Twin Butte Energy Announces 2013 Q3 Results

CALGARY, Nov. 14, 2013 /CNW/ - (TSX: TBE) - Twin Butte Energy Ltd. ("Twin Butte" or the "Company") is pleased to report financial and operational results for the three and nine months ended September 30, 2013.

Highlights of Twin Butte's third quarter 2013 are as follows:

  • Continued demonstration of a disciplined business plan, supporting our sustainable dividend paying model with a payout ratio of 60 percent and a total payout ratio net of the DRIP and SDP of 57 percent in the third quarter 2013. For the nine months ended September 30 the payout ratio was 80 percent and total payout ratio net of the DRIP and SDP was 75 percent. Since implementation of the Company's dividend in January 2012, $0.30 per share in dividends have been paid as at the end of September.

  • Recorded quarterly production of 16,263 boe per day, an increase of 18 percent over the same period of 2012.

  • Generated quarterly funds flow of $34.9 million, which strongly supported the dividend and net capital program while providing excess cash flow to reduce debt by $14.7 million over the quarter.

  • Executed an organic capital program of $30.7 million at a 90 percent success rate, which included the drilling of 31 gross (31 net) wells, including 10 horizontal wells. The Company successfully divested of a net $21.7 million (350 boe per day) in non-core assets in the quarter resulting in a $9.0 million net capital program.

  • Maintained a solid balance sheet with net debt at $179.0 million relative to the September 30 credit facility of $280 million, representing a run rate debt to cash flow of 1.3 years.

Certain selected financial and operations information for the three and nine months ended September 30, 2013 and 2012 comparatives are outlined below and should be read in conjunction with Twin Butte's interim financial statements and accompanying Management Discussion and Analysis ("MD&A") for the three and nine months ended September 30, 2013 and the audited annual Financial Statements and accompanying MD&A for the year ended December 31, 2012.  Full versions of the statements and accompanying notes will be filed on SEDAR and also on the Company website.

Highlights

Twin Butte Energy Ltd. ("Twin Butte" or the "Company") (TSX: TBE) is pleased to announce its financial and operational results for the three and nine months ended September 30, 2013.

        Three months ended September 30   Nine months ended September 30
        2013   2012   % Change   2013   2012   % Change
Financial ($ 000's, except per share amounts)                            
Petroleum and natural gas sales       117,478   73,386   60%   287,739   216,056   33%
Funds flow (1)       34,899   38,119   -8%   100,380   98,281   2%
Per share basic        0.14   0.19   -26%   0.40   0.50   -20%
Per share diluted       0.14   0.19   -26%   0.40   0.50   -20%
Net income (loss)        8,111   (7,411)   -209%   (27,605)   36,912   -175%
Per share basic        0.03   (0.04)   -175%   (0.11)   0.19   -158%
Per share diluted       0.03   (0.04)   -175%   (0.11)   0.19   -158%
Dividends declared       12,079   9,401   28%   36,709   26,674   38%
Dividends declared, Post DRIP       10,782   8,861   22%   32,052   26,134   23%
Capital expenditures (2)       9,027   17,827   -49%   43,544   51,133   -15%
Corporate acquisitions (2)       -   89,128   0%   -   290,411   -100%
Net debt (3)       179,012   146,843   22%   179,012   146,843   22%
Operating                            
Average daily production                            
Crude oil (bbl per day)       14,042   11,589   21%   14,432   11,066   30%
Natural gas (Mcf per day)       12,111   11,695   4%   12,888   14,289   -10%
Natural gas liquids (bbl per day)       202   213   -5%   205   277   -26%
Barrels of oil equivalent (boe per day, 6:1)       16,263   13,752   18%   16,785   13,724   22%
% Oil and NGLs       88%   86%   2%   87%   83%   5%
Average sales price                            
Crude oil ($ per bbl)       87.52   64.97   35%   68.87   66.21   4%
Natural gas ($ per Mcf)       2.64   2.42   9%   3.37   2.28   48%
Natural gas liquids ($ per bbl)       78.71   76.97   2%   80.80   84.48   -4%
Barrels of oil equivalent ($ per boe, 6:1)       78.52   58.01   35%   62.79   57.46   9%
Operating netback ($ per boe) (4)                            
Petroleum and natural gas sales       78.52   58.01   35%   62.79   57.46   9%
Cash (loss) gain on derivative instruments       (10.87)   8.02   -236%   0.27   5.75   -95%
Royalties       (17.51)   (11.40)   -54%   (13.29)   (12.89)   -3%
Operating expenses       (21.53)   (18.38)   -17%   (22.12)   (18.05)   -23%
Transportation expenses       (2.48)   (2.45)   -1%   (2.59)   (2.39)   -8%
Operating netback       26.13   33.80   -23%   25.06   29.88   -16%
Wells drilled                             
Gross       31.0   24.0   29%   71.0   72.0   -1%
Net       31.0   18.0   72%   71.0   54.2   31%
Success (%)       92   100   -8%   92   98   -6%
Common Shares                            
Shares outstanding, end of period       252,059,154   217,224,921   16%   252,059,154   217,224,921   16%
Weighted average shares outstanding - diluted       252,285,450   201,321,327   25%   251,380,863   194,178,075   29%
                             
(1) Funds flow from operations and funds flow from operating netback are non-GAAP measures that represent the total and the average per boe,
respectively, of cash provided by operating activities, before adjusting for changes in non-cash working capital items and expenditures on
decommissioning liabilities.
(2) Corporate acquisitions is a non-GAAP measure and includes total consideration plus working capital deficiency acquired in a corporate
acquisition. 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.
(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.

Corporate

The third quarter of 2013 was highlighted by a successful drilling program in combination with several strategic non-core asset dispositions. Twin Butte's disciplined use of capital positioned the Company's balance sheet for the early fourth quarter acquisition of Black Shire Energy Inc. ("Black Shire"). The subject transaction, which closed on November 5th, has significantly enhanced the Company's cash generating capability providing for continued dividend sustainability while increasing the Company's strong horizontal drilling inventory. The Black Shire acquisition added a new core operating area in the greater Provost area producing 7,000 boe per day (93% medium gravity oil). Post the acquisition, our strategy of delivering long term total returns to shareholders based on a sustainable dividend plus moderate production per share growth has never been stronger.

Strong commodity pricing in both West Texas Intermediate ("WTI") and the heavy oil benchmark Western Canadian Select ("WCS") through the second and third quarters of 2013 have now reverted to numbers similar to late 2012. Short term through the end of the first quarter of 2014 forecast pricing resembles pricing from a year ago, but the Company remains optimistic long term quality differentials will be minimized as additional Canadian export capacity is developed and the demand for Canadian heavy oil increases. Fortunately, the Company's strong hedge position will provide downside price protection through the end of 2013. The Company does have exposure to the current differential forecast in early 2014 but will monitor conditions and has phased 2014 capital spending accordingly.

Financial

The third quarter provided our highest funds flow from operations this year at $34.9 million, largely due to stronger commodity pricing as well as an improvement in operating costs over the second quarter. Capital spending for the third quarter was $9.0 million after netting $21.7 million of non-core property dispositions. The Company has delivered a successful focused disposition program having sold $29.3 million of noncore assets year to date as our operations grow more focused to the greater Lloydminster and Provost areas. In 2014 the Company believes it will continue to have success in its non-core disposition program as a way of continually focusing and enhancing the quality of its asset base.

Post closing the Black Shire acquisition, the Company has total net debt of approximately $367 million on a recently expanded $400 million credit facility. This current debt represents approximately 1.7 times forecast 2014 cash flow.

Operating costs in the third quarter decreased to $21.53 per boe, as a result of increased production volumes from successful drilling at areas such as Wildmere and Swimming. The Company's focused drilling program in both areas has led to lower unit costs, something the Company anticipates will be a continuing trend. The recently closed acquisition of Black Shire will further concentrate the Company's operations which are anticipated to lower overall corporate operating costs by $1.00 to $2.00 per boe in 2014.

Twin Butte's third quarter financial and operating results continue to demonstrate the Company's ability to pay a sustainable dividend and maintain a strong balance sheet while completing a disciplined efficient capital plan. Our strategy of delivering shareholders long term returns comprised of both income and moderate production growth while maintaining conservative payout ratios is sustainable.

At the current annual dividend rate of $0.192 per share the Company continues to target a sustainable total (dividend plus capital expenditure) payout ratio of less than 100 percent of cash flow on an annual basis. This will ensure balance sheet flexibility is maintained while providing shareholders moderate organic production growth. The Company's Board of Directors has approved continuation of the existing dividend to the end of the first quarter of 2014.

Operations

During the third quarter of 2013 Twin Butte maintained its high historic drilling success rate, drilling 31 gross (31 net) wells, achieving a 90 percent success rate, including a number of successful exploratory wells which will lead to additional development offset drilling over the next few quarters. The high success rate continues to demonstrate the predictable and repeatable potential of the Company's drilling inventory, which recently expanded to over 800 net conventional heavy and medium gravity oil wells post the Black Shire acquisition. The Company's drilling focus will continue to be within the Lloydminster area as well as the newly acquired medium oil gravity assets at Provost.

The Company's progression to more horizontally based drilling is part of an ongoing effort to maintain and improve the Company's capital efficiencies. Twin Butte continues to expand its horizontal drilling inventory and the Black Shire acquisition has added in excess of 100 drill ready, highly repeatable, horizontal locations. Of the 31 wells drilled in the third quarter, 10 were horizontal wells that continue to meet or surpass our capital efficiency and production criteria. The Company now anticipates upwards of 37 horizontal wells will be drilled in 2013. Twin Butte sees this trend continuing and it is anticipated that the Company will drill between 70 - 80 horizontal wells and 40-60 vertical wells in the Lloydminster and Provost areas in 2014.

In the third quarter of 2013, Twin Butte drilled nine horizontal wells at Wildmere as follow up to successful horizontal drilling in the first and second quarter. Drilling continues at Wildmere in the fourth quarter with an additional 6 successful wells already completed. Twin Butte estimates that Wildmere's drilling inventory is at least 35 wells based on the recently expanded undeveloped land base at the property. Expansion of existing area infrastructure at Wildmere is planned for the fourth quarter, which will support continued attractive netbacks from the property.

At Frog Lake, the first of a planned three well fourth quarter horizontal program has recently spud. At Soda Lake three horizontal wells have been recently drilled to de-risk area lands.

Based on the success of the Company's horizontal drilling program, its growing inventory of horizontal locations, as well as the drilling inventory added with the Black Shire acquisition, Twin Butte is confident its operational momentum and production growth will be reestablished over the next number of quarters. This will lead to further stability and potential increases in the Company's cash flow, and provide further sustainability of the Company's dividend.

Late in the second quarter of 2013 Twin Butte completed construction of a cleaning/staging facility at Lashburn which has lead to increased rail car shipments now exceeding 30 percent of the Company's heavy oil volumes. Throughout the third quarter over a $2.00 per bbl premium was received on volumes shipped by rail and the Company anticipates with higher differentials late in 2013 and early 2014 these premiums will be significantly enhanced. The possibility of increasing the facility capacity in early 2014 is being evaluated.

Outlook

Twin Butte will continue to execute its stated business plan in 2013 and 2014. The Company believes its business plan of a sustainable dividend and moderate per share growth will continue to attract investor interest over the long term. We remain committed to continually enhancing the Company's asset quality through organic growth and strategic acquisitions.

As a larger, stronger company post the Black Shire acquisition, the Company is on track to meet a 2013 exit production rate of 23,300 boe per day while maintaining debt below $370 million. The Company anticipates these volumes will grow to approximately 24,500 by the end of 2014 providing approximately 5 percent growth. Based on a forecast 2014 annual production rate of 23,500 boe per day (92 percent oil) a West Texas oil price of $95 US and a differential to Western Canadian Select of $24 per bbl the Company anticipates 2014 cash flow will exceed $210 million. The company anticipates paying approximately $65 million in dividends leaving approximately $145 for its planned capital program. The Company's capital expenditures will continue to be matched with cash flows to ensure the Company continues to operate at or below a 100 percent total payout ratio on an annual basis.

In light of the abnormally high WTI vs. WCS differentials forecast for early 2014 and the fact that differentials are forecast to contract materially later in 2014, the Company anticipates phasing its capital spending program to be somewhat weighted to the latter half of 2014. This will ensure production volumes are optimized with commodity pricing therefore minimizing payout periods and maximizing return on investment.

Twin Butte remains in an enviable position in that it has a strong balance sheet, a predictable production profile and a current inventory of over 800 net medium and heavy oil drilling locations. The Company's growing horizontal program has made a meaningful difference to corporate performance. Conventional medium and heavy oil wells generate some of the top percentile return on investment of all plays in North America and the Company believes its current sizable drilling inventory has the ability to fuel the Company's dividend and moderate growth strategy for years to come.

A sustained pace of repeatable development drilling and disciplined capital spending will maximize capital efficiencies, economic returns and minimize payout times, providing visible sustainability to Twin Butte's dividend and anticipated Company growth.

About Twin Butte

Twin Butte is a value oriented, intermediate producer with a significant and growing scalable and repeatable drilling inventory focused on large original oil in-place conventional medium and heavy oil exploitation. With a stable low decline production base the Company is well positioned to live within cash flow while providing shareholders with a sustainable dividend and moderate per share production growth potential over the long term.

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 Company's expectations on well declines; future dividend levels; cash flow forecasts; the volumes and estimated value of Twin Butte's oil and natural gas reserves; the life of Twin Butte's reserves; 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 heading "Outlook" herein, including estimated budget levels and targeted pay-out ratio in respect of the payment of dividends. In addition, statements relating to "reserves" are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and can be profitably produced in the future.

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; decline rates based on analogous information; our ability to market its oil and natural gas successfully to current and new customers; the impact of increasing competition; Twin Butte's ability to obtain financing on acceptable terms; and Twin Butte's ability to add production and reserves through our 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:  further instability in the production volumes at the Company's Primate property; the risks associated with the oil and gas industry; commodity prices; 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 recovery and reserve estimates of Twin Butte's reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Readers are cautioned that this list of risk factors should not be construed as exhaustive.

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.

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, they may not be comparable to measures used by other companies. In addition the terms payout and total payout are also not recognized terms under GAAP. Payout is defined as funds flow less dividends paid and capital expenditures before corporate acquisitions. Total payout would see the dividends paid include only cash dividends.

Analogous Information

In this news release, Twin Butte has provided certain information on the production profile and estimates of decline rates on its Primate property which is "analogous information" as defined by applicable securities laws. This analogous information is derived from publicly available information sources which the Company believes are predominantly independent in nature. Some of this data may not have been prepared by qualified reserves evaluators or auditors and the preparation of any estimates may not be in strict accordance with Canadian Oil & Gas Evaluation Handbook.  Regardless, estimates by engineering and geo-technical practitioners may vary and the differences may be significant. Twin Butte believes that the provision of this analogous information is relevant to Twin Butte's activities and forecasting, given its property ownership in the area; however, readers are cautioned that there is no certainty that the forecasts provided herein based on analogous information will be accurate.

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.

Jim Saunders

President and C.E.O.

November 14, 2013

SOURCE: Twin Butte Energy Ltd.

For further information:

Twin Butte Energy Ltd. 

Jim Saunders
President and Chief Executive Officer
Tel: (403) 215-2040
Fax: (403) 215-2055

R. Alan Steele
Vice President, Finance, Chief Financial Officer and Corporate Secretary
Tel: (403) 215-2692
Fax: (403) 215-2055

Website:  www.twinbutteenergy.com

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Twin Butte Energy Ltd.

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