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Press release from CNW Group

Twin Butte Energy announces 2013 Q2 results

Wednesday, August 14, 2013

Twin Butte Energy announces 2013 Q2 results

16:23 EDT Wednesday, August 14, 2013

CALGARY, Aug. 14, 2013 /CNW/ - (TSX: TBE) - Twin Butte Energy Ltd. ("Twin Butte" or the  "Company") is pleased to report financial and operational results for the three and six months ended June 30, 2013.

Highlights of Twin Butte's second quarter 2013 are as follows:

  • Continued demonstration of a disciplined business plan, supporting our sustainable dividend paying model with a payout ratio of 81 percent and a total payout ratio net of the DRIP and SDP of 77 percent in the second quarter 2013. For the six months ended June 30 the payout ratio was 89 percent and total payout ratio net of the DRIP and SDP was 85 percent. Since implementation of the Company's dividend in January 2012, $0.28 per share in dividends have been paid as at the end of June.

  • Recorded quarterly production of 16,849 boe per day, an increase of 19 percent over the same period of 2012.

  • Generated quarterly funds flow of $33.1 million, which strongly supported the dividend and capital program.

  • Executed an organic net capital program of $14.9 million which included the drilling of 12 gross (12 net) wells, including 9 horizontal wells at a 100 percent success rate. The Company successfully sold $3.3 million (70 boe per day) in non-core assets in the quarter.

  • Maintained a solid balance sheet with net debt at $193.8 million relative to the existing credit facility of $280 million, representing a run rate debt to cash flow of 1.5 years.

Certain selected financial and operations information for the three and six months ended June 30, 2013 and 2012 comparatives are outlined below and should be read in conjunction with Twin Butte's interim financial statements and accompanying Management Discussion and Analysis ("MD&A") for the three and six months ended June 30, 2013 and the audited annual Financial Statements and accompanying MD&A for the year ended December 31, 2012.  Full versions of the statements and accompanying notes will be filed on SEDAR and also on the Company website.

Highlights

      Three months ended June 30 Six months ended June 30
      2013 2012 % Change 2013 2012 % Change
Financial ($ 000's, except per share amounts)                
Petroleum and natural gas sales     98,497 70,173 40% 170,261 142,670 19%
Funds flow (1)     33,058 33,762 -2% 65,481 60,162 9%
Per share basic      0.13 0.18 -28% 0.26 0.32 -19%
Per share diluted     0.13 0.17 -24% 0.26 0.32 -19%
Net income (loss)      (6,082) 29,340 -121% (35,715) 44,323 -181%
Per share basic      (0.02) 0.15 -113% (0.14) 0.23 -161%
Per share diluted     (0.02) 0.15 -113% (0.14) 0.23 -161%
Dividends declared     12,028 8,648 39% 24,008 17,272 39%
Dividends declared, Post DRIP     10,543 8,648 22% 21,271 17,272 23%
Capital expenditures (2)     14,871 24,910 -40% 34,496 32,826 5%
Corporate acquisitions (2)     - - 0% - 203,000 -100%
Net debt (3)     193,750 124,459 56% 193,750 124,459 56%
Operating                
Average daily production                
Crude oil (bbl per day)     14,588 11,415 28% 14,630 10,801 35%
Natural gas (Mcf per day)     12,665 15,063 -16% 13,282 15,601 -15%
Natural gas liquids (bbl per day)     150 267 -44% 206 309 -33%
Barrels of oil equivalent (boe per day, 6:1)     16,849 14,193 19% 17,050 13,710 24%
% Oil and NGLs     87% 82% 6% 87% 81% 7%
Average sales price                
Crude oil ($ per bbl)     69.87 62.83 11% 59.77 66.87 -11%
Natural gas ($ per Mcf)     3.94 2.10 88% 3.71 2.22 67%
Natural gas liquids ($ per bbl)     88.51 83.29 6% 81.85 87.10 -6%
Barrels of oil equivalent ($ per boe, 6:1)     64.24 54.33 18% 55.17 57.18 -4%
Operating netback ($ per boe) (4)                
Petroleum and natural gas sales     64.24 54.33 18% 55.17 57.18 -4%
Cash (loss) gain on derivative instruments     0.01 6.91 -100% 5.67 4.59 24%
Royalties     (13.39) (12.84) -4% (11.25) (13.65) 18%
Operating expenses     (22.92) (17.19) -33% (22.40) (17.88) -25%
Transportation expenses     (2.96) (2.26) -31% (2.64) (2.36) -12%
Operating netback     24.98 28.95 -14% 24.55 27.88 -12%
Wells drilled                 
Gross     12.0 16.0 -25% 40.0 48.0 -17%
Net     12.0 14.5 -17% 40.0 36.2 10%
Success (%)     100 93 8% 93 97 -4%
Common Shares                
Shares outstanding, end of period     250,916,313 192,458,098 30% 250,916,313 192,458,098 30%
Weighted average shares outstanding - diluted     251,895,637 193,165,826 30% 250,965,960 190,327,811 32%

(1) Funds flow from operations and funds flow from operations netback are non-GAAP measures that represent the total and the average per boe, respectively, of cash provided by operating activities, before adjusting for changes in non-cash working capital items and expenditures on decommissioning liabilities.
(2) Corporate acquisitions is a non-GAAP measure and includes total consideration plus working capital deficiency acquired in a corporate acquisition. Capital expenditures is a non-GAAP measure calculated as the purchase or sale price of an asset, plus development capital expenditures added to PP&E. Corporate acquisitions are excluded from this measure.
(3) Net debt is a non-GAAP measure representing the total of bank indebtedness, accounts payables and accrued liabilities, cash dividend payable, less accounts receivables, deposits and prepaids.
(4) Operating netback is a non-GAAP measure calculated as the average per boe of the Company's oil and gas sales plus realized gains on derivatives, less royalties, operating and transportation expenses.

Corporate

The second quarter of 2013 was dominated by strong improvements to the Company's heavy oil price . Pricing for the heavy oil benchmark WCS (Western Canadian Select) increased to average $76.82, up from $62.99 in the first quarter, as differentials contracted to average $19.16 from approximately $32.00 in the first quarter. In addition, the Company's blending costs were reduced in the second quarter to below $9.00 per barrel, improving the Company's netback price.

Financial 

Funds flow from operations for the second quarter were up approximately 2 percent from the first quarter as a result of stronger pricing, which was somewhat offset by hedges in place, an approximate 2 percent decrease in production volumes, higher royalties and operating costs. Capital spending for the second quarter was $14.9 million after netting $3.3 million of non-core property dispositions. This was significantly below the Company's budgeted $20 million. This lower level of spending due to extended spring break-up conditions led to a total payout ratio of only 77 percent in the second quarter as compared to our annual target range of 95-100 percent and as a result, the Company plans to increase capital spending in the third quarter and bring the annualized ratio back into the target range. As a result of the lower payout ratio, the Company's net debt was reduced from the first quarter to $193.8 million which provided a debt to annualized cash flow ratio of 1.5 at the end of the second quarter, and increased financial flexibility with the $280 million credit facility. With increased spending in the third quarter, it is anticipated that net debt will increase slightly over the remainder of 2013, but the Company's debt to run rate cash flow will remain at approximately 1.5 times.

Although hampered by difficult field operating conditions, the sale of 70 boe per day of non-core production, and unplanned turnarounds at our major heavy oil purchaser's facilities, the Company reported production of 16,849 boe per day, in the second quarter. With current production capability of approximately 16,400 boe per day, Twin Butte remains on track to achieve its forecasted 2013 production average of 16,100 - 16,400 boe per day.

Operating costs in the second quarter increased to just under $23.00 per boe, mainly as a result of unseasonable weather conditions which resulted in higher than normal trucking, road and lease maintenance, work-over expenses, and snow clearing costs. The Company spent over $2.00 per boe in the second quarter on these weather related costs. The Company expects operating costs in the range of $20.00 - $22.00 per boe for the balance of the year.

The contraction in oil price differentials in combination with relatively strong WTI pricing for the remainder of 2013, along with the Company's current hedge position, gives Twin Butte confidence in its 2013 cash flow forecast of $112 million. Our hedging program has and will continue to provide downside price protection and cash flow stability. Currently, the Company has approximately 63 percent of its oil volumes for the second half of 2013 hedged at an average WCS price of $75.19, and an additional 23 percent of oil volumes hedged at an average WTI price of $97.43. Twin Butte has approximately 65 percent of expected 2013 natural gas volumes hedged at a price of $4.50 per gj.

At the current annual dividend rate of $0.192 per share the Company continues to target a sustainable total (dividend and capital expenditure) payout ratio of less than 100 percent of cash flow on an annual basis. The Company does not anticipate any changes to its current dividend policy in the foreseeable future. The Company's Board of Directors has approved continuation of the existing dividend to the end of 2013.

Operations

During the second quarter of 2013 due to break up and wet weather, Twin Butte was restricted to drilling 12 gross (12 net) wells, achieving a 100 percent success rate. The high success rate continues to demonstrate the predictable and repeatable potential of the Company's drilling inventory, which remains estimated to be over 700 net conventional heavy oil wells. The Company's drilling continues to focus within the core heavy oil fairway, and it is anticipated one hundred percent of Twin Butte's 2013 capital will be spent in this area.

As part of an ongoing effort to maintain and improve the Company's capital efficiencies, Twin Butte continues to expand its horizontal drilling inventory. Of the twelve wells drilled in the second quarter, nine were horizontal wells that continue to meet or surpass our capital efficiency and production criteria. The Company now anticipates upwards of 35 horizontal wells will be drilled in 2013, a trend that Twin Butte sees continuing in its heavy oil fairway. Although the initial focus is on enhancing well costs and initial productivity to maximize capital efficiency, reservoir modeling suggests the horizontals should achieve ultimate recoverable reserves that will lower overall decline rates and improve finding and development costs.

In the second quarter of 2013, Twin Butte drilled eight horizontal wells at Wildmere as follow up to two horizontal wells drilled in the first quarter. Four of the wells were brought on late in the second quarter, the fifth well commencing production in July and the last three commencing production in early August. Performance monitoring of the wells continues, but positive early results has led to the drilling of an additional eight wells thus far in the third quarter at Wildmere, all of which should be commencing production late in August.

At Frog Lake, the Company's most active area for the last number of years, one horizontal well was drilled in the second quarter on the south end of the lands. A three well horizontal drilling program is planned for early in the fourth quarter to focus on the exploitation of the Mannville formation. In late 2011, the Company drilled a horizontal Mannville well which after 16 months of production has proved the economic viability of a larger scale program.

At Primate in Western Saskatchewan, Twin Butte encountered additional reservoir performance issues in early July, as discussed in the July 15th press release. Current production on the property is approximately 1,400 bbls per day but as outlined in the July press release, the Company has modeled this property to exit 2013 at approximately 400 boe per day, which is under 3 percent of year end volumes.

Based on early success of the Company horizontal drilling program, and its growing inventory of horizontal locations, Twin Butte is confident its operational momentum and production growth will be reestablished over the next number of quarters. This will lead to further stability and potential increases in the Company's cash flow, and provide further sustainability of the Company's dividend.

To optimize the Company's heavy oil pricing, approximately 18 percent of its heavy barrels were transported via rail car in the second quarter. This marketing operation has generated an increase of approximately $6.00 to $8.00 per railed barrel net to the Company in the second quarter or an increase of approximately $1.45 per barrel on a corporate average. During the second quarter of 2013, Twin Butte completed construction of a cleaning/staging facility at Lashburn which will potentially allow increases of its rail car shipments to approximately 30 percent of oil volumes. Twin Butte remains focused on its hedging program to protect cash flow levels that will provide sustained positive corporate netbacks. 

Outlook

Twin Butte will continue to execute its stated business plan in 2013. The Company believes its business plan of a sustainable dividend and moderate per share growth will attract investor interest over the long term. We remain committed to continually enhancing the Company's asset quality through organic growth and strategic acquisitions.

The Company remains on track to meet its previously reported operating and financial guidance of $112 million in cash flow and 16,100 - 16,400 boe per day of average production. The Company's level of capital expenditures, which are currently forecast to be $70 million net, will be monitored and potentially increased should actual cash flow less dividends increase.

Twin Butte remains in an enviable position in that it has a strong balance sheet, a predictable production profile and a current inventory of over 700 net heavy oil drilling locations. The Company's growing horizontal program has the ability to make a meaningful difference to corporate performance. Conventional heavy oil wells generate some of the top percentile return on investment of all plays in North America and the Company believes its current sizable drilling inventory has the ability to fuel the Company's dividend and moderate growth strategy for years to come.

A sustained pace of repeatable development drilling and disciplined capital spending will maximize capital efficiencies, economic returns and minimize payout times, providing visible sustainability to Twin Butte's dividend and anticipated Company growth.

Twin Butte approved a share dividend plan ("SDP") at the annual general shareholder meeting on May 15, 2013 and this plan is available to Canadian and most non-Canadian shareholders. This new plan will be run in conjunction with the dividend reinvestment plan ("DRIP") that was already in place and is only available to Canadian shareholders. The DRIP and the SDP allow shareholders to effectively receive their monthly Twin Butte dividends as Twin Butte shares at a 5% discount to the market price at the date of the dividend payment. For more information on the plans please consult the Twin Butte website at www.twinbutteenergy.com or your broker.

About Twin Butte

Twin Butte is a value oriented, intermediate producer with a significant and growing scalable and repeatable drilling inventory focused on large original oil in-place conventional heavy oil exploitation. With a stable low decline production base the Company is well positioned to live within cash flow while providing shareholders with a sustainable dividend and moderate per share production growth potential over the long term.

Forward-Looking Statements

In the interest of providing Twin Butte's shareholders and potential investors with information regarding Twin Butte, including management's assessment of the future plans and operations of Twin Butte, certain statements contained in this news release constitute forward-looking statements or information (collectively "forward-looking statements") within the meaning of applicable securities legislation.  Forward-looking statements are typically identified by words such as "anticipate", "continue", "estimate", "expect", "forecast", "may", "will", "project", "could", "plan", "intend", "should", "believe", "outlook", "potential", "target" and similar words suggesting future events or future performance. In particular but without limiting the foregoing, this news release contains forward-looking statements pertaining to the following: the Company's expectations on well declines; future dividend levels; cash flow forecasts; the volumes and estimated value of Twin Butte's oil and natural gas reserves; the life of Twin Butte's reserves; the volume and product mix of Twin Butte's oil and natural gas production; future oil and natural gas prices; future operational activities; future results from operations and operating metrics, including future production growth and other matters set forth under the heading "Outlook" herein, including estimated budget levels and targeted pay-out ratio in respect of the payment of dividends. In addition, statements relating to "reserves" are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and can be profitably produced in the future.

With respect to forward-looking statements contained in this news release, Twin Butte has made assumptions regarding, among other things: future capital expenditure levels; future oil and natural gas prices and differentials between light, medium and heavy oil prices; results from operations including future oil and natural gas production levels; future exchange rates and interest rates; Twin Butte's ability to obtain equipment in a timely manner to carry out development activities; decline rates based on analogous information; our ability to market its oil and natural gas successfully to current and new customers; the impact of increasing competition; Twin Butte's ability to obtain financing on acceptable terms; and Twin Butte's ability to add production and reserves through our development and exploitation activities. Although Twin Butte believes that the expectations reflected in the forward looking statements contained in this news release, and the assumptions on which such forward-looking statements are made, are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned not to place undue reliance on forward-looking statements included in this news release, as there can be no assurance that the plans, intentions or expectations upon which the forward-looking statements are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur, which may cause Twin Butte's actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things, the following:  further instability in the production volumes at the Company's Primate property; the risks associated with the oil and gas industry; commodity prices; operational risks in exploration; development and production; delays or changes in plans; risks associated with the uncertainty of reserve estimates; health and safety risks, and; the uncertainty of estimates and projections of production, costs and expenses. volatility in market prices for oil and natural gas; general economic conditions in Canada, the U.S. and globally; and the other factors described under "Risk Factors" in Twin Butte's most recently filed Annual Information Form available in Canada at www.sedar.com. The recovery and reserve estimates of Twin Butte's reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Readers are cautioned that this list of risk factors should not be construed as exhaustive.

The forward-looking statements contained in this news release speak only as of the date of this news release. Except as expressly required by applicable securities laws, Twin Butte does not undertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.

Barrels of Oil Equivalent

Barrels of oil equivalents (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl (barrel) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, as the value ratio between natural gas and crude oil based on the current prices of natural gas and crude oil is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indicated value.

Operating Netback

The reader is also cautioned that this news release contains the term operating netback, which is not a recognized measure under GAAP and is calculated as a period's sales of petroleum and natural gas, net of royalties less net production and operating expenses as divided by the period's sales volumes.  Management uses this measure to assist them in understanding Twin Butte's profitability relative to current commodity prices and it provides an analysis tool to benchmark changes in operational performance against prior periods and to peers on a comparable basis.  Readers are cautioned, however, that this measure should not be construed as an alternative to other terms such as net income determined in accordance with GAAP as a measure of performance.  Twin Butte's method of calculating this measure may differ from other companies, and accordingly, they may not be comparable to measures used by other companies.

Analogous Information

In this news release, Twin Butte has provided certain information on the production profile and estimates of decline rates on its Primate property which is "analogous information" as defined by applicable securities laws. This analogous information is derived from publicly available information sources which the Company believes are predominantly independent in nature. Some of this data may not have been prepared by qualified reserves evaluators or auditors and the preparation of any estimates may not be in strict accordance with Canadian Oil & Gas Evaluation Handbook.  Regardless, estimates by engineering and geo-technical practitioners may vary and the differences may be significant. Twin Butte believes that the provision of this analogous information is relevant to Twin Butte's activities and forecasting, given its property ownership in the area; however, readers are cautioned that there is no certainty that the forecasts provided herein based on analogous information will be accurate.

Future Oriented Financial Information

This news release, in particular the information in respect of anticipated cash flows, may contain Future Oriented Financial Information ("FOFI") within the meaning of applicable securities laws. The FOFI has been prepared by management of the Company to provide an outlook of the Company's activities and results and may not be appropriate for other purposes. The FOFI has been prepared based on a number of assumptions including the assumptions discussed under the heading "Forward-Looking Statements" and assumptions with respect to production rates and commodity prices. The actual results of operations of the Company and the resulting financial results may vary from the amounts set forth herein, and such variation may be material. The Company and its management believe that the FOFI has been prepared on a reasonable basis, reflecting management's best estimates and judgments.

Jim Saunders

President and C.E.O.

August 14, 2013

SOURCE: Twin Butte Energy Ltd.

For further information:

Twin Butte Energy Ltd.

Jim Saunders
President and Chief Executive Officer
Tel: (403) 215-2040
Fax: (403) 215-2055

R. Alan Steele
Vice President, Finance, Chief Financial
Officer and Corporate Secretary
Tel: (403) 215-2692
Fax: (403) 215-2055

Website:  www.twinbutteenergy.com

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