(All dollar figures are expressed in
United States Dollars)
CALGARY, May 1, 2017 /CNW/ - Madalena Energy Inc.
(the "Company" or "Madalena") (TSXV: MVN and OTCQX:
MDLNF) announces its financial and operating results for the three
months and year ended December 31,
2016 and the Company's 2016 year end reserves. The
Company also announces that its audited consolidated financial
statements for the year ended December 31,
2016, the related management's discussion and analysis (the
"MD&A") and the Annual Information Form (the "AIF") for the
year ended December 31, 2016 will be
available on the System for Electronic Document Analysis and
Retrieval ("Sedar") under the Company's profile at www.sedar.com
and on the Company's website at www.madalenaenergy.com.
Recent Highlights in 2017
- Madalena closed the previously announced Coirón Amargo Sur Este ("CASE") transaction in
January 2017, providing the Company
with cash payments of $10 million,
$3 million of which was received in
December 2016 and the balance in
January 2017;
- The 2017 work program at CASE has commenced. A Vaca Muerta
horizontal trajectory of approximately 1,000 meters has been
drilled and a liner has been run at CAS.x-15(r)(h);
- Madalena repaid its $1.6 million
Argentine debt facility in full in February
2017;
- Argentine oil prices are expected to converge with
international Brent pricing over the coming months;
- Madalena sold 1.6 million free-trading shares of Point Loma
Resources Ltd. ("Point Loma") in January
2017 for net proceeds of $0.5
million; and
- The Company sold 4.7 million escrowed common shares in Point
Loma in April 2017 for gross cash
proceeds of $0.8 million. These
common shares will be released from escrow in 20% increments in six
month intervals commencing July
2017.
Outlook
With the assistance of Evercore Group Inc.,
the Company is actively pursuing strategic alternatives with a view
to enhance liquidity and meet ongoing capital
commitments. There can be no guarantee that this review will
result in a transaction(s), or if a transaction(s) is undertaken,
as to its terms or timing. At the same time, the Board of Directors
is seeking to identify the appropriate CEO candidate to lead the
Company.
Highlights in 2016
The Company entered 2016 with
liquidity restraints due to limited working capital. Accordingly,
the focus for 2016 was directed towards accessing additional
funding and opportunities to monetize assets. Changes in management
and the Board were made in March 2016
with Mr. Steven Sharpe, Chairman of
the Board appointed as Interim President and Chief Executive
Officer and Mr. Eric Mark appointed
to the Board as an independent director. Both have significant
experience in corporate restructurings, capital and debt
markets.
Measures were taken to reduce expenses and conserve cash. Office
and field personnel have been reduced in both countries, office
space has been downsized in Canada
and other costs saving measures were implemented.
2016 Activity
- Review of Strategic Alternatives
In April 2016, Madalena retained Evercore Group LLC
("Evercore") as its exclusive financial advisor in connection with
identifying and securing a joint venture partner for the 90%
working interest Curamhuele block in Argentina. In late June
2016, Evercore had its mandate broadened to encompass a
complete review of strategic alternatives.
- Coirón Amargo
On July 11,
2016, the Company entered into definitive agreements whereby
Coirón Amargo Sur (35% working
interest) was divided into two evaluation lots – CASE and Coirón
Amargo Sur Oeste ("CASO"). Madalena sold its
interest in CASO in return for an additional 55% working interest
at CASE, thereby increasing its working interest to 90% and
becoming operator.
On December 7, 2016, the Company
entered into agreements with Pan American Energy LLC, Sucursal
Argentina ("PAE") relating to its 90% working interest at
CASE. Pursuant to these agreements, Madalena received
cash payments of an aggregate of $10
million on closing and sold a 55% working interest and
operatorship to PAE, thereby retaining a 35% non-operated working
interest in CASE. A 2017 work program ("Work Program"), comprised
of two well re-entries, will be undertaken by PAE as the new
operator of CASE. Madalena will receive $5.6
million in carried capital costs through this Work
Program. Concurrently, PAE agreed, subject to certain
conditions, to provide Madalena with a loan of up to $40 million, on a limited recourse basis, to be
drawn-down as required to fund CASE capital expenditures. This
limited recourse loan will bear interest at 7% per annum and is
repayable in five years from the net revenue generated from the
CASE capital expenditure program. This transaction closed on
January 10, 2017.
- Curamhuele
The Yapai.x-1001 well was successfully
completed in Q1-2016 with four hydraulic fractures, the upper three
intervals being within the Lower Agrio shale and the lowest
interval containing both the Lower Agrio shale and Mulichinco tight
sand formations. Initial test results were sufficiently encouraging
for the Company to request renewal of the Curamhuele evaluation
concession for four years with a total of $8.2 million of work commitments to be incurred
by March 9, 2019.
- Sale of Canadian Assets
On June 28, 2016, Madalena and Point Loma completed
a transaction pursuant to which, Point Loma acquired Madalena's
Canadian petroleum and natural gas assets in exchange for 6.2
million escrowed common shares of Point Loma, with a value of
$1.9 million and a five-year
$2.4 million secured convertible
debenture ("Point Loma Convertible Debenture"), bearing interest at
3% per annum, payable at the end of the debenture term.
In December 2016, the Company sold
the Point Loma Convertible Debenture for net cash proceeds of
$0.5 million.
- Madalena Convertible Debenture Issuance
On
July 13, 2016, the Company closed a
private placement of CAD $1.8 million
12% secured convertible debentures, with a June 30, 2019 maturity date. The debentures
are convertible into common shares of the Company at a conversion
price of CAD $0.25 per common share
any time after January 13,
2017. Interest on the debentures is payable semi-annually, in
arrears, on December 31 and
June 30. Under certain conditions,
the Company may repay the outstanding indebtedness. Such
repayments involve call premiums that reduce as the date to
maturity approaches.
SUMMARY FINANCIAL AND OPERATIONAL RESULTS
|
Three months
ended
December
31
|
Year
ended
December
31
|
|
2016
|
2015
|
2016
|
2015
|
Financial –
($000s, except per share amounts)
|
|
|
|
|
Oil and gas
revenue
|
10,543
|
17,902
|
50,152
|
81,725
|
Funds flow from (used
in) continuing operations(1)
|
(325)
|
4,007
|
5,494
|
29,377
|
Per share - basic
& diluted(1)
|
(0.00)
|
0.01
|
0.01
|
0.05
|
Net income (loss)
from continuing operations
|
(9,402)
|
(12,510)
|
(32,100)
|
(6,164)
|
Per share - basic
& diluted(1)
|
(0.02)
|
(0.02)
|
(0.06)
|
(0.01)
|
Capital
expenditures
|
331
|
12,679
|
6,339
|
40,936
|
Working capital
(deficiency)
|
(4,413)
|
462
|
(4,413)
|
462
|
Common shares
outstanding - 000s
|
543,780
|
542,083
|
543,780
|
542,083
|
|
|
|
|
|
Operating
|
|
|
|
|
Average Daily
Sales
|
|
|
|
|
Crude oil and Ngls –
Bbls/d
|
1,947
|
2,549
|
2,072
|
2,749
|
Natural gas –
Mcf/d
|
2,303
|
3,363
|
2,569
|
3,887
|
Total - Boe
/d
|
2,330
|
3,110
|
2,500
|
3,397
|
Average Sales
Prices
|
|
|
|
|
Crude oil and Ngls -
$/Bbl
|
53.59
|
70.65
|
60.09
|
74.60
|
Natural gas -
$/Mcf
|
4.47
|
4.31
|
4.87
|
4.84
|
Total -
$/Boe
|
49.18
|
62.58
|
54.81
|
65.91
|
Operating
Netbacks(2) - $/Boe
|
11.21
|
23.08
|
20.28
|
28.40
|
(1)
|
This table
contains the term "funds flow from (used in) continuing
operations", which is a non-GAAP measure and should not be
considered an alternative to, or more meaningful than "cash flow
from operating activities " as determined in accordance with
International Financial Reporting Standards ("IFRS") as an
indicator of the Company's performance. Funds flow from (used in)
operations and funds flow from (used in) operations per share
(basic and diluted) do not have any standardized meanings
prescribed by IFRS and may not be comparable with the calculation
of similar measures for other entities. Management uses funds flow
from (used in) continuing operations to analyze operating
performance and considers funds flow from (used in) continuing
operations to be a key measure as it demonstrates the Company's
ability to generate the cash necessary to fund future capital
investment. The reconciliation between funds flow from (used in)
continuing operations and cash flow from operating activities can
be found in the MD&A. Funds flow from (used in) continuing
operations per share is calculated using the basic and diluted
weighted average number of shares for the period, consistent with
the calculations of earnings (loss) per share.
|
(2)
|
Operating netback
is a non-GAAP measure calculated as the average per boe of the
Company's oil and gas sales, less royalties and operating
costs.
|
For the year ended December 31,
2016, the Company reported a net loss from continuing
operations of $32.1 million, had a
working capital deficit of approximately $4.4 million and significant future capital
commitments to develop its properties. It is currently anticipated
that forecasted cash flow from operating activities will not be
sufficient to resolve the current working capital deficit and fund
the anticipated capital commitments through 2017. As a result, for
the year ended December 31, 2016, the
Company continued to include a note of going concern uncertainty in
the consolidated financial statements.
Summary of 2016 Reserves
The reserve report ("GLJ Report") was prepared in accordance
with the definitions, standards and procedures contained in NI
51-101 and the COGE Handbook by GLJ Petroleum Consultants.
The GLJ Report contains several cautionary statements that are
required by NI 51-101 and the reserves information presented is
subject to the contents of the full reports.
Year End 2016 Reserves Highlights:
- Argentina Proved plus Probable ("2P") reserves increased 8%
from 9,134 MBoe to 9,899 MBoe, which include 2.3 Mboe (2015 – 0.9
Mboe) associated with the Company's undeveloped unconventional
assets in the Vaca Muerta shale;
- Argentina 2P reserve
replacement ratio was 108%; and
- 2P BTax NPV 10%, is $121.9
million or $0.22/share,
including $29.4 million (2015 -
$14.6 million) associated with the
Company's undeveloped unconventional assets in the Vaca Muerta
shale.
The following tables provide a summary of the Company's oil and
gas working interest reserves before royalties and net present
value of future net revenue at December 31,
2016 using forecast prices and costs.
Reserves Summary
|
Light &
Medium
Oil &
NGL
|
Tight
Oil
|
Conventional
Gas
|
Shale
Gas
|
BOE
|
|
(Mbbl)
|
(Mbbl)
|
(MMcf)
|
(MMcf)
|
(MBOE)
|
Proved Developed
Producing
|
2,319
|
-
|
2,657
|
-
|
2,762
|
Proved Developed
Non-Producing
|
384
|
24
|
273
|
20
|
458
|
Proved
Undeveloped
|
1,275
|
904
|
827
|
741
|
2,440
|
Total
Proved
|
3,978
|
928
|
3,757
|
761
|
5,659
|
Total
Probable
|
2,574
|
1,066
|
2,727
|
874
|
4,240
|
Total Proved +
Probable
|
6,552
|
1,994
|
6,484
|
1,635
|
9,899
|
Summary of Net Present Values of Future Net
Revenue(1)
Forecasted Prices and
Costs(2)
Before Income Taxes, Discounted at (%/year)
|
As at December 31,
2016
|
|
0%
|
10%
|
15%
|
|
$000s
|
$000s
|
$000s
|
|
|
|
|
|
|
|
|
Proved Developed
Producing
|
36,908
|
35,731
|
33,534
|
Proved Developed
Non-Producing
|
13,988
|
9,836
|
8,401
|
Total Proved
Developed
|
50,896
|
45,567
|
41,935
|
Proved
Undeveloped
|
40,173
|
14,293
|
7,149
|
Total
Proved
|
91,069
|
59,861
|
49,084
|
Probable
|
121,327
|
62,068
|
46,753
|
Total Proved +
Probable
|
212,397
|
121,929
|
95,837
|
|
|
|
|
|
|
|
|
|
|
|
|
1)
|
It should not be
assumed that the present value of estimated future net cash flows
shown above are representative of the fair market value of the
reserves.
|
2)
|
Based on GLJ's
forecasted prices for Argentina as of January 1,
2017.
|
3)
|
Tables may not add
due to rounding.
|
As at December 31, 2016, Madalena
held a 90% working interest ("WI") in CASE, which includes all of
the tight oil and shale gas reserves disclosed above. In a news
release dated January 11, 2017, the
Company announced the closing of the sale of 55% of its working
interest at CASE. As a result, the Company now holds a 35% WI in
the CASE evaluation block.
The impact on the reserves and the net present values are as
follows:
|
Total
reserves
|
NPV of Future Net
Revenue
Before Income
Taxes
Discounted at (10%/year)
|
|
|
December 31
2016
Mboe
|
January 11
2017
MBoe
|
December
31
2016
$000s
|
January
11
2017
$000s
|
Change
$000s
|
Total
Proved
|
5,659
|
5,013
|
59,861
|
58,426
|
(1,435)
|
Probable
|
4,240
|
3,500
|
62,068
|
51,430
|
(10,638)
|
Total Proved &
Probable
|
9,899
|
8,513
|
121,929
|
109,856
|
(12,073)
|
As a result of the sale of 55% of CASE, proved plus probable
reserves associated with the Company's undeveloped unconventional
reserves in the Vaca Muerta were reduced by 1.4 million boe with an
associated reduction in 10% NPV before tax of $12.1 million. Total consideration received by
the Company was $15.6 million
($10 million of cash and $5.6 million in carried costs).
Health, Safety, Environment ("HSE") and Corporate Social
Responsibility ("CSR")
Madalena has a comprehensive HSE
management plan for its employees and all contractors. In
2016 the Company continued to see major improvements in its key
performance benchmarking indicators. For the 392,000+ person
hours worked, there were no lost time incidents at any of the
Company's facilities or operations. Also, in 2016 the Company
recorded no reportable spills.
The Company takes pride in its CSR initiatives in
Argentina. The Company is actively involved in supporting the
communities in which it operates, through a number of initiatives
including local employment programs, access to health care and
improvement in the quality of services, education, water quality
and technical assistance on sustainable agricultural
production. In 2016 the Company fully implemented its
community relations programs in both districts that it
operates.
About Madalena Energy
Madalena is an independent,
Canadian headquartered, Argentine focused upstream oil and gas
company with operations in four provinces of Argentina where it is primarily focused on the
delineation of unconventional oil and gas resources. The Company is
implementing horizontal drilling and completions technology to
develop both its conventional and resource plays.
Madalena trades on the TSX Venture Exchange under the symbol MVN
and on the OTCQX under the symbol MDLNF.
Reader Advisories
Forward Looking Information
The information
in this news release contains certain forward-looking statements.
These statements relate to future events or our future performance,
in particular, but not limited to, with respect to the
characteristics of the properties held by the Company, production
levels, the strategic value and opportunities available to
Madalena, operational and financial plans, and opportunities and
the ability of Madalena to execute on such plans and opportunities
and the Company's ability to meet its commitments and continue as a
going concern or continue operating at all. All statements other
than statements of historical fact may be forward-looking
statements. Forward-looking statements are often, but not always,
identified by the use of words such as "seek", "anticipate",
"plan", "continue", "estimate", "approximate", "expect", "may",
"will", "project", "predict", "potential", "targeting", "intend",
"could", "might", "should", "believe", "would" and similar
expressions. These statements involve substantial known and unknown
risks and uncertainties, certain of which are beyond the Company's
control, including: the impact of general economic conditions;
industry conditions; changes in laws and regulations including the
adoption of new environmental laws and regulations and changes in
how they are interpreted and enforced; fluctuations in commodity
prices and foreign exchange and interest rates; stock market
volatility and market valuations; volatility in market prices for
oil and natural gas; liabilities inherent in oil and natural gas
operations; uncertainties associated with estimating oil and
natural gas reserves; competition for, among other things, capital,
acquisitions, of reserves, undeveloped lands and skilled personnel;
incorrect assessments of the value of acquisitions; changes in
income tax laws or changes in tax laws and incentive programs
relating to the oil and gas industry; geological, technical,
drilling and processing problems and other difficulties in
producing petroleum reserves; and obtaining required approvals of
regulatory authorities. The Company's actual results, performance
or achievement could differ materially from those expressed in, or
implied by, such forward-looking statements and, accordingly, no
assurances can be given that any of the events anticipated by the
forward-looking statements will transpire or occur or, if any of
them do, what benefits the Company will derive from them. These
statements are subject to certain risks and uncertainties and may
be based on assumptions that could cause actual results to differ
materially from those anticipated or implied in the forward-looking
statements. The forward-looking statements in this news release are
expressly qualified in their entirety by this cautionary statement.
Except as required by law, the Company undertakes no obligation to
publicly update or revise any forward-looking statements. Investors
are encouraged to review and consider the additional risk factors
set forth in the Company's Annual Information Form, which is
available on SEDAR at www.sedar.com.
Meaning of Boe
The term "boe" or barrels of
oil equivalent may be misleading, particularly if used in
isolation. A boe conversion ratio of six thousand cubic feet of
natural gas to one barrel of oil equivalent (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. Additionally, given that the value ratio based on the
current price of crude oil, as compared to natural gas, is
significantly different from the energy equivalency of 6:1;
utilizing a conversion ratio of 6:1 may be misleading as an
indication of value.
Analogous Information
Certain information in
this news release may constitute "analogous information" as defined
in National Instrument 51-101 - Standards of Disclosure for Oil and
Gas Activities ("NI 51-101"), including, but not limited to,
information relating to areas, assets, wells and/or operations that
are in geographical proximity to or believed to be on-trend with
lands held by Madalena. Such information has been obtained from
public sources, government sources, regulatory agencies or other
industry participants. Management of Madalena believes the
information may be relevant to help define the reservoir
characteristics within lands on which Madalena holds an interest
and such information has been presented to help demonstrate the
basis for Madalena's business plans and strategies. However,
management cannot confirm whether such analogous information has
been prepared in accordance with NI 51-101 and the Canadian Oil and
Gas Evaluation Handbook and Madalena is unable to confirm that the
analogous information was prepared by a qualified reserves
evaluator or auditor. Madalena has no way of verifying the accuracy
of such information. There is no certainty that the results of the
analogous information or inferred thereby will be achieved by
Madalena and such information should not be construed as an
estimate of future production levels or the actual characteristics
and quality Madalena's assets. Such information is also not an
estimate of the reserves or resources attributable to lands held or
to be held by Madalena and there is no certainty that such
information will prove to be analogous in the future. The reader is
cautioned that the data relied upon by Madalena may be in error
and/or may not be analogous to such lands to be held by
Madalena.
Notes to Disclosure of Reserves
Volumes
of reserves have been presented based on a company interest
basis which includes Madalena's royalty interests without deducting
royalties payable by the Company. Certain volumes are
arithmetic sums of multiple estimates of Contingent and Prospective
Resources, which statistical principles indicate may be misleading
as to volumes that may actually be recovered. Readers should give
attention to the estimates of individual classes of resources and
appreciate the differing probabilities of recovery associated with
each class as explained herein. The estimates of reserves and
resources for individual properties may not reflect the same
confidence level as estimates of reserves and resources for all
properties, due to the effects of aggregation.
Neither the TSX Venture Exchange nor its Regulation Service
Provider (as that term is defined in the policies of the TSX
Venture Exchange) accepts responsibility for the adequacy or
accuracy of this release.
SOURCE Madalena Energy Inc.