Hawk Announces First Quarter 2014 Results

CALGARY, May 28, 2014 /CNW/ - Hawk Exploration Ltd. ("Hawk" or the "Corporation") announces its results for the three months ended March 31, 2014. The Corporation's interim financial statements for the three months ended March 31, 2014 and management's discussion and analysis for the three months ended March 31, 2014 are available for viewing on SEDAR at www.sedar.com or on Hawk's website at www.hawkexploration.ca under Investor Information - Financial Reports.

HIGHLIGHTS

Highlights for the three months ended March 31, 2014 were as follows:

  • Achieved record production of 702 boe/d of production in the first quarter of 2014, a 13% increase over the 624 boe/d average production in the first quarter of 2013;
  • Generated funds flow from operations of $1.8 million in the first quarter of 2014, a 46% increase from the $1.2 million in funds flow in the first quarter of 2013;
  • Drilled four (4.0 net) vertical wells in the first quarter of 2014 resulting in three (3.0 net) oil wells and one (1.0 net) dry and abandoned well;
  • Increased Hawk's operating netback in the first quarter of 2014 by 30% to $35.59 per boe over the fourth quarter of 2013 and by 43% over the first quarter of 2013; and
  • Subsequent to March 31, 2014, entered into a farm-in agreement in the Forest Bank area of western Saskatchewan covering 2.3 sections of land.

Selected financial and operational information for the three months ended March 31, 2014 is provided as follows:

             
  Three months ended March 31,
    2014   2013   % Change
Financial ($000's except per share amounts)            
Petroleum and natural gas sales       $  4,661 $  2,917   60%
Cash flow from operations (1)         1,759   1,204   46%
  Per share         0.05   0.03   66%
Comprehensive income (loss)          (651)   (159)   309%
  Per share          (0.02)   0.00   n/a
Capital expenditures (2)         2,869   2,118   35%
             
Working capital deficit - excluding bank            
  debt and commodity contracts, end of period (1)     $ 2,586 $ 2,620   (1%)
Bank debt, end of period         6,150   3,200   92%
Total assets, end of period      $ 36,181   31,832   14%
Common Shares outstanding end of period:            
  Class A Shares         34,606   34,481   0%
  Class B Shares         1,080   1,080   0%
  Options to acquire Class A Shares         3,422   2,473   38%
             
  Three months ended March 31,
    2014   2013   % Change
Operations            
Production            
  Crude oil and natural gas liquids (bbl/d)        681   597   14%
  Natural gas (mcf/d)         125   159   (21%)
  Total (boe/d)         702   624   13%
Oil and liquids as percent of total         97%   96%   1%
Average Selling Price            
  Crude oil and ngls (per bbl)       $ 74.98 $  53.40   40%
  Natural gas (per mcf)         5.82   3.31   76%
  Total (per boe)         73.79   51.97   42%
Operating netback (per boe at 6:1) (3)             
  Price      $  73.79 $  51.97   42%
  Royalties          (15.13)   (8.41)   80%
  Production expense          (21.41)   (17.17)   25%
  Transportation expense          (1.66)    (1.51)   10%
Operating netback ($/boe)      $   35.59 $  24.88   43%
(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 months ended March 31, 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.

Financial
Hawk achieved cash flow from operations in the first quarter of 2014 of approximately $1.8 million compared to $1.2 million for the first quarter of 2013 due primarily to increased realized oil prices as well as increased liquids production in the first quarter of 2014. Western Canadian Select ("WCS") prices for the first quarter of 2014 averaged US$75.55 per bbl compared to US$62.41 per bbl in the first quarter of 2013, a 21% increase. Hawk's realized oil prices increased by 41% in the first quarter of 2014 to $74.85 per bbl compared to $53.17 per bbl in the first quarter of 2013 due to the increased WCS prices in addition to a weaker Canadian dollar.

Hawk generated an operating netback of $35.59 per boe for the first quarter of 2014 which is 43 percent higher than operating netbacks for the first quarter of 2013 of $24.88 per boe due to mainly to increased realized oil pricing in 2014. Production expenses for the first quarter of 2014 increased to $21.41 per boe compared to $17.17 per boe for the comparative period of 2013 due to increased costs for propane associated with the cold winter weather experienced in the quarter and as a result of a one-time gas processing adjustment related to the Dolcy property.

At March 31, 2014, Hawk had $6.15 million drawn on its existing $12 million credit facility. The Corporation continues to maintain a solid balance sheet with net debt and working capital deficit of approximately $8.7 million at March 31, 2014 which equates to a net debt to annualized cash flow from operations ratio of 1.2:1.

Outlook
The Corporation has set a $10 million capital budget for 2014 that will focus on drilling opportunities in western Saskatchewan and east central Alberta targeting medium and heavy crude oil. Hawk plans to drill four (3.7 net) vertical wells in the second quarter of 2014. All four (3.6 net) locations are independent drilling prospects situated on lands which allow for further follow-up development drilling, should the wells prove successful. Hawk plans to drill one (1.0 net) vertical well targeting heavy oil in the Eureka area of western Saskatchewan which is a follow-up to a well drilled by the Corporation in the fourth quarter of 2013. To date, Hawk has acquired approximately 1,900 net acres of prospective land in the Eureka area. Hawk also plans to drill two (1.9 net) vertical wells targeting heavy oil in the Neilburg and Baldwinton areas of western Saskatchewan where, collectively, Hawk has acquired 1,280 net acres of land. Additionally, Hawk plans to drill one (0.7 net) well targeting medium oil in the Provost area of east central Alberta where the Corporation has acquired 560 net acres of land.

Hawk has recently entered into a farm-in agreement in the Forest Bank area of western Saskatchewan where the Corporation is expected to shoot three dimensional seismic data covering approximately 5 square kilometers of the farm-in lands in the second quarter of 2014. Hawk is also committed to drilling one well to earn a 65% working interest in 640 acres of land which is expected to be drilled in the third quarter of 2014. The Corporation also has a rolling option on approximately 800 acres of additional land where Hawk can earn a 65% working interest through future drilling under this farm-in agreement.

Hawk expects second quarter 2014 production to average slightly less than the 702 boe/d produced in the first quarter. This decrease is attributed to wet weather associated with a later than normal spring break up as well as natural production declines. The Corporation does not expect any additional production from its planned second quarter 2014 drilling program to be placed on production prior to the end of June, 2014.

As of July 31, 2014, it is expected that all of the Corporation's Class B shares will be converted to Class A shares of Hawk. Hawk expects to issue 10.8 million Class A shares upon the conversion of the 1,080,000 outstanding Class B shares, after which Hawk expects to have 45,525,952 Class A shares outstanding. Further details on the conversion of the Class B shares are provided in Note 10 to the condensed interim financial statements for the three months ended March 31, 2014.

Annual General Meeting
Hawk's annual general meeting of shareholders will be held on Tuesday, June 10, 2014 at 3:00 pm at the offices of McCarthy Tetrault LLP, Suite 4000, 421-7th Avenue SW, Calgary, AB.

Updated Corporate Presentation
An updated corporate presentation is available for viewing on the Corporation's website at www.hawkexploration.ca under Investor Info - Presentation. 

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 and Class B Shares of Hawk trade on the TSX Venture Exchange under the trading symbols of HWK.A and HWK.B, respectively.

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 the capital expenditure program for 2014; expected second quarter 2014 average production; the expected conversion of the Class B shares to Class A shares; and the expected sources of funding for the 2014 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

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