Press release from Marketwire
Arcan Delivers Improved Quarter-Over-Quarter Results in First Quarter of 2013
Wednesday, May 22, 2013
Arcan Delivers Improved Quarter-Over-Quarter Results in First Quarter of 201319:56 EDT Wednesday, May 22, 2013
CALGARY, ALBERTA--(Marketwired - May 22, 2013) -
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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, 2013. Results on key metrics are improved from the fourth quarter of 2012 as efforts continue to ensure long-term value creation for investors. Arcan has also extended its credit facility by one year from 2014 to 2015 and has opted to reduce its credit facility by $10 million to $190 million, in light of recent asset divestitures totalling $33 million.
"Our focus on improving operational efficiency across the board is showing results," said Arcan Chief Executive Officer Terry McCoy. "As we emphasize long-term sustainability over near-term production growth, we have succeeded in lowering per barrel operating costs while stabilizing production from the previous quarter. Although production and funds from operations have declined compared to the first quarter of 2012, due to our reduction in capital spending, they have inclined from the last quarter as we begin to reap the benefits of our front end capital investment in roads, pipelines, oil batteries and waterflood infrastructure. We anticipate moderate increases in production in 2013 as we are now seeing the results of both ongoing waterflood investment as well as the changes we have made to our drilling and fracturing processes in our core operating area. The technical changes that we have made to our program are part of a process of continuous improvement in all areas of our operations."
|Three Months Ended|
|March 31, 2013||March 31, 2012||Dec 31, 2012|
|Financials ($000s except per share amounts)|
|Petroleum and natural gas revenue||31,200||37,932||28,874|
|Pumping and stimulation services revenue||987||2,802||1,896|
|Cash flow from operating activities||11,008||17,026||5,952|
|Funds from operations(1)||9,700||18,445||7,793|
|Per share basic and diluted(1)(3)||0.10||0.19||0.08|
|Per share basic and diluted(3)||(0.03||)||(0.03||)||(0.28||)|
|Capital expenditures, net - cash||17,088||106,076||5,579|
|Debenture face value||171,250||171,250||171,250|
|Net debt and working capital(4)||317,788||268,769||305,270|
|Crude oil and NGLs (barrels ("bbls") per day)||4,080||4,783||3,944|
|Natural gas (thousand cubic feet ("Mcf") per day)||110||553||201|
|Barrel of oil equivalent ("BOE") per day(2)||4,098||4,875||3,978|
|Average realized price:|
|Crude oil and NGLs ($ per bbl)||84.93||86.79||79.39|
|Natural gas ($ per Mcf)||1.91||3.12||3.52|
|Combined price per BOE ($ per BOE)||84.60||85.51||78.90|
|Three Months Ended|
|March 31, 2013||March 31, 2012||Dec 31, 2012|
|Netback ($ per BOE) (1)|
|Petroleum and natural gas sales||84.60||85.51||78.90|
|Pumping and stimulation services revenue||2.68||6.32||5.18|
|Production and operating expenses||(17.52||)||(15.95||)||(19.24||)|
|Cost of sales for pumping and stimulation services||(5.25||)||(5.54||)||(10.27||)|
|Consolidated operating netback ($ per BOE) (1)||50.86||56.71||41.50|
|Realized economic hedging gains (losses) - cash||1.51||(2.37||)||(2.86||)|
|Finance expenses - cash||(11.72||)||(6.86||)||(11.82||)|
|Corporate netback (1)||34.96||42.07||21.70|
|Common Shares (000's)|
|Weighted average - basic and diluted(3)||97,860||97,773||97,860|
|(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 as the Corporation incurred a loss in these periods.|
|(4)||Net debt and working capital is calculated by subtracting the current liabilities (excluding bank debt), bank debt, and convertible debentures from its current assets.|
Funds from operations increased 24 percent to $9.7 million during the first quarter of 2013 over the fourth quarter of 2012. In year-over-year results, funds from operations decreased from $18.4 million in the first quarter of 2012, as capital spending decreased by 84 percent from a year earlier (after dispositions).
Arcan decreased its bank line to $190 million from $200 million, reducing bank fees and extending the term of the facility by one year, and reflecting its efforts to pay down debt. Arcan currently has approximately $171.1 million drawn on its credit facilities based on its active winter capital program and expects its restricted summer capital program will reduce debt accordingly.
Arcan received $4.2 million in net proceeds from the disposal of non-core assets in the Swan Hills area, and used these proceeds to reduce debt levels.
Invested $17.1 million of capital (net), after dispositions during the first quarter of 2013 as part of a successful winter drilling program. The amount of capital expenditures in the first quarter of 2013 was down substantially from $106.1 million for the same quarter a year earlier. As budgeted, capital spending was higher than cash flow of $11 million, as Arcan weighted its capital program to the winter months and expects capital spending to fall below cash flow in the summer months.
Decrease in general and administrative ("G&A") expenses of 48 percent from the fourth quarter of 2012, to $5.69 per barrel, due largely to cost-cutting measures taken by the Corporation.
- Arcan added to its hedging program to secure approximately 50 percent of its expected cash flow for the next three years.
Production averaged 4,098 BOE per day during the first quarter of 2013, up three percent from the previous quarter. Production was down from 4,875 in the first quarter of 2012, due to much higher capital spending and high flush production a year ago. Arcan expects waterflood response to enable the Corporation to gradually increase production for the balance of the year.
Waterflood investment and changes to drilling and completion processes strengthened per well production, including higher drilling rate efficiency, optimizing the amount of acid placed per fracture stimulation stage, incorporating cross-linked gels and adding proppant into fracturing operations. Continuous analysis of operating practices and critical review of each well is building a growing knowledge base within Arcan of how to maximize long-term production from this formation.
Reduced per barrel operating costs by nine percent, to $17.52 per BOE in the first quarter in 2013 compared to $19.24 per BOE in the fourth quarter of 2012. Combined with the increased utilization of the pipeline and oil battery infrastructure that has been built, Arcan has made a number of changes to its initial production operating procedures to increase the efficiency of getting wells on production that has led to this reduction in operating costs. Operating costs were up from $15.95 per barrel in the first quarter of 2012 due to several preventative workovers completed during the first quarter of 2013 to reduce the possibility of lost production or having to conduct a remedial workover during spring break-up when it would be more expensive to gain access to the well. Arcan continues to show improvement in our operating costs per barrel in the second quarter of 2013.
Arcan deployed capital into three joint venture farm-out arrangements with Lightstream Resources Ltd. (formerly PetroBakken Energy Ltd.), involving a total of 21 sections of land. Five wells have been drilled, with two more option wells and a development program still possible. Arcan is responsible for 20 percent of the costs of the wells associated with the joint venture farm-out arrangement while retaining operatorship and an average working interest of 48 percent.
- Advances in the Ethel pipeline corridor with three pipelines (being a natural gas, oil and an effluent line) in the ground with the natural gas sales pipeline projected to be fully operational in June, 2013.
Arcan remains focused on efficient development of its long-life conventional light oil play in the Swan Hills area of Alberta. In an environment of limited access to capital, Arcan is making excellent progress on its core objective of delivering sustainable and profitable production with capital programs that are based on operating cash flow.
Arcan's management team has taken a careful and disciplined review of every aspect of drilling and completions operations and has made substantial changes in several areas, ranging from how lease pads are constructed, how specific sections of the wells are drilled, changes in the fracture stimulation design and execution and what pumps are used as a well transitions to production. These changes have brought total well costs down from approximately $6 - $7 million per well to approximately $4.5 - $5 million per well, and Arcan believes that costs can come down further to average below $4.5 million per well. The average time to drill and complete a well has also dropped by approximately five days. Arcan is working to deliver further reductions in operating costs and is seeking to maintain costs at $15 to $18 per BOE for the remainder of 2013.
Capital expenditure will be reduced during the second and third quarter, when site access is more challenging, and will increase again in the later part of the third quarter and throughout the fourth quarter of 2013. For the remainder of 2013 Arcan has 7 gross (4.9 net) drilling locations currently identified and ready to be drilled. Into the first quarter of 2014, Arcan has 12 gross (9.4 net) drilling locations identified. Of these locations several are follow ups on existing lease locations and others are well advanced in the planning process but the pace of this drilling will depend on capital availability.
Factors impacting 2013 production include the level of waterflood response in the reservoir, and the prevalence of outages or restrictions on third-party infrastructure. Arcan is working on a new reservoir model to improve its ability to accurately forecast the impact of the waterflood in different parts of the reservoir. Since changing its fracturing techniques beginning in late 2012, initial production from each new well has exceeded the previous type curves, which may be a positive signal for future well productivity.
Production in the first quarter of 2013 was negatively impacted by a third-party pipeline outage that impacted about 400 BOE per day, but this is expected to be alleviated in the second half of 2013 with the completion of the Ethel natural gas sales pipeline. Arcan currently anticipates that second quarter production will be approximately 4,000 to 4,200 BOE per day, and expects full-year production to fall into the lower end of its earlier guidance range of 4,300 to 4,700 BOE per day in 2013.
"With the improvement in operating costs, G&A expenses and capital efficiencies in the first quarter of 2013, we feel like we have turned a corner at Arcan as we mature as an organization," said President Doug Penner. "Our management team has come together around clear shared objectives and we are now executing more effectively on a well-defined plan."
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, 2013, with the Canadian securities regulatory authorities. These filings are available for review at www.sedar.com or www.arcanres.com.
ANNUAL AND SPECIAL GENERAL MEETING
Arcan's annual and special meeting is scheduled for June 6, 2013, at 3:00 PM in the McMurray Room of the Petroleum Club, located 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.
Additional information about the Corporation, including the Corporation's annual information form for the year ended December 31, 2012, 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.
Arcan'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, 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:
|Three Months Ended|
|($000's)||March 31, 2013||March 31, 2012|
|Cash flow from operating activities (per IFRS)||11,008||17,026|
|Change in non-cash working capital||(1,308||)||1,419|
|Funds from operations||9,700||18,445|
Forward-Looking Information and Statements
This 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: current and year-to-date anticipated production and production to be brought on stream; annual and quarterly production; the application and modification of horizontal, multi-stage fracture technologies; Arcan's expectations respecting its growth and activities throughout the remainder of 2013, including its continued transition into a sustainable producer of oil reserves; current and future operating costs per barrel; Arcan's ability to execute on its business plans, including plans to take a prudent approach to future development activities and continued focus on the Swan Hills Beaverhill Lake light oil reef; future growth including development, exploration, acquisition, construction and operational activities and related expenditures; Arcan's liquidity position and the ability of Arcan to execute its business plan therefrom; the timing, method, cost and results of drilling and waterflood operations; the focus of the 2013 waterflood expansion activities; waterflood recoveries; future liquidity and financial capacity and resources; the expected benefits of Arcan's hedging program; the resolution of the third-party pipeline outage and the timing thereof; the impact of Arcan's newly implemented reservoir model; the timing and location of the upcoming shareholder meeting; estimates of all-in well cost reductions; estimated additional drilling locations; the completion of the Ethel pipeline and the timing of the effects thereof; expectations relating to increased shareholder value and growth per share; results from operations and financial ratios; the volume and product mix of Arcan's oil and gas production; cost and expense estimates and expectations; oil and natural gas prices; and capital expenditures.
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 recovery results; the general continuance of current or, where applicable, assumed industry conditions; continuity of reservoir conditions across Arcan's Swan Hills land base; availability of debt and/or equity sources to fund Arcan's capital and operating requirements as needed; the continuance of existing and, in certain circumstances, proposed tax and royalty regimes; the accuracy of the estimates of Arcan's reserve volumes; 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 2013 may not be completed in the timelines anticipated, in the manner anticipated or at all and the execution of such plans may not have the results currently anticipated by Arcan; water injection may not have the impact on production currently anticipated by Arcan; currently unforeseen issues may arise in the continuing integration of the business and operations of Arcan and StimSol Canada Inc. and acquisition may not positively impact Arcan's business and operations in the manner currently anticipated or at all; changes in commodity prices; unanticipated operating results or production declines; waterflood impacts; Arcan may be unable to solve its mechanical/operational issues in the timelines anticipated, in the manner anticipated or at all; 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; inaccuracies in Arcan's calculation of reserve life index; 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; reviews of Arcan's credit facility and/or budget may not occur on the timelines anticipated or at all; 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, 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:
Neither 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.Contact Information:
Arcan Resources Ltd.
Chief Executive Officer
Arcan Resources Ltd.