Delphi Energy Corp. (TSX:DEE) ("Delphi" or the "Company") is pleased to announce
its financial and operational results for the quarter ended June 30, 2013 and
provide an update on its Montney production at East Bigstone.
Second Quarter 2013 Highlights
-- Achieved average production of 7,635 barrels of oil equivalent per day
("boe/d") excluding production downtime at third-party facilities to the
extent of approximately 1,495 boe/d, primarily affecting the Company's
Montney production during the month of May. In the month of June 2013,
Montney production at East Bigstone represented 44 percent of June's
average corporate production.
-- Generated funds from operations of $8.4 million ($0.05 per basic and
diluted share) for the quarter ended June 30, 2013 compared to $7.2
million ($0.05 per basic and diluted share) in the comparative quarter
of 2012. Operating cash flow(i) from Delphi's Montney production in the
month of June 2013 represented over 65 percent of June's total operating
cash flow for the Company.
-- Increased the average corporate natural gas liquid ("NGL") and field
condensate yield for the three months ended June 30, 2013 by 54 percent
from the comparative quarter in 2012 to 54 barrels per million cubic
feet ("bbls/mmcf"). Total crude oil, field condensate and natural gas
liquids volumes represented 28 percent of total corporate volumes and
accounted for 51 percent of the Company's total revenue in the second
quarter.
-- Successfully completed, utilizing a 30 stage slickwater hybrid frac
stimulation, and brought on-stream a third extended lateral Montney well
at East Bigstone late in the quarter.
-- Renewed the Company's syndicated revolving credit facility with its
lenders for an additional year resulting in a $15.0 million increase to
the facility to $140.0 million as a result of the growth in proved
developed producing reserves attributable to the continued success of
the Company's Montney development at East Bigstone.
-- Executed a drilling participation agreement whereby a third party funds
$2.5 million per well on four Montney wells for a total capital
contribution of $10.0 million towards the 2013 capital program in
exchange for a gross overriding royalty on the four wells.
-- Entered into a commitment letter for subordinated debt of $20 million
which was finalized subsequent to the end of the second quarter to
ensure the funding capacity to complete the 2013 capital program.
(i) Operating cash flow is defined as revenue less royalties, operating costs
and transportation expense.
Operational Highlights
Three Months Ended June 30 Six Months Ended June 30
% %
Production 2013 2012 Change 2013 2012 Change
----------------------------------------------------------------------------
Crude oil (bbls/d) 311 770 (60) 315 908 (65)
Field condensate
(bbls/d) 677 313 116 548 215 155
Natural gas liquids
(bbls/d) 1,115 1,040 7 1,152 1,142 1
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Total crude oil and
natural gas liquids 2,103 2,123 (1) 2,015 2,265 (11)
Natural gas (mcf/d) 33,189 39,080 (15) 33,380 39,295 (15)
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Total (boe/d) 7,635 8,636 (12) 7,578 8,814 (14)
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Financial Highlights ($ thousands except per unit amounts)
Three Months Ended June 30 Six Months Ended June 30
% %
2013 2012 Change 2013 2012 Change
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Petroleum and
natural gas sales 23,541 21,875 8 45,304 46,018 (2)
Per boe 33.67 29.89 13 32.86 29.83 10
Funds from
operations 8,408 7,181 17 17,791 18,155 (2)
Per boe 12.11 9.13 33 12.97 11.31 15
Per share - Basic 0.05 0.05 - 0.11 0.14 (21)
Per share -
Diluted 0.05 0.05 - 0.11 0.14 (21)
Net earnings (loss) 3,209 (3,531) - 3,265 (19,446) -
Per boe 4.61 (4.50) - 2.38 (12.13) -
Per share - Basic 0.02 (0.03) - 0.02 (0.15) -
Per share -
Diluted 0.02 (0.03) - 0.02 (0.15) -
Capital invested 7,361 11,391 (35) 31,317 64,674 (52)
Disposition of
properties (105) 11 (1,055) (3,277) (11,574) (72)
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Net capital invested 7,256 11,402 (36) 28,040 53,100 (47)
Acquisition of
undeveloped
properties - - - 13,664 - -
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Total capital
invested 7,256 11,402 (36) 41,704 53,100 (21)
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June 30, 2013 December 31, 2012 % Change
----------------------------------------------------------------------------
Debt plus working capital
deficiency (1) 118,645 92,815 28
Total assets 435,018 401,649 8
Shares outstanding (000's)
Basic 153,100 153,049 -
Diluted 166,322 162,104 3
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(1) excludes the fair value of financial instruments and includes the long-term
portion of the restricted share units.
MESSAGE TO SHAREHOLDERS
The Company continues to focus on its liquids-rich Montney development at
Bigstone where the Company holds over 100 sections of land and where new
completion techniques have significantly enhanced the economics of the project.
Production volumes for the three months ended June 30, 2013 averaged 7,635
boe/d, a decrease over the comparative period, however, a slight increase from
the first quarter of 2013. Production volumes in the second quarter of 2013 were
impacted by 1,495 boe/d due to scheduled facility outages in all core and
several other areas, but most significantly at East Bigstone where the Company's
higher netback revenue stream from the Montney formation was shut-in for 30 days
during the quarter. All production was back on-stream early in July.
The Company's production portfolio for the second quarter of 2013 was weighted
four percent to crude oil, nine percent to field condensate, 15 percent to
natural gas liquids and 72 percent to natural gas. This compares to a production
portfolio for the first quarter of 2013 weighted four percent to crude oil, six
percent to field condensate, 16 percent to natural gas liquids and 74 percent to
natural gas.
Delphi completed, tied-in and brought on production one additional well in the
second quarter of 2013. The well was successfully completed utilizing a
slickwater hybrid fracture stimulation. The well is outperforming expectations
with initial declines significantly less than the original Montney wells in the
area. This production performance significantly improves operating netbacks and
reduces the expected time to payout the wells.
Capital expenditures during the second quarter were $7.3 million, which
primarily included the completion and tie-in operations of the third Montney
well of the winter capital program, representing 64 percent of expenditures in
the quarter. Net capital expenditures for the six months ended June 30, 2013
were $41.7 million and include the strategic acquisition of undeveloped
properties for additional Montney rights in the Bigstone area for $13.7 million.
Funds from operations in the second quarter of 2013 were $8.4 million or $0.05
per basic and diluted share, compared to $7.2 million or $0.05 per basic and
diluted share in the comparative quarter of 2012. The increase in funds from
operations is primarily due to an increase in field condensate production and
natural gas prices and lower royalties, partially offset by a decrease in crude
oil production and natural gas liquids prices and higher transportation costs.
The liquids-rich nature of new production in the first half of 2013 has resulted
in an improvement in both operating netbacks and cash netbacks relative to the
fourth quarter of 2012. Operating netbacks improved to $17.10 per boe, a 13
percent increase and cash netbacks increased 28 percent to $12.11 per boe,
resulting in a 33 percent improvement in funds from operations to $8.4 million
from $6.3 million in the fourth quarter of 2012. In the month of June 2013, the
operating netback on the Montney production was $26.89 per boe. The Company's
netback for Montney has been negatively impacted by adjustments for the quality
of product delivered and transportation costs associated with certain marketing
arrangements. Remedial action is being undertaken to reduce the impact of these
issues towards improving the netback of this growing portion of Delphi's
production.
Delphi has entered into a drilling participation agreement on four Montney wells
in East Bigstone. The participant will contribute $2.5 million per well for a
total of $10.0 million towards the Company's 2013 Montney capital program. In
exchange for the capital contribution, the participant will receive a gross
overriding royalty ("GOR") on the Company's working interest revenue on the
well. The GOR will reduce over time as certain milestones are achieved. The
Company has expressed interest in a similar arrangement with the participant for
the Company's 2014 Montney capital program at East Bigstone.
The Company has also entered into a financing agreement for $20.0 million with a
Canadian energy and resource lender. The funding will be available in two
tranches; $12.0 million which has been drawn and $8.0 million available for draw
down until September 16, 2013. The debt will be secured by the Company's assets
and be subordinate to the Company's senior credit facility, mature on December
31, 2014 and is extendible at the option of Delphi for an additional six months.
The subordinated debt will have an annual coupon rate of 8.5 percent with
interest payable monthly.
As at June 30, 2013, the Company had net debt of $118.6 million on total credit
facilities of $140.0 million. On an annualized second quarter funds from
operations basis, Delphi's net debt to funds from operations ratio was 3.5:1.
Net debt includes bank debt plus working capital deficiency excluding the fair
value of financial instruments plus the long term portion of the restricted
share units liability.
Operations
Bigstone Montney Program
Delphi has now successfully drilled, completed and brought on production six
Montney horizontal wells at East Bigstone. The last three wells were stimulated
utilizing slickwater hybrid frac techniques rather than the smaller conventional
gelled oil frac designs used on the first three wells. The first well completed
with the new frac technique, 15-10-60-23W5, was drilled across one section and
stimulated with 20 stages to limit operational risk. After a successful
completion at 15-10, the Company drilled its next well at 10-27-60-23W5 across
1.5 sections and installed a 30 stage liner. After a successful completion on
the second well, Delphi drilled the third well of the program at 16-23-60-23W5M
across two full sections and has successfully completed it with 30 slickwater
hybrid fracs.
The 16-23-60-23W5 well was brought on production on June 18, 2013 through the
Company's Montney compression and dehy facility and over the first 47 days of
production, the well continues to perform similar to the 10-27 well.
With the new completion techniques accomplishing the Company's goal of
significantly reducing declines, the gap between the production rates of these
two new wells compared to the first three wells continues to widen. Both wells
continue to exceed the current type curve with 10-27 still outperforming the
first three wells (after 125 days of production) by approximately 2.5 times. In
addition, the new wells continue to produce at higher field condensate to gas
ratios compared to the first three wells.
The evolution of Delphi's drilling and completion plan to an extended-reach
horizontal wellbore drilled across two sections and stimulated using a 30-stage
frac design has also significantly enhanced the economics of the project.
To view a graph associated with this release, please visit the following link:
http://media3.marketwire.com/docs/814dee_image1.jpg
Improved production performance, higher condensate rates, continued operational
improvements have all contributed to the step-change increase in the net present
value and rate of return generated by these wells. In addition, the time to
payout has been significantly reduced, creating faster capital recycle times and
increased rates of growth. The application of extended-reach horizontal drilling
across two sections reduces overall capital requirements and generates
significantly more royalty credits. The number of days to drill to a total depth
of almost 6,000 metres across 2 sections has decreased from 48 days to 33 days.
On average the cost to drill across the second section has decreased to
approximately $750,000, compared to drilling a new well across the second
section at an estimated cost of $4.5 million. In addition, incremental royalty
credits of approximately $4.5 million are earned by drilling across the second
section.
As a result of the new completion technique employed, the three new wells are
exhibiting shallower initial declines than the Company's first three wells
drilled in East Bigstone (which were completed with gelled oil fracs). The 10-27
and 16-23 wells stimulated with 30 stages are exhibiting similar early time
production performance characteristics, exceeding the Company's type curve
assumptions. The 10-27 and 16-23 wells are proving to rank in the top decile of
liquids-rich wells drilled in the entire deep basin over the past two years.
Initial Production Rate Well Performance (1)
Sales at Day
HZ Length Number of IP30 Sales IP120 Sales 120
Well (m) Fracs (boe/d) (boe/d) (boe/d)
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Conventional Oil
Fracs
16-30 2,760 20 1,099 688 361
05-02 3,005 20 969 584 299
14-23 2,238 20 1,570 795 373
Slickwater Fracs
15-10 1,424 20 991 768 516
10-27 2,407 30 1,815 1,545 1,166
16-23 2,809 30 1,781 n/a n/a
(1) Calculated on operating days, excluding non-producing days
The adjacent cumulative production plot comparing the new wells to the first
three wells continues to demonstrate a significant step change in performance.
The 10-27 well has produced approximately 189,000 boe's in its first 125 days of
production, consisting of 0.67 bcf sales gas, 53,000 bbls of condensate and
24,000 bbls of plant NGL's, generating approximately $9.0 million in revenue.
With continued strong production rates and total liquids representing over 40
percent of the total production to date, the time to payout of the 10-27 and
16-23 wells is expected to be less than one year.
To view a graph associated with this release, please visit the following link:
http://media3.marketwire.com/docs/814dee_image2.jpg
Delphi plans to drill an additional three wells in East Bigstone prior to the
end of 2013, with two of the three wells scheduled to be completed and on
production by year-end. Wet weather has delayed the rig move to the first
location, but drilling is expected to commence within the next two weeks. The
capital program is expected to be a continuous one rig drilling program with up
to eight wells planned for 2014, supplemented with the addition of a second rig
to the program in the latter part of 2014.
The Company has commenced drilling operations on the South Bigstone strat test
and horizontal Montney well as part of the previously announced industry
farm-in, whereby Delphi will earn a 75 percent working interest in 32.5 sections
of Montney lands. The well with a surface located at 5-8-59-22W5M will be
completed, equipped and pipeline connected in 2014 as part of the planned 15
kilometre pipeline expansion from the 7-11 Delphi owned facility to the 5-8
wellsite.
Market Guidance
The Company expects net capital spending for 2013 to be between $78.0 and $82.0
million with production for the year to average approximately 8,000 to 8,400
boe/d. Total debt at year end is expected to be between $130.0 and $135.0
million. Delphi expects AECO natural gas prices to average approximately Cdn.
$3.00 per mcf and Edmonton light oil prices to average approximately Cdn. $94.00
per barrel resulting in cash flow for 2013 of approximately $38.0 to $41.0
million. For the remainder of 2013, the Company has approximately 59 percent of
its natural gas production hedged at an average price of $3.59 per mcf and
approximately 36 percent of its crude oil and condensate hedged at a floor price
of Cdn $94.00 per barrel.
For 2014, Delphi is estimating production to average 9,500 to 10,000 boe/d on a
capital program of $80.0 to $90.0 million. More detailed guidance will be
provided later in 2013 upon completion of the Company's detailed budget process
to incorporate the results of the remaining capital program of 2013.
Outlook
Delphi has successfully grown the Bigstone Montney land base from four sections
to 108 sections in a relatively short period of time. The Company continues to
pursue additional consolidation opportunities in the Bigstone/Fir area
leveraging off of its control of critical infrastructure and advanced
understanding of the Montney play in the area.
The refined drilling and completion techniques utilized on our recent wells have
delivered a step change in the economics of the Montney play in the area which
is positioning the Company for long term self-funded growth. The Company now has
a current project inventory that will provide economic growth beyond a 10-year
horizon.
As previously communicated, Delphi's 5-year growth plan contemplates production
growth to 20,000 boe/d by 2017, with targeted annual production per share growth
of 25 percent and annual cash flow per share growth of 45 percent. Capital
spending over the next five years to achieve that result under the plan is
projected to be $560 million funded 90 percent from cash flow to drill 50
Montney horizontal wells and fund the expansion of Delphi's 100 percent owned
facility.
The production profile of the new wells, with lower initial declines and greater
condensate yields resulting in materially greater present value of the reserves
and significantly reduced payout times, is expected to have a favourable impact
to the Company's cash generating capability and underlying asset value.
Delphi continues to explore additional options to further accelerate its Montney
drilling program, through additional non-core asset dispositions and joint
venture relationships and alternate non-dilutive financing structures.
On behalf of the Board of Directors and all the employees of Delphi, we would
like to thank our shareholders for their continued support.
CONFERENCE CALL AND WEBCAST
A conference call and webcast to review Q2, 2013 results is scheduled for 9:00
a.m. Mountain Time (11:00 a.m. Eastern Time) on Thursday, August 15, 2013. The
conference call number is 1-877-240-9772 or 416-340-8530. A brief presentation
by David Reid, President and CEO and Brian Kohlhammer, Senior VP Finance & CFO,
will be followed by a question and answer period. The conference call will also
be broadcast live on the internet and may be accessed through the Delphi Energy
website at www.delphienergy.ca
A taped rebroadcast will be available until 6:00 p.m. Mountain Time, Thursday,
August 22, 2013. To access the rebroadcast, dial 1-800-408-3053 or 905-694-9451.
The passcode is 5249625. It will also be available on Delphi's website. Delphi's
second quarter 2013 financial statements and management's discussion and
analysis are available on Delphi's website at www.delphienergy.ca and SEDAR at
www.sedar.com.
Delphi Energy is a Calgary-based company that explores, develops and produces
oil and natural gas in Western Canada. The Company is managed by a proven
technical team. Delphi trades on the Toronto Stock Exchange under the symbol
DEE.
Forward-Looking Statements. This management discussion and analysis contains
forward-looking statements and forward-looking information within the meaning of
applicable securities laws. The use of any of the words "expect", "anticipate",
"continue", "estimate", may", "will", "should", believe", "intends", "forecast",
"plans", "guidance" and similar expressions are intended to identify
forward-looking statements or information.
More particularly and without limitation, this management discussion and
analysis contains forward looking statements and information relating to the
Company's risk management program, petroleum and natural gas production, future
funds from operations, capital programs, commodity prices, costs and debt
levels. The forward-looking statements and information are based on certain key
expectations and assumptions made by Delphi, including expectations and
assumptions relating to prevailing commodity prices and exchange rates,
applicable royalty rates and tax laws, future well production rates, the
performance of existing wells, the success of drilling new wells, the capital
availability to undertake planned activities and the availability and cost of
labour and services.
Although the Company believes that the expectations reflected in such
forward-looking statements and information are reasonable, it can give no
assurance that such expectations will prove to be correct. Since forward-looking
statements and information address future events and conditions, by their very
nature they involve inherent risks and uncertainties. Actual results may differ
materially from those currently anticipated due to a number of factors and
risks. These include, but are not limited to, the risks associated with the oil
and gas industry in general such as operational risks in development,
exploration and production, delays or changes in plans with respect to
exploration or development projects or capital expenditures, the uncertainty of
estimates and projections relating to production rates, costs and expenses,
commodity price and exchange rate fluctuations, marketing and transportation,
environmental risks, competition, the ability to access sufficient capital from
internal and external sources and changes in tax, royalty and environmental
legislation. Additional information on these and other factors that could affect
the Company's operations or financial results are included in reports on file
with the applicable securities regulatory authorities and may be accessed
through the SEDAR website (www.sedar.com). The forward-looking statements and
information contained in this press release are made as of the date hereof for
the purpose of providing the readers with the Company's expectations for the
coming year. The forward-looking statements and information may not be
appropriate for other purposes. Delphi undertakes no obligation to update
publicly or revise any forward-looking statements or information, whether as a
result of new information, future events or otherwise, unless so required by
applicable securities laws.
Basis of Presentation. For the purpose of reporting production information,
reserves and calculating unit prices and costs, natural gas volumes have been
converted to a barrel of oil equivalent (boe) using six thousand cubic feet
equal to one barrel. A boe conversion ratio of 6:1 is based upon an energy
equivalency conversion method primarily applicable at the burner tip and does
not represent a value equivalency at the wellhead. This conversion conforms with
the Canadian Securities Administrators' National Instrument 51-101 when boes are
disclosed. Boes may be misleading, particularly if used in isolation.
As per CSA Staff Notice 51-327 initial production test results should be
considered preliminary data and such data is not necessarily indicative of
long-term performance or of ultimate recovery.
Non-IFRS Measures. The release contains the terms "funds from operations",
"funds from operations per share", "net debt", "operating netbacks" "cash
netbacks" and "netbacks" which are not recognized measures under IFRS. The
Company uses these measures to help evaluate its performance. Management
considers netbacks an important measure as it demonstrates its profitability
relative to current commodity prices. Management uses funds from operations to
analyze performance and considers it a key measure as it demonstrates the
Company's ability to generate the cash necessary to fund future capital
investments and to repay debt. Funds from operations is a non-IFRS measure and
has been defined by the Company as cash flow from operating activities before
accretion on long-term debt, decommissioning expenditures and changes in
non-cash working capital. The Company also presents funds from operations per
share whereby amounts per share are calculated using weighted average shares
outstanding consistent with the calculation of earnings per share. Delphi's
determination of funds from operations may not be comparable to that reported by
other companies nor should it be viewed as an alternative to cash flow from
operating activities, net earnings or other measures of financial performance
calculated in accordance with IFRS. The Company has defined net debt as the sum
of long term debt plus/minus working capital excluding the current portion of
the fair value of financial instruments plus the long term portion of the
restricted share units ("RSU"). Net debt is used by management to monitor
remaining availability under its credit facilities. Operating netbacks have been
defined as revenue less royalties, transportation and operating costs. Cash
netbacks have been defined as operating netbacks less interest and general and
administrative costs. Netbacks are generally discussed and presented on a per
boe basis.
FOR FURTHER INFORMATION PLEASE CONTACT:
Delphi Energy Corp.
David J. Reid
President & CEO
(403) 265-6171
Delphi Energy Corp.
Brian P. Kohlhammer
Senior V.P. Finance & CFO
(403) 265-6171
Delphi Energy Corp.
300, 500 - 4 Avenue S.W.
Calgary, Alberta
T2P 2V6
(403) 265-6207 (FAX)
info@delphienergy.ca
www.delphienergy.ca
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