Argent Energy Trust announces an acquisition of oil producing assets, an increased credit facility, an operational update, and updated production guidance
/NOT FOR DISTRIBUTION IN THE UNITED STATES OR OVER UNITED STATES WIRE SERVICES/
CALGARY, Oct. 9, 2013 /CNW/ - Argent Energy Trust ("Argent" or the "Trust") (TSX: AET.UN) is pleased to announce the acquisition of certain oil producing assets, an increased credit facility, an operational update, and updated production guidance.
Argent Energy (US) Holdings Inc., a wholly-owned subsidiary of the Trust, has entered into a binding agreement with an effective date of September 1, 2013 (the "Purchase and Sale Agreement"), to acquire producing petroleum properties in Wyoming (the "Acquired Assets") from a private company, with closing expected to occur on October 25, 2013 for a purchase price of approximately US$105 million (net of closing adjustments) (the "Acquisition"). The Purchase and Sale Agreement contains customary conditions for acquisitions of this nature in the United States. Argent will borrow funds under its credit facility (the "Credit Facility") to fully fund the Acquisition. The Acquired Assets are principally oil properties in Campbell, Johnson, Crook, Weston and Niobrara counties in Wyoming. Wyoming borders on Colorado where the Trust also has producing assets, thus providing a contiguous corridor down to Texas.
The Acquired Assets are characterized by long-lived, low decline production and are expected to generate significant free cash flow. The Acquisition is consistent with the Trust's business plan of building a high netback, low decline production base.
Key Acquisition attributes:
- Working interest oil production from the Acquired Assets currently exceeds 1,000 barrels of oil equivalent per day ("boe/d") (95% oil & NGLs). Argent expects to maintain production levels of approximately 1,000 boe/d through 2014 with minimal operational activity or capital investment.
- The majority of the Acquired Assets will be operated by Argent.
- Estimated working interest proved plus probable reserves of 7.96 million boe, evaluated by Cawley, Gillespie & Associates, Inc. ("CG&A"), of which proved developed producing reserves account for 57%.
- Low base decline rate on historical production of approximately 13%.
- The Acquired Assets also produce significant free cash flow beyond the capital required to maintain production from the Acquired Assets.
The Acquisition is accretive to the Trust's cash flow per unit, production per unit, reserves per unit, payout ratio and sustainability ratio, provides geographic diversification, and adds immediate incremental low base decline oil production and reserves to the overall asset base of Argent. Management believes this Acquisition further enhances the Trust's ability to ensure long term distribution support.
Increased Credit Facility
The Trust has received a commitment from a Canadian chartered bank to expand its Credit Facility to US$160 million in conjunction with the Acquisition. After closing of the Acquisition, the Trust expects to have approximately US$125 million drawn on its Credit Facility.
In the third quarter of 2013, Argent produced an average of approximately 5,400 boe/d. Current base production, based on field estimates, is just over 5,500 boe/d (76% oil & NGLs) and the Trust's 30-day average production is approximately 5,500 boe/d (76% oil & NGLs). In addition, the Trust received production payment revenues in the third quarter equivalent to approximately 290 boe/d at current commodity prices.
The Trust's third quarter production was negatively affected by a fire at the Trust's Manvel field, salting in certain of the Trust's natural gas producing wells, a commercially unsuccessful natural gas well drilled for lease expiry in South Texas, and completion of workover activity which in aggregate reduced average third quarter production by approximately 350 boe/d, as follows:
A lightning induced fire and subsequent electrical problems at one of
the Trust's facilities in the Manvel Field in late August resulted in a
loss of approximately 150 boe/d for 40 days. There were no injuries or
negative environmental impacts from the fire and production has been
restored to the level prior to such incidents.
Earlier this year, the Trust added compression to its Escobas gas
producing wells in South Texas. Although the added compression
increased production, the downhole pressure drop later caused salt
precipitation in a number of the gas wells restricting production and
resulting in a 250 boe/d reduction in expected production for the third
quarter. Ongoing remediation work has re-established the majority of
this production loss and should be completed shortly.
As certain leases were set to expire in Q4 2013, Argent drilled a
step-out natural gas well in a separate fault block in the Escobas
Field, for which the Trust was forecasting approximately 5.4 MMcf/d
(900 boe/d) of production in the fourth quarter. Unfortunately, the
well had insufficient quantities of natural gas and needed to be
- Workover activities noted in the second quarter carried over into July, while expenses in August and September were on budget. Overall third quarter workover expenses have been reduced by 50% from the second quarter and are expected to stay within budget going forward.
Positive results were achieved by the Trust during the third quarter in the Eagle Ford and Buda trends with the successful completion of four Eagle Ford wells and one Buda well. By utilizing pad drilling and zipper fracs (alternating fracs between wells) techniques, the Trust's most recent Eagle Ford wells, the Hrncir #3 and Hrncir #4, were drilled and completed at significant cost savings. These wells have been on production over 30 days and are currently producing approximately 540 b/d of oil combined. A second pair of wells (Robertson 2H and 3H) utilizing pad drilling and zipper fracs is currently being drilled with production targeted for year-end.
Financially, management expects the recent production challenges in combination with the workover expense and additional human resources expenses (including increased hiring of technical staff in Houston) to affect forecasted cash flow for the third quarter. However, management expects fourth quarter cash flow and distributions to be maintained as originally forecast.
Updated Production Guidance
The Acquisition allows Argent to maintain its previous average annual production guidance of 5,700 boe/d. In addition, Argent is increasing its projected 2013 exit production rate to approximately 7,000 boe/d (previously 6,800 boe/d).
About Argent Energy Trust
Argent is a mutual fund trust under the Income Tax Act (Canada). Argent's objective is to create stable, consistent returns for investors through the acquisition and development of oil and natural gas reserves and production with low risk exploitation potential, located primarily in the United States. Material information pertaining to Argent Energy Trust may be found on www.sedar.com or www.argentenergytrust.com.
The Units and the Trust's 6.00% convertible unsecured subordinated debentures are traded on the Toronto Stock Exchange under the symbols AET.UN and AET.DB, respectively.
Forward Looking Statements
This press release includes forward-looking information within the meaning of applicable Canadian and United States securities legislation. All statements, other than statements of historical facts, that address activities, circumstances, events, outcomes and other matters that Argent budgets, forecasts, plans, projects, estimates, expects, believes, assumes or anticipates (and other similar expressions) will, should or may occur in the future, are considered forward-looking information. In particular, forward-looking information contained in this press release includes, but is not limited to, information and statements concerning the Acquisition, including the source of funding for the Acquisition, the expansion of the Credit Facility and the amount expected to be drawn thereunder upon completion of the Acquisition; remediation work relating to the Escobas gas producing wells; targeted production from the Robertson 2H and 3H wells; the amount of the workover expenses, the performance and production characteristics of the Acquired Assets; the ability of the Acquired Assets to generate significant cash flow; the key metrics of the Acquisition; the financial and operational benefits of the Acquisition to the Trust and the expected impact of the Acquisition on the Trust's commodity profile, reserves profile, payout ratio, sustainability ratio and to cash flow from operations per Unit; and the Trust's anticipated average annual production and exit production for 2013. In addition, statements relating to "reserves" are by their nature forward-looking information, as they involve the implied assessment, based on certain estimates and assumptions that the reserves described can be profitably produced in the future. The recovery and reserve estimates of the Trust's reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered.
The forward-looking information provided in this press release is based on management's current beliefs, expectations and assumptions, based on currently available information as to the outcome and timing of future events. Argent cautions that its future oil, natural gas and natural gas liquids production, revenues, cash flows, liquidity, plans for future operations, expenses, outlook for oil and natural gas prices, timing and amount of future capital expenditures, and other forward-looking information is subject to all of the risks and uncertainties normally incident to the exploration for and development and production and sale of oil and gas. The reserves data set forth herein is based upon an evaluation by CG&A, dated effective September 1, 2013 using Sproule Associates Limited's forecast prices and costs as at September 1, 2013.
These risks include, but are not limited to, failure to realize the anticipated benefits of the Acquisition, incorrect assessments of the value of the Acquired Assets, unforeseen difficulties in integrating the Acquired Assets into the operations of the Trust's subsidiaries, oil and natural gas price volatility, Argent's access to cash flows and other sources of liquidity to fund its capital expenditures, its level of indebtedness, its ability to replace production, the impact of the current financial climate on Argent's anticipated business and financial condition, a lack of availability of or increases in costs of goods and services, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in estimating future oil and gas production or reserves, economic conditions and other risks as described in documents and reports that Argent files with the securities commissions or similar authorities in applicable Canadian jurisdictions on the System for Electronic Document Analysis and Retrieval (SEDAR). Any of these factors could cause Argent's actual results and plans to differ materially from those contained in the forward-looking information.
Forward-looking information is subject to a number of risks and uncertainties, including those mentioned above, that could cause actual results to differ materially from the expectations set forth in the forward-looking information. Forward-looking information is not a guarantee of future performance or an assurance that our current assumptions and projections are valid. All forward-looking information speaks only as of the date of this press release, and Argent assumes no obligation to, and expressly disclaims any obligation to, update or revise any forward-looking information, except as required by law. You should not place undue reliance on forward-looking information. You are encouraged to closely consider the additional disclosures and risk factors contained in Argent's periodic filings on SEDAR that discuss in further detail the factors that could cause future results to be different than contemplated in this press release.
Barrels of oil equivalent (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of six Mcf to one bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and do not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of oil as compared to natural gas is significantly different from the energy equivalency conversion ratio of six to one, utilizing a boe conversion ratio of six Mcf to one bbl may be misleading as an indication of value.
Non-IFRS Financial Measures
Statements in this press release make reference to the terms "payout ratio", and "sustainability ratio" which are non-IFRS financial measures that do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers. Investors should be cautioned that these measures should not be construed as an alternative to net income calculated in accordance with IFRS. Management believes that "payout ratio" and "sustainability ratio" provide useful information to investors and management since these terms reflect the quality of production, the level of profitability, the ability to drive growth through the funding of future capital expenditures and the sustainability of, distributions to unitholders. The Trust calculates its payout ratio by dividing the cash distributions the Trust pays to its unitholders in accordance with the Trust's distribution policy by cash flow from operations. Sustainability ratio is calculated by dividing the sum of cash distributions and capital expenditures by cash flow from operations. Cash flow from operations is calculated before changes in non-cash working capital.
SOURCE Argent Energy TrustFor further information:
Argent Energy Trust
Co-Chief Executive Officer & President
Argent Energy Trust
Chief Financial Officer
Argent Energy Trust