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Press release from PR Newswire

Equal Energy Announces its Results for the Fourth Quarter and Year Ended December 31, 2012

Thursday, March 14, 2013

Equal Energy Announces its Results for the Fourth Quarter and Year Ended December 31, 201218:11 EDT Thursday, March 14, 2013 CALGARY, Alberta, March 14, 2013 /PRNewswire/ - Equal Energy Ltd. ("Equal","the Company", "we" or "our") (NYSE: EQU) (TSX: EQU), an exploration and production oil and gas company is pleased to announce its financial and operating results for the three months and year ended December 31, 2012.  All dollar amounts are in Canadian dollars unless otherwise indicated and volumes are net of royalties. Don Klapko, President and Chief Executive Officer commented, "This past year was one of major transition for Equal Energy Ltd.  We took many important and proactive steps to improve the company's financial position and provide clarity and focus for its future operations.  Our balance sheet is in excellent condition, providing financial flexibility to execute our plans.  We also have responded to our shareholders who sought immediate return from our efforts and we've implemented a US$0.20 annual dividend, paid quarterly beginning January 1, 2013. Asset sales, including those concluded as part of Equal's strategic review process launched in May 2012, totaled $160 million.  Overall the sales were completed at values in excess of our trading multiples at the time and were collectively accretive to the value of Equal.  The asset sales totaled approximately 5.1 million boe of proved reserves on a net revenue interest basis and 6.8 million proved plus probable reserves.  Equal received $31.40 per boe proved and $23.50 per boe on a proved plus probable basis for these sales.  The proceeds of the sales were used primarily for debt reduction.  Net debt, including working capital was reduced from $176 million at December 31, 2011 to $18 million at December 31, 2012.  Based on our 2013 budgeted cash flow of $33 million, Equal's net debt to cash flow ratio has been reduced from over 5.3 times to 0.5 times. The culmination of the strategic review process also resulted in the complete exit of Equal from its Canadian operations.  We are in the process of relocating our head office and transitioning management to Oklahoma City.  The combined interest and general and administrative cost savings total over $7 million as a result of the debt reduction and focus of our operations in Oklahoma. As a result of the changes made in 2012, Equal has become a US Domestic Issuer and this year's financial reports reflect the company's operations, financial results and reserves under U.S. SEC disclosure rules. Strong Operating Results Production averaged 7,186 boe/d during 2012, up 30% compared to 2011, primarily due to the acquisition of Hunton assets in June 2011 offset partially by the sale of Northern Oklahoma assets in September 2012. Funds from operations were down only 12% as the company offset commodity prices that were 29% weaker on a boe basis compared to 2011 with higher production and savings in operating costs, general and administrative costs and interest expense. Successful Drilling Programs in 2012 Equal drilled 3 (2.7 net) Twin Cities Central Dolomite Hunton liquids rich natural gas wells.  These wells were brought on stream in the first half of 2012 and are performing well above our historical average and budget type curve for Twin Cities Central Dolomite Hunton wells. Significant effort has been put into geological mapping and targeting of the drilling horizon for our Hunton wells, resulting in our most recent wells being some of our best to date. Six wells were drilled in Northern Oklahoma early in 2012 and subsequently sold with the Northern Oklahoma sale in late September. Two successful Cardium horizontal oil wells were drilled during 2012 and were subsequently sold as part of the strategic review outcome. Looking Forward Management and the board of directors continue to take action to transition Equal's mind and management to reflect its focus in Oklahoma.  Scott Smalling has joined the company as its new Vice President and Chief Financial Officer resident in Oklahoma City.  Additional management positions are expected to be filled in Oklahoma in the coming months. Three current directors will not be standing for re-election and the director slate for the May Annual Shareholder Meeting will be announced shortly.  The Governance and Nominating Committee of the board of directors is working to re-constitute the board and to bring in expertise and background relevant to the U.S. mid-continent oil and gas business. We have established a 5 year inventory for one rig drilling continuously and our geological team is working to add future drilling locations.  Plans for 2013 include the drilling of up to 10 horizontal liquids rich natural gas wells in the Twin Cities Central Dolomite area.  Two have been drilled with one on production at this time.  Our priorities are to protect the balance sheet and to maintain our dividend distribution.  Capital spending compared to cash flow will be monitored on an ongoing basis to ensure both objectives are met. I'd like to thank the Equal employees for their hard work and dedication during 2012.  It was a year of transition and uncertainty which is always challenging.  We've had to depart with many of our Canadian staff and friends which was difficult.  We thank these people for their integrity and professionalism during the transition.  I'd also like to thank the board of directors for their hard work and guidance.  In particular, I'd like to thank our shareholders for their support as we changed the face of Equal in 2012.  We believe the actions we've taken sets Equal up for success and the company has an exciting future. The following table is a summary of selected financial and operational information for the three months and year ended December 31, 2012 with comparative 2011 figures.                     Financial and Operations Summary (in thousands except for volumes, percentages and per share and boe amounts) Three months ended December 31         Year ended December 31       2012 2011     Change   2012 2011     Change FINANCIAL                       NGL, natural gas and oil revenues including realized hedging  16,104 21,696     (26%)   67,541 72,887     (7%) Funds from operations 7,770 10,787     (28%)   30,048 34,113     (12%) Net income/(loss) from continuing operations (5,153) 92     (5701%)   31,111 2     >1000%   Per share - basic ($) (0.15) 0.00     100%   0.89 0.00     >1000%   Per share - diluted ($) (0.15) 0.00     100%   0.82 0.00     >1000% Net income/(loss) from discontinued operations 28,057 (1,192)     (2454%)   30,716 5,371     472%   Per share - basic ($) 0.80 (0.03)     (2767%)   0.87 0.17     412%   Per share - diluted ($) 0.68 (0.03)     (2367%)   0.76 0.16     375% Net income/(loss)  22,904 (1,100)     (2182%)   61,827 5,373     1051%   Per share - basic ($) 0.65 (0.03)     (2267%)   1.76 0.17     935%   Per share - diluted ($) 0.57 (0.03)     (2000%)   1.58 0.16     888% Total assets 226,222 325,252         226,222 323,094       Working capital (deficit) including long-term debt 26,602 (131,462)         26,602 (131,462)       Convertible debentures 45,000 45,000         45,000 45,000       Shareholders' equity 161,277 99,880         161,277 99,880       SHARES OUTSTANDING                       Shares outstanding - basic (000s) 35,152 34,757         35,062 32,040       Shares outstanding - diluted (000s) 41,363 35,717         41,125 32,768       Shares outstanding at period end (000s) 35,227 34,779         35,227 34,779       OPERATIONS                       Average daily production                         NGL (bbls per day) 3,160 2,842     11%   3,237 2,401     35%   Gas (mcf per day) 19,097 22,370     (15%)   22,664 17,461     30%   Oil (bbls per day) 167 214     (22%)   172 212     (19%)   Total (boe per day) 6,510 6,784     (4%)   7,186 5,523     30% Average sales price                         NGL ($ per bbl) 31.51 44.33     (29%)   31.41 47.46     (34%)   Gas ($ per mcf) 3.11 4.08     (24%)   2.95 3.83     (23%)   Oil ($ per bbl) 85.03 86.58     (2%)   92.63 89.22     4% Cash flow netback ($ per boe)                         Revenue 26.88 34.76     (23%)   25.68 36.16     (29%)   Production expenses 6.18 8.52     (27%)   7.78 8.39     (7%)   Production taxes 1.47 1.68     (13%)   1.43 1.64     (13%)   Operating netback 17.68 24.56     (28%)   16.47 26.13     (37%)   General and administrative 4.60 3.31     39%   2.88 4.20     (31%)   Interest expense 1.79 3.90     (54%)   2.25 4.88     (54%)   Other cash costs (0.13) 0.07     (286%)   (0.08) 0.13     (162%)   Cash flow netback 12.97 17.28     (25%)   11.42 16.92     (33%) Equal Energy Ltd.         Consolidated Balance Sheets         (in thousands of Canadian dollars) (unaudited) December 31, 2012     December 31, 2011 Assets         Current assets               Cash and cash equivalents 22,969     5,553       Accounts receivable 15,524     19,742       Prepaid expenses, deposits and other 926     552       Commodity contracts  1,446     4,813       Assets of discontinued operations  2,168     5,750             Total current assets 43,033     36,410           Oil and natural gas properties, full cost method of accounting:                Proved 145,442     173,417       Unproved  2,080     4,627             Total oil and natural gas properties 147,522     178,044 Other capital assets 485     917             Total property, plant and equipment 148,007     178,961           Other assets 1,422     1,859 Commodity contracts 159     - Deferred income tax asset 33,601     41,293 Assets of discontinued operations -     64,571          Total assets 226,222     323,094           Liabilities         Current liabilities               Accounts payable and accrued liabilities 8,600     14,673       Liabilities of discontinued operations 5,840     10,887             Total current liabilities 14,440     25,560           Long-term debt -     138,820 Convertible debentures 45,000     45,000 Asset retirement obligation 4,722     5,270 Liabilities of discontinued operations 783     8,564             Total liabilities 64,945     223,214           Shareholders' equity               Common shares  (35,226,526 and 34,779,435 shares issued and outstanding) 225,249     223,437       Contributed surplus 9,298     6,439       Accumulated other comprehensive loss (26,218)     (21,117)       Deficit  (47,052)     (108,879)             Total shareholders' equity 161,277     99,880                    Total liabilities and shareholders' equity 226,222     323,094 Equal Energy Ltd.         Consolidated Statements of Operations and Comprehensive Income   Three months ended December 31   Year ended December 31 (in thousands of Canadian dollars except per share amounts) (unaudited) 2012 2011   2012   2011 Revenues    NGL, natural gas and oil revenues 15,173 20,298   61,478   70,512    Realized gain on commodity contracts 931 1,398   6,063   2,375 Unrealized gain/(loss) on commodity contracts (1,144) (2,969)   (3,148)   5,424 Total revenues   14,960 18,727   64,393   78,311               Expenses                   Production 3,699 5,319   20,457   16,908       Production taxes 883 1,050   3,754   3,312       General and administrative 2,754 2,066   7,577   8,474       Interest expense 1,073 2,432   5,912   9,840       Share-based compensation expense 1,096 707   3,568   2,501       Depletion and depreciation 5,172 5,741   22,888   14,936       Amortization of deferred charges 109 435   437   1,860       Accretion of asset retirement obligation 94 109   405   248       Gain on sale of assets - -   (36,036)   -       Transaction costs on asset acquisition/dispositions 268 -   708   1,767       Redemption fee on convertible debentures - 967   -   2,975       Realized foreign exchange (gain)/loss (75) 42   (207)   240       Unrealized foreign exchange (gain)/loss 1,132 (5,177)   (3,015)   4,416   16,205 13,691   26,448   67,477 Income/(loss) from continuing operations before taxes (1,245) 5,036   37,945   10,834               Taxes             Current tax expense - 391   -   391 Deferred tax expense 3,908 4,553   6,834   10,441   3,908 4,944   6,834   10,832 Income/(loss) from continuing operations (5,153) 92   31,111   2               Discontinued operations:             Income/(loss) from discontinued operations   (14,549) (1,192)   (11,890)   5,371 Gain on sales of discontinued operations, net of income tax expense of $14.2 million 42,606 -   42,606   - Net income 22,904 (1,100)   61,827   5,373 Other comprehensive income/(loss)                   Foreign currency translation adjustment  3,131 (6,437)   (5,101)   4,829 Comprehensive income/(loss) 26,035 (7,537)   56,726   10,202               Earnings per share information             Basic earnings (loss) from continuing operations per share ($ 0.15) $  0.00   $  0.89   $  0.00 Basic earnings (loss) from discontinued operations per share $  0.80 ($ 0.03)   $  0.87   $  0.17 Basic earnings (loss) per share $  0.65 ($ 0.03)   $  1.76   $  0.17 Diluted earnings (loss) from continuing operations per share ($ 0.15) $  0.00   $  0.82   $  0.00 Diluted earnings (loss) from discontinued operations per share $  0.68 ($ 0.03)   $  0.76   $  0.16 Diluted earnings (loss) per share $  0.57 ($ 0.03)   $  1.58   $  0.16 Equal Energy Ltd.         Consolidated Statements of Cash Flows   Three months ended December 31   Year ended December 31 (in thousands of Canadian dollars) (unaudited) 2012 2011   2012   2011 Operating Activities           Net income / (loss) 22,904 (1,100)   61,827   5,373 Net income / (loss) from discontinued operations (28,057) 1,192   (30,716)   (5,371) Adjustments to reconcile net income to net cash provided by operating activities                   Depletion and depreciation  5,172 5,741   22,888   14,936       Accretion of asset retirement obligation 94 109   405   248       Share-based compensation 1,096 707   3,568   2,501       Amortization of deferred charges 109 435   437   1,860       Unrealized commodity contracts (gain) / loss 1,144 2,969   3,148   (5,424)       Gain on sale of assets - -   (36,036)   -       Transactions costs on asset dispositions  268 -   708   -       Redemption fee on convertible debentures - 967   -   2,975       Deferred tax (reduction) / expense 3,908 4,553   6,834   10,441       Cash paid on decommissioning provision - -   (46)   -       Unrealized foreign exchange (gain)/loss  1,132 (5,177)   (3,015)   4,416       Changes in operating assets and liabilities:                         Accounts receivable (2,216) (878)   3,899   (6,708)             Prepaid expenses and other current assets (706) 1,092   (386)   983             Accounts payable and accrued liabilities 1,164 (6,499)   (5,931)   2,908 Net cash provided by operating activities - continuing operations 6,012 4,111   27,584   29,138 Net cash provided by (used in) operating activities - discontinued operations (1,439) 10,205   7,211   27,141 Net cash provided by operating activities 4,573 14,316   34,795   56,279 Investing Activities                   Property, plant and equipment additions (1,317) (3,307)   (19,228)   (32,900)       Asset acquisition - -   -   (86,098)       Proceeds on sale of property, plant and equipment - (205)   58,673   -       Transaction costs on asset dispositions (268) -   (708)   -       Change in non-cash working capital (3) (2,543)   (1,613)   2,065 Cash provided by (used in) investing activities - continuing operations (1,588) (6,055)   37,124   (116,933) Cash provided by (used in) investing activities - discontinued operations 84,083 31,304   80,646   (12,972) Net cash provided by / (used in) investing activities    82,495 25,249   117,770   (129,905) Financing Activities                   Increase / (decrease) in long-term debt (71,066) 1,946   (135,066)   109,047       Issue of shares, net of issuance costs - (43)   -   47,417       Issuance of convertible debentures, net of costs - -   -   42,741       Redemption of convertible debentures - (39,212)   -   (119,618)       Redemption fee on convertible debentures - (1,071)   -   (2,975) Net cash provided by / (used in) financing activities    (71,066) (38,380)   (135,066)   76,612 Foreign exchange on financial balances 44 (86)   (83)   62 Change in cash and cash equivalents 16,046 1,099   17,416   3,048 Cash and cash equivalents, beginning of period 6,923 4,454   5,553   2,505 Cash and cash equivalents, end of period 22,969 5,553   22,969   5,553 Supplementary Cash Flow Information                   Interest paid 474 3,203   6,795   11,310       Income tax paid  - 61   67   391 Non-GAAP Financial Measures Equal considers funds from operations a key measure for the ability of the Company to repay debt and to fund future growth through capital investment.  Funds from operations, as presented, is not intended to represent cash provided by operating activities nor should it be viewed as an alternative to cash provided by operating activities or other measures of financial performance calculated in accordance with U.S. GAAP. Management uses cash flow netback to analyze the profitability of its operations.  Cash flow netback, as presented, is not intended to represent an alternative to net income (loss) or other measures of financial performance calculated in accordance with GAAP.               Funds from Operations and Cash Flow Netback     Three months ended December 31   Year ended December 31 (in thousands of Canadian dollars)     2012 2011   2012   2011                   NGL, natural gas and oil revenues     15,173 20,298   61,478   70,512 Realized gain on commodity contracts     931 1,398   6,063   2,375 Production     3,699 5,319   20,457   16,908 Production taxes     883 1,050   3,754   3,312 General and administrative     2,754 2,066   7,577   8,474 Interest expense     1,073 2,432   5,912   9,840 Realized foreign exchange (gain)/loss     (75) 42   (207)   240 Funds From Operations     7,770 10,787   30,048   34,113 Total production volume (mboe)     599 624   2,630   2,016 Cash Flow Netback     12.97 17.28   11.42   16.92 The Company believes that using working capital including long-term debt provides a better measure than using debt as it provides a clearer picture on the Company's cash requirement.           Working Capital including Long-term Debt (in thousands of Canadian dollars) December 31, 2012     December 31, 2011 Cash 22,969     5,553 Accounts receivable 15,524     19,742 Prepaid expenses, deposits and other 926     552 Accounts payable and accrued liabilities (8,600)     (14,673) Accounts receivable - discontinued operations 1,463     5,432 Prepaid expenses, deposits and other -  discontinued operations 130     318 Accounts payable and accrued liabilities - discontinued operations (5,810)     (9,566) Working capital 26,602     7,358 Long-term debt -     (138,820) Working capital including long-term debt 26,602     (131,462) Annual General and Special Meeting of Shareholders The 2013 Annual General and Special Meeting of Shareholders of Equal Energy Ltd., will be held in the Strand/Tivoli Room at the Metropolitan Centre, 333 - 4th Avenue S.W., Calgary, Alberta at 10:00 a.m. (Calgary Time) on Monday, May 13, 2013. Equal Energy Ltd.'s 10K, complete consolidated financial statements, accompanying notes and Management's Discussion and Analysis for the year ended December 31, 2012 will be available on Equal's website at www.equalenergy.ca, on SEDAR at www.sedar.com and on EDGAR at www.sec.gov/edgar.shtml. About Equal Energy Ltd. Equal is an exploration and production oil and gas company.  Equal's shares and convertible debentures are listed on the Toronto Stock Exchange under the symbols (EQU, EQU.DB.B) and Equal's shares are listed on the New York Stock Exchange under the symbol (EQU). The oil and gas properties are located in Oklahoma. Equal has compiled a multi-year drilling inventory for its Hunton liquids rich natural gas property in Oklahoma. Forward-Looking Statements Certain information in this press release constitutes forward-looking statements under applicable securities law including the timing or uncertainty or amount of payment of future dividends, the amount of the 2013 budgeted cash flow, the reduction of net debt to cash flow, timing of relocation of the head office, the amount of interest and G&A savings, the hiring of additional management positions, the future performance of wells drilled, of plans to drill up to 10 wells in 2013, the timing and number of new board members added and the future outcome of actions taken. Any statements that are contained in this press release that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements are often identified by terms such as "may," "should," "anticipate," "expects," "seeks" and similar expressions. Forward-looking statements necessarily involve known and unknown risks, such as risks associated with closing the Royalties sale, repayment of the bank credit facility, the future amount of the bank credit facility, oil and gas production; marketing and transportation; loss of markets; volatility of commodity prices; currency and interest rate fluctuations; imprecision of reserve estimates; environmental risks; competition; incorrect assessment of the value of acquisitions; failure to realize the anticipated benefits of dispositions; inability to access sufficient capital from internal and external sources; changes in legislation, including but not limited to income tax, environmental laws and regulatory matters. Readers are cautioned that the foregoing list of factors is not exhaustive. Readers are cautioned not to place undue reliance on forward-looking statements as there can be no assurance that the plans, intentions or expectations upon which they are placed will occur. Such information, although considered reasonable by management at the time of preparation, may prove to be incorrect and actual results may differ materially from those anticipated forward-looking statements contained in this press release are expressly qualified by this cautionary statement. Additional information on these and other factors that could affect Equal's operations or financial results are included in Equal's reports on file with Canadian and U.S. securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com, the SEC's website www.sec.gov, Equal's website www.equalenergy.ca) or by contacting Equal. Furthermore, the forward looking statements contained in this news release are made as of the date of this news release, and Equal does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by securities law. Conversion: Natural gas volumes recorded in thousand cubic feet ("mcf") are converted to barrels of oil equivalent ("boe") using the ratio of six (6) mcf to one (1) barrel of oil ("bbl"). Boe's may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf: 1bbl is based on an energy equivalent conversion method primarily applicable at the burner tip and does not represent a value equivalent at the wellhead. All dollar values are in Canadian dollars unless otherwise stated.       SOURCE Equal Energy Ltd.For further information: <p> Scott Smalling<br/> Vice President and CFO<br/> (405) 242-6020 or (405) 308-6452 </p> <p> Dell Chapman<br/> SVP Finance<br/> (403) 538-3580 or (877) 263-0262 </p> <p> Don Klapko<br/> President & CEO<br/> (403) 536-8373 or (877) 263-0262 </p>