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Press release from CNW Group

Sea Dragon Energy Inc. announces fourth quarter and year-end 2013 financial and operating results

Wednesday, April 02, 2014

Sea Dragon Energy Inc. announces fourth quarter and year-end 2013 financial and operating results

09:20 EDT Wednesday, April 02, 2014

CALGARY, April 2, 2014 /CNW/ - Sea Dragon Energy Inc. ("Sea Dragon" or the "Company") (TSXV: SDX), an oil and gas exploration and production company with assets in Egypt, is pleased to announce its financial and operating results for the three months and year ended December 31, 2013. All dollar values are expressed in United States dollars net to the Company unless otherwise stated.

2013 Highlights:

Financial Highlights

  • Increased oil & gas sales for the year by 55% to 1,783 boepd as compared to 1,147 boepd for 2012;
  • Increased Netbacks for the year by 19% to US$20.9MM (US$32.04/bbl) as compared to US$17.5MM (US$41.72/bbl);
  • Realized Funds from Operations of US$5.4MM, a 69% increase as compared to US$3.2MM in 2012;
  • Improved collection of Account Receivables to 31 days (current);
  • Invested US$7.1MM in capital expenditure in its assets;
  • Exited the year with cash and cash equivalents of US$4.3MM, working capital of US$9.9MM and no debt;
  • Realized a Net Loss of US$7.7MM compared to 2012 of US$28.1MM.  Net loss in both 2013 and 2012 were driven by the impairment of the Kom Ombo concession.

Operational Highlights

  • Appointed a new President, C.E.O, C.O.O., Mr. Paul Welch;
  • Consolidated the Company's activities into a London base and a Cairo operations centre, creating a simpler and more effective structure;
  • Drilled 6 successful development wells in the North West Gemsa concession, increasing sales volumes to 13,250 boepd now at plateau (gross field, 10% net to the Company);
  • Completed the sale of the Kom Ombo concession as of November 1, 2013 for cash consideration of US$6.0MM and a working capital and interim period adjustment of US$1.3MM;
  • Completed the acquisition of NPC South Ramadan, located in the prolific shallow offshore Gulf of Suez basin in Egypt, as of October 31, 2013 for US$0.6MM;
  • Was awarded a 100% interest in the South Disouq exploration concession located in the south-western section of the onshore gas producing Nile Delta basin;
  • Exited the year with production of 1,720 boepd (December production for NW Gemsa and SHM).

Subsequent to year-end:

  • Collected US$2.1MM in outstanding accounts receivable, with a receivables position of one month of production;
  • Successfully drilled the ASSE-19 development well as a Shagar and Rahmi oil producer in NW Gemsa;
  • On February 12, 2014 paid the signature bonus of US$4.0MM for the South Disouq concession;
  • On March 19, 2014 the South Disouq concession was ratified by the Egyptian government;

Commenting, Paul Welch, President and CEO of Sea Dragon, said:

"2013 was a year of consolidation. The focus was on portfolio management, improving internal efficiencies and streamlining our systems; all of which we successfully accomplished. Looking ahead, Sea Dragon has quality assets, which provide us with a platform from which we can continue our growth. The Company remains in good financial health; has extensive regional knowledge and understanding in the areas in which we operate and as Egyptian market conditions continue to improve, we believe we are well placed to capitalise on existing and new opportunities as they arise".

      Three months ended     Twelve months ended
      December 31     December 31
S000's except per unit amounts     2013     2012     2013     2012
                         
FINANCIAL                        
                         
Oil revenue     15,062     12,353     61,305     44,998
Royalties     (8,377)     (6,496)     (32,350)     (23,804)
      6,685     5,857     28,955     21,194
Gas revenue     102     -     301     -
Royalties     (43)     -     (126)     -
      59     -     175     -
NGL revenue     167     -     497     -
Royalties     (70)     -     (207)     -
      97     -     290     -
Operating Costs     (2,342)     (578)     (8,562)     (3,680)
Netback (1)     4,499     5,279     20,858     17,514
                         
Oil Sales (bbl/d)     1,570     1,273     1,627     1,147
Gas Sales (mcf/d)     1,110     -     825     -
Liquids Sales (bbl/d)     24     -     18     -
Total boe/d     1,779     1,273     1,783     1,147
                         
Net loss     (1,071)     (6,447)     (7,708)     (28,108)
Cash and cash equivalents     4,287     5,658     4,287     5,658
Cash and cash equivalents plus working capital     9,879     6,645     9,879     6,645
Total assets     39,529     52,006     39,529     52,006
Debt     -     3,000     -     3,000
Shareholders' equity     34,341     41,250     34,341     41,250
Capital expenditures     1,625     1,358     7,137     8,355
Weighted average outstanding shares     376,459     376,459     376,459     376,459
                         
                         
DRILLING                        
Gross wells (number of wells)     2     1     7     10
success rate (%)     100     100     86     80
Net wells (number of wells)     0.2     0.1     0.7     2.6
success rate (%)     100     100     86     62

 

COMPANY GROSS RESERVES (2)       As at
December 31,
2013
      As at
December 31,
2012
Proved                
  Natural gas (mmcf)       2,450       2,532
  Oil and liquids (mbbl)       2,548       3,370
  Total oil equivalent (mboe) (3)       2,956       3,792
                 
Proved plus probable                
  Natural gas (mmcf)       3,119       3,897
  Oil and liquids (mbbl)       3,228       5,894
  Total oil equivalent (mboe) (3)       3,748       6,544
                 
Proved plus probable plus possible                
  Natural gas (mmcf)       3,153       3,988
  Oil and liquids (mbbl)       3,268       6,993
  Total oil equivalents (mboe) (3)       3,794       7,658

 

                 
        As at December 31       As at December 31
S000's except per unit amounts       2013       2012
Net present value of future cashflows after tax ($000's) (3)                
Proved                
5% discount rate       41,620       45,015
10% discount rate       35,574       38,433
15% discount rate       31,113       33,499
                 
Proved plus probable                
5% discount rate       50,452       77,290
10% discount rate       42,137       62,115
15% discount rate       36,189       51,593
                 
Proved plus probable plus possible                
5% discount rate       50,980       105,255
10% discount rate       42,526       82,754
15% discount rate       36,489       67,259
                 
Reserve life index (years) (4)                
Proved       4.7       8.2
Proved plus probable       5.9       14.1
(1) Netback is a non-GAAP measure that represents sales net of all operating expenses and government royalties. Management believes that netback is a useful supplemental measure to analyze operating performance and provide an indication of the results generated by the Company's principal business activities prior to the consideration of other income and expenses. Management considers netbacks an important measure as it demonstrates the Company's profitability relative to current commodity prices. Netback may not be comparable to similar measures used by other companies. 
(2) Company gross reserves are gross working interest reserves before the deduction of royalties as determined by the Company's independent reserves evaluators. 
(3) As determined by Ryder Scott, the Company's independent reserves evaluators. Estimated values of future net revenue disclosed do not represent fair market values. 
(4) Calculated by dividing the Company's gross reserves by the 2013 fourth quarter production rate 
(5) Disclosure provided herein in respect of 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. 

 

CEO's Message:

We have made significant progress in 2013 towards achieving our strategic objectives set out at the start of the year. We have increased our sales volumes by 55% and increased revenue collection.

We restructured our asset base with the sale of Kom Ombo and the purchase of South Ramadan.  The sale, which took place in October 2013 for proceeds of US$7.3MM, provided funds which were reinvested into our Gulf of Suez fairway, where we purchased a 12.75% equity interest in the South Ramadan concession.  This asset supplemented our acquisition, in December of 2012, of the Shukheir Marine concession which is in the same section of the Gulf of Suez. This is an area we have been consistently developing, and an area in which we have a solid understanding of the geology and operating environment. Earlier in the year, we were awarded the South Disouq concession as a result of a successful bid in the EGAS bid round. The block sits in the same geologic section of the Nile Delta where management had its previous success discovering the large El Wastani field with over 500BCF of original gas in place and offers analogous potential.

After consolidating our activities into a London base and Cairo operations centre, we now have a simpler and more effective structure. This has enabled us to refocus our resources and management time on areas which we believe offer the most potential to deliver return to shareholders. Financially, we have collected all local accounts receivables and also paid back all our debt balances. This leaves us with the financial flexibility to move Sea Dragon forward and capitalize on the active deal potential pipeline Egypt has to offer.

Operationally we have made solid progress in the Gulf of Suez fairway. During 2013 we drilled six successful development wells at NW Gemsa with Al Amir SE 17 development well testing at a rate of 3,664 bopd one of our highest test rates to date; reinforcing the potential of the area for production and cash flow.

Gross sales volumes for 2013 increased to 13,250 boepd, now at plateau (net 1,325) and 380 boepd at NW Gemsa and Shukheir Marine respectively. Looking ahead the 2014 work plan for NW Gemsa includes three new development wells and one work-over with the objective of maintaining production at the current plateau rate. At Shukheir Marine the technical review we completed identified additional prospectivity which is why we have applied for a 10 year extension. Government discussion is expected to be concluded during the first half of the year which will determine the work programme for the concession in 2014 and beyond. Exploration and Development activities are anticipated in South Ramadan while technical studies combined with farm-out activities are planned for South Disouq. The team is well placed to execute on our 2014 objectives of acquiring assets and developing their potential with the goal of doubling production and reserves within 18-24 months, and as a result, increasing stakeholder value.

Reserves:

The decrease in reserves year on year results primarily from the sale of the Kom Ombo during the period. The Kom Ombo reserves impact is most notable in the 2P and 3P categories where they represent 46% (1.29 MMboe) and 58% (2.26 MMboe) of the change in terms of volume respectively.  Regarding value, the change is even more pronounced with the Kom Ombo sale accounting for 81% (US$ 19.98MM) of the 2P change and 88% (US$40.23MM) of the 3P change.  1P values were not significantly impacted by the Kom Ombo sale due to the relatively small volume of 1P reserves that were carried for the asset.

The NW Gemsa waterflood program that was implemented in both the Shagar and Rahmi horizons performed well in 2013, and as a result, the recovery efficiency in these intervals has increased.  Our NW Gemsa asset continues to deliver superior value and performance and we anticipate this to continue in future periods.

                Proved Plus
Company gross reserve reconciliation (mboe)         Proved     Probable
December 31, 2012 Reserves (mboe)         3,792     6,544
2013 Production (mboe)         (595)     (595)
Dispositions (mboe)         (378)     (1,288)
Net Technical and Commercial Revisions (mboe)         137     (912)
December 31, 2013 Reserves (mboe)         2,956     3,749

 

Company gross reserves     Natural Gas     Liquids     Oil     Total
Reserves Category     (mmcf)     (mbbls)     (mbbls)     (mboe)
Proved: (1)                        
  Proved Producing     1,350     34     1,421     1,680
  Proved Non-Producing & Proved Undeveloped (2)     1,100     27     1,066     1,276
Total Proved     2,450     61     2,487     2,956
Probable (3)     669     17     664     792
Total Proved Plus Probable (3)     3,119     78     3,150     3,748
Possible (4)     34     -     40     46
Total Proved Plus Probable Plus Possible (4)     3,153     78     3,190     3,794
                         
                         
                         
NET PRESENT VALUE AFTER INCOME TAX (000'S)     Discount Factor
Reserves Category     0%     5%     10%     15%
Proved:                        
  Proved Producing     27,231     24,102     21,708     19,819
  Proved Non-Producing & Proved Undeveloped (2)     22,925     17,518     13,866     11,294
Total Proved     50,156     41,620     35,574     31,113
Probable (3)     12,479     8,832     6,563     5,076
Total Proved Plus Probable (3)     62,635     50,452     42,137     36,189
Possible (4)     755     528     389     300
Total Proved Plus Probable Plus Possible (4)     63,389     50,980     42,526     36,489

 

Reserves and Netbacks       Proved       Proved Plus
Probable
2013 Capital expenditures ($000's)       6,736       6,736
Change in future development costs       (6,558)       (16,998)
                 
Total costs       178       (10,262)
                 
Net revisions (mboe)        (836)       (2,795)
                 
2013 Netback ($/bbl)       32.04       32.04

 

Net Asset Value         2013       2012
Net present value of oil and gas reserves after income tax, discounted at 10%        $   42,137     $ 62,115
Working capital        $ 9,931     $ 6,143
Net asset value        $ 52,067     $ 68,258
Shares outstanding (000's)         376,459       376,459
Net asset value per share        $   0.14     $ 0.18

 

The disclosures required in accordance with National Instrument 51-101 of the Canadian Securities Administrators are available on the Company's Annual Information Form to be filed on the SEDAR website at www.sedar.com.

Reserve estimates have been calculated in compliance with the National Instrument 51-101 Standards of Disclosure ("NI 51-101"). Under NI 51-101, proved reserves are defined as reserves that can be estimated with a high degree of certainty to be recoverable with a target of a 90 percent probability that the actual reserves recovered over time will equal or exceed proved reserve estimates, while probable reserves are defined as having an equal (50%) probability that the actual reserves recovered will equal or exceed the proved and probable reserve estimates. In accordance with NI 51-101, proved undeveloped reserves have been recognized in cases where plans are in place to bring the reserves on production within a short, well defined time frame. Proved undeveloped reserves often involve infill drilling into existing pools. Of the net present value of the Company's reserves, 100 percent were evaluated by an independent third party engineer, Ryder Scott Company, Houston, Texas, U.S.A. ("Ryder Scott") in their report dated February 24, 2014.

Certain statements contained in this press release constitute "forward-looking statements" as such term is used in applicable Canadian and US securities laws. These statements relate to analyses and other information that are based upon forecasts of future results, estimates of amounts not yet determinable and assumptions of management. In particular, statements concerning the 2014 drilling and capital expenditure programs of the NW Gemsa, Shukheir Marine, south Ramadan and South Disouq Concessions and the results referenced or implied herein should be viewed as forward-looking statements.

Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or are not statements of historical fact and should be viewed as "forward-looking statements".  All reserves information contained herein as well as the net present value of such reserves should be considered as forward looking statements. Such forward looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  Such risks and other factors include, among others, costs and timing of exploration and production development, availability of capital to fund exploration and development and political, social and other risks inherent in carrying on business in Egypt.  There can be no assurance that such statements will prove to be accurate as actual results and future events could vary or differ materially from those anticipated in such statements.  Accordingly, readers should not place undue reliance on forward-looking statements contained in this news release.

Forward-looking statements are made based on management's beliefs, estimates and opinions on the date the statements are made and the Corporation undertakes no obligation to update forward-looking statements and if these beliefs, estimates and opinions or other circumstances should change, except as required by applicable law. Although Sea Dragon has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. Investors are cautioned that such forward-looking statements involve risks and uncertainties.  Actual results may differ materially from those currently anticipated.  See Sea Dragon's Annual Information Form for the year ended December 31, 2012 for a description of the risks and uncertainties associated with the Company's business, including its exploration activities. The forward-looking statements contained herein are expressly qualified by this cautionary statement.

NEITHER THE 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 THE RELEASE.

 

SOURCE Sea Dragon Energy Inc.

For further information:

Said Arrata
Chairman
Tel: (403) 457-5035

Paul Welch
President, Chief Executive Officer
Tel: +44 203 219 5640

Olivier Serra
Chief Financial Officer and Director
Tel: +44 203 219 5640

Investor Relations
Brisco Capital Partners Corp.
Tel: (403) 262-9888

Bell Pottinger
Tel: +44 207 861 3232

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