Hawk Announces Second Quarter 2014 Results

CALGARY, Aug. 22, 2014 /CNW/ - Hawk Exploration Ltd. ("Hawk" or the "Corporation") is pleased to announce its results for the three and six months ended June 30, 2014. The Corporation's interim financial statements for the three and six months ended June 30, 2014 and its management's discussion and analysis for the three and six months ended June 30, 2014 are available for viewing on SEDAR at www.sedar.com under Hawk's profile or on the Corporation's website at www.hawkexploration.ca under Investor Information - Financial Reports.

HIGHLIGHTS

Highlights for the three months ended June 30, 2013 were as follows:

  • Generated cash flow from operations of $1.9 million in the second quarter, a 28% increase from the $1.6 million in cash flow in the second quarter of 2013;
  • Averaged 659 boe/d of production in the second quarter of 2014, a 5% increase over the 628 boe/d average production in the same period of 2013;
  • Earned comprehensive income of $0.3 million in the second quarter of 2014, a 1% increase over the second quarter of 2013;
  • Drilled three (2.9 net) wells in western Saskatchewan during the second quarter of 2014;
  • Subsequent to the second quarter, entered into a new revolving credit facility in the amount of $13.5 million with a Canadian bank; and
  • Subsequent to the second quarter, entered into a purchase and sale agreement with Trihawk Energy Ltd. to acquire certain producing assets in the plains region of Alberta and western Saskatchewan.

Selected financial and operational information for the three and six months ended June 30, 2014 is provided as follows:

           
      Three months ended June 30,    Six months ended June 30,
      2014   2013   % Change   2014   2013   % Change
Financial ($000's except per share amounts)                          
Petroleum and natural gas sales    $  4,979 $  3,893   28% $  9,639 $  6,810   42%
Cash flow from operations (1)       1,949   1,613   21%   3,708   2,817   32%
  Per share       0.06   0.05   20%   0.11   0.08   38%
Comprehensive income (loss)       334   332   1%   (317)   173   (283%)
  Per share        0.01   0.01   0%   (0.01)   0.01   (200%)
Capital expenditures (2)       1,849   419   341%   4,717   2,537   86%
Working capital deficit - excluding bank                          
  debt and commodity contracts, end of period (1)                   $  1,900 $  876   117%
Bank debt, end of period                       6,700   3,750   79%
Total assets, end of period                    $  36,849   31,227   18%
                           
      Three months ended June 30,    Six months ended June 30,
      2013   2012   % Change   2013   2012   % Change
Common Shares outstanding end of period:                          
  Class A Shares                       34,726   34,481   1%
  Class B Shares                       1,080   1,080   -%
  Options to acquire Class A Shares                       3,200   2,473   29%
Operations                          
Production                          
  Crude oil and natural gas liquids (bbl/d)      643   598   8%   662   598   11%
  Natural gas (mcf/d)       95   178   (47%)   110   168   (35%)
  Total (boe/d)       659   628   5%   680   626   9%
Oil and liquids as percent of total       98%   95%   3%   97%   96%   1%
Average Selling Price                          
  Crude oil and ngls (per bbl)    $  84.33 $  70.44    20%  $  79.55  $  61.97    28%
  Natural gas (per mcf)       4.81   3.61    33%     5.38    3.47    55%
  Total (per boe)       83.00   68.13    22%     78.27    60.13    30%
Operating netback (per boe at 6:1) (3)                           
  Price    $  83.00 $  68.13   22% $  78.27 $  60.13   30%
  Royalties       (17.23)   (14.84)   16%   (16.15)   (11.65)   39%
  Production expense       (21.61)   (18.03)   20%   (21.51)   (17.60)   22%
  Transportation expense       (1.81)   (1.99)   (9%)   (1.73)   (1.75)   (1%)
Operating netback ($/boe)    $  42.35 $  33.27   27% $  38.88 $  29.13   33%

(1) The terms cash flow from operations, cash flow from operations per share, working capital deficit and net debt to annualized cash flow ratio are additional GAAP financial measures. These measures are further described on page 3 of the Corporation's MD&A for the three and six months ended June 30, 2014 under the heading "Additional GAAP and Non-GAAP Financial Measures". Users are cautioned that additional GAAP financial measures may not be comparable with the calculation of similar measures by other entities.
(2) Capital expenditures include cash exploration and evaluation expenditure plus cash property, plant and equipment net of dispositions and exclude asset retirement obligations and capitalized share-based payments.
(3) Management uses the terms operating and cash flow netbacks per boe which are non-GAAP measures. These measures are key performance indicators however do not have a standardized meaning as prescribed by GAAP and therefore, may not be comparable with the calculation of similar measures by other entities. Management considers operating and cash flow netbacks to be important measures as they demonstrate profitability relative to current commodity prices.

Operational Review and Update
During the second quarter of 2014, Hawk drilled three (2.9 net) wells in western Saskatchewan, however wet weather in this area delayed completion activities until late July 2014.  The Corporation drilled one (1.0 net) vertical well targeting heavy oil in the Eureka area of western Saskatchewan, which was a follow up to an exploration well drilled in the fourth quarter of 2013. The new well encountered 21 meters of net oil pay in the Basal Mannville Formation, was completed and placed on production at an average rate of 25 bopd. Hawk has received approval for a horizontal well project and plans to drill its first horizontal well at Eureka during the third or fourth quarter of 2014.

The Corporation also drilled two (1.9 net) vertical wells targeting heavy oil in the Baldwinton and Neilburg areas of western Saskatchewan. This Baldwinton well (0.9 net) was completed in the Sparky Formation and placed on production at a rate of 20 (18 net) bopd while the Neilburg well was completed and encountered uneconomic quantities of oil and was subsequently suspended.

In July 2014, Hawk shot six square kilometers of three dimensional ("3D") seismic data in the Forest Bank area of western Saskatchewan where the Corporation recently entered into a 1,440 acre farm-in agreement ("Farm In") with a major company. The 3D seismic has been interpreted and Hawk has identified a number of drilling prospects. Hawk expects to drill its first prospect on the Forest Bank property in the third or fourth quarter of 2014 at which point Hawk will earn a 65% percent working interest in one section of land covered under the Farm In. The Corporation also expects to re-enter several existing wellbores on the Forest Bank property later in 2014, after Hawk has earned an interest in the Farm In lands. These wellbores are expected to be recompleted in formations that have not been tested and appear to have bypassed pay on logs.

Financial
Hawk achieved cash flow from operations in the second quarter of 2014 of approximately $1.9 million compared to $1.6 million for the second quarter of 2013 due to an 8 percent increase in oil production and a 19 percent increase in oil prices in the second quarter of 2014 compared to the second quarter of 2013. Average Western Canadian Select ("WCS") prices for the second quarter of 2014 increased 11% to US $82.95 per bbl compared to US $75.06 per bbl in the second quarter of 2013 while a weaker Canadian dollar, relative to the US dollar, led to a 19 percent increase in Hawk's realized oil prices in the second quarter of 2014 to $84.29 per bbl.  The differential between WCS and West Texas Intermediate crude oil ("Differential") increased slightly to US $20.04 per bbl in the second quarter of 2014 compared to US $19.16 per bbl for the second quarter of 2013.

Hawk generated an operating netback of $42.35 per boe for the second quarter of 2014, a 27 percent increase from the operating netback for the second quarter of 2013 of $32.50 per boe due to increased oil prices in Q2 2014. Production expenses increased in the second quarter of 2014 to average $21.61 per boe compared to $18.03 per boe in the second quarter of 2013 due to increased work-over costs in the second quarter of 2014 as well as increased road maintenance due to wet spring weather.

At June 30, 2014, Hawk had $6.7 million drawn on its existing $12 million credit facility. In August of 2014, Hawk entered into a new $13.5 million revolving credit facility with another Canadian bank to replace its existing $12 million facility. The Corporation continues to maintain a solid balance sheet with net debt and working capital deficit of approximately $8.6 million at June 30, 2014 which equates to a net debt to annualized cash flow from operations of 1.2:1.

Outlook
The Corporation will continue to focus on developing its heavy oil properties in east Central Alberta and western Saskatchewan and has set a $10 million capital budget for 2014. Hawk expects to drill five (4.7 net) vertical wells and one (1.0 net) horizontal well in the second half of 2014. Hawk plans to drill vertical wells at Forest Bank (1.0 net), in western Saskatchewan, and Cadogan (0.7 net), in east central Alberta in the second half of 2014. The Corporation also expects to drill a horizontal well (1.0 net) in the Eureka area of western Saskatchewan in the second half of 2014. The remainder of Hawk's capital program for 2014 is expected to include a combination of additional vertical drilling in the Lloydminster area of Saskatchewan and recompletion activities at Forest Bank.

Hawk's current production is approximately 680 boe/d, based on field estimates. As a result of wet spring and summer weather in western Saskatchewan that delayed drilling and completion activities, Hawk expects its 2014 production to average between 700 to 725 boe/d, down from its previous average 2014 production guidance of 800 boe/d.

Hawk is an emerging exploration company engaged in the exploration, development and production of conventional crude oil and natural gas in western Canada and is based in Calgary, Alberta. The Class A Shares of Hawk trade on the TSX Venture Exchange under the trading symbols of HWK.A.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as the term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Certain statements contained in this press release constitute forward-looking statements. All forward-looking statements are based on the Corporation's beliefs and assumptions based on information available at the time the assumption was made. The use of any of the words "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "believe" and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Hawk believes the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct. Such forward-looking statements included in this press release should not be unduly relied upon. These statements speak only as of the date of this press release.

In particular, but without limiting the forgoing, this press release contains forward-looking statements pertaining to the following: the performance characteristics of Hawk's oil and natural gas properties; business strategies and plans; projections of market prices and cost; supply and demand for oil and natural gas; planned development of the Corporation's oil and natural gas properties; capital expenditure programs for the remainder of 2014; the timing of and nature of capital expenditure program for 2014;expected annual average production rates for 2014; and the expected sources of funding for the capital expenditure program.

The material factors and assumptions used to develop these forward looking statements include, but are not limited to: the ability of the Corporation to engage drilling contractors, to obtain and transport equipment, services, supplies and personnel in a timely manner and at an acceptable cost to carry out its activities and plans; the ability of the Corporation to market its oil and natural gas and to transport its oil and natural gas to market; the timely receipt of regulatory approvals and the terms and conditions of such approval; the ability of the Corporation to obtain drilling success consistent with expectations; and the ability of the Corporation to obtain capital to finance its exploration, development and operations.

Actual results could differ materially from those anticipated in these forward-looking statements as a result of the risk factors including, without limitation: 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 and exploration and development programs; geological, technical, drilling and processing problems; changes in tax laws and incentive programs relating to the oil and natural gas industry; failure to realize the anticipated benefits of acquisitions; general business and market conditions; and certain other risks detailed from time to time in Hawk's public disclosure documents (including, without limitation, the other factors discussed under "Risk Factors" in the Corporation's most recently filed Annual Information Form).

Statements relating to "reserves" or "resources" are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions that the resources and reserves described can be profitably produced in the future. Readers are cautioned that the foregoing lists of factors are not exhaustive. The forward-looking statements contained in this press release are expressly qualified by this cautionary statement. Except as required under applicable securities laws, Hawk does not undertake any obligation to publicly update or revise any forward-looking statements.

Barrels of oil equivalent (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet (mcf) of natural gas to one barrel (bbl) of oil is based on an energy conversion method primarily applicable at the burner tip and is not intended to represent a value equivalency at the wellhead. All boe conversions in this press release are derived by converting natural gas to oil in the ratio of six thousand cubic feet of natural gas to one barrel of oil. Certain financial amounts are presented on a per boe basis, such measurements may not be consistent with those used by other companies.

 

SOURCE Hawk Exploration Ltd.

For further information:

Steve Fitzmaurice
President, CEO and Chairman
Tel: (403) 264-0191 Ext 225
Email: steve@hawkexploration.ca

Dennis Jamieson
Chief Financial Officer
Tel: (403) 264-0191 Ext 234
Email: dennis@hawkexploration.ca