Sea Dragon Energy Inc. announces fourth quarter and year-end 2014 financial and operating results and provides guidance for 2015

CALGARY, April 2, 2015 /CNW/ - Sea Dragon Energy Inc. ("Sea Dragon" or the "Company") (TSXV: SDX), an oil and gas exploration and production company with assets in Egypt, is pleased to announce its financial and operating results for the three months and year ended December 31, 2014. All dollar values are expressed in United States dollars net to the Company unless otherwise stated.

2014 Highlights:

Financial Highlights

  • Realized Net Revenues of US$19.9MM and a Netback of US$11.9MM;
  • Realized average oil price  for the year of US$93.92/bbl;
  • Invested US$4.3MM in capital expenditure in its assets;
  • Exited the year with cash on hand of US$3.0MM;
  • Realized a Net Loss of US$9.0MM compared to 2013 of US$7.7MM.  Net loss in 2014 was driven by Net Revenues lower by US$9.5MM and an impairment of US$2.8MM for the NW Gemsa concession due to falling crude oil prices and a write-down of US$1.2MM for materials inventory;
  • Ended the year with US$10.1MM of debt, of which US$6.0MM in bank guarantees will be replaced in 2015 by the South Disouq farminee;
  • Reduced G&A by 23% year on year.

Operational Highlights

  • Average daily production for 2014 was 1,479 boepd;
  • Drilled 3 successful development wells in the North West Gemsa concession. The field reached a peak rate of 13.5Mboepd (gross) in Q3 and stabilized at a plateau of 10.0 Mboepd (gross) in Q4;
  • Received approval of the South Disouq concession in the Nile Delta as operator;
  • Acquired 26 additional 2D seismic lines covering the South Disouq concession and remapped the area;
  • Initiated a 3D seismic tendering process for the South Disouq concession;
  • Completed an independent resource report for the South Disouq concession resulting in estimated unrisked Gross Prospective Resources of 11.2 MMBOE (P90), 73.2 MMBOE (P50) and 242.2 MMBOE (P10) (4);
  • Completed an independent resource report for the South Ramadan concession resulting in estimated unrisked Gross Contingent Resources of 5.2 MMBO (1C), 39.7 MMBO (2C) and 65.0 MMBO (3C). (1)

Subsequent to year-end:

  • Completed the farm out of a 45% interest in the South Disouq concession;
  • Received US$1.9MM proceeds of the signature bonus from South Disouq concession;
  • Farm in partner posted US$6MM in work program guarantees, replacing the Company's guarantees which will be released upon government ratification. The associated bank debt will be retired immediately upon release of the guarantees;
  • US$3MM of such guarantees have now been released and is in process of being repaid to the banks; the remaining US$3MM is expected to be released in the near term; the bank repayment schedule is being adjusted to match the timing of the guarantees release by the government authorities;
  • Paid down US$1.2MM against the Company's debt facility;
  • Collected US$.1.4MM in outstanding accounts receivable, with a receivables position under 3 months of production;
  • Relinquished the Company's interest in the Shukheir Marine concession effective January 31, 2015 due to high fixed costs in low oil price environment.

2015 Guidance and Outlook:

  • Participate in an infill drilling campaign in the second half of 2015 of 3 development wells (producers) to maintain plateau at North West Gemsa, for a net capex interest of US$1.7MM;
  • Continue to work with partners in South Disouq and South Ramadan to prepare for subsequent drilling and seismic campaigns as oil prices recover;
  • Continue to focus on costs and G&A reduction.

Commenting, Paul Welch, President and CEO of Sea Dragon, said:

"Sea Dragon delivered record production, positive cash flow, a solid payment record and collections from local authorities. We also focused on capital preservation by reducing discretionary spending and operating costs across the portfolio of assets. The Company will continue to benefit from stable production as it deals with lower oil prices and cash flow in 2015.  Adapting to the changing oil price environment has been and will continue to be challenging.  However, given Egypt's improved business climate, its low operating costs and its significant business upside, we believe it is one of the best places to be operating in this environment."




Three months ended December 31



Twelve months ended December 31

$000s except per unit amounts



2014

2013



2014

2013

FINANCIAL 









Gross Revenues



8,115

15,331



46,798

62,103

Royalties



(4,760)

(8,490)



(26,879)

(32,683)

Net Revenues



3,355

6,841



19,919

29,420

Operating costs



(1,972)

(2,342)



(7,991)

(8,562)

Netback (2)



1,383

4,499



11,928

20,858










Net Income/(Loss)



(6,471)

(1,071)



(8,960)

(7,708)


per share



(0.02)

(0.00)



(0.01)

(0.02)

Funds from operations



(1,261)

177



1,557

5,411


per share



(0.00)

0.00



0.00

0.01










Cash, end of period



2,966

4,287



2,966

4,287

Working capital



5,055

9,879



5,055

9,879

Capital expenditures



(1,204)

1,625



4,315

7,137

Total assets



40,283

39,529



40,283

39,529

Shareholders' equity



25,828

34,341



25,828

34,341

Common shares outstanding (000's)



376,459

376,459



376,459

376,459










OPERATIONAL









Oil sales (bbl/d)



1,239

1,570



1,346

1,627

Gas sales (mcf/d)



-

1,110



705

825

NGL sales (bbl/d)



-

24



16

18

Total boe/d



1,239

1,779



1,479

1,783










Brent oil price ($/bbl)



76.37

108.70



98.94

108.21










Net realized price ($/bbl)



71.18

93.65



86.70

95.42










Royalties ($/bbl)



41.75

51.86



49.79

50.23










Operating costs ($/bbl)



17.30

14.31



14.80

13.16










Netback ($/bbl)



12.13

27.49



22.11

32.04





































DRILLING









Gross wells (number of wells)



-

2



3

7

success rate (%)



-

100



100

86

Net wells (number of wells)



-

0.2



0.3

0.7

success rate (%)



-

100



100

86

 

COMPANY GROSS RESERVES (3)




As at December 31,
2014




As at December 31,
2013

Proved









Natural gas (mmcf)




1,520




2,450

Oil and liquids (mbbl)




1,604




2,548

Total oil equivalent (mboe) (4)




1,857




2,956










Proved plus probable









Natural gas (mmcf)




2,742




3,119

Oil and liquids (mbbl)




2,287




3,228

Total oil equivalent (mboe) (4)




2,743




3,748










Proved plus probable plus possible









Natural gas (mmcf)




2,925




3,153

Oil and liquids (mbbl)




2,481




3,268

Total oil equivalents (mboe) (4)




2,967




3,794

 




As at December 31




As at December 31

$000's except per unit amounts


2014




2013

Net present value of future cash flows after Egyptian tax ($000's) (4) 







Proved







5% discount rate


21,407




41,620

10% discount rate


18,759




35,574

15% discount rate


16,595




31,113








Proved plus probable







5% discount rate


30,689




50,452

10% discount rate


25,868




42,137

15% discount rate


22,209




36,189








Proved plus probable plus possible







5% discount rate


32,829




50,980

10% discount rate


27,410




42,526

15% discount rate


23,319




36,489








Reserve life index (years) (5)







Proved


4.6




4.7

Proved plus probable


6.8




5.9








(1) The technical review in relation to  the South Ramadan concession was undertaken by Gaffney, Cline & Associates.


(2) Netback is a non-GAAP measure that represents sales net of all operating expenses and government royalties. Management believes that netback is a useful supplemental measure to analyze operating performance and provide an indication of the results generated by the Company's principal business activities prior to the consideration of other income and expenses. Management considers netbacks an important measure as it demonstrates the Company's profitability relative to current commodity prices. Netback may not be comparable to similar measures used by other companies. 


(3) Company gross reserves are gross working interest reserves before the deduction of royalties as determined by the Company's independent reserves evaluators. 


(4) As determined by Ryder Scott, the Company's independent reserves evaluators. Estimated values of future net revenue disclosed do not represent fair market values. 


(5) Calculated by dividing the Company's gross reserves by the 2014 fourth quarter production rate 


(6) Disclosure provided herein in respect of BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf:1 Bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. 

CEO's Message:

It has been a year of consolidation for the Company and one in which we have continued to make progress in many areas of the business.  The business platform operated at a reduced cost base and continues to adapt rapidly to the oil price drop and volatility in the last quarter.

In our North West Gemsa (NWG) concession, we reached peak production in the 2nd quarter of 2014 at 13 MBopd and 12 MMscfd when the first phase of development was completed.  This allowed the partners to release both the drilling and work-over rigs and generate significant cash flow from the asset.  NWG has subsequently settled into a plateau rate of approximately 9,000 Bopd and 10 MMscfd, which is the average rate that should be maintained for 2015. This is due to a modest work program of 3 infill producers in the 2nd half of the year. These wells will target additional production potential in the central part of the field, located in bypassed fault blocks.

In our South Disouq concession, we successfully farmed out 45% of our equity in return for a well carry and a promote on the signature bonus.  We also tendered for a 3D seismic program, the results of which are currently being evaluated.  The work program in South Disouq is still being determined.  Our intent to acquire the 3D seismic in 2015 and drill an exploration well shortly thereafter remains under discussion with our partner and until we have agreement it will remain a contingent activity.

In our South Ramadan concession, we completed our farm-in activities. We also acquired and organized the remainder of our technical data set and identified a prospective area that was covered with several vintages of 3D seismic that needed to be reprocessed.  The work program for 2015 is to complete the seismic reprocessing, update the prospectivity of the area and then high grade the identified opportunities to drillable locations for a 2016 program.

In our Shukheir Marine concession, we completed our commercial evaluation and determined that in the current price environment it was no longer an attractive asset.  The Shukheir Marine concession required high levels of fixed expenditures to maintain its aging offshore platform and infrastructure. The remaining prospectivity, that had been identified, was not sufficiently attractive to warrant further investment.  As a result, the 10-year extension request was rescinded and the concession relinquished as at end January 2015.      

We anticipate that the year ahead will be challenging but given the work done to date on restructuring the platform we are in good a position to move the company forward.  However, our work is not done and we will continue to work on our cost structure and continue our focus on expense reduction throughout the year.  However, we also see opportunities within the sector and will look for ways to capitalize on these over the period. Egypt has improved a great deal recently and given the significant changes in the E&P sector over the last year we believe that it remains one of the best places to be operating in this environment.

Reserves:

The decrease in reserves year on year results primarily from the high levels of production and well results in NW Gemsa. The initial phase of development in NW Gemsa has been completed and commensurate with this the field produced at its highest rate (13.5 MMboed) and produced its largest volume per annum (4.43 MMBOE).  This production volume was not offset by development well results this year as in previous years.  Only 3 wells were drilled in NW Gemsa in 2014, 2 producers and 1 injector, and one of producers, AASE-19, encountered a thinner than anticipated Rahmi section which resulted in the reduction in the volume potential in this interval.

The waterflood response in both the Rahmi and Shagar horizons has been excellent and resulted in a positive revision to the anticipated recovery efficiency.  However this positive revision was not sufficient to offset the production levels and the volume reduction in the Rahmi resulting in the reserve decrease year on year.









Proved Plus

Company gross reserve reconciliation (mboe)




Proved




Probable

December 31, 2013 Reserves (mboe)




2,956




3,749

2014 Production (mboe)




(521)




(521)

Dispositions (mboe)




-




-

Net Technical and Commercial Revisions (mboe)




(579)




(485)

December 31, 2014 Reserves (mboe)




1,856




2,743

 

COMPANY GROSS RESERVES

Natural Gas


Liquids

Oil


Total

Reserves Category

(mmcf)


(mbbls)

(mbbls)


(mboe)

Proved:(1)








Proved Producing

1,059


36

1,069


1,281


Proved Non-Producing & Proved Undeveloped (2)

461


16

483


576

Total Proved

1,520


52

1,552


1,857

Probable (3)

1,222


42

641


886

Total Proved Plus Probable (3)

2,742


94

2,193


2,743

Possible (4)

182


6

188


224

Total Proved Plus Probable Plus Possible (4)

2,925


100

2,381


2,967















NET PRESENT VALUE AFTER EGYPTIAN INCOME TAX (000'S)




Discount Factor



Reserves Category

0%


5%

10%


15%

Proved:








Proved Producing

8,646


9,598

9,797


9,619


Proved Non-Producing & Proved Undeveloped (2)

16,016


11,809

8,962


6,976

Total Proved

24,662


21,407

18,759


16,595

Probable (3)

12,572


9,282

7,109


5,614

Total Proved Plus Probable (3)

37,234


30,689

25,868


22,209

Possible (4)

2,997


2,140

1,542


1,110

Total Proved Plus Probable Plus Possible (4)

40,231


32,829

27,410


23,319




























NET ASSET VALUE ($000's except where stated)




2014




2013

Net present value of oil and gas reserves after income tax, discounted at 10%




$25,868




$42,137

Working capital




$5,055




$9,931

Net asset value




$30,923




$52,067

Shares outstanding (000's)




376,459




376,459

Net asset value per share




$0.08




$0.14

Reserve Definitions:

(1) Proved reserves are those that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated Proved reserves.

(2) Proved Undeveloped reserves have been recognized in cases where plans are in place to bring the reserves on production within a short, well defined time frame. Proved Undeveloped reserves often involve infill drilling into existing pools.

(3) Probable reserves are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of estimated proved plus probable.

(4) Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. It is unlikely that the actual remaining quantities recovered will exceed the sum of the estimated proved plus probable plus possible reserves.

The disclosures required in accordance with National Instrument 51-101 of the Canadian Securities Administrators are available on the Company's Annual Information Form to be filed on the SEDAR website at www.sedar.com.

Reserve estimates have been calculated in compliance with the National Instrument 51-101 Standards of Disclosure ("NI 51-101"). Under NI 51-101, proved reserves are defined as reserves that can be estimated with a high degree of certainty to be recoverable with a target of a 90 percent probability that the actual reserves recovered over time will equal or exceed proved reserve estimates, while probable reserves are defined as having an equal (50%) probability that the actual reserves recovered will equal or exceed the proved and probable reserve estimates. In accordance with NI 51-101, proved undeveloped reserves have been recognized in cases where plans are in place to bring the reserves on production within a short, well defined time frame. Proved undeveloped reserves often involve infill drilling into existing pools. Of the net present value of the Company's reserves, 100 percent were evaluated by an independent third party engineer, Ryder Scott Company, Calgary, Alberta, Canada ("Ryder Scott") in their report dated February 19, 2015.

Certain statements contained in this press release constitute "forward-looking statements" as such term is used in applicable Canadian and US securities laws. These statements relate to analyses and other information that are based upon forecasts of future results, estimates of amounts not yet determinable and assumptions of management. In particular, statements concerning the 2015 drilling and capital expenditure programs of the NW Gemsa, South Ramadan and South Disouq Concessions and the results referenced or implied herein should be viewed as forward-looking statements.

Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or are not statements of historical fact and should be viewed as "forward-looking statements".  All reserves information contained herein as well as the net present value of such reserves should be considered as forward looking statements. Such forward looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  Such risks and other factors include, among others, costs and timing of exploration and production development, availability of capital to fund exploration and development and political, social and other risks inherent in carrying on business in Egypt.  There can be no assurance that such statements will prove to be accurate as actual results and future events could vary or differ materially from those anticipated in such statements.  Accordingly, readers should not place undue reliance on forward-looking statements contained in this news release.

Forward-looking statements are made based on management's beliefs, estimates and opinions on the date the statements are made and the Corporation undertakes no obligation to update forward-looking statements and if these beliefs, estimates and opinions or other circumstances should change, except as required by applicable law. Although Sea Dragon has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. Investors are cautioned that such forward-looking statements involve risks and uncertainties.  Actual results may differ materially from those currently anticipated.  See Sea Dragon's Annual Information Form for the year ended December 31, 2014 for a description of the risks and uncertainties associated with the Company's business, including its exploration activities. The forward-looking statements contained herein are expressly qualified by this cautionary statement.

NEITHER THE TSX VENTURE EXCHANGE NOR ITS REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED IN THE POLICIES OF THE TSX VENTURE EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THE RELEASE.

SOURCE Sea Dragon Energy Inc.

For further information: Said Arrata, Chairman, Tel: (403) 457-5035; Paul Welch, President, Chief Executive Officer, Tel: +44 203 219 5640; Olivier Serra, Chief Financial Officer and Director, Tel: +44 203 219 5640; Investor Relations, Bell Pottinger, Tel: +44 207 861 3232

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