities. The Company has an extensive inventory of low risk development locations with which to grow the production base. Queensdale will produce low decline high netback oil for the foreseeable future and potential exists for another pool of similar size and production potential on the Company's 100 percent working interest land. This potential can be evaluated with a single vertical well for approximately $450,000. The Company has an additional horizontal Viking project at Virginia Hills. This light oil project is unproven at this point but it represents another potential wedge of value and oil production growth for the Company.The Company has taken steps to improve its financial flexibility over the past nine months. Debt was reduced by $9 million by selling non-core Beaverhill Lake rights in the Virginia Hills area late in the second quarter of 2012. The recent increase in the bank line increases lending capacity to $60 million; at current debt levels that capacity is only 50 percent utilized.As the Company moves ahead it has an extensive inventory of heavy oil and light oil locations and any improvement in gas pricing will impact bottom line cash flows. The Company still produces 40 percent natural gas but so far in 2012 this has only contributed 10 percent of the revenue. The Company believes that the demand for heavy oil will increase, thereby reducing heavy to light oil differentials, as there are several refining expansion projects designed to process heavy crude oil sourced from Western Canada due to be completed in the US over the next two years. This will increase the netbacks from the Hatton area in the coming years.Forward-looking InformationCertain statements contained in this third quarter report constitute forward-looking information. These statements relate to future events or Sure Energy's future performance. The use of any of the words "could", "expect", "believe", "will", "projected", "estimated" and similar expressions and statements relating to matters that are not historical facts are intended to identify forward-looking information and are based on Sure Energy's current belief or assumptions as to the outcome and timing of such future events. Actual future results may differ materially. In particular, statements with respect to the Company's estimate of additional wells to keep annual production flat at Redwater; expectation that its 10 year drilling program at Redwater will add gradual growth to the property, expectation that its Queensdale project will be totally paid out in six months; planned vertical exploration well at Queensdale for 2013; planned drilling of two offset delineation wells at the Company's Hatton property and follow-up 3D seismic program; expectation that additional pools exist on the sand bar trend at Hatton; statements in the section "Outlook" related to drilling intentions, existence of additional pools and timing for completion of 3D seismic at Hatton; expected timing for addition to production profile at Redwater; potential for another pool of similar size and production profile at Queensdale; and the Company's belief that demand for heavy oil will increase therefore reducing heavy to light oil differentials and increasing the netbacks from the Hatton area. Sure Energy's Annual Information Form and other documents filed with securities regulatory authorities (accessible through the SEDAR website www.sedar.com) describe the risks, material assumptions and other factors that could influence actual results and which are incorporated herein by reference. Sure disclaims any intention or obligation to publicly update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as may be expressly required by applicable securities laws.Non-GAAP MeasuresSure Energy uses the terms operating netbacks and cash flow netbacks to evaluate operational performance of the Company. Operating netback, which is calculated as average unit sales price less royalties, transportation costs and operating expenses and cash flow netback, which further deducts administrative and interest expense and current income tax represents the cash margin for every barrel of oil equivalent sold. Readers should refer to the "Netbacks" section of the MD&A for the calculations of operating netbacks and cash flow netbacks.Use of BOEsIn this press release the calculation of barrels of oil equivalent (BOE) is calculated at a conversion rate of 6,000 cubic feet (Mcf) of natural gas for one barrel (bbl) of oil based on an energy equivalency conversion method. 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. Sure Energy Inc. is a publicly traded oil and gas exploration and development company listed on the Toronto Stock Exchange under the symbol "SHR".FOR FURTHER INFORMATION PLEASE CONTACT: Contact Information: Sure Energy Inc.Mr. Jeff BoyceChairman and CEO(403) 410-3100(403) 410-3111 (FAX)Sure Energy Inc.Mr. Chris BakerPresident and COO(403) 410-3100(403) 410-3111 (FAX)Sure Energy Inc.Mr. Lance WirthVice President, Finance and CFO(403) 410-3100(403) 410-3111 (FAX)info@sureenergyinc.comwww.sureenergyinc.com