Arsenal Energy Releases Q2 Results
11 August 2011 - 12:58AM
Marketwired Canada
Arsenal Energy Inc. ("Arsenal") (TSX:AEI) is pleased to release its 2011 Q2
results. Arsenal posted record revenue and a $3.0 million profit in Q2. Volumes,
operating costs, and the capital development program were challenged by wet
conditions in North Dakota. Those conditions have improved and Arsenal
anticipates higher volumes, lower costs, and an accelerated development program
in Q3 and through the end of 2011.
Full financial details are contained in the financial statements and MD&A filed
on SEDAR and on the Company's website.
Financial
In Q2 2011, the Company set a new quarterly high for revenue of $12.7 million, a
9% increase over Q1 record revenue of $11.6 million. The record revenue is due
to higher oil prices and Arsenal's continued improvement in production mix. The
Q2 mix of 82% oil and 18% natural gas contributed to a realized operating
netback of $38.45 per Boe for the quarter.
Funds flow before the effect of commodity contracts totaled $4.8 million, down
from $5.4 million in Q1 2011. Funds flow declined due to lower production
volumes and higher costs associated with wet field conditions in North Dakota
and higher trucking costs at Evi associated with the Plains pipeline shutdown.
Net income for Q2 was $3.0 million.
Arsenal's debt and working capital deficiency at quarter end was $9.9 million.
Subsequent to quarter end, Arsenal liquidated its entire hedge book resulting in
proceeds of $4.5 million. Estimated current net debt of$6.0 million is well
below the company's $60 million credit facility and the debt to annualized cash
flow ratio is well below the target ratio of 1:1. Arsenal is positioned to
execute its capital program and to act on opportunistic acquisitions.
Operations
Average production of 1826 boe/d during the second quarter was lower than Q1
production due to wet weather conditions in North Dakota. Melting of heavy
winter snow pack combined with spring rains flooded lease sites and roads,
resulting in production shut-ins. In the first quarter Arsenal drilled two high
impact Bakken wells, the Brenlee (80% WI) and the Amy Elizabeth (62% WI). The
expected 2nd quarter completion of those wells was delayed by the weather.
Subsequent to quarter end, the majority of Arsenal's shut in production was
brought on line and the remainder should come on line over the next 30 days. The
Brenlee well was fracture stimulated and placed on production. It has produced
at an average rate of 683bbls/d of oil over 18 days. The Amy Elizabeth well has
been fracture stimulated. Flow test results will be released when available.
Operating costs increased to $20.34/boe in Q2 2011 compared to $15.83/boe in Q1.
The increased unit cost was due to production curtailments and to additional
trucking costs associated with the temporary shutdown of the Plains pipeline
system that normally transports Arsenal's Evi, Alberta oil production.
SUMMARY OF FINANCIAL AND OPERATIONAL RESULTS
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Three Months
Ended June 30
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2011 2010 % Change
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FINANCIAL
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Oil and gas revenue 12,729,872 11,128,046 14
Cash provided by operation
activities 4,096,938 3,581,655 14
Funds from operations 4,301,767 4,007,438 7
Per share - basic 0.03 0.03 (10)
-diluted 0.03 0.03 (9)
Net income (loss) 3,011,927 574,690 424
Per share - basic 0.02 nil -
-diluted 0.02 nil -
Total debt 9,931,680 19,886,286 (50)
Capital expenditures 6,104,750 2,260,705 170
Property dispositions - - -
Wells drilled (net)
Oil - - -
Gas - - -
Dry - - -
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Total net wells drilled - - -
Shares outstanding - end of
period 161,761,062 134,195,472 21
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OPERATIONAL
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Daily production
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Heavy oil (bbl/d) 504 644 (22)
Light oil and NGLs (bbl/d) 1,004 1,051 (5)
Natural gas (mcf/d) 1,908 2,189 (13)
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Oil equivalent (boe @ 6:1) 1,826 2,060 (11)
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Realized commodity prices
($Cdn.)
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Heavy oil (bbl) 79.08 60.51 31
Light oil and NGLs (bbl) 92.27 70.44 31
Natural gas (mcf) 3.88 4.24 (8)
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Oil equivalent (boe @ 6:1) 76.62 59.37 29
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Operating netback ($ per boe)
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Revenue 76.62 59.37 29
Royalty (15.42) (11.32) 36
Operating cost (20.34) (21.48) (5)
Transportation cost (2.42) (0.87) 178
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Operating netback per boe 38.45 25.70 50
General and administrative (7.54) (5.53) 36
Finance expenses (1.95) (1.90) 2
Other (0.06) 0.13 (144)
Realized hedging gains (losses) (3.01) 2.97 (201)
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Funds flow per Boe 25.89 21.38 21
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SUMMARY OF FINANCIAL AND OPERATIONAL RESULTS
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Six Months
Ended June 30
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2011 2010 % Change
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FINANCIAL
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Oil and gas revenue 24,349,016 22,714,559 7
Cash provided by operation
activities 8,364,894 7,080,205 18
Funds from operations 9,407,402 9,196,842 2
Per share - basic 0.06 0.07 (15)
-diluted 0.06 0.07 (15)
Net income (loss) (4,927,929) 505,623 (1,075)
Per share - basic (0.03) nil -
-diluted (0.03) nil -
Total debt 9,931,680 19,886,286 (50)
Capital expenditures 18,255,491 9,348,061 95
Property dispositions (598,509) (214,831) 179
Wells drilled (net)
Oil 1.03 2.15 (52)
Gas - - -
Dry 2.00 - -
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Total net wells drilled 3.03 2.15 41
Shares outstanding - end of
period 161,761,062 134,195,472 21
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OPERATIONAL
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Daily production
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Heavy oil (bbl/d) 526 643 (18)
Light oil and NGLs (bbl/d) 1,051 989 6
Natural gas (mcf/d) 2,017 2,849 (29)
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Oil equivalent (boe @ 6:1) 1,913 2,107 (9)
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Realized commodity prices
($Cdn.)
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Heavy oil (bbl) 73.15 64.96 13
Light oil and NGLs (bbl) 84.18 71.23 18
Natural gas (mcf) 3.75 4.65 (19)
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Oil equivalent (boe @ 6:1) 70.31 59.55 18
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Operating netback ($ per boe)
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Revenue 70.31 59.55 18
Royalty (13.22) (10.03) 32
Operating cost (17.99) (20.46) (12)
Transportation cost (1.82) (1.05) 73
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Operating netback per boe 37.28 28.01 33
General and administrative (6.68) (4.82) 38
Finance expenses (1.30) (1.61) (19)
Other 0.09 0.24 (61)
Realized hedging gains (losses) (2.23) 2.29 -
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Funds flow per Boe 27.16 24.11 13
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Outlook
Third quarter volumes should increase as curtailed production in North Dakota
comes back on line and as the Brenlee and Amy Elizabeth wells contribute new
volumes. Unit costs should decline as production volumes increase and when the
Plains pipeline at Evi comes back into service. Arsenal's production mix should
continue to improve but revenue per boe will likely decline due to softening oil
prices.
Arsenal has licensed three new Bakken wells in North Dakota; the Gjoa Lynn (50%
WI), the Anthony Robert (79.5% WI), and the Wade Morris (79.5% WI). Arsenal
anticipates drilling two of the wells in 2011 with the third to follow in early
2012.
Arsenal has a drilling program planned for eastern Alberta in Q3/Q4. Four
vertical Mannville wells are planned at Provost, two horizontal wells in the
Leduc formation are planned at Edgerton, and two horizontals are planned in the
Glauconite formation at Princess. The drills at Chauvin, Edgerton, Princess have
the potential, if successful, to open up larger development programs.
To receive company news releases via e-mail, please advise
info@arsenalenergy.com and specify "Arsenal Press Releases" in the subject line.
Advisory
All barrels of oil equivalent (boe) conversions in this report are deprived by
converting natural gas to oil at the ratio of six thousand cubic feet (Mcf) of
natural gas to one barrel (bbl) of oil. Certain financial values are presented
on a boe basis and such measurements may not be consistent with those used by
other companies. Boe amounts may be misleading, particularly if used in
isolation. A boe conversion ratio has been calculated using a conversion rate of
six thousand cubic feet of natural gas to one barrel of oil (6 Mcf: 1 bbl) and
is based on an energy equivalency conversion method applicable at the burner tip
and does not represent a value equivalency at the wellhead.
Certain financial measures referred to in this release, such as funds from
operations and funds from operations per share, are not prescribed by generally
accepted accounting principles (GAAP). Funds from operations is a key measure
that demonstrates the ability to generate cash to fund expenditures. Funds from
operations is calculated by taking the cash provided by operations from the
consolidated statement of cash flows and adding back changes in non-cash working
capital. Funds from operations per share is calculated using the same
methodology for determining net income per share. These non- GAAP financial
measures may not be comparable to similar measures presented by other companies.
These financial measures are not intended to represent operating profits for the
period nor should they be viewed as an alternative to cash provided by operating
activities, net income or other measures of financial performance calculated in
accordance with GAAP.
Management uses certain industry benchmarks such as field netback to analyze
financial and operating performance. Field netback has been calculated by taking
oil and gas revenue less royalties, operating costs and transportation costs.
This benchmark does not have a standardized meaning prescribed by GAAP and may
not be comparable to similar measures presented by other companies. Management
considers field netback as an important measure to demonstrate profitability
relative to commodity prices.
Certain statements and information contained in this press release, including
but not limited to management's assessment of Arsenal's future plans and
operations, production, reserves, revenue, commodity prices, operating and
administrative expenditures, funds from operations, capital expenditure programs
and debt levels contain forward-looking statements. All statements other than
statements of historical fact may be forward looking statements. These
statements, by their nature, are subject to numerous risks and uncertainties,
some of which are beyond Arsenal's control including the effect of general
economic conditions, industry conditions, changes in regulatory and taxation
regimes, volatility of commodity prices, escalation of operating and capital
costs, currency fluctuations, the availability of services, imprecision of
reserve estimates, geological, technical, drilling an processing problems,
environmental risks, weather, the lack of availability of qualified personnel or
management, stock market volatility, the ability to access sufficient capital
from internal and external sources and competition from other industry
participants for, among other things, capital, services, acquisitions of
reserves, undeveloped lands and skilled personnel that may cause actual results
or events to differ materially from those anticipated in the forward looking
statements. Such forward-looking statements although considered reasonable by
management at the time of preparation, may prove to be incorrect and actual
results may differ materially from those anticipated in the statements made and
should not unduly be relied on. These statements speak only as of the date of
this press release. Arsenal does not intend and does not assume any obligation
to update these forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by applicable law.
Arsenal's business is subject to various risks that are discussed in its filings
on the System for Electronic Document Analysis and Retrieval (SEDAR).