Press release from CNW Group
Argent Energy Trust provides second quarter results and confirms increased production guidance
Wednesday, August 14, 2013
Argent Energy Trust provides second quarter results and confirms increased production guidance08:30 EDT Wednesday, August 14, 2013
CALGARY, Aug. 14, 2013 /CNW/ - Argent Energy Trust ("Argent" or the "Trust") (TSX: AET.UN) is pleased to provide its financial and operating results for the quarter and six months ended June 30, 2013. Average Q2 production was 4,920 boe/d as Argent made the strategic shift to Eagle Ford drilling. Current 30-day average production is approximately 5,500 boe/d (74% oil and NGLs - record high oil weighting), excluding the production from the recently announced acquisition.
Argent confirms, with the close of the acquisition, it is increasing its average annual production guidance to a range of 5,700 boe/d to 5,800 boe/d (previously 5,500 boe/d to 5,600 boe/d) and increasing its projected 2013 exit production rate to approximately 6,800 boe/d (previously 6,300 boe/d) for a year over year growth rate of 36%.
The Trust's unaudited interim consolidated financial statements for the three and six months ended June 30, 2013 and related management's discussion and analysis have been filed with the securities regulators and will be available shortly under the Trust's issuer profile on the SEDAR website at www.sedar.com and are available on the Trust's website at www.argentenergytrust.com.
This press release contains statements that are forward looking. Investors should read the Note Regarding Forward- Looking Statements at the end of this press release. In this press release, references to "Argent" or the "Trust" include the Trust and its operating subsidiaries.
Highlights for Q2 2013
- Successfully drilled and completed two wells in the Austin Chalk/Buda and started the commercial drilling of the Kelly well (Buda) and two Eagle Ford wells in Fayette and Gonzales Counties, Texas. The drilling has led to increasing current production to approximately 5,500 boe/d (30-day average), of which 74% is oil and NGLs, excluding production from the recent acquisition.
- Declared unitholder distributions of $0.2625 per Unit for the quarter ($0.0875 per Unit per month). With current production levels, and planned operating costs of approx. $12 per boe, the Trust intends to continue monthly distributions of $0.0875 per Unit and expects to meet its targets for continued sustainability
- Q2 2013 income of $6.7 million, or $0.14 per Unit, compared to Q1 2013 income of $5.3 million, or $0.11 per Unit.
- Q2 2013 funds flow from operations of $13.0 million, or $0.26 per Unit, compared to Q1 2013 funds flow from operations of $15.3 million, or $0.32 per Unit.
- Q2 2013 gross revenue was $33.0 million, as compared to $35.0 million in Q1 2013.
- As a result of temporary delays due to power shortages and the transition from Austin Chalk to Eagle Ford drilling, average production in Q2 2013 was 4,920 boe/d, consisting of 64% oil & NGLs, compared to 5,278 boe/d in Q1 2013, consisting of 67% oil & NGLs.
- Average realized oil price in Q2 2013 was $103.98 per bbl, representing approximately a $7.74 per bbl premium over Q2 2013 average WTI price of $96.24 per bbl.
- Closed an offering of $86.25 million in unsecured convertible debentures (the "Debentures"). The Debentures bear interest at a rate of 6.00% per annum and mature on June 30, 2018. The Debentures are convertible at the holder's option into trust units of Argent at a conversion price of $13.90 per Unit. Proceeds used to repay all bank debt drawn. Credit facility availability expanded to US$115 million to execute the business plan.
Production and Oil, NGL and Natural Gas Sales
|(Amounts in Cdn$)||Q2 2013||Q1 2013||Six Months Ended
June 30, 2013
|Oil volumes (bbl/d)||2,840||3,118||2,978|
|NGL volumes (bbl/d)||310||438||374|
|Natural gas volumes (mcf/d)||10,616||10,331||10,474|
|Total sales volumes (boe/d)||4,920||5,278||5,098|
|% Oil & NGL||64%||67%||66%|
|WTI crude oil spot ($/bbl)||$96.24||$95.11||$95.69|
|Henry Hub natural gas Spot||$4.11||$3.52||$3.82|
|Realized sales prices:|
|Natural gas ($/mcf)||$3.78||$3.07||$3.43|
|Natural gas sales||3,649||2,858||6,507|
|Total sales revenue||$31,381||$33,940||$65,321|
|Overriding royalty revenue||1,641||1,097||2,738|
|Total revenue, before royalties and risk management gain(loss)||$33,022||$35,037||$68,059|
For Q2 2013, the Trust incurred capital expenditures of approximately $26.8 million (excluding $5.5 million of acquisitions) in development of its oil & gas properties, transitioning from drilling lower cost Austin Chalk/Buda wells to higher cost Eagle Ford wells. During Q2 2013, two net wells were drilled and completed in the Austin Chalk/Buda. Of these two wells, one was a dual lateral oil well in the Upper Chalk and Buda formations (Holly Unit) and the other was a dual lateral oil well in the Lower Chalk and Buda formations (Ivy 2H). Three additional wells were also commenced, one of which is an oil well in the Buda formation (Kelly Unit), and two wells located in the Eagle Ford shale oil formation in Fayette and Gonzales counties, representing approximately $13.9 million of the capital expenditures incurred in Q2 2013.
The incremental volumes associated with bringing the Ivy 2H and Holly Unit online were offset by lower sales volumes due to downtime associated with the installation of facilities (compressors, amine plants) for properties located in South Texas, Manvel and Fayette and downtime due to power related issues in Fayette and Gonzales Counties and temporary operational issues including changing out pumps. Also approximately 40 boe/d of natural gas production was not sold during the quarter due to a 15 day shutdown of a third party gas plant in South Texas for maintenance turnaround. As a result of these temporary delays and the transition from Austin Chalk to Eagle Ford drilling, average production in Q2 2013 was 4,920 boe/d, consisting of 64% oil & NGLs. As the Trust continues drilling oil wells, it is expected that the percentage of sales volumes related to oil will increase in the near term.
Currently, as a result of new Eagle Ford well success and the electricity power issues being mostly resolved, the Trust's 30-day average production is approximately 5,500 boe/d, of which 74% is oil and NGLs, excluding the production from the recent acquisition.
The anticipated growth in base production in the third quarter of 2013 is above the Trust's previous expectations, and demonstrates the realized benefits of the strategic transition to an accelerated Eagle Ford program, together with more stable production from wells that are now tied in to the electricity grid. In addition, Argent has successfully drilled its first Fayette County Eagle Ford well (the "Cherry Heirs 2H") on the heels of its three successful Gonzales County Eagle Ford wells. The Cherry Heirs 2H well is producing in line with the early production of our Gonzales County Eagle Ford wells. Argent has also made the decision to move to higher density Eagle Ford development (80-acre spacing) in Gonzales County with a program to sequentially pad drill and simultaneously complete two wells (Hrncir 3H and 4H) with alternating staged fracs (known as a 'zipper frac'). The Trust is now drilling the horizontal lateral of its second well (the Hrncir 4H) of its first well pair of three well pairs planned. Production from the Hrncir 3H and 4H well pair is expected to commence in early September 2013.
For the six months ended June 30, 2013, the average production was 5,098 boe per day. Oil and NGL production averaged 3,352 bbls per day (or 66% of the total sales volume) with natural gas production averaging 10.5 mmcf per day (or 34% of the total sales volumes on a boe basis).
Revenue from overriding royalties increased from $1.1 million in Q1 2013 to $1.6 million in Q2 2013, due to recent success of operator's drilling in the Eagle Ford. The majority of the Overriding royalty revenue of $1.6 million was derived from the Forest Override royalty that was acquired from Denali upon closing of the over-allotment option of the IPO on August 28, 2012. It represents an approximate 4% royalty interest earned from Eagle Ford oil production developed by a third party on certain leases in the Wilson and Gonzales Counties in Texas.
Argent Energy (US) Holdings Inc., has closed, subject to normal rights of first refusal on approx. US$11 million of the Acquired Assets, the previously announced acquisition of producing petroleum properties in Kansas and Colorado (the "Acquired Assets") from a private company, for a purchase price of approximately US$45 million, (net of closing adjustments) (the "Acquisition"). The Acquired Assets are principally oil properties covering approximately 36,300 net acres of land. Working interest oil production from the Acquired Assets in June 2013 was approximately 450 barrels per day, which Argent expects to maintain through the remainder of 2013 and into 2014 with minimal operational activity or capital investment.
This Acquisition is accretive on all relevant metrics, provides geographic diversification, adds immediate incremental oil production and reserves to the overall asset base of Argent, and establishes a new, low decline, core area for the Trust.
Subsequent to the bought-deal equity financing for $75 million that was announced on July 25, 2013, that will close on August 15, 2013, the Trust expects to be drawn only approximately US$4 million on its US$115 million credit facility, which will be nil drawn should the over-allotment option be exercised by the underwriters. The Trust values a strong balance sheet and the maximum financial flexibility to avail itself of future opportunities.
As a result of the Trust's ongoing operational success and the Acquisition, Argent confirms it is increasing its average annual production guidance to a range of 5,700 boe/d to 5,800 boe/d (previously 5,500 boe/d to 5,600 boe/d) and increasing its projected 2013 exit production rate to approximately 6,800 boe/d (previously 6,300 boe/d).
While operating costs per boe were higher than expected in the second quarter, operating costs per boe (including transportation) are expected to average approximately US$12.00 per boe by year-end 2013 (previously US$11.00 to US$12.00 per boe), resulting in average operating cash flow netbacks of between US$38.00 and US$40.00 per boe (assuming US$90 per bbl WTI oil price and US$4.16 per mmBTU Nymex gas price).
The Trust plans to continue to actively hedge to ensure its distribution and its capital program. Oil production is approximately 60% hedged at US$90 per bbl WTI or better for the balance of 2013 and approximately 60% hedged at either US$90 per bbl WTI or US$95 per bbl Light Louisiana Sweet ("LLS"), or better, for 2014. For 2015, currently approximately 20% of the Trust's oil production is hedged at US$90 per bbl LLS or better. Natural Gas is approximately 40% hedged at an average of US$4.08/mmBTU for 2013,approximately 40% hedged at an average of US$4.11/mmBTU for 2014 and approximately 50% hedged at an average of US$4.12/mmBTU for 2015.
Based on current projected commodity prices and planned operating performance, the Trust intends to continue making monthly distributions at a rate of $0.0875 per Unit to Unitholders of record as of the close of business on the last business day of each month which are expected to be paid to Unitholders on or about the 23rd day of the following month or, if not a business day, the next business day thereafter. As results of operations may vary, the distribution of cash is not guaranteed. The Trust intends to make these monthly distributions from a portion of its available cash and use the remainder of its available cash, and advances under its credit facilities, to fund growth through additional acquisitions and capital expenditures.
Non-IFRS Financial Measures
Statements throughout this press release make reference to the terms "netback" and "funds flow from operations" which are non-International Financial Reporting Standards ("IFRS") financial measures that do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. Management believes that "netback" and "funds flow from operations" provide useful information to investors and management since such measures reflect the quality of production, the level of profitability, the ability to drive growth through the funding of future capital expenditures and the sustainability of distributions to unitholders. Funds flow from operations is calculated before changes in non-cash working capital. Netback is equal to oil, natural gas and NGL sales revenue less royalties, transportation costs, production taxes and operating expenses. See the "Non-IFRS measures" section of the MD&A for a reconciliation of funds flow from operations and netback to income for the period, the most directly comparable measure in the Trust's audited annual consolidated financial statements. Other financial data has been prepared in accordance with IFRS.
Note about forward-looking statements
Certain of the statements made and information contained in this press release are forward-looking statements and forward looking information (collectively referred to as "forward-looking statements") within the meaning of Canadian securities laws. All statements other than statements of historic fact are forward-looking statements. The Trust cautions investors that important factors could cause the Trust's actual results to differ materially from those projected, or set out, in any forward-looking statements included in this press release.
In particular, and without limitation, this press release contains forward looking statements pertaining to Argent's capital program, drilling and completion plans, potential development locations, oil, natural gas and NGL production rates, operating costs, production growth, hedging activities, forecast payout ratio, the payment of cash distributions by the Trust, including the amount and timing of payment of cash distributions, source of funding for acquisitions and capital expenditures and the Trust's expectation regarding its average working interest production for the year 2013. With respect to forward-looking statements contained in this press release, assumptions have been made regarding, among other things, future oil and natural gas prices, future currency exchange and interest rates, the regulatory framework governing taxes in the US and Canada and the Trust's status as a "mutual fund trust" and not a "SIFT trust", estimates of anticipated production from the Trust's assets, which estimates are based on the proposed drilling program with a success rate that, in turn, is based upon historical drilling success and an evaluation of the particular wells to be drilled, future recoverability of reserves from the assets, future capital expenditures and the ability of the Trust to obtain financing on acceptable terms for its capital projects and future acquisitions, and the Trust's capital budget (which is subject to change in light of ongoing results, prevailing economic circumstances, commodity prices and industry conditions and regulations).
In addition, statements relating to "reserves" are by their nature forward-looking information, as they involve the implied assessment, based on certain estimates and assumptions that the reserves described can be profitably produced in the future. The recovery and reserve estimates of the Trust's reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. The forward-looking information provided in this press release is based on management's current beliefs, expectations and assumptions, based on currently available information as to the outcome and timing of future events. Argent cautions that its future oil, natural gas and natural gas liquids production, revenues, cash flows, liquidity, plans for future operations, expenses, outlook for oil and natural gas prices, timing and amount of future capital expenditures, and other forward-looking information is subject to all of the risks and uncertainties normally incident to the exploration for and development and production and sale of oil and gas.
The Trust's actual results could differ materially from those anticipated in these forward-looking statements as a result of the volatility of commodity prices, commodity supply and demand, fluctuations in currency and interest rates, inherent risks and changes in costs associated in the drilling and development of petroleum properties, unexpected operational delays and challenges, access to drilling equipment on a timely basis and at reasonable prices, ultimate recoverability of reserves, timing, results and costs of drilling activities and resulting production, availability of financing and capital, and new regulations and legislation that apply to the Trust and the operations of its subsidiaries. Additional risks and uncertainties affecting the Trust are contained in the Trust's Annual Information Form dated March 4, 2013, under the heading "Risk Factors".
The success of Argent's drilling program is a key assumption in the production estimates for the 2013 financial year. The primary risk factors which could lead to Argent not meeting its production targets are: (i) production additions from drilling activity are less than expected; (ii) a lack of access to drilling rigs and related equipment on a timely basis and at reasonable prices due to high industry demand or poor weather; and (iii) unexpected operational delays and challenges. Increases in capital costs from forecast amounts can result from the foregoing reasons as well as general cost inflation in the industry.
Additionally, Argent may choose to decrease capital expenditures from those anticipated in its budget projections, therefore affecting production estimates for the 2013 financial year. There are many factors that could result in production levels being less than anticipated, including greater than anticipated declines in existing production due to poor reservoir performance, the unanticipated encroachment of water or other fluids into the producing formation, mechanical failures or human error or inability to access production facilities, among other factors.
As a result of these risks, actual performance and financial results in 2013 may differ materially from any projections of future performance or results expressed or implied by these forward looking statements. New factors emerge from time to time, and it is not possible for management to predict all of these factors or to assess, in advance, the impact of each such factor on the Trust's business, or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward looking statement. Undue reliance should not be placed on forward-looking statements, which are inherently uncertain, are based on estimates and assumptions, and are subject to known and unknown risks and uncertainties (both general and specific) that contribute to the possibility that the future events or circumstances contemplated by the forward looking statements will not occur. Although Management believes that the expectations conveyed by the forward-looking statements are reasonable based on information available to it on the date the forward-looking statements were made, there can be no assurance that the plans, intentions or expectations upon which forward-looking statements are based will in fact be realized. Actual results will differ, and the difference may be material and adverse to the Trust and its unitholders. The Trust does not undertake any obligation, except as required by applicable securities legislation, to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise.
Note regarding barrel of oil equivalency
This press release contains disclosure expressed as "boe" or "boe/d". All oil and natural gas equivalency volumes have been derived using the conversion ratio of six thousand cubic feet ("Mcf") of natural gas to one barrel ("bbl") of oil. Equivalency measures may be misleading, particularly if used in isolation. A 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 well head. 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.
Argent is a mutual fund trust under the Income Tax Act (Canada) (the "Tax Act"). Argent's objective is to create stable, consistent returns for investors through the acquisition and development of oil and natural gas reserves and production with low risk exploration potential, located primarily in the United States. Material information pertaining to Argent Energy Trust may be found on www.sedar.com or www.argentenergytrust.com
SOURCE: Argent Energy Trust
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For further information concerning this press release, please contact:
Co-President & Chief Executive Officer
Argent Energy Trust
Chief Financial Officer
Argent Energy Trust