Northern Blizzard Resources Inc. Announces Second Quarter 2016 Results

CALGARY, Aug. 11, 2016 /CNW/ - Northern Blizzard Resources Inc. ("Northern Blizzard" or the "Company") (TSX: NBZ) announces its operating and financial results for the three and six months ended June 30, 2016. Northern Blizzard's financial statements and management's discussion and analysis ("MD&A") for the three and six months ended June 30, 2016 are available on our website at www.northernblizzard.com and on SEDAR at www.sedar.com.

FINANCIAL AND OPERATING HIGHLIGHTS


Three months ended

Six months ended


June 30,
2016

March 31,
2016

June 30,
2015

June 30,
2016

June 30,
2015

Financial  ($000s,except as otherwise noted)






Oil and natural gas sales

81,977

56,660

134,567

138,637

240,606

Funds from operations(1)

33,971

26,792

58,481

60,763

118,541


Per share – diluted

0.28

0.23

0.54

0.51

1.10

Net income (loss)

(69,027)

10,120

(10,466)

(58,907)

(54,373)


Per share – basic

(0.59)

0.09

(0.10)

(0.51)

(0.52)


Per share – diluted

(0.59)

0.09

(0.10)

(0.51)

(0.52)

Net debt(1)

337,535

360,621

366,508

337,522

366,508

Dividends declared

14,062

13,758

25,641

27,820

50,781


Per share

0.120

0.120

0.240

0.240

0.480

Capital expenditures

7,836

6,922

14,403

14,758

36,842

Weighted average shares outstanding (000s)







Basic

116,718

114,208

106,492

115,462

105,454


Diluted

120,350

117,995

108,643

119,170

107,606

Shares outstanding at period end (000s)

117,685

115,475

107,330

117,685

107,330







Operating






Average daily production







Heavy oil (bbl/d)

17,209

18,255

19,412

17,732

19,629


Light oil & NGL (bbl/d)

570

706

1,204

638

1,379


Natural gas (mcf/d)

2,568

2,562

5,894

2,565

6,139


Total (boe/d)

18,207

19,388

21,598

18,798

22,031







Average realized price







Heavy oil ($/bbl)(2)

38.02

21.83

55.70

29.79

47.69


Light oil & NGL ($/bbl)

50.00

35.43

62.97

41.94

54.11


Oil & NGL ($/bbl)

38.40

22.33

56.13

30.22

48.11


Natural gas ($/mcf)

1.27

1.72

2.53

1.50

2.66


Combined ($/boe)

37.68

22.07

54.23

29.73

46.61







Netbacks ($/boe)







Average realized price

37.68

22.07

54.23

29.73

46.61


Royalties

(4.25)

(1.77)

(6.20)

(2.99)

(5.22)


Production and operating expenses

(16.40)

(14.66)

(17.41)

(15.51)

(16.80)


Transportation expenses

(1.95)

(1.37)

(1.92)

(1.65)

(1.95)


Operating netback(1)

15.08

4.27

28.70

9.58

22.64


Realized gains (losses) on financial derivative contracts

12.58

20.87

9.07

16.80

13.60


General and administrative expenses

(2.79)

(4.43)

(3.17)

(3.62)

(2.88)


Cash finance costs

(4.46)

(4.40)

(4.03)

(4.43)

(4.11)


Other

0.03

(0.79)

(0.23)

(0.39)

0.78


Funds from operations(1)

20.44

15.52

30.34

17.94

30.03


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 and six months ended June 30, 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 $30.5 million of cash and an undrawn $300.0 million credit facility.
  • Bonds that mature in 2022 of US$276.3 million with no maintenance covenants.
  • A strong hedge position with realized gains on physical delivery and financial derivative contracts of $55.3 million for the six months ended June 30, 2016. Approximately 60% of our expected 2016 production is hedged.
  • Rigorous cost controls that resulted in a 6% year-over-year reduction in operating costs per barrel. Operating costs per barrel have decreased 22% since the fourth quarter of 2014 when cost controls were initiated.
  • Long-life low-risk reserves and production with an estimated corporate decline rate of 17%.
  • Over 70% of production has a positive operating netback at a WTI price of US$30/bbl.

HIGHLIGHTS

  • Second quarter 2016 production was 18,207 boe/d (98% oil), a 6% decrease compared to the first quarter of 2016. Cactus Lake continued to demonstrate excellent results from the polymer flood and wells drilled in 2015. The increase was offset by natural declines on existing production. Annual 2016 production guidance of 19,000 boe/d remains unchanged.
  • Funds from operations increased 27% to $34.0 million ($0.28 per common share) in the second quarter of 2016 compared to $26.8 million ($0.23 per common share) in the first quarter of 2016. The increase was driven mainly by higher WTI prices and a narrower WTI/WCS differential, partially offset by lower realized hedging gains on financial derivative contracts.
  • Operating costs for the second quarter of 2016 were $16.40 per boe, a 6% decrease from the second quarter of 2015 as Northern Blizzard benefited from cost saving measures implemented across all fields. Operating costs in the second quarter of 2016 were higher than the first quarter of 2016 as is generally expected due to spring break-up conditions and regularly scheduled turnarounds.
  • Capital expenditures for the second quarter of 2016 and six months ended June 30, 2016 totalled $7.8 million and $14.8 million, respectively. Capital expenditures for the first half of 2016 included polymer powder, well workovers and conversions and the drilling of one producing well and one service well.
  • Northern Blizzard increased its 2016 capital program to $55.0 million during the second quarter of 2016, which includes the drilling of 46 (42.3 net) wells in the Cactus Lake, Winter and Coleville areas. Since the end of the second quarter, we have drilled 12 wells.
  • The Cactus Lake polymer flood continues to demonstrate excellent results with stable oil production and stable to declining water-to-oil ratios. Approximately 55% of the area's second quarter production is supported by the polymer flood. Based on the success to date, we recently expanded the polymer flood to approximately 63% of the area's production.
  • At Plover Lake SAGD, the process of reinitiating steam is on-track with increased reservoir pressures and appropriate temperature differences between the injector and producer wells. We are maintaining steam injection rates at close to plant capacity and are now focused on increasing oil production. This may take a number of months and will include operations designed to ensure optimal producing well performance.
  • Northern Blizzard has a comprehensive hedging program in place to protect prices on crude oil volumes and maintain the Company's strong financial position (see Risk Management section for details). The hedging program contributed realized gains on financial derivative contracts of $20.9 million ($12.58/boe) during the second quarter of 2016.
  • Northern Blizzard declared dividends totalling $14.1 million ($0.12 per common share) in the second quarter of 2016. Shareholders elected to receive stock dividends valued at $10.6 million and cash dividends of $3.5 million.
  • Northern Blizzard's ratio of cash dividends paid plus capital expenditures divided by funds from operations was 34% for the second quarter of 2016. Assuming all of the dividends were paid in cash, the ratio for Q2 2016 would have been 64%.
  • Northern Blizzard completed the quarter in a strong financial position with net debt of $337.5 million (including $30.5 million of cash) and an undrawn $300.0 million credit facility.

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

66.51

60.83





WTI / WCS differential





Hedged volumes (bbl/d)

11,500

8,000

-


Average price ($/bbl)

(18.99)

(18.28)

-





Notes:


(1)

Contracts denominated in US dollars have been converted to Canadian dollars at CAD/USD strip prices as of August 5, 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 six months ended June 30, 2016, Northern Blizzard realized $55.3 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 June 30, 2016, Northern Blizzard had $30.5 million of cash, an undrawn $300.0 million credit facility and $356.8 million of senior unsecured notes outstanding (principal amount).

Northern Blizzard's capital expenditure forecast for 2016 is $55.0 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 June 30, 2016, the Company was in compliance with the financial covenants.




Covenant description

Covenant

Position at

June 30, 2016

Senior debt to EBITDA ratio        

Less than 3.0          

0.0

Interest coverage ratio

Greater than 2.5

4.4

 

DIVIDEND

Northern Blizzard currently pays a monthly dividend of $0.04 per share. Northern Blizzard has a Stock Dividend Program ("SDP"), which 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. For dividends declared during the second quarter of 2016, shareholders holding approximately 75% of the Company's outstanding shares participated in the SDP, of which approximately 70% were the Company's significant shareholders.

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 and an updated capital program announced on June 8, 2016. We note there are variations between the actual results for the six months ended June 30, 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 in line with guidance at the end of the year.

Northern Blizzard's 2016 capital program of $55 million includes the drilling of 46 (42.3 net) wells in the third quarter and is focused on the Cactus Lake, Winter and Coleville areas. The third quarter drilling program is expected to result in fourth quarter production of 20,000 boe/d and annual 2016 production of 19,000 boe/d.

Conference Call Today

9:00am MT (11:00am ET)

 

 

Northern Blizzard will host a conference call today, August 11, 2016, starting at 9:00am MT (11:00am ET), to review the Company's second 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 August 25, 2016 and can be accessed by dialing 1 (855) 201-2300 and entering the conference number 1202458 and passcode 98589. The replay will be available approximately one hour following completion of the call. The conference call recording 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;
  • 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: 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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