Northern Blizzard Resources Inc. Announces First Quarter 2016 Results

CALGARY, May 11, 2016 /CNW/ - Northern Blizzard Resources Inc. ("Northern Blizzard" or the "Company") (TSX: NBZ) announces ts operating and financial results for the three months ended March 31, 2016. Northern Blizzard's financial statements and management's discussion and analysis ("MD&A") for the three months ended March 31, 2016 are available on our website at www.northernblizzard.com and on SEDAR at www.sedar.com.

FINANCIAL AND OPERATING HIGHLIGHTS


Three months ended


March 31, 2016

December 31, 2015

March 31, 2015

Financial  ($000s,except as otherwise noted)




Oil and natural gas sales

56,660

79,846

106,039

Funds from operations(1)

26,792

8,175

60,060


Per share – diluted

0.23

0.07

0.56

Net income (loss)

10,120

(14,105)

(43,907)


Per share – basic

0.09

(0.13)

(0.42)


Per share – diluted

0.09

(0.13)

(0.42)

Net debt(1)

360,621

400,508

406,382

Dividends declared

13,758

13,436

25,140


Per share

0.120

0.120

0.240

Capital expenditures

6,922

18,417

22,439

Weighted average shares outstanding (000s)





Basic

114,208

111,597

104,405


Diluted

117,995

115,381

106,468

Shares outstanding at period end (000s)

115,475

112,747

105,459





Operating




Average daily production





Heavy oil (bbl/d)

18,255

17,776

19,848


Light oil (bbl/d)

706

598

1,556


Natural gas (mcf/d)

2,562

4,148

6,388


Total (boe/d)

19,388

19,065

22,469





Average realized price





Heavy oil ($/bbl)(2)

21.83

33.15

39.92


Light oil ($/bbl)

35.43

48.55

47.18


Oil ($/bbl)

22.33

33.64

40.45


Natural gas ($/mcf)

1.72

2.27

2.77


Combined ($/boe)

22.07

32.91

39.32





Netbacks ($/boe)





Average realized price

22.07

32.91

39.32


Royalties

(1.77)

(3.41)

(4.29)


Production and operating expenses

(14.66)

(16.56)

(16.21)


Transportation expenses

(1.37)

(1.94)

(1.98)


Operating netback(1)

4.27

11.00

16.84


Realized gains on financial derivative contracts

20.87

0.27

17.92


General and administrative expenses

(4.43)

(3.03)

(2.59)


Cash finance costs

(4.40)

(4.42)

(4.19)


Other

(0.79)

0.82

1.74


Funds from operations(1)

15.52

4.64

29.72

Notes:

(1)

Funds from operations, net debt and operating netback do not have any standardized meaning prescribed by International Financial Reporting Standards.  See "Non-IFRS Financial Measures" and "Additional IFRS Measures" in the MD&A for the three months ended March 31, 2016 and 2015.

(2)

Average realized heavy oil prices are net of blending expenses and include the impact of physical delivery contracts (when applicable).



WELL POSITIONED FOR LONG-TERM SUSTAINABILITY

Northern Blizzard has good liquidity, a well-structured balance sheet, supportive shareholders and high quality, low decline assets that position the Company for long-term sustainability.

Northern Blizzard's strength is demonstrated by:

  • Significant financial flexibility with only $5.9 million drawn on our $475 million credit facility.
  • Bonds that mature in 2022 of US$276.3 million with no maintenance covenants.
  • A strong hedge position that is expected to add over $100.0 million (over $15.00/boe) to estimated 2016 funds from operations.
  • Rigorous cost controls that resulted in a 10% year-over-year reduction in operating costs per barrel and a reduction in drilling costs of 25 – 30%.
  • Long-life low-risk reserves and production with an estimated corporate decline rate of 15%.
  • Over 70% of production has a positive operating netback at a WTI price of US$30/bbl.


 HIGHLIGHTS

  • First quarter 2016 production was 19,388 boe/d (98% oil), an 8% decrease compared to the same period in 2015. Increased production volumes at Cactus Lake from the polymer flood and the 2015 development program was offset by natural declines on existing corporate production and lower volumes from Plover Lake SAGD. Annual 2016 guidance of 19,000 boe/d remains unchanged.
  • Funds from operations were $26.8 million ($0.23 per common share) for the first quarter of 2016 compared to $60.1 million in the same period in 2015. The decrease was primarily due to lower oil prices.
  • Operating costs for the first quarter of 2016 were $14.66 per boe, a decrease of 10% from the first quarter of 2015 as Northern Blizzard benefited from cost saving measures implemented across all fields.
  • Cost controls included a reduction of personnel during the first quarter of 2016 that resulted in one-time costs of $1.3 million recorded to G&A. After adjusting for the one-time costs, total G&A costs decreased by 5% compared to the first quarter of 2015.
  • Northern Blizzard realized gains on physical delivery and financial derivative contracts of $35.4 million during the first quarter of 2016.
  • Capital expenditures for the first quarter of 2016 totalled $6.9 million. Development during the quarter was focused primarily in the Cactus Lake, Coleville and Winter areas.
  • Northern Blizzard declared dividends totalling $13.8 million ($0.12 per common share) in the first quarter of 2016. Shareholders elected to receive stock dividends valued at $10.2 million and cash dividends of $3.6 million.
  • Northern Blizzard's total payout ratio was 39% for the first quarter of 2016. Total payout ratio is calculated as cash dividends paid plus capital expenditures divided by funds from operations. Assuming all of the dividends were paid in cash, the total payout ratio for Q1 2016 would have been 77%.
  • Northern Blizzard completed the quarter in a strong financial position with net debt of $360.6 million and only $5.9 million drawn on its credit facility. Net debt to trailing four quarters funds from operations was 2.7x.
  • Northern Blizzard has a comprehensive hedging program in place to protect prices on crude oil volumes and maintain the Company's strong financial position. The Company has WTI hedges in place of 11,500 bbl/d for the balance of 2016, which represents over 60% of anticipated 2016 production, at an average price of C$79.50/bbl, 10,000 bbl/d in 2017 at an average price of C$66.19/bbl and 6,000 bbl/d in 2018 at an average price of C$60.64/bbl. (see Risk Management)

OPERATIONS REVIEW

Capital spending during the first quarter of 2016 was $6.9 million. This included polymer powder, well workovers and conversions and the drilling of one water disposal well.  We currently have no additional drilling in our 2016 budget as year-to-date oil prices do not support economic returns to justify investing capital.

We continue to focus on managing assets to lower base decline rates and reducing cost structures to the lowest sustainable levels. In this regard, we have been very successful. Operating costs for the first quarter of 2016 were below $15.00 per boe, as we continue to benefit from the rigorous cost controls initiated in late 2014. G&A costs for the first quarter of 2016 reflected salary roll backs and the difficult decision to reduce the number of personnel, which resulted in one-time severance costs.

Over 70% of our assets have a positive operating netback at a WTI price of US$30/bbl. This includes Cactus Lake, Court, Winter and Coleville Viking assets, where average operating costs are below $12.50/boe and average royalty rates are approximately 8%.  These assets are the core of our asset base and continue to provide excellent economic returns even at lower oil prices. In these core areas, Northern Blizzard has over 1,000 drilling locations with anticipated rates of return greater than 30% at WTI prices of US$40–$45/bbl.

At our Plover Lake SAGD project, production has been lower than anticipated. We have completed a detailed review of our project and of analogs. Based on our review, Northern Blizzard has completed a series of facility improvements and downhole workovers. We have re-established steam injection capacity to 6,000 cold water equivalent ("CWE") barrels per day and have been increasing the amount of steam injected into the reservoir.  Currently, field steam injection is over 5,000 CWE barrels per day and should reach maximum steam injection of just under 6,000 CWE barrels per day within 60 days. Oil production is expected to follow the increased steam injection.

RISK MANAGEMENT

Northern Blizzard has a comprehensive hedging program in place to protect prices on crude oil volumes and maintain the Company's strong financial position.  A summary of Northern Blizzard's current hedge position is provided in the table below.

(C$)(1,2)

2016

2017

2018





WTI





Hedged volumes (bbl/d)

11,500

10,000

6,000


Average price ($/bbl)

79.50

66.19

60.64





WTI / WCS differential





Hedged volumes (bbl/d)

11,500

8,000

-


Average price ($/bbl)

(18.87)

(18.28)

-





Notes:

(1)

Contracts denominated in US dollars have been converted to Canadian dollars at CAD/USD strip prices as of May 9, 2016.

(2)

The prices and volumes in this table represent averages for several contracts over the respective periods presented.  The average price of a group of contracts is for indicative purposes only and does not have the same settlement profile as the individual contract. Details of the risk management contracts are disclosed in the notes to the Company's condensed consolidated interim financial statements.



During the first quarter of 2016, Northern Blizzard realized $35.4 million in gains on physical delivery and financial derivative contracts.  The gains realized were mainly on Canadian dollar WTI contracts due to lower than hedged oil prices.

FINANCIAL LIQUIDITY

At March 31, 2016, Northern Blizzard had $5.9 million drawn on our $475 million credit facility, $358.8 million of senior unsecured notes outstanding (principal amount) and a working capital surplus of $4.0 million.

Northern Blizzard has a stock dividend program that enables shareholders to receive dividends in the form of common shares. The Company's significant shareholders, that hold approximately 70% of the outstanding shares, have indicated that they will continue to receive stock dividends.

Northern Blizzard's capital expenditure forecast for 2016 is $40.0 million. Northern Blizzard anticipates that funds from operations, together with the revolving credit facility, will be sufficient to finance current operations, cash dividends, planned capital expenditures and working capital requirements.

Northern Blizzard's credit facility has two financial covenants that are calculated quarterly. The calculation for each financial covenant is based on specific definitions and cannot be calculated by referring to Northern Blizzard's consolidated financial statements. At March 31, 2016, the Company was in compliance with the financial covenants.




Covenant description

Covenant

Position at

March 31, 2016

Senior debt to EBITDA ratio

Less than 3.0

0.1

Interest coverage ratio

Greater than 2.5

5.2




DIVIDEND

Northern Blizzard currently pays a monthly dividend of $0.04 per share. Northern Blizzard has a Stock Dividend Program ("SDP") and shareholders holding approximately 74% of the Company's outstanding shares currently participate in the SDP.

The SDP allows shareholders to elect to receive their dividends in the form of common shares in lieu of receiving a cash dividend on the dividend payment date. Participation in the SDP is optional; additional information can be found on Northern Blizzard's website at www.northernblizzard.com or by contacting your financial institution or investment advisor. The availability of the SDP and its terms and conditions are subject to the discretion of Northern Blizzard's Board of Directors.  

GUIDANCE

Northern Blizzard's guidance is based on annual estimates released on February 12, 2016. We note there are variations between the actual results for the first quarter of 2016 and the annual estimates mainly due to the nature of operations over the course of a year. Northern Blizzard expects actual 2016 results to be close to guidance at the end of the year.

Conference Call Today
9:00am MT (11:00am ET)


Northern Blizzard will host a conference call today, May 11, 2016, starting at 9:00am MT (11:00am ET), to review the Company's first quarter 2016 results. Participants can access the conference call by dialing (403) 532-5601 or toll-free (US & Canada) 1 (855) 353-9183 and entering the passcode 98589.

A recording of the conference call will be available until May 25, 2016 and can be accessed by dialing 1 (855) 201-2300 and entering the conference number 1196599 and passcode 98589. The replay will be available approximately one hour following completion of the call. The conference call will also be available on Northern Blizzard's website at www.northernblizzard.com.

 

Advisories

BOE Conversion and Other Advisories

In this news release, natural gas has been converted to boe based on a conversion rate of six thousand cubic feet of natural gas to one barrel (6 mcf : 1 bbl), which represents an energy equivalency conversion method applicable at the burner tip and does not represent a value equivalency at the wellhead. While it is useful for comparative measures, it may not accurately reflect individual product values and may be misleading if used in isolation.

Unless otherwise indicated, all currency is in Canadian dollars.

Forward-Looking Statements

This news release contains certain forward-looking statements and forward-looking information (collectively referred to as "forward-looking statements") within the meaning of applicable Canadian securities laws. All statements other than statements of historical fact are forward-looking statements. Forward-looking statements contain words such as "anticipate", "believe", "plan", "continuous", "estimate", "expect", "may", "will", "project", "should", or similar words suggesting future outcomes.

In particular, this news release contains forward-looking statements pertaining to the following:

  • Business plans and strategies;
  • Capital expenditures for 2016;
  • Methods and ability to finance operations, dividends, capital expenditure programs and working capital requirements;
  • Anticipated oil and natural gas production levels in 2016;
  • Future oil and natural gas prices;
  • Additions to funds from operations arising from hedge positions;
  • Future costs including operating, transportation and administrative costs and royalty rates;
  • 2016 funds from operations; and
  • Payment of dividends.

Undue reliance should not be placed on forward-looking statements, which are inherently uncertain, are based on estimates and assumptions, and are subject to known and unknown risks and uncertainties (both general and specific) that contribute to the possibility that the future events or circumstances contemplated by the forward-looking statements will not occur. There can be no assurance that the plans, intentions or expectations upon which forward-looking statements are based will be realized. Actual results will differ, and the difference may be material and adverse to the Company and its shareholders.

With respect to forward-looking statements contained in this news release, management has made assumptions regarding future production levels; future oil and natural gas prices; future operating costs; timing and amount of capital expenditures; the ability to obtain financing on acceptable terms; availability of skilled labour and drilling and related equipment; general economic and financial market conditions; continuation of existing tax and regulatory regimes; and the ability to market oil and natural gas successfully to current and new customers.  Although management considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect.

By their very nature, forward-looking statements involve inherent risks and uncertainties (both general and specific) and risks that the goals or figures contained in forward-looking statements will not be achieved. These factors include, but are not limited to, risks associated with fluctuations in market prices for crude oil, natural gas and diluent, general economic, market and business conditions, substantial capital requirements, uncertainties inherent in estimating quantities of reserves and resources, extent of, and cost of compliance with, government laws and regulations and the effect of changes in such laws and regulations from time to time, the need to obtain regulatory approvals on projects before development commences, environmental risks and hazards and the cost of compliance with environmental regulations, aboriginal claims, inherent risks and hazards with operations such as fire, explosion, blowouts, mechanical or pipe failure, cratering, oil spills, vandalism and other dangerous conditions, potential cost overruns, variations in foreign exchange rates, diluent supply shortages, competition for capital,  equipment, new leases, pipeline capacity and skilled personnel, credit risks associated with counterparties, the failure of the Company or the holder of licenses, leases and permits to meet requirements of such licenses, leases and permits, reliance on third parties for pipelines and other infrastructure, changes in royalty regimes, failure to accurately estimate decommissioning costs, inaccurate estimates and assumptions by management, effectiveness of internal controls, the potential lack of available drilling equipment and other restrictions, failure to obtain or keep key personnel, title deficiencies with the Company's assets, geo-political risks, risks that the Company does not have adequate insurance coverage, risk of litigation and risks arising from future acquisition activities. Additionally, the payment of dividends is dependent on the satisfaction of the applicable liquidity and solvency tests imposed by the Business Corporations Act (Alberta). The foregoing risks and other risks are described in more detail in the Company's annual information form for the year ended December 31, 2015. Readers are cautioned that these factors and risks are difficult to predict and that the assumptions used in the preparation of such information, although considered reasonably accurate at the time of preparation, may prove to be incorrect. Accordingly, readers are cautioned that the actual results achieved may vary from the information provided herein and the variations could be material. Readers are also cautioned that the foregoing list of factors is not exhaustive. Consequently, there is no representation by the Company that actual results achieved will be the same in whole or in part as those set out in the forward-looking statements. Furthermore, the forward-looking statements contained in this news release are made as of the date hereof, and the Company does not undertake any obligation, except as required by applicable securities legislation, to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained herein are expressly qualified by this cautionary statement.

SOURCE Northern Blizzard Resources Inc.

For further information: about Northern Blizzard Resources Inc., please visit our website at www.northernblizzard.com or contact: Northern Blizzard Resources Inc., Telephone: 403-930-3000, John Rooney, Chairman & Chief Executive Officer; Michael Makinson; Vice President, Finance & Chief Financial Officer

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