Twin Butte Energy announces 2014 first quarter financial and operating results and provides an operational update

CALGARY, May 13, 2014 /CNW/ - (TSX: TBE) – Twin Butte Energy Ltd. ("Twin Butte" or  the  "Company") is pleased to report its financial and operational results for the three months ended March 31, 2014.

Highlights of Twin Butte's successful first quarter 2014 are as follows:

  • Record average first quarter production of 22,529 boe/d which is up by 31% from first quarter 2013 while increasing the oil and liquids weighting to 91% from 87%.

  • Record first quarter funds flow of $51.4 million, or $0.15 per share, which is up 58% from first quarter 2013.

  • Completed an organic capital program of $37.9 million including the drilling of 34 gross (34 net) wells at a 94% success rate. Over 70% of the first quarter capital plan was focused on horizontal drilling activity with 60% of the plan focused at the Company's medium oil Provost property.

  • Reinforced the sustainability of the dividend model by holding the total payout ratio for the quarter to 103%. Twin Butte has paid $96.7 million ($0.422 per share) in dividends since January 2012 and maintained a cumulative all-in payout ratio of 92% since that time. 

  • Certain selected financial and operational information for the three months ended March 31, 2014 and 2013 is outlined below and should be read in conjunction with Twin Butte's condensed interim financial statements for the three months ended March 31, 2014 and 2013 and accompanying management's discussion and analysis filed with the Canadian securities regulatory authorities which may be accessed through the SEDAR website (www.sedar.com) and also the Company's website.

 


Three months ended March 31


2014

2013

% Change

Financial($ 000's, except per share amounts)




Petroleum and natural gas sales

149,200

69,660

114%

Funds flow (1)

51,384

32,423

58%

Per share basic 

0.15

0.13

15%

Per share diluted

0.15

0.13

15%

Net income (loss) 

(15,240)

(29,633)

49%

Per share basic 

(0.04)

(0.12)

67%

Per share diluted

(0.04)

(0.12)

67%

Dividends declared

16,550

12,603

31%

Dividends declared, Post DRIP

14,897

11,350

31%

Capital expenditures(2)

37,890

19,625

93%

Net debt (3)

363,659

200,542

81%

Operating




Average daily production




Heavy crude oil (bbl per day)

12,682

13,890

-9%

Light & Medium crude oil (bbl per day)

7,614

783

872%

Natural gas (Mcf per day)

12,200

13,907

-12%

Natural gas liquids (bbl per day)

200

263

-24%

Barrels of oil equivalent (boe per day, 6:1)

22,529

17,254

31%

% Oil and NGLs

91%

87%

5%

Average sales price




Heavy crude oil ($ per bbl)

73.81

47.16

57%

Light & Medium crude oil ($ per bbl)

82.73

67.36

23%

Natural gas ($ per Mcf)

6.08

3.35

81%

Natural gas liquids ($ per bbl)

88.18

75.04

18%

Barrels of oil equivalent ($ per boe, 6:1)

73.58

44.86

64%

Operating netback ($ per boe) (4)




Petroleum and natural gas sales

73.58

44.86

64%

Cash (loss) gain on derivative instruments

(8.71)

11.26

-177%

Royalties

(12.41)

(9.14)

-36%

Operating expenses

(22.81)

(21.88)

-4%

Transportation expenses

(0.93)

(0.98)

5%

Operating netback

28.72

24.12

19%

Wells drilled 




Gross

34.0

28.0

21%

Net

34.0

28.0

21%

Success (%)

94

89

6%

Common Shares




Shares outstanding, end of period

345,071,217

249,797,912

38%

Weighted average shares outstanding – diluted

344,452,929

250,435,239

38%





(1) Funds flow is a non-GAAP measure that represents the total cash provided by operating activities, before adjusting for changes in non-cash working capital items and expenditures on decommissioning liabilities.  See also "Funds Flow from Operations" in the Reader Advisory below.

(2) Capital expenditures is a non-GAAP measure calculated as the purchase or sale price of an asset, plus development capital expenditures added to PP&E. Corporate acquisitions are excluded from this measure.

(3) Net debt is a non-GAAP measure representing the total of bank indebtedness, accounts payables and accrued liabilities, cash dividend payable, less accounts receivables, deposits and prepaids. See also "Net Debt" in the Reader Advisory below.

(4) Operating netback is a non-GAAP measure calculated as the average per boe of the Company's oil and gas sales plus realized gains on derivatives, less royalties, operating and transportation expenses. See also "Operating Netback" in the Reader Advisory below.

Corporate:

During the first quarter, Twin Butte completed the successful integration of its fourth quarter 2013 acquisition of Black Shire Energy Inc., which provides the Company with a significant medium oil presence in the Provost area. The subject acquisition progressed and strengthened the Company's business model of delivering a long term stable dividend with moderate production growth. Continued strong financial discipline combined with positive early drilling results at the Company's Provost operation will help support the Company's successful transition to a horizontal medium and heavy oil exploiter from its historical heavy oil vertical drilling business plan. Twin Butte's strategic shift from vertical to horizontal drilling activity began in 2013 and continues in 2014 with over 70% of first quarter's capital focused on horizontal activity. The Company anticipates that this strategic shift will accelerate for the balance of 2014, with substantially all of the remaining 2014 drilling weighted to horizontal activity.  This shift is designed to significantly improve Twin Butte's corporate sustainability by increasing its corporate netback, decreasing its longer term corporate decline rate while adding a sizeable drilling inventory with capital efficiencies comparable to Twin Butte's historical vertical heavy oil drilling inventory.

Financial:

Twin Butte's record first quarter 2014 financial and operating results demonstrate the Company's ability to pay a sustainable dividend and maintain a strong balance sheet while completing a disciplined capital plan. In the first quarter of 2014 the Company paid $16.5 million in dividends ($14.9 million post DRIP & SDP) which when combined with net $37.9 million in organic capital spending generated an all-in payout ratio of 103%. Over the past 2.25 years the Company has paid out $96.7 million in dividends, or $0.422 per share, and maintained a cumulative all-in payout ratio of 92%.

Funds flow in the first quarter increased significantly (58%) from 2013 reaching $51.4 million or $0.15 per share.  Strengthening Canadian oil prices combined with a contraction in the differential between light and heavy oil prices lead to strong WCS (Western Canadian select heavy oil index) pricing in the quarter of $84.44 per bbl as compared to a fourth quarter 2013 average of $69.62 per bbl. Approximately 40% of the Company's heavy oil production was sold to rail car accessed markets in the first quarter, enhancing the Company's heavy oil pricing while providing additional marketing options.

Operating cost pressures on the Company's heavy oil continued through the first quarter of 2014 with power and propane costs increasing materially from the fourth quarter of 2013; however, both of these costs have shown improving trends more recently. The Company was pleased its Provost area operating costs were as budgeted in the first quarter of 2014 at approximately $18.00 per boe, partially as a result of power hedges designed to reduce some power cost variability.

Although differentials have significantly contracted in early 2014, Twin Butte anticipates continued volatility over the remainder of the year but longer term believes a WCS price in a range of $75 - $80 per bbl is reasonable. The Company's proactive hedging or risk management strategy has, and will continue to stabilize realized pricing, ensuring consistency of cash flow for the dividend and capital plan. For the remainder of 2014, the Company is well positioned with approximately 57% of its anticipated heavy oil production hedged at approximately $75.00 per bbl. The Company has commenced layering in hedges for 2015 at WTI prices of approximately $100 per bbl and WCS prices of approximately $77.00 per bbl.

During 2014, the Company will continue its program of non-core asset dispositions, having recently agreed to approximately $4.5 million in dispositions, which are expected to close in the second quarter of 2014. These dispositions will further focus the Company's asset base with proceeds being used to partially fund the Company's ongoing organic capital plans in its core operating areas in Provost and Lloydminster.

The Company anticipates renewing its current bank facility before the end of May at a revised total of $365 million which provides substantial liquidity above the Company's drawn position of approximately $259 million as at March 31, 2014. The Company also has outstanding $85 million principal amount of convertible debentures with a carrying value of $78 million at the end of the first quarter.

Operations:

The Company's first quarter capital plan was primarily focused on horizontal well activity in its core medium oil area of Provost and its heavy oil area at Lloydminster. The $37.9 million capital program included the drilling of 34 gross wells (34 net) of which 18 were horizontal. Strategically, the Company will continue to shift to more horizontal drilling with substantially all of the remaining wells in 2014 anticipated to be horizontal. This is part of the Company's ongoing transition to a more predictable and more sustainable base production profile.

At Provost, the Company continued with its development drilling program commenced late in 2013 with 15 wells drilled in the first quarter of 2014 and four wells thus far in the second quarter. Early results have demonstrated performance higher than the type curve expectation of 70 boe per day for the first three month average. Based on the high productivity and high oil cuts on the drilled wells completed to date, the Company anticipates drilling more than 50 wells at Provost in 2014. Twin Butte and the previous operator, Black Shire Energy Inc., have drilled over 80 similar wells on the property since 2010 which have demonstrated the repeatable success and predictable decline rate on wells in the area. Ongoing well and facility optimization in the area has reduced the base decline of the areas legacy production to under 20% per year. 

The Company's expanding operations in Provost have improved the Company's dividend sustainability since the Provost area's production is medium quality oil which, along with lower operating and royalty costs, will generate an operating netback premium of between $15 to $20 per bbl above the Company's Lloydminster heavy oil barrels.

Twin Butte remains active at its horizontal heavy oil development in Wildmere, Alberta. The Wildmere asset has seen approximately 40 horizontal wells drilled on the property over the past 1.5 years with a five well program completed in the second quarter. Upward of an additional 15 horizontal locations will be pursued on the property.

At Frog Lake, four horizontal wells were drilled in 2013, and they continue to perform on the Company's type curve. This performance will lead to additional horizontal drilling later in 2014 and onwards. The Company currently has an inventory of 40 horizontal wells in the area.

Average production for the first quarter of 2014 was 22,529 boe per day. This rate is slightly lower than Twin Butte's year end 2013 exit rate as difficult weather related operating conditions were experienced during January and February.  With spring breakup conditions being encountered current production is approximately 21,600 boe per day with approximately 800 boe per day awaiting completion or shut in due to trucking restrictions.

2014 Revised Forecast

Although the transition away from vertical heavy oil well concentration is ongoing and is showing early success, Twin Butte continues to experience higher than anticipated production declines on a number of its higher productivity vertically drilled heavy oil wells. Ultimate recovery factors in these pools are still anticipated to be on forecast and consistent with other similar pools in the area.  These higher declines are not being experienced on the Company's horizontally drilled heavy oil wells or the Company's Provost are a medium oil production. Because of this, the Company now anticipates that its yearend 2014 production will be approximately 22,500 boe per day and average production for 2014 will be approximately 22,000 boe per day, a six to eight percent reduction from earlier estimates, based on full year capital spending of $140.6 million. Assuming, for the remainder of 2014, WTI pricing of $97.00 per boe, a US$/Cdn$ exchange ratio of 1.09, and a WTI to WCS heavy differential of $(24.50) per boe, the Company anticipates that its 2014 annual cash flow will be approximately $201 million. The Company will continue to adjust capital spending to ensure total payout ratio (dividend and capital) on an annual basis, does not exceed 100% as it has done since the initiation of its dividend in January 2012. As the Company transitions to a higher percentage of medium versus heavy oil production, it anticipates this payout ratio may be decreased to the low 90% range which will permit a higher capital allocation, re-supporting organic growth.

Management Changes

As part of the long term growth plan for the Company, the following management changes have been made. The Company is pleased to announce that Rob Wollmann and David Middleton have joined the Company as President and Chief Operating Officer, respectively, replacing the individuals that formerly held these roles. Both are seasoned professionals with experience in most operating areas of western Canada and have management skills with larger dividend paying organizations having over 100,000 boe per day of production.

Rob Wollmann has 28 years of geotechnical and executive experience and a proven track record of identifying, capturing and developing light oil and natural gas plays across the Western Canadian Sedimentary Basin.  Rob has been involved in the successful growth of several junior and intermediate sized producers and has been in an executive management role at a senior dividend paying producer with over 100,000 boe per day of production.

David Middleton is a professional engineer with 34 years of operational and executive experience in the western Canadian oil and gas industry. David's technical experience includes extensive operational and development field experience in conventional heavy oil, thermal heavy oil, conventional oil and gas including enhanced oil recovery. In addition, he brings executive skills in guiding intermediate and senior oil and gas companies through periods of sustained growth through organic development and acquisition.

James Saunders, Twin Butte's Chief Executive Officer, stated "Bruce Hall, the Company's former President and Chief Operating Officer and Bob Bowman, the Company's former Vice President of Operations, have been valuable contributors to Twin Butte's success for the past number of years and we thank them for their professionalism and commitment to our company and wish them all the best in their future endeavors."

Outlook

Since the initiation of its dividend policy in January 2012, Twin Butte's long term business plan of providing shareholders with long term total returns comprised of both income and moderate growth is and will remain the Company's focus. Twin Butte has been a leader of the junior to intermediate dividend energy companies in delivering strong capital efficiencies through disciplined capital focus. As the Company has grown, operating efficiencies and production predictability of certain of the Company's assets have faced challenges. As historically has been the case, Twin Butte will work diligently to overcome these challenges to ensure its business plan succeeds.  The announced management changes provide the organization with enhanced bench strength to execute on its business plan.

Twin Butte will continue to match its capital plan to forecast cash flow less dividends.  Recent positive movement in both oil pricing and the light to heavy oil differentials, combined with the Company's strong hedge position, allows Twin Butte to remain confident in the long term sustainability of the dividend.

The Company remains comfortable with the current dividend level and the payment has been approved through to the end of the year by the Board of Directors. The current forecast continues to show a total payout ratio under 100% for the year, consistent since the establishment of the dividend model in January 2012.

The point forward focus on horizontal drilling at Provost and Lloydminster will strengthen and enhance the Company's dividend sustainability and provide a platform for longer term moderate growth. While remaining strongly positioned with its low risk drilling inventory, the Company continues to review acquisition opportunities to further diversify and enhance the Company's commodity and play types .

About Twin Butte:

Twin Butte Energy Ltd. is a dividend paying value oriented intermediate producer with a significant low risk, high rate of return drilling inventory focused on large original oil and gas in place play types. Twin Butte is well positioned to provide shareholders with a sustainable dividend with growth potential over both the short and long term. Twin Butte is committed to continually enhance its asset quality while focusing on the sustainability of its dividend. The common shares of Twin Butte are listed on the TSX under the symbol "TBE".

Reader Advisory

Forward-Looking Statements

In the interest of providing Twin Butte's shareholders and potential investors with information regarding Twin Butte, including management's assessment of the future plans and operations of Twin Butte, certain statements contained in this news release constitute forward-looking statements or information (collectively "forward-looking statements") within the meaning of applicable securities legislation.  Forward-looking statements are typically identified by words such as "anticipate", "continue", "estimate", "expect", "forecast", "may", "will", "project", "could", "plan", "intend", "should", "believe", "outlook", "potential", "target" and similar words suggesting future events or future performance. In particular but without limiting the foregoing, this news release contains forward-looking statements pertaining to the following: the amount of horizontal drilling activity planned for 2014; the Company's planned strategic shift to drilling additional horizontal light oil wells in 2014 and the anticipated effect thereof on the Company's production profile; the effects of the Company's hedging program; the Company's assessment as to the renewal of its credit facilities at revised levels; anticipated closing of certain non-core asset dispositions; the Company's anticipated netbacks in 2014; anticipated total payout ratio; future dividend levels; funds flow and cash flow forecasts; the volume and product mix of Twin Butte's oil and natural gas production; future oil and natural gas prices; future operational activities; future results from operations and operating metrics, including future production growth and other matters set forth under the headings "2014 Revised Forecast" and "Outlook" herein, including estimated budget levels, production rates, cash flows and targeted pay-out ratio in respect of the payment of dividends.

With respect to forward-looking statements contained in this news release, Twin Butte has made assumptions regarding, among other things: future capital expenditure levels; future oil and natural gas prices and differentials between light, medium and heavy oil prices; results from operations including future oil and natural gas production levels; future exchange rates and interest rates; Twin Butte's ability to obtain equipment in a timely manner to carry out development activities; its ability to market its oil and natural gas successfully to current and new customers; the impact of increasing competition; Twin Butte's lenders will revise Twin Butte's borrowing base to the levels described herein; anticipated success with the Company's exploration and development programs; Twin Butte will not adjust its current monthly dividend; Twin Butte's business strategy in respect of its planned light oil horizontal drilling program will remain the same; Twin Butte's ability to obtain financing on acceptable terms; and Twin Butte's ability to add production and reserves through its development and exploitation activities. Although Twin Butte believes that the expectations reflected in the forward looking statements contained in this news release, and the assumptions on which such forward-looking statements are made, are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned not to place undue reliance on forward-looking statements included in this news release, as there can be no assurance that the plans, intentions or expectations upon which the forward-looking statements are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur, which may cause Twin Butte's actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things, the following:  the risks associated with the oil and gas industry; commodity prices; risks associated with the review of Twin Butte's credit facilities; operational risks in exploration; development and production; delays or changes in plans; risks associated with the uncertainty of reserve estimates; health and safety risks, and; the uncertainty of estimates and projections of production, costs and expenses; volatility in market prices for oil and natural gas; general economic conditions in Canada, the U.S. and globally; and the other factors described under "Risk Factors" in Twin Butte's most recently filed Annual Information Form available in Canada at www.sedar.com.

The forward-looking statements contained in this news release speak only as of the date of this news release. Except as expressly required by applicable securities laws, Twin Butte does not undertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.

Barrels of Oil Equivalent

Barrels of oil equivalents (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl (barrel) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, as the value ratio between natural gas and crude oil based on the current prices of natural gas and crude oil is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indicated value.

Funds Flow from Operations

The reader is cautioned that this news release contains the term funds flow from operations, which is not a recognized measure under generally accepted accounting principles ("GAAP") and is a measure that represents the total of cash provided by operating activities, before adjusting for changes in non-cash working capital items and expenditures on decommissioning liabilities. Management uses this measure in order to assist them in understanding Twin Butte's liquidity and its ability to generate funds to finance its operations. The term funds flow from operations or funds flow should not be considered an alternative to, or more meaningful than, cash flow from operating activities as determined in accordance with GAAP as an indicator of the Company's performance. Twin Butte's method of calculating this measure may differ from other companies, and accordingly, may not be comparable to measures used by other companies.

Operating Netback

The reader is also cautioned that this news release contains the term operating netback, which is not a recognized measure under GAAP and is calculated as a period's sales of petroleum and natural gas, net of royalties less net production and operating expenses as divided by the period's sales volumes.  Management uses this measure to assist them in understanding Twin Butte's profitability relative to current commodity prices and it provides an analysis tool to benchmark changes in operational performance against prior periods and to peers on a comparable basis.  Readers are cautioned, however, that this measure should not be construed as an alternative to other terms such as net income determined in accordance with GAAP as a measure of performance.  Twin Butte's method of calculating this measure may differ from other companies, and accordingly, may not be comparable to measures used by other companies.

Net Debt

The reader is cautioned that this news release contains the term net debt, which is not a recognized measure under GAAP and is calculated as bank debt adjusted for working capital excluding mark-to-market derivative contracts.  Working capital excluding mark-to-market derivative contracts is calculated as current assets less current liabilities both of which exclude derivative contracts and current liabilities excludes the current portion of debt.  Management uses net debt to assist them in understanding Twin Butte's liquidity at specific points in time.  Mark-to-market derivative contracts are excluded from working capital, in addition to net debt, as management intends to hold each contract through to maturity of the contract's term as opposed to liquidating each contract's fair value or less. Twin Butte's method of calculating this measure may differ from other companies, and accordingly, may not be comparable to measures used by other companies.

Payout Ratio and Total Payout Ratio

The reader is cautioned that this news release contains the terms payout ratio and total payout ratio which are not recognized measures under GAAP. Payout ratio is calculated as dividends paid and capital expenditures (excluding corporate acquisitions) as a percentage of funds flow from operations. Total Payout Ratio (net of DRIP and SDP) is the Payout ratio, adjusted for dividends paid or reinvested as stock. Twin Butte considers these to be key measures of performance as they demonstrate the Company's ability to generate the cash flow necessary to fund dividends and capital investment and ultimately, satisfy corporate strategy. Twin Butte's method of calculating these measures may differ from other companies, and accordingly, they may not be comparable to measures used by other companies.

Future Oriented Financial Information

This news release, in particular the information in respect of anticipated cash flows, may contain Future Oriented Financial Information ("FOFI") within the meaning of applicable securities laws. The FOFI has been prepared by management of the Company to provide an outlook of the Company's activities and results and may not be appropriate for other purposes. The FOFI has been prepared based on a number of assumptions including the assumptions discussed under the heading "Forward-Looking Statements" and assumptions with respect to production rates and commodity prices. The actual results of operations of the Company and the resulting financial results may vary from the amounts set forth herein, and such variation may be material. The Company and its management believe that the FOFI has been prepared on a reasonable basis, reflecting management's best estimates and judgments.

SOURCE Twin Butte Energy Ltd.

For further information: Twin Butte Energy Ltd.: Jim Saunders, Chief Executive Officer, Rob Wollmann, President, R. Alan Steele, Vice President Finance, Chief Financial Officer and Corporate Secretary, Tel: (403) 215-2045, Websi­te: www.twinbutteenergy.com