Exall Energy Corporation announces results for the three months ended March 31, 2014

CALGARY, May 15, 2014 /CNW Telbec/ - Exall Energy Corporation ("Exall" or the "Company") (TSX:EE and TSX:EE.DB) is pleased to announce its financial and operating results for the three months ended March 31, 2014.  Exall's public filings can all be found at www.exall.com or www.sedar.com.

Highlights:

  • A first quarter 2014 production average of 962 boe per day.
  • A first quarter 2014 Net Back of $46.41.
  • A first quarter 2014 cash flow from operations of $1,959,000.
  • A first quarter 2014 net corporate debt reduction of $577,000.

Exall's first quarter 2014 production averaged approximately 962 boe per day, representing a 2 percent decrease from the fourth quarter of 2013 production average of 978 boe per day. This production was down as a result of first quarter 2014 well optimization operations which resulted in fairly significant downtimes on certain higher rate oil wells. Exall expects these operations will positively impact production for Q2 2014 and onwards.

SUMMARY OF FINANCIAL RESULTS AND OPERATIONS     Three months ended
March 31
In thousands of dollars       2014 2013 %
change
             
Financial ($)            
Gross revenue       8,116 9,753 (17)
Funds from operations       1,959 5,024 (61)
    Basic per share       0.03 0.08 (63)
    Diluted per share       0.03 0.04 (25)
Net income (loss)       (1,167) 896 (230)
    Basic per share       (0.02) 0.01 (300)
    Diluted per share       (0.02) 0.01 (300)
Capital expenditures, net       268 6,879 (96)
             
Operations            
Daily production            
  Crude oil (bbl)       886 1,218 (27)
  Natural gas liquids (bbl)       23 19 21
  Natural gas (mmcf)       318 394 (19)
Total daily production (boe @ 6:1)       962 1,303 (26)
Netback per boe (6:1) ($)       46.41 53.72 (14)

Corporate Developments

Outlook

While Exall continues to seek debt restructuring alternatives, and will maintain this focus until completed, the Capital Expenditure Program for 2014 has been deferred to the second half of 2014. Once resumed the Capital Expenditure Program is slated to continue to explore and develop the North Waterflood Gilwood channel extension of the Central Waterflood channel. Successful drilling on the Central Waterflood / North Waterflood channel extension in the second half of 2014 is expected to add 425 boepd net (based on an average working interest of 71.5%). It is a tribute to the quality of the Gilwood reservoir Exall has have been able to maintain the level of production we have today utilizing a modest amount of maintenance capital.

http://files.newswire.ca/357/EE-05152013.pdf

Capital expenditures through the second half 2014 will continue to focus on the "low-hanging fruit" (LHF) opportunities. Short term focus of capital will be firstly waterflood implementation and secondly the lowest-risk, lowest-cost infill wells in the North Waterflood area. Two water injector conversions are to be implemented through the third quarter of 2014. Exall plans to drill up to 4 gross development wells in the third and fourth quarters of 2014 with a further 4 gross development wells and 1 gross exploration well in 2015, subject to cash flow from operations. These wells are all high-impact, low risk locations identified through previous drilling and could have a significant impact on the Company's production if successful. Continued drilling success on the North Waterflood channel extension will drive production growth on an annual basis through 2014 and 2015.

The Company's Marten Mountain oil production attracts a price based on the average of the daily settlement price of the NYMEX near month Light Sweet Crude Oil contract as it trades, excluding weekends / holidays, for the calendar month of production, plus the weighted average of the Net Energy Index and the NGX index for Light Sweet Crude Oil, plus the one month prior Enbridge Sweet WADF. The Company's oil price received averaged approximately $2.67 less than the posted Edmonton Par price at the wellhead for the first quarter of 2014. Based on the $2.67 differential, Exall expects that its April 2014 price received was $103.42 per barrel. This pricing estimate is approximately $8.73 higher than the posted Western Canadian Select price being received by other entities during these periods.

Marten Mountain production is estimated to receive an average price of approximately $88.94, prior to hedging gains or losses; Exall is currently estimating an operating netback of approximately $45.56 and a corporate netback of approximately $29.00 after general and administrative expenses and interest expenses. At an average of 1,200 boepd (based on an average working interest of 71.5%) over the entire year, the Company would generate a cash flow from operations of approximately $12.5 million for 2014.

As at March 31, 2014, the Company had a working capital deficit, excluding bank indebtedness, of $1.2 million. The Company was in compliance with the working capital covenant at March 31, 2014 but was not in compliance at December 31, 2013 and the violation has not been waived by the bank.  The credit facility technically expired on April 30, 2013 and while the bank has not informed the Company that it intends to demand the loan, the bank's annual review of the credit facility was ongoing.  Although the bank has indicated that it will extend the facility in 2014, the amount of the facility will be significantly less than the current $36 million and at different terms.  The proposed asset disposition outlined in Note 17 to the Company's financial statements will allow for the immediate reduction of the credit facility as required by the bank; however the Company will need to consider other forms of financing and strategic alternatives to help the Company advance its overall business plan.  This represents a material uncertainty that raises significant doubts as to the Company's ability to continue as a going concern.

As at May 15, 2014, the Company was in discussions with the bank and other potential lenders in regards to ongoing debt financing and is considering asset dispositions and other strategic alternatives to help the Company advance its overall business plan.  The Company will continue to adjust the scope of its development plans and anticipated expenditures in light of its working capital position.

Overview

Exall's average daily production for the first quarter of 2014 decreased 26 percent to 962 barrels of oil per day ("boe/d") from 1,303 boe/d in the first quarter of 2013.

               
PRODUCTION BY REGION   Q1 2014 Q4 2013 Q3 2013 Q2 2013 Q1 2013 Q4 2012
Mitsue Waterfloods            
  Oil bbls/d 884 906 1,028 1,082 1,216 1,041
  Natural Gas mmcf/d 318 319 417 343 394 297
      Liquids (bbls/d) bbls/d 23 17 17 20 19 14
  BOEPD 960 976 1,114 1,160 1,301 1,105
Bow Island Heavy Oil              
  Oil bbls/d 2 2 2 2 2 2
  Natural Gas mmcf/d - - - - - -
  Liquids bbls/d - - - - - -
  BOEPD 2 2 2 2 2 2
               
PRODUCTION BY REGION   Q1 2014 Q4 2013 Q3 2013 Q2 2013 Q1 2013 Q4 2012
Corporate Totals              
  Oil bbls/d 886 908 1,030 1,084 1,218 1,042
  Natural Gas mmcf/d 318 319 417 343 394 297
  Liquids bbls/d 23 17 17 20 19 14
  BOEPD 962 978 1,116 1,161 1,303 1,106

Results of Operations

Oil and gas exploration and development expenditures were $268 for the first quarter of 2014.  During the first quarter of 2014 the Company participated in the drilling of 0.0 gross oil wells (0.00 net) in the Marten Mountain / Mitsue area.  During first quarter of 2013 the Company participated in the drilling of 2.0 gross oil wells (1.59 net) in the Marten Mountain / Mitsue area.

As at March 31, 2014, the Company had 188,960 acres (140,728 acres net) of undeveloped land in Alberta, Canada.

Exall realized the following netbacks from oil and gas operations:

     
      THREE MONTHS ENDED
MARCH 31,
NETBACK PER BOE (6:1) $     2014 2013 %
CHANGE
           
Production revenue     93.73 83.19 13
Royalties     34.77 19.58 78
Operating expenses     12.55 9.89 27
Operating netbacks     46.41 53.72 (14)
Financial Contracts     6.10 - 100
Administrative expenses     6.64 4.35 53
Abandonment expenses     11.03 6.51 69
Interest expenses     22.64 42.86 (47)
Corporate netbacks     93.73 83.19 13

Operating netbacks in the first quarter of 2014 decreased 14 percent to $46.41 per boe compared to the first quarter 2012 operating netbacks of $53.72 per boe.  This is the result of 1) the overall royalty expense increase of 78 percent on a first quarter over first quarter basis as a result of wells having produced out their allowable production under the NOWPP and reverting from a 5% rate to the Alberta maximum Royalty Rate of 40% with no new wells being brought on at the 5% NOWPP rate, and 2) the overall operating expense increase of 27 percent on a first quarter over first quarter basis.

Corporate netbacks in the first quarter of 2014 decreased 47 percent to $22.64 per boe compared to the first quarter 2013 corporate netbacks of $42.86 per boe.  This is the result of 1) the operating netback decrease of 14 percent on a first quarter over first quarter basis, 2) the realized loss on financial contracts from the Canadian $99.05 WTI Hedge realized loss of $528 as the average WTI price in Canadian Dollars was $108.89/bbl versus the swap price of $99.05/bbl, 3) the 53% increase in administrative expenses, on a per boe basis, as a result of the 79% decrease in overhead recoveries due to the significant decrease in capital expenditures in 2014 from the 2013 levels, and 4) the overall interest expense increase of 69 percent on a first quarter over first quarter basis, directly attributable to the increased interest rate being charge by the Company's lender on its revolving loan.

Net income, as a result, for the first quarter of 2014 was negative $1,167,000 or a loss of $0.02 per share compared to a net income for the first quarter of 2013 of $896,000 or $0.01 per share.

About Exall

Exall is a junior oil and gas company active in its business of oil and gas exploration, development and production from its properties in Alberta. Exall Energy is currently developing the new Mitsue area "Marten Mountain" discovery in north-central Alberta.

Exall Energy currently has 66,634,854 common shares outstanding. The Company's common shares are listed on the Toronto Stock Exchange under the trading symbol EE. The Company's convertible debentures are listed on the Toronto Stock Exchange under the trading symbol EE.DB.

Reader Advisory

This news release contains forward-looking statements, which are subject to certain risks, uncertainties and assumptions, including those relating to results of operations and financial condition, capital spending, financing sources, commodity prices and costs of production. By their nature, forward-looking statements are subject to numerous risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, actual results may differ materially from those predicted. A number of factors could cause actual results to differ materially from the results discussed in such statements, and there is no assurance that actual results will be consistent with them. Such factors include fluctuating commodity prices, capital spending and costs of production, and other factors described in the Company's most recent Annual Information Form under the heading "Risk Factors" which has been filed electronically by means of the System for Electronic Document Analysis and Retrieval ("SEDAR") located at www.sedar.com. Such forward-looking statements are made as at the date of this news release, and the Company assumes no obligation to update or revise them, either publicly or otherwise, to reflect new events, information or circumstances, except as may be required under applicable securities law.

For the purposes of calculating unit costs, natural gas has been converted to a barrel of oil equivalent (boe) using 6,000 cubic feet equal to one barrel (6:1), unless otherwise stated. The boe conversion ratio of 6 mcf: 1 bbl is based on an energy equivalency conversion method and does not represent a value equivalency; therefore boe may be misleading if used in isolation. This conversion conforms to the Canadian Securities Regulators' National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities.

SOURCE EXALL ENERGY CORPORATION

PDF available at: http://stream1.newswire.ca/media/2014/05/15/20140515_C8656_DOC_EN_40383.pdf

For further information:

Exall Energy Corporation

Frank S. Rebeyka
Vice Chairman
Tel: 403-815-6637

Roger N. Dueck
President & CEO
Tel: 403-237-7820 x 223
info@exall.com

Please visit Exall Energy's website at: www.exall.com

Renmark Financial Communications Inc.
Bettina Filippone : bfilippone@renmarkfinancial.com
Preeti Athwal : pathwal@renmarkfinancial.com
Tel.: (416) 644-2020 or (514) 939-3989
www.renmarkfinancial.com