NuVista Energy Ltd. Announces Second Quarter 2012 Results
FOR: NUVISTA ENERGY LTD.
AUG 9, 2012 - 18:55 ET
CALGARY, ALBERTA--(Marketwire - Aug. 9, 2012) - NuVista Energy Ltd. ("NuVista") (TSX:NVA) is pleased to announce results for the three and six months ended June 30, 2012 and provide an update on its business plan. During the second quarter of 2012, we drilled and completed the last well of our five well Wapiti Montney pilot and delineation program. The results of this drilling program together with industry data continues to support our belief that the liquids-rich Alberta Montney is a top-quartile North American natural gas play with the potential to create significant shareholder value. Recently, we have seen improvements in natural gas prices, that when coupled with the significant condensate component of the Wapiti Montney gas, give us optimism as we begin to plan for 2013 and beyond. However, we will remain diligent in maintaining financial flexibility. We have been very selective with capital spending and during the last few months have advanced strategic funding alternatives. We look forward to announcing details in the next month and throughout the remainder of the year.
Highlights for and subsequent to the second quarter of 2012 are as follows, with details further below:
- Drilled, completed and tested the fifth of the five well Wapiti Montney drilling program with strong test results;
- Tied-in and began producing the second, third, and fourth wells of the Wapiti Montney drilling program;
- Realized funds from operations of $18.1 million for the three months ended June 30, 2012 compared to $41.0 million for the same period in 2011 and $24.1 million for the three months ended March 31, 2012;
- Achieved average production of 23,467 Boe/d compared to 25,488 Boe/d for the same period in 2011 and 25,250 Boe/d for the three months ended March 31, 2012. This Q2 production was achieved despite outages of 1,750 Boe/d;
- Drilled 2 (1.2 net) wells during the second quarter resulting in 1 (0.9 net) Wapiti Montney liquids-rich natural gas well and 1 (0.3 net) non-operated heavy oil well;
- Completed a capital program of $18.8 million compared to $15.0 million for the same period in 2011 with increased focus on the Montney; and
- Ended the second quarter with long-term debt (net of adjusted working capital) of $339.1 million compared to $337.1 million at March 31, 2012.
Production volumes for the second quarter of 2012 reflect third party scheduled facility outages of approximately 650 Boe/d and unscheduled outages of 800 Boe/d. During the quarter we also shut-in high operating cost natural gas production and deferred maintenance capital on some natural gas production, totaling approximately 300 Boe/d. Coupled with the last three wells in the Montney program which have been and are coming on stream during Q3 2012, this gives us confidence in our annual production guidance.
Lower production volumes and the decline in natural gas and liquids prices had a significant impact on funds from operations and managing operating and capital costs is a focus. Realized prices for natural gas during the quarter averaged $1.96/Mcf compared to $2.39/Mcf in the first quarter of 2012 and $3.92 in the second quarter of 2011. Second quarter realized oil prices increased 2% to $72.40/Bbl and realized liquids prices declined 20% compared to first quarter of 2012. In the second quarter of 2012, NuVista recorded an impairment of $106.1 million ($79.3 million after tax) on its natural gas weighted cash generating units due to the significant decline in natural gas prices resulting in a net loss of $85.4 million. For the remainder of 2012, managing debt levels and ensuring financial flexibility will continue to be the highest priority.
Wapiti Montney Ready to Proceed Into Early Development Stage
The company has now drilled and completed all of the wells in the five well delineation and pilot program which was committed to a year ago with results continuing to exceed expectations. The new Wapiti compressor station started up in early Q3 2012 and is working through the normal startup and commissioning process. The test results of the first four of the five well delineation and pilot program have been previously press released. The fifth well, in NuVista's North block of landholdings, has now been completed and tested. The well flowed gas with stable restricted rates for the final 20 hours of a 40 hour cleanup period, averaging 9.4 MMcf/d with surface flowing pressure of 2024 psig. Free condensate flow rates during the period averaged 40 Bbls/MMcf, or 370 Bbls/day. Based on test result comparisons, this is another well which is expected to exceed typecurve rate and liquids ratios. This well is being tied-in for start-up in Q3 2012. NuVista has now tested gas over 24 miles, and the trend continues to be validated by additional industry wells located to the northwest, with results now in the public domain. For details on NuVista typecurve assumptions and economics, please see the July corporate presentation on our website www.nuvistaenergy.com.
The second, third, and fourth wells of the program have all now been tied-in and started up with on-production durations ranging from a few days to over a month. We will continue to update the comparisons to typecurve in our corporate presentation as each full month of new data is achieved. The third well has been on production for a full month averaging 7.9 MMcf/d versus our typecurve of 5.5 MMcf/d with 330 Bbls/d of free condensate and total estimated shallow cut NGL and condensate liquids of 400+ Bbls/d.
We continue to be significantly encouraged by these very favorable results. NuVista has 172 gross sections of land at 91% average working interest, representing over 500 horizontal well locations to drill in the Upper Montney alone. NuVista's large, contiguous landbase and the built-in commodity diversity from natural gas, to NGL's and dominated by free condensate, positions this play amongst the top liquids-rich gas resources in North America. We have the encouraging signs of an increasing production typecurve, a reducing cost curve, and very high condensate yields, generating very favorable economics. We have conducted a detailed petrophysical assessment of all our Montney land and have been integrating recently acquired test and production data from NuVista and industry wells. We have made significant upgrades to our internal resource assessment, and have engaged a third-party engineering firm to prepare an independent evaluation in Q3 2012. With the successful results of the pilot program in this Wapiti portion of the Alberta Montney play, significant new data points will continue to evolve in the months to come. NuVista is arriving at the point where more significant capital funding activities are timely and appropriate. NuVista has been investigating several asset divestiture options to provide funding for these activities and expects to be announcing results in the next few months.
2012 Capital Program Flexibility
As cashflow forecasts for H2 2012 remain constrained due to low commodity prices, we remain committed to ensuring balance sheet security and optimizing financial flexibility. Due to the favorable tenure of our Montney acreage, minimal capital is required for land retention for the remainder of 2012 and into 2013. Our pace of early development and continued delineation will be influenced by the success of the asset divestitures we are currently pursuing, and the improving outlook for commodity pricing heading into 2013. Results in the W5 Spirit River/Notikewin and our oil plays continue to show significant and attractive upside, but capital will continue at lower levels in these plays for the time being, in favor of our balance sheet focus and our liquids rich Alberta Montney drilling. We are in a favorable expiry position which provides this flexibility.
| Three months ended
| Six months ended
|($ thousands, except per share)|
|Oil and natural gas revenue||58,201||95,719||132,057||183,956|
|Funds from operations(1)||18,083||40,963||42,207||74,262|
|Per basic share||0.18||0.41||0.42||0.78|
|Per diluted share||0.18||0.41||0.42||0.78|
|Net earnings (loss)||(85,411||)||22,445||(88,558||)||12,855|
|Per basic share||(0.86||)||0.23||(0.89||)||0.13|
|Per diluted share||(0.86||)||0.23||(0.89||)||0.13|
|Adjusted net earnings (loss)(1)||(14,668||)||(2,569||)||(25,566||)||(9,661||)|
|Per basic share||(0.15||)||(0.03||)||(0.26||)||(0.10||)|
|Per diluted share||(0.15||)||(0.03||)||(0.26||)||(0.10||)|
|Long-term debt, net of adjusted working capital(1)||339,111||291,250|
|Net capital expenditures||18,805||15,000||71,668||54,777|
|Weighted average common shares outstanding (thousands):|
|Natural gas (MMcf/d)||98.1||103.8||101.8||105.6|
|Natural gas liquids (Bbls/d)||3,125||3,008||3,161||3,051|
|Total oil equivalent||23,467||25,488||24,359||25,781|
|Average product prices(2)|
|Natural gas ($/Mcf)||1.96||3.92||2.19||3.97|
|Natural gas liquids ($/Bbl)||53.19||66.39||59.75||62.49|
|Natural gas and natural gas liquids ($/Mcfe)||1.66||1.78||1.69||1.76|
|Total oil equivalent ($/Boe)||10.91||11.45||11.21||11.48|
|Operating netback ($/Boe)||12.72||21.44||13.52||20.07|
|Funds from operations netback ($/Boe)(1)||8.47||17.66||9.53||15.92|
|Share trading statistics|
|Average daily volume||399,942||119,332||319,832||119,337|
- Funds from operations, funds from operations per share, funds from operations netback, operating netback, adjusted net earnings and adjusted working capital are not defined by GAAP in Canada and are referred to as non-GAAP measures. Funds from operations are based on cash flow from operating activities as per the statement of cash flows before changes in non-cash working capital and asset retirement expenditures. Funds from operations per share is calculated based on the weighted average number of common shares outstanding consistent with the calculation of net earnings (loss) per share. Funds from operations netback equals the total of revenues including realized commodity derivative gains/losses less royalties, transportation, operating, general and administrative, restricted stock units, interest expenses and cash taxes calculated on a Boe basis. Adjusted net earnings equals net earnings excluding after tax unrealized gains (losses) on commodity derivatives, impairments and gains (losses) on property divestments. Operating netback equals the total of revenues including realized commodity derivative gains/losses less royalties, transportation and operating expenses calculated on a Boe basis. Adjusted working capital excludes the current portions of the commodity derivative asset or liability. Total Boe is calculated by multiplying the daily production by the number of days in the period. For more details on non-GAAP measures, refer to NuVista's "Management's Discussion and Analysis".
- Product prices include realized gains/losses on commodity derivatives.
NuVista's average production guidance for 2012 is between 23,000 Boe/d and 24,000 Boe/d, prior to the impact of potential divestitures. Funds from operations for 2012 are forecast at approximately $70 million based on a forecast AECO natural gas price of $2.43/Mcf, WTI oil price of US$94.00/Bbl and incorporating our price risk management contracts. A constrained capital spending program for the year is forecast at a range of between $90 million and $130 million, contingent on the amount and timing of results from capital funding alternatives.
NuVista's disciplined deployment of capital on its material key plays, while maintaining a prudent focus on the balance sheet, has resulted in significant shareholder value creation through the proving of Montney and W5 Spirit River/Notikewin lands over the past year and will lead to continued value creation over the long term. Over the next few months, with additional production data from our Wapiti wells, access to additional capital, and more clarity on the outlook for natural gas prices, we expect to provide more details on our future growth plans. With a talented and motivated workforce and a business strategy focused on discipline, execution and profitability, we look forward to updating you on the progress in this value creation process as we move through 2012.
CONSOLIDATED FINANCIAL STATEMENTS AND MD&A
Second quarter 2012 interim consolidated financial statements and notes to the interim consolidated financial statements and Management's Discussion and Analysis for NuVista Energy Ltd. have been filed on SEDAR (www.sedar.com) under NuVista Energy Ltd. and can also be accessed on NuVista's website at www.nuvistaenergy.com.
ADVISORY REGARDING OIL AND GAS INFORMATION
This news release contains the terms barrels of oil equivalent ("Boe") and thousand cubic feet equivalent ("Mcfe"). Natural gas is converted to a Boe using six thousand cubic feet of gas to one barrel of oil. In certain circumstances natural gas liquid volumes have been converted to a Mcfe on the basis of one barrel of natural gas liquids to six thousand cubic feet of gas. Boes and Mcfes may be misleading, particularly if used in isolation. The foregoing conversion ratios are based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. As well, given than the value ratio based on the current price of crude oil to natural gas is significantly different from the 6:1 energy equivalency ratio, using a conversion ratio on a 6:1 basis may be misleading as an indication of value.
Any references in this news release to initial or test production rates are useful in confirming the presence of hydrocarbons, however, such rates are not determinative of the rates at which such wells will continue production and decline thereafter. Additionally, such rates may also include recovered "load oil" fluids used in well completion stimulation. While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production for NuVista.
ADVISORY REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS
This press release contains forward-looking statements and forward-looking information (collectively, "forward-looking statements") within the meaning of applicable securities laws. The use of any of the words "will", "expects", "believe", "plans", "potential" and similar expressions are intended to identify forward-looking statements. More particularly and without limitation, this press release contains forward looking statements, including management's assessment of: NuVista's future strategy, plans, opportunities and operations; the expectations of creating significant shareholder value from NuVista's properties and opportunities; forecast production; production mix; drilling, development, completion and tie-in plans and results; expectations of future results, including future production levels, typecurves and well economics, NuVista's planned capital budget; expectations with respect to NuVista's disposition program and its effect on debt levels; targeted debt level; the timing, allocation and efficiency of NuVista's capital program and the results therefrom; NuVista's plans and expectations with respect to operating during a period of low and volatile commodity prices; plans and expectations regarding facility construction and/or expansions, the timing thereof and the results therefrom; the anticipated potential of NuVista's asset base; forecast funds from operations; the source of funding of capital expenditures; the objectives and focus of NuVista's capital program and the allocation thereof and results therefrom; NuVista's risk management strategy; expectations regarding future commodity prices and netbacks; and industry conditions.
By their nature, forward-looking statements are based upon certain assumptions and are subject to numerous risks and uncertainties, some of which are beyond NuVista's control, including the impact of general economic conditions, industry conditions, current and future commodity prices, currency and interest rates, anticipated production rates, borrowing, operating and other costs and funds from operations, the timing, allocation and amount of capital expenditures and the results therefrom, anticipated reserves and the imprecision of reserve estimates, the performance of existing wells, the success obtained in drilling new wells, the sufficiency of budgeted capital expenditures in carrying out planned activities, competition from other industry participants, availability of qualified personnel or services and drilling and related equipment, stock market volatility, effects of regulation by governmental agencies including changes in environmental regulations, tax laws and royalties; the ability to access sufficient capital from internal sources and bank and equity markets; and including, without limitation, those risks considered under "Risk Factors" in our Annual Information Form. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. NuVista's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements, or if any of them do so, what benefits NuVista will derive therefrom. NuVista disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
FOR FURTHER INFORMATION PLEASE CONTACT:
NuVista Energy Ltd.
Jonathan A. Wright
President and CEO
NuVista Energy Ltd.
Robert F. Froese
VP, Finance and CFO